EX1A-11 CONSENT 20 v460144_ex11-2.htm EXHIBIT 11.2

 

Exhibit 11.2

 

Medivie USA Inc

 

Company Valuation

 

Performed by Avner Gafni

 

Barzily Economic & Business Consulting (2008) Ltd.

 

June 2016

 

 

 

 

Barzily Economic & Business Consulting (2008) Ltd

 

Contents  
 
Executive Summary 3
Preface 4
Professional Background 4
The information used for the Valuation 6
Company overview 7
The Technology 7
Material Agreements 9
Valuation Methodology 9
Application of the FDCF Method 11
Market Analysis and Sales’ Forecast 12
P&L Forecast 14
Free Cash Flow 16
Forecast’s Period and Long Term Growth Rate 16
Discount Rate 17
FDCF Computation 18
PE Multiple Method 18

 

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Executive Summary

 

Medivie USA is Medivie’s group exclusive distributor in North America (USA and Canada). The group specializes in oral non-drug medical solutions, including operative interventions, pain-relief and more, based on its unique technology. Medivie’s first product, LaborAide, is already in the commercial phase, with an initial agreement reached with a major chain in the US.

 

Application of common valuation models, using parameters and assumptions detailed in the document, produces an estimated company value of $ 121.4 M.

 

/s/Avner Gafni       
   

Avner Gafni

 

Barzily Economic & Business Consulting (2008) Ltd.

 

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Preface

 

We, Barzily Economic and Business Consulting (2008) Ltd (“the consulting firm”), have been commissioned by Medivie USA Inc (“the company” or “Medivie USA”), a company incorporated under the laws of the State of Nevada, to perform a company valuation. The valuation is required for the company’s stock offering under regulations A+/D.

 

It should be noted that this paper provides an economic analysis based on available data and assumptions; it does not constitute a recommendation to purchase the offered stock, nor a basis for accounting treatment. Economic methodology is however based on common methodology and on generally accepted accounting procedures.

 

We were notified that the valuation may be presented to the authorities and to potential investors and we have given our consent for such a presentation.

 

We hereby declare that apart from being hired to perform this valuation and other valuations prepared for related parties in the past, the consulting firm is unrelated to the company and its shareholders, nor does it have any interest in their business and assets. Fees for this valuation are unrelated to the value reached and were paid in full prior to our signature.

 

Professional Background

 

Barzily Economic & Business Consulting (2008) Ltd. Is a consulting firm jointly owned by Barzily & Co. and by Avner Gafni, CEO. The firm has vast experience in the valuation field; valuations and financial analysis were conducted in many companies, ranging from start-ups to multinational corporations. The firm's projects' portfolio contains many dozens of valuations of technology and Biomed companies, including IP valuations performed for the Office of the Chief Scientist of Israel. The firm also performed numerous valuations and other economic projects for public companies traded in the Tel Aviv Stock Exchange.

 

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Avner Gafni, the undersigned who conducted the valuation, is an experienced economist who specializes in valuation and economic analysis, with top management background (including with public companies):

 

·Since 8/2015: Active chairman of KYT / Adi watches

 

·2009-2015 – chairman of the board, Avrot industries, an industrial public company

 

·2012-2014 – CEO of Kalia Biotech

 

·1998-2005 – CFO (part of the time also VP marketing) of Pazgas, Israel's leading gas company

 

·1992-1998 – VP of Telsys, a public electronic components supplier

 

·1988-1992 – CFO of Avrot industries

 

The economic analysis was conducted with the participation of Hadar Gafni, an experienced analyst currently attaining a Master of Economic Research from UAB in Barcelona, Spain.

 

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The information used for the Valuation

 

The valuation is based on our expertise, general knowledge and experience and on specific information, assumptions and forecasts supplied by the company. The findings of this valuation depend on the above information being complete and accurate; we have not tested this information for accuracy, and we assume no responsibility with respect to the accuracy of the information and forecasts provided by the company.

 

The information submitted includes:

 

·Company presentation for investors, dated Feb. 2016

 

·Business plan for the period 2016-2020

 

·A scientific study published in the Journal of Maternal-Fetal & Neonatal Medicine, 2015

 

·Licensing agreement with Medivie UK

 

·Investment agreement with Medivie UK

 

·Master purchase order agreement with Toys R Us / Babies R Us

 

·Articles of incorporation, Nevada, Feb. 2016

 

·Board resolutions concerning issuance and public offering of stock

 

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Company overview

 

Medivie USA was incorporated in Nevada, U.S., in February 2016. The company is a subsidiary of Medivie UK, owned by Medivie Ltd (“MDVI.TA”), a public company registered in Israel. MDVI.TA was incorporated in 2012 as a result of a collaboration between the OPRO Group, the world’s leading manufacturers of personally customized dental shields and Capital International Group, a leading Private Equity company (MDVI.TA, Medivie UK and the company are jointly referred to as “group”).

 

The group specializes in innovative oral device solutions for operative interventions, pain-relief and more. Since its inception, app. $ 5 M were invested in MDVI.TA and Medivie UK; these sums were used mainly for R&D activity, patents and trademarks’ registration, clinical studies and marketing.

 

Medivie USA was established to handle all of the group’s commercial activity in North America (US and Canada), including:

 

·Distribution

 

·Sales and marketing

 

·Customer & Inventory management

 

·National Shipping

 

The Technology

 

The group specializes in oral non-drug medical solutions, including operative interventions, pain-relief and more. The main applications for the technology are:

 

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·Birth - Currently in the marketing stage: LaborAide is an oral device in the form of a pleasant cushion, which is placed between the woman's lower and upper jaw during birth, allowing the relaxation of the jaw, neck and head muscles through the flow of oxygen to the muscles, decreasing the risk of urgent operative intervention and easing the pain.

 

·Breast Feeding _ Medivie is currently testing an application – FeedAide - which will help reduce feeding mothers' contraction pains.

 

·Migraines - Future development: Medivie is working on the development of a unique oral device – MigrainAide - based on the existing company’s IP which allows the relaxation of the head muscles prevents the contraction of jaw muscles and increases the flow of blood to the brain for preventing and easing migraines.

  

Clinical studies provide proof to the technology’s efficiency: In 2014, Belinson Hospital, one of Israel’s largest hospitals, conducted a clinical study, examining the impact of using LaborAide during the second stage of labor (known as the pushing stage). The maximal length of the second stage is 3 hours, after which the necessity of obstetrical intervention arises. The study demonstrated a major decrease in the need for obstetrical intervention in the second stage of labor:

 

·Reduction in the surpassing of the maximal 3 hours’ limit: reduction in the rate of women surpassing the limit of 3 hours pushing stage from 24.5% to 8.6%, which leads to less likelihood to maternal and neonatal morbidities.

 

·Reduction of Cesarean Section: reduction in the rate of emergency cesarean sections from 6.4% to 1.2% as a result of the baby getting stuck in the birth canal.

 

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·Reduction of Vacuum Deliveries: reduction in the rate of operative vaginal delivery (Vacuum) from 28.2% to 12.3%

 

LaborAide has been registered as a medical device with the health authorities in Israel, the EU, the US (FDA Class 1) and Canada.

 

Material Agreements

 

The company presented us with three material agreements:

 

·License agreement (unsigned draft) – The company has been granted an exclusive licence to sell the group’s products in the US, in exchange to royalties of 2% of the company’s net sales.

 

·Investment agreement (unsigned draft)– obligation of Medivie UK to purchase the company’s shares (sums and quantities are yet to be specified).

 

·Master purchase order agreement (signed by MDVI.TA) – establishing buyer-seller relationship between the parties.

 

Valuation Methodology

 

The methodology used for valuations is determined by several factors:

 

·The entity evaluated – company, business unit, asset etc.

 

·The purpose of the valuation – investment, buyout, accounting requirements etc.

 

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·Specific attributes of the entity – asset-based, operations-based, R&D-based etc.
   
·The entity’s position in its life-cycle – a start-up, initial sales, fully active, a going concern, pre-liquidation etc.

 

The common methods for company valuation are as follows:

 

1.Liquidation price - using existing shareholders adjusted equity.

 

2.Market price - using price set in recent transactions.

 

3.Comparable market value - using the adjusted market value of similar companies (usually using revenues, EBITDA or net profit multiplier).

 

4.Asset value – summing up net fair value of assets and obligations.

 

5.Activity value - estimating the company’s economic value, using traditional economic methods, such as FDCF.

 

6.Unit based value – applying common unit value to a known quantity, such as number of subscribers, yearly quantity of material sold etc.

 

The company was established only recently and it has no material assets. Furthermore, intangible assets such as IP belong to other members of the group. Therefore, methods 1, 2 and 4 are of no relevance; method 6 is not used in medical devices’ companies.

 

The company’s value is derived from the results of its commercial activity – meaning company value equals enterprise (activity) value. The common method for measuring the fair value of an activity is FDCF – estimation of the discounted net cash flow the activities are expected to generate. Therefore, FDCF was selected as the method of choice, with net profit multiplier serving as a comparative indication.

 

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Application of the FDCF Method

 

FDCF (Free Discounted Cash Flow) is a method summing up future cash flow, discounted to represent present value:

 

 

 

DCF requires computing or assuming the following parameters:

 

·Forecasted cash flow – based on the following parameters:

 

oCash flow from operations

 

oCapital expenditure

 

oWorking capital requirements

 

oTax

 

·Period (specific number of years or infinite period)
   
·Discount rate
   
·Long-term growth rate

 

Hereinafter is a detailed analysis of all required parameters:

 

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Market Analysis and Sales’ Forecast

 

According to the licence agreement, the company can sell the products only in the US and Canada. TAM (total available market) for LaborAide is therefore the number of yearly births in the US and Canada – app. 4.3 million. This is also the TAM for FeedAide.

 

TAM for the group’s future product for migraine (“MigrainAide”) is even bigger – studies estimate the number of patients at 12% of the entire adult population.

 

The following table summarizes the US TAM:

 

Units     2016   2017   2018   2019   2020 
                        
Laiboraide & FeedAide Market Size  USA Birth Market Size   1,989,778    3,995,474    4,011,456    4,027,502    4,043,612 
   Growth Rate   0.40%   0.40%   0.40%   0.40%   0.40%
                             
MigrainAide Market Size  USA Pupulation   322,762,018    325,247,286    327,751,690    330,275,378    332,818,498 
   Growth Rate   0.77%   0.77%   0.77%   0.77%   0.77%
   Migraine market (12% of Americans)   38,731,442    39,029,674    39,330,203    39,633,045    39,938,220 

 

The basic assumptions used by the company to forecast sales are as follows:

 

·Start of sales:

 

oLaborAide – Q3 2016

 

oFeedAide – Q3 2017

 

oMigrainAide – Q3 2018

 

·Penetration rate, to be achieved gradually until 2020:

 

oLaborAide & FeedAide – 7.2%

 

oMigrainAide – 3.6%

 

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·Canadian market:

  

oTotal population: 36.3 milion

 

oStart of sales: Q1 2018

 

oSales expected to be proportionate to US sales

 

Accordingly, sales’ forecast in units is as follows:

 

Units sold     2016   2017   2018   2019   2020 
                        
Penetration Rate  Overall   0.5%   1.8%   3.6%   5.4%   7.2%
                             
   Total Laiboraide units sold   9,949    71,919    144,412    217,485    291,140 
   Total Feedaide units sold        25,171    108,309    217,485    291,140 
   Total MigraineAide units sold             196,651    713,395    1,437,776 
   Canadian market             50,749    129,985    229,175 
   Combined units sold   9,949    97,090    500,122    1,278,350    2,249,231 

 

·Marketing channels – the initial focus is on sales through pharmacy and maternity chain stores (as mentioned above, an agreement has already been signed with BabiesRUs). Gradually the portion of direct sales (online, hospitals etc.) is expected to grow, as shown in the following table:

 

Units     2016   2017   2018   2019   2020 
                        
Customer split  Online & Hospitals   15.0%   20.0%   30.0%   35.0%   40.0%
   Pharma chains and others   85.0%   80.0%   70.0%   65.0%   60.0%

 

·Pricing – the average selling price differs according to the marketing channel:

 

oChain stores - $ 20 per unit

 

oDirect - $ 55 per unit

  

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Based on these assumptions, the company’s sales forecast is as follows:

 

   2016   2017   2018   2019   2020 
                     
Online & Hospitals - rev   82,078    1,067,990    8,252,015    24,608,242    49,483,086 
Pharma chains and others - rev   169,131    1,553,440    7,001,710    16,618,553    26,990,774 
                          
Total revenues   251,209    2,621,431    15,253,724    41,226,795    76,473,860 

 

P&L Forecast

 

P&L forecast were prepared, using the following data and assumptions:

 

·Revenues – according to the sales’ forecast, as detailed above.

 

·Costs – computed according to the following assumptions:

 

oCOGS – as the company is merely a distributor/wholesaler, the actual direct cost of each unit is the CIF price paid to Medivie UK - $ 5.5, going down to $ 3 in 2020.

 

oOther direct costs – 20% commission for direct sales + 1% misc. costs on all sales + purchase of reserve stock to the amount of 0.5% of market size.

 

oSales & marketing – according to management’s assumptions, costs will go up from $ 700 K in 2016 (half year) to $ 6.3 M in 2020

 

oOperational and G & A costs – according to a detailed estimate supplied by the company:

 

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Operating and G&A expenses  2016   2017   2018   2019   2020 
Legal   60,000    60,000    60,000    60,000    60,000 
Accounting   60,000    60,000    60,000    60,000    60,000 
President   250,000    250,000    250,000    250,000    250,000 
Offices   120,000    120,000    120,000    120,000    120,000 
Warehousing   12,000    12,000    24,000    36,000    36,000 
Insurance   30,000    40,000    50,000    60,000    70,000 
CSO   27,000    27,000    27,000    27,000    27,000 
Head of Sales   150,000    150,000    150,000    150,000    150,000 
Sales Dep employees   150,000    300,000    900,000    1,800,000    2,250,000 
CMO   150,000    150,000    150,000    150,000    150,000 
Marketing Dep employees   150,000    300,000    900,000    1,800,000    2,250,000 
COO   100,000    100,000    100,000    100,000    100,000 
CFO   150,000    150,000    150,000    150,000    150,000 
CEO   18,000    18,000    18,000    18,000    18,000 
                          
Total   1,427,000    1,737,000    2,959,000    4,781,000    5,691,000 

 

oMisc. overhead cost - 7.5% of turnover.

 

·Tax – as Nevada has no corporate tax, tax rate is the federal corporate tax rate – 34%.

 

Based on these assumptions, hereinafter is P&L forecast for the period 2016-2020:

 

   2016   2017   2018   2019   2020 
Revenue   251,209    2,621,431    15,253,724    41,226,795    76,473,860 
Manufacturing   128,366    766,616    3,815,932    10,038,245    18,421,203 
G & A   447,500    1,195,000    2,395,000    4,195,000    5,095,000 
Operating expenses   266,000    542,000    564,000    586,000    596,000 
Marketing & Sales   700,000    1,500,000    4,000,000    9,000,000    9,000,000 
misc 7.5%   115,640    300,271    808,120    1,786,443    2,483,415 
Net Before Tax   (1,406,296)   (1,682,456)   3,670,673    15,621,107    40,878,241 
Tax   0    0    197,853    5,311,176    13,898,602 
Profit after tax   (1,406,296)   (1,682,456)   3,472,820    10,309,930    26,979,639 

 

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Free Cash Flow

 

Cash flow for each year is computed from the following elements:

 

·Net profit – as computed above.

 

·CAPEX – as Medivie USA is a marketing company, it requires little to none capital expenditures.

 

·Working capital – in view of market payment terms and of the company’s main supplier being a related party, no working capital requirements were assumed.

 

According to this analysis, free cash flow equals yearly profit after tax.

 

Forecast’s Period and Long Term Growth Rate

 

The analysis utilizes the “Going Concern” approach, meaning that the company is expected to continue generating cash flow indefinitely, beyond the specific forecast’s period. For that purpose, the last year of the forecast (2020) is representing a typical year in the long term.

 

Long term DCF (in addition to the forecast’s DCF), also called “Terminal Value”, is computing by dividing a typical year’s cash flow by the discount rate (see ahead), with the long-term growth rate deducted from the discount rate:

 

T0 = FCFN+1/(k – g)

 

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In recent years, the number of births in the US has been quite stable, suggesting minimal growth. However, as population growth is positive and as the forecast does not address future products, we assumed long-term growth rate to be 1%.

 

Discount Rate

 

Discount rate is normally computed according to the WACC model, which computes a weighted average of the cost of debt and the cost of equity, taking into account industry and company special characteristics:

 

 

 

As Medivie US is a new company with no debt, the WACC was not specifically computed, but derived from Damodaran (NYU) database healthcare products’ companies, with a company-specific risk factor added:

 

·Industry WACC – 8.47%

 

·Risk premium, given the initial stage of the activity and adjustment to size – 6%

 

·Discount rate (rounded) – 14.47%

 

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FDCF Computation

 

According to the above parameters and computations, FDCF for Medivie US is as follows:

 

   2016   2017   2018   2019   2020 
Free Cash Flow   -1,406,296    -1,682,456    3,472,820    10,309,930    26,979,639 
WACC   14.47%   14.47%   14.47%   14.47%   14.47%
Discounted Cash Flow   -1,228,489    -1,283,904    2,315,077    6,003,898    13,724,865 
Until 2021                       19,531,448 
Permanent Value                       101,864,338 
Total FDCF                       121,395,785 

 

According to this computation, company value is app. $ 121.4 M.

 

PE Multiple Method

 

As mentioned above, the multiple method may give additional comparative indication for value. The ratio chosen was P/E (market value divided by net earnings).

 

To compute the multiple, we analysed a sample of 25 traded US companies from the medical devices sector. The results are as follows:

 

·Minimum – 21.43
   
·Maximum – 37.25
   
·Average – 28.88

 

The DCF value computed above represents a multiple of 35 on 2018 (first year with all products sold) net earnings and a multiple of 4.5 on the representing year’s net earnings. These results provide further proof to the validity of the DCF valuation.

 

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