$50K to $250K: Apply Now

Biotech’s Future

Advanced Engineering

Handheld Windows?

Sales and Use Tax

Corrections or additions?

Valuing Technology Firms:

Steady Growth Counts

These articles were published in U.S. 1 Newspaper on November 18,

1998. All rights reserved.

Gillespie’s employees walked away with a pretty penny

from the sale of their firm to an $11 billion holding company (U.S.

1, November 11). The employees of the advertising agency hold


of the stock, so they could have received as much as $7 million in

a combination of cash and publicly traded stock. Surely that started

other entrepreneurs and employee-owned firms thinking about whether

they could (or would) profit from also selling out. Two meetings in

the next month will address that question.

"The positioning issue is really interesting," says Patrick

Gaughan of Economatrix Research Associates. "What if you are

not selling your company now," says Gaughan, "but would like

to get your money out in five years, how can you run your company

differently over the next five years to get the most value?" He

will discuss "Measuring and Managing Company Value," on


November 19, at 2 p.m. at the Fairleigh Dickinson University’s Rothman

Institute of Entrepreneurial Studies, 285 Madison Avenue, in Madison.

Cost: $65. Call 973-443-8842.

Because technology businesses have little or no revenue, and because

their chief assets are technology-based, they are particularly


to value. "Determining the Value of Small, Technology-Based


is the topic for Howard A. Scribner and Geoffrey D. Dennis

of the valuation services practice of Arthur Andersen LLP on Thursday,

December 10, at 8:30 a.m. at the Rutgers Biotech Center on Cook


The forum is sponsored by the Technology Help Desk & Incubator. Cost:

$30. Call 732-545-3221.

Fairleigh Dickinson’s session is for business owners who might want

to sell a business or buy another business. How should they position

themselves over the next five years to buy or be bought? Gaughan will

be joined at the seminar by Henry L. Fuentes of the Silberman

College of Business, who will talk about how accountants do due


Robert E. Massengill of Menke & Associates, who will discuss

sales of employee-owned firms. Richard M. Slotkin of Hannoch

Weisman will talk about the legal due diligence process, and Daniel

R. Stella of Summit Commercial will give case studies showing what

financing issues banks consider when loaning money for a purchase.

When it comes to selling a business, the same business can have


different values, depending on the circumstances, says Gaughan.


I run the business and take money out of it, the business has one

value," Gaughan says, "but if I sell it to someone else, the

company can buy me and get my revenues, but not necessarily assume

all my costs." The buyer might be able to eliminate some


perhaps in payroll or inventory systems. "Then my revenues would

be more profitable to the buyer than they are to me."

A business can be valued, he says, by choosing one of three kinds

of numbers:

Discounted cash flows. Project the cash flows into the

future, then bring them back to the present value by using a



Comparable multiples. "Each industry has its own


multiples applicable to that industry," says Gaughan. One industry

might use 14 times earnings. Another could use six times earnings

before interest and depreciation. "A multiple is the number of

times a financial measure that a business sells for. All are unique

and different but they are standards, available in databases."

Asset oriented methods for such asset-oriented businesses

as real estate or banking. When a business is not earnings oriented,

the net asset value represents assets minus liabilities.

Businesses usually sell for more when:

They grow quickly. In general, Gaughan says, he values

businesses more highly if they grow more rapidly.

They grow steadily. "If the growth is volatile, we

project a higher discount rate. Jumping up and down is risky for


They have little debt. "With high debt we would apply

a lower multiple or a higher discount rate," says Gaughan.


higher the debt service, the more risky the proposition is."

— Barbara Fox

Top Of Page
$50K to $250K: Apply Now

Technology companies can apply for a total of $2.3


in technology transfer funds to be distributed by the New Jersey


on Science and Technology, says David Eater, acting director

now that former executive director J. J. Brandinger has retired.

As repayment, the recipients are expected to pay royalties on



"A major advantage to the Technology Transfer Program


says Eater, "is that the investment is neither debt nor equity.

Debt must often be repaid independent of the company success. An


investment gives the investor certain ownership and management


Most awards will be from $50,000 to $250,000 for projects that will

be finished in 12 months or less. To encourage entrepreneurs to seek

collaborators, preference is given to projects that have third-party

investors or collaborators. Whether they have third-party investors

or not, entrepreneurs must match state dollars on at least a 1:1


Eligible companies will have fewer than 500 employees and be located

in New Jersey or be willing to move to New Jersey. They are supposed

to stay in New Jersey for at least five years after the funding ends.

They should be conducting product or process development in a market

area that is likely to succeed by stimulating economic growth and

creating jobs.

The scientific/technical part of the proposal must tell

What the product does.

How it operates.

What key technical decisions were made.

What unique feature of characteristics differentiate it from


What specific technical tasks will be performed together

with the schedule for their completion.

Where they will be performed.

The commercialization discussion is even more detailed. Call

for a "request for proposal" (RFP) at 609-987-1671 or fax

609-292-5920, or E-mail njcst@scitech.state.nj.us.

Proposals are due on Monday, January 25, and after peer evaluation

the awards will be announced on April 27.

Top Of Page
Biotech’s Future

Each year Robert S. Esposito and Gordon V.

Ramseier, a dynamic duo on New Jersey’s biotechnology landscape,

psych out what is really happening with biotech in the state. This

year’s "State of New Jersey Biotechnology Industry Report"

will be presented at the annual meeting of the Biotechnology Council

of New Jersey on Thursday, December 3, at 5:15 p.m. at the Nassau


Esposito is national director of biotechnology and life sciences with

KPMG Peat Marwick LLP at 989 Lenox Drive. Ramseier is executive


of the Bridgewater-based Sage Group and former CEO of


now Biomira U.S.A., at 1002 Eastpark Boulevard in Cranbury. Cost:

$75 ($85 for walk-ins). Call 609-890-3185.

Top Of Page
Advanced Engineering

Future biomedical engineers can get started as early

as their high school years, with a program started by the New Jersey

Institute of Technology (NJIT). NJIT received a five-year, $2 million

grant from the New Jersey Department of Education to develop an


curriculum in pre-engineering and engineering.

Engineering life sciences, which includes biomedical and biotechnical

engineering, is one of the five curriculum areas. The others are


engineering and technology, chemical engineering and environmental

science, electrical and computer science and technology, and civil

engineering and technology.

When complete, this program will allow high school students who seek

careers in any of the engineering professions to move smoothly through

a streamlined curriculum of courses that will be taken in high school,

community colleges, or at a four-year college or university. Students

will be better prepared for employment in New Jersey’s competitive

and technology-based economy.

The program will be phased in over five years, with the first area

of study, mechanical engineering and technology, ready for students

to use next fall.

NJIT is a public research university enrolling nearly 8,200 bachelors,

masters, and doctoral students in 76 degree programs through its five


Top Of Page
Handheld Windows?

If the "demo demon" does not appear, Mike

Rauch will showcase Microsoft’s newest operating system, Windows

CE, at a Princeton ACM/IEEE Computer Society meeting on Thursday,

November 19, at 8 p.m. at the Sarnoff auditorium on Fisher Place.

For information, call 609-924-8704. There is no charge, students with

parents are welcome, and refreshments will be served. A pre-meeting

dinner with the speaker is at the Rusty Scupper at 6 p.m., but


are needed for this.

The "demo demons," of course, are those gremlins that seem

to surface at most cutting edge computer demonstrations. Rauch, one

guesses, has seen his share of them. He bills himself as a


development ronin" and "vice president of pointers and


at the Cranbury Software Development Center Inc. He is developing

high performance communications servers under Windows NT and Visual

C++. Currently he is involved with network management systems for

fiber optic networks. In another area he develops games — three

casino games for Windows CE hand held computers. These Phillips


computers are being distributed by MobileSoft.

Rauch will talk about Windows CE applications and platforms. If that

proverbial demo demon is not present, he will develop a sample


and load it to a hand held PC. Next month’s IEEE meeting, on December

17, will feature Mike Keith discussing "Algorithms,


and the Art of Constrained Poetry and Prose."

Top Of Page
Sales and Use Tax

Sales tax, as complicated as it was, is even more so

now that transactions are being made on the Internet. In general,

only the state in which a sale occurs is entitled to tax a sale, and

out-of-state sales are exempt from tax, says Susan A. Feeney,

an attorney with McCarter & English. She will discuss "Current

Issues in New Jersey Sales and Use Tax" at the seminar organized

by the New Jersey Society of CPAs on Tuesday, November 24, at 5:30

p.m. at the Forrestal. Cost: $40. Call Henry Murphy at 609-258-1550.

Feeney will discuss interstate sales, Internet sales, and recent


and taxpayer concerns in these areas. A graduate of Seton Hall


and Fordham Law School, she completed a clerkship in the New Jersey

Tax Court before joining McCarter & English in Newark.

A vendor may not be required to collect a sales or use tax unless

it has a "nexus" or connection with New Jersey, says Feeney.

"A vendor needs sufficient connection with the state in order

for the state to assert its jurisdiction."

However, Feeney warns, businesses should not lure customers by


that transactions are tax exempt. "A vendor may not advertise

or hold out to the public in any manner that the tax is not an element

of the sales price, amusement charge, or rent," she says. "Vendors

may not indicate that they will pay the tax, that the tax will not

be separately charged, or that the tax will be refunded to the


With regard to mail order sales, the U.S. Supreme Court, in the 1967

National Bellas Hess v. Department of Revenue ruling, held that in

the absence of any retail outlets, solicitors, or property of the

state, a foreign mail order company could not be required to collect

and remit use tax on sales made to residents of that state. This is

still the law today, says Feeney.

Are Internet sales regarded in the same manner? Feeney points out

some state and local tax concerns:

Multiple taxation: Who has the jurisdiction to tax, the

selling state or the delivery state? Where is the product consumed?

Physical presence: Do the out-of-state electronic


have a physical presence in the state of the buyer?

Property or service: Is the sale of a digitized product

a sale of tangible property or a service subject to tax? Possible

services are Internet access services, consulting services using video

conferencing, on-line information databases, stock trading, banking,

and gambling opportunities.

Feeney also explains the New Jersey position regarding various

types of Internet sales:

Nontaxable: Charges for Internet access billed either

on an hourly or lump sum monthly basis are treated as nontaxable


for sale or use of information.

Nontaxable: Website storage charges are not taxable since

they are a charge for advertising space which is not an enumerated

taxable service.

Nontaxable: Consulting services charges are generally

exempt as professional services.

Nontaxable: Domain name registration charges are not



Taxable: If the Internet Service Provider (ISP) is


for transmission-related services, like dedicated phone numbers and

telephone connect time, such charges are taxable telecommunication

services for New Jersey service addresses.

Taxable: Website design advertising services are taxable

advertising services.

Feeney also offers some suggestions for entrepreneurs and


managers on how to plan for or deal with a sales and use tax audit.

For instance, expect to keep your records for at least four years.

Conduct periodic self audits to ensure that sales tax compliance


are in place.

"Many businesses, particularly those with multi-state locations

or those which have grown substantially over the years, may find that

no internal programs are in place for accurate sales compliance,"

says Feeney. "Those business could benefit by having a sales and

use tax manual prepared detailing the taxation of particular purchases

and sales made by the business."

While dealing with the auditor, Feeney says, use the


soft-on-people approach. Be cordial, cooperative and firm." Agree

on procedures, required documentation, audit location, and any special

needs up front. Designate a specific work area for the auditor.


access to corporate facilities and personnel.

Feeney offers some tips for entrepreneurs to protect themselves:

Company phone list: Do not make it available to auditor.

Workers: Do not allow anyone other than designated


to directly answer auditor’s questions.

Control of data: Carefully control access to all your

data. Allow only one auditor to visit your workplace at a time.

Answering questions: Channel all information requests

through the individual designated as auditor coordinator. Do not


"any" information not specifically requested by the auditor.

Do not volunteer information regarding any corporation in the group

other than those under audit.

Preparation: Do your homework — be aware of issues,

"skeletons," and audit "hot spots" for the particular

state, and estimate your company’s potential exposure before the audit

process begins. Be sure filing positions are well documented.

Don’t be afraid to negotiate with the auditor. "Reasonable

answers and logical approaches to getting the job done will often

be accepted," says Feeney. "For this reason, anticipating

potential issues before the auditor encounters them, and formulating

reasonable solutions or compromises for presentation to the auditor

may result in significant tax savings."

And stalling tactics sometimes can work. As Feeney points out:


the auditor has time constraints."

— Teena Chandy

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