M&A Due Diligence List Pharma Biotech December 2022.pptx

D U E D I L I G E N C E -
M & A

COPYRIGHT © 2021 CARDIFF ADVISORY HEALTHCARE & LIFE SCIENCES
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1. TARGET COMPANY / CORPORATE MATTERS
1.1 GENERAL
1 Organizational chart and management structure
2 Charter documents, operating agreements, by-laws, business licenses, certificates of authority and stock certificates
3 Board actions and minutes
4 Information and documentation on joint ventures, acquisition and/or disposals of subsidiaries, affiliates or major assets of the company. (last five years)
5 Key contacts by function
6 Management biographies
7 The Articles of Incorporation and any amendments
8 List of company bylaws and amendments
9 List of company assumed names
10 List of all states or countries where the company does business, has employees or owns/leases an asset
11 Annual reports for the last three years
12 Copy of the company's minutes/minute book
13 List of all shareholders and percentages owned
14 A Certificate of Good Standing from each Secretary of State where the company does business
15 Active status reports in the state of incorporation over the past three years
16 Agreements on voting trusts, subscriptions, puts, calls, options and convertible securities

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1. CORPORATE MATTERS (CON’T)
1.2 FACILITIES
1 Details on any facility openings or closings (last five years)
2 List of products and services in development
3 Correspondence and documents related to the regulatory approval of product lines
4 Tests, evaluations, studies and surveys about products or services under development
5 A list of major customers and product applications
1.3 PRODUCTS AND SERVICES
1 List of products and services offered
2 Listings of all owned and/or leased property and locations
3 Copies of deeds, mortgages, real estate leases, title policies and zoning approvals
4 Details on any facility turnarounds (last five years)

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2. FINANCE
2.1 GENERAL
1 Internal and external audits and work papers (last five years and YTD)
2 Audit inquiry responses and opinion letters from legal counsel for the past three years
3 Consolidated financials (last five years and YTD)
4 Consolidated quarterly financials (last five years and YTD)
5 Accounting reconciliation of all accounts for the most recent balance sheet available
6 Trial balances (last five years and YTD)
7 Description of any off-balance sheet commitments
8 Description of any contingent liabilities
9 Price and volume data by division and product annually
10 Annual P&L by location (last five years and YTD)
11 Locations of accounting records and personnel
12 Accounting policies and procedures
13 Details on raw materials and currency risk management (e.g., hedging)
14 Historical and projected cost and volume of key material inputs
15 Details on cash balances including cash in different jurisdictions and accounts
16 FX details (sales and costs by currency)
17 List of Transformation Plan initiatives and savings completed and remaining
18 Details on any restructuring efforts including costs, timing, rationale and P&L impact (historical and projected)
19 5-year projection model including assumptions and granular backup
20 Acquisition pipeline for the company including strategic rationale, expected purchase price, anticipated P&L, synergies, status, timing
21 Details on new product initiatives strategy, cost and P&L impact (historical and projected)
22 Detailed CapEx schedule including breakout between maintenance, growth, and new products and acquisitions (five years historical and projected)
23 Annual profitability by customer (last five years and YTD)
24 Annual breakdown of sales, volume and gross margin by product, by region and by customer
25 Details on end-market exposure (historical and projected)
26 Adjusted EBITDA and sales bridges (last three years)
27 Detailed working capital schedule
28 Product returns, charge-backs, discounts
29 Breakdown of cost of goods sold

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2. FINANCE (CON’T)
2.1 GENERAL
30 SG&A details
31 Business plan or most recent forecast, including projections for five years
32 Revenue and gross margins by product for past three years
33 Breakdown of operating expenses for past three years
34 Options and stock purchase agreements affecting company operations
35 Off-balance sheet liabilities
36 Explanation of supply chain and supply restrictions
37 Transportation costs
38 List of inventory systems to track incoming and outgoing goods and find obsolete goods
39 Profitability and cost structure documentation, including:
39a Expense trends over the past five years
39b Questionable expenses that can/may be cut
39c Employee loans, including pay advances or long-term loans
40 Auditor's correspondence for the past five years (these are letters sent to management that outline areas to improve profits and efficiency)
41 Company credit report
42 List of outstanding debt
42a Search for any clauses that increase debt if a company is sold
42b Scan for any related parties that have loaned money to the company (this includes management, investors and shareholders)
43 List of unrecorded liabilities, which you usually find when interviewing the seller or employees
44 Projections, capital budgets and strategic plans
44a Projections should include revenue by product type, customer and channel
44b Projections should also include all financial statements such as a balance sheet, cash flow statement and cash-on-hand
44c A list of growth drivers and possible clients and customers
44d Industry and company pricing plans
44e Analysis of projected expenditures and depreciation
44f Any perceived risk in foreign markets such as inflation, political strife and exchange rates
45 Capital structure
45a Current shares outstanding
45b A list of all stockholders with options, warrants and notes
46 A list of non-operational expenses (any companies put operating expenses in this category to pad their earnings)
47 Public filings (if the company is publicly traded, it must file a Form 10-K annual report, Form 10-Q quarterly report and other issues on the Form 8-K)

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2.2 ACCOUNTS RECEIVABLE
1 Historical accounts receivable schedule
2 Top 20 past-dues
3 Details on any recognized bad debt expense, write offs and recoveries
4 A description of the company's credit policies
5 Most up-to-date A/R aging
2.3 INVENTORIES
1 Summary of the composition of inventory for last five years
2 List of products as at the most recent balance sheet date
3 Detailed inventory valuation report
4 List of inventory including the result of the last stock physical count, reconciled with the accounting balance at the date of physical count
5 Details of any inventories maintained offsite
6 Breakdown of inventory by classification (finished goods, WIP, raw materials)
7 Inventory aging

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2.4 BANKS AND FINANCING
1 List of all banks with which the company maintains financial and commercial relations
2 Detailed debt schedule
3 Promissory notes
4 Loan agreements
5 Equipment/other lease agreements
6 Bank reconciliations (past three years)
2.5 FIXED ASSETS
1 Summary schedule showing the composition of the company's fixed assets (most recent data)
2 Schedule showing owned and leased assets
3 Detailed fixed asset and depreciation schedule with locations
4 List of Uniform Commercial Code (UCC) filings
5 List of leased equipment
6 List of major equipment sales and purchases over the past three years
7 Summary of depreciation policies and the economic useful lives of fixed assets, by category
8 Valuation, inspection, maintenance, utilization and replacement rate
2.6 CUSTOMERS
1 List of top 25 customers for the past two years in total, by region and by end product to the extent available
2 List of sales from top 25 customers over the past two years
3 Top 25 customer sales (last five years), with gross profit and contribution margin
4 Details on customers including number, length of relationships, concentrations
5 Customer terms and credit limits
6 Customer losses for last five years, including major customers and reasoning
7 Average customer purchase amounts

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2.7 SUPPLIERS
1 Details on raw materials sourcing
2 List of suppliers with open balances at the most recent balance sheet date
3 List of overdue payable amounts as at the most recent balance sheet date
4 List of top suppliers in total, by region and by end-product to the extent available
5 List of top suppliers' terms
6 List of the company's purchasing policies
7 All current supplier and service agreements
8 Most up-to-date A/P aging
2.8 MANAGEMENT REPORTS
1 For the last five years, year-to-date management reports comparing the company's actual result (in accordance with the management books) with the year's budgeted result
2 Budgets and operating plans for future periods (particularly detailed plans)
2.9 POLICIES AND INTERNAL CONTROLS MATTERS
1 Summary of cash management policy, procedures, systems and controls
2 Details on revenue recognition policies, rebate and sales allowance policies and granting procedures
3 Details of credit granting, billing, and collection policies and procedures
4 Description of information systems
5 Hardware and software by location
6 Key reports provided to management
7 Systems interface flowchart
8 Evaluations of existing system in terms of future needs, enhancements and problem areas

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2.10 RELATED PARTY TRANSACTIONS
1 Identify and provide details of all related party balances and repayment terms
2 Details of inter-company transfer pricing policy
2.11 COMPETITORS
1 List of significant competitors by end-market and region
2 Pricing trends/behavior by key competitors
3 Current market share information by competitor
4 Description of competitors including strengths, weaknesses, market position and basis of competition
5 Tracking of new business opportunities
2.12 SALES AND MARKETING
1 Information on the company's sales strategy and compensation structure associated with each channel
2 Information on the business development process (i.e., how opportunities are identified, how are bids determined, etc.)
3 List of major wins and losses over the past 12 months
4 List of articles and press releases/PR about the company within the last three years
5 Description of major marketing channels and expenditures
6 Current ad programs, marketing budgets and printed/pdf marketing materials
7 A comparative analysis that shows:
7a How the company's marketing efforts stack up against the competition
7b The company's dedication to creating/preserving a brand
8 A list of coordination protocols between the sales and marketing departments
9 List of customer complaints and resolutions
10 Incentive compensation plan(s) for sales team
11 Research on methods/plans to obtain new business
12 Surveys and research on company products
13 Lead sourcing and customer management processes

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2.13 SALES STRATEGY
1 Description of global distribution channels
2 Marketing opportunities/risks
2.14 MAJOR CUSTOMERS
1 Status and relationships
2 Revenue breakdown – five-year historicals
3 Pipeline analysis
4 Quality and stability of relationships
2.15 SALES FORCE OVERVIEW
1 Compensation – five-year historical
2 Sales force productivity model that outlines:
2a Plans for new hires
2b Compensation and commission
2c Organization
2d Productivity
2e Skills match
3 Quota average
4 Sales cycle
5 Hiring schedule
6 Sales backlog by product

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3. OPERATIONS
3 OPERATIONS
1 Key quality measures tracked for the past three years
2 Key productivity measures tracked for the last three years (i.e., revenue and output per employee, manufacturing utilization, etc.)
3 Workflow of operations
4 Order process flow (how orders are received, what details are included, how orders are shipped)
5 Monthly manufacturing yields
6 Schedule of unfilled orders
7 Product returns by customer for the past five years

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4. CONTRACTS / LEGAL
4 CONTRACTS / LEGAL
1 Material supply and sourcing contracts
2 Material customer contracts
3 List of any guarantees, indemnifications or similar agreements
4 Any other material contracts
5 Copies of contracts between the company and directors, officers, affiliates and minimum five percent (5%) shareholders
6 Agreements and relationships with any subsidiaries, partnerships or joint ventures
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Loan agreements, credit lines, IRBs, derivatives, letters of credit, promissory notes, security agreements, financing details, guarantees, equipment leases
and other financing documents
8 All nondisclosure (NDA) and noncompete agreements
9 List of mortgages, collateral pledges, indentures and security agreements
10 Installment sales agreements
11 Guarantees involving the company at any level
12 Copies of quote, invoice, proposal, purchase and warranty documents
13 Contracts, transcripts or letters of divestitures from any merger or acquisition within the past five years
14 Power of attorney agreements
15 Exclusivity agreements
16 Franchise agreements
17 Indemnification agreements
18 Copies of federal, state and local licenses, permits and consent forms
19 All contracts or agreements providing for third party consent to this proposed transaction

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5. LABOR / HUMAN RELATIONS
5.1 GENERAL
1 Employment agreements, applications for employment, hire letters and descriptions of oral/informal promises or commitments regarding terms of employment
2 Employee handbooks, policies and code of conduct — including policies on vacation, sick days, benefits, holidays and paid leave
3 Payrolls, together with general summary (last five years and YTD)
4 Employees by location, department, salaried vs. hourly, union vs. non-union, and current compensation and employment status
5 Employee headcount by location and function (last five years and YTD)
6 Summary of any collective bargaining agreement/union agreement (last five years and YTD)
7 Summary of any strike/work stoppages/grievances
8 Consulting, freelance and independent contractor agreements
9 List of all executives that provide services to the company, informing the corresponding remuneration (most recent)
10 Resumes, history and experience of key employees, including senior management
11 Details surrounding temporary workers that provide services to the company (e.g., starting and finishing date of providing the services, salary and working area)
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List of self-employed people providing services to the company, containing name, initial date of provision of services, remuneration and description of the services provided (last five
years and YTD)
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List of outsourced companies providing services to the company, containing name, initial date of provision of services, amount, description of the services provided and contract terms
(last five years and YTD)
14 List of all employees that work via fixed term contracts (most recent)
15 Layoff and severance package information
16 List of harassment, wrongful termination and discrimination disputes within the past three years
17 Workers’ compensation claims
18 An explanation of the company's salary philosophy
19 List of union affiliations and contracts
20 Description of any labor disputes, arbitration or grievances, settled or outstanding over the past three years
21 A list of any officers in criminal or civil litigation
22 Actuarial reports from the last three years
23 Turnover data for the past two years
24 Copies of all Occupational Safety and Health Administration (OSHA) examinations
25 Results of formal and informal employee surveys
26 Confidentiality, non-competes or similar agreements for current employees and for those currently in effect

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5. LABOR / HUMAN RELATIONS (CON’T)
5.2 BENEFITS
1 List of the benefits, both formal and informal, given to employees, directors and officers (most recent)
2 Equity-based compensation plans
3 All compensation agreements covering senior management
4 Severance benefit plans and other change-of-control agreements
5 Pension/OPEB detail including most recent actuarial reports
6 Profit sharing plan
7 Unemployment claims history
8 Pay history and pay freeze information
9 Summary biographies of senior management, including employment history, service with the company, years in current position)
10 Bonuses paid out for the past three years
11 Loans to employees, including from benefit plan
12 Qualified plans (pension, profit sharing, stock bonus, ESOP)
13 All plans maintained or contributed to
14 Trust, annuity, guaranteed investment, or other funding vehicles and investment advisor contracts
15 IRS determination letters, with applications
16 Form 5500 and supplementary materials for past three years
17 Summary plan descriptions for all plans
18 Most up-to-date Trustee report for all plans
19 Fiduciary liability policies and fidelity bond
20 Current actuarial reports for defined benefit plans
21 All plans, booklets, policies and contracts for health, life, disability, workers' compensation and other insurance-type benefits
22 Current list of employee and employer contributions or monthly premium rates (with COBRA rates) for health and life insurance plans and gross premiums during last 24 months
23 Estimate of present value of post-retirement health and life insurance liability for current retirees and the emerging liability for future retirees
24 Claims experience reports and related data (claims reserves, etc.) for last 24 months for health and life insurance plans broken down between retirees and active employees
25 Date of hire of each employee and former employee entitled to health or life insurance benefits, and type of coverage being provided
26 Non-qualified deferred compensation arrangements and incentive and bonus plans
27 Evidence of compliance with IRS Section 409A in regard to stock options
28 Evidence of compliance with IRS Section 280G in connection with the purchase
29 Unemployment insurance arrangements, claims experience
30 Attorneys’ responses to auditors’ requests in connection with plan audits for last three years

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6. TAXES
6.1 GENERAL
1 All applicable tax returns filed for the last five years (federal, state, local, property and foreign)
2 Detailed explanations of general accounting principles
3 Details on any deferred tax assets and liabilities
4 Details on any non-deductible expenses
5 Reconciliation from marginal to effective tax rate
6 Nature and location of assets of the corporation and their respective fair market values and tax bases
7 Federal or state tax audits and supplementary materials
8 Schedule of financing for debt and equity
9 Property taxes paid for past three years
10 List of any tax liens
11 IRS Form 5500 for 401k plans
12 Excise tax filings for the past five years
13 All audit reports and employment tax filings for the past five years
14 Tax settlement documents over the past three years
15 Transfer pricing, strategy, analysis and advice received
16 List of undisclosed tax liabilities
17 International income tax planning, strategy, analysis and advice received

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7. ENVIRONMENTAL
7.1 GENERAL
1 Copies of environmental audits and compliance reports for each company property
2 List describing or identifying any environmental liabilities or contingencies
3 Phase 1 reports for all facilities
4 Environmental liabilities and valuation
5 Prior ownership of facilities
6 Costs for environmental compliance
7 List of hazardous wastes or hazardous materials used in production
8 Description of company disposal methods for hazardous materials, recyclables, etc.
9 List of terminated licenses or permits
10 List of any superfund exposure
11 Copies of notices or filings with the Environmental Protection Agency (EPA)
12 List of any environmental investigations and pending litigation
13 Notices of violations received in the past three years

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8. REGULATORY & LEGAL
8.1 GENERAL
1 All permits and licenses
2 All compliance reports
3 Any deficiency notices
4 All pending lawsuits against the company — details, all court records, contingency planning
5 All pending lawsuits initiated by the company — details, all court records, contingency planning
6 Any pending or potential antitrust issues as a result of the purchase
7 Historical and current regulatory issues/information requests/settlements
8 Any prior or historical antitrust issues
9 Any issues involved in a Hart-Scott-Rodino filing with the Federal Trade Commission (FTC)
10 Any Exon-Florio issues for national security and foreign investment
11 A list of Department of Commerce filings
12 All reports submitted to regulatory agencies
13 OSHA inspection reports
14 Documentation regarding any governmental actions, investigations or proceedings regarding the corporation for the past three years

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8. REGULATORY & LEGAL (CON’T)
8.2 INSURANCE
1
Current schedule of insurance listing each insurance in force, insurance company, type of coverage, term of policy, insured value or limits of liability and annual premium, including but
not limited to:
1a Worker's compensation
1b General liability
1c Personal and property
1d Directors and officers
1e Errors and omissions
1f Key-man
1g Product liability
1h D&O
1i E&O
1j Vehicle
1k Intellectual property
2 Documentation regarding insurance claims and coverage denials in the last three years, including all correspondence in regard thereto
3 Insurance costs for the most recent year
4 If self-insured, details of claims paid for the last three years and the most recent interim period
5 With respect to general liability and products liability, estimated sales of the company and loss history
6 With respect to workers compensation, estimated annual payroll by class (8810-Clerical [including Executives]; 8742-Sales; 8010-Warehouse)
7 List of all company vehicles and a list of drivers containing name and driver’s license state and number
8 Insurance carrier inspection reports

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9. LITIGATION
9.1 GENERAL
1 Summary of all material litigation for the last five years
2 A list of all pending litigation and descriptions of any threatened litigation
3 Consolidated financials (last five years and YTD)
4 Documentation of any significant litigation in process or anticipated
5 Pleadings and other material documentation (including evaluations of claims made internally or by counsel) in pending lawsuits by or against the corporation
6 Copies of current consent decrees, orders, injunctions, administrative decrees or judgments against the corporation
7 A list of unsatisfied judgements
8 Copies of insurance policies that protect against litigation
9 Any documents pertaining to proceedings with a regulatory agency
10 History of any problems with regulatory bodies, such as the IRS or SEC
11 A review of all board minutes, shareholder minutes and audit minutes
12 Listing of unsold inventory of products involved in any current trademark or patent litigation

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9. LITIGATION
9.2 CLAIMS
1
Documentation regarding pending claims of any kind by or against the corporation (e.g., breach of contract, competition, infringement of proprietary rights, toxic tort and
environmental, whether in the U.S. or abroad, and customer complaint file)
2 Product liability claim
3 Summary of complaints and any warranty claims
4 Internal documentation regarding product recalls or health/safety advisories

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10. INTELLECTUAL PROPERTY
10.1 TRADEMARKS AND COPYRIGHTS
1 List of all trademarks and copyrights — foreign and domestic
2 Unregistered trademarks (owned or claimed)
3 List of tradenames — foreign and domestic
10.2 PATENTS/INDUSTRIAL DESIGNS
1 List of all patents and other IP — foreign and domestic
2 List of all patent applications — foreign and domestic
3 Patent clearance documents
4 Summary of claims or threatened claims on intellectual property
10.3 SOFTWARE/IT
1 Description of all technical information within the company
2 List and describe significant software, hardware and IT systems used to operate the company that generate financial and management reporting
3 List of software licenses bought to analyze other companies and for other use cases
4 List of interfaces that link systems together
5 Current system usage and age of equipment
6 Level of customization of existing software
7 Existing or planned outsourcing agreements with other IT companies
8 Perform a full analysis of the system
9 An outline of a disaster recovery plan should systems crash or become damaged

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10. INTELLECTUAL PROPERTY (CON’T)
10.4 LAWSUIT AND LITIGATION
1 Any material IP litigation
10.5 NEW PRODUCT DEVELOPMENT AND TECHNOLOGY
1 Details on historical and projected R&D
2 Details on new product initiatives
10.6 BRANDS
1 Owned brands
2 Copies of licensing/royalty agreements and contractual terms
10.7 OTHER INFORMATION
1 Non-registered proprietary processes, trade secrets, inventions, know-how or other proprietary information owned or used
2 Licenses of proprietary rights (as licensor or licensee)
3 Confidentiality agreements and ownership of invention agreements
4 Work-for-hire agreements
5 Copies of all consulting agreements, invention agreements and licenses of intellectual property to and from the company
6 List of all licensing revenue and expenses
7 Pending or threatened infringement claims, opposition or cancellation proceedings

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11. REAL PROPERTY
11.1 GENERAL
1 List of all real estate, condition of facilities and needs to major expenditures to maintain/upgrade
2 Real estate valuation reports (including building, inventory, furniture/fixtures)
3 Title reports and property surveys
4 Vehicle fleet details as applicable
5 Major fixed assets and equipment
6 Properties held for sale
7 Lease/sublease agreements
8 Notices/relevant correspondences, including side letters or agreements, alleged defaults, renewal of leases, easements/encumbrances
9 Contracts for capital improvements

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12. INDUSTRY
12.1 GENERAL
1 Information on the company's end-markets
2 Information on key industry drivers
3 Market size/potential
4 Legislative or regulatory information affecting the industry as a whole
5 Internal/external reports, articles and/or white papers analyzing the market
6 Key competitors by channel, including estimated revenue, marketing share, major customers, strategic priorities, etc.
7 Speed and nature of change within the industry
12.2 RESEARCH & DEVELOPMENT
1 R&D organizational overview
2 Key personnel
3 Title reports, roadmaps and property surveys
4 New product/service pipeline
5 Development costs
6 MVP status
7 Product development process

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• Regulatory Affairs
• Submissions & Meetings
• Agencies
• FDA
• EMEA
• Other
• CMC / Manufacturing & Supply
• Product Development
• Preclinical development
• Clinical development
• Pricing and Reimbursement
13. OTHER (INDUSTRY SPECIFIC)

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(858) 245 - 4905
david.crean@cardiffadvisory.com
David H. Crean, Ph.D.*
Managing Partner
Contact us to
learn more:
Ensure the growth or exit of
your business is handled with
the expertise and resources
necessary for success
*Registered representative of BA Securities, LLC Member FINRA SIPC, located at Four Tower
Bridge, 200 Barr Harbor Drive, Suite 400 W. Conshohocken, PA 19428. Cardiff Advisory LLC and
BA securities, LLC are unaffiliated entities. All investment banking services and securities are
offered through BA Securities, LLC, Member FINRA SIPC.

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