Health Sciences Group, Inc. (HESG)
By: Gerald LaKarnafeaux, CFA

Health Sciences Group, Inc. (HESG) and Quality Botanical Ingredients, Inc. have entered into a Letter of Intent that provides for HESG to acquire Botanical (QBI) in an all stock transaction. The closing will take place in sixty to ninety days. Terms have not been announced. QBI is a manufacturer and supplier of bulk botanical ingredients. The product line includes 500 herbs, dried fruits and vegetables, The Company?s customers are manufacturers and brokers of natural products. The ingredients are used by producers of vitamins, food, herbal tea, pharmaceuticals and diet and sports food supplement. The QBI facility in New Jersey houses a patented cryogenic system. Also, according to QBI, the plant has ?the fastest, largest capacity, most efficient grinding and blending equipment in the industry.?

The company generated $12 million in revenues last year. The Health Sciences management is looking for a 25% increase above that level in the current year. Assuming a closing by June 30, QBI will contribute approximately $7.5 million in 2002 to consolidated HESG sales. QBI is profitable but the level of profitability for the year 2001 will not be disclosed until audited results are available.

Excel Healthcare, Inc. acquired in December of last year, is on track to reach $4.5 million in revenues projected for 2002. Both Excel and QBI are expected to have positive cash flow for the calendar year.

Last year HESG?s purchased a 24% block of Biofarm, S.A., a Romanian pharmaceutical manufacturer. The Company was expected to acquire an additional 50% block subject to the approval by RASDAQ, the Romanian stock exchange. It is now uncertain when, if ever, this transaction will be consummated. More information along with revised revenue and earning projection will be available in our quarterly up-date that will follow shortly after the filing of the HESG 10K.

Health Sciences is in the process of preparing a memorandum for a private placement of approximately $3,000,000 of equity. It is to management?s credit that, on a nominal equity base, the Company has acquired two very interesting businesses. Combined, they will provide close to $20 million annually on a pro forma basis. (This, of course, excludes the Biofarm transaction, which, as stated above, is uncertain.)

J.M.Dutton & Associates, LLC. John M. Dutton, President and Supervisory Analyst, 1129 Manning Drive, Suite 310, El Dorado Hills, CA 95762 Phone (916) 941-4985, Fax (978) 418-6422 Email: [email protected] Web site: www.JMDutton.com

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