<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..... to .....
Commission file number 0-25406
TECHNICAL CHEMICALS AND PRODUCTS, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0308922
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
3341 S.W. 15TH STREET, POMPANO BEACH, FLORIDA 33069
(Address of principal executive officer) (Zip code)
Issuer's telephone number, including area code: (954) 979-0400
--------------
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
<TABLE>
CLASS OUTSTANDING AS OF JULY 31, 1996
----- --------------------------------
<S> <C>
Common Stock $.001 par value 9,837,668
Preferred Stock $.001 par value 0
Transitional Small Business Disclosure Format (check one):
</TABLE>
YES NO X
--- ---
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PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited) *(Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,401,220 $ 666,486
Accounts Receivable, net of allowance for doubtful
accounts of $18,165 at 6/30/96 and 12/31/95 1,231,458 939,263
Investments available for sale 14,265,544 1,110,932
Inventory 978,211 548,555
Prepaid expenses and deposits 261,707 207,996
----------- -----------
Total Current Assets 18,138,140 3,473,232
Property and equipment net of accumulated amortization
of $301,339 and $123,146 2,248,480 1,925,789
Patents and Trademarks, net of accumulated amortization
of $637,952 and $120,244 14,282,621 14,878,507
Goodwill, net of accumulated amortization of
$47,532 and $6,221 1,878,439 2,195,695
Other Assets 1,098,761 136,521
----------- -----------
Total Assets $37,646,441 $22,609,744
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts Payable $ 1,144,175 $ 1,002,582
Accrued Expenses 166,079 185,420
Notes Payable 0 5,188,888
Notes Payable to related parties 0 75,336
Other (13,779) 3,971
----------- -----------
Total Current Liabilities 1,296,475 6,456,197
----------- -----------
Shareholders' Equity
Common Stock, $.001 par value 25,000,000 shares
authorized; 9,833,880 and 8,117,880 shares issued
and outstanding at 6/30/96 and 12/31/95 9,834 8,118
Additional Paid-In-Capital 38,977,091 17,583,104
Accumulated Deficit (2,636,959) (1,437,675)
----------- -----------
Total Shareholders' Equity 36,349,966 16,153,547
----------- -----------
Total Liabilities and Shareholders' Equity $37,646,441 $22,609,744
=========== ===========
*NOTE: The Balance Sheet at December 31, 1995 has been derived from the audited financial statements at that date.
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
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TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1996 1995 1996 1995
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenue:
Sales $1,456,332 $1,429,294 $ 3,287,638 $2,165,825
Returns & Allowances (6,685) 0 (72,945) (151,346)
---------- ---------- ----------- ----------
Net Sales 1,449,647 1,429,294 3,214,693 2,014,479
Cost of sales 745,652 883,245 1,646,749 1,113,030
---------- ---------- ----------- ----------
Gross Profit 703,995 546,049 1,567,944 901,449
Operating expenses:
Selling, general and administrative 816,136 445,837 1,619,364 728,108
Research & development 449,912 22,916 976,770 48,502
---------- ---------- ----------- ----------
Income (loss) From Operations (562,053) 77,296 (1,028,190) 124,839
Depreciation and amortization 369,425 19,579 737,212 24,139
Other Income (expense)
Interest Income 49,100 19,495 94,301 51,278
Interest expense (72,440) (3,924) (202,780) (7,927)
Equity in income of affiliate 0 16,222 0 16,222
---------- ---------- ----------- ----------
Income (loss) before income taxes and
extraordinary item (954,818) 89,510 (1,873,881) 160,273
Income tax benefit (provision) 343,735 (34,014) 674,597 (60,904)
---------- ---------- ----------- ----------
Income (loss) before extraordinary item (611,083) 55,496 (1,199,284) 99,369
---------- ---------- ----------- ----------
Extraordinary (loss) on early extinguishment
of debt (net of income tax benefit of $23,161) 0 0 0 (37,789)
---------- ---------- ----------- ----------
Net income (loss) $ (611,083) $ 55,496 $(1,199,284) $ 61,580
========== ========== =========== ==========
Income (loss) before extraordinary loss per share $ (0.07) $ 0.01 $ (0.14) $ 0.01
Extraordinary (loss) per share 0.00 0.00 0.00 (0.01)
---------- ---------- ----------- ----------
Net income (loss) per share $ (0.07) $ 0.01 $ (0.14) $ 0.00
========== ========== =========== ==========
Weighted average number of common shares
outstanding 9,323,759 7,181,666 8,720,820 6,658,683
========== ========== =========== ==========
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
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TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------
1996 1995
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (1,199,284) $ 61,580
Adjustments to reconcile net (loss) income
to net cash used by operating activities
Depreciation and amortization 737,212 23,601
Other -- 16,222
Changes in operating assets and liabilities:
Accounts Receivable (292,195) (523,871)
Inventory (429,656) (261,082)
Accounts Payable 141,593 122,201
Accrued Expenses (19,341) 5,535
Prepaid Expenses (53,711) --
Credit for income taxes (674,597) 37,743
------------- ------------
Net Cash used in operating activities (1,789,979) (518,071)
INVESTING ACTIVITIES:
Purchase of property & equipment (146,761) (28,504)
Increase (decrease) in other assets (287,643) 30,779
Purchase of marketable securities (13,154,612) (2,103,529)
------------ ------------
Net cash used in investing activities (13,589,016) (2,101,254)
Financing Activities:
Net proceeds from issuance of common stock 21,395,703 3,834,126
Payments on notes payable (5,188,888) --
Payments on notes payable to related parties (75,336) --
Payments on notes payable to shareholders -- (375,000)
Shareholder distributions -- (268,681)
Other (17,750) --
------------ ------------
Net Cash provided by financing activities 16,113,729 3,190,445
------------ ------------
Net increase in cash and cash equivalents 734,734 571,120
Cash and cash equivalents at beginning of period 666,486 219,179
------------ ------------
Cash and cash equivalents at end of period $ 1,401,220 $ 790,299
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
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TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO JUNE 30, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements (the
"Financial Statements") of Technical Chemicals and Products, Inc. and
Subsidiaries (the "Company") are unaudited, and in the opinion of management,
include all normal and recurring adjustments which are necessary for a fair
presentation. Accordingly, the Financial Statements should be read in
conjunction with more complete disclosures contained in the Company's audited
consolidated financial statements included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995. The results of operations for
interim periods are not necessarily indicative of the results of operations for
the entire year.
RECLASSIFICATIONS
Certain amounts in the prior year's condensed consolidated financial
statements have been reclassified to conform to the current period's
presentation.
SHARES OUTSTANDING
The weighted average number of common shares outstanding reflects the
Company's 2 for 1 stock split on July 31, 1995.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes." Deferred income tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
INVENTORIES
Inventories, consisting of raw materials and finished goods, are
valued at the lower of cost (computed on the first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The cost of maintenance and repairs are charged to operations as incurred.
Significant renewals and betterment's are capitalized and depreciated over
their estimated useful lives.
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This Quarterly Report on Form 10-QSB, including the information
incorporated by reference herein, includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Act of 1934, as amended, and is subject to
the safe-harbor created by such sections. The Company's actual results may
differ significantly from the results discussed in such forward-looking
statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is principally engaged in the design, development,
manufacture and marketing of a wide range of medical diagnostic products for
use in physician offices, at home and at other point-of-care locations. The
Company's medical diagnostic products employ its patented and proprietary
membrane-based technology. The Company distributes its proprietary brand named
products and has private label arrangements with drug, discount and supermarket
chains in North America. The Company intends to expand direct distribution of
its diagnostic products with the launching of its HealthCheck(R) line of
products. In addition to its diagnostic products business, the Company,
through its recently acquired Pharmetrix Division, is involved in the research,
development and commercialization of transdermal and mucosal drug delivery
systems and skin permeation enhancers. The Company is also a manufacturer of
high purity specialty biochemicals. The Company currently owns 16 U.S. patents
and 28 foreign patents, and has seven pending U.S. patent applications and 38
pending foreign patent applications.
In order to support anticipated growth and new product development,
the Company expects to incur significantly increased operating expenses and
capital expenditures in the future and, as such, the Company believes that its
results of operations in prior periods may not be indicative of results in
future periods. The Company expects to incur significant expenses in 1996
primarily as a result of: (i) the increased research and development associated
with its non-invasive transdermal glucose monitoring system (the "TD Glucose
System") and various transdermal and mucosal drug delivery products and skin
permeation enhancers; (ii) the expansion of direct distribution of medical
diagnostic products; (iii) the introduction of the Company's cholesterol
monitoring system which can be used by physicians, laboratories and patients
at home (the "One Step CholestoCheck System"); and (iv) the hiring of
additional personnel and other costs associated with expansion of the Company's
manufacturing facilities. Additionally, the Company anticipates significant
expenditures in 1996 as a result of the purchase of production equipment.
For a complete description of the Company's products and business, see
Part 1, Item 1 of the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995.
RESULTS OF OPERATIONS
The Pharmetrix Division was acquired in November 1995 and began
producing revenues in January 1996. Accordingly, the results of operations for
the three and six months ended June 1995 do not reflect the operations of the
Pharmetrix Division and are not, in all respects, comparable with the results of
the corresponding periods in 1996.
Due to the timing of the FDA approval process and the expenses incurred
in the manufacturing scale-up for the Company's products, the Company's results
of operations vary from quarter to quarter. Therefore, the Company believes
that results of operations for six month periods present a clearer picture of
the financial condition of the Company than quarterly results.
Net sales for the six months ended June 1996 (the "1996 Period")
increased 60.0% to $3,214,693 from $2,014,479 during the six months ended June
1995 (the "1995 Period"). Net sales for the second quarter of 1996 (the "1996
Quarter") increased by 1.4% from the second quarter of 1995 (the "1995
Quarter"). The increase in net sales during the 1996 Period resulted
principally from increased sales of private label pregnancy-related diagnostic
products in the United States, increased foreign sales of diagnostic products
and fees received from Taiho Pharmaceutical Co., Ltd. for the development of a
urinary incontinence transdermal drug delivery product by the Company's
Pharmetrix Division.
Gross profit as a percentage of net sales increased during the 1996
Quarter and the 1996 Period to 48.6% and 48.8%, respectively, compared to 38.2%
and 44.7% in the 1995 Quarter and the 1996 Period, due to changes in product
mix and economies of scale.
Selling, general and administrative expenses increased substantially
during the 1996 Quarter and the 1996 Period due primarily to the acquisition of
the Pharmetrix Division, the hiring of additional laboratory, administrative
and manufacturing personnel to support the higher level of sales and the
build-up for future sales.
The greatest impact on the Company's results of operations was the
substantial increase in research and development expenses due primarily to the
Pharmetrix acquisition. Those expenses increased from approximately $22,900 in
the 1995 Quarter to approximately $450,000 in the 1996 Quarter and from
approximately $48,500 in the 1995 Period to approximately $977,000 during the
1996 Period. The Company's investment in research and development has
contributed to the development of several new products as well as the TD
Glucose System.
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<PAGE> 7
Interest expense in the 1996 Quarter and the 1996 Period, respectively,
compared to the 1995 Quarter and the 1995 Period, increased as a result of the
issuance of promissory notes in the aggregate principal amount of $5,000,000
in connection with the acquisition of the Company's Pharmetrix Division. The
promissory notes were repaid in their entirety during the second quarter of
1996.
The Company incurred a net loss of approximately $611,000 during the
1996 Quarter compared to net income of approximately $55,500 during the 1995
Quarter, and incurred a net loss of approximately $1,199,300 during the six
months ended June 1996 compared to net income of approximately $61,600 during
the six months ended June 1995, as a result of costs relating to the
integration of the Pharmetrix Division, expenses attributable to the expansion
of facilities, research and development expenses, non-recurring legal and
accounting fees, and interest expense.
FINANCIAL CONDITION
The Company had cash, cash equivalents and investments available for
sale of $15,666,764 on June 30, 1996, an increase of $13,889,346 from December
31, 1995. This increase was due to the receipt of approximately $21,927,000 in
net proceeds as a result of the public offering of 1,585,000 shares of Common
Stock in April 1996. The repayment during the second quarter of 1996 of
promissory notes in the aggregate principal amount of $5,000,000 issued in
connection with the acquisition of the Company's Pharmetrix Division partially
offset the increase in cash, cash equivalents and investments available for
sale.
The Company intends to use the remaining net proceeds from the public
offering to purchase production equipment, develop and manufacture the TD
Glucose System, engage in research and development relating to transdermal drug
delivery, develop new diagnostic products, conduct clinical trials and for
working capital.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its existing cash balances, plus the net
proceeds from the public offering, will be sufficient to fund the Company's
cash requirements for at least the next twenty-four months. This estimate is
based on certain assumptions, including assumptions concerning reasonable
growth and revenues, and there can be no assurance that such assumptions will
prove to be accurate or that unbudgeted costs will not be incurred. The
Company's future working capital and capital expenditure requirements may vary
materially from those now planned depending on numerous factors, including
additional manufacturing scale-up for the Company's current and future
products, possible future acquisitions, the focus and direction of the
Company's research and development programs, competitive and technological
advances, future relationships with corporate marketing partners, the FDA
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regulatory process and the Company's marketing and distribution strategy. If
the Company's growth exceeds its plans, additional working capital may be
needed.
PART II OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On June 20, 1996, the Company held its annual meeting of shareholders.
At the annual meeting, Jack L. Aronowitz was re-elected to serve as a member of
the board of directors for a three-year term. 6,031,524 shares were voted
in favor of the election of Mr. Aronowitz and holders of 14,000 shares withheld
authority to elect Mr. Aronowitz.
ITEM 5 OTHER INFORMATION
On April 30, 1996, the Company sold an aggregate of 1,585,000 shares of
Common Stock and received net proceeds of approximately $21,927,000 pursuant to
a public offering in which Deutsche Morgan Grenfell/C.J Lawrence Inc. acted as
representative of the underwriting syndicate. For a description of the intended
use of the proceeds of the public offering, see "Part 1 - Item 2 - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
On June 17, 1996, the Company acquired 200,000 membership units of
Health-Mark Diagnostics, L.L.C., a Delaware limited liability company and
majority-owned subsidiary of the Company, from Health-Med, Inc., a New Jersey
corporation, in exchange for (i) approximately $71,600.00 in cash and (ii)
delivery of 15,000 shares of Common Stock to John G. Geppert, an affiliate of
Health-Med, Inc. As a result of the acquisition, Health-Mark Diagnostics,
L.L.C. became a wholly-owned subsidiary of the Company.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
<S> <C>
2. Agreement among Health-Mark Diagnostics L.L.C., Health Test, Inc, Health-Med, Inc. and
the Company dated June 17, 1996.
27. Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is being filed.
</TABLE>
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TECHNICAL CHEMICALS AND PRODUCTS, INC.
DATE: August 12, 1996 /S/ JACK L. ARONOWITZ
-------------------------
JACK L. ARONOWITZ
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
/S/ STUART R. STREGER
-------------------------
STUART R. STREGER
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
<PAGE> 1
EXHIBIT 2
AGREEMENT
AGREEMENT made on June 17, 1996, between HEALTH-MARK DIAGNOSTICS
L.L.C., a Delaware limited liability company (hereinafter referred to as the
"Company" or "Health-Mark"), TECHNICAL CHEMICALS AND PRODUCTS, INC., a Florida
corporation ("TCPI"), HEALTH TEST, INC., a Florida corporation and a
wholly-owned subsidiary of TCPI ("Health Test") (TCPI and Health Test are
collectively referred to hereinafter as "Buyer"), HEALTH-MED, INC., a New
Jersey corporation (hereinafter referred to as the "Seller"), and JOHN G.
GEPPERT (hereinafter referred to as "Geppert").
WITNESSETH:
WHEREAS, upon its formation on March 30, 1995, the Company issued five
hundred thousand (500,000) membership units ("Units") to TCPI and five hundred
thousand (500,000) Units to Seller; and
WHEREAS, TCPI acquired 300,000 additional Units from Seller as of
October 1, 1995, with the result that TCPI was, as of October 1, 1995, and
continues to be the owner of 80% of the issued and outstanding Units; and
WHEREAS, the Company has issued and currently has outstanding one
million (1,000,000) Units, of which eight hundred thousand (800,000) Units are
owned by TCPI, and two hundred thousand (200,000) Units ("Seller Units") are
owned by Seller; and
WHEREAS, Geppert desire to retire from participation in the affairs of
the Company; and
WHEREAS, Buyer desires to acquire and Seller desires to sell to Buyer,
all of the Seller Units upon the terms set forth herein; and
WHEREAS, the Board of Directors of TCPI and Health Test have
determined that said terms are fair and that the offer of the Seller should be
accepted; and
WHEREAS, the transfer of the Seller Units by Seller to Buyer has been
approved by the members of the Company;
NOW THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
<PAGE> 2
1. SALE OF UNITS. The Company, TCPI, Seller and Geppert each
acknowledge and agree that the foregoing recitals are true and correct in all
respects. Seller hereby conveys, transfers and assigns absolutely to Buyer,
their successors and permitted assigns, all of its right, title and interest to
and in the Seller Units and all other rights, privileges and obligations
arising out of, or relating to the Seller Units. Upon execution of this
Agreement, Seller will deliver to Buyer the certificates representing all of
the Seller Units, all certificates to be endorsed in blank for transfer and new
certificates shall be issued to: (i) TCPI representing 190,000 Units and (ii)
Health Test representing 10,000 Units.
2. PAYMENT OF SALE PRICE. In consideration for the Seller Units,
Buyer will (a) cause to be issued and delivered certified or bank checks in the
amounts (in the aggregate not to exceed $71,584.29) and payable to the order of
the persons and entities as specifically noted on Exhibit A; and (b) either (i)
deliver a stock certificate representing 15,000 shares of TCPI Common Stock,
par value $.001 per share, to Geppert (the "Geppert Shares"), or (ii) deliver a
copy of an irrevocable letter of instruction issued by TCPI to its transfer
agent directing the transfer agent to issue and deliver a certificate
representing the Geppert Shares to Geppert.
3. REPRESENTATIONS OF SELLER AND GEPPERT. Seller and Geppert
jointly and severally represent and warrant to Buyer as follows:
(a) Exhibit A to this Agreement includes a true and
complete list of all outstanding loans or other advances of any nature made to
the Company, either directly or indirectly, by Geppert, any family members of
Geppert, any entities related to Geppert or any of his family members, or any
other person or entity. Any loans or other advances made, either directly or
indirectly, to the Company that are not listed on Exhibit A have been repaid in
full.
Geppert agrees to indemnify and hold TCPI harmless for any and
all claims relating to any advances or loans not specifically listed in Exhibit
A (or any claims related to the loans or advances listed in Exhibit A which are
in excess of the specific dollar amounts listed in Exhibit A).
(b) Seller has good, marketable and unencumbered title to
the Seller Units, free and clear of all pledges, security interests, liens,
claims, encumbrances, agreements, and options of any nature whatsoever, and has
full right and authority to transfer and deliver all of Seller Units. Upon
consummation of the transactions contemplated by this Agreement, Buyer will
acquire good and valid title to the Seller Units, free and clear of all
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<PAGE> 3
pledges, security interests, liens, claims, encumbrances, agreements and
options of any nature whatsoever.
(c) Each of Seller and Geppert has full power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on behalf of Seller. This
Agreement has been duly and validly executed and delivered by each of Seller
and Geppert and constitutes the legal, valid and binding agreement of each of
Seller and Geppert, enforceable in accordance with its terms.
(d) All of the outstanding ownership interests in the
Company consist of 800,000 Units issued and outstanding to TCPI, and 200,000
Units issued and outstanding to Seller. Except as set forth on Schedule 3(d)
hereto, there are no outstanding agreements, options, warrants or other rights
pursuant to which the Company is or may become obligated to issue any Units or
any debt securities of the Company.
(e) Geppert (i) understands that the Geppert Shares have
not been registered under the Securities Act of 1933, as amended (the "Act") or
under any state securities laws, and are being offered and sold in reliance
upon federal and state exemptions for transactions not involving any public
offering, (ii) is acquiring the Geppert Shares solely for his own account for
investment purposes, and not with a view to the "distribution" thereof (as such
term is defined in judicial and administrative interpretations under Section
2(11) of the Act), (iii) has received certain information concerning TCPI,
including without limitation TCPI's latest Form 10-K and Form 10-Q, and has had
the opportunity to obtain additional information as desired in order to
evaluate the merits and risks inherent in holding the Geppert Shares, (iv) is
able to bear the economic risk and lack of liquidity inherent in holding the
Geppert Shares until such time as the Geppert Shares may be registered in
accordance with the provisions of Section 4 of this Agreement, (v) has
sufficient knowledge and experience in financial business matters that he is
capable of evaluating the merits and risks of an investment in TCPI, and (vi)
understands that the certificates representing the Geppert Shares will be
stamped or otherwise imprinted with legends in substantially the following
form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY OTHER JURISDICTION, INCLUDING BUT WITHOUT
LIMITATION, FLORIDA, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN ANY MANNER UNLESS THEY ARE
REGISTERED UNDER SUCH ACT AND ANY SECURITIES LAWS OF ANY
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APPLICABLE JURISDICTION OR UNLESS EXEMPTIONS FROM SUCH REGISTRATIONS
ARE AVAILABLE AND AN OPINION OF COUNSEL, SATISFACTORY TO TECHNICAL
CHEMICALS AND PRODUCTS, INC. ("TCPI"), TO THAT EFFECT IS DELIVERED TO
TCPI.
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
LOCK-UP AGREEMENT DATED JUNE ___, 1996, ENTERED INTO BETWEEN JOHN G.
GEPPERT AND TCPI.
4. REGISTRATION STATEMENT. Buyer agrees that on or prior to July
30, 1996, it will file a Registration Statement on Form S-3 (or such other form
as Buyer may deem appropriate) with the Securities and Exchange Commission to
register for sale the Geppert Shares. As a condition to complying with its
obligations under this paragraph 4, Buyer may require Geppert to furnish Buyer
with such information regarding Geppert and the distribution of the Geppert
Shares as may be necessary in connection with the registration.
5. COVENANT NOT TO COMPETE. Seller and Geppert agree that for a
period of two years after the date of this Agreement, Seller and Geppert shall
not, anywhere TCPI or Health-Mark is engaged in business, or has taken steps to
begin engaging in business, own, manage, operate, control, or be employed by,
participate in, or be connected in any manner with the ownership, management,
operation, or control of any business competitive with (i) the business
conducted by TCPI or Health-Mark including without limitation its Health Check
line of products; or (ii) any of the products of TCPI listed on Exhibit B
hereto ("Products"). Notwithstanding the foregoing, Seller, Geppert, or any
entity controlled by Geppert, shall be permitted to sell Products purchased
directly from TCPI to hospitals, clinics and medical laboratories. Seller and
Geppert acknowledge that if both or either of them were to breach any of the
provisions of this Section 5, it would result in immediate and irreparable
injury to TCPI and Health-Mark which cannot be adequately or reasonably
compensated at law and that the TCPI and Health-Mark shall be entitled, if any
such breach shall occur or be threatened or attempted, if it so elects, to a
decree of specific performance and to a temporary and permanent injunction
enjoining and restraining such breach by Seller or Geppert, as the case may be,
or their agents, either directly or indirectly, and that such right to
injunction shall be cumulative to whatever other remedies for actual damages
TCPI and Health-Mark may possess.
6. CONFIDENTIALITY. Seller and Geppert agree, for all time, not
to publish, disclose or use, on their own behalf or on behalf of any third
party, any information, data or material which Seller or Geppert has or may
have acquired regarding the business, customers and procedures of the Company
or TCPI and does hereby agree to keep the same secret. Seller and Geppert
further agree to surrender to the Company all property of the Company,
including but
4
<PAGE> 5
not limited to, all sales material, documents, memoranda, notes, reports and
documents of every character and description which pertain to the Company and
not to retain any copy or copies thereof. The Seller and Geppert agree that
the remedy at law for any breach by them of the foregoing will be inadequate
and that the Company and the Buyer shall be entitled to temporary and permanent
injunctive relief without the necessity of proving actual damage to the Company
or Buyer.
7. TCPI REPRESENTATIONS. TCPI has full power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on behalf of TCPI. This Agreement
has been duly and validly executed and delivered by TCPI and constitutes the
legal, valid and binding agreement of TCPI, enforceable in accordance with its
terms.
8. RESIGNATION OF GEPPERT/ LOCK-UP AGREEMENT. Simultaneously
with the execution of this Agreement, Geppert will (a) execute and deliver to
TCPI the form of resignation attached as Exhibit C hereto, and (b) execute and
deliver to TCPI the form of Lock-Up Agreement attached as Exhibit D hereto.
9. INDEMNIFICATION. In addition to remedies that may be
available pursuant to applicable law, Buyer shall be indemnified and held
harmless by Seller and Geppert from any and all claims, damages, losses,
liabilities and expenses resulting in a financial cost or loss (including,
without limitation, reasonable attorney's fees and expenses in connection with
any action, suit or proceeding arising from or in connection with this
Agreement) (a "Loss") incurred or suffered by Buyer on or after the execution
hereof arising out of any breach of any representation or warranty by Seller or
Geppert.
10. MISCELLANEOUS. The recitals set forth herein are true and
correct. The schedules attached to this Agreement are incorporated by
reference herein and made a part hereof. This Agreement (including the
schedules hereto) contains the parties' entire understanding with respect to
the sale of the Seller's Units. It supersedes any previous agreement, whether
written or oral, and cannot be modified except in writing. Nothing expressed
or implied in this Agreement is intended, or shall be construed, to confer upon
or give any person, firm, corporation, partnership, association or other
entity, other than the parties hereto and their respective successors and
permitted assigns, any rights or remedies under or by reason of this Agreement.
The invalidity of any one or more of the words, phrases, sentences, clauses,
sections or subsections contained in this Agreement shall not affect the
enforceability of the remaining portions of this Agreement or any part hereof,
all of which are inserted conditionally on their being
5
<PAGE> 6
valid in law, and, in the event that any one or more of the words, phrases,
sentences, clauses, sections or subsections contained in this Agreement shall
be declared invalid by a court of competent jurisdiction, this Agreement shall
be construed as if such invalid word or words, phrase or phrases, sentence or
sentences, clause or clauses, section or sections, or subsection or subsections
had not been inserted. This Agreement may be executed in counterparts by the
separate parties hereto, all of which shall be deemed to be one and the same
instrument. This Agreement may be executed by facsimile. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. This Agreement shall be governed
by, and shall be construed, interpreted and enforced in accordance with, the
laws of the State of Florida. Each of the parties hereto agrees to pay all of
the respective expenses incurred by it in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby. The parties to this
Agreement agree that any claim, suit, action or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby shall be
submitted for adjudication exclusively in any Florida state or federal court
sitting in Broward County, Florida, and each of the parties hereto expressly
agrees to be bound by such selection of jurisdiction and venue for purposes of
such adjudication.
6
<PAGE> 7
IN WITNESS WHEREOF, the Buyer, Seller and Company have caused this
document to be signed and sealed by their proper corporate officers and the
retiring officer and director has signed this document on the date first above
written.
<TABLE>
<S> <C>
/s/ Patricia Geppert /s/ John G. Geppert
- ---------------------------- --------------------------
Patricia Geppert JOHN G. GEPPERT
Witness
/s/ John Geppert, Jr.
- ----------------------------
John Geppert, Jr.
Witness
HEALTH-MARK DIAGNOSTICS L.L.C.
By: Technical Chemicals
and Products, Inc.
/s/ Martin Gurkin By: /s/ Jack Aronowitz
- ---------------------------- ---------------------
Martin Gurkin Jack Aronowitz
Secretary President
By: Health-Med, Inc.
/s/ John G. Geppert By: /s/ John G. Geppert
- ---------------------------- ----------------------
John G. Geppert John G. Geppert
Secretary President
HEALTH-MED, INC.
/s/ John G. Geppert By: /s/ John G. Geppert
- ---------------------------- ----------------------
John G. Geppert John G. Geppert
Secretary President
TECHNICAL CHEMICALS AND PRODUCTS, INC.
/s/ Martin Gurkin By: /s/ Jack Aronowitz
- ---------------------------- ---------------------
Martin Gurkin Jack Aronowitz
Secretary President
HEALTH TEST, INC.
/s/ Jack Aronowitz By: /s/ Jack Aronowitz
- ---------------------------- ---------------------
Secretary Jack Aronowitz
President
</TABLE>
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-QSB FOR THE
PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,401,220
<SECURITIES> 14,265,544
<RECEIVABLES> 1,249,623
<ALLOWANCES> 18,165
<INVENTORY> 978,211
<CURRENT-ASSETS> 18,138,140
<PP&E> 2,549,819
<DEPRECIATION> 301,339
<TOTAL-ASSETS> 37,646,441
<CURRENT-LIABILITIES> 1,296,475
<BONDS> 0
0
0
<COMMON> 9,834
<OTHER-SE> 36,340,132
<TOTAL-LIABILITY-AND-EQUITY> 37,646,441
<SALES> 3,214,693
<TOTAL-REVENUES> 3,287,638
<CGS> 1,646,749
<TOTAL-COSTS> 1,646,749
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202,780
<INCOME-PRETAX> (1,873,881)
<INCOME-TAX> (674,597)
<INCOME-CONTINUING> (1,199,284)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,199,284)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
