<PAGE>
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 SEPTEMBER 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 OCTOBER 31, 1996
------------ ----------------------------------
<S> <C> <C>
Common Stock $ .001 par value 9,850,926
Preferred Stock $ .001 par value 0
</TABLE>
Transitional Small Business Disclosure Format
(check one):
YES NO x
------- -------
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 1996 December 31, 1995
-------------------- ------------------
ASSETS (Unaudited) *(Audited)
Current assets:
Cash and cash equivalents $395,754 $666,486
Accounts receivable, net of allowance for doubtful
accounts of $18,165 at 9/30/96 and 12/31/95 1,888,792 939,263
Investments available for sale 13,946,657 1,110,932
Inventory 1,117,442 548,555
Prepaid expenses and deposits 351,622 207,996
--------------- ---------------
Total current assets 17,700,267 3,473,232
Property and equipment net of accumulated amortization of
of $ 414,859 and $123,046 2,709,835 1,925,789
Patents and trademarks, net of accumulated amortization on
of $891,642 and $120,244 14,030,431 14,878,507
Goodwill, net of accumulated amortization of
$71,298 and $6,221 1,854,673 2,195,695
Other assets 1,383,944 136,521
=============== ===============
Total assets $37,679,150 $22,609,744
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,505,577 $1,002,582
Accrued expenses 123,733 185,420
Notes payable 0 5,188,888
Notes payable to related parties 0 75,336
Other 0 3,971
--------------- ---------------
Total current liabilities 1,629,310 6,456,197
Long term debt 171,885 0
Stockholders' equity:
Common stock, $.001 par value 25,000,000 shares
authorized; 9,841,456 and 8,117,880 shares issued
and outstanding at 9/30/96 and 12/31/95 9,841 8,118
Additional paid-in-capital 39,092,113 17,583,104
Accumulated deficit (3,223,999) (1,437,675)
----------------- ----------------
Total shareholders' equity 35,877,955 16,153,547
----------------- ----------------
Total liabilities and shareholders' equity $37,679,150 $22,609,744
================= =====================
</TABLE>
*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
<PAGE>
<TABLE>
<CAPTION>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------------- ---------------------------------------
1996 1995 1996 1995
-------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Sales $ 1,924,321 $ 1,127,438 $ 5,211,959 $ 3,449,052
Returns & allowances (56,640) (124,375) (129,585) (431,509)
-------------- -------------- ---------------- --------------
Net sales 1,867,681 1,003,063 5,082,374 3,017,543
Cost of sales 954,735 783,117 2,601,484 1,944,648
-------------- ------------- ---------------- --------------
Gross profit 912,946 219,946 2,480,890 1,072,895
Operating expenses:
Selling, general and administrative 1,287,849 413,328 2,911,170 1,079,040
Research & development 411,131 38,265 1,387,901 86,767
-------------- -------------- ---------------- --------------
Loss From operations (786,034) (231,647) (1,818,181) (92,912)
Depreciation and amortization 396,100 12,995 1,129,355 32,574
Other Income (expense)
Interest income 267,212 51,298 361,513 84,121
Interest expense (2,329) (37) (205,109) (7,964)
Equity in income (loss) of affiliate (7,899) 8,322
-------------- -------------- ---------------- --------------
Loss before income taxes and
extraordinary item (917,251) (201,280) (2,791,132) (41,007)
Income tax benefit 330,210 76,486 1,004,808 15,582
-------------- -------------- ---------------- --------------
Loss before extraordinary item (587,041) (124,794) (1,786,324) (25,425)
-------------- -------------- ---------------- --------------
Extraordinary (loss) on early extinguishment
of debt(net of income tax benefit of $23,161) 0 0 0 (37,789)
------------- -------------- ------------- --------------
Net loss $ (587,041) $ (124,794) $ (1,786,324) $ (63,214)
============== ============== ============== ==============
Loss before extraordinary loss per share $ (0.06) $ (0.02) $ (0.20) $ 0.00
Extraordinary (loss) per share 0.00 0.00 0.00 (0.01)
-------------- -------------- ---------------- --------------
Net loss per share $ (0.06) $ (.02) $ (0.20) $ (0.01)
============== ============== ================ ==============
Weighted average number of common shares
outstanding 9,836,374 7,181,666 9,095,586 6,834,926
============== ============== ================ ==============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
-------------------------------------
1996 1995
-------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,786,324) $ (63,214)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation and amortization 1,129,355 32,574
Other 8,322
Changes in operating assets and liabilities:
Accounts receivable (949,529) (256,097)
Inventory (568,887) (233,308)
Accounts payable 502,995 (250,121)
Accrued expenses (61,687) 7,989
Prepaid expenses (143,626)
Credit for income taxes (1,004,808) (38,743)
-------------------------------------
Net cash used in operating activities (2,882,511) (792,598)
INVESTING ACTIVITIES:
Purchase of property & equipment (724,303) (60,492)
Increase in other assets (242,615) (38,520)
Purchase of marketable securities (12,835,725) (1,606,474)
-------------------------------------
Net cash used in investing activities (13,802,643) (1,705,486)
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 21,510,732 3,834,126
Long term financing 171,885
Payments on notes payable (5,188,888)
Payments on notes payable to related parties (75,336)
Payments on notes payable to shareholders (380,000)
Shareholder distributions (268,681)
Other (3,971)
-------------------------------------
Net cash provided by financing activities 16,414,422 3,185,445
-------------------------------------
Net increase (decrease) in cash and cash equivalents (270,732) 687,361
Cash and cash equivalents at beginning of period 666,486 219,179
-------------------------------------
Cash and cash equivalents at end of period $ 395,754 $ 906,540
=====================================
</TABLE>
See accompanying notes to the condensed consolidated financial statements
<PAGE>
TECHNICAL CHEMICALS AND PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION PERTAINING TO SEPTEMBER 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.
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.
<PAGE>
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 nine months ended September 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 the nine month period present a clearer picture of the
financial condition of the Company than quarterly results.
<PAGE>
Net sales for the nine months ended September 1996 (the "1996 Period")
increased 68% to $5,082,374 from $3,017,543 during the nine months ended
September 1995 (the "1995 Period"). Net sales for the third quarter of 1996 (the
"1996 Quarter") increased by 86% from the third quarter of 1995 (the "1995
Quarter"). The increase in net sales during the 1996 Period resulted principally
from increased sales of private label Family Planning 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 48.9% and 48.8%, respectively, compared to 21.9% and
35.6% in the 1995 Quarter and the 1995 Period, due to changes in product mix,
bringing product manufacturing in-house and achieving various 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 facility
expansion.
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 $38,000 in
the 1995 Quarter to approximately $411,000 in the 1996 Quarter and from
approximately $87,000 in the 1995 Period to approximately $1,388,000 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.
Interest expense in the 1996 Period, compared to 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 $587,000 during the 1996
Quarter compared to a net loss of approximately $125,000 during the 1995
Quarter, and incurred a net loss of approximately $1,786,000 during the nine
months ended September 1996 compared to a net loss of approximately $63,000
during the nine months ended September 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 $14,342,411 on September 30, 1996, an increase of $12,564,993 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 of the Company 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 facility
expansion.
<PAGE>
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 regulatory process and
the Company's marketing and distribution strategy. If the Company's growth
exceeds its plans, additional working capital may be needed.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------------- ----------------------------------
<S> <C>
27. Financial Date 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>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
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: NOVEMBER 13, 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(The Company's Quarterly Report on Form 10-QSB for the Period Ending
September 30, 1996)
</LEGEND>
<CIK> 0000924921
<NAME> STU STREGER
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 395,754
<SECURITIES> 13,946,657
<RECEIVABLES> 1,906,957
<ALLOWANCES> 18,165
<INVENTORY> 1,117,442
<CURRENT-ASSETS> 17,700,267
<PP&E> 3,124,694
<DEPRECIATION> 414,859
<TOTAL-ASSETS> 37,679,150
<CURRENT-LIABILITIES> 1,629,310
<BONDS> 171,885
0
0
<COMMON> 9,841
<OTHER-SE> 35,868,114
<TOTAL-LIABILITY-AND-EQUITY> 37,679,150
<SALES> 5,082,374
<TOTAL-REVENUES> 5,211,959
<CGS> 2,601,484
<TOTAL-COSTS> 2,601,484
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 205,109
<INCOME-PRETAX> (2,791,132)
<INCOME-TAX> (1,004,808)
<INCOME-CONTINUING> (1,786,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,786,324)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
