SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO ___________
COMMISSION FILE NUMBER 0-25406
TECHNICAL CHEMICALS AND PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0308922
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3341 S.W. 15th Street, Pompano Beach, Florida 33069
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 979-0400
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of exchange
on which registered
None None
Securities registered pursuant to 12(g) of the Act: Common Stock,
$.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates as of
March 24, 1998 was approximately $63,262,811 (based upon the closing sale price
of $10.875 per share on the Nasdaq National Market on March 24, 1998).
As of March 24, 1998, 10,015,036 shares of the Registrant's $.001 par value
Common Stock were outstanding.
Documents Incorporated By Reference
The Registrant's Definitive Proxy Statement related to the 1998 Annual
Shareholder's Meeting is incorporated by reference in Part III to the extent
provided in Items 10, 11, 12 and 13 hereof.
EXHIBIT INDEX IS LOCATED ON PAGE 63
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INDEX
Description Page Number
PART I
Item 1. Business ........................................................... 4
Strategy ............................................................. 5
Non-Invasive Glucose Monitoring ...................................... 6
Cholesterol Monitoring ............................................... 8
HealthCheck(TM).......................................................10
Other Medical Diagnostic Products ....................................11
Diagnostic Product Portfolio..........................................16
Transdermal Drug Delivery Systems ....................................18
Transdermal Drug Delivery Product Portfolio...........................21
Biochemical Manufacturing.............................................21
Product Research and Development......................................21
Manufacturing and Materials ..........................................22
Patents, Trademarks and Technologies..................................22
Competition...........................................................23
Marketing and Sales...................................................24
Employees ............................................................24
Year 2000.............................................................25
Governmental Regulation...............................................25
Product Liability Insurance...........................................26
Executive Officers of the Company.................................... 26
Item 2. Properties..........................................................26
Item 3. Legal Proceedings...................................................27
Item 4. Submission Of Matters To A Vote Of Security Holders ................27
PART II
Item 5. Market For Registrant's Common Equity And Related
Stockholder Matters ................................................28
Item 6. Selected Financial Data.............................................29
Item 7. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations...........................................30
General ..............................................................30
Results Of Operations ................................................34
Year Ended December 31, 1997 Compared
To Year Ended December 31, 1996 ......................................34
Year Ended December 31, 1996 Compared
To Year Ended December 31, 1995 ......................................35
Liquidity And Capital Resources.......................................35
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Item 8. Financial Statements And Supplemental Data .........................37
Report Of Independent Certified Public Accountants ...................38
Consolidated Balance Sheets...........................................39
Consolidated Statements Of Operations.................................40
Consolidated Statements Of Shareholders' Equity.......................41
Consolidated Statements Of Cash Flows ................................42
Notes To Consolidated Financial Statements ...........................44
Item 9. Changes In And Disagreements With Accountants On
Accounting And Financial Disclosure .................................56
PART III
Item 10. Directors And Officers Of The Registrant........................... 56
Item 11. Executive Compensation..............................................59
Item 12. Security Ownership of Certain Beneficial Owners
and Management......................................................59
Item 13. Certain Relationships and Related Transactions......................59
PART IV
Item 14. Exhibits, Financial Statement Schedule, And
Reports On Form 8-K.................................................59
Schedule II - Valuation and Qualifying Accounts.......................59
Exhibits Description..................................................60
Signatures............................................................62
Index to Exhibits.....................................................63
Consent of Ernst & Young LLP......................................... 65
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PART I
Item 1. BUSINESS
The Company
TCPI is in the midst of completing a transition. It was formerly a
developmental company that manufactured and sold a narrow range of medical
diagnostic products and specialty chemicals on an Original Equipment Manufacture
("OEM") basis. The Company is now approaching its goal of being a designer,
developer, manufacturer and global marketer of a wide range of point-of-care
medical diagnostic products for use at home, in physician offices, and other
healthcare locations with growing distribution channels for its products. In
addition, through its Pharmetrix Division located in Menlo Park, California, the
Company is also focused on the research and development and commercialization of
transdermal and dermal drug delivery systems and skin permeation enhancers. TCPI
also manufactures high purity specialty biochemicals.
The Company's roots date back more than 29 years. During this time, TCPI or
its founder have developed more than 330 medical diagnostic and pharmaceutical
products which have received marketing clearance by the United States Food and
Drug Administration (the "FDA") -- including those related to its patented
membrane-based technology platform -- and also has manufactured OEM products for
leading multinational pharmaceutical and medical diagnostic companies. The
Company presently holds 22 U.S. and 29 foreign patents, and has five pending
patent applications in the U.S. and more than 30 foreign patent applications
pending.
TCPI manufactures and markets more than 47 patented membrane-based
diagnostic tests in the U.S. and internationally, 26 of which have received
510(k) clearance from the FDA. In addition, the Company has over 20 other
diagnostic and transdermal drug delivery products in various stages of
development and governmental approval. Foremost in TCPI's product portfolio is
its TD Glucose(TM) Monitoring System (the "TD Glucose Monitoring System") -- an
innovative non-invasive glucose testing system for diabetics. The Company's
diagnostic products also include tests and screens for cholesterol monitoring,
pregnancy, ovulation timing, urinary glucose levels, urinary tract infection,
skin cancer, deteriorating vision, infectious diseases, drugs of abuse, cardiac
markers and certain types of cancer. TCPI's transdermal drug delivery products
focus on hormone replacement therapy, cardiovascular disease, smoking addiction
and other areas.
The Company's products are distributed worldwide under OEM marketing
relationships with multinational pharmaceutical and diagnostic companies, and
also are directly marketed for over-the-counter use by consumers. In the OEM
sector, most of TCPI's tests were sold through the Company's alliance with
Boehringer Mannheim. This alliance also extends to the marketing and
distribution of certain other products, including its Serum Dilution Reagent
(hCG Test) and its One Step LH Ovulation Tests. In February 1998, the Company
established a new agreement to supply finished and packaged family planning
products directly to Boehringer Mannheim distributors. This replaced an earlier
worldwide marketing and distribution agreement where the Company's family
planning products utilizing TCPI's technology were packaged in Europe.
Over-the-counter products are marketed to consumers in the U.S. and Canada for
at-home use under TCPI's proprietary HealthCheck(TM) and private-label brands.
These over-the-counter products are sold in pharmacies, supermarkets and mass
merchandise retail stores. The HealthCheck line consists of 14 testing and
screening products for cholesterol, diabetes, urinary tract infection,
pregnancy, ovulation, skin cancer, deteriorating vision and a series of health
journals. Since market introduction in the second quarter of 1997, more than 38
chain and independent pharmacies have placed orders for HealthCheck products,
providing the Company with more than 30% market penetration of the approximately
60,000 pharmacies in the United States. TCPI distributes its private label
family planning products to approximately 20 leading drug, discount and
supermarket chains and catalog retailers. In total, the Company's at-home
diagnostics products are available through such leading pharmacies as Walgreen
Drug Stores, Eckerd Corp., CVS-Revco, Rite Aid, Thrifty Payless, Thrift Drug,
Phar-Mor, Genovese Drug Stores, Longs Drug Stores, Smiths Food & Drug, Osco
Drug, Sav-On Stores, Snyder Drug, Kinney Drugs, Harco Drug; leading supermarkets
such as Kroger, Thriftway Foods, Seaway Foods and Ukrop's Super Markets; and
leading drug wholesale distributors McKesson Corp., AmeriSource Health Corp.,
Bindley Western Industries, Bergen Brunswig Drug Company, Neuman Distributors,
KinRay, Allou Distributors, and F. Dohman Co.; and are featured in Amway
Corporation's Personal Shopper catalog. In 1997, sales of the Company's family
planning products to Boehringer Mannheim and CVS were each greater than 10% of
TCPI's total product sales.
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Statements regarding future products, future prospects, business plans and
strategies, future revenues and revenue sources, future liquidity and capital
resources, health care market directions, future acceptance of the Company's
products, possible recommendations of health care professionals or governmental
agencies regarding use of diagnostic products, possible growth in markets for
at-home diagnostic testing, as well as other statements contained in this report
that address activities, events or developments that the Company expects,
believes or anticipates will or may occur in the future, and similar statements
are forward looking statements. These statements are based upon assumptions and
analyses made by the Company in light of current conditions, future developments
and other factors the Company believes are appropriate in the circumstances, or
information obtained from third parties and are subject to a number of
assumptions, risks and uncertainties. Readers are cautioned that forward-looking
statements are not guarantees of future performance and that actual results
might differ materially from those suggested or projected in the forward-looking
statements. Some of the factors that may cause actual future events to differ
from those predicted or assumed include: future advances in technologies and
medicine; the uncertainties of health care reform; risks related to the early
stage of the Company's existence and its products' development; the Company's
ability to execute on its business plans; the Company's dependence on outside
parties such as its key customers and alliance partners; competition from major
pharmaceutical, medical and diagnostic companies; risks and expense of
government regulation and affects of changes in regulation; the limited
experience of the Company in manufacturing and marketing products; uncertainties
connected with product liability exposure and insurance; risks associated with
growth and expansion; risks associated with obtaining patents and other
protections on intellectual property; uncertainties in availability of expansion
capital in the future and other risks associated with capital markets. The
Company may determine to discontinue or delay the development of any or all of
its products under development at any time.
STRATEGY
TCPI's objective is to continue to build a fully integrated research and
development, manufacturing, marketing and distribution organization capable of
providing the medical diagnostic and drug delivery markets with products that
offer accuracy, efficacy, ease of use and reduced costs. In order to accomplish
this objective, the Company has developed the following strategy:
PROVIDE ACCURATE, EASY TO USE AND COST EFFECTIVE PRODUCTS. The Company has
developed and is continuing to develop and market accurate, easy to use and
cost-effective medical diagnostic products that provide disease-specific
information to health care providers and patients. In addition, the Company is
developing transdermal drug delivery products that are intended to offer a high
degree of efficacy, convenience and economy. The Company believes that its
business approach is consistent with current trends to reduce the overall cost
of health care by providing high quality, value-added health care products that
offer an improved benefit to cost ratio over competitive products, where they
exist.
PROVIDE A BROAD RANGE OF PRODUCTS. The Company has developed and is
continuing to develop and market a broad range of medical diagnostic and
transdermal drug delivery products. The Company believes that a diversified
product base can increase potential business opportunities, provide a stream of
new product introductions over time and reduce the risks associated with
reliance on a single product or technology.
FOCUS ON LARGE MARKET OPPORTUNITIES. The Company concentrates its
development efforts on large existing markets in which the Company believes
there could be significant demand for its products. Industry estimates of the
Company's target markets in 1997 were: glucose monitoring -- $2 - $3 billion
worldwide; cholesterol monitoring in the U.S. has potential annual revenues of
$250 million; worldwide sales of family planning products in 1995 were in excess
of $550 million; and transdermal patch products are over $2.5 billion worldwide.
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ENTER INTO STRATEGIC ALLIANCES. Although TCPI intends to expand direct
distribution of certain of its medical diagnostic products, the Company also
intends to enter into strategic alliances with large multinational medical
diagnostic and pharmaceutical companies for the marketing of many of its medical
diagnostic products. Because these companies have significantly greater
financial, marketing and other resources than the Company, they are able to
market TCPI's products through a broader range of distribution channels. With
respect to the development and commercialization of the Company's transdermal
and skin permeation products, TCPI's strategy is to enter into strategic
alliances with third parties that can, in some cases, fund all or a portion of
product development costs, participate in clinical testing, obtain regulatory
approvals and market the product. In an effort to exercise control over the
quality of its products and capture a larger portion of the revenues therefrom,
the Company will seek to retain manufacturing rights to products developed under
such strategic alliances. In some cases, the Company will fund development of
products requiring an Abbreviated New Drug Application ("ANDA") approval and
which can be sold over-the-counter through the Company's wholly-owned
subsidiary, Health-Mark Diagnostics, L.L.C.
EXPAND DIRECT DISTRIBUTION. The Company intends to continue to expand
direct distribution of its medical diagnostic products in order to generate
greater revenues and profit margins from sales of these products. TCPI entered
the over-the-counter market in 1996 when it began directly distributing its
private label pregnancy and ovulation tests to drug, discount and supermarket
chains in the U.S. and Canada. This strategy continued in 1997, when the Company
launched HealthCheck, its own over-the-counter medical diagnostic testing
products, to chain and independent pharmacies, supermarkets and discount
retailers.
The Company's most significant products in various stages of development
include:
NON-INVASIVE GLUCOSE MONITORING
THE PRODUCT. TCPI has completed development of its non-invasive TD Glucose
Monitoring System for diabetics to test their glucose levels without the
discomfort and inconvenience associated with available finger stick blood
glucose monitoring systems.
The TD Glucose Monitoring System is completely non-invasive, non-toxic and
safe. It uses a dermal transport system in the form of patch designed to provide
diabetics with a painless, bloodless, easy to use and rapid method to monitor
their glucose levels. TCPI's non-invasive monitoring system combines proprietary
patent-pending transdermal technology with the Company's patented membrane-based
diagnostic technology. Together, these technologies access the interstitial
fluid (the "ISF") present in the outer layer of skin, draw glucose from the ISF
into the patch where it makes contact with the membrane causing a chemical
reaction and color change of the membrane. This is accomplished while the TD
Glucose Patch has been in place on the forearm for approximately five minutes. A
small electronic reflectance meter, equipped with special optics, is held up to
the patch where it detects the membrane color change and provides an instant
glucose reading. The single-use patch is then removed and easily disposed of.
During the past three years, the Company has conducted pre-clinical testing
of its TD Glucose Monitoring System, the results of which have correlated with
finger stick blood glucose monitoring tests, reinforcing the technical
feasibility of TCPI's non-invasive product. The Company is presently involved in
its registration studies to obtain required correlation data between ISF glucose
and venous blood glucose and expects these activities to be substantially
completed during the first half of 1998. The registration studies are being
conducted at several undisclosed large diabetic clinics under the supervision of
independent investigators. During these studies, the Company anticipates testing
the glucose level of approximately 3,000 people with diabetes with its TD
Glucose Monitoring System and obtaining venous blood samples from each patient
for corresponding laboratory analysis. The purpose of collecting correlation
data is to attempt to develop algorithms, or complex mathematical formulas,
which could allow the TD Glucose meter to display glucose levels equivalent to
venous blood glucose. There can be no assurance the registration and correlation
studies will be successful or produce data suitable for submission to the FDA.
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Upon completion of the registration studies, the Company will submit its
clinical data to the FDA for review as soon as possible thereafter. Based on
discussions with the FDA and prior acceptance of TCPI's protocol to conduct its
Clinical Trials, which was acknowledged without review, the Company believes its
TD Glucose Monitoring System is eligible for the expedited 510(k) clearance
process. There can be no assurances that the FDA will consider the TD Glucose
Monitoring System for 510(k) clearance, expedited or otherwise, or if
considered, that the TD Glucose Monitoring System will receive 510(k) clearance.
BLOOD GLUCOSE MONITORING MARKET. Diabetes is a chronic disease in which the
body does not produce the protein insulin. Insulin permits metabolized sugar,
starches and other food energy (glucose) to transfer via osmosis from the ISF
into the cells. Without insulin, the cells are unable to receive nutrition. ISF
is an extra-cellular fluid that is prevalent throughout the body, including the
skin. Scientific research indicates that ISF glucose levels correlate closely
with blood glucose levels. At present, there is no cure for diabetes and the
exact cause is unknown, although such factors as heredity, obesity and lack of
exercise appear to play roles. Type I (or juvenile) diabetes, the most severe
form of the disease, comprises approximately 10% of diabetes cases in the United
States and requires daily treatment with insulin to sustain life. Type II (or
adult onset) diabetes comprises the other 90% of diabetes cases in the United
States and is usually managed by diet and exercise, but may require treatment
with insulin or other medication.
Diabetes is the fourth leading cause of death by disease in the U.S. with
about 625,000 new cases diagnosed each year. Medical costs in the U.S. for the
treatment of diabetes and diabetes related conditions are approximately $100
billion annually. Worldwide there are in excess of 110 million people with
diabetes - of which approximately 16 million are in the United States -- and
only 18 million regularly monitor their glucose levels. The worldwide market for
finger stick glucose monitoring products is presently $2 - $3 billion per year
and is projected to reach the $5 billion mark by the year 2000.
According to the American Diabetes Association (the "ADA"), people with
Type I diabetes must have daily treatment with insulin to control blood glucose
levels. A person's blood glucose level will vary depending upon diet, insulin
availability, exercise, stress and illness. Blood glucose testing several times
a day enables people with diabetes to better manage their disease by keeping
their blood glucose levels in a narrow range. This may be accomplished through
diet, physical activity and insulin dosage. Prior to the availability of
self-monitoring blood glucose systems, people with diabetes relied on urine
glucose testing to monitor their status and make appropriate adjustments to
their treatment. Because glucose appears in the urine only after a significant
period of elevated blood glucose, urine tests are inadequate for tight control
of blood glucose. Patients were also able to obtain an occasional blood glucose
test after referral by a health care provider to a clinical laboratory. These
tests were ordered infrequently, usually as part of a physician office visit,
and results were typically not available for immediate discussion and
intervention.
Beginning in the late 1970's, the availability of finger stick blood
glucose monitoring systems that provided fast and accurate blood glucose
measurements gave people with diabetes a tool to manage the disease more
effectively and to improve the quality of care. Since that time, worldwide sales
of self-monitoring blood glucose systems have increased dramatically. According
to industry sources, the worldwide market for blood glucose monitoring products
in 1995 was over $1.5 billion. In the United States, the market for blood
glucose monitoring products grew from approximately $570 million in 1991 to
approximately $1.5 billion in 1997.
In July 1993, The New England Journal of Medicine published the results of
the Diabetes Control and Complications Trial (the "DCCT"), a major nine-year
clinical trial sponsored by the National Institutes of Health (the "NIH").
Participants in the DCCT were assigned to either intensive or conventional
therapy groups. Conventional therapy involved testing four times a day, with at
least three injections of insulin and making appropriate modifications to diet
and exercise while injecting insulin in accordance with blood glucose levels.
Each therapy group contained people with no significant complications as well as
people with mild complications. The study demonstrated that maintaining blood
glucose levels as close as possible to normal reduces by approximately 60% the
risk for development and progression of certain diabetes complications. Although
the DCCT included only people
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with Type I diabetes, the ADA has stated that there is no reason to believe the
effects of better control of blood glucose levels would not apply to people with
Type II diabetes. The results of the study were so compelling that the study was
terminated, earlier than planned, because those conducting the study felt that
to continue conventional treatment for the control group would deprive its
participants of the benefits of the study's findings. Because the intensive
therapy that the DCCT study recommends involves testing at least four times a
day, the Company believes that DCCT will increase awareness among people with
diabetes of the benefits of frequent testing and will be a key factor in
changing diabetes management in the coming decade. Moreover, various
publications related to diabetes have recommended testing six to eight times a
day. Based on various studies, including a survey by the NIH, the Company
believes that people with diabetes, on average, test their blood glucose levels
less than once per day. The Company believes that such patient non-compliance is
due, in part, to the pain and inconvenience associated with the use of
conventional finger stick blood glucose monitoring systems. The TD Glucose
System has been designed by the Company to address the need for a convenient,
blood-free, pain-free self-monitoring blood glucose system.
The Company believes that growth in demand for self-administered blood
glucose monitoring products will also be driven by the trend toward greater
patient involvement in personal health management. Many chronic conditions may
be managed more cost effectively in the home. The Company believes that these
benefits are consistent with recent initiatives, particularly in the United
States, to control overall health care expenditures. It is estimated that
expenditures in the United States for costs associated with diabetes are
approximately $132 billion annually. The Company believes that a compelling case
can be made that increased expenditures for preventive care, which would include
more frequent testing, can lead to reduced expenditures for care relating to
complications.
EXISTING SELF-MONITORING BLOOD GLUCOSE SYSTEMS. At present, blood glucose
levels are generally measured by first obtaining a blood sample using the finger
stick method. This method requires the user to prick a finger with a lancet,
draw a drop of blood and place the blood on a chemically-treated disposable test
strip. After a specified amount of time has elapsed, the blood, in most cases,
must be blotted or wiped off and then, after an additional amount of time has
elapsed, the blood glucose level is read by visually comparing the color of the
test strip to that of a color chart.
An alternative method requires the use of a blood glucose monitoring meter.
This system also requires the user to prick a finger, draw a drop of blood and
place the blood on a test strip similar to the strip described above. In this
case, the test strip is then placed in a meter containing a light source and a
digital read-out device. This reflectance meter measures the color of the test
strip at two or more wavelengths, thereby determining and displaying the blood
glucose level. A variation of the conventional reflectance meter approach uses
test strips which, rather than producing a color change, produce a small
electric current. The amount of current produced is a function of the blood
glucose level.
With either method, adequate control of blood glucose levels requires a
finger stick each time a sample is taken. This is often an unpleasant experience
for the user, especially for children. Depending upon the relative dexterity of
the user, the meter process generally takes at least two to four minutes.
Moreover, the ongoing costs of repeated finger stick testing, including the cost
of test strips, lancets, swabs, antiseptics, test solutions and other related
materials, are significant to the average user. Another significant problem
associated with these invasive finger stick methods is the requirement to safely
dispose of lancets and bloody test strips and swabs. Finally, any type of
invasive procedure entails some risk of infection.
CHOLESTEROL MONITORING
THE PRODUCTS. TCPI plans to introduce several cholesterol screening and
monitoring products in 1998 that can be used by healthcare professionals as well
as patients at home. Consumers will be able to screen for total cholesterol and
HDL (good) cholesterol with (i) the HealthCheck visual-read Total Cholesterol
Test Strips and (ii) visual-read HDL Cholesterol Test Strips. Healthcare
professionals will have the option of using the visual products for initial
screening or using (iii) a quantitative system consisting of a hand-held meter
and strips for Total and HDL Cholesterol. The HealthCheck Total and HDL
Cholesterol Test Strips utilize the Company's patented and proprietary
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membrane-based technology and produce a color reaction in response to Total or
HDL cholesterol using a small, unmeasured drop of blood.
Typically, a lancet is used to collect a drop of blood from a finger and is
placed on the Test Strip. During the approximate three-minute reaction time a
blue-green color is produced on the strip. The shade of color produced is
related to the amount of Total or HDL cholesterol in the blood. The kit includes
2 strips, lancets, alcohol wipes and a corresponding color chart.
With the meter-read versions of the Total and HDL Cholesterol Test Strips,
a hand held, battery operated Meter measures the final color and provides a
quantitative digital readout of the result. The System will offer several
advantages over the leading finger stick cholesterol monitoring system which
include (i) the cost to the physician will be less than $2 per test, which is
significantly below present reimbursement amounts, (ii) at less than 25
microliters, it will require less blood, thereby permitting the use of a smaller
lancet that clinical trials demonstrated was less painful; (iii) results in less
than three minutes; (iv) the acquisition cost of the meter, expected to be less
than $150, is very favorable to comparable products that cost up to $1,500; (v)
the system will be as accurate as measurements preformed in a clinical
laboratory; and (vi) initially expected to be the only System which also
measures HDL (good) cholesterol.
The Company's Total and HDL Cholesterol System overcomes the disadvantages
of laboratory testing by offering the health care provider and patient a quick
and easy-to-use method of testing for cholesterol in the physician's office,
clinic, pharmacy or other location. With an immediate result, the healthcare
provider is able to counsel the patient and begin treatment, eliminating the
need for a follow up visit. The Company's test eliminates the costs and delays
associated with utilizing laboratories, including those associated with specimen
collection, preservation, transportation, processing and reporting results.
Clinical trials comparing the HealthCheck System to conventional laboratory
testing demonstrated reproducibility with a coefficient of variation of less
than 5%. This means that tests done on the same blood at different times and/or
at different laboratories correlate within 95% of each other. This coefficient
is within the range recommended by the NIH, the National Committee on Clinical
Laboratory Standards and the College of American Pathologists. The Company views
physician offices, clinics, patient bedsides, emergency rooms and other
point-of-care sites, as well as the consumer retail market for at-home
self-tests, as the primary markets for this product.
In April 1997, the Company introduced its HealthCheck line of
over-the-counter testing and screening products for at-home use by consumers,
which included its visually read CholestoChek(TM) Total cholesterol screening
test. TCPI expects to complete the clinical and regulatory actions necessary to
have its visually read HDL Cholesterol Test Strips and its Total and HDL
Cholesterol Meter products enter the respective consumer and professional
marketplaces later this year. In February 1998, the Company suspended domestic
retail sales and voluntarily recalled its over-the-counter CholestoChek Total
cholesterol screening test. However, the CholestoChek Total cholesterol
monitoring test remains available to the professional sector. This action
stemmed from advice from the FDA about regulatory clearance. In 1988, a
predecessor company of TCPI was granted 510(k) regulatory clearance to market
its Total cholesterol testing product. The Company believed that the clearance
was for both professional and over-the-counter use. As a reformulated and
updated Total cholesterol test was already in clinical trials -- and a separate
HDL cholesterol test already in development -- TCPI elected to take voluntary
action to resolve this regulatory issue. This procedural matter relates only to
this particular product. There is no material financial impact on the Company,
nor does this affect any of TCPI's other products already on the market or in
various stages of development.
MARKETING. The Company has held discussions with one international medical
diagnostic and pharmaceutical company, and has been approached by several other
such companies, regarding a possible collaboration in the marketing and
distribution of the HealthCheck Total/HDL Cholesterol Meter and strips. There
can be no assurance, however, that a definitive arrangement will be reached with
any such companies.
CHOLESTEROL MONITORING MARKET. In response to evidence linking high total
cholesterol levels to heart disease, the NIH launched the National Cholesterol
Education Program (the "NCEP"), a nationwide effort to reduce the prevalence of
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high blood cholesterol. In 1988, the NCEP issued guidelines for the testing of
all adults over 20 years of age for high blood cholesterol, and more extensive
lipid monitoring and treatment for those found to be in high risk categories. In
1991, testing guidelines were expanded to include children over the age of two
with a family history of high blood cholesterol or coronary heart disease.
Starting in 1987, when an NIH expert panel in a draft statement recommended
that the HDL measurement be added to the total cholesterol measurement when
evaluating coronary heart disease risk in healthy individuals, and that a lipid
profile, consisting of total cholesterol, HDL cholesterol and triglycerides, be
conducted under certain circumstances, including the diagnosis of individuals
who have increased total cholesterol levels, or individuals with desirable total
cholesterol levels who have two or more other coronary heart disease risk
factors. Three lipid profiles, each to be conducted one week apart, were also
recommended prior to initiating drug or dietary therapy for patients with lipid
disorders. Following the NCEP and the NIH guidelines, individuals with desirable
total cholesterol levels should have their cholesterol tested every five years;
individuals with borderline high total cholesterol should have a lipid screening
repeated annually; and, as noted above, those with high total cholesterol should
have at least three lipid profiles conducted to confirm their values and to help
their physician decide what therapy, if any, should be instituted. Individuals
receiving diet or drug therapy would be expected to be tested at least every
three months to track the effectiveness of the therapy. While early federal
initiatives focused on males and coronary disease, recent initiatives emphasize
the incidence of coronary artery disease in women.
According to industry research conducted by Frost and Sullivan, the U.S.
market for home cholesterol testing products, which is currently in the
introductory stage of market development, has potential revenues of $250
million. Coronary Artery Disease (CAD) is still the number one cause of death in
the U.S. The disease is typically asymptomatic with the first indicator being a
heart attack. Routine cholesterol screening can identify individuals at risk.
EXISTING CHOLESTEROL MONITORING SYSTEMS. Cholesterol and lipoprotein tests
are generally performed in the laboratory using blood samples taken from
patients in a hospital on an outpatient basis or in a doctor's office. Most
testing is done using highly automated equipment and enzymatic chemistry. The
typical price for such a test when performed by a laboratory may be as high as
$40 or more, however, the laboratory may offer a panel of tests (lipid profile)
for the same amount, thereby reducing the cost per test performed. In
comparison, the cost to the physician for the Company's product is less than $2
per test. The main disadvantage of the existing systems is the lack of immediate
results. There are currently several point-of-care cholesterol monitoring
systems that are either more expensive, lack accuracy, or have a high
acquisition cost.
HEALTHCHECK(TM)
In order to capitalize on the growth in the market for over-the-counter
medical diagnostic products, in 1997, the Company introduced its family of at
home medical diagnostic testing products to drug, discount and supermarket
chains under its HealthCheck brand name.
The HealthCheck line consists of 14 at-home testing and screening products
for cholesterol, diabetes, urinary tract infection, pregnancy, ovulation, skin
cancer, deteriorating vision and a series of health journals for use by
consumers. The Company has distinguished HealthCheck from other similar products
by its packaging and labeling and by selling its products primarily through
colorful "HealthCheck Center" point-of-sale displays. Each display holds a
variety of medical diagnostic test products. Launched during the second quarter
of 1997, more than 38 chain and independent pharmacies have placed orders for
HealthCheck products -- providing the Company with greater than 30% market
penetration of the approximately 60,000 pharmacies in the United States since
initial market introduction. Industry sources estimate that the at-home
diagnostic marketplace in the U.S. was more than $1.23 billion in 1996 and is
projected to exceed $3 billion by the year 2002.
The Company believes that simple-to-use products with the ability to
perform accurate, quantitative tests without an instrument will continue to
create new market opportunities for home health screening and monitoring. One of
the Company's approaches for competing in this market is to produce improvements
to existing products at-home and other point-of-care testing, where possible.
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<PAGE>
Growth in the medical diagnostic test market is being experienced as health care
providers and third party payors recognize that regular diagnostic testing can
result in earlier detection of disease, more accurate diagnosis and more
effective treatment as individuals become more involved with their own health.
The Company's strategy is to capitalize on the initial success created by
the HealthCheck product launch to further expand domestically and
internationally. This will be achieved by greater penetration of the retail
pharmacy, supermarket, mass merchandise and drug wholesale distribution channels
with a comprehensive family of at-home testing products displayed in a
centralized diagnostic center that offers cost effective pricing to the consumer
and higher than average profit margin for the retailer.
At present, the Company's HealthCheck products have been ordered by such
leading pharmacies as Walgreen Drug Stores, Eckerd Corp., CVS/Revco, Rite Aid,
Thrift Drug, Phar-Mor, Genovese Drug Stores, Longs Drug Stores, Smiths Food &
Drug, Osco Drug, Sav-On Stores, Snyder Drug, Kinney Drugs, Harco Drug; leading
supermarkets such as Kroger, Thriftway Foods, Seaway Foods and Ukrop's Super
Markets; and leading drug wholesale distributors McKesson Corp., AmeriSource
Health Corp., Bergen Brunswig Drug Company, Bindley Western Industries, Neuman
Distributors, KinRay, Allou Distributors, and F. Dohman Co., among others.
The successful launch of the Company's HealthCheck products was
accomplished using internal sales efforts and a network of independent broker
organizations, each with geographic responsibility for the chains headquartered
in their respective territories to create awareness of this product line as well
as generate initial and reorder sales. Trade advertising and promotional
initiatives were employed to support these sales activities. In the fourth
quarter of 1997, consumers were introduced to the HealthCheck brand via a
six-week national radio advertising campaign in which 300 radio commercials
aired on top-rated nationally syndicated programs such as the Rush Limbaugh
Show, Dr. Dean Edell Show, Dr. Laura Schlessinger Show, Gary Burbank Show,
Michael Reagan Show, Bob Grant Show, Dr. Joyce Browne Show, Country Heartlines
and One-On-One Sports. These commercials were expected to reach approximately
175 million adults age 35 and older. The Company expects to continue to
implement various consumer and trade marketing programs and direct sales
initiatives.
OTHER MEDICAL DIAGNOSTIC AND RELATED PRODUCTS
OVERVIEW. The Company has developed in vitro medical diagnostic tests which
measure clinically significant substances using bodily fluids, usually blood,
urine or saliva. These tests are termed in vitro because they are performed
outside the human body as opposed to in vivo tests, which are performed directly
on or within the human body. The Company's patented and proprietary
membrane-based technology is particularly well suited for the development of
accurate economical and rapid in vitro diagnostic tests. This technology allows
a test to automatically eliminate interfering substances, concentrate
components, sequentially perform selected chemical steps and accurately
determine sample sizes, all without user involvement.
The market for in vitro diagnostic testing has experienced rapid growth due
to growing public awareness of health and safety issues; recognition by
physicians that regular diagnostic testing can result in earlier detection,
diagnosis and effective treatment; increased alcohol and drug related screening
by employers; and the introduction of cost-effective and accurate products.
According to industry sources, the total worldwide market for in vitro
diagnostic testing products was approximately $15.3 billion in 1995 and
estimated to exceed $21 billion by the year 2000.
Point-of-care diagnostic testing provides a fast, cost-effective and
accurate alternative to conventional clinical laboratory testing. Currently, the
majority of diagnostic testing is done in centralized laboratories which
involves skilled technicians who must measure and process a specimen, add
reagents and use sophisticated instruments to read and calculate the results
(which are typically not available for 24 to 72 hours). In contrast,
point-of-care testing in clinics, physician offices, homes, patient bedsides and
emergency rooms permits the user to obtain quantitative results, usually within
minutes, thus allowing for immediate interpretation of test results.
Point-of-care testing also eliminates the time and cost associated with
utilizing remotely located laboratories. The Company expects the point-of-care
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<PAGE>
diagnostic testing industry to continue to grow, creating new market
opportunities for the Company.
PRODUCTS. The Company's existing medical diagnostic products and those
currently under development generally fall within the following categories:
GLUCOSE MONITORING. In addition to the Company's TD Glucose Monitoring
System, TCPI has received 510(k) clearance of its One Step Blood Glucose Test
Strip for visual monitoring. This product is a conventional finger stick test,
the results of which are available to be read visually against a patented color
chart within one minute of administering the test. The Company believes that
there are many applications for this device in underdeveloped and third world
countries where government insurance or reimbursement is non-existent. This
system can also be used with the Company's One Step Blood Glucose Meter. In
addition, the Company's One Step Urine Glucose Test Strip is already on the
market among the HealthCheck family of at-home diagnostic products available for
consumer use. See "Business - Non-Invasive Transdermal Glucose Monitoring --
Blood Glucose Monitoring Market" for information regarding the potential market
for blood glucose monitoring products.
FAMILY PLANNING. The Company currently distributes several One Step
Pregnancy and One Step Ovulation Tests. These products are sold as finished
shelf packages in the OEM marketplace to major multinational pharmaceutical and
diagnostic companies as well as under the Company's HealthCheck brand and PDQ
label. The Company also sells its pregnancy tests under approximately 64
different private labels -- which include retail distribution by the Company and
under contracts with major pharmaceutical and diagnostic companies. According to
industry sources, worldwide sales of pregnancy and ovulation tests in 1995 were
approximately $550 million and $40 million, respectively.
The Company's pregnancy and ovulation tests are characterized by their
accuracy and ease of use. The strip format of these tests, which provide the
same sensitivity as a radioimmunoassay ("RIA") test, are immersed in urine
providing a distinct visual reaction. The slide format of these tests is for
large volume clinics and require the addition of four drops of urine to the
device. The One Step Pregnancy Midstream Wand requires only a momentary dip into
urine or may be conveniently held under the urine stream. In February 1997, the
Company announced the market introduction of its new One Step-One MinuteTM
pregnancy test. This product provides consumers with an easy to ready result in
one minute which is three times faster than most competing and national brands
promise, and results are greater than 99 percent accurate in laboratory tests.
All tests have built-in controls to insure functionality and may be easily
disposed of, or allowed to dry to provide a permanent record of results.
The Company has had a non-exclusive worldwide marketing and distribution
agreement with Boehringer Mannheim for its family planning diagnostic products
since 1992. In February 1998, the Company announced a new agreement with
Boehringer Mannheim for more than $5 million per year of the Company's finished
and packaged family planning products, which will be directly supplied to
Boehringer Mannheim distributors. During 1997, the Company's wholly-owned
subsidiary, Health-Mark Diagnostics, L.L.C., continued to market and distribute
the Company's private label family planning products in the United States and
Canada to drug, discount and supermarket chains. It also launched the
HealthCheck version of the Company's pregnancy and ovulation tests.
DRUGS OF ABUSE SCREENING. The Company has developed diagnostic tests for
the screening of various drugs of abuse. The products are initial drug screens
that use the Company's membrane-based strip immunoassay format technology
designed to detect the presence of a particular drug or a metabolite of a
particular drug being tested for in either human urine or in saliva. The Company
is also developing a single strip that can be used to screen for multiple drugs
from one sample. The results of these tests are available within minutes of
administering the test and eliminate the need for the taking of a urine or blood
sample and delivering the sample to a laboratory for analysis.
The Company's drug screening tests meet the criteria specified by the
National Institute on Drug Abuse (the "NIDA") for initial screening of drugs of
abuse. They are designed to detect the presence or absence of the substance
being screened at or above the NIDA prescribed minimum quantity for positive
responses to initial drug screening. No special training is required to perform
the Company's drug screening tests. These tests operate automatically requiring
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<PAGE>
no reagents, other substances or additional equipment. The tests provide on-site
results within five minutes and the used products can be disposed of without
special handling. The Company believes that the use of its drug screening tests
may be helpful in narrowing the scope of situations in which significantly more
expensive laboratory tests are used by quickly eliminating negative test
results, thereby further reducing costs for the testing entity.
The Company has an exclusive agreement with Boehringer Mannheim Argentina
("BMRA") for marketing and distribution in Latin America of TCPI's drugs of
abuse screening products, as well as its diagnostic products for infectious
diseases and certain types of cancer.
INFECTIOUS DISEASE SCREENING. The Company has developed the following
products for the screening of infectious diseases:
HUMAN IMMUNODEFICIENCY VIRUS (HIV). The Company has developed a simple,
accurate, rapid, convenient and easy to read screening test for the Human
Immunodeficiency Virus ("HIV"), the causative agent of Acquired Immunodeficiency
Disease Syndrome ("AIDS"). The Company intends to market this test
internationally until such time as favorable regulatory clearance is likely for
marketing in the U.S. of a point-of-care and/or at-home screening test of this
type. The Company's RapidTest HIV(TM) Screen is included in an agreement with
Boehringer Mannheim Argentina to market and distribute certain of the Company's
diagnostic products for infectious diseases, drugs of abuse and certain cancer
screens throughout Latin America. Industry sources currently indicate that 21
million people worldwide have tested positive for HIV and about 7,500 new cases
are diagnosed each day. In addition, approximately 300 million HIV tests are
performed annually worldwide with more than one-third of them occurring in the
U.S. alone.
The Company's RapidTest HIV Screen is a membrane-based solid phase assay
that can provide a permanent on-site result in approximately five minutes with
serum, plasma, or saliva. The results of a clinical trial evaluation using human
serum and comparing the Company's RapidTest HIV Screen to enzyme immunoassay and
western blot were published in 1995 in the proceedings of the American Society
for Microbiology. This study reported that the RapidTest HIV Screen provided
100% sensitivity, 98.07% specificity, 95.13% positive predicative value and 100%
negative predicative value in a total of 499 serum samples. The RapidTest HIV
Screen was also evaluated and met the criteria of efficacy required by the
Program for Appropriate Technology in Health of the World Health Organization
(the "WHO"). Using plasma, this evaluation provided a 99.5% sensitivity rating
and a 99.3% specificity on a total of 457 specimens. A separate clinical trial
evaluation using human saliva, collected in the Company's new Sani SalTM saliva
collector, and comparing the Company's RapidTest HIV Screen to enzyme
immunoassay and western blot was concluded in March 1997. This study reported
that the RapidTest HIV Screen provided 100% sensitivity and specificity. There
were no false positives or false negatives. The predicative positive value was
100% in a total of 1,316 saliva samples. The RapidTest HIV Screen was also
evaluated and met the criteria of efficacy required by the Program for
Appropriate Technology in Health of the WHO.
HEPATITIS. The Company has developed a qualitative screening test for
Hepatitis B that can be used with either a serum or saliva sample. More than 50
million hepatitis tests are done each year, with the greatest number being for
Hepatitis B. According to industry sources, an estimated 400 million people
worldwide have been infected with Hepatitis B, including as many as 1.25 million
chronically infected Americans. The incidence rate in the U.S. is as high as
320,000 new infections per year. The estimated global healthcare and workplace
impact of Hepatitis B is approximately $700 million per year.
A correlation study was conducted against a reference RIA test which
indicated that the Company's Hepatitis B screening test had a sensitivity of
100%, specificity of 99.4% and a correlation of 99.6% to the reference RIA
assay. The Company's Hepatitis B screening test was also evaluated and met the
criteria of efficacy required by the WHO. The Company expects to market its
Hepatitis B screening test outside of the United States.
STREP A AND STREP B. The Company's One Step Strep Screens incorporate
immunoassay reagents that contain highly specific and sensitive antibodies to
detect the presence of the A beta-hemolytic Streptococcus ("Strep A") and B
beta-hemolytic Streptococcus ("Strep B") antigen, respectively. Using a swab
Page - 13
<PAGE>
sample, these tests can accurately detect the presence of Strep A or Strep B
within five to 15 minutes. Traditional methods of detecting Strep A and Strep B
typically require 24 to 48 hour culturing of swab specimens. Each of the
Company's Strep screens is a presumptive test, which allows for immediate
counseling and treatment of infected patients, and is intended for use in
physician offices, hospital laboratories and clinics. The Company recently began
distribution of its new Strep A screening product through a major pharmaceutical
and diagnostics company for placement in the physician office marketplace. In
addition, TCPI expects that its Strep A screening test will be added to the
Company's products currently available for distribution under the new February
1998 marketing and distribution agreement with Boehringer Mannheim. See -
"Business - Other Medical Diagnostic and Related Products - Family Planning".
CHLAMYDIA. The Company's One Step Chlamydia Screen detects the presence of
Chlamydia trachomatous directly from endocervical or endourethral swab
specimens. It is a presumptive test, which allows for immediate counseling and
treatment of infected patients, but which may also be confirmed through more
extensive microbiological testing, and is intended for use in physician offices,
hospital laboratories and clinics. Chlamydia is the most common sexually
transmitted disease caused by a bacteria. Approximately 50 million new
infections occur annually worldwide, including about four million new infections
annually in the United States. Industry sources estimate that the worldwide
Chlamydia testing market is approximately $46 million per year, with about 45%
from testing in the U.S.
HELICOBACTER PYLORI. The Company has developed a membrane-based strip test
for Helicobacter pylori ("H. pylori") that qualitatively determines antibodies
to H. pylori in human serum, plasma or whole blood. H. pylori is a stomach
bacterium which is believed to cause, among other things, peptic ulcers and
gastric disorders. It is believed that between 20% and 40% of the adult
population in the U.S. harbors H. pylori. Infection is also associated with
increasing age and H. pylori is thought to be present in over 60% of Americans
over the age of 65.
CARDIAC TROPONIN I AND MYOGLOBIN. Coronary events result in 1.5 million
reported cases of acute myocardial infarction ("MI") annually in the United
States, accounting for approximately 500,000 deaths. Currently diagnosing a MI
in the field has carried a high life-and-death risk during the rush to the
hospital. The Company has developed a test that can be performed during the
transport of the patient to the Emergency Room, allowing appropriate treatment
to be initiated much earlier than in the past. Advancement in the treatment of
MI has increased the 30-day survival rate to approximately 90% today. The
Company's sensitive immunoassay of the cardiac isoform of Troponin I (cTnI)
provides an effective cardiac specific serum marker for MI.
In addition, Myoglobin tests have been successfully used in conjunction
with CK-MB and with Troponin I immunoassays to both confirm and exclude MI in
patients being admitted to a hospital with chest pains and non-diagnostic ECGs.
Myoglobin's role in the diagnosis of MI is becoming better defined and the
Company believes that its simple and rapid assay will further enhance the
usefulness of the Troponin I test.
LUPUS. Systemic Lupus Erythematosus (Lupus) is a chronic, often fatal
disease, manifested by inflammation of multiple organs, including joints, skin,
kidneys, heart, blood, blood vessels and the brain. There are more than 2.5
million diagnosed Lupus suffers in the United States and 3.5 million in Europe
who might benefit from a simple, daily, inexpensive diagnostic test for Lupus.
In 1996, the Company signed a definitive 15-year agreement with the
University of Kansas to use the university's patented synthetic antigen
technology for identifying Lupus to develop a point-of-care diagnostic test for
the disease. The Company has been granted the exclusive, worldwide license for
this technology and has developed a rapid, one-step test to identify Lupus
antibodies present in the urine of individuals with the disease. This technology
currently has two U.S. patents issued.
Among the potential benefits of this prospective test would be to assist
physicians in identifying Lupus, which has been difficult because symptoms are
similar to other diseases, such as arthritis. The test could also help
physicians identify periods of remission and active inflammation, facilitate
appropriate therapy exactly when needed, minimize debilitating drug therapy and
improve the quality of life for Lupus patients.
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<PAGE>
SALIVA SAMPLE COLLECTOR. The Company's Sani Sal(TM)Saliva Collector
provides a saliva sample which contains low molecular-weight compounds,
hormones, enzymes and proteins in levels that are representative of levels at
which they are present in serum or plasma.
The Sani Sal Saliva Collector is intended for use with certain of the
Company's drugs of abuse and infectious disease screening tests. The target
market for the Sani Sal Saliva Collector will be physician offices, life
insurance companies, community outreach programs, immigration centers, the
military, customs, foreign governments and correctional institutions. See
"Business - Litigation" for a description of a lawsuit brought against the
Company regarding its saliva collection technology.
CANCER SCREENING. The Company is developing the following products for
cancer screening:
PROSTATE-SPECIFIC ANTIGEN ("PSA"). The Company has developed a One Step PSA
Test and is currently undergoing clinical trials in preparation for submission
of this product to the FDA for Pre-Market Approval ("PMA").
ALPHAFETOPROTEIN ("AFP"). The Company's One Step Alphafetoprotein Test
offers a rapid method of screening, diagnosing and monitoring primary
hepatocellular (liver) carcinoma and non-seminomatous testicular cancer.
FECAL OCCULT BLOOD. The Company's One Step Fecal Occult Blood Test(R) is a
rapid, convenient, touch free and odorless qualitative sandwich dye conjugate
immunoassay for the determination of human hemoglobin in feces.
The following table sets forth information relating to the Company's
existing diagnostic products and those currently under development. The data
included in this table is qualified in its entirety to the more detailed
information relating thereto included elsewhere in this report.
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRODUCT MARKET
STATUS SECTOR
------------------------------------------ -----------------------
------------------------------------------ -----------------------
DIAGNOSTIC PRODUCT PORTFOLIO In Pre- Regul- On O-T-C O-T-C OEM
Develop- Clinical Clinical atory The Health Private
ment Stage Trials Clear- Market Check Label
ance
<S> <C>
- ----------------------------------------------------------------------------------------------------------- -----------------------
GLUCOSE MONITORING:
- ----------------------------------------------------------------------------------------------------------- -----------------------
TD Glucose(TM) Monitoring System o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Whole Blood Glucose Test Strip(TM) o o o o o X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Whole Blood Glucose Meter o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Uri-Test(TM)Glucose Test Strip o o o o o X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
CHOLESTEROL MONITORING:
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Cholesterol Meter o o X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Total Cholesterol Strip (meter) o o X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step HDL Cholesterol Strip (meter) o o X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Total Cholesterol Test Kit (visual/professional) o o o o o
- ----------------------------------------------------------------------------------------------------------- -----------------------
AT HOME SCREENING AND MONITORING TESTS:
- ----------------------------------------------------------------------------------------------------------- -----------------------
Total Cholesterol Test Kit (visual) o o o X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
HDL Cholesterol Test Kit (visual) o o X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Uri-Test(TM)Urinary Tract Infection Test Kit o o o o o X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Uri-Test(TM)Diabetes Test Kit o o o o o X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Uri-Test(TM)Protein Test Kit o o o o X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
HealthCheck(TM)Vision Screening Test o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
HealthCheck(TM)Skin Growth Monitoring System o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
FERTILITY TESTING PRODUCTS:
- ----------------------------------------------------------------------------------------------------------- -----------------------
Pregnancy Test: Midstream Wand o o o o o X X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Pregnancy Test: Midstream Wand Double-Pack o o o o o X X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Pregnancy Value Pack: hCG Test Strip Double-Pack o o o o o X X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Ovulation Predictor Test Kit o o o o o X X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step One Minute(TM)Pregnancy Test: Midstream Wand o o o o o X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Ovulation Midstream Wand o o o o X X X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Pregnancy test strips, vial configurations o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------- -----------------------
PERSONAL HEALTH JOURNALS:
- ----------------------------------------------------------------------------------------------------------- -----------------------
Men's Journal o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Woman's Journal o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Senior's Journal o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
My Pregnancy Journal o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
All About Me Children's Journal o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
DRUGS OF ABUSE SCREENING:
- ----------------------------------------------------------------------------------------------------------- ----------------------
One Step Cocaine Test Strip(TM) o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Opiate Test Strip(TM) o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Amphetamine Test Strip(TM)** o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Methamphetamine Test Strip(TM) o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Phencyclidine (PCP) Test Strip(TM)** o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Benzodiazepine Test Strip(TM)** o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Canabinoids (THC) Test Strip(TM) o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Methadone Test Strip(TM)** o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Barbiturates Test Strip(TM) o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Drugs of Abuse Panel Tests: (2,4,6 test panels) o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
INFECTIOUS DISEASE SCREENING:
- ----------------------------------------------------------------------------------------------------------- -----------------------
RapidTest HIV(TM)Screen ** o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
RapidTest HBsAg(TM)Screen (Hepatitis B) ** o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Strep A(TM)Screen o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Strep B(TM)Screen o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
RapidTest Chlamydia(TM)Screen ** o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
RapidTest H. pylori(TM)Screen o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
SALIVA SAMPLE COLLECTOR:
- ----------------------------------------------------------------------------------------------------------- -----------------------
Sani-Sal(TM) Saliva Collector o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
CARDIAC MARKERS:
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Cardiac Troponin I Test o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Myoglobin o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
CANCER SCREENS:
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step PSA Test ** o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Alphafetoprotein Test ** o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step LE Test (Lupus) o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
One Step Fecal Occult Blood Test(R) o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
URINALYSIS:
- ----------------------------------------------------------------------------------------------------------- -----------------------
Routine Urine Screening o o o o o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
Urine Specialty Product o X
- ----------------------------------------------------------------------------------------------------------- -----------------------
<FN>
** Products for Export Only
</FN>
</TABLE>
<PAGE>
TRANSDERMAL DRUG DELIVERY SYSTEMS
The Company's Pharmetrix Division is engaged in the research, development
and commercialization of transdermal drug delivery systems and skin permeation
technology for its own portfolio of products and on a contract basis for
pharmaceutical and cosmeceutical companies. TCPI's portfolio of transdermal drug
delivery systems is presently focused on products indicated for the treatment of
hormone replacement, cardiovascular disease, smoking addiction, pain management,
and various cosmeceuticals applications. Distribution of these transdermal drug
delivery systems includes direct marketing by TCPI as branded or private label
products or through OEM marketing and distribution agreements with major
multi-national pharmaceutical companies.
Transdermal drug delivery systems allow for the controlled release of
certain drugs directly into the bloodstream through the skin. Skin permeation
enhancers modify penetration characteristics of the skin to allow for a
significant increase in the transport of drugs through the skin. The advantages
of such systems over conventional drug administration include enhanced efficacy,
increased safety, greater convenience and improved patient compliance. The
worldwide transdermal drug delivery market has grown substantially and is
currently estimated to be more than $2.5 billion in 1996, with the U.S. market
accounting for approximately 40 percent.
TRANSDERMAL TECHNOLOGY. Pharmetrix has developed proprietary techniques and
manufacturing processes for adhesive and polymer, matrix, multi-laminate, liquid
reservoir and combination patch technologies. The Company's technical staff
works with a wide range of enhancer systems, including patented oxazolidinones
penetration enhancers to increase the skin permeability of individual drugs and
bioactive materials as required.
The Company is using this technology to develop transdermal drug delivery
products which offer one or more of the following advantages: (i) increased
efficacy and efficiency of the therapeutic agents involved; (ii) improved
bio-availability profiles; (iii) reduced costs; and (iv) delivery of novel
molecules through the skin for additional therapeutic indications.
TCPI's transdermal and skin permeation products are in various stages of
development. While results of certain preliminary clinical and/or laboratory
studies have indicated the efficacy of the Company's transdermal and skin
permeation technologies, before any of the Company's products can be
commercially marketed, significant additional testing will be necessary
(including laboratory tests on animals and humans) and results must be filed
with the FDA and/or similar regulatory agencies in other countries where such
products may be sold. The process of developing individual products and
obtaining FDA or foreign regulatory clearance could take up to several years for
each product. There can be no assurance that development of any such products
will be completed or that FDA clearance will be secured.
Pharmetrix also provides contract services to sponsoring pharmaceutical
companies seeking development and/or commercialization of transdermal
technologies, including research feasibility assessments, skin permeation
studies, formulation development, clinical manufacturing and clinical supplies,
process development and contract manufacturing. Product development begins with
customized feasibility studies that assess medical and client needs, proprietary
positioning and product definitions. Pharmetrix has developed, patented and
licensed transdermal systems to treat conditions such as drug addiction,
hormonal deficiencies, cardiovascular diseases, glaucoma, memory loss, chronic
pain, allergies and incontinence. The Company has previously entered into
agreements for contract development services or is currently involved with such
major multinational companies as Revlon Research Center, Inc. (skin permeation)
and Taiho Pharmaceutical Co., Ltd. (urinary incontinence). The Company is also
in discussions with selected companies concerning the development,
commercialization and distribution of several of the products in its own
portfolio. There can be no assurance that definitive arrangements will be
reached with any of these companies.
PLANNED PRODUCT DEVELOPMENT. The Company's development approach is focused
on achieving innovative solutions to specific drug delivery problems. TCPI
presently intends to concentrate on the development of transdermal products for
the treatment of the following conditions or diseases:
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<PAGE>
SMOKING ADDICTION. It is well recognized that tobacco smoking is among the
leading cause of preventable disease and death. Industry sources estimate that
in 1991, approximately 26% of adults in the U.S. smoked tobacco products and
that there were more than 434,000 smoking-related deaths -- accounting for a
mortality rate of more than one in every six deaths. The health risks of smoking
and non-smokers' growing intolerance of being exposed to secondary smoke are all
increasing the demand for effective methods to aid smokers to give up their
habit. The current worldwide market for transdermal smoking cessation products
is more than $600 million in annual sales.
Studies have shown that 80% to 90% of smokers want to stop smoking and have
tried at least once to do so. Of those, 70% relapsed during the first three
months. The main focus of treatment in recent years has been transdermal
nicotine patches. In 1991 and 1992, the FDA approved four nicotine patches for
sale by other companies. Those four products are now available in most developed
countries throughout the world.
The Company has entered into and completed a development contract for one
of the first generation nicotine patches currently on the market. TCPI intends
to manufacture and commercialize a second generation nicotine patch through its
Health-Mark Diagnostics subsidiary under both the HealthCheck brand and private
label identity in the over-the-counter market segment. The Company has also
developed and patented a unique smoking cessation approach that combines a
transdermal patch together with a rapidly dissolving lozenge which contains
nicotine. The lozenge is used to stem acute withdrawal spasms while the patch
delivers a lower maintenance dose of nicotine. The Company has held preliminary
distribution discussions with major drug chains and mass merchandisers.
HORMONE REPLACEMENT FOR MENOPAUSAL SYMPTOMS/OSTEOPOROSIS. The Company is
developing three hormone replacement transdermal drug delivery systems; one for
delivery of estradiol, another for delivery of a combination of estradiol and
progesterone; and the third for delivery of testosterone. With the aging of the
population over the next several decades, conditions and diseases such as
menopause and osteoporosis, which may benefit from hormone replacement therapy,
will become significantly more prevalent. It has been estimated that there are
approximately 90 million post-menopausal women worldwide and that this group is
one of the fastest growing demographic segments. By the year 2000, there is
expected to be approximately 43 million women in the menopausal age range
(50-59) in Europe and 16 million in the U.S. Industry sources estimate that the
1995 worldwide market for estrogen and combination transdermal drug delivery
systems was approximately $350 million.
CARDIOVASCULAR DISEASE. Angina pectoris is a condition caused by the
temporary inability of the coronary arteries to supply a sufficient quantity of
oxygenated blood to the heart muscle. An angina attack is accompanied by steady,
severe pain and intense pressure in the region of the heart. Angina attacks may
be relieved by the administration of nitroglycerin or isosorbide dinitrate
("ISDN"), known coronary vasodilators, which increase the flow of oxygenated
blood to the heart. The American Heart Association estimates that angina affects
over three million people in the United States.
Transdermal drug delivery systems have become a widely used form of
nitroglycerin and ISDN delivery because they avoid the limitations of orally,
sublingually and topically administered forms as well as help prevent angina
attacks by reliably providing continuous therapeutic levels of these drugs in
the bloodstream. Transdermal nitroglycerin delivery systems, which were first
introduced commercially in 1982, are currently marketed by several companies.
Industry sources estimate that the worldwide transdermal nitroglycerin market in
1995 was approximately $400 million.
URINARY INCONTINENCE. With the aging of the general population over the
next several years, the urinary incontinence treatment market is expected to
grow substantially. Industry sources estimate that the number of people over the
age of 65 in the United States is expected to rise from 31.6 million in 1990 to
35 million in 2000. Current treatment for urinary incontinence requires two to
four daily doses of continence drugs, a regimen particularly difficult for the
elderly. A transdermal drug delivery system under development by the Company has
the potential to simplify the dosage regimen and provide a visual indication
that the patient has taken the medication.
Page - 19
<PAGE>
PAIN MANAGEMENT. Traditionally narcotic analgesics have been the mainstay
for the treatment of moderate to sever pain, however, their addictive potential,
development of tolerance and respiratory depressant side effects often limit
their use for continuous or intermittent chronic administration. Many of the
approved narcotic analgesics are injected with multi-daily dosing regimens. The
analgesic market is large and there are opportunities for improved analgesic
agents and additional controlled release dosage forms for their administration.
Ketorolac tromethamine is a non-narcotic analgesic agent having similar
potency to morphine without the life-threatening side effect profile of the
narcotic analgesics, and offers an alternative to the use of narcotic analgesic
agents and belongs to the class of nonsterodial anti-inflammatory analgesic
drugs (NSAID).
The Company's Pharmetrix Division has developed transdermal therapeutic
system designs for delivery of Ketorolac for use in management of moderate to
severe pain. Two U.S. patents have been issued which provide coverage for
transdermal delivery of Ketorolac from several transdermal delivery system
designs. In addition, the Company is currently investigating other transdermally
delivered drugs active in pain management.
The following table sets forth information relating to the Company's
transdermal drug delivery products under development. The data included in this
table is qualified in its entirety to the more detailed information relating
thereto included elsewhere in this report.
Page - 20
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRODUCT MARKET
STATUS SECTOR
-------------------------------------------- -------------------------
-------------------------------------------- -------------------------
TRANSDERMAL DRUG DELIVERY PRODUCT PORTFOLIO In Pre- Regul- On O-T-C O-T-C OEM
Develop- Clinical Clinical atory The Health Private
ment Stage Trials Clear- Market Check Label
ance
<S> <C>
- ---------------------------------------------------------------------------------------------------------- -------------------------
HORMONE REPLACEMENT / OSTEOPOROSIS:
- ---------------------------------------------------------------------------------------------------------- -------------------------
Estradiol o o o X
- ---------------------------------------------------------------------------------------------------------- -------------------------
Estradiol / Progestin o o X
- ---------------------------------------------------------------------------------------------------------- -------------------------
Testosterone o o X
- ---------------------------------------------------------------------------------------------------------- -------------------------
CARDIOVASCULAR DISEASE:
- ---------------------------------------------------------------------------------------------------------- -------------------------
Nitroglycerin o o X
- ---------------------------------------------------------------------------------------------------------- -------------------------
Isosorbide Dinitrate (ISDN) o o X
- ---------------------------------------------------------------------------------------------------------- -------------------------
SMOKING CESSATION:
- ---------------------------------------------------------------------------------------------------------- -------------------------
Nicotine o o o X X
- ---------------------------------------------------------------------------------------------------------- -------------------------
Nicotine Lozenge o o
- ---------------------------------------------------------------------------------------------------------- -------------------------
OTHER:
- ---------------------------------------------------------------------------------------------------------- -------------------------
Bup-4 Incontinence * o o o X
- ---------------------------------------------------------------------------------------------------------- -------------------------
Ketorolac o o X
- ---------------------------------------------------------------------------------------------------------- -------------------------
Vitamin C/E Patch o o o X X
- ---------------------------------------------------------------------------------------------------------- -------------------------
Pain Patch o o X
- ---------------------------------------------------------------------------------------------------------- -------------------------
Physostigmine o X
- ---------------------------------------------------------------------------------------------------------- -------------------------
SKIN PERMEATION ENHANCER:
- ---------------------------------------------------------------------------------------------------------- -------------------------
SR-38 o X
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Undergoing clinical evaluation in Japan
</FN>
</TABLE>
BIOCHEMICAL MANUFACTURING
The Company currently manufactures the specialty chemical Tris and its
analogues, a biological buffer having numerous applications in the manufacturing
of pharmaceutical, cosmetic, diagnostic and other products. Although the Company
is capable of manufacturing other biochemical products, it does not intend to
broaden its product line at this time. The Company does, however, intend to
continue manufacturing and selling Tris.
PRODUCT RESEARCH AND DEVELOPMENT
The Company's products are in various stages of commercialization, and
include those that are already on the market and others that are in development,
in the pre-clinical stage, and seeking regulatory clearance. See the "Diagnostic
Product Portfolio" and the "Transdermal Drug Delivery Portfolio." The Company
conducts an active research and development program to strengthen
Page - 21
<PAGE>
and broaden its existing products and to develop new products and systems. The
Company's development strategy is to identify products and systems which are, or
are expected to be, needed by a significant number of potential customers in the
Company's markets and to allocate a greater share of its research and
development resources to areas with the highest potential for future benefits to
the Company. In addition, the Company seeks to develop specific applications
related to its present technology.
MANUFACTURING AND MATERIALS
During 1997, the Company significantly expanded its manufacturing
capabilities and expects to continue to do so in 1998 in order to further reduce
its dependence on third party contractors. With respect to those components the
Company does not yet manufacture in-house, it has identified alternate
manufacturing sources, however, a change in manufacturers without appropriate
lead time could result in a material delay in the delivery of the Company's
products and may subject the Company to less favorable price terms. The Company
is devoting a major portion of its manufacturing to the production of new
products.
The Company purchases, pursuant to written agreements with its key
suppliers, the materials used to manufacture its products from single suppliers
to obtain the most favorable price and delivery terms. Although the Company has
identified an alternate supply source with respect to each of such materials, a
change in the supplier of these materials without the appropriate lead time
could result in a material delay in the delivery of products to the Company's
customers. There can be no assurance that the Company would not be subject to
less favorable price and delivery terms as a result of changing suppliers.
PATENTS, TRADEMARKS AND TECHNOLOGIES
PATENTS. The Company currently has 22 U.S. patents and 29 foreign patents,
and has five pending U.S. patent applications and more than 30 pending foreign
patent applications.
The Company's President and Chief Executive Officer, Mr. Jack Aronowitz, is
the legal owner and a co-inventor of certain key patents utilized by the
Company, and he has licensed to the Company the right to utilize the patents.
The license agreement between Mr. Aronowitz and the Company provides that any
patents, products, inventions, devices or other items developed by Mr. Aronowitz
during the term of the license agreement (other than those based upon the
patents licensed pursuant to the license agreement) in the field of medical
diagnostics, pharmaceuticals, transdermal testing, transdermal drug delivery,
medical chemistry or medical biochemistry, medical device or health care
products are the property of the Company. See "Certain Relationships and Related
Transactions."
Although the Company has obtained patents in the U.S. with regard to
aspects of its membrane-based technology and specific applications thereof, the
Company does not have European patents which correspond to certain of such U.S.
patents. To the best of the Company's knowledge, however, its membrane-based
technology does not infringe the patent of any third party in the U.S. or
Europe. The Company is seeking, and intends to continue to seek, patent
protection where appropriate for improvements to its membrane-based technology.
The Company requires its key employees, consultants and advisors to execute
a confidentiality and assignment of proprietary rights agreement upon the
commencement of an employment or a consulting relationship with the Company.
These agreements generally provide that all inventions, ideas and improvements
made or conceived by the individual arising out of the employment or consulting
relationship shall be the exclusive property of the Company and that all
information related thereto shall be kept confidential and not disclosed to
third parties except by consent of the Company or in other specified
circumstances. There can be no assurance, however, that these agreements will
provide effective protection for the Company's proprietary information in the
event of unauthorized use or disclosure of such information.
The Company's success will depend, in part, on its ability to protect,
obtain or license patents, protect trade secrets and operate without infringing
the proprietary rights of others. See "Business - Litigation." There can be no
assurance, however, that existing patent applications will mature into issued
patents, that the Company will be able to obtain additional licenses to patents
of others, or that the Company will be able to develop its own patentable
technologies. Further, there can be no assurance that any patents issued to the
Company will provide it with competitive advantages or will not be challenged by
others, or if challenged, will be held valid, or that the patents of others will
Page - 22
<PAGE>
not have an adverse effect on the ability of the Company to conduct its
business. In addition, there is no assurance that the Company's current patents
or any patents issued in the future will prevent other companies from
independently developing similar or functionally equivalent products.
TRADEMARKS. The following represents the Company's products which have
received registered and/or trademark authority
TCPI REGISTERED TRADEMARKS
hCG Pregnancy One Step(R)
Pregnancy One Step(R)
Pregnancy One Step Test Strip(R)
One Step LH Test Strip(R)
One Step Whole Blood Cholesterol Test Strip(R)
Health Test Center(R)
One Step Fecal Occult Blood Test(R)
Soft-E-Touch(R)
TCPI TRADEMARKS
TD Glucose(TM)
HealthCheck(TM)
CholestoCheck(TM)
One Step Drugs of Abuse Test Strip - Cannabinoids (THC)(TM)
One Step Drugs of Abuse Test Strip - Amphetamine(TM)
One Step Drugs of Abuse Test Strip - Methamphetamine(TM)
One Step Drugs of Abuse Test Strip - Opiates(TM)
One Step Drugs of Abuse Test Strip - Benzodiazepine(TM)
One Step Drugs of Abuse Test Strip - Barbiturate(TM)
One Step Drugs of Abuse Test Strip - Phencyclidine (PCP) (TM)
One Step Drugs of Abuse Test Strip - Methadone(TM)
One Step-One Minute Pregnancy Test*
RapidTest HIV(TM)
RapidTest Chlamydia Screen(TM)
RapidTest HBsAg Screen(TM)
One Step Strep A Screen(TM)
One Step Strep B Screen(TM)
One Step H. pylori Screen(TM)
Sani Sal(TM)
* Trademark Application Submitted
COMPETITION
Competition in the development and marketing of medical diagnostic tests
and transdermal drug delivery products is intense and expected to increase. The
Company's competitors include companies that have developed products similar in
design and capability to those of the Company as well as suppliers of such
products, including hospitals and laboratories. Many of the Company's current
and potential competitors have significantly greater technical, financial and
marketing resources than the Company. There can be no assurance that the Company
will have the financial resources, technical expertise or marketing,
distribution or support capabilities to compete successfully in the future.
There can be no assurance that the Company's products will be competitive with
existing or future products of competitors.
Page - 23
<PAGE>
The Company believes that competition in the sale of medical diagnostic
tests is based primarily upon the following factors: accuracy and precision,
speed of response, ease of use and cost. Although the Company believes that it
competes favorably in each of these categories, many of the Company's
competitors in this market have significantly greater resources and experience
than the Company and there can be no assurance that the Company will be able to
compete favorably.
The Company believes that its transdermal drug delivery products will have
to compete on the basis of safety, efficacy, patient compliance, reduced side
effects, product appearance and comfort, price, and, in certain cases, scope of
patent rights. There can be no assurance that the Company will successfully
develop technologies and products that are more effective or affordable than
those being developed by its competitors. In addition, one or more of the
Company's competitors may achieve patent protection, regulatory approval or
commercialization earlier than the Company. The first transdermal drug delivery
product introduced in a particular area may gain a competitive advantage
relative to other entrants to the market.
MARKETING AND SALES
To date, the Company's medical diagnostic products have been primarily
distributed through strategic alliances. To a lesser extent, the Company's
medical diagnostic products have been distributed by the Company directly under
the Company's proprietary brand name and under private label arrangements with
drug, discount and supermarket chains such as CVS, Thrifty Payless, Thrift Drug,
Woolworth, Fedco, Long's and Smith's Food & Drug. The Company has expanded
direct distribution of its diagnostic products as evidenced by the creation of
the HealthCheck line of products and the Health Test Center. The Company also
intends to enter into strategic alliances with major international medical
diagnostic and pharmaceutical companies for the marketing of many of its
diagnostic products. These companies have significantly greater financial,
marketing and other resources than the Company, and will therefore be able to
market the Company's products more effectively through a wider range of
distribution channels to a larger market.
The Company's strategy with respect to development and commercialization of
its transdermal and mucosal drug delivery and skin permeation enhancer products
have two significant components (i) identify and bring to market those products
which are candidates for the ANDA process, and which can be sold
over-the-counter as HealthCheck products and (ii) enter into strategic alliances
with third parties that can fund a portion of product development costs, market
the product and, in some cases, participate in clinical testing and obtain
regulatory approvals. In an effort to exercise control over the quality of its
products and capture a larger portion of the revenues therefrom, the Company
will seek to retain manufacturing rights to its products developed under such
strategic alliances.
Since 1992, Boehringer Mannheim has had an exclusive agreement to
distribute the Company's One Step hCG Pregnancy Test Strip, its One Step hCG
Midstream Wand and its One Step LH Ovulation Test Strip products worldwide. In
February 1998, the Company announced a new agreement with Boehringer Mannheim
for more than $5 million per year of the Company's finished and packaged family
planning products, which will be directly supplied to Boehringer Mannheim
distributors. In March 1997, the Company signed another exclusive marketing
agreement with Boehringer Mannheim Argentina to market a minimum of $50 million
of its new diagnostic products for infectious diseases, drugs of abuse testing
and cancer screening throughout Latin America during the next 10-years. In
addition, the Company is engaged in ongoing discussions with Boehringer Mannheim
to identify other potential product additions to this agreement. In 1997,
Boehringer Mannheim Group was acquired by Roche Holdings AG, one of the leading
global pharmaceutical companies.
EMPLOYEES
As of December 31, 1997, the Company employed 62 full-time employees,
including 19 involved in research and development, 12 involved in
administration, 23 in operations, and 8 in marketing and sales. To temporarily
expand its capabilities for larger assembly and packaging projects, the Company
also hires part time employees. The Company has no collective bargaining or
Page - 24
<PAGE>
similar agreement with its employees, but does have an employment agreement with
its President. See "Note 7 to the accompanying Consolidated Financial
Statements." Although management does not anticipate any difficulty in locating
and engaging employees to meet the Company's expansion plans, there can be no
assurance that the Company will be successful in doing so.
YEAR 2000
During 1997, the Company added to its existing computer capabilities and
began installation of new computer systems and programs to accommodate
anticipated future growth of TCPI's business and internal operations. Due to the
recent nature of any computer-related additions, as well as preliminary
discussions with certain vendors and customers, the Company believes the Year
2000 computer issue will not have a material impact on its business, operations
or financial condition.
GOVERNMENTAL REGULATION
OVERVIEW. The development, manufacture and marketing of drug delivery
systems and medical diagnostic products are subject to regulation by the FDA and
other federal, state and local entities. These entities regulate, among other
things, research and development activities and the testing, manufacturing,
packaging, labeling, distribution, storage and marketing of the Company's
products. Sales of the Company's products outside the United States are subject
to comparable regulatory requirements. These requirements vary widely from
country to country.
MEDICAL DIAGNOSTIC PRODUCTS. FDA permission to market and distribute a new
medical diagnostic product can be obtained in one of two ways. If a new or
significantly modified product is "substantially equivalent" to an existing
legally marketed product, the new product can be commercially introduced after
submission of a 510(k) notification to the FDA, and after the subsequent
clearance by the FDA. Less significant modifications to existing products that
do not significantly affect the product's safety or effectiveness can be made by
the Company without a 510(k) notification. A company that manufactures devices
subject to 510(k) clearance must also comply with device good manufacturing
practices ("CGMP") and will be subject to periodic inspections by the FDA to
confirm compliance.
The second, more stringent approval process applies to a new product that
is not substantially equivalent to an existing product. A premarket approval
application ("PMA") will be required for this type of product. The steps
required in the PMA process generally include: (i) preclinical studies; (ii)
clinical trials in compliance with testing protocols approved by an
Institutional Review Board ("IRB") for the participating research institution;
(iii) data from clinical trials sufficient to establish safety and effectiveness
of the device for its intended use; (iv) submission to the FDA of an application
that contains, among other things, the results of clinical trials, a full
description of the product and its components, a full description of the
methods, facilities and controls used for manufacturing and proposed labeling;
and (v) review and approval of the PMA by the FDA before the device may be
shipped or sold commercially. Finally, the manufacturing site for the product
subject to either 510(k) or PMA clearance must operate using device CGMP and
pass a FDA inspection before product commercialization.
A device requiring a PMA that has not been cleared for marketing in the
United States, or one that is not substantially equivalent to a currently
marketed device, may be exported to a foreign country for sale, subject to the
laws of such foreign jurisdictions.
DRUG DELIVERY PRODUCTS. The process required by the FDA before a drug
delivery system may be marketed in the United States depends on whether the
pharmaceutical compound has existing clearance for use in other dosage forms
(e.g., oral solution, tablet). If the drug is a new chemical entity that has not
been cleared, then the process includes: (i) preclinical laboratory and animal
tests; (ii) the filing of an Investigational New Drug Application ("IND") with
the FDA requesting authorization to conduct clinical trials; (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug for its intended use; (iv) submission to the FDA of a New Drug
Application ("NDA"); and (v) FDA review and clearance of the NDA. If the drug
has been previously cleared, then the sponsor of a generic form of the same drug
may obtain approval by submitting an Abbreviated New Drug Application ("ANDA")
that demonstrates that the two products are bioequivalent. In addition to the
Page - 25
<PAGE>
foregoing, the FDA requires proof that the drug delivery system delivers
sufficient quantities of the drug to the bloodstream to produce the desired
therapeutic result.
Under the Drug Price Competition and Patent Term Restoration Act of 1984,
an NDA sponsor may be granted market exclusivity for a period of time following
FDA approval, regardless of the patent status of the product, for certain drug
products (e.g., new chemical entities). This marketing exclusivity would prevent
a third party from obtaining FDA clearance for a similar or identical drug
through the ANDA process. There can be no assurances, however, that any of the
Company's products will be afforded market exclusivity.
In addition to obtaining FDA clearance for each drug product, each
manufacturing establishment of new drugs must receive clearance by the FDA.
Among the conditions for such approval is the requirement that the prospective
manufacturer's quality control and manufacturing procedures conform to the FDA's
current drug CGMP regulations. Drug manufacturers are also subject to periodic
CGMP. Finally, in order to export unapproved drug products from the United
States for commercial or clinical use, prior FDA export clearance is required.
The process of completing clinical testing and obtaining FDA clearance for
device or drug products is likely to take a number of years and require the
expenditure of substantial resources. The FDA may deny a clearance if applicable
regulatory criteria are not satisfied or may require additional clinical
testing. Even if such data are submitted, the FDA may ultimately decide that the
submission does not satisfy the criteria for clearance. Product clearances may
be withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. The FDA may require testing
and surveillance programs to monitor the effect of products that have been
commercialized, and it has the power to prevent or limit further marketing of
the product based on the results of these post-marketing programs.
There can be no assurance that problems will not arise that could delay or
prevent the commercialization of the Company's products, or that the FDA, state
and foreign regulatory agencies will be satisfied with the results of the
clinical trials and approve the marketing of any products.
PRODUCT LIABILITY INSURANCE
The Company's business exposes it to potential product liability risks
which are inherent in the testing, manufacturing, marketing and sale of medical
diagnostic and drug delivery products. Although the Company carries product
liability insurance, there can be no assurance that claims exceeding the policy
limit may not be made, potentially causing a material adverse effect on the
Company.
EXECUTIVE OFFICERS OF THE COMPANY
See Item 10 - "Directors and Executive Officers of the Registrant."
Item 2. PROPERTIES
The Company leases approximately 40,000 square feet of space, including its
corporate headquarters, general office, manufacturing, and warehouse space, in a
building located at 3341 S.W. 15th Street, Pompano Beach, Florida 33069. The
Company also maintains approximately 6,500 square feet of additional warehouse
space in Pompano Beach, Florida. The lease expires in 1999 and the Company
currently pays approximately $19,000 per month in rent, including sales tax and
maintenance fees. The rent is adjusted annually based upon changes in the U.S.
Consumer Price Index. The lease also requires the Company to pay real estate
taxes, insurance and certain costs for maintaining the premises. Management
believes that suitable premises are readily available on acceptable terms should
the present premises become unavailable for any reason.
The Company also leases a 25,000 square foot custom-designed facility in
Menlo Park, California that includes office space, fully-equipped laboratories
for transdermal drug delivery research and production capabilities. This lease
Page - 26
<PAGE>
expires in June 1999 and the Company currently pays approximately $28,000 per
month in rent under the lease.
Item 3. LEGAL PROCEEDINGS
The Company has been named in a lawsuit which alleges misappropriation of
trade secrets, confidential information and intellectual property related to an
HIV saliva test kit. The plaintiffs seek injunctive relief and monetary damages
in excess of $15,000. Management believes, after consultation with counsel, that
each of the allegations included in the lawsuit is without merit, and plans to
contest each of the allegations vigorously. This lawsuit is in its preliminary
stages and discovery has not been completed. At this time, it is not possible to
estimate the ultimate loss, if any, related to this lawsuit.
In addition to the above, the Company is subject to claims and suits
arising in the ordinary course of business. In the opinion of management, the
ultimate resolution of such pending legal proceedings, including those described
above, will not have a material adverse effect on the Company's results of
operations or financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the submission of
proxies or otherwise.
Page - 27
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market under
the symbol TCPI and is included for quotation on the Nasdaq National Market. The
following table sets forth the range of high and low sale prices for the Common
Stock for the periods indicated, as reported by Nasdaq.
<TABLE>
<CAPTION>
Sale Prices
High Low
Fiscal Year 1996
<S> <C> <C> <C>
Quarter Ended March 31, 1996 ................................ $ 22 3/8 $ 13 1/4
Quarter Ended June 30, 1996 ................................ $ 20 1/4 $ 9 5/8
Quarter Ended September 30, 1996 ............................ $ 14 5/ $ 7 1/8
Quarter Ended December 31, 1996 ............................ $ 11 3/4 $ 6 3/4
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1997
<S> <C> <C> <C>
Quarter Ended March 31, 1997 .............................. $ 10 7/8 $ 7 3/4
Quarter Ended June 30, 1997 ............................... $ 12 1/8 $ 7
Quarter Ended September 30, 1997 ............................ $ 16 5/ $ 8 1/2
Quarter Ended December 31, 1997 ............................. $ 19 3/8 $ 10 3/4
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1998
<S> <C> <C> <C>
Quarter Ended March 31, 1998 (to March 24, 1998)............. $ 13 3/4 $ 8
</TABLE>
There were approximately 128 holders of record of Common Stock as of
January 15, 1998. In addition, the Company estimates there are approximately
2,500 beneficial owners of its Common Stock. The Company has not paid cash
dividends in the past.
Page - 28
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and the notes thereto included elsewhere in this
report. The statement of operations data for the years ended December 31, 1997,
1996 and 1995, respectively, and the balance sheet data at December 31, 1997,
and 1996, respectively, are derived from the audited financial statements
included elsewhere in this report and should be read in conjunction with those
financial statements and the notes thereto.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
(Amounts in thousands, except share data)
DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross product sales............................... $ 6,240 $ 5,727 $ 4,712 $ 3,013 $ 1,784
Net sales......................................... 6,194 5,568 4,188 3,013 1,784
Gross profit...................................... 2,777 1,862 936 1,037 757
R&D contract revenue.............................. 423 1,280 - - -
Selling, general and administrative expense ...... 6,575 4,079 1,807 666 682
Research and development expense ................. 2,726 1,767 435 73 3
Depreciation and amortization(2) ................. 1,742 1,670 219 22 -
(Loss) Income from operations .................... (7,843) (4,374) (1,525) 276 72
Net (Loss) Income(1) ............................. (4,489) (2,550) (1,274) 156 59
Basic and diluted net (loss) income per common
share(1) ......................................... $ (.45) $ (.27) $ (.18) $ .04 $ .01
Weighted average common shares outstanding ....... 9,992,066 9,290,476 7,069,507 4,295,116 4,066,666
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
(Amounts in thousands)
DECEMBER 31,
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash, cash equivalents and investments available
for sale .......................................... $ 7,337 $ 13,300 $ 1,777
Working capital ................................... 9,401 15,348 (2,979)
Total assets ...................................... 33,597 37,526 22,610
Total current liabilities ......................... 2,069 1,660 6,452
Total stockholders' equity ........................ 31,358 35,694 16,154
<FN>
Notes:
(1) For the years ended December 31, 1994, 1993, the Company was operated as an
S Corporation under the applicable provisions of the Internal Revenue Code,
and accordingly, the Company's taxable income was taxed directly at the
shareholder level. The net income and earnings per common share amounts for
the years ended December 31, 1995, 1994, 1993, assume that the Company was
subject to federal and state income taxes and taxed as a C Corporation in
each of these three years at the tax rates in effect for these periods. See
- Notes 1 and 6 to the accompanying Consolidated Financial Statements.
(2) For the year ended December 31, 1993, depreciation and amortization was
included in selling, general and administrative.
</FN>
</TABLE>
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<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is in the midst of completing a transition. TCPI was formerly a
developmental company that manufactured and sold a narrow range of medical
diagnostic products and specialty chemicals on an OEM basis. TCPI is now
approaching its goal of being a designer, developer, manufacturer and global
marketer of a wide range of point-of-care medical diagnostic products for use at
home, in physician offices, and other healthcare locations with growing
distribution channels for its products. In addition, through its Pharmetrix
Division located in Menlo Park, California, the Company is also focused on the
research and development and commercialization of transdermal and dermal drug
delivery systems and skin permeation enhancers. TCPI also manufactures high
purity specialty biochemicals.
TCPI currently manufactures and markets more than 47 membrane-based
diagnostic tests in the United States and internationally, 26 of which have
received 510(k) clearance from the FDA. The Company's products include tests and
screens for pregnancy, ovulation timing, cholesterol levels, blood glucose
levels, infectious diseases, drugs of abuse and certain types of cancer. In
addition, the Company has over 20 other diagnostic and transdermal drug delivery
products in various stages of development and governmental approval.
The Company's products are distributed worldwide under OEM marketing
relationships with multinational pharmaceutical and diagnostic companies, and
also are directly marketed for over-the-counter use by consumers. The Company
expects to continue developing its medical diagnostic products internally and
also intends to enter into strategic alliances with major international
diagnostic and pharmaceutical companies for the marketing and distribution of
certain of its products. With respect to the development and commercialization
of its transdermal drug delivery systems and skin permeation enhancers, the
Company intends to enter into strategic alliances with third parties that may,
in some cases, fund a portion of the product development costs, participate in
clinical testing, obtain regulatory approvals and market the product.
During the past year, the Company has engaged in the following activities:
TD GLUCOSE MONITORING SYSTEM
-TCPI continues to commit significant resources to the development
and commercialization of its innovative non-invasive transdermal
glucose monitoring system. Development of the TD Glucose
Monitoring System has been completed and the clinical trial
process began during the fourth quarter of 1997. The Company
expects these clinical activities to be substantially completed
during the first half of 1998. The registration studies are being
conducted at several undisclosed large diabetic clinics under the
supervision of independent investigators. During these studies,
the Company anticipates testing the glucose level of approximately
3,000 people with diabetes with its TD Glucose Monitoring System
and obtaining venous blood samples from each patient for
corresponding laboratory analysis. The purpose of collecting
correlation data is to attempt to develop algorithms, or complex
mathematical formulas, which could allow the TD Glucose meter to
display glucose levels equivalent to venous blood glucose. Upon
completion of the registration studies, the Company will submit
its clinical data to the FDA for review as soon as possible
thereafter. There can be no assurance the registration and
correlation studies will be successful or produce data suitable
for submission to the FDA. Based on discussions with the FDA and
prior acceptance of TCPI's protocol to conduct its Clinical
Trials, which was acknowledged without review, the Company
believes its TD Glucose Monitoring System is eligible for the
expedited 510(k) clearance process. There can be no assurances
that the FDA will consider the TD Glucose Monitoring System for
510(k) clearance or, if it is considered, that the TD Glucose
Monitoring System will receive 510(k) clearance.
Page - 30
<PAGE>
-In June 1997, the Company announced the involvement of SmithKline
Beecham in becoming its worldwide marketing partner for this
important product. The companies entered into an exclusive
agreement that granted SmithKline Beecham a six month period to
further evaluate the TD Glucose Monitoring System technology,
conduct due diligence, perform market studies and negotiate a
definitive licensing agreement. Terms of the agreement included an
up-front payment to TCPI as well as the mutual exchange of
technical and marketing information related to this product. These
negotiations were ongoing and, in the event such terms were unable
to be reached, TCPI was prepared to move forward with several
other potential marketing partners.
-On January 30 1998, the SmithKline Beecham product assessment and
option agreement related to TCPI's non-invasive glucose monitoring
system lapsed and was not extended by either party. SmithKline
Beecham executives characterized the action as "a fundamental
change in the strategic intent for consumer diagnostic products."
As a result, the Company immediately resumed discussions with
companies it was in discussions with prior to and approached by
during and subsequent to the option period.
-Also in February 1998, TCPI and Daiichi Pharmaceutical Co. Ltd.
announced a letter of intent related to marketing and
distribution rights of the TD Glucose Monitoring System in Japan
and Taiwan. Completion of a definitive $10 million licensing
agreement is expected to be finalized in about 180 days.
HEALTHCHECK
-During 1997, the Company launched its HealthCheck brand of at
home diagnostic products for consumers. The line consists of 14
accurate and easy to use over-the-counter tests and screening
products for cholesterol, diabetes, urinary tract infection,
pregnancy, ovulation, skin cancer and deteriorating vision, as
well as a series of health journals specifically designed for
women, men, seniors, children and pregnant women.
-Since market introduction in the second quarter of 1997, more
than 38 chain and independent pharmacies have placed orders for
HealthCheck products, providing the Company with more than 30%
market penetration of the approximately 60,000 pharmacies in the
United States. In total, the Company's at-home diagnostics
products are available through such (i) leading pharmacies as
Walgreen Drug Stores, Eckerd Corp., CVS-Revco, Thrifty Payless,
Thrift Drug, Phar-Mor, Genovese Drug Stores, Longs Drug Stores,
Smiths Food & Drug, Osco Drug, Sav-On Stores, Snyder Drug, Kinney
Drugs, Harco Drug; (ii) leading supermarkets such as Kroger,
Thriftway Foods, Seaway Foods and Ukrop's Super Markets; and (iii)
leading drug wholesale distributors McKesson Corp., AmeriSource
Health Corp., Bindley Western Industries, Bergen Brunswig Drug
Company, Neuman Distributors, KinRay, Allou Distributors, and F.
Dohman Co.
-In September 1997, TCPI kicked-off a six-week national radio
advertising campaign to introduce consumers to the HealthCheck
brand. During this campaign, a total of 300 radio commercials
aired on such top-rated nationally syndicated programs such as the
Rush Limbaugh Show, Dr. Dean Edell Show, Dr. Laura Schlessinger
Show, Gary Burbank Show, Michael Reagan Show, Bob Grant Show, Dr.
Joyce Browne Show, Country Heartlines and One-On-One Sports. These
commercials were expected to reach approximately 175 million
adults age 35 and older.
OTHER PRODUCTS
-The Company has had a non-exclusive worldwide marketing and
distribution agreement with Boehringer Mannheim for its family
planning diagnostic products since 1992. In February 1998, the
Company announced a new agreement with Boehringer Mannheim for
more than $5 million per year of the Company's finished and
Page - 31
<PAGE>
packaged family planning products, which will be supplied directly
to Boehringer Mannheim distributors.
-In January 1997, the Company entered into a multi-phase agreement
with Taiho Pharmaceutical Co., Ltd. to develop a rapid, one-step
whole blood antigen diagnostic test to monitor the effectiveness
of Taiho's new anti-cancer drug. The Company expects to receive
milestone payments from Taiho during the 12-18 month development
period as each phase is completed. In addition, upon
commercialization, if elected by Taiho, TCPI retains exclusive
manufacturing rights to the product.
-In March 1997, TCPI announced an exclusive marketing agreement
with Boehringer Mannheim Argentina SACIeI ("BMRA") to distribute
more than $50 million of the Company's new diagnostic products for
infectious diseases, drugs of abuse and cancer screens throughout
Latin America over the next 10 years. However, the acquisition of
Boehringer Mannheim Group by Roche Holding AG served to defer the
ordering and shipment of these products into 1998. The Company
recently shipped its first sample of infectious disease testing
products for governmental approval to BMRA. Discussions with
executives of BMRA to outline product distribution plans in South
America are ongoing.
-In April 1997, the Company introduced its visually read
CholestoChek Total cholesterol screening test for at-home use by
consumers as part of the HealthCheck family of products. TCPI
expects to complete the clinical and regulatory actions necessary
to have its visually read HDL Cholesterol Test Strips and its
Total and HDL Cholesterol Meter products enter the respective
consumer and professional marketplaces later this year. In
February 1998, the Company suspended domestic retail sales and
voluntarily recalled its CholestoChek Total cholesterol screening
test. However, the CholestoChek Total cholesterol monitoring test
remains available to the professional sector. This action stemmed
from advice from the FDA about regulatory clearance. In 1988, a
predecessor company of TCPI was granted 510(k) regulatory
clearance to market its Total cholesterol testing product. The
Company believed that the clearance was for both professional and
over-the-counter use. As a reformulated and updated Total
cholesterol test was already in clinical trials -- and a separate
HDL cholesterol test already in development -- TCPI elected to
take voluntary action to resolve this regulatory issue and
maintain its good standing with the FDA. This procedural matter
relates only to this particular product. There was no material
financial impact on the Company, nor did this affect any of
TCPI's other products already on the market or in various stages
of development.
RESEARCH AND DEVELOPMENT
-The Company conducts an active research and development program
to strengthen and broaden its existing products and to develop new
products and systems that utilize specific applications related to
its patented and proprietary membrane-based technology. The
present diagnostic focus includes products for glucose and
cholesterol monitoring, at home tests and screens for cholesterol,
diabetes, urinary tract infection, pregnancy and ovulation, skin
cancer and deteriorating vision, as well as drugs of abuse,
infectious diseases, cardiac markers, cancer and urinalysis.
TCPI's products are in various stages of commercialization, and
include those that are already on the market and others that are
in development, in the pre-clinical stage, and seeking regulatory
clearance. See the "Diagnostic Product Portfolio."
-The Company is continuing development of several transdermal drug
delivery products at its Pharmetrix Division based in Menlo Park,
California and is actively working on the commercialization of
several products by completing the development, and planning for
manufacturing, marketing and distribution. In addition, Pharmetrix
has been asked to prepare feasibility studies on behalf of several
clients to evaluate the applicability of its transdermal drug
delivery technology with various compounds. The present
transdermal drug delivery focus includes systems related to
hormone replacement therapy, cardiovascular disease, smoking
cessation and skin permeation enhancers, among others. See the
"Transdermal Drug Delivery Portfolio."
Page - 32
<PAGE>
MANUFACTURING SCALE-UP
-Over the past year, the Company's facilities located in Florida
have been expanded to accommodate full-scale manufacturing of
medical diagnostic products. This expansion has included:
-Acquisition of major production equipment for manufacturing
of the products
-Re-tooling and refurbishing of equipment to significantly
increase its capacity
-Purchase and installation of custom high-speed packaging
equipment
-Expansion of sales and marketing, production and warehouse
facilities to accommodate the in-house manufacturing program
-Additions to the Florida research and development facilities
and professional staff to increase product development
capabilities -- including the addition of Jeffrey Bolts,
Ph.D. as Director of Quality Assurance
KEY ADDITION TO THE BOARD OF DIRECTORS AND MANAGEMENT
-In February 1998, the Board of Directors nominated Noel
Buterbaugh to serve as a member of TCPI's Board. His nomination is
subject to shareholder approval and will be voted upon in
connection to the upcoming Annual Shareholder's Meeting scheduled
for May 22, 1998. Mr. Buterbaugh is presently the President and
Chief Executive Officer of BioWhittaker, Inc., a subsidiary of
Cambrex Corporation (AMEX: CMB), which acquired BioWhittaker
in 1997. Prior to the acquisition, he was President and Chief
Executive Officer of BioWhittaker, Inc. (NYSE: BWI) from 1992 to
1997 and President and Chief Operating Officer since 1991. From
1979 to 1991, he was President of Whittaker Bioproducts, Inc., a
subsidiary of Whattaker Corporation, which was spun-off to
shareholders in 1991. From 1958 to 1979, he held numerous senior
management positions in sales and marketing and product
manufacturing with Microbiological Associates, Inc., a Division of
Whittaker Corporation.
-In October 1997, Stephen J. Dresnick, MD, FACEP, joined the
Company's Board of Directors. He is the Vice Chairman of FPA
Medical Management, Inc. (Nasdaq: FPAM) which is expected to have
revenues in excess of $1 billion in 1997. Dr. Dresnick has more
than 25 years of experience in the medical sector and executive
management and brings to the TCPI Board well-established
relationships with the scientific and financial communities. Prior
to a merger with FPA Medical Management in 1996, he was President
and Chief Executive Officer of Sterling Healthcare Group, a
publicly-held hospital emergency department contract management
and primary care physician practice management company, which he
founded in 1987.
-In February 1997, Colin A. Morris joined TCPI as Vice President
of Transdermal Manufacturing. He has operating responsibilities
for TCPI's portfolio of transdermal drug delivery products and
related contract services activities at the Company's transdermal
R&D facility in Menlo Park, California, operated by its Pharmetrix
Division. In addition, Mr. Morris participates in the
manufacturing, engineering and commercialization phases of the
Company's TD Glucose Monitoring System. He is a specialist in
commercializing new products, new facility development, and
preparations for FDA process and facility approvals with
experience covering scale up, process validation, facility design
and construction, staffing and systems development for such
companies as Johnson & Johnson, Rhone-Poulenc Rorer, Sterling Drug
and Noven Pharmaceuticals.
-In August 1997, Robert G. Bachkosky joined the Company as Vice
President of Marketing and Business Development. He directs the
global marketing programs for TCPI's expanding portfolio of
diagnostic products used by consumers and healthcare
professionals. Mr. Bachkosky has more than 20 years of experience
in sales and marketing of medical diagnostic, scientific and
general healthcare products. During the past 12 years, he held
various senior level positions with Boehringer Mannheim
Corporation in Indianapolis, Indiana, and most recently was
responsible for market development of "Point of Care" products to
Page - 33
<PAGE>
Latin America and Canada. His additional healthcare experience
includes Cordis Laboratories, Curtin Matheson Scientific, and the
Greater Southeast Community Hospital in Washington, D.C.
-In January 1998, Gregory J. Candelmo has joined the Company as
Vice President of Sales. He directs the domestic sales programs
for TCPI's diagnostic testing products and transdermal drug
delivery systems used by consumers and healthcare professionals.
Mr. Candelmo has more than 12 years sales and sales management
experience in medical diagnostics and scientific instruments which
includes Director of Sales and Marketing for GDS Diagnostics, as
well as various sales management positions with Boehringer
Mannheim Corporation from 1991 to 1997 that included Diagnostic
Systems Director of Sales, Lab Diagnostics Regional Business
Manager, AccuData System Product and Marketing Manager, and
Diabetes Care Division Regional Sales Manager. He also held sales
management and field sales positions with Behring Diagnostics,
Cooper Biomedical/Technicon Instruments, and Proctor and Gamble.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Due to the timing of the FDA clearance process and the expenses incurred in
the manufacturing scale-up for the Company's products, the Company's results of
operations vary from period to period.
PRODUCT SALES. The Company's net product sales increased by 11% to $6.2
million in 1997 from $5.6 million in 1996. This increase resulted principally
from the successful launch of the Company's HealthCheck at-home diagnostic tests
and screening products as well as higher sales of its private label and OEM
family planning products. Also contributing to this growth was sales of TCPI's
new diagnostic products for infectious diseases and drugs of abuse, as well as
several other products. The gain in net sales would have been even greater were
it not for the deferral into 1998 of approximately $3.5 million in sales of new
diagnostic products in Latin American which were previously anticipated to begin
in 1997.
GROSS PROFIT. The Company's gross profit on product sales increased by $915
thousand to $2.8 million in 1997 from $1.9 million in 1996. Gross profit as a
percent of net sales increased to 45% in 1997 from 33% in 1996. The increase was
principally due to a change in product mix, including the market introduction of
the HealthCheck family of at home diagnostic tests and screening products in
addition to increased in-house manufacturing and achieving various economies of
scale-up.
SELLING, GENERAL AND ADMINISTRATIVE. Selling general and administrative
(SG&A) expenses increased substantially in 1997 as compared to 1996. This
increase was primarily due to the planned implementation of strategic marketing
programs, including the successful launch of the HealthCheck product line and
introduction of various new products. The Company continues to hire operating
personnel for the scale-up of in-house manufacturing. In addition, facility
expansion conducted in 1997 resulted in further growth of the Company's
manufacturing, laboratory, warehouse, and office space in Pompano Beach, Florida
to approximately 40,000 square feet as compared to 33,000 square feet a year
earlier. The Company's SG&A expenses, increased to $6.6 million in 1997 from
$4.1 million in 1996.
RESEARCH AND DEVELOPMENT. The Company continued to advance its various
diagnostic testing products and transdermal drug delivery systems through
development towards commercialization. The Company's investment in R&D has
contributed to the development of several new products with sizeable market
potential, including its TD Glucose Monitoring System, HealthCheck family of at
home diagnostics, and visual and meter-read Total and HDL cholesterol monitoring
products, infectious diseases and drugs of abuse, as well as several other
products. The Company's R&D expenses increased to $2.7 million in 1997 from $1.8
million in 1996.
Page - 34
<PAGE>
NET LOSS. The Company posted a net loss of $4.5 million in 1997, which
increased from a net loss in 1996 of $2.6 million primarily as a result of the
planned scale-up of manufacturing, ongoing investment in personnel, research and
development and facility expansion.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Due to the timing of the FDA clearance process and the expenses incurred in
the manufacturing scale-up for the Company's products, the Company's results of
operations vary from period to period.
The Company acquired the assets of its Pharmetrix Division in November
1995. The results of operations reflect 12-months of Pharmetrix expenses in 1996
and two months in 1995. Therefore, the results of operations for the year ended
December 31, 1996 are not directly comparable to 1995 results of operations.
PRODUCT SALES. The Company's net product sales increased by approximately
33% to $5.6 million in 1996 from $4.2 million in 1995. This increase resulted
principally from higher sales of the Company's private label Family Planning
products in the United States and increased foreign sales of diagnostic
products. In addition, since 1994, sales of the Company's products and to its
largest customer, Boehringer Mannheim, have increased by more than 18%.
GROSS PROFIT. The Company's gross profit increased by approximately $900
thousand to $1.9 million in 1996 from $936 thousand in 1995. Gross profit as a
percent of net sales increased to 33% in 1996 from 22% in 1995. The increase was
principally due to improvement in product mix. As a wholly-owned subsidiary, the
array of Health-Mark Diagnostic, L.L.C. products have a positive impact to the
consolidated gross profit return. The gross profit return also improved as a
result of bringing product manufacturing in-house and achieving various
economies of scale-up.
SELLING, GENERAL AND ADMINISTRATIVE. Selling general and administrative
(SG&A) expenses increased substantially in 1996 as compared to 1995, principally
due to the acquisition of the Pharmetrix Division. SG&A expenses were impacted
by the hiring of additional laboratory, manufacturing, and administrative
personnel to support the growth in sales, manufacturing scale-up and facility
expansion. The Company's SG&A expenses, increased to $4.1 million in 1996 from
$1.8 million in 1995.
RESEARCH AND DEVELOPMENT. The greatest impact on the increase in operating
expenses was higher research and development (R&D) expenses associated with the
Pharmetrix Division. The Company's investment in R&D has contributed to the
development of several new products, such as its TD Glucose System. The
Company's R&D expenses increased to $1.8 million in 1996 from $435 thousand in
1995.
NET LOSS. The Company posted a net loss of $2.6 million in 1996 which
increased from a net loss of $1.4 million in 1995 as a result of the integration
of the Pharmetrix Division, investment in research and development,
manufacturing scale-up and facility expansion.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, cash, cash equivalents and investments totaled
$7.3 million. The Company had current assets of $11.5 million and working
capital of $9.4 million. Shareholders' Equity at December 31, 1997 was $31.4
million.
The Company plans to earmark funds to (i) increase its R&D budget related
to the completion and commercialization of the Company's products currently
under development, including its non-invasive transdermal glucose monitoring
system (TD Glucose Monitoring System), its One Step CholestoCheck System, and
various transdermal drug delivery products and skin permeation enhancer, (ii)
expand direct distribution of medical diagnostic products, (iii) introduce
direct distribution of its cholesterol monitoring system (One Step CholestoCheck
System), (iv) hire additional personnel, and (v) expand its facilities and
Page - 35
<PAGE>
revenue generating manufacturing equipment. For additional information related
to the Company's cash flow activities, See - "Consolidated Statements of Cash
Flow."
The Company's future long-term capital expenditure requirements will depend
on the following factors: (i) the time required to obtain regulatory approvals;
(ii) the progress of the Company's research and development program; and (iii)
the ability of the Company to develop additional marketing and distribution
alliances. The Company anticipates that it will continue to incur net losses
until such time, if any, as the Company is able to generate sufficient revenues
from product sales to offset expenses related to its growth.
Management believes that, during 1997, the impact of inflation was
immaterial to the Company's results of operations.
The Company's future working capital and capital expenditure requirements
may vary materially from those planned depending on numerous factors, including
additional manufacturing scale-up costs for the Company's current and future
products, the focus and direction of the Company's research and development
programs, competitive and technological advances, future relationships with
strategic 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 - 36
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements and supplementary data for
the Company are attached and incorporated into Item 7.
INDEX TO FINANCIAL STATEMENTS
Technical Chemicals and Products, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
Contents
Report of Independent Certified Public Accountants...........................F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets..................................................F-2
Consolidated Statements of Operations........................................F-3
Consolidated Statements of Stockholders' Equity..............................F-4
Consolidated Statements of Cash Flows........................................F-5
Notes to Consolidated Financial Statements...................................F-7
Page - 37
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Technical Chemicals and Products, Inc.
We have audited the accompanying consolidated balance sheets of Technical
Chemicals and Products, Inc. and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Technical
Chemicals and Products, Inc. and subsidiaries at December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Miami, Florida
February 10, 1998
F-1
Page - 38
<PAGE>
<TABLE>
<CAPTION>
Technical Chemicals and Products, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except share data)
December 31
------------------------------------
1997 1996
------------------------------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,316 $ 1,607
Investments 4,021 11,693
Accounts receivable, net 2,055 2,178
Inventory 1,852 1,039
Other 226 491
------------------------------------
Total current assets 11,470 17,008
------------------------------------
Property and equipment, net 2,831 2,709
Patents and trademarks, net 12,912 13,887
Goodwill, net 2,151 2,328
Deferred tax asset, net 4,140 1,503
Other assets 93 91
====================================
Total assets $33,597 $37,526
====================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,729 $ 1,458
Accrued expenses 340 202
------------------------------------
Total current liabilities 2,069 1,660
------------------------------------
Other liabilities 170 172
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares--25,000,000;
No issued and outstanding shares - -
Common stock, $.001 par value:
Authorized shares--100,000,000;
Issued and outstanding shares--10,015,036 in 1997
and 9,938,634 in 1996 10 10
Additional paid-in capital 39,807 39,608
Accumulated deficit (8,459) (3,924)
------------------------------------
Total stockholders' equity 31,358 35,694
------------------------------------
Total liabilities and stockholders' equity $33,597 $37,526
====================================
<FN>
See accompanying notes.
</FN>
</TABLE>
F-2
Page - 39
<PAGE>
<TABLE>
<CAPTION>
Technical Chemicals and Products, Inc. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands, except share data)
Year ended December 31
------------------------------------------------------
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C>
Gross product sales $ 6,240 $ 5,727 $ 4,712
Returns and allowances 46 159 524
------------------------------------------------------
Net product sales 6,194 5,568 4,188
Cost of product sales 3,417 3,706 3,252
------------------------------------------------------
Gross profit 2,777 1,862 936
R&D contract revenue 423 1,280 -
Operating expenses:
Selling, general and administrative 6,575 4,079 1,807
Research and development 2,726 1,767 435
Depreciation and amortization 1,742 1,670 219
------------------------------------------------------
11,043 7,516 2,461
------------------------------------------------------
Loss from operations (7,843) (4,374) (1,525)
Other income (expense):
Interest income 731 529 164
Interest expense (14) (208) (72)
------------------------------------------------------
Loss before income tax benefit and extraordinary item (7,126) (4,053) (1,433)
Income tax benefit 2,637 1,503 -
------------------------------------------------------
Loss before extraordinary item (4,489) (2,550) (1,433)
Extraordinary item - loss on early extinguishment of debt - - 61
======================================================
Net loss $ (4,489) $ (2,550) $ (1,494)
======================================================
Basic and diluted loss per common share:
Before extraordinary item $ (.45) $ (.27) $ (.20)
Extraordinary loss - - (.01)
======================================================
Basic and diluted net loss per common share $ (.45) $ (.27) $ (.21)
======================================================
Weighted average number of common shares outstanding 9,992,066 9,290,476 7,069,507
======================================================
Unaudited pro forma information:
Loss before income taxes and extraordinary item $ (1,433)
Income tax benefit:
Current 214
Deferred 6
------------------
220
------------------
Loss before extraordinary item (1,213)
Extraordinary item - loss on early extinguishment of debt 61
==================
Net loss $ (1,274)
==================
Basic and diluted loss per common share:
Before extraordinary item $ (.17)
Extraordinary loss (.01)
------------------
Basic and diluted net loss per common share $ (.18)
==================
<FN>
See accompanying notes.
</FN>
</TABLE>
F-3
Page - 40
<PAGE>
<TABLE>
<CAPTION>
Technical Chemicals and Products, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Amounts in thousands, except share data)
Common Stock Retained
------------------------------------ Earnings
Number of Additional (Accumulated
Shares Amount Paid-In Capital Deficit) Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 4,611,666 $ 5 $ 217 $ 310 $ 532
Shares issued, net of
costs of $1,006 2,570,000 2 3,832 - 3,834
Distributions paid - - - (269) (269)
Shares issued for
acquisition of certain
assets of Pharma Patch
Public Limited Company 886,214 1 13,434 - 13,435
Shares issued upon
exercise of options 50,000 - 100 - 100
Net loss - - - (1,494) (1,494)
Adjustment for unrealized
gains on investments - - - 15 15
-----------------------------------------------------------------------------------------
Balance at December 31, 1995 8,117,880 8 17,583 (1,438) 16,153
Shares issued, net of costs
of $1,103 1,600,000 2 21,225 - 21,227
Shares issued upon exercise
of options and warrants 190,754 - 380 - 380
Shares issued in connection
with acquisition of
Health-Mark 15,000 - 195 - 195
Shares issued in lieu of rent 15,000 - 225 - 225
Net loss - - - (2,550) (2,550)
Adjustment for unrealized
gains on investments - - - 64 64
-----------------------------------------------------------------------------------------
Balance at December 31, 1996 9,938,634 10 39,608 (3,924) 35,694
Shares issued upon exercise
of warrants 76,402 - 199 - 199
Net loss - - - (4,489) (4,489)
Adjustment for unrealized
losses on investments - - - (46) (46)
=========================================================================================
Balance at December 31, 1997 10,015,036 $10 $39,807 $(8,459) $31,358
=========================================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
F-4
Page - 41
<PAGE>
<TABLE>
<CAPTION>
Technical Chemicals and Products, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
Year ended December 31
------------------------------------------------------
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $(4,489) $(2,550) $(1,494)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation 399 354 92
Amortization 1,343 1,316 127
Deferred income taxes (2,637) (1,503) -
Loss on extinguishment of debt - - 61
Minority interest in subsidiary - - 4
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable 123 (1,339) (172)
Inventory (812) (491) (162)
Other current assets 264 94 (104)
Accounts payable and accrued expenses 409 472 376
-------------------------------------------------------
Net cash used by operating activities (5,400) (3,647) (1,272)
Investing activities
Purchase of property and equipment (697) (1,273) (112)
Deposit on equipment - - (79)
(Increase) decrease in other assets (4) 45 58
Cash paid for acquisition of certain assets of Pharma
Patch Public Limited Company - - (286)
Purchase of investments (2,000) (11,618) (2,101)
Proceeds from sale of investments 9,626 1,100 1,005
Investment in patents and intangible assets (15) (9) (20)
Payments to affiliates - - (30)
------------------------------------------------------
Net cash provided by (used in) investing activities 6,910 (11,755) (1,565)
Financing activities
Net proceeds from issuance of common stock - 21,227 3,834
Proceeds from stock options or warrants exercised 199 380 100
Repayment of notes - (5,189) -
Repayment of notes payable to related parties - (75) -
Payments on notes payable to stockholders - - (280)
Payments on note payable to majority stockholder - - (100)
Stockholder distributions - - (269)
------------------------------------------------------
Net cash provided by financing activities 199 16,343 3,285
------------------------------------------------------
Net increase in cash and cash equivalents 1,709 941 448
Cash and cash equivalents at beginning of year 1,607 666 218
------------------------------------------------------
Cash and cash equivalents at end of year 3,316 1,607 666
======================================================
</TABLE>
Page - 42
<PAGE>
<TABLE>
<CAPTION>
Supplemental disclosure of cash activities
<S> <C> <C> <C>
Cash paid during the year for interest $ 14 $ 208 $ 8
======================================================
<FN>
Supplemental disclosure of non-cash activities
See Notes 2, 7, and 10 for certain non-cash investing and financing activities.
</FN>
See accompanying notes.
</TABLE>
F-6
Page - 43
<PAGE>
Technical Chemicals and Products, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
Technical Chemicals and Products, Inc. and subsidiaries (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 throughout the world. The Company's medical
diagnostic products employ its patented and proprietary membrane-based
technology. In addition to its ongoing diagnostics business, the Company is
involved in the research, development and commercialization of transdermal and
mucosal drug delivery systems and skin permeation enhancers.
Basis Of Consolidation
The accompanying consolidated financial statements include Health-Mark
Diagnostic, L.L.C. (Health-Mark) and Health Test, Inc., which are both
wholly-owned subsidiaries. Significant intercompany transactions and accounts
have been eliminated.
Cash And Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Deposits in
banks may exceed the amount of insurance provided on such deposits. These
deposits may be redeemed upon demand and, therefore, bear minimal risk. The
Company has not experienced any losses on its deposits of cash and cash
equivalents.
Investments
Investments are carried at fair market value based on quoted market prices,
with resulting unrealized holding gains and losses reported as a separate
component of stockholders' equity. Realized gains and losses and declines in
value judged to be other-than-temporary are included in other income. Interest
and dividends on investments are included in interest income. The cost of
investments sold is based on the specific identification method.
Inventory
Inventory, consisting of raw materials, work in process and finished goods,
is 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, which
range from five to seven years. The cost of maintenance and repairs is charged
to operations as incurred. Significant renewals and betterments are capitalized
and depreciated over their estimated useful lives.
F-7
Page - 44
<PAGE>
Intangible Assets
Purchased patents and trademarks are amortized using the straight-line
method over a composite life of 15 years based on the shorter of their legal
life or estimated useful life of the individual patents and trademarks, which
range from 11 to 17 years. Goodwill is amortized using the straight-line method
over 15 years. The realizability of patents, trademarks and goodwill is
evaluated periodically as events or circumstances indicate a possible inability
to recover their carrying amount. At this time, the Company believes that no
significant impairment of these intangible assets has occurred and that no
reduction of the estimated useful lives is warranted.
Revenue Recognition
Revenues are recognized when a product is shipped. Product returns are
permitted only in limited circumstances and are estimated and reflected as
adjustments to current period sales.
Research And Development
Research and development is expensed as incurred. Payments received for
research and development arrangements are recognized as R & D contract revenue.
Advertising Costs
Advertising costs are charged to operations when the advertising first
takes place. Advertising costs charged to operations were approximately
$449,000, $21,000, and $9,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
Income Taxes
Prior to February 2, 1995, the Company had elected to be taxed as an S
corporation pursuant to the provisions of the Internal Revenue Code. Under this
election, the operating results of the Company were reported in the income tax
returns of the stockholders. Upon the completion of the initial public offering
effective February 2, 1995, the Company became subject to corporate income
taxes.
Accounting For Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
primarily with an exercise price equal to the fair value of the shares on the
date of grant. The Company accounts for these stock option grants in accordance
with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and accordingly, generally recognizes no compensation
expense for stock options granted at fair value. The Company recognizes
compensation expense for stock options granted with an exercise price below the
fair value of the shares on the date of grant.
F-8
Page - 45
<PAGE>
Under the Company's stock option plans, the Company may grant stock options
for a fixed number of shares to independent consultants and contractors
primarily with an exercise price equal to the fair market value of the shares on
the date of grant. The Company accounts for these stock option grants using the
fair value method of Financial Accounting Standards Board (FASB) Statement of
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
The fair value of these options is estimated at the date of grant using a stock
option pricing model and recognized as compensation cost.
Net Loss Per Share
Basic and diluted net loss per share, including that which is presented on
a pro forma basis, is calculated using the weighted average number of common
shares outstanding during the respective periods. Common stock equivalents are
not included in the computation of net loss and pro forma net loss per share in
1997 and 1996 as their effect is antidilutive.
In February 1997, the FASB issued SFAS No. 128, Earnings per Share. SFAS
No. 128, which applies to entities with publicly held common stock, simplifies
and replaces the standards for computing earnings per share previously required
in APB Opinion No. 15, Earnings per Share, and makes them comparable to
international earnings per share standards. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997. The
adoption of the provisions of SFAS No. 128 did not have a material impact on the
calculation of earnings per share due to the antidilutive effect of the
Company's common stock equivalents.
Use Of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Accounting Changes
In 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting comprehensive income, and SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information, which
requires certain financial information to be disclosed for each operating
segment. The Company will adopt these statements during 1998, and they are not
expected to have a material effect on the financial statements.
Page - 46
<PAGE>
2. Acquisitions
On November 15, 1995, the Company purchased certain assets of Pharma Patch
Public Limited Company (Pharma Patch), an Ireland corporation, including
substantially all of the assets of its wholly-owned subsidiary, PP Holdings,
Inc. (PPH), a California corporation (collectively referred to as the Purchased
Assets). The Purchased Assets consisted of accounts receivable of $207,917,
property and equipment of $1,624,330 and intangible assets of $16,801,641. The
Company (i) issued an aggregate of 886,214 shares of its common stock valued at
$13,435,000; (ii) assumed responsibility for an approximate $5,000,000 debt owed
to Flora, Inc. (Flora) by issuing promissory notes in the aggregate principal
amount of $5,188,888, and (iii) paid $10,000 in cash. The Company incurred
acquisition costs of $275,945 which are included in intangible assets.
The acquisition of the Purchased Assets, described above, was recorded
pursuant to the purchase method of accounting and, therefore, the operating
results related to the Purchased Assets are included in the Company's operating
results beginning November 15, 1995. The Purchased Assets are presently utilized
principally in research and development activities.
The following summarized unaudited pro forma results of operations for the
year ended December 31, 1995 assume the acquisition of the Purchased Assets
occurred as of the beginning of the year. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of operations which actually would have resulted had the combination
been in effect on the date indicated, or which may result in the future (in
thousands, except per share amounts).
<TABLE>
<CAPTION>
Pro forma
1995
-------------------
(Unaudited)
<S> <C>
Net sales $ 4,578
===================
Loss before extraordinary item $(5,799)
Extraordinary loss 61
-------------------
Net loss $(5,860)
===================
Loss per common share:
Before extraordinary item $ (.73)
Extraordinary loss (.01)
-------------------
Net loss per common share $ (.74)
===================
</TABLE>
3. Estimated Fair Value Of Financial Instruments
The carrying value of cash and cash equivalents, investments, trade
accounts receivable and short-term borrowings reflected in the consolidated
financial statements approximate market value. The market value of investments
is determined based upon quoted prices for the same or similar securities (See
Note 5). Management believes that the other financial instruments approximate
market value because they were entered into during the current year and there
have been no significant changes in their status that would affect their market
value.
Page - 47
<PAGE>
4. Details Of Balance Sheet
Details of selected balance sheet accounts at December 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------------
<S> <C> <C>
Accounts receivable
Accounts receivable $ 2,073 $ 2,196
Allowance for doubtful accounts (18) (18)
------------------------------------
$ 2,055 $ 2,178
====================================
Inventories
Raw materials and supplies $ 1,144 $ 578
Work in process 185 50
Finished goods 523 411
------------------------------------
$ 1,852 $ 1,039
====================================
Property and equipment
Furniture, fixtures and equipment $ 2,849 $ 2,194
Real property 217 217
Leasehold improvements 904 863
------------------------------------
3,970 3,274
Accumulated depreciation (1,139) (565)
------------------------------------
$ 2,831 $ 2,709
====================================
Patents and trademarks
Patents and trademarks $15,025 $15,008
Accumulated amortization (2,113) (1,121)
------------------------------------
$12,912 $13,887
====================================
Goodwill
Goodwill $ 2,494 $ 2,494
Accumulated amortization (343) (166)
------------------------------------
$ 2,151 $ 2,328
====================================
</TABLE>
F-11
Page - 48
<PAGE>
5. Investments
Investments consist of the following (in thousands):
<TABLE>
<CAPTION>
Gross
Unrealized Fair
December 31, 1997 Cost Gains Value
------------------------------------------------------
<S> <C> <C> <C>
U.S. Government agency bonds $ 2,998 $19 $ 3,017
U.S. Corporate bond 990 14 1,004
------------------------------------------------------
$ 3,988 $33 $ 4,021
======================================================
December 31, 1996
U.S. Corporate bonds $ 7,618 $72 $ 7,690
U.S. Government agency bonds 3,996 7 4,003
------------------------------------------------------
$ 11,614 $79 $ 11,693
======================================================
</TABLE>
The contractual maturity of investments at December 31, 1997, is as follows
(in thousands):
<TABLE>
<CAPTION>
Fair
Cost Value
------------------------------------
<S> <C> <C> <C>
Due between one year and five years $1,988 $2,000
Due after five years 2,000 2,021
------------------------------------
$3,988 $4,021
====================================
</TABLE>
6. Income Taxes
Historical
As discussed in Note 1, the Company became subject to corporate income
taxes concurrent with the February 2, 1995 public offering. For all reporting
periods prior to that date, the Company elected S Corporation status and was not
subject to 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
upon differences between financial reporting and tax basis 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.
F-12
Page - 49
<PAGE>
The components of the income tax benefit for the years ended December 31
are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------------
<S> <C> <C> <C>
Current $ - $ -
Deferred (2,637) (1,503)
------------------------------------
Total $(2,637) $(1,503)
====================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets (liabilities) as of December 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------------
<S> <C> <C> <C>
Net operating losses $4,800 $1,936
Depreciation and amortization (79) 133
Other (8) 7
------------------------------------
Net deferred tax assets 4,713 2,076
Valuation allowance (573) (573)
------------------------------------
Net deferred taxes $4,140 $1,503
====================================
</TABLE>
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, including tax
planning strategies are prudent and feasible that the Company would implement,
management has determined that an approximately $573,000 valuation allowance at
December 31, 1997 and 1996 is necessary to reduce the deferred tax assets to the
amount that will more likely than not be realized. At December 31, 1997, the
Company has available net operating loss carryforwards of approximately
$12,562,000, which expire in the years 2010 through 2012.
The reconciliation of the expected income tax expense for the years ended
December 31 computed on loss before income taxes at federal statutory rates is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C>
Tax at federal statutory rate (34.00)% (34.00)% (34.00)%
State and local income taxes, net of federal
tax benefit (4.19) (4.88) (5.83)
Nondeductible items .15 1.50 -
Change in valuation allowance - - 38.85
Other 1.04 .30 1.48
--------------------------------------------------------
Total (37.00)% (37.08)% 0.5%
========================================================
</TABLE>
Page - 50
<PAGE>
Pro Forma
The pro forma tax provision for the year ended December 31, 1995 reflects
the benefit for a portion of the net operating loss that could have been carried
back to prior years based on pro forma provisions in those years.
The unaudited pro forma income tax credit differed from the amount computed
by applying the federal statutory rate of 34% to loss before income taxes as
follows:
<TABLE>
<CAPTION>
1995
------------------
<S> <C> <C>
Tax at federal statutory rate (34.00)%
State and local income taxes, net of federal tax benefit (5.83)
Change in valuation allowance 24.03
Other 1.06
------------------
(14.74)%
==================
</TABLE>
7. Related Party Transactions
The Company and its founding major stockholder are parties to an exclusive,
worldwide license agreement dated January 31, 1996 (License Agreement) under
which the Company has the right to manufacture, promote, market and sell all
medical, pharmaceutical and health care products and devices created by the
major stockholder on or before the date of the License Agreement (Technology).
The License Agreement is for a term of twenty years with automatic renewals and
requires annual fees equal to the greater of (i) 3% of net collected sales
revenues from products based upon the Technology or (ii) $10,000, with an
aggregate maximum limitation of $10,000,000. The License Agreement replaces an
earlier license agreement with similar provisions. During 1997 and 1996, the
major stockholder earned approximately $148,000 and $114,000, respectively,
pursuant to the License Agreement. The major stockholder waived all licensing
fees due him for the year ended December 31, 1995.
The Company and its major stockholder entered into an employment agreement
effective January 16, 1996, amending an employment agreement dated January 1,
1993, under which the major stockholder serves as president. The terms provide
for a salary of $125,000 per year for the first five years beginning January 1,
1993 (with 5% per year raises) as annual base compensation, plus an annual bonus
equal to at least 5% of the consolidated pretax income of the Company. During
1997, 1996 and 1995, the president received salaries of approximately $152,000,
$145,000 and $138,000, respectively.
In connection with the amendment of the employment agreement described
above, the Company issued its major stockholder an option to purchase 500,000
shares of common stock at an exercise price of $15 per share.
F-14
Page - 51
<PAGE>
8. Significant Customer
A significant part of the Company's business is dependent upon one European
customer. During the years ended December 31, 1997, 1996 and 1995, this
customer accounted for approximately $3,084,000, $3,099,000 and $2,971,000 of
sales, respectively. As of December 31, 1997 and 1996, accounts receivable from
this customer were approximately $1,265,000 and $1,079,000, respectively.
9. Commitments And Contingencies
Leases
The Company leases its operating facilities under operating leases expiring
in June and October 1999. Rent expense under operating leases for the years
ended December 31, 1997, 1996 and 1995 was approximately $618,000, $582,000 and
$180,000, respectively.
At December 31, 1997, future minimum rentals, subject to cost-of-living
adjustments, are approximately as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $569
1999 359
------------------
$928
==================
</TABLE>
Litigation
The Company has been named in a lawsuit which alleges misappropriation of
trade secrets, confidential information and intellectual property related to an
HIV saliva test kit. The plaintiffs seek injunctive relief and monetary damages
in excess of $15,000. Management believes, after consultation with counsel, that
each of the allegations included in the lawsuit is without merit, and plans to
contest each of the allegations vigorously. This lawsuit is in its preliminary
stages and discovery has not been completed. At this time, it is not possible to
estimate the ultimate loss, if any, related to this lawsuit.
In addition to the above, the Company is subject to claims and suits
arising in the ordinary course of business. In the opinion of management, the
ultimate resolution of such pending legal proceedings, including those described
above, will not have a material adverse effect on the Company's results of
operations or financial position.
F-15
Page - 52
<PAGE>
10. Stockholders' Equity
In January 1996, the Company adopted Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws which include certain
anti-takeover provisions. In addition, the Company adopted a Stockholder
Protection Agreement (the Rights Amendment). Pursuant to the terms of the Rights
Agreement, preferred stock purchase rights (Rights) were distributed, as a
dividend, to stockholders of record as of the date the Company entered into the
Rights Agreement, at a rate of one Right for each share of the Company's common
stock held on the record date.
In March 1996, the Company adopted Amended and Restated Articles of
Incorporation increasing the authorized capital stock of the Company to
125,000,000 shares (one hundred million (100,000,000) common, par value $.001,
and twenty-five million (25,000,000) preferred, par value of $.001).
During 1996, the Company issued 15,000 shares of common stock in lieu of
rent for a warehouse facility. The agreement guarantees a minimum stock price of
$15 per share at the end of the three year lease; otherwise, additional shares
will be issued to provide $225,000 of compensation for the three year lease. The
fair value of the common stock issued was recorded as an other current asset and
amortized over the lease term.
In January 1996, Pharma Patch was granted a two-year warrant to purchase
100,000 shares of the Company's common stock at an exercise price of $15 per
share, in exchange for certain concessions regarding the Company's 1996 public
offering.
In August 1994, the Company consummated a private placement of securities
issuing 420,000 shares of its common stock for $280,000 and notes totaling
$280,000 at 9% annual interest. The notes were paid during the year ended
December 31, 1995. Remaining deferred loan costs of approximately $61,000 were
written off as an extraordinary loss on early extinguishment of debt.
In conjunction with the 1995 initial public offering, the Company issued
220,000 warrants with an exercise price of $2.60 and a term of four years to the
representative of the underwriters. As of December 31, 1997, 181,156 warrants
were exercised and 38,844 were outstanding which expire in February 2000. The
fair market value of the warrants was recorded as a reduction of the proceeds
from the issuance of common stock.
During 1995, the Company's Board of Directors approved a distribution of
approximately $269,000 to stockholders, of which approximately $257,000 was paid
to the majority stockholder.
During 1996, the Company amended its Incentive Stock Option Plan (the Plan)
under which 800,000 shares of common stock are reserved for issuance to
employees of the Company. The exercise price of any stock option granted under
the Plan to an eligible employee must be at least equal to the fair market value
of the shares on the date of the grant. Under the Amended Plan options expire
seven years from the date of the grant, but the vesting period is discretionary.
The vesting period for 15,000 of the options outstanding under the Plan at
December 31, 1997 is five years from the date of grant. The remaining 2,500
options vest three years from the date of grant.
F-16
Page - 53
<PAGE>
The following table summarizes information relative to the Company's
options granted under the Plan:
<TABLE>
<CAPTION>
Weighted Average
Shares Excerise Price
------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1996 - $ -
Granted 12,500 15
------------------------------------
Outstanding at December 31, 1996 12,500 15
Granted 5,000 15
------------------------------------
Outstanding at December 31, 1997 17,500 $15
====================================
Exercisable at December 31, 1997 - $ -
====================================
</TABLE>
Page - 54
<PAGE>
The Company has also granted options (not under the Plan) as incentives to
new employees and independent contractors who have performed services for the
Company. The following table summarizes information relative to the Company's
options not issued under the Plan:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1995 116,000 $ 3.37
Granted 40,000 7.85
Exercised (50,000) 2.00
------------------------------------
Outstanding at December 31, 1995 106,000 3.74
Granted 732,000 14.65
Exercised (86,000) 1.25
------------------------------------
Outstanding at December 31, 1996 752,000 14.65
Granted 161,500 9.67
Canceled (54,000) 15.00
------------------------------------
Outstanding at December 31, 1997 859,500 $13.69
====================================
Exercisable at December 31, 1997 642,498 $14.23
====================================
Weighted-average fair value of options granted during 1997 $ 4.80
==================
</TABLE>
Options not issued under the Company's stock option plan are subject to
various vesting provisions and have expiration terms ranging from five to ten
years.
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, Accounting for Stock-Based Compensation (Statement 123),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method required by
Statement 123. The fair value for these options was estimated at the date of
grant using Black-Scholes option pricing model with the following
weighted-average assumptions for 1997 and 1996: risk-free interest rate of
6.11%; volatility factors of the expected market price of the Company's common
stock of .701; and a weighted-average expected life of the option ranging from
three to five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C>
Pro forma net loss $(4,876) $(2,819) $(1,735)
Pro forma loss per share (.49) (.30) (.24)
</TABLE>
The weighted-average remaining contractual life of options is 7.6 years.
Shares of common stock reserved for future issuance at December 31, 1997
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Options 1,659,500
Warrants 138,844
------------------
1,798,344
==================
</TABLE>
Page - 55
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Company are elected by the Board of Directors
to hold office until their successors have been chosen and qualified or until
earlier resignation or removal. Set forth below are the names, positions and
ages of the Company's executive officers and directors as of December 31, 1997.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Jack L. Aronowitz(1)(3) ..................... 57 President, Chief Executive Officer and Chairman of the Board
of Directors
Martin Gurkin, Ph.D.......................... 65 Senior Vice President, Chief Operating Officer and Director
Kathryn R. Harrigan, M.B.A., D.B.A.(1)(2)(3) 46 Director
Stephen J. Dresnick, M.D., FACEP(2)(3)...... 47 Director
Clayton Rautbord(1)(2)(3).................... 70 Director
Stuart R. Streger, C.P.A. ................... 46 Vice President of Finance and Chief Financial Officer
Colin A. Morris.............................. 57 Vice President, Transdermal Manufacturing and Chief Operating
Officer of the Pharmetrix Division
Robert G. Backosky........................... 44 Vice President of Marketing
Gregory J. Candelmo.......................... 36 Vice President of Sales
<FN>
- ----------------------------------------
(1) Member of the Company's Audit Committee
(2) Member of the Company's Compensation and Stock Option Committee
(3) Member of the Company's Board Organization and Governance Committee
</FN>
</TABLE>
JACK L. ARONOWITZ, the founder of the Company, has been President and
Chairman of the Board of Directors since January 1992 and Chief Executive
Officer since January 1996. Prior to founding the Company, Mr. Aronowitz served
as Executive Vice President, Technical Director and Director of Operations of
TechniMed Corporation from May 1985 to October 1991 and as President from
January 1983 to April 1985. TechniMed was engaged in the medical diagnostic and
biochemical businesses. Mr. Aronowitz has been involved in the development and
commercialization of medical diagnostic products for over 35 years. Mr.
Aronowitz is the President of the Florida Institute of Chemists.
Page - 56
<PAGE>
MARTIN GURKIN, Ph.D. has been Senior Vice President, Chief Operating
Officer and a Director of the Company since January 1996. Prior to joining the
Company, Dr. Gurkin served as Vice President of ISCO, Inc., a company engaged in
the manufacture of scientific analytical instrumentation, from October 1989 to
December 1995. Prior to joining ISCO, Inc., Dr. Gurkin was employed in various
capacities for over 17 years by E. M. Science (an affiliate of E. Merck KGAA), a
company engaged in the manufacturing of laboratory reagents and chromatography
supplies.
KATHRYN R. HARRIGAN, M.B.A., D.B.A., has been a Director of the Company
since 1996. Ms. Harrigan has been a professor at Columbia Business School since
1981 and was named the Henry L. Kravis Professor of Business Leadership at
Columbia Business School in 1993. Since 1994, Professor Harrigan has served on
the Board of Directors of Cambrex Corporation (AMEX: CMB), a company engaged in
the international specialty chemicals business. She is also a Director of Johns
Manville Corp. (NYSE: JM), an international building and filtration company, as
well as a Director or advisor of various other privately-held companies.
STEPHEN J. DRESNICK, M.D., FACEP, has been a Director of the Company since
1997. Dr. Dresnick is Vice Chairman of FPA Medical Management, Inc. (Nasdaq:
FPAM). Prior to a merger with FPA Medical Management in 1996, Dr. Dresnick was
President and Chief Executive Officer of Sterling Healthcare Group, Inc., a
publicly-held hospital emergency department contract management and primary care
physician practice management company, which he founded in 1987. He has more
than 25 years of experience in the medical sector and executive management and
brings to the TCPI Board well-established relationships with the scientific and
financial communities. In addition to serving on the FPA Medical Management
Board of Directors, he also is a director of Embassy Acquisition Corp. (Nasdaq:
MBCA) as well as a director or trustee for various other privately-held
healthcare related organizations.
CLAYTON L. RAUTBORD has been a Director of the Company since August 1996.
Mr. Rautbord is presently the Secretary and Treasurer of Wenk Aviation Insurance
Corporation. From 1980-1989, he was the founder and President of Photo
Con-X-Ion, Inc., a manufacturer of photographic chemicals, and was the President
and CEO of APECO, a company listed on the NYSE, from 1963-1974. Mr. Rautbord has
previously served on the boards of Ozark Airlines, Metropolitan Bank of Chicago,
Amalgamated Bank of Chicago, and Euclid Equipment Company of Long Island, New
York. In addition to TCPI's Board of Directors, Mr. Rautbord also serves on the
Board of Directors of Albany Bank and Trust Company in Chicago.
STUART R. STREGER, C.P.A. has been Vice President and Chief Financial
Officer of the Company since April 1996. Prior to joining TCPI, Mr. Streger
served as Chief Financial Officer of Carfel, Inc., an auto parts manufacturer
and after-market distribution company from September 1994 to March 1996. From
August 1993 to September 1994, he was Chief Financial Officer of Chick Master
International, a global manufacturer and distributor of poultry equipment. From
August 1980 to August 1993, Mr. Streger was Chief Financial Officer of Rosco
Laboratories, Inc., a worldwide distributor and manufacturer of television and
film production products. From 1973 to 1977, Mr. Streger was employed as a
senior auditor and served in many other capacities with the accounting firm of
KPMG Peat Marwick LLP.
COLIN A. MORRIS has been Vice President of Transdermal Manufacturing since
February 1997. He has operating responsibilities for TCPI's portfolio of
transdermal drug delivery products and related contract services, and directs
all activities at the Company's R & D facility in Menlo Park, California,
operated by its Pharmetrix Division. In addition, Mr. Morris is involved in the
ongoing development of the Company's TD Glucose Monitoring System. Prior
thereto, the transitioned Noven Pharmaceuticals(Nasdaq: NOVN), which operates of
one of the most advanced transdermal R & D and manufacturing facilities in the
world, from the development stage to global commercialization as Vice President
of Operations and later as Vice President of Corporate Planning. Mr. Morris also
has held senior-level positions with Rhone-Poulenc Rorer, Inc. as Senior
Director of World Wide Engineering, Director of Process Engineering with
Sterling Drug, Inc., and international and domestic positions with Johnson &
Johnson.
Page - 57
<PAGE>
ROBERT G. BACHKOSKY joined the Company as Vice President of Marketing and
Business Development in August 1997. Mr. Bachkosky directs the global marketing
programs for TCPI's expanding portfolio of diagnostic products used by consumers
and healthcare professionals. He has more than 20 years of experience in sales
and marketing of medical diagnostic, scientific and general healthcare products.
During the past 12 years, Mr. Bachkosky held various senior level positions with
Boehringer-Mannheim Corporation in Indianapolis, Indiana, and most recently was
responsible for market development of "Point of Care" products to Latin America
and Canada. His additional healthcare experience includes Cordis Laboratories,
Curtin Matheson Scientific, and employment as a Medical Technologist for Greater
Southeast Community Hospital in Washington, D.C.
GREGORY J. CANDELMO is the Company's Vice President of Sales. Prior to
joining TCPI in 1998, he was North American Director of Sales and Marketing for
GDS Diagnostics. Previously, he was with Boehringer-Mannheim Corporation from
1991 to 1997 where he served in various sales management positions that included
Diagnostic Systems Director of Sales, Lab Diagnostics Regional Business Manager,
AccuData System Product and Marketing Manager, and Diabetes Care Division
Regional Sales Manager. Mr. Candelmo also held sales management and field sales
positions with Behring Diagnostics, CooperBiomedical/Techicon Instruments and
Proctor and Gamble.
There is no family relationship between any executive officer or director
of the Company.
Page - 58
<PAGE>
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 11, 12 and 13 is incorporated by
reference from the Company's definitive proxy statement to be filed in
connection with the Company's Annual Meeting of Shareholders to be held during
1998.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K
A. The following documents are filed as part of the report:
(1) The Financial Statements filed as part of this report are
listed separately in the index to Financial Statements
beginning on page F-1 of this report.
(2) Financial Statement Schedules.
TECHNICAL CHEMICALS & PRODUCTS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
12/31/97
<TABLE>
<CAPTION>
Balance at Beginning of Additions Charged to Balance at End of
Description Period Cost Period
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997:
<S> <C> <C>
Allowance for doubtful accounts $ 18,000 - $ 18,000
Tax Valuation Allowance 572,801 - 572,801
------------------------------------------------------------------------------
Total $ 590,801 - $ 590,801
==============================================================================
Year Ended December 31, 1996:
Allowance for doubtful accounts $ 18,000 - $ 18,000
Tax Valuation Allowance 572,801 - 572,801
------------------------------------------------------------------------------
Total $ 590,801 - $ 590,801
==============================================================================
Year Ended December 31, 1995:
Allowance for doubtful accounts $ 10,000 $ 8,000 $ 18,000
Tax Valuation Allowance - 572,801 572,801
------------------------------------------------------------------------------
Total $ 10,000 $ 580,801 $ 590,801
==============================================================================
</TABLE>
All other Financial Statements and schedules not listed have been omitted
since the required information is included in the Consolidated Financial
Statements or the Notes thereto, or is not applicable, material or required.
Page - 59
<PAGE>
(3) Exhibits.
Exhibit Exhibit Description
Number
2. * Asset Purchase Agreement among Pharma Patch Public
Limited Company, PP Holdings, Inc. and the Company.
3.1 ***** Amended and Restated Articles of Incorporation of the
Company.
3.2 ***** Amended and Restated Bylaws of the Company.
4.1 ***** See Exhibits 3.3 and 3.4 for provisions of the Amended
and Restated Articles of Incorporation and the Amended
and Restated Bylaws of the Company defining the rights
of holders of Common Stock of the Company.
4.2 *** Form of Common Stock Certificate of the Company.
10.1 ***** Employment Agreement between Jack L. Aronowitz and
the Company dated December 31, 1992, as
amended.
10.2 ***** Amended and Restated 1992 Incentive Stock Option Plan.
10.3 ***** Cancellation and Exclusive License Agreement
between Jack Aronowitz and the Company dated January 31,
1996.
10.4 ***** Stock Option Agreement between the Company and Martin
Gurkin,Stuart R. Streger, Colin Morris, Kathryn Harrigan
Clayton Rautbord and Stephen Dresnick.
10.5 ** Lease-Pompano Beach, Florida.
10.5.1 ***** Business Lease Extension-Pompano Beach, Florida.
10.5.2 ***** Main Lease-Menlo Park, California; Sublease-Menlo Park.
10.5.3 ***** Assignment and Assumption of Sublease and Landlord's
Consent Thereto between Menlo Business Park, Patrician
Associates, Inc., Flora, Inc., Pharma Patch PLC and
Technical Chemicals and Products, Inc.dated November 15,
1995.
10.6 ** Health-Mark Diagnostics, Inc. Shareholders Agreement
dated March 7, 1994.
10.7 **** Stock Option Agreement with Cleve Laird dated July 29,
1994.
10.8 *** Warrant Agreement between the Company and Jack L.
Aronowitz.
10.9 ***** Supplemental Agreement by and between Pharma Patch
Public Limited Company and PP Holdings,
Inc. dated January 16, 1996.
10.10 ** Agreement between the Company and Equity Communications
dated January 6, 1995.
10.11 ***** Letter Agreement between the Company and Redstone
Securities, Inc. dated January 15, 1996.
10.12 ***** Letter Agreement between the Company and Ira Weingarten
dated January 15, 1996.
10.13 ***** Letter Agreement with Flora, Inc.dated February 5, 1996.
10.14 ****** Employment Agreement between the Company and Martin
Gurkin dated January 1996.
10.15 ****** Stock Option Agreement with Martin Gurkin dated November
1996.
21 ***** Subsidiaries of the Company.
23 Filed Consent of Ernst & Young LLP.
Herewith
Page - 60
<PAGE>
27 Filed Financial Data Schedule (EDGAR Filing)
Herewith
99.1 ** Licenses, Permits and Approvals-Federal.
99.2 ** Licenses, Permits and Approvals-State.
99.3 ** Licenses, Permits and Approvals-County.
99.4 ** FDA Product List.
99.5 ** United States Patents.
99.7 ****** Pharmetrix Division of TCPI Patents.
99.8 ****** Pharmetrix Division of TCPI Licenses, Permits and
Approvals.
99.6 ** Canadian Patents.
* Incorporated by reference to the exhibit of the same
number in the Company's Form 8-K filed on November 29,
1995.
** Incorporated by reference to exhibit of the same number
in Registration Statement on Form
SB-2 filed on October 28, 1994 (No. 33-85756).
*** Incorporated by reference to exhibit of the same
number in Amendment No.4 to the Registration Statement
on Form S-1 filed April 23, 1996 (No. 333-1272).
**** Incorporated by reference to exhibit of the same number
in Amendment No. 1 to Registration Statement on Form
SB-2 filed on January 13, 1995 (No. 33-85756).
***** Incorporated by reference to exhibit of same number
filed in the Company's Registration
Statement on Form S-1 on February 12, 1996
(No. 333-1272).
****** Incorporated by reference to exhibit of the same number
filed in Amendment No. 2 to the Company's Registration
Statement on Form S-1 on March 20, 1996.
B. No reports on Form 8-K have been filed by the Company
during the last quarter of 1997.
Page - 61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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.
BY: /SIGNED/
Jack L. Aronowitz
President, Chief Executive Officer
and Chairman of the Board
Date: March 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/SIGNED/ President, Chief Executive March 24, 1998
Jack L. Aronowitz Officer and Chairman of the
Board (Principal Executive
Officer)
/SIGNED/ Senior Vice President, Chief March 24, 1998
Martin Gurkin Operating Officer and Director
/SIGNED/ Vice President, Chief Financial March 24, 1998
Stuart R. Streger Officer (Principal Financial
Officer and Principal Accounting
Officer)
/SIGNED/ Director March 24, 1998
Kathryn R. Harrigan
/SIGNED/ Director March 24, 1998
Stephen J.Dresnick,M.D.,FACEP
/SIGNED/ Director March 24, 1998
Clayton Rautbord
Page - 62
<PAGE>
Exhibit Index to Exhibit
Number
2. * Asset Purchase Agreement among Pharma Patch Public
Limited Company, PP Holdings, Inc. and the
Company.
3.1 ***** Amended and Restated Articles of Incorporation of the
Company.
3.2 ***** Amended and Restated Bylaws of the Company.
4.1 ***** See Exhibits 3.3 and 3.4 for provisions of the Amended
and Restated Articles of Incorporation
and the Amended and Restated Bylaws of the Company
defining the rights of holders of Common Stock of the
Company.
4.2 *** Form of Common Stock Certificate of the Company.
10.1 ***** Employment Agreement between Jack L. Aronowitz and
the Company dated December 31, 1992, as amended.
10.2 ***** Amended and Restated 1992 Incentive Stock Option Plan.
10.3 ***** Cancellation and Exclusive License Agreement
between Jack Aronowitz and the Company dated January 31,
1996.
10.4 ***** Stock Option Agreement between the Company and Martin
Gurkin, Stuart R. Streger, Colin Morris, Kathryn
Harrigan, Clayton Rautbord and Stephen Dresnick.
10.5 ** Lease-Pompano Beach, Florida.
10.5.1 ***** Business Lease Extension-Pompano Beach, Florida.
10.5.2 ***** Main Lease-Menlo Park, California; Sublease-Menlo Park.
10.5.3 ***** Assignment and Assumption of Sublease and Landlord's
Consent Thereto between Menlo Business Park, Patrician
Associates, Inc., Flora, Inc., Pharma Patch PLC and
Technical Chemicals and Products, Inc.dated November 15,
1995.
10.6 ** Health-Mark Diagnostics, Inc. Shareholders Agreement
dated March 7, 1994.
10.7 **** Stock Option Agreement with Cleve Laird dated July 29,
1994.
10.8 *** Warrant Agreement between the Company and Jack L.
Aronowitz.
10.9 ***** Supplemental Agreement by and between Pharma Patch
Public Limited Company and PP Holdings,
Inc. dated January 16, 1996.
10.10 ** Agreement between the Company and Equity Communications
dated January 6, 1995.
10.11 ***** Letter Agreement between the Company and Redstone
Securities, Inc. dated January 15, 1996.
10.12 ***** Letter Agreement between the Company and Ira Weingarten
dated January 15, 1996.
10.13 ***** Letter Agreement with Flora,Inc. dated February 5, 1996.
10.14 ****** Employment Agreement between the Company and Martin
Gurkin dated January 1996.
10.15 ****** Stock Option Agreement with Martin Gurkin dated November
1996.
21 ***** Subsidiaries of the Company.
23 Filed Consent of Ernst & Young LLP.
Herewith
Page - 63
<PAGE>
27 Filed Financial Data Schedule (EDGAR Filing)
Herewith
99.1 ** Licenses, Permits and Approvals-Federal.
99.2 ** Licenses, Permits and Approvals-State.
99.3 ** Licenses, Permits and Approvals-County.
99.4 ** FDA Product List.
99.5 ** United States Patents.
99.7 ****** Pharmetrix Division of TCPI Patents.
99.8 ****** Pharmetrix Division of TCPI Licenses, Permits and
Approvals.
99.6 ** Canadian Patents.
* Incorporated by reference to the exhibit of the same
number in the Company's Form 8-K
filed on November 29, 1995.
** Incorporated by reference to exhibit of the same
number in Registration Statement on Form
SB-2 filed on October 28, 1994 (No. 33-85756).
*** Incorporated by reference to exhibit of the same
number in Amendment No. 4 to the Registration
Statement on Form S-1 filed April 23, 1996(No. 333-1272)
**** Incorporated by reference to exhibit of the same number
in Amendment No. 1 to Registration Statement on Form
SB-2 filed on January 13, 1995 (No. 33-85756).
***** Incorporated by reference to exhibit of same number
filed in the Company's Registration Statement on Form
S-1 on February 12, 1996 (No. 333-1272).
****** Incorporated by reference to exhibit of the same
number filed in Amendment No. 2 to the Company's
Registration Statement on Form S-1 on March 20, 1996.
Page - 64
<PAGE>
EXHIBIT 10.4
Attached is the Stock Option Agreement Form that is used by the Company in
issuing options to its employees and directors. The following directors and
executives of the Company have been granted options, as described below.
<TABLE>
<CAPTION>
- -------------------------------- ---------------- ----------------- ---------------- ----------------- -----------------
Number Of Shares Option Date Option Option
Name Of Officer/Director Date Of Grant Under Option Exercise Price Exercisable Expiration Date
- -------------------------------- ---------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Martin Gurkin 12/05/95 20,000 $14.44 (1) (2)
---------------- ----------------- ---------------- ----------------- -----------------
11/19/96 30,000 $15.00 (1) (2)
---------------- ----------------- ---------------- ----------------- -----------------
09/04/97 10,000 $ 8.875 09/04/97 (2)
- -------------------------------- ---------------- ----------------- ---------------- ----------------- -----------------
Stuart R. Streger 11/19/96 20,000 $15.00 (1) (2)
---------------- ----------------- ---------------- ----------------- -----------------
09/04/97 10,000 $ 8.875 09/04/97 (2)
- -------------------------------- ---------------- ----------------- ---------------- ----------------- -----------------
Colin Morris 02/01/97 20,000 $ 8.625 (1) (2)
---------------- ----------------- ---------------- ----------------- -----------------
09/04/97 10,000 $ 8.875 09/04/97 (2)
- -------------------------------- ---------------- ----------------- ---------------- ----------------- -----------------
Kathryn Harrigan 11/19/96 1,000 $ 8.00 11/19/97 (2)
---------------- ----------------- ---------------- ----------------- -----------------
05/23/97 1,000 $10.25 05/23/98 (2)
- -------------------------------- ---------------- ----------------- ---------------- ----------------- -----------------
Clayton Rautbord 11/19/96 1,000 $ 8.00 11/19/97 (2)
---------------- ----------------- ---------------- ----------------- -----------------
05/23/97 1,000 $10.25 05/23/98 (2)
- -------------------------------- ---------------- ----------------- ---------------- ----------------- -----------------
Stephen Dresnick 09/04/97 1,000 $ 8.875 09/04/98 (2)
- -------------------------------- ---------------- ----------------- ---------------- ----------------- -----------------
<FN>
(1) These options become exercisable in increments of 1/3 each, on the first
three anniversary dates from the Date Of Grant
(2) These options expire five years from the Date Of Grant
</FN>
</TABLE>
Page - 65
<PAGE>
EXHIBIT 10.4
EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is made this ___ day of _________ 199_, by and between
Technical Chemicals and Products, Inc., a Florida corporation ("Company") and
____________________ ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee is an employee of the Company;
WHEREAS, the Stock Option Committee of the Board of Directors of the
Company (the "Stock Option Committee") or the Board of Directors of the Company
has granted Optionee an option to purchase __________ shares of the Company's
common stock, par value $0.001 per share (the "Common Stock");
WHEREAS, the Company has established and adopted its Amended and Restated
1996 Stock Option Plan (the "Plan"), pursuant to which it may grant options to
purchase shares of its Common Stock;
WHEREAS, Optionee and the Company desire to formalize the terms and
conditions of such options in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and other good and valuable consideration, the receipt, adequacy and legal
sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Grant of Option.
Subject to and upon the terms and conditions set forth in this
Agreement, the Company hereby grants to Optionee an incentive stock
option (sometimes hereinafter referred to as an "Option") to purchase
_____________ (_________) shares of Common Stock (the "Option Shares")
during the specified term of this Option, at a price equal to ________
Dollars ($_______) per share. This Option is granted pursuant to the
terms and conditions of the Plan, all of which terms and conditions
are hereby incorporated by reference into this Agreement. This Option
is intended by the parties hereto to be, and shall be treated as an
"incentive stock option," as such term is defined under Section 422 of
the Internal Revenue Code of 1986, as amended.
2. Specified Term; Time of Exercise.
A. This Option shall vest and shall be exercisable in whole or in part
and cumulatively, in the following amounts and on the following dates
(each a "Vesting Date"):
_______________ Option Shares on ____________, 1999___
_______________ Option Shares on ____________, 1999___, and
_______________ Option Shares on ____________, 1999___
B. Notwithstanding Section 2(A) hereof, the right to exercise this Option
with respect to any Option Shares shall expire on the earlier of (i)
__________ years from the Vesting Date of such Option Shares and (ii)
____________, 199__.
Page - 66
<PAGE>
3. Termination as Employee.
If the employment of Optionee with Company shall terminate for any
reason whatsoever, Optionee shall be entitled to exercise this Option
only with respect to those Option Shares which shall have vested prior
to the date of termination of employment, and all rights to any then
exercisable Option Shares shall terminate after the expiration of a
period of three months from the date Optionee ceases to be an employee
of the Company. This Option shall not confer upon Optionee any right
to continued employment with the Company.
4. Transferability.
This Option may not be sold, transferred, pledged, assigned,
hypothecated or otherwise disposed of except by will or the laws of
descent and distribution. In the event of the death of Optionee, this
Option, to the extent exercisable by Optionee on the date of death,
may be exercised by the estate or personal representative of Optionee
at any time within six months following the date of death of Optionee.
5. Anti-Dilution.
In the event of a merger or consolidation of Company into or with any
other corporation, or any stock dividend, stock split or
recapitalization involving shares of the Common Stock of the Company,
an appropriate adjustment shall be made in the number of shares of
Common Stock subject to this Option and in the purchase price payable
in the event of exercise of this Option in order to avoid dilution of
the proportionate equity interest in the Company represented by the
shares covered by this Option or which may be purchased for a specific
sum upon exercise of this Option.
6. Privilege of Stock Ownership.
Optionee shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any Option Shares unless and
until: (i) the Option shall have been exercised pursuant to the terms
hereof; (ii) the Company shall have issued and delivered the shares to
Optionee; and (iii) Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, Optionee
shall have full voting and other ownership rights with respect to such
Option Shares.
7. Manner of Exercising Option.
A. This Option may be exercised only as to whole shares and only by
written notice signed by Optionee (or in the case of exercise after
Optionee's death by Optionee's legal representative, executor,
administrator, heir or legatee, as the case may be) and mailed or
delivered to the Secretary of the Company at its principal office,
which notice shall: (i) specify the number of Option Shares with
respect to which the Option is being exercised; (ii) be accompanied by
payment in full in cash; (iii) if the shares of Common Stock issuable
upon exercise of the Option are not then covered by a current
registration statement of the Company under the Securities Act of
1933, as amended (the "Securities Act"), include a statement to the
effect that Optionee, or other person exercising the Option, is
purchasing the Option Shares for investment and not with a view to, or
for sale in, any distribution thereof; and (iv) if the Option is being
exercised by a person or persons other than Optionee, be accompanied
by proof satisfactory to the Company and its counsel, that such person
or persons have the right to exercise the Option. Prior to the
issuance of the Option Shares hereunder, Optionee shall execute and
deliver to the Company such other representations in writing as may be
reasonably requested by the Company in order for it to comply with the
applicable requirements of Federal and state securities laws.
B. This Option shall be deemed to have been exercised with respect to the
Option Shares specified in said notice at the time of receipt by the
Company of: (i) the notice specified in Section 7(A) hereof; (ii) any
representations reasonably required by the Company pursuant to Section
7(A) hereof; and (iii) the payment required in Section 7(A) hereof.
C. Unless the shares of Common Stock issuable upon exercise of the Option
are covered by a then current registration statement of the Company
under the Securities Act, the certificates representing the Option
Shares issued or to be issued hereunder shall be stamped or otherwise
imprinted with legends substantially in the following form:
Page - 67
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND HAVE BEEN ACQUIRED FOR AN INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR AN OPINION OF COUNSEL ACCEPTABLE TO COUNSEL FOR THE COMPANY
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH LAWS.
8. Securities Law Requirements.
A. No Option granted hereunder shall be exercisable, in whole or in part,
and the Company shall not be obligated to sell any Option Shares if
such exercise and sale would, in the opinion of counsel for the
Company, violate the applicable requirements of Federal or state
securities laws. Each Option shall be subject to the further
requirement that, if at any time the Company shall determine in its
discretion that the listing or qualification of the Option Shares
under any securities exchange requirements or under any applicable
law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with,
the issuance of the Option Shares, such Option may not be exercised in
whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any conditions
not acceptable to the Company.
B. If any law or regulation of any state or Federal commission or agency
having jurisdiction shall require the Company or the Optionee to take
any action with respect to the Option Shares, then the date upon which
the Company shall deliver or cause to be delivered the certificate or
certificates for the Option Shares shall be postponed until full
compliance shall have been made with all such requirements.
9. Employment. Nothing contained in this Agreement shall be deemed to
grant any right of continued employment to Optionee or to limit or
waive any rights of the Company to terminate such employment at any
time, with or without cause.
10. Section 16(b) of the Securities Exchange Act of 1934. Optionee
acknowledges that his position with the Company is sufficient to
render the Optionee an "affiliate" of the Company for securities law
purposes, and that Section 16(b) of the Securities Exchange Act of
1934, as amended, prohibits the purchase and sale or sale and purchase
of the Company's securities by all affiliates within a period of six
months. Accordingly, Optionee hereby agrees to coordinate the exercise
of the Option and the resale of the shares of Common Stock so acquired
with legal counsel for the Company so that Optionee will not violate
the provisions of Section 16(b), wittingly or unwittingly.
11. Notices.
All notices required or permitted to be given hereunder shall be duly
given if hand delivered or mailed by registered or certified mail,
postage prepaid, addressed to the following:
If to the Company, to: Technical Chemicals and Products, Inc.
3341 S.W. 15th Street
Pompano Beach, FL 33069
Attention: Corporate Secretary
If to the Optionee, to: ________________________
________________________
________________________
Page - 68
<PAGE>
Either party shall have the right to specify in writing in the manner above
provided another address to which subsequent notices shall be given. Any
notice given hereunder shall be duly given as of the date hand delivered or
mailed.
12. General.
This Agreement includes the entire understanding of and replaces any and
all prior agreements between the parties hereto with respect to the subject
matter hereof. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of Company and the successors,
permitted assigns, personal representatives, heirs and legatees of the
Optionee, and the entities, if any, resulting from the reorganization,
consolidation or combination of the Company. If any provision of this
Agreement shall be found to be void, voidable or unenforceable,
nevertheless, the remaining provisions shall remain in force. This
Agreement shall not be modified except by an instrument in writing, signed
by the parties hereto. This Agreement shall be governed in accordance with
the laws of the State of Florida and the sole venue for any action arising
hereunder shall be Broward County, Florida. This Agreement may be executed
in counterparts and signatures may be transmitted by facsimile.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
WITNESS: Company:
TECHNICAL CHEMICALS AND PRODUCTS, INC.
________________________ By: ________________________
WITNESS: OPTIONEE:
________________________ ________________________
Page - 69
<PAGE>
EXHIBIT 23
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-5035) of Technical Chemicals & Products, Inc. and in the
related Prospectus of our report dated February 10, 1997, with respect to the
consolidated financial statements and schedule of Technical Chemicals &
Products, Inc. included in this Annual Report (Form 10-K) for the year ended
December 31, 1997.
ERNST & YOUNG LLP
Miami, Florida
March 24, 1997
Page - 70
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(The Company's Annual Report on Form 10K for the Period
Ending December 31, 1997)
</LEGEND>
<CIK> 0000924921
<NAME> STU STREGER
<S> <C>
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0
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