<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-28034
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CardioTech International, Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3186647
- ------------------------ --------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
11 State Street, Woburn, Massachusetts 01801
- ------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 933-4772
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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 12 months (or for 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
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The number of shares outstanding of the registrant's class of Common Stock
as of February 11, 1997 was 4,272,916. No shares were held in treasury.
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CARDIOTECH INTERNATIONAL, INC.
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
March 31, 1996 and December 31, 1996 3
Condensed Consolidated Statements of
Operations for the three and nine months
ended December 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash
Flows for the nine months ended
December 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Mar. 31, 1996 Dec. 31, 1996
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(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 504 $ 2,625,428
Accounts Receivable - Trade - 42,218
Accounts Receivable - Other - 187,435
Prepaid Expenses - 94,219
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Total Current Assets 504 2,949,300
Property and Equipment, net 35,190 249,339
Other Non-Current Assets - 15,883
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Total Assets $ 35,694 $ 3,214,522
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LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ - $ 37,453
Accrued Expenses - 182,339
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Total Current Liabilities $ - $ 219,792
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Stockholder's Equity:
Preferred stock $.01 par value;
5,000,000 shares authorized,
none issued or outstanding
Common stock, $.01 par value,
20,000,000 shares authorized,
2,831,491 and 4,272,916 issued
and outstanding at March 31, 1996
and December 31, 1996, respectively 2,831 42,729
Due to Parent 4,063,966 -
Additional Paid in Capital - 8,182,854
Accumulated Deficit (4,031,103) (5,250,265)
Cumulative Translation Adjustment - 19,412
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Total Stockholder's Equity 35,694 2,991,730
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Total Liabilities and
Stockholder's Equity $ 35,694 $ 3,214,522
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</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Research Revenue $ 89,697 $ 281,092 $ 143,310 $ 501,460
Operating Expenses
Research and Development 289,541 367,395 638,285 829,677
Selling, General and
Administrative 101,579 264,796 247,649 570,431
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Total Operating Expense 391,120 632,191 885,934 1,400,108
Other Income and Expenses
Spin Off Transaction Cost - - - (393,897)
Interest Income - 33,234 - 73,385
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- 33,234 - (320,512)
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Net Loss $( 301,423) $ (317,865) $ (742,624) $(1,219,162)
========== ========== ========== ===========
Net Loss Per Common Share $(0.11) $(0.07) $(0.26) $(0.31)
========== ========== ========== ===========
Weighted Average Number of Shares
Outstanding 2,831,941 4,272,916 2,831,941 3,888,207
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months ended
Dec 31,1995 Dec 31,1996
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<S> <C> <C>
Cash flows from operating activities:
Net Loss $(742,624) $(1,219,162)
Adjustments to reconcile net loss to
net cash flows from operating
activities:
Depreciation and Amortization 54,723 35,554
Non Cash Expenses - 33,000
Changes in assets and liabilities
Accounts receivable (15,116) (229,653)
Prepaid expenses (10,436) (55,219)
Accounts payable - 37,453
Accrued expenses 26,366 182,339
Increase in Non-Current Assets (15,883)
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Net cash flows from operating
activities (687,087) (1,231,571)
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Cash flows from investing activities:
Purchase of property, plant and
equipment - (105,288)
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Net cash flows from Investing
Activities - (105,288)
========= ===========
Cash flows from financing activities:
Net proceeds from issuance of common
stock - 3,830,000
Advance from parent 693,143 485,012
Payment of spin-off costs - (373,631)
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Net cash flows from financing activities 693,143 3,941,381
========= ===========
Net increase in cash and cash
equivalents 6,056 2,604,522
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Effect of exchange rate changes on cash (6,056) 20,402
Cash and cash equivalents at beginning
of period 504 504
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Cash and cash equivalents at end of
period $ 504 $ 2,625,428
========= ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
CARDIOTECH INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited consolidated financial statements included herein have been
prepared by CardioTech International Inc. (the "Company" or "CardioTech"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and include, in the opinion of management, all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
presentation of interim period results. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. The Company believes,
however, that its disclosures are adequate to make the information presented
not misleading. The results for the interim periods presented are not
necessarily indicative of results to be expected for the full fiscal year.
2. In June 1996, the Company issued 1,412,625 shares of Common Stock, par
value of $.01 per share (the "Common Stock") for $3.8 million in cash,
equipment having an estimated market value of $147,000, the transfer of
certain vascular graft manufacturing patents, and the forgiveness of certain
amounts due to PMI. After it acquired these shares, PMI owned 3,929,493
shares, or 92.6% of Common Stock. On June 12, 1996 and June 19, 1996, PMI
distributed (the "Spin Off") all of the shares of Common Stock that it owned
to its stockholders of record as of June 3, 1996. On June 11, 1996, all
advances from PMI to CardioTech were forgiven and are classified by the
Company as additional paid in capital.
3. Net loss per share is computed using the weighted average number of
shares of Common Stock outstanding. Common equivalent shares from stock
options and warrants are excluded from the computation as their effect is
anti-dilutive.
4. On October 1, 1996, the Company signed a two (2) year lease agreement
with Poly -Medica Pharmaceuticals, Inc.,(U.S.A.), the owner or lessor of the
office, manufacturing and research facilities currently occupied by the
Company in Woburn, MA and Tarvin, Cheshire, UK. The lease agreement replaces
in its entirety the service agreement between PMI and the Company, signed in
June 1996. The lease agreement expires on September 30, 1998. Thereafter, the
Company has the right upon ninety (90) days written notice to the landlord, to
terminate the lease. The base rent (including payments for electricity) in the
first year is approximately $200,000 and in the second year is $186,000. The
lease agreement also provides for a two (2) year payback of approximately
$20,000 in build out costs increased by the landlord in behalf of the Company.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
CardioTech synthesizes, designs and manufactures medical-grade polymers,
particularly polyurethanes that it believes are useful in the development of
vascular graft technology and other implantable medical devices because they
can be synthesized to exhibit compatibility with human blood and tissue.
CardioTech is using proprietary manufacturing technology to develop and
fabricate small bore synthetic vascular grafts made of ChronoFlex(R), a family
of polyurethanes that has been demonstrated to be biodurable, blood and tissue
compatible and non-toxic.
In addition to the graft research and development program, since 1990
CardioTech has been engaged in various internal programs and joint venture
programs with corporate partners and internal programs for the development and
sale of ChronoFlex and other proprietary biomaterials for use in medical
devices manufactured by third parties. This activity has generated research
revenues for CardioTech.
As CardioTech is now focusing most of its research and development
resources on the vascular graft program, period to period comparisons of
changes in research revenues are not necessarily indicative of results to be
expected for any future period.
CardioTech was established as a separate subsidiary of PMI in March 1993,
to focus on PMI's existing biomaterials business, with a particular emphasis
on accelerating the research, development and commercialization of small bore
vascular graft products through external funding and a more focused and
strategic product development effort. In June 1996, PMI spun off the Company
(the "Spin Off"). See Note 2 of Notes to Consolidated Financial Statements.
CardioTech is headquartered in Massachusetts and operates from
manufacturing and laboratory facilities located in Woburn, Massachusetts and
Tarvin, Cheshire, United Kingdom.
7
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RESULTS OF OPERATIONS:
Comparison for the Three Months Ended December 31, 1996 and 1995.
Research revenues for the quarter ended December 31, 1996 were $281,092
compared to $89,697 for the quarter ended December 31, 1995, an increase of
$191,395 or 213%. This increase was primarily generated by higher research
revenues ($209,000) received, under research grants from the National
Institute of Health, ("NIH"), and under research contracts ($10,000), offset
by lower sales of medical grade polyurethanes ($14,700) and decreased royalty
revenue ($13,000).
Research and development expenses for the quarter ended December 31, 1996
were $367,395, compared to $289,541 for the quarter ended December 31, 1995,
an increase of $77,854 or 27%. This increase was primarily the result of
increased research and development related to clinical trials of the Company's
vascular access graft in Europe and the NIH grants. Some expenses ($80.000)
related to the NIH grants were incurred by the Company was a result of the
Company contracting work to outside laboratories and hospitals.
Selling, general and administrative expenses for the quarter ended
December 31, 1996 were $264,796, compared to $101,579 for the quarter ended
December 31, 1995 an increase of $163,217 or 160%. The increase in selling,
general and administrative expenses reflects the additional costs incurred by
the Company subsequent to the Spin Off on June 11, 1996. These costs include,
but are not limited to expenses related to the establishment of a separate
finance, accounting and administrative function ($50,000), investor and public
relations ($65,000) legal representation ($18,700), insurance ($15,000), rent
($10,000) and advertising ($4,000).
Interest income for the quarter ended December 31, 1996 was $33,234,
compared to $0 during the quarter ended December 31, 1995. This income was
received on available cash and investment balances of the Company.
Comparison of the Nine Months ended December 31, 1996 to the Nine Months
ended December 31, 1995.
Research revenues for the nine months ended December 31, 1996 were
$501,460, compared to $143,310 for the nine months ended December 31, 1995.
An increase of $358,150 or 250 %. This increase was primarily generated by
higher research revenues ($358,150) under the NIH grants, higher product sales
($21,265), and higher royalty income on specialty designed polyurethanes for a
medical device manufacture ($34,639) offset by reduced contract research
income ($44,016).
8
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Research and development expenses for nine month period ended December
31, 1996 were $829,677, compared to $638,285 for the period ended December 31,
1995, a increase of 191,392 or 30%. This increase was primarily the result of
increased expeditions related to clinical trials of the Company's vascular
access graft in Europe and the NIH grants.
Selling, general and administrative expenses for the nine months ended
December 31, 1996 were $570,431, compared to $247,649 for the nine months
ended December 31, 1995, an increase of 322,782 or 130%. This increase
reflects the additional costs incurred by the Company subsequent to the Spin
Off, including expenses related to the establishment of a separate finance and
accounting group, ($65,000), investor relations and public reporting fees,
($110,000), rent, ($32,000), insurance ($58,600) and legal representation,
($57,000).
Other income and expenses for the nine months ended December 31,1996 was
expenses of $320,512, compared to $0 during the nine months ended December 31,
1995. During the nine months ended December 31, 1996, the Company incurred
$393,879 in Spin Off transaction costs offset by interest income of $73,385.
9
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LIQUIDITY AND CAPITAL RESOURCES
CardioTech's future growth will depend on its ability to raise capital to
support research and development activities and to commercialize its vascular
graft technology. To date, CardioTech has not generated any revenue from the
sale of vascular grafts, although it has received a minor amount of research
revenues relating to its other biomaterials applications and funding from the
NIH to support graft research. Since inception, funding from PMI has been
used to finance the development of CardioTech's technologies. CardioTech
expects to continue to incur operating losses unless and until product sales
and/or royalty payments generate sufficient revenue to fund its continuing
operations.
CardioTech will require substantial funds for further research and
development, future pre-clinical and clinical trials, regulatory approvals,
establishment of commercial-scale manufacturing capabilities, and the
marketing of its products. CardioTech's capital requirements depend on
numerous factors, including but not limited to, the progress of its research
and development programs, the progress of pre-clinical and clinical testing,
the time and costs involved in obtaining regulatory approvals, the cost of
filing, prosecuting, defending and enforcing any intellectual property rights,
competing technological and market developments, changes in CardioTech's
development of commercialization activities and arrangements, and the purchase
of additional facilities and capital equipment.
CardioTech is currently conducting its operations with approximately
$2,600,000 in cash contributed by PMI in connection with the Spin Off.
CardioTech estimates such amounts will be sufficient to fund its initial
working capital and research and development activities through June 1998.
Past spending levels are not necessarily indicative of future spending
levels. From the inception of CardioTech's business through March 31, 1996,
PMI has funded approximately $4.1 million in operating losses to support
CardioTech's research activities. Future expenditures for product development,
especially relating to outside testing and clinical trials, are discretionary
and, accordingly, can be adjusted to available cash.
CardioTech will seek to obtain additional funds through public or private
equity or debt financing, collaborative arrangements, or from other sources.
There can be no assurance that additional financing will be available at all
or on acceptable terms to permit successful commercialization of CardioTech's
technology and products. If adequate funds are not available, CardioTech may
be required to curtail significantly one or more of its research and
development programs, or obtain funds through arrangements with collaborative
partners or others that may require CardioTech to relinquish rights to certain
of its technologies, product candidates or products.
10
<PAGE>
FORWARD LOOKING STATEMENTS
The Company believes that this Form 10-Q contains forward-looking
statements that are subject to certain risks and uncertainties. These
forward-looking statements include statements regarding the sufficiency of the
Company's liquidity and capital. Such statements are based on management's
current expectations and are subject to a number of factors that could cause
actual results to differ materially from the forward-looking statements. The
Company cautions investors that there can be no assurance that actual results
or business conditions will not differ materially from those projected or
suggested in such forward-looking statements, as a result of various factors
including but not limited to the following: the timely development of
products by the Company, the Company's ability to obtain financing to support
its working capital needs, intense competition related to the development of
synthetic grafts and difficulties inherent in developing synthetic grafts. As
a result, the Company's further development involves an high degree of risks.
For future information, refer to the more specific risks and uncertainties
discussed throughout this report.
ChronoFlex(R) is a registered trademark of PMI, that has been licensed to
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CardioTech.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
10.1 Lease Agreement dated October 1, 1996 between PolyMedica
Pharmaceuticals
(U.S.A.), Inc. and the Company.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None
12
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SIGNATURES
Pursuant to the requirements 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.
CardioTech International, Inc.
/s/ Michael Szycher, Ph.D.
---------------------------------------
Michael Szycher, Ph.D.
Chairman and Chief Executive Officer
/s/ John E. Mattern
--------------------------------------------
John E. Mattern
Chief Financial Officer and Chief Operating Officer
(Principal Financial and
Accounting Officer)
Dated: February 11, 1997
13
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EXHIBIT 10.1
LEASE AGREEMENT
THIS agreement entered into this 1ST day of OCTOBER in the year one thousand
nine hundred and ninety-six between PolyMedica Pharmaceuticals (U.S.A.), Inc.,
a Massachusetts corporation duly organized under the laws of the Commonwealth
of Massachusetts (hereinafter called the Lessor) on the one part, and
CardioTech International, Inc., a corporation duly organized under the laws of
the Commonwealth of Massachusetts (hereinafter called the Lessee) on the other
part,
1. LEASE PREMISES - 8,761 square feet (increasing to 9,301 sq. ft.), total,
--------------
more or less, in the buildings known as and located at 11 State Street,
Woburn, Massachusetts, and at Tarvin Sands Complex, Tarvin, Cheshire, UK, as
described in Exhibit A.
2. TERM - Commencing on October 1, 1996, and expiring September 30, 1998.
----
After October 1, 1997, Lessee shall have the right upon ninety (90) days'
written notice to vacate the office area at 11 State Street. Effective with
the signing of this Lease between Lessee and Lessor, both parties agree that
the Facilities and Services Agreement between them is null and void and shall
have no further effect.
3. USE - The premises shall be used only for the purposes designated in
---
Exhibit B.
4. RENT - Lessee agrees to pay according to the schedule in Exhibit C on
----
the first of each month and each successive month thereafter. This Lease
obligates the Lessee to pay in addition to such base rent, an appropriate
portion of electricity consumed at 11 State Street. The Lessor will provide
the Lessee with copies of electric bills on the second anniversary of this
lease in order to adjust estimated Year 2 usage to actual. Lessee will pay or
obtain credit from Lessor upon invoicing by Lessor.
1
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5. CONDITION OF DEMISED PREMISES - Lessor represents that all utilities
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presently serving the premises are accessible and operating, including, but
not limited to, heat, electricity and gas. In all other respects the Lessee
shall take that space it is leasing in its present condition with no
warranties whatsoever as to the condition of such space. Lessor is
responsible for repair of existing HVAC, electric, plumbing, and roof as of
the date hereof.
6. SECURITY DEPOSIT - One month's rent ($15,833.34) which will be placed
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in an interest bearing account.
7. RIGHT TO MARKET PREMISES - Lessor shall have the right upon prior
------------------------
written notice to Lessee and approval by Lessee, whose permission shall not be
unreasonably withheld, to enter the premises for the purposes of marketing the
same to prospective lenders, purchasers and other lessees.
8. LESSEE'S COVENANTS - Lessee agrees that during the term of this
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lease, the demised premises will not be overloaded, damaged or defaced, except
for normal wear and tear; Lessee will not, without the permission of Lessor,
drill or make any holes in the stone, brick or cement work of such premises.
Additionally, the Lessee shall not permit nuisance on or about the demised
premises. Lessee will not permit the emission of any objectionable noise,
vibration or odor from demised premises nor commit any other act that shall
interfere with the reasonable use and enjoyment of any other portions of the
building by the occupants thereof. Lessee will procure any and all licenses
and permits which may be required for the use of the demised premises; nothing
shall be done upon or about the demised premises which shall be contrary to
any law, ordinance or regulation or requirement of any public authority having
jurisdiction over the premises. Any and all wastes or refuse will be removed
from the demised premises in accordance with rules and regulations which may
be prescribed by the Lessor. Lessee shall keep the demised premises
reasonably clean and shall not litter or place any obstruction on any portion
of the sidewalks and areas adjacent to the demised premises. Lessee shall
observe and comply
2
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with and cause its employees and agents to observe and comply with any and all
reasonable rules for the operation of the building and all areas adjacent
thereto, provided further that such rules and regulations shall not
unreasonably interfere with tenancies to the demised premises. Any
improvements, alterations (including any exterior sign installation) and
repairs that Lessee intends to make shall first be approved in writing by
Lessor. (See Exhibit D)
9. INDEMNIFICATION - Lessee agrees to save Lessor harmless from, and
---------------
indemnify Lessor against, to the extent permitted by law, any and all injury,
loss or damage and any and all claims for injury, loss or damage of whatsoever
nature (1) caused by or resulting from or claimed to have been caused by or to
have resulted from any act, omission or negligence of Lessee or anyone
claiming under Lessee (including, but without limitation, subtenants and
concessionaires of Lessee and employees and contractors of Lessee, or its
subtenants or concessionaires), no matter where occurring, or (2) occurring in
or upon the demised premises, no matter how caused, unless the same shall be
due to the fault or negligence of Lessor, its agents or servants. This
indemnity and hold-harmless agreement shall include indemnity against all
cost, expenses and liabilities incurred in connection with any such injury,
loss or damage or any such claim, or any proceeding brought thereon or the
defense thereof. If Lessee or anyone claiming under Lessee or the whole or
any part of the merchandise, fixtures of other property of Lessee or anyone
claiming under Lessee shall be injured, lost or damaged by theft, fire,
electricity, water or steam, the leaking or bursting of pipes, falling
plaster, latent defects in the demised premises or the building or in any
other way or manner, whether similar or dissimilar to the foregoing, no part
of said injury, loss or damage is to be borne by Lessor or its agents. Lessee
agrees that Lessor shall not be liable to Lessee or anyone claiming under
Lessee for any injury, loss or damage that may be caused by or result from the
fault or negligence of any persons occupying adjoining premises or any other
part of the building. Lessee agrees to maintain general liability insurance
in the amount of One Million ($1,000,000.00) Dollars per occurrence naming
Lessor as insured and Five Hundred Thousand ($500,000.00) Dollars casualty and
risk insurance to insure the Lessee's personal property.
3
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10. DAMAGE TO PREMISES - If the demised premises should be damaged or
------------------
destroyed by fire or other casualty, the Lessee shall give notice to the
Lessor and, except if hereinafter otherwise provided, the Lessor may, at its
election, within Forty-five (45) days, commence to repair or restore the
demised premises to substantially the same condition as they were in prior to
the casualty, except that if any insurance loss shall not be settled promptly,
Lessor shall have up to Seventy-five (75) days to commence such restoration.
In such event and if the damage to the demised premises should be so extensive
as to render the whole or any part thereof untenantable and unsuitable for use
and occupation by Lessee, a just proportion of the minimum rent according to
the nature and extent of the damages to the demised premises shall be
suspended or abated until the demised premises shall be repaired or restored
as aforesaid. If Lessor does not elect to repair or restore the demised
premises within the period provided above, Lessee shall notify Lessor with Ten
(10) days after the period within which the Lessor has to commence the repair
of the demised premises, whether it elects to terminate this Lease.
11. HAZARDOUS MATERIALS - Lessee shall not receive, store or otherwise handle
-------------------
any product, material or merchandise which is explosive or highly flammable or
permit the Premises to be used for any purpose which would render the
insurance thereon void or cause an increase in the premiums for such insurance
or make the insurance risk more hazardous. Lessee shall on demand reimburse
Lessor, and all other tenants any and all extra insurance premiums caused in
any way by Lessee's use of the Premises. (Exhibit E)
12. DEFAULT - (1) If Lessee shall default in the payment of rent or other
-------
payment required of Lessee and shall fail to cure said default within Fifteen
(15) days after notice of said default from Lessor, or (2) if Lessee shall
default in the performance or observance of any other agreement or condition
on its part to be performed or observed and if Lessee shall fail to cure said
default within Fifteen (15) days after receipt of notice of said default from
Lessor (or if said default shall require longer than Fifteen (15) days after
receipt of notice thereof and to prosecute the curing of the same to
completion with due diligence) or (3) if any person shall levy upon, or take
this leasehold interest or any part thereof upon execution, attachment or
other process of
4
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law, or (4) if Lessee shall make an assignment of its property for the benefit
of creditors, or (5) if Lessee shall be declared bankrupt or insolvent
according to law, or (6) if any bankruptcy or insolvency proceedings shall be
commenced by or against Lessee, or (7) if a receiver, trustee or assignee
shall be appointed for the whole or any part of Lessee's property then in any
of said cases, Lessor lawfully may immediately, or at any time thereafter and
without any further notice or demand, enter into and upon the demised premises
or any part thereof in the name of the whole, by force or otherwise, and hold
the demised premises as if this Lease had not been made, and expel Lessee and
those claiming under it and remove its or their property (forcibly, if
necessary) without being taken or deemed to be guilty of any manner of
trespass (or Lessor may send written notice to Lessee of the termination of
the term of this Lease), and upon entry as aforesaid (or in the event that
Lessor shall send to Lessee notice of termination as above provided, on the
fifth day next following the date of the sending of the notice), the term of
this Lease shall terminate.
13. HOLDOVER - If Lessee or anyone claiming under Lessee shall remain in
--------
possession of the demised premises or any part thereof after expiration of the
term of this Lease without any agreement in writing between Lessor and Lessee
with respect thereto, prior to acceptance or rent by Lessor the person
remaining in possession shall be deemed a tenant at sufferance and after
acceptance or rent by Lessor the person remaining in possession shall be
deemed a tenant at will, subject to the provisions of this Lease insofar as
the same may be made applicable to a tenancy at will. The parties agree that
liquidated damages resulting from any person remaining in possession as
aforesaid will be calculated at the rate of two times the base rent for the
period of holdover.
14. ACTS AND OMISSIONS - Failure of either party to complain of any act or
------------------
omission on the part of the other party, no matter how long the same may
continue, shall not be deemed to be a waiver of any rights hereunder. No
waiver by either party at any time, express or implied, of any breach of any
provision of this Lease shall be deemed a waiver of a breach of any other
provision of this Lease or a consent to any subsequent breach of the same or
any other provision.
5
<PAGE>
If any action by either party shall require the consent or approval of the
other party, the consent to or approval of such action on any one occasion
shall not be deemed a consent to or approval of said action on any subsequent
occasion or a consent to or approval or any other action on the same or any
subsequent occasion. No payment by Lessee or acceptance by Lessor of a lesser
amount than shall be due from Lessee to Lessor shall be deemed to be anything
but payment on account, and the acceptance by Lessor of a check for a lesser
amount with an endorsement or statement thereon or upon a letter accompanying
said check that said lesser amount is payment in full shall not be deemed an
accord and satisfaction, and Lessor may accept said check without prejudice to
recover the balance due or pursue any other remedy. Any and all rights and
remedies which either party may have under this Lease or by operation of law,
either at law or in equity, upon any breach, shall be distinct, separate and
cumulative and shall not be deemed inconsistent with each other; and no one of
them, whether exercised by the other party or not, shall be deemed to be in
exclusion of any other; and any two or more of all of such rights and remedies
may be exercised at the same time.
15. MODIFICATION OR CHANGES - It is understood that neither Lessor nor any
-----------------------
of its agents has made any representations with respect to the demised
premises or the building except as expressly set forth in this Lease. This
instrument contains the entire and only agreement between the parties, and no
oral statements or representations or prior to written matter not contained in
this instrument shall have any force or effect. This Lease shall not be
modified in any way except by a writing subscribed by both parties.
16. ADDITIONAL TERMS & CONDITIONS - Lessee shall have permission to access
-----------------------------
their warehouse and production space on designated walkways through Lessors
warehouse area.
17. OPERABLE LAW - Both parties agree that this Lease shall be governed by
------------
the laws of the Commonwealth of Massachusetts.
6
<PAGE>
WITNESS, the signature of PolyMedica Pharmaceuticals (U.S.A.), Inc. by
Arthur A. Siciliano, President.
__________________________________
Arthur A. Siciliano, Ph.D.
President
WITNESS, the signature of CardioTech International, Inc. by Michael
Szycher, President.
__________________________________
Michael Szycher, Ph.D.
President
7
<PAGE>
EXHIBIT A
LEASED SPACE
(Approximate)
Woburn, MA
----------
1,600 sq. ft. - Office
4,031 sq. ft. - Lab & Production
630 sq. ft. - Warehouse "A"*
-----
Sub Total 6,261 sq. ft.
Tarvin, UK 2,500 sq. ft.
----------
TOTAL 8,761 sq. ft.*
=====
* Increases to 1,170 sq. ft. when Warehouse "A" is vacated for Warehouse
"B". Total increase to 9,301 sq. ft.
8
<PAGE>
EXHIBIT B
DESCRIPTION OF LEASED AREAS
(as defined in Exhibit A)
OFFICE - Administrative and executive offices
LAB & PRODUCTION - Biopolymer synthesis, analysis and production
WAREHOUSE - Raw material and finished goods warehouse; warming oven location
TARVIN - Office - includes management services, office equipment, office
supplies and telephone systems; lab and graft manufacturing areas
Use must conform to all local, regional, and national governmental requirements.
9
<PAGE>
EXHIBIT C
PAYMENT SCHEDULE
BASE RENT (MONTHLY)
- ---------
Year 1 - $15,833.34
Year 2 - $13,860.37
ELECTRICITY (MONTHLY)
- -----------
Year 1 - $ 799.00
Year 2 - $1,632.80 ($8,164 est. x 20%)
TOTAL MONTHLY RENT
- ------------------
Year 1 - $16,632.34
Year 2 - $15,493.17
CardioTech and PolyMedica agree to the following allocation for payment:
Year 1 Year 2
------ ------
Paid to PMI $12,026.72 $10,887.55
Paid to PMUK/(1)/ /L/2,912.00 /L/2,912.00
/(1)/ Assumes exchange rate of $1.5816 to one /L/ on October 15, 1996, from
the Wall Street Journal.
Year 2 electrical usage is estimated and will be adjusted at the end of
the second year of this lease to equal 20% of the amount actually
invoiced to PolyMedica.
10
<PAGE>
EXHIBIT D
The Lessee is given permission, in compliance with all laws and
regulations, to alter and improve, upon Lessors review and approval of
buildout plans, at Lessee's expense, 1,170 sq. ft. of space designated in
Exhibit A as Warehouse "B".
The Lessee is given permission, in compliance with all local laws and
regulations, to install an exterior sign above Lessee's entrance as described
on the following page.
11
<PAGE>
EXHIBIT E
HAZARDOUS MATERIALS
E.1 Lessee shall not cause or permit any Hazardous Material, except those
listed in EXHIBIT F attached hereto and made a part hereof, to be brought
upon, kept, used, stored, generated or disposed of on, in or about the
Premises by Lessee, its agents, employees, contractors, or invitees, without
first obtaining Lessor's written consent.
E.2 Any Hazardous Material permitted on the Premises as provided in E.1, and
all containers therefor, shall be used, kept, stored, and disposed of in a
manner that complies with all federal, state, and local laws or regulations
applicable to this Hazardous Material.
E.3 Lessee shall not discharge, leak, or emit, or permit to be discharged,
leaded, or emitted, any material into the atmosphere, ground, sewer system, or
any body of water, if that material (as is reasonably determined by the
Lessor, or any governmental authority) does or may pollute or contaminate the
same, or may adversely affect (a) the health, welfare, or safety of persons,
whether located on the Premises or elsewhere, or (b) the condition, use, or
enjoyment of the Building or any other real or personal property.
E.4 At the commencement of each year of the Term, Lessee shall disclose to
Lessor the names and approximate amounts of all Hazardous Material (other than
those listed in Exhibit F) that Lessee intends to store, use, or dispose of on
the Premises in the coming year. In addition, at the commencement of each
year of the Lease Term, beginning with the second year of the Lease Term,
beginning with the second year of the Lease Term, Lessee shall disclose to
Lessor the names and amounts of all Hazardous Materials (other than those
listed in Exhibit F) that were actually used, stored, or disposed of on the
Premises if those materials were not previously identified to Lessor at the
commencement of the previous year.
E.5 As used herein, the term "Hazardous Material" means (a) any "hazardous
waste" as defined by the Resource Conservation and Recovery Act of 1976, as
amended from time to time, and regulations promulgated thereunder; (b) any
"hazardous substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time, and
regulations promulgated thereunder; (c) any oil, petroleum products, and their
by-products; (d) any substance that is toxic, ignitable, reactive or
corrosive; and (e) any substance that is or becomes regulated by any federal,
state, or local governmental authority.
E.6 Lessee hereby agrees that is shall be fully liable for all costs and
expenses related to the use, storage and disposal of Hazardous Material kept
on the Premises by the Lessee, and the Lessee shall give immediate notice to
the Lessor of any violation or potential violation of the provisions of this
Exhibit. Lessee shall defend, indemnify, and hold harmless Lessor and its
agents, from and against any and all claims, demands, penalties, fines,
liabilities, settlements, damages, costs, or expenses (including, without
limitation, attorneys' and consultants' fees, court costs, and litigation
expenses) of whatever kind or nature, known or unknown, contingent or
otherwise allegedly or actually arising out of or in any way related to
Lessee's use and/or occupation of the Premises and (a) the presence, disposal,
release, or threatened release of any such Hazardous Material that is on,
from, or affecting the soil, water, vegetation, buildings, personal property,
persons, animals, or otherwise; (b) any personal injury (including wrongful
death) or property damage (real or personal) arising out of or related to that
Hazardous Material; (c) any lawsuit brought or threatened, settlement reached,
or government order relating to that Hazardous Material; or (d) any violation
of any similar laws applicable thereto. This indemnification includes,
without limitation, any and all costs incurred because of any investigation of
the site or any cleanup, removal, or restoration mandated by a federal, state,
or local agency or political subdivision. Without limitation of the
foregoing, if Lessee causes or permits the presence of any Hazardous Material
on the Premises and that results in contamination, Lessee shall promptly, at
its sole expense, take any and all necessary actions to return the Premises to
the condition existing prior to the presence of any such Hazardous Material on
the Premises. Lessee shall first obtain Lessor's approval for any such
remedial action. The provisions of this Section E.6 shall be in addition to
any other obligations and liabilities Lessee may have to Lessor
12
<PAGE>
at law or equity and shall survive the transactions contemplated herein and
shall survive the expiration or earlier termination of this lease.
13
<PAGE>
EXHIBIT F
LIST OF HAZARDOUS MATERIALS
14
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<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
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