<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q SB
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934. FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30, 1999.
Or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _____to_____.
Commission file number 000-25839
IMPLANT SCIENCES CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2837126
- ---------------------------------------- --------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification number)
107 Audubon Road, #5 Wakefield, MA 01880
- ---------------------------------------- --------------------------------------
(Address of principal executive offices)
781-246-0700
(Issuers telephone number)
NOT APPLICABLE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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 __
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Outstanding at September 30, 1999
Common Stock, $.10 par value 5,207,320
Transitional small business disclosure format (check one):
YES __ NO _X_
<PAGE> 2
IMPLANT SCIENCES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements:
Condensed Balance Sheets as of September 30, 1999 and June 30, 1999 3
(unaudited)
Condensed Statement of Operations for the three months ended
September 30, 1999 and September 30, 1998 (unaudited) 4
Condensed Statement of Cash Flows for the three months ended September 30,
1999 and September 30, 1998 (unaudited) 5
Notes to Condensed Financial Statements (including data applicable to
unaudited periods) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security-Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 15
</TABLE>
2
<PAGE> 3
IMPLANT SCIENCES CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 5,365,392 $ 6,152,536
Accounts receivable, less allowances of $5,000 at September 30,
1999 and $2,000 at June 30, 1999 795,418 421,737
Inventories 398,962 367,386
Deferred income taxes 62,000 62,000
Refundable income taxes 24,785 24,785
Prepaid expenses 5,401 6,262
----------- -----------
Total current assets 6,651,958 7,034,706
Property and equipment, at cost:
Machinery and equipment 2,181,363 1,802,011
Leasehold improvements 76,037 71,356
Computers and software 93,920 47,757
Furniture and fixtures 99,984 60,509
Motor Vehicles 14,822 14,822
Leased property under capital lease 28,360 28,360
----------- -----------
2,494,486 2,024,815
Less accumulated depreciation (847,240) (811,240)
----------- -----------
Net property and equipment 1,647,246 1,213,575
Other assets:
Patent costs, net of accumulated amortization of $25,629 at
September 30, 1999 and $22,629 at June 30, 1999 176,874 177,194
Other noncurrent assets 79,401 37,921
----------- -----------
256,275 215,115
----------- -----------
Total Assets $ 8,555,479 $ 8,463,396
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 105,000 $ 155,000
Accounts payable 241,010 99,868
Accrued Expenses 818,587 1,264,360
Current portion of long-term debt 200,082 185,376
Obligations under capital lease 5,672 5,672
----------- -----------
1,370,351 1,710,276
Long term liabilities:
Long-term debt, net of current portion 565,761 615,781
Obligations under capital lease 15,251 16,196
Deferred income taxes 29,000 29,000
----------- -----------
610,012 660,977
Stockholders' equity:
Common stock, $0.10 par value; 20,000,000 authorized 5,207,320
and 5,069,320 outstanding at September 1999 and June 30, 1999 520,732 506,932
Additional paid in capital 6,970,720 6,242,194
Deferred compensation (106,009) (121,154)
Accumulated deficit (810,327) (535,829)
----------- -----------
Total Stockholders' Equity 6,575,116 6,092,143
----------- -----------
Total Liabilities and Stockholders' Equity $ 8,555,479 $ 8,463,396
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
IMPLANT SCIENCES CORPORATION
PART I. FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
September 30, September 30,
1999 1998
-------------- -------------
<S> <C> <C>
Revenues:
Product and contract research revenues
Medical $ 737,016 $ 548,414
Semiconductor 137,412 149,497
----------- -----------
Total revenues 874,428 697,911
Costs and expenses:
Cost of product and contract research revenues 491,389 381,699
Research and development 187,718 72,605
Selling, general and administrative 516,112 206,686
----------- -----------
Total costs and expenses 1,195,219 660,990
Operating income (loss) (320,791) 36,921
Other income (expense)
Interest income 66,288 2,625
Interest expense (20,439) (8,121)
Other 444 --
----------- -----------
Income (loss) before provision (benefit) for income taxes (274,498) 31,425
Provision (benefit) for income taxes -- 5,000
=========== ===========
Net income (loss) $ (274,498) $ 26,425
=========== ===========
Net income (loss) per share - basic $ (0.05) $ 0.01
=========== ===========
Net income (loss) per share - diluted $ (0.05) $ 0.01
=========== ===========
Weighted average common shares outstanding used for basic
earnings per share 5,184,676 3,747,678
=========== ===========
Weighted average common shares outstanding used for
diluted earnings per share 5,184,676 4,488,065
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
IMPLANT SCIENCES CORPORATION
PART 1. FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash Flows Operating Activities:
Net income (loss) $ (274,498) $ 26,425
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 39,000 24,704
Amortization of deferred compensation 15,145 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (373,681) (69,343)
(Increase) decrease in Inventories (31,576) 1,913
(Increase) decrease in prepaid income taxes -- --
(Increase) decrease in prepaid expenses 861 (88)
(Increase) decrease in other noncurrent assets (41,480) (133,458)
Increase (decrease) in accounts payable 141,142 (29,958)
Increase (decrease) in accrued expenses (445,773) (141,896)
----------- -----------
Net cash (used in) provided by operating activities (970,860) (321,701)
Cash Flows Used in Investing Activities:
Purchase of property and equipment (469,671) (153,203)
Capitalized patent costs (2,680) (8,403)
----------- -----------
Net cash used in investing activities (472,351) (161,606)
Cash Flow Used in Financing Activities:
Proceeds from common stock 742,326 13,753
Proceeds from long-term debt -- 243,528
Repayments of long-term debt (36,259) --
Repayments of revolving credit line (50,000) --
----------- -----------
Cash provided by (used in)financing activities 656,067 257,281
Net increase (decrease) in cash (787,144) (226,026)
Cash at beginning of year 6,152,536 311,189
----------- -----------
Cash at end of year $ 5,365,392 $ 85,163
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 18,994 $ 8,121
Income taxes paid $ 2,500 $ --
</TABLE>
See notes to unaudited condensed financial statements.
5
<PAGE> 6
IMPLANT SCIENCES CORPORATION
PART 1: FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO FINANCIAL STATEMENTS
(Information for the three months ended September 30, 1999 is unaudited)
1. Description of Business
Implant Sciences Corporation is a provider of products and processes for
the medical device and semiconductor industries. Ion implantation and thin film
coating techniques are utilized to enhance the surfaces for orthopedic implants
(hip and knee total joint replacements), to implant radioactive material into
prostate seeds and coronary stents, coatings on guidewires, stents and catheters
for interventional cardiology devices, and ion implantation of electronic
dopants for the semiconductor industry. The Company's principal markets are the
orthopedic, radiation oncology, interventional cardiology and semiconductor
markets.
2. Interim Financial Statements
The financial information for the three months ending September 30, 1999
is unaudited but includes all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position at such date and of the operating results and cash flows
for these periods. The results of operations and cash flows for the three months
ended September 30, 1999 are not necessarily indicative of results that may be
expected for the entire year. The information contained in the Form 10Q should
be read in conjunction with the Company's audited financial statements, included
it its Form 10K-SB for the year ending June 30, 1999 filed with the Securities
and Exchange Commission.
3. Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130, Reporting Comprehensive Income and Statement No. 131,
Disclosures About Segments of an Enterprise and Related Information. Statement
No. 130 establishes standards for the reporting and display of comprehensive
income and its components. Statement No. 131 establishes standards for public
companies to report information about operating segments in financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas, and customers. Statement 131 is effective for
financial statements for fiscal years beginning after December 15, 1997, Under
Statement 131 the Company believes that it will operate in one business segment.
Accordingly, the adoption of Statements 130 and 131 did not impact the Company's
financial position or results of operations.
6
<PAGE> 7
IMPLANT SCIENCES CORPORATION
PART 1: FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO FINANCIAL STATEMENTS
4. Earnings per Share
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings per Share. This Standard revises certain
methodology for computing earnings per common share (EPS) and requires the
reporting of two earnings per share figures: basic earnings per share and
diluted earnings per share. Basic earnings per common share are computed by
dividing net income by the weighted-average number of common shares outstanding.
Diluted earnings per share are computed by dividing net income by the sum of the
weighted-average number of common shares outstanding plus the dilutive effect of
shares issuable through the exercise of stock options (common stock equivalents)
unless their inclusion would be antidilutive.
5. Subsequent Event
On October 6, 1999 the Company entered into an agreement to acquire 38% of
the shares outstanding of Epsilon Medical, Inc. for $50,000. The Company plans
to account for this under the equity method and the carrying amount of the
investment will reflect the Company's share of all gains or losses.
7
<PAGE> 8
IMPLANT SCIENCES CORPORATION
PART 1: FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto as filed in the Company's Form 10K-SB
for the year ended June 30, 1999. In addition to historical information, this
Quarterly Report on Form 10Q-SB contains forward-looking statements. The
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's opinions only as of
the date hereof. The Company undertakes no obligation to revise or publicly
release the results of any revision to these forward-looking statements. Readers
should carefully review documents that the Company files from time to time with
the Securities and Exchange Commission, including the Company's Registration
Statement on Form SB-2 (Registration Number 333-64499) and the Quarterly Reports
and Annual Report filed by the Company in fiscal 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues. Total revenues increased to approximately $874,000 in the three
months ended September 30, 1999 from $698,000 in the three months ended
September 30, 1998. This 25.3% increase was primarily attributable to a 12.5%
increase in orthopedic medical revenues and a 172.2% increase in government
contract and grant revenue as the Company has recently been awarded three phase
I and phase II government contracts. These increases were offset by an 8.1%
decline in semiconductor revenue. Less than 5% of all revenues were derived from
foreign sources.
The Company's two major customers, the Howmedica/Osteonics Division of
Stryker Corporation and Biomet Incorporated, accounted for 44.8% and 5.5%
respectively, of revenue for the three months ended September 30, 1999 and 46.2%
and 8.8% in the three months ended September 30, 1998. The Company's government
contract and grant revenue accounted for 30.1% and 13.9% of revenue for the
three months ended September 30, 1999 and 1998, respectively.
Cost of Product and Contract Research Revenues. Cost of product and
contract research revenue increased to approximately $491,000 from approximately
$382,000 for the three months ended September 30, 1999 and increased as a
percent of revenues to 56.2% from 54.7% in the same periods. This increase in
cost is primarily attributable to the increase in revenue, additional personnel
to prepare for product commercialization and expenses associated with
implementing quality systems and preparing for ISO9001 and CE Mark
certifications.
8
<PAGE> 9
Research and Development. Research and development expenses increased to
approximately $188,000 from approximately $73,000 in the three months ended
September 30, 1999, a 157.5% increase, due to product development. The Company
anticipates in future periods its research and development expenses will
continue to increase in total dollars expended as a result of its new product
development plans.
Selling, General and Administrative. Selling, general and administrative
expenses increased to approximately $516,000 from approximately $207,000 in the
three months ended September 30, 1999. The 149.7% increase in selling, general
and administrative expenses is primarily attributable to increased professional
fees, additional personnel and associated benefit costs and new investor
relations and shareholder services expenses. The Company anticipates that in
future periods its selling, general and administrative expenses will increase in
total dollars expended as a result of its plans to commercialize new products.
Other Income and Expense, Net. Other income and expense, net consists
primarily of interest earned on the Company's short term investments and
interest expense on loans. Other income and expenses increased to approximately
$46,000 in the three months ended September 30, 1999 from approximately $5,000
in the three months ended September 30, 1998. This increase primarily reflects
interest income of approximately $66,000 on the Company's short term investments
offset by interest expense $20,000 on the Company's loans.
Liquidity and Capital Resources. As of September 30, 1999 the Company had
approximately $5,365,000 in cash in the form of checking and short term
investments. The Company also had a $300,000 revolving line of credit from a
commercial bank at a rate of prime plus one percent, of which $195,000 was
available at September 30, 1999. This line of credit is renewable on September
30, 1999. The Company also has a term loan and an equipment purchase facility
with a commercial bank, under which approximately $45,000 and $721,000,
respectively, were outstanding at September 30, 1999. Under the provisions of
its Loan Agreement, the Company is required to maintain compliance with certain
financial covenants, including debt service coverage, minimum levels of net
worth and restrictions on indebtedness. At June 30, 1999, the Company's debt
service coverage was less than the required amount. The Company's bank waived
its rights under the Loan Agreement with respect to compliance with this
financial covenant for a period of one year from June 30, 1999.
During the three months ending September 30, 1999, operating activities
used cash of approximately $971,000 due principally to the payment of operating
expenses and offering costs and an increase in accounts receivable.
During the three months ending September 30, 1999, investing activities
used cash of approximately $472,000. Net cash used by investing activities
included approximately $470,000 in purchases of property and equipment and
$2,000 of patent fees. Although the Company does not have significant capital
commitments, the Company intends to make significant investments over the next
several years to support the development and commercialization of its new
products and the expansion of its manufacturing equipment and capabilities.
9
<PAGE> 10
During the three months ended September 30, 1999, financing activities
provided approximately $656,000 in cash. Net cash provided by financing
activities primarily includes approximately $742,000 in proceeds from the
exercise of the underwriter's over-allotment option of 138,000 units, offset by
payments on the Company's line of credit and equipment and term loans. The
Company plans to further increase its expenditures to complete development and
commercialize its new products, to increase its manufacturing capacity, to
ensure compliance with the FDA's Quality System Regulations and to broaden its
sales and marketing capabilities.
Year 2000 Compliance
As the year 2000 approaches, it is generally anticipated that certain
computers, software and other equipment utilizing microprocessors may be unable
to recognize or properly process dates after the year 1999 without software
modification. The Company has evaluated this potential issue with respect to its
software, equipment, financial systems and suppliers. Expenditures by the
Company to date in connection with year 2000 compliance have not been material,
and the Company does not believe the year 2000 problem will have any material
adverse effect on its business, operations or financial condition.
10
<PAGE> 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
As a result of the underwriters overallotment option exercise, 138,000
units were issued in the quarter ending September 30, 1999 and on
September 10, 1999 the 1,138,000 units were separated and the common
stock and warrants commenced trading separately.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters of a Vote to Security-Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits, required by Item 601 of Regulation S-B, are
filed as part of this Quarterly Report on Form 10-QSB. Exhibit
numbers, where applicable, in the left column correspond to those
of Item 601 of Regulation S-B.
(b) The registrant has filed no reports on Form 8-K during the quarter
ended September 30, 1999.
Exhibit
No. Description
------- -----------
*3.2 By-Laws of the Company
*3.3 Articles of Amendment to the Articles of Organization of the
Company, dated June 9, 1999
*3.4 Restated Articles of Organization of the Company, dated June
9, 1999
**4.1 Specimen certificate for the Common Stock of the Company
11
<PAGE> 12
Exhibit
No. Description
------- -----------
**4.2 Specimen certificate for the Redeemable Warrants of the
Company
***4.3 Specimen certificate for the Units of the Company
**10.1 Employment Agreement with Anthony J. Armini, dated September
26, 1998
**10.2 Employment Agreement with Stephen N. Bunker, dated September
26, 1998
*10.3 Employment Offer Letter to Darlene Deptula-Hicks, dated June
15, 1998
*10.4 Employment Offer Letter to Alan Lucas, dated March 20, 1998
*10.5 Amendment to Employment Offer Letter to Alan Lucas, dated
September 24, 1998
*10.6 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used between 1993 and 1995
*10.7 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used in 1993
*10.8 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used between 1997 and 1998
*10.9 Loan Agreement between the Company and US Trust, dated May
1, 1996
*10.10 $100,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated May 1, 1996
*10.11 $300,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated May 1, 1996
*10.12 Guaranty of Loan Agreement between the Company and US Trust,
by Anthony J. Armini, dated May 1, 1996
*10.13 Security Agreement between the Company and US Trust, dated
May 1, 1996
*10.14 Lessor's Subordination and Consent between the Company and
Teacher's Insurance and Annuity Association of America,
dated May 1, 1996
*10.15 First Amendment to Loan Agreement between the Company and US
Trust, dated July 24, 1997
*10.16 $300,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated July 24, 1997
*10.17 $94,444.40 Commercial Promissory Note signed by the Company
in favor of US Trust, dated August 12, 1997
*10.18 Second Amendment to Loan Agreement between the Company and
US Trust, dated January 16, 1998
*10.19 $750,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated January 16, 1998
*10.20 Promissory Note signed by Anthony J. Armini in favor of the
Company, dated September 26, 1998
*10.21 Shareholders Agreement between NAR Holding Corporation and
Anthony J. Armini, dated July 15, 1987
*10.22 Lease between the Company and Teachers Insurance and Annuity
Association of America, dated September 29, 1995
*10.23 First Amendment to Lease and Expansion Agreement between the
Company and Teachers Insurance and Annuity Association of
America, dated July 29, 1998
*10.24 Standard Cooperative Research and Development Agreement
between the Company and the Naval Research Laboratory, dated
January 21, 1997+
12
<PAGE> 13
Exhibit
No. Description
------- -----------
*10.25 Cooperative Agreement between the Company and the United
States of America U.S. Army Tank-Automotive and Armaments
Command Armamanet Research, Development and Engineering
Center, dated September 30, 1997+
*10.26 Vendor Agreement Memorandum between the Company and
Osteonics, dated February 2, 1998+
*10.27 Sample Purchase Order between the Company and MicroSpring
Company, Inc., dated October 24, 1996+
*10.28 Asset Purchase Agreement between the Company and Falex
Corporation, dated November 17, 1995+
*10.29 Settlement between the Company and Erik Akhund, dated July
1, 1998
*10.30 1992 Stock Option Plan
*10.31 Form of Stock Option Agreement under the 1992 Stock Option
Plan
*10.32 1998 Incentive and Nonqualified Stock Option Plan
**10.33 Form of Incentive Stock Option under the 1998 Incentive and
Nonqualified Stock Option Plan
**10.34 Form of Nonqualified Stock Option under the 1998 Incentive
and Nonqualified Stock Option Plan
**10.35 Form of Nonqualified Stock Option for Non-Employee Directors
under the 1998 Incentive and Nonqualified Stock Option Plan
*10.36 Form of Lock-Up Agreement
**10.37 Agreement Appointing Transfer Agent and Registrar between
the Company and American Securities Transfer & Trust, Inc.,
dated October 19, 1998
**10.38 Certification of Corporate Secretary dated October 19, 1998
concerning Agreement Appointing Transfer Agent and Registrar
between the Company and American Securities Transfer &
Trust, Inc.
**10.39 Research and Development Agreement between the Company and
Guidant Corporation, dated May 20, 1998+
**10.40 Letter Agreement between the Company and Guidant
Corporation, dated September 29, 1998+
***10.41 Form of Medical Advisory Board Agreement
***10.42 Form of Loan Agreement, dated January 7, 1999, between the
Company and the following employees in the following
amounts: Donald J. Dench ($12,500), Diane J. Ryan ($12,500),
Mark and Kathleen Gadarowski ($12,500), Gregory Huntington,
Sr. ($12,500), Leonard DeMild ($25,000), Michael Nelson
($12,500), Richard Sahagian ($12,500), Darryl Huntington
($12,500), Dennis Gadarowski ($12,500) and David Santos
($12,500)
***10.43 Terms and Conditions from Sample Purchase Order between the
Company and Biomet, Incorporated
****10.44 Unit and Warrant Agreement between the Company and American
Securities Transfer & Trust, Inc., dated April 9, 1999
*10.45 Agreement between the Company and U.S. Army Space and
Missile Defense Command, dated May 27, 1999
10.46 Second Amendment to Lease and Extension Agreement
10.47 Sublease Agreement
10.48 Consent to Sublease Agreement
*21.1 Subsidiaries of the Company
*23.2 Consent of Foley, Hoag & Eliot LLP
*24.1 Power of Attorney
13
<PAGE> 14
Exhibit
No. Description
------- -----------
27.1 Financial Data Schedule
- -------------------------
* Previously filed in the Registration Statement on Form SB-2 (Registration
No. 333-64499) filed on September 29, 1998.
** Previously filed in Amendment No. 1 to the Registration Statement, filed on
December 21, 1998.
*** Previously filed in Amendment No. 2 to the Registration Statement, filed on
February 11, 1999.
**** Previously filed in Amendment No. 3 to the Registration Statement, filed on
April 30, 1999.
+ Filed under application for confidential treatment.
14
<PAGE> 15
IMPLANT SCIENCES CORPORATION
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Implant Sciences Corporation
Date: November 12 , 1999 /s/ Anthony J. Armini
-----------------------------------
Anthony J. Armini
President and CEO
Date: November 12, 1999 /s/ Darlene M. Deptula-Hicks
-----------------------------------
Darlene M. Deptula-Hicks
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
Date: November 12, 1999 /s/ Stephen N. Bunker
-----------------------------------
Stephen N. Bunker
Vice President and Chief Scientist,
Director
Date: November 12, 1999 /s/ Robert E. Hoisington
-----------------------------------
Robert E. Hoisington
Director
Date: November 12, 1999 /s/ Shunkuchi Shimizu
-----------------------------------
Shunkuchi Shimizu
Director
15
<PAGE> 16
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
*3.2 By-Laws of the Company
*3.3 Articles of Amendment to the Articles of Organization of the
Company, dated June 9, 1999
*3.4 Restated Articles of Organization of the Company, dated June
9, 1999
**4.1 Specimen certificate for the Common Stock of the Company
**4.2 Specimen certificate for the Redeemable Warrants of the
Company
***4.3 Specimen certificate for the Units of the Company
**10.1 Employment Agreement with Anthony J. Armini, dated September
26, 1998
**10.2 Employment Agreement with Stephen N. Bunker, dated September
26, 1998
*10.3 Employment Offer Letter to Darlene Deptula-Hicks, dated June
15, 1998
*10.4 Employment Offer Letter to Alan Lucas, dated March 20, 1998
*10.5 Amendment to Employment Offer Letter to Alan Lucas, dated
September 24, 1998
*10.6 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used between 1993 and 1995
*10.7 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used in 1993
*10.8 Form of Employee Agreement on Ideas, Inventions, and
Confidential Information used between 1997 and 1998
*10.9 Loan Agreement between the Company and US Trust, dated May
1, 1996
*10.10 $100,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated May 1, 1996
*10.11 $300,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated May 1, 1996
*10.12 Guaranty of Loan Agreement between the Company and US Trust,
by Anthony J. Armini, dated May 1, 1996
*10.13 Security Agreement between the Company and US Trust, dated
May 1, 1996
*10.14 Lessor's Subordination and Consent between the Company and
Teacher's Insurance and Annuity Association of America,
dated May 1, 1996
*10.15 First Amendment to Loan Agreement between the Company and US
Trust, dated July 24, 1997
*10.16 $300,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated July 24, 1997
*10.17 $94,444.40 Commercial Promissory Note signed by the Company
in favor of US Trust, dated August 12, 1997
*10.18 Second Amendment to Loan Agreement between the Company and
US Trust, dated January 16, 1998
*10.19 $750,000 Commercial Promissory Note signed by the Company in
favor of US Trust, dated January 16, 1998
*10.20 Promissory Note signed by Anthony J. Armini in favor of the
Company, dated September 26, 1998
*10.21 Shareholders Agreement between NAR Holding Corporation and
Anthony J. Armini, dated July 15, 1987
*10.22 Lease between the Company and Teachers Insurance and Annuity
Association of America, dated September 29, 1995
*10.23 First Amendment to Lease and Expansion Agreement between the
Company and Teachers Insurance and Annuity Association of
America, dated July 29, 1998
*10.24 Standard Cooperative Research and Development Agreement
between the Company and the Naval Research Laboratory, dated
January 21, 1997+
<PAGE> 17
Exhibit
No. Description
------- -----------
*10.25 Cooperative Agreement between the Company and the United
States of America U.S. Army Tank-Automotive and Armaments
Command Armamanet Research, Development and Engineering
Center, dated September 30, 1997+
*10.26 Vendor Agreement Memorandum between the Company and
Osteonics, dated February 2, 1998+
*10.27 Sample Purchase Order between the Company and MicroSpring
Company, Inc., dated October 24, 1996+
*10.28 Asset Purchase Agreement between the Company and Falex
Corporation, dated November 17, 1995+
*10.29 Settlement between the Company and Erik Akhund, dated July
1, 1998
*10.30 1992 Stock Option Plan
*10.31 Form of Stock Option Agreement under the 1992 Stock Option
Plan
*10.32 1998 Incentive and Nonqualified Stock Option Plan
**10.33 Form of Incentive Stock Option under the 1998 Incentive and
Nonqualified Stock Option Plan
**10.34 Form of Nonqualified Stock Option under the 1998 Incentive
and Nonqualified Stock Option Plan
**10.35 Form of Nonqualified Stock Option for Non-Employee Directors
under the 1998 Incentive and Nonqualified Stock Option Plan
*10.36 Form of Lock-Up Agreement
**10.37 Agreement Appointing Transfer Agent and Registrar between
the Company and American Securities Transfer & Trust, Inc.,
dated October 19, 1998
**10.38 Certification of Corporate Secretary dated October 19, 1998
concerning Agreement Appointing Transfer Agent and Registrar
between the Company and American Securities Transfer &
Trust, Inc.
**10.39 Research and Development Agreement between the Company and
Guidant Corporation, dated May 20, 1998+
**10.40 Letter Agreement between the Company and Guidant
Corporation, dated September 29, 1998+
***10.41 Form of Medical Advisory Board Agreement
***10.42 Form of Loan Agreement, dated January 7, 1999, between the
Company and the following employees in the following
amounts: Donald J. Dench ($12,500), Diane J. Ryan ($12,500),
Mark and Kathleen Gadarowski ($12,500), Gregory Huntington,
Sr. ($12,500), Leonard DeMild ($25,000), Michael Nelson
($12,500), Richard Sahagian ($12,500), Darryl Huntington
($12,500), Dennis Gadarowski ($12,500) and David Santos
($12,500)
***10.43 Terms and Conditions from Sample Purchase Order between the
Company and Biomet, Incorporated
****10.44 Unit and Warrant Agreement between the Company and American
Securities Transfer & Trust, Inc., dated April 9, 1999
*10.45 Agreement between the Company and U.S. Army Space and
Missile Defense Command, dated May 27, 1999
10.46 Second Amendment to Lease and Extension Agreement
10.47 Sublease Agreement
10.48 Consent to Sublease Agreement
*21.1 Subsidiaries of the Company
*23.2 Consent of Foley, Hoag & Eliot LLP
*24.1 Power of Attorney
<PAGE> 18
Exhibit
No. Description
------- -----------
27.1 Financial Data Schedule
- -------------------------
* Previously filed in the Registration Statement on Form SB-2 (Registration
No. 333-64499) filed on September 29, 1998.
** Previously filed in Amendment No. 1 to the Registration Statement, filed on
December 21, 1998.
*** Previously filed in Amendment No. 2 to the Registration Statement, filed on
February 11, 1999.
**** Previously filed in Amendment No. 3 to the Registration Statement, filed on
April 30, 1999.
+ Filed under application for confidential treatment.
<PAGE> 1
Exhibit 10.46
SECOND AMENDMENT TO LEASE
AND EXTENSION AGREEMENT
This Second Amendment to Lease and Extension Agreement (the "Second
Amendment") is made as of this 17th day of September, 1999 by and between TIAA
Realty, Inc., (the "Landlord") a Delaware corporation and Implant Sciences
Corporation (the "Tenant").
WHEREAS, Landlord (as successor Landlord to Teachers Insurance and
Annuity Association of America) and Tenant, respectively, are the Landlord and
Tenant under a certain Lease Agreement dated as of September 29, 1995, which
Lease Agreement has been amended by that certain First Amendment to Lease and
Expansion Agreement ("First Amendment") dated July 29, 1998 (said Lease
Agreement as amended by the First Amendment is hereafter the "Lease") pursuant
to which the Tenant has leased from Landlord 21,992 rentable square feet of
space (the "Premises") in the building known as Building 1 located at 107
Audubon Road, Wakefield, MA (the "Building");
WHEREAS, the Initial Term of the Lease is scheduled to expire on May 31,
2000;
WHEREAS, subject to entering into this Second Amendment, Landlord and
Tenant have agreed to (a) extend the Initial Term by an additional period of 22
months (the "22 Month Extension") beginning on June 1, 2000 and expiring on
March 31, 2002, all as hereinafter set forth;
WHEREAS, Landlord and Tenant have agreed to enter into this Second
Amendment to reflect the foregoing and to otherwise modify and amend the Lease
reflecting the 22 Month Extension of the Initial Term and to otherwise modify
and amend the Lease, as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Landlord and the Tenant hereby agree as follows:
1. EXTENSION OF INITIAL TERM. Effective as of the date of this Second
Amendment, the Initial Term (as extended pursuant to the First Amendment) is
hereby extended to include the period beginning on June 1, 2000 through and
including March 31, 2002 (the "22 Month Extension"), such extension to be upon
the same terms and conditions as are set forth in the Lease except as modified
by this Second Amendment.
Basic Rent payable with respect to the entire "Premises" during the 22
Month Extension shall be in the annual amount of One Hundred Ninety Seven
Thousand Nine Hundred Twenty Eight and No/100ths ($197,928.00) Dollars
payable in equal monthly installments of $16,494.00. Tenant shall
continue to pay Basic Rent allocable to the Original Premises and the 1st
Amendment Space (as those terms are defined in the First Amendment) in
the amounts and during the times specified in Section 1.2 of the Lease as
modified by Paragraph 1 of the
<PAGE> 2
First Amendment and in paragraph 2(a) of the First Amendment through May.
31, 2O00;
2. AS IS CONDITION; ALLOWANCE. Tenant hereby acknowledges that it is
presently in occupancy of the Premises and has inspected the Premises and the
common areas of the Building and, except for the Landlord's obligation to
advance the Allowance (as hereafter defined), has agreed to lease the Premises
in its current "as is, where is" condition and in its condition on June 1, 2000
with all faults and without representation or warranty by Landlord of any kind.
Landlord has agreed to provide Tenant with an allowance (the "Allowance") in the
amount of $21,992.00 which may be applied by Tenant toward (a) the cost of
alterations or improvements to the Premises (provided that Tenant shall comply
with the requirements of Article V of the Lease in making such alterations or
improvements) or (b) leasing commissions payable by Tenant in connection with
this Second Amendment. Landlord shall pay the Allowance to Tenant upon
presentation of paid invoices by Tenant evidencing that the request for payment
from the Allowance is for the purposes set forth in (a) or (b) above. Landlord
shall pay Tenant the amount evidenced by the said invoices up to the amount of
the Allowance. Landlord shall be permitted to retain any portion of the
allowance not expended by Tenant on or before September 30, 2000.
3. BROKERAGE. Tenant hereby warrants and represents to Landlord that
Tenant has dealt with no broker in connection with the consummation of this
Second Amendment other than Leggat McCall Properties LLC ("Broker") and CRESA
Partners ("CRESA") and in the event of any brokerage claims against Landlord
predicated upon prior dealings with the Tenant, Tenant agrees to defend same and
to indemnify Landlord against any such claims except for any claims by Leggat
McCall Properties LLC. which shall be paid by Landlord. Tenant shall be
responsible for any and all commissions due and owing to CRESA.
Landlord hereby warrants and represents that Landlord has dealt with no
broker in connection with the consummation of the matters set forth in this
Second Amendment other than Broker and CRESA. Landlord shall indemnify, defend
and hold Tenant harmless from and against any claims for brokerage commissions
predicted upon prior dealings with Landlord, except that Tenant shall be
responsible for any commissions due and owing to CRESA.
4. OPTION TO EXTEND. Effective as of the date of this Second Amendment,
Section 14.28 of the Lease (as amended by paragraph 5 of the First Amendment)
shall be deleted from the Lease in its entirety and the following new Section
14.28 shall be inserted in its place and stead, it being agreed and understood
that Tenant shall not have the right to exercise the option contained in Section
14.28 of the Lease (as amended by paragraph 5 of the First Amendment) but Tenant
shall (subject to the terms and limitations hereafter set forth) have one two
(2) year option to extend the Term of this Lease beginning on April 1, 2002 upon
and subject to the following terms and conditions:
-2-
<PAGE> 3
"14.28. OPTION TO EXTEND. Tenant shall have the right and option (the "Option"),
which said option and right shall not be severed from this Lease or separately
assigned, mortgaged or transferred, to extend the Term of this Lease for one (1)
additional consecutive period of two (2) years beginning on April 1, 2002 and
expiring on March 31, 2004 (hereinafter referred to as the "Extension Period"),
provided that (a) Tenant shall give Landlord notice of Tenant's intention to
exercise such option ("Notice of Intention") not sooner than February 1, 2001
and not later than March 31, 2001 (b) no Default of Tenant shall exist at the
time of giving the Notice of Intention or on the Revocation Date (as hereafter
defined) or on the date of commencement of the Extension Period, (c) the
Original Tenant named herein is itself occupying the entire Premises at least 30
days prior to the time of commencement of the Extension Period and (d) Tenant
shall fail to give Landlord a Revocation Notice (as hereafter defined) on or
before June 30, 2001 (the "Revocation Date"), time being of the essence of all
of the foregoing provisions. Except for the amount of Basic Rent (which is to be
determined as hereinafter provided), all the terms, covenants, conditions,
provisions and agreements in the Lease contained shall be applicable to the
additional period through which the term shall be extended as aforesaid, except
that there shall be no further options to extend the Term of the Lease nor shall
Landlord be obligated to make or pay for any improvements to the Premises nor
pay any inducement payments of any kind or nature. If Tenant shall give Landlord
a Notice of Intention in the manner and within the time period provided
aforesaid and shall thereafter fail to give Landlord a Revocation Notice in the
time and manner set forth herein, the Term of the Lease shall be extended to
include the Extension Period without the requirement of any further attention on
the part of either Landlord or Tenant. Landlord hereby reserves the right,
exercisable by Landlord in its sole discretion, to waive (in writing) any
condition precedent set forth in clauses (a), (b), (c) or (d) above.
If Tenant shall fail to give Landlord a timely Notice of Intention, Tenant shall
have no right to extend the Term of the Lease, time being of the essence of the
foregoing provisions. Any termination of this Lease shall terminate the rights
hereby granted Tenant.
The Basic Rent per annum payable during the Extension Period shall be the Fair
Market Rental Value (as said term is hereinafter defined) as of commencement of
the Extension Period but in no event less than the Basic Rent per annum plus
Escalation Charges payable for and with respect to the 12 calendar month period
immediately preceding the Extension Period. "Fair Market Rental Value" shall be
computed as of the beginning of the Extension Period at the then current annual
rental charges, including provisions for subsequent increases and other
adjustments, for the Premises as determined by Landlord in its discretion.
Landlord shall initially designate ("Landlord's Designation") the Fair Market
Rental Value for and with respect to the Extension Period by written notice to
Tenant within Thirty (30) days after Landlord's receipt of Tenant's Notice of
Intention. If Tenant does not wish to accept Landlord's Designation of the Fair
-3-
<PAGE> 4
Market Rental Value, Tenant's sole and 'exclusive remedy shall be the right, by
written notice ("Revocation Notice") given to Landlord on or before the date
which is the first to occur tiff (i) that date which is thirty (30) days after
Tenant has been notified of Landlord's Designation or (ii) the Revocation Date,
to cancel and Intention as to the Extension Period and the exercise of the
Option with respect to the Extension Period and thereupon the Term of this Lease
shall expire and come to an end without extension as of March 31, 2002 and
Tenant shall have no further options to Extend the term.
If Tenant shall fail to give Landlord a Revocation Notice within the time and
manner herein provided, time being of the essence, Tenant shall be deemed to
have accepted the Base Rent as set forth in Landlord's Designation and such
Basic Rent shall be deemed to be the Basic Rent per annum payable under this
Lease during the Extension Period and this Lease shall be deemed to be extended
to include the Extension Period at the Basic Rent per annum set forth in
Landlord's Designation. It is agreed and understood that time is of the essence
in connection with each and every provision of this Section 14.28."
5. ADDITIONAL AMENDMENTS TO LEASE. Effective as of the date of this
Second Amendment, the Lease shall be deemed amended in the following respects:
(a) Insurance. Section 1.3 of the Lease shall be deemed amended by
deleting the definition of the term "Initial Public Liability
Insurance" therefrom and inserting the following new definition in
its place and stead:
"Initial Public Liability Insurance. $1,000,000 (per occurrence)
primary liability and $4,000,000 (per occurrence) excess liability
coverage for property damage, bodily injury or death, all such
insurance to be written with companies having a Best's Insurance
Guide Rating of A- or better with a financial rating of X."
(b) Section 6.1 of the Lease is hereby amended by adding the following
new Section (d) at the end thereof:
"(d) In connection with any request by Tenant for consent to
assignment or subletting, Tenant shall first submit to Landlord in
writing: (i) the name of the proposed assignee or subtenant, (ii)
such information as to its financial responsibility and standing as
Landlord may reasonably require, and (iii) all terms and provisions
upon which the proposed assignment or subletting is to be made. Upon
receipt from Tenant of such request and information, the Landlord
shall have an option (sometimes hereinafter referred to as the
"option" or "Take Back Option") to be exercised in writing within
thirty (30) days after its receipt from Tenant of such request and
information, if the request is to assign the Lease or to sublet all
of the Premises, to cancel or terminate this Lease, or, if the
request is to sublet a portion, of the Premises only, to cancel and
terminate this Lease with respect to such portion, in each case, as
of the date set forth in Landlord's
-4-
<PAGE> 5
notice of exercise of such option, which shall be not less than
sixty (60) nor more than one hundred twenty (120) days following the
giving of such notice; in the event Landlord shall exercise such
option, Tenant shall surrender possession of the entire Premises, or
the portion which is the subject of the option, as the case may be,
on the date set forth in such notice in accordance with the
provisions of this Lease relating to surrender of Premises at the
expiration of the Term. If this Lease shall be cancelled as to a
portion of the Premises only, Basic Rent and Escalation Charges
shall thereafter be abated proportionately according to the ratio
the number of square feet of the portion of the space surrendered
bears to the size of the Premises. As additional rent, Tenant shall
reimburse Landlord promptly for reasonable legal and other expenses
incurred by Landlord in connection with any request by Tenant for
consent to assignment or subletting.
If Landlord shall not exercise its option pursuant to the foregoing
provisions, Landlord will not unreasonably delay or withhold its
consent to the assignment or subletting to the party referred to
upon all the terms and provisions set forth in Tenant's notice to
Landlord, provided that the terms and provisions of such assignment
or subletting shall specifically make applicable to the assignee or
sublessee all of the provisions of this Article VI of the Lease so
that Landlord shall have against the assignee or sublessee all
rights with respect to any further assignment or subletting which
are set forth in Article VI of the Lease as amended hereby except
that no such assignee or sublessee shall have any right to further
assign or sublet the Premises. In any case involving an assignment
of this Lease or a subletting, Landlord shall be entitled to receive
45% of all Subleasing Overages (as said term is hereinafter
defined). As used herein, the term "Subleasing Overages" shall mean,
for each period in question, all amounts received by Tenant in
excess of Basic Rent and Escalation Charges and other items of
additional rent reserved under this Lease attributable to the space
sublet (including, without limitation, all lump sum payments made in
connection therewith).
Any such assignment or subletting shall nevertheless be subject to
all the terms and provisions of Article VI. No assignment shall be
binding upon Landlord or any of Landlord's mortgagees, unless Tenant
shall deliver to Landlord an instrument in recordable form which
contains a covenant of assumption by the assignee running to
Landlord and all persons claiming by, through or under Landlord. The
failure or refusal of the assignee to execute such instrument of
assumption shall not release or discharge the assignee from its
liability as Tenant hereunder. In addition, Tenant shall furnish to
Landlord a conformed copy of any sublease effected under terms of
this Article VI. In no event shall the Tenant hereunder be released
from its liability under this Lease.
-5-
<PAGE> 6
Landlord shall not be deemed unreasonable in refusing to approve a
sublease wherein the rent is, in the reasonable judgment of
Landlord, at rates which are below market for the Premises or
Building or where such proposed subtenant is a tenant of the
Building and Landlord has substantially similar space available for
leasing in the Building."
(c) The last grammatical sentence of Section 14.19 which begins with the
words "The Landlord may, but shall not be required..." and ends with
the words "... set forth in this Section 14.19." is hereby deleted
from the Lease in its entirety.
(d) Section 14.22 of the Lease entitled "Substitute Space" is hereby
deleted from the Lease in its entirety.
6. GENERALLY. Except as modified herein, all of the terms, covenants,
provisions and conditions contained in the Lease remain in full force and effect
and are hereby ratified and affirmed.
WITNESS our hands and seals on the day and year first above written.
LANDLORD: TENANT:
TIAA Realty, Inc., a Delaware Implant Sciences Corporation
corporation, as Landlord
By: Teachers Insurance and By: /s/ A.J. Armini
Annuity Association of America, ------------------------------
a New York corporation
Its: Authorized Representative Its: President
9/17/99
By: /s/ Alan E. Lang
------------------------------
Alan E. Lang
Its: Director
-6-
<PAGE> 1
Exhibit 10.47
SUBLEASE
--------
CP Clare Corporation, a Massachusetts corporation with a place of business at 78
Cherry Hill Drive, Beverly, Massachusetts ("Sublessor"), and Implant Sciences
Corporation, a Massachusetts corporation with a place of business at 107 Audubon
Road, Wakefield, Massachusetts ("Sublessee"), make this Sublease as of October
1, 1999.
PRELIMINARY STATEMENT
Sublessor is the tenant under a Lease dated as of April 1, 1998 as amended by
First Amendment to Lease dated July 10, 1998 (the "Lease"), by and between
Sublessor and TIAA Realty, Inca Delaware Corporation (the "Lessor"), as
landlord, with respect to premises (the "Premises") consisting of approximately
22,878 rentable square feet in the building commonly known as Building 1, 107
Audubon Road, Wakefield, Massachusetts, as more particularly described in the
Lease. A copy of the Lease is attached to this Sublease as Exhibit A.
Capitalized terms used but not defined in this Sublease shall have the meaning
ascribed to such terms in the Lease.
Sublessor wishes to sublet to Sublessee, and Sublessee wishes to accept from
Sublessor, a portion of the Premises consisting of approximately 9,300 rentable
square feet ("Reimbursable Floor Area of the Subleased Premises") shown on the
plan attached to this Lease as Exhibit B (the "Subleased Premises"), on the
terms and conditions set forth in this Sublease.
AGREEMENT
In consideration of the mutual covenants of this Sublease and other valuable
consideration, the receipt and sufficiency of which Sublessee and Sublessor
hereby acknowledge, Sublessor and Sublessee agree as follows:
1. SUBLEASED PREMISES. Sublessor hereby subleases to Sublessee, and
Sublessee hereby subleases from Sublessor, the Subleased Premises,
subject to the terms and conditions of this Sublease. Sublessor shall
deliver the Subleased Premises to Sublessee on the Subtenant Improvement
Completion Date (as hereinafter defined) in broom clean condition, free
of all tenants and occupants other than Sublessee, and with Sublessor's
Work (as hereinafter defined) complete, but otherwise in such condition
as exists as of the date of this Sublease.
2. TERM. The term of this Sublease (the "Sublease Term") shall commence on
the date (the "Commencement Date") Sublessor delivers the Subleased
Premises to Sublessee in the condition required in Paragraph 1 of this
Sublease and shall terminate on March 31, 2003. Subleassee shall have
access to the Subleased Premises prior to Commencement Date to prepare
the Subleased Premises for Sublessee's occupancy including, without
limitation, for the installation of
<PAGE> 2
cabling for computers and communication systems, and to move in and
install sublessee's trade fixtures
3. MONTHLY BASE RENT. Commencing ninety (90) days after the Commencement
Date, Sublessee shall pay to Sublessor, without notice or demand, rent at
an annual rate of $ 67,425.00 ("Base Rent"), subject to increases as
hereinafter set forth in Exhibit C, in equal monthly installments on the
first day of each calendar month during the Sublease Term. If the term
commences or ends on the first day of a month, then the rent for such
month shall be pro-rated for such fractional period.
4. OPERATING EXPENSES AND TAXES. Sublessee shall pay to Sublessor,
Sublessee's respective share of escalation charges in accordance with
Sections 8.1, 9.1 and 9.2 of the Lease For the purposes of this Sublease,
Sublessee's proportionate share as of the date of this Sublease is 40.65
percent of Sublessor's share. Sublessor shall provide Sublessee with all
calculations of and demands for such additional escalation charges in
writing.
5. SECURITY DEPOSIT. Sublessor acknowledges receiving from Sublessee the sum
of $5,618.00 (the "Security Deposit") as security for the full and timely
payment and performance of Sublessee's obligations under this Sublease.
If Sublessee fails to pay or perform in a full and timely manner any of
its obligations under this sublease, and such failure continues after the
giving of any required notice and the expiration of any applicable grace
period, Sublessor may apply all or a portion of the Security Deposit
toward curing any such failure and compensating Sublessor for any loss,
damage or expenses arising from such failure. If Sublessor so applies any
portion of the Security Deposit, Sublessee shall immediately pay to
Sublessor the amount necessary to restore the Security Deposit to its
original amount. Sublessor shall deposit the Security Deposit in a
segregated, interest-bearing money market account identified as holding
Sublessee's funds and shall pay to Sublessee annually all interest
accruing on such account. All monies due from Security Deposit at end of
Sublease shall be returned to Sublessee thirty (30) days after Sublease
Expiration Date.
6. SUBORDINATION TO LEASE. This sublease is subject and subordinate to the
terms and conditions of the Lease. Except as otherwise specified in this
Sublease, all the terms and conditions of the Lease are incorporated as a
part of this Sublease, but all references in the Lease to "Landlord",
"Tenant", "Premises", "Term", "Annual Fixed Rent", or "Fixed Rent",
"Commencement Date", Reimbursable Floor Area of the Premises",
"Landlord's Work", and "Tenant Improvement completion Date" shall be
deemed to refer, respectively, to Sublessor, Sublessee, Subleased
Premises, Sublease Term, Base Rent, Commencement Date, Reimbursable floor
Area of the Subleased Premises, Sublessor's Work and Subtenant
Improvement Completion Date, as such terms may be defined in this
Sublease.
<PAGE> 3
7. SUBLESSOR'S WORK. Before September 30, 1999 (the Subtenant Improvement
Completion Date"), Sublessor shall complete the following work in a good
and workmanlike manner and in compliance with all applicable laws: work
as described in Exhibit D.
8. DEFAULT BY SUBLESSEE. In the event of a default by Sublessee in the full
and timely payment and performance of its obligations under the Sublease,
Sublessor shall have all of the rights and remedies in the Lease with
respect to defaults by the tenant under the Lease, including without
limitation the rights and remedies set forth in Article 13 of the Lease.
9. BROKERS. Sublessor and Sublessee each represent and warrant to the other
that it has not dealt with any broker other than Greg Klemmer of Klemmer
Associates, LLC (together, the "Broker") and Avalon Partners, Inc. d/b/a
CRESA Partners in connection with the consummation of this Sublease.
Sublessor and Sublessee each shall indemnify and hold harmless the other
against any loss, damage, claims or liabilities arising out of a failure
of its representation or the breach of its warranty set forth in the
previous sentence. Sublessor shall be solely responsible for the payment
of any brokerage commission due to the Broker.
10. NOTICES. The second sentence of Section 14.12 of the Lease
notwithstanding, the addresses of the Sublessor and Sublessee for the
purposes of this sublease are:
If to Sublessee: Implant Sciences Corporation
107 Audubon Road Building 1
Wakefield, MA 01880-1246
If to Sublessor: CP Clare Corporation
78 Cherry Hill Drive
Beverly, MA 01915-1048
Either party may change its addresses for notice or demands under this
Sublease by notice to the other party.
11. SUBLESSOR'S REPRESENTATION AND WARRANTIES. Sublessor warrants and
represents that:
(i) The copy of the Lease attached to this sublease as Exhibit A is a
complete and accurate copy of the Lease, which is in effect and
has not been amended except as set forth in Exhibit A;
(ii) To the best of Sublessor's knowledge, Lessor is not in default
under the Lease, nor has any event occurred which, after any
applicable notice
<PAGE> 4
and/or expiration of any grace period, shall constitute a default
by Lessor under the Lease;
(iii) to the best of Sublessor's knowledge, Sublessor is not in default
under the Lease, nor has any event occurred which, after any
applicable notice and/or expiration of any grace period, shall
constitute a default by Sublessor under the Lease; and
(iv) All rent, additional rent and other charges due under the Lease
have been paid as billed or required in the normal course through
July 1999.
12. ENTIRE AGREEMENT. This sublease contains all of the agreements,
conditions, warranties and representations relating to the sublease of
the Subleased Premises and may be amended or modified only by written
instruments executed by both Sublessor and Sublessee.
13. LESSOR'S CONSENT. This sublease, and the rights and obligations of
Sublessor and Sublessee under this Sublease, are subject to the condition
that Lessor consent in writing to this Sublease. If Sublessor and
Sublessee do not receive such written consent from Lessor on or before
October 1,, 1999, Sublessor and Sublessee shall each have the right to
terminate this Sublease by written notice to the other.
14. ADDITIONAL PROVISIONS.
(i) Notwithstanding anything to the contrary herein contained,
Sublessee shall not be required to pay any charges imposed by the
Landlord arising out of the failure of the Sublessor to observe
and comply with any term, provision or obligation of the Lease.
(ii) Sublessor agrees to perform all of the obligations of Tenant under
the Lease so as not to cause a default under the Lease, and
Sublessor further agrees not to consent to any amendment, revision
or alteration to the Lease without the prior written consent of
Sublessee.
(iii) Sublessor shall use reasonable efforts to cause Landlord to
perform any obligations required to be performed by the Landlord
under the lease. If Landlord shall default in any of its
obligations to Sublessor, Sublessor shall cooperate with
Sublessee, upon request by Sublessee, in enforcing Sublessee's
rights against Landlord under the Lease.
(iv) Sublessor will indemnify, save harmless and defend Sublessee from
and against any loss, liability or damage of any kind arising out
of or in connection with a breach by Sublessor of the Lease unless
caused solely by Sublessee's negligence.
<PAGE> 5
(v) If this Sublease is terminated by reason of Sublessor's default
under the Lease, including failure by Sublessor to pay all rent
due under the Lease (unless due to Sublessee's acts or failure to
pay rent to Sublessor), Sublessee shall retain any claim it may
otherwise have in law or in equity against Sublessor for breach of
Sublessor's obligations under this Sublease. If Sublessor fails to
pay rent under the Lease and Sublessee is notified of such failure
by Landlord, Sublessee may pay rent directly to Landlord,
including any differential in rent due under this Sublease
compared to rent due under the Lease, and in such event Sublessor
shall be liable to Sublessee for such differential plus ten (10%)
percent interest per annum until paid.
IN WITNESS WHEREOF, Sublessor and Sublessee execute this sublease as of
the date first written above.
Sublessor: Sublessee:
CP Clare Implant Sciences Corporation
/s/ A.J. Armini
By: /s/ [illegible] By: A.J. Armini
-------------------------------
Its: CFO Its: President and CEO
------------------------------- 9-23-99
<PAGE> 6
EXHIBIT C
---------
RENTAL INCREASES
TERM RENTAL RATE
- ---- -----------
October 1, 1999 - December 31, 1999 $0
January 1, 1999 - March 31, 2000 $ 7.25 NNN
April 1, 2000 - March 31, 2001 $ 7.50 NNN
April 1,2001 - March 31, 2002 $ 7.75 NNN
April 1, 2002 - March 31, 2003 $ 8.00 NNN
<PAGE> 7
EXHIBIT D
---------
SUBLESSOR'S WORK
Sublessor is responsible for the following Tenant Improvements:
1. Demise space and remove walls as per agreed upon plan ( to be initialed
by both parties and become an addendum to lease);
2. Construct three openings from Sublessee's existing space into Sublease
Premises;
3. Replace ceiling tiles where needed;
4. Floor tiles and carpet replaced/repaired/installed where needed and
cleaned throughout;
5. Replace single and double doors where doorframes currently exist;
6. Repatch and paint all walls including main office, hallway and cafeteria;
7. Replace all vinyl base strips;
8. Remove back room and replace with window and install floor tiles;
9. Sublessor shall warrant and provide written document from appropriate
expert that no environmental issues exist with the entire demised
premises upon occupancy;
10. All mechanical systems will be in good, working order;
11. All code requirements are met;
<PAGE> 1
Exhibit 10.48
CONSENT TO SUBLEASE
-------------------
PREAMBLE
--------
THIS CONSENT TO SUBLEASE ("Consent") dated as of September 23, 1999, is
made with reference to that certain Sublease dated October 1, 1999 (the
"Sublease") by and between C.P. Clare Corporation having an address of 78 Cherry
Hill Drive, Beverly, MA ("Sublandlord") and Implant Sciences Corporation having
an original address of 107 Audubon Road, Wakefield, MA ("Subtenant"), and is
entered into by and among TIAA Realty, Inc., having an address c/o Leggat McCall
Properties, LLC, 500 Edgewater Drive, Wakefield, MA ("Overlandlord"),
Sublandlord, and Subtenant, with respect to the following facts:
A. Overlandlord and Sublandlord are the parties to that certain Lease
dated as of April 1, 1998 as amended by First Amendment to Lease
dated July 10, 1998 (the "Overlease") pertaining to' certain space
comprised of 22,828 rentable square feet (the "Master Premises") in
a Building known as and numbered Building 1, 107 Audubon Road,
Wakefield, Massachusetts (the "Building");
B. Sublandlord and Subtenant wish to enter into the Sublease pursuant
to which Subtenant shall lease a portion of the Master Premises
comprised of 9,300 rentable square feet (the "Subleased Premises");
C. The Overlease provides, INTER ALIA, that Sublandlord may not enter
into any sublease without Overlandlord's prior written approval; and
D. Sublandlord and Subtenant have presented the fully executed Sublease
(a true copy of which is attached hereto as Exhibit A) to
Overlandlord for Overlandlord's review and approval.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Overlandlord hereby consents to the execution and delivery of
the Sublease upon the terms and conditions set forth in the
General Conditions of Consent to Sublease ("General Conditions")
attached hereto and made an integral part hereof.
2. Sublandlord and Subtenant hereby acknowledge receipt of the
General Conditions and further acknowledge that Overlandlord's
consent is subject to such General Conditions, and that in the
event of a conflict between this Consent and the General
Conditions and the Sublease, this Consent and the General
Conditions shall control.
<PAGE> 2
EXECUTED under seal as of the date first written above.
OVERLANDLORD: SUBLANDLORD:
TIAA Realty, Inc., a Delaware C.P. Clare Corporation
corporation, as Landlord
By: Teachers Insurance and
Annuity Association of America,
a New York corporation
Its: Authorized Representative
By: /s/ Alan E. Lang By: /s/ [illegible]
----------------------------- -----------------------------
Alan E. Lang
Its: Director Its: CFO
----------------------------- -----------------------------
hereunto duly authorized hereunto duly authorized
SUBTENANT:
Implant Sciences Corporation
By: A.J. Armini
-----------------------------
Its: President
-----------------------------
hereunto duly authorized
-2-
<PAGE> 3
GENERAL CONDITIONS OF CONSENT TO SUBLEASE
-----------------------------------------
The following General Conditions are an integral part of and are hereby
incorporated into the foregoing Consent to Sublease:
1. Neither the Overlease, the Sublease nor this Consent shall be
deemed, nor are such documents intended to grant to Subtenant, any
rights whatsoever against Overlandlord. Subtenant hereby
acknowledges and agrees that its sole remedy for any alleged or
actual breach of its rights in connection with the Sublease shall be
solely against Sublandlord. Subtenant acknowledges and agrees that
it is not a third party beneficiary under the Overlease and is not
entitled to assert any of Sublandlord's rights thereunder against
Overlandlord, whether in its own right or on behalf of Sublandlord.
2. This Consent and the Sublease shall not (i) constitute a consent or
approval by Overlandlord of any of the terms, covenants or
conditions of the Sublease and Overlandlord shall not be bound
thereby or (ii) release Sublandlord from any existing or future
duty, obligation or liability to Overlandlord pursuant to the
Overlease (and Sublandlord shall be and remain liable for the full
payment, performance and observance of all of the terms, covenants
and conditions contained in the Overlease to be paid, performed and
observed by the "Tenant" thereunder as if the Sublease and this
Consent had never been made), or (iii) change, modify or amend the
Overlease in any manner, except insofar as it constitutes
Overlandlord's consent to the execution and delivery of the
Sublease. Notwithstanding the generality of the foregoing, this
Consent expressly shall not absolve Sublandlord from any requirement
set forth in the Overlease that Sublandlord obtain Overlandlord's
prior written approval of any additional subleases, assignments or
other dispositions of its interest in the Overlease or the Premises
(as defined in the Overlease).
3. Intentionally Omitted.
4. In the event Sublandlord is in default under any of the terms and
provisions of the Overlease, Overlandlord may elect to receive
directly from Subtenant all sums due or payable to Sublandlord by
Subtenant pursuant to the Sublease, and upon receipt of
Overlandlord's notice, Subtenant shall thereafter pay to
Overlandlord any and all sums becoming due or payable under the
Sublease and Sublandlord shall receive from Overlandlord a credit
for such sums actually received by Overlandlord against any and all
payments then owing from Sublandlord under the Overlease. Neither
the service of such written notice nor the receipt of such direct
payments shall cause Overlandlord to assume any of Sublandlord's
duties, obligations and/or liabilities under the Sublease, nor shall
such event impose upon Overlandlord the duty or obligation to
-3-
<PAGE> 4
honor the Sublease, nor subsequently to accept any purported
attornment by Subtenant. Sublandlord grants Overlandlord a
security interest in all such payments due to Sublandlord from
Subtenant, which security interest Overlandlord may perfect by
filing a UCC-1 (which Sublandlord shall sign within three (3) days
of Overlandlord's request and Sublandlord hereby irrevocably
appoints Overlandlord as its attorney-in-fact, coupled with an
interest, to execute on behalf of Sublandlord and file such
instrument if Sublandlord fails to do so). Overlandlord shall credit
payments actually received pursuant to this conditional assignment
to Sublandlord's obligations under the Overlease. Without limitation
of the foregoing, acceptance of rent or other payments from
Sublandlord and/or Subtenant by Overlandlord shall not: (i)
constitute a waiver of any default or breach of the Overlease or
(ii) cause nor result in a reinstatement of the Overlease after
Overlease Termination or (iii) be deemed or construed to mean that
Overlandlord has accepted the Subtenant as its "Tenant" under the
Overlease or the Sublease or (iv) be deemed to mean that Subtenant
is entitled to any rights under the Sublease or the Overlease.
5. Subtenant hereby acknowledges that it has read and has knowledge of
all of the terms, provisions, rules and regulations of the Overlease
and agrees not to do or omit to do anything which would cause
Sublandlord to be in breach of the Overlease. Any such act or
omission also shall constitute a breach of the Overlease and this
Consent shall entitle Overlandlord to recover any damage, loss,
cost, or expense which it thereby suffers, from Sublandlord and/or
Subtenant, who shall be jointly and severally liable to Overlandlord
in this regard.
6. In the event of the commencement of an action at law or in equity by
the filing of a complaint or other similar action involving a
request for relief from a judicial body between or involving the
parties hereto with respect to the Sublease, the Overlease, this
Consent or the rights of the parties hereto, hereunder or
thereunder, the Sublandlord and Subtenant, jointly and severally,
hereby agree to pay the Overlandlord on demand all reasonable costs,
expense and attorneys' fees incurred therein by Overlandlord, which
amounts may be included as a part of a judgment rendered therein.
7. The parties acknowledge that the Sublease constitutes the entire
agreement between Sublandlord and Subtenant with respect to the
subject matter thereof, and that no amendment, termination,
modification or change therein will be binding upon Overlandlord
unless Overlandlord shall have given its prior written consent
thereto, which consent may be granted or denied by Overlandlord in
its sole and absolute discretion.
8. This Consent shall be binding upon and shall inure to the benefit of
the parties' respective successors in interest and assigns, subject
at all times, nevertheless, to all agreements and restrictions
contained in the Overlease,
-4-
<PAGE> 5
the Sublease, and herein, with respect to subleasing, assignment or
other transfer and the fore. going shall not be deemed to limit or
negate Overlandlord's rights to prohibit or condition its consent to
a future dispossession of Sublandlord's or Subtenant's interests.
The agreements contained herein constitute the entire understanding
between parties with respect to the subject matter hereof and
supersede all prior agreements.
9. This Consent shall not be assignable and shall only apply with
respect to the Sublease by and between Sublandlord and Subtenant.
10. The consent by Overlandlord to the use and occupancy of the
Subleased Premises by Subtenant shall not be construed as a consent
by Overlandlord to the use and occupancy of the Subleased Premises
by anyone other than Subtenant or Sublandlord or as a consent to
further subletting by Sublandlord or by Subtenant of the Subleased
Premises, or any part thereof. Neither the Sublease nor any of the
rights, privileges or obligations thereunder shall be assigned,
modified, renewed or extended, nor shall the Subleased Premises, or
any part thereof, be further sublet or occupied by others (except by
Sublandlord, in accordance with and subject to the terms and
provisions of the Overlease).
11. On or before the day immediately preceding the date of expiration of
the Overlease or upon the date of any earlier termination of the
term of the Overlease for any cause or reason, the Sublease and its
term shall expire, terminate and come to an end as of the effective
date of the expiration or termination of the Overlease, and
Sublandlord shall cause Subtenant to vacate and surrender the
Subleased Premises on or before such date in accordance with the
applicable provisions of the Overlease regarding surrender and
delivery of the Premises to Overlandlord.
12. Overlandlord hereby represents and warrants to Sublandlord and
Subtenant that Overlandlord has not agreed to pay any party a
broker's fee or commission in connection with the Sublease or this
Consent. Sublandlord and Subtenant hereby acknowledge and agree that
Overlandlord shall not be responsible for any brokers commissions or
fees of any kind or nature in connection with the Sublease or the
subject matter thereof and they each hereby agree to indemnify and
hold Overlandlord harmless from and against any such claims
including all reasonable attorneys fees sustained or incurred by
Overlandlord as a result of any such claim against Overlandlord.
Sublandlord and Subtenant hereby jointly and severally agree to
indemnify and hold Overlandlord harmless from and against any and
all claims, costs or damages sustained or incurred by Overlandlord
as the result of any claim by any party that they are entitled to a
commission or broker's fee in connection with this Consent or the
Sublease. The indemnity contained herein shall include, without
limitation, all reasonable attorneys' fees and expenses incurred by
-5-
<PAGE> 6
Overlandlord in connection with any such claim. This paragraph 12
shall survive expiration o,r earlier termination of the Sublease.
13. Sublandlord and Subtenant, jointly and severally, hereby agree to
indemnify and hold Overlandlord harmless with respect to any and all
liability to and claims by Subtenant in connection with the
Sublease, Subtenant's use and occupancy of the Subleased Premises,
or the subject matter hereof. The within indemnity shall be joint
and several and shall include all losses, costs, damages or expenses
including, without limitation, reasonable attorneys fees sustained
or incurred by Overlandlord arising out of the matters contained
herein. The provisions of this paragraph 13 shall survive any
expiration or earlier termination of the Sublease or the Overlease.
Nothing contained herein shall be deemed or construed to require
Sublandlord or Subtenant to indemnify Overlandlord with respect to
loss or damages sustained or incurred by Overlandlord as the result
of the negligence or willful misconduct of Overlandlord or
Overlandlord's agents, servants and employees.
14. In the event that there shall be any conflict between the terms,
covenants and conditions of this Consent to Sublease and the terms,
covenants and, conditions of the Sublease, then the terms, covenants
and conditions of this Consent to Sublease shall prevail in each
instance and any conflicting terms, covenants or conditions of the
Sublease shall be deemed modified to conform with the terms,
covenants and conditions of this Consent to Sublease.
15. Notwithstanding anything contained in the Sublease to the contrary,
Sublandlord and Subtenant represent to and agree with Overlandlord
that no changes, additions or improvements including, without
limitation, electrical, HVAC or other construction work shall be
performed in the Subleased Premises unless detailed plans and
specifications for such work are first submitted to Overlandlord for
its approval and Overlandlord shall have granted such approval in
writing. Such approval shall be given or withheld in accordance with
the applicable terms of the Overlease. In accordance with the
provisions of the Overlease, all such work, if approved by
Overlandlord, shall be subject to the requirements contained in the
Overlease applicable to construction within or alterations of the
Subleased Premises and shall be performed in accordance with the
Overlease.
16. No signs shall be placed upon or within the Building and/or the
Subleased Premises without the express written consent of
Overlandlord, which consent may be granted or withheld by
Overlandlord in its sole and absolute discretion.
17. Subtenant shall, within 10 days of written request from Overlandlord
therefor, execute and deliver to Overlandlord and/or the holder of
any
-6-
<PAGE> 7
mortgage upon or proposed purchasers of the Building, a so-called
"Estoppel Letter" in form satisfactory to Overlandlord or such
holder of a Mortgage or proposed purchaser which shall include,
among other things, if so requested, a statement (i) certifying that
the Sublease is in full force and effect and has not been assigned,
modified or amended, (ii) that Sublandlord is not in default
thereunder, (iii) the date through which rent has been paid and (iv)
that there are no defenses or set-offs against enforcement of the
Sublease or this Agreement against Subtenant.
18. Subtenant hereby further agrees that upon the written request of
Overlandlord, Subtenant shall subordinate its interest in the
Sublease to the lien of any mortgage, security agreement or lease
now or hereafter affecting the Building or the land upon which the
Building is constructed.
19. As a condition to the effectiveness of the within Consent, as
additional rent under the Overlease, Sublandlord shall, within ten
(10) days after invoice, reimburse Overlandlord for all costs and
expenses including without limitation, attorneys fees sustained or
incurred by Overlandlord in connection with Sublandlord's request
for Overlandlord's Consent to the execution and delivery of the
Sublease including, without limitation, review of the Sublease and
preparation and negotiation of this Consent.
20. All notices and demands which may or are to be required or permitted
to be given by any party hereunder shall be in writing. All notices
and demands to Subtenant shall be sent by United States Mail,
certified mail return receipt requested, postage prepaid, addressed
to Subtenant at the Subleased Premises, and to the address
hereinbelow, or to such other place as Subtenant may from time to
time designate in a notice to the other parties hereto given in the
manner herein provided.
All notices and demands to Sublandlord shall be sent by United
States Mail, certified mail return receipt requested, postage
prepaid, addressed to the Sublandlord at the address set forth
herein, and to such other person or place as the Subtenant may from
time to time designate in a notice to the other parties hereto given
in the manner herein provided.
All notices and demands to Overlandlord shall be sent by United
States Mail, certified mail return receipt requested, postage
prepaid, addressed to the Overlandlord at the address set forth
herein, and to such other person or place as the Overlandlord may
from time to time designate in a notice to the other parties hereto
given in the manner herein provided.
Notices may also be sent via overnight courier to the addresses set
forth herein, as applicable.
-7-
<PAGE> 8
To Sublandlord: 78 Cherry Hill Drive
Beverly, MA~01915-1048
To Subtenant: 107 Audubon Road
Wakefield, MA 01880
To Overlandlord: c/o Leggat McCall Properties LLC
500 Edgewater Drive
Wakefield, MA 01880
With a copy to: Mr. Alan E. Lang
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
-Remainder of this Page Intentionally left Blank-
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INCOME
STATEMENT, BALANCE SHEET AND CASH FLOW AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH.
</LEGEND>
<CIK> 0001068874
<NAME> IMPLANT SCIENCES
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 5,365,392
<SECURITIES> 0
<RECEIVABLES> 800,418
<ALLOWANCES> 5,000
<INVENTORY> 398,962
<CURRENT-ASSETS> 6,651,958
<PP&E> 2,494,486
<DEPRECIATION> 847,240
<TOTAL-ASSETS> 8,555,479
<CURRENT-LIABILITIES> 1,370,351
<BONDS> 0
0
0
<COMMON> 520,732
<OTHER-SE> 6,054,384
<TOTAL-LIABILITY-AND-EQUITY> 8,555,479
<SALES> 874,428
<TOTAL-REVENUES> 874,428
<CGS> 1,195,219
<TOTAL-COSTS> 1,195,219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,293
<INCOME-PRETAX> (274,498)
<INCOME-TAX> 0
<INCOME-CONTINUING> (274,498)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (274,498)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
