-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GNU1yEONGI+1VNbOXm7AHqYgU+spjyiuWGH7l4QEvbkOvfWo6OpU8McYdYWkt4kP pxy5fxdbBv7/doQ7oGdAoA== 0000215155-98-000006.txt : 19981116 0000215155-98-000006.hdr.sgml : 19981116 ACCESSION NUMBER: 0000215155-98-000006 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASTROCOM CORP CENTRAL INDEX KEY: 0000215155 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 410946755 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-08482 FILM NUMBER: 98747352 BUSINESS ADDRESS: STREET 1: 2700 SUMMER STREET N E CITY: MINNEAPOLIS STATE: MN ZIP: 55413-2820 BUSINESS PHONE: 6123787800 MAIL ADDRESS: STREET 2: 2700 SUMMER ST NE CITY: MINNEAPOLIS STATE: MN ZIP: 55413 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB /X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934, for the quarterly period ended September 30, 1998, or / / Transition report under Section 13 or 15(d) of the Exchange Act, for the transition period from to COMMISSION FILE NUMBER 0-8482 ASTROCOM CORPORATION (Exact name of small business issuer as specified in its charter) MINNESOTA 41-0946755 (State or other jurisdiction (I.R.S. Employer Ident. No.) of incorporation or organization) 2700 SUMMER STREET N.E. 55413-2820 MINNEAPOLIS, MINNESOTA (zip code) (Address of principal executive office) (612) 378-7800 (Issuer's telephone number) NOT APPLICABLE (Former name, address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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 / / APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court Yes / / No / / APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 14,978,573
PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ASTROCOM CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Sep 30, Nine Months Ended Sep 30 1998 1997 1998 1997 Net Sales $ 725,155 $1,037,986 $2,266,751 $2,507,888 Cost of Products Sold 464,369 782,821 1,499,035 2,133,569 Inventory Writeoff 0 0 0 329,430 Gross Profit 260,786 255,165 767,716 44,889 Operating Expenses: Selling & Administration 221,651 332,975 755,856 1,449,503 Research & Development 83,278 113,895 197,444 518,287 Total Operating Expenses 304,929 446,870 953,300 1,967,790 Operating Loss (44,143) (191,705) (185,584) (1,922,901) Other Income & (Expense) Interest Income 10,063 1,049 12,297 14,349 Interest Expense (2,008) (30,706) (146,290) (56,366) Other Income (Expense) (53) 47,689 (812) 18,778 Total Other Income & (Exp.) 8,002 18,032 (134,805) (23,239) Net Loss Before Taxes (36,141) (173,673) (320,389) (1,946,140) Taxes 250 30 1,750 1,357 Net Loss (36,391) (173,703) (322,139) (1,947,497) Less Pref Stock Dividend 3,000 3,000 9,000 9,000 Loss Applicable to Common Stock $ (39,391) (176,703) $ (331,139) (1,956,497) Net Loss per Common share $ ( 0.00) $( 0.02) $ ( 0.03) $ ( 0.20) Shares used in computation 14,839,986 10,093,862 12,373,137 9,991,776
See accompanying notes to financial statements.
ASTROCOM CORPORATION BALANCE SHEETS (UNAUDITED) Sep. 30, 1998 Dec. 31, 1997 ASSETS Current Assets Cash $ 814,181 $ 31,830 Accounts receivable, less allowance 308,876 557,662 Inventories 663,591 521,084 Prepaid expenses 4,418 51,097 Total Current Assets 1,791,066 1,161,673 Property & Equipment Property & Equipment 2,115,751 2,114,119 Accumulated Depreciation (1,832,673) (1,729,976) Net Property & Equipment 283,078 384,143 Intangible Assets 74,219 0 Other Assets 7,572 7,572 Total Assets $ 2,155,935 $1,553,388
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Payable to Factor $ 0 $ 62,806 Convertible Note Payable (Net of Discount) 0 364,016 Accounts Payable 343,547 507,275 Accrued Expenses 86,830 111,448 Current Maturities of Lease Settlement Costs 31,078 11,859 Total Current Liabilities 461,455 1,057,404 Lease Settlement Costs 44,492 68,031 Stockholders' Equity Preferred Stock 200,000 200,000 Common Stock 1,497,461 1,046,099 Additional Paid-In Capital 8,075,885 6,974,073 Accumulated Deficit (8,123,358) (7,792,219) Total Stockholders' Equity 1,649,988 427,953 Total Liabilities and Stockholders' Equity $2,155,935 $1,553,388
See accompanying notes to financial statements.
ASTROCOM CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended Sep 30, 1998 1997 Cash Flows from Operating Activities Net loss $ (322,139) $(1,947,497) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and Amortization 116,300 68,012 Amortization of Debt Discount 95,984 16,053 Interest on debt converted to common stock 1,274 0 Professional Fees Paid in Warrants & Stock 30,000 54,000 Gain on disposal of assets (243) (18,312) Changes in operating assets and liabilities: Accounts Receivable 248,786 (11,306) Inventories (142,507) 254,560 Prepaid Expenses 46,679 9,583 Other assets 0 65,987 Accounts payable (163,728) 424,608 Accrued expenses (33,618) 34,089 Net Cash Used in Operating Activities (123,212) (1,050,223) Cash Flows from Investing Activities Purchase of Equipment (5,501) (71,778) Purchase of Technology Rights (87,500) 0 Sale of Assets 3,790 50,000 Net Cash Used in Investing Activities (89,211) (21,778) Cash Flows from Financing Activities Proceeds from Sale of Stock 1,466,900 0 Proceeds from Exercise of Warrants and Options 30,000 98,608 Proceeds from issuance of Convertible Debt 0 510,000 Net proceeds from factoring agreement (62,806) 0 Net Proceeds from Revolving Credit Agreement 0 (315,762) Payments on notes payable (435,000) 0 Payments on Lease Settlement Obligations (4,320) (13,897) Payments on Other Long Term Debt 0 (843) Dividends Paid 0 (3,639) Cash Provided by Financing Activities 997,774 274,467 Net Increase (Decrease) in Cash 782,351 (797,534) Cash at Beginning of Period 31,830 978,798 Cash at End of Period $ 814,181 $ 181,264 Supplemental cash flow information: Conversion of debt to common stock $ 25,000 $ 0 See accompanying notes to financial statements.
ASTROCOM CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 1. BASIS OF PRESENTATION The financial statements in this Form 10-QSB have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of financial position, results of operations and cash flows. These financial statements should be read in conjunction with the financial statements and notes included in the Company's annual report on Form 10-KSB for the year ended December 31, 1997. 2. INVENTORIES Inventories are stated at the lower of cost or market, determined on an average cost basis. Inventories at September 30, 1998 and December 31, 1997 consisted of the following:
September 30, 1998 December 31, 1997 Raw materials $ 221,303 $ 328,042 Work in process 422,748 61,155 Finished goods 128,024 211,368 Less obsolescence reserve (108,484) (79,481) $ 663,591 $ 521,084
3. INTANGIBLE ASSETS Intangible assets include purchased technology, manufacturing rights and software license agreements. Intangible assets are recorded at cost and amortized on a straight-line basis over their estimated useful lives of two to four years. 4. NET LOSS PER SHARE In 1997, the Company adopted Financial Accounting Standards Board Statement No. 128, "Earnings Per Share," which replaces the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share exclude the dilutive effect of options, warrants and convertible securities, while diluted earnings per share include such effects. For all period presented, the Company's basic and diluted loss per share are the same because the effects of all options, warrants and convertible securities were antidilutive. 5. RECLASSIFICATIONS Certain amounts in the 1997 financial statements have been reclassified to conform to the current presentation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Report contains certain forward-looking statements that project or estimate future events. When used in this Form 10-QSB, the words "believes," "expects," "anticipates," "intends," and similar expressions are intended to identify forward-looking statements. These statements are subject to various risks and uncertainties which could cause actual results to differ materially from historical results or those currently projected. Readers are cautioned not to place undue reliance on these forward-looking statements. RESULTS OF OPERATIONS The following table sets forth selected information derived from the Company's interim statement of operations expressed as percentages of net sales:
Three Months Ended % Increase Nine Months Ended % Increase September 30, (Decrease) September 30, (Decrease) 1998 1997 1998 1997 Net Sales 100.0% 100.0% (30.1)% 100.0% 100.0% (9.6)% Cost of Sales 64.0 75.4 (40.9) 66.1 85.1 (29.7) Write-off Inv. 0.0 0.0 0.0 0.0 13.1 (100.0) Gross Profit 36.0 24.6 2.2 33.9 1.8 1,610.3 Selling & Admin. 30.6 32.1 (33.4) 33.3 57.8 (47.9) Research & Devel. 11.5 11.0 (26.9) 8.7 20.7 (61.9) Operating Loss (6.1) (18.5) (77.0) (8.2) (76.7) (90.3) Other Income (Exp) 1.1 1.7 (55.6) (5.9) (0.9) (480.1) Net Loss (5.0)% (16.7)% (79.0)% (14.2)% (77.7)% (83.5)%
NET SALES. Net sales for the three month and nine month periods ended September 30, 1998, were $725,155 and $2,266,751, reflecting decreases of 30.1% and 9.6%, respectively, over the comparable periods in 1997. Sales in the third quarter of 1997 included a substantial contract with one customer to expand their network and upgrade older Astrocom technology with new products. The older technology is now being redeployed by the customer and precludes additional near-term sales. GROSS PROFIT. Gross profit margin for the three and nine month periods ended September 30, 1998 was 36.0% and 33.9%, respectively, as compared to 24.6% and 1.8% for the comparable periods in 1997. These increases can be attributed to adjustments made to the pricing and product costs of the new product lines that were introduced in 1997. The Company expects the gross profit margins to remain at these higher levels, but also to be affected by sales volume, product mix and the distribution channel used. In the first quarter of 1997, the Company recorded a $329,430 write-down of inventory due to: 1) reserves recorded from loss of a contract and ongoing product changes; and 2) inventory which could not be accounted for due to changes in the Company's accounting system and personnel. OPERATING EXPENSES. Selling and administrative expenses were $221,651 for the three month period ended September 30, 1998, a decrease of 33.4% from the comparable period in 1997. For the nine month period ended September 30, 1998, selling and administrative expenses were $755,856, a decrease of 47.9% from the comparable period in 1997. Selling and marketing expenses decreased because of last year's marketing activities related to the new corporate image and product positioning. Administrative expenses also decreased because of a smaller management staff. Research and development expenses were $83,278 for the three month period ended September 30, 1998, a decrease of 26.9% from the comparable period in 1997. For the nine month period ended September 30, 1998, research and development expenses were $197,444, a decrease of 61.9% from the comparable period in 1997. These expense reductions were due primarily to reduced staff. R&D expenses were also higher during the same periods last year due to spending on product testing, prototype parts and outside services in connection with the new product introduction. The Company has hired additional engineering staff and expects to increase its investment in product development in future periods. OTHER INCOME (EXPENSE). Interest expense for the three month period ended September 30, 1998 decreased to $2,008 from $30,706 in the comparable period in 1997. This reduction in interest expense was a result of the repayment of the bridge financing, which was raised during the third quarter of 1997, at the end of June 1998. For the nine month period ended September 30, 1998, interest expense increased to $146,290 from $56,366 in the comparable period in 1997. This increase was associated with the interest from the bridge financing that was expensed during the first six months of 1998. During the reported periods of 1997, other income and expense included gains on the licensing of proprietary software and losses on the disposal of equipment. NET LOSS. The Company reported a net loss from operations of $(36,391) and $(322,139) respectively for the three and nine month periods ended September 30, 1998, compared to a net loss of $(173,703) and $(1,947,497) for the comparable periods of 1997. The reduced loss is attributable to a higher gross profit margin and lower operating expenses. LIQUIDITY AND CAPITAL RESOURCES. The Company completed a private placement of equity during the second quarter of 1998. Proceeds from the equity placement were $1,466,900, of which $435,000 was used to repay the short-term convertible debt. Net working capital increased to $1,329,611 on September 30, 1998 from $104,269 on December 31, 1997. Cash increased to $814,181 on September 30, 1998 from $31,830 on December 31, 1997. Management chose not to renew its factoring agreement that expired on July 3, 1998. The Company is seeking a less expensive, asset-based lending facility and anticipates securing such financing during the fourth quarter of 1998. A credit facility would be used to fund increased working capital requirements. The proceeds from the private placement are intended to fund product development and other activities. Management remains focused on running profitable operations that generate adequate cash flow to meet current obligations on a timely basis. The Company currently believes that its available sources of funds will be adequate to finance current operations and anticipated investments for the next twelve months. YEAR 2000 ISSUES The Company is aware of the Year 2000 problem resulting from the inability of some computer software or hardware to recognize or properly process dates ending in "00." The Company has examined its internal information systems and has determined that most of the business software and hardware are Year 2000 compliant. The Company also has determined that all of its products are Year 2000 compliant. The Company is in the preliminary stages of requesting assurances from its major suppliers that they are addressing this issue and will achieve Year 2000 compliance. Based on information presently available, the Company does not believe that the costs and efforts to address the Year 2000 problem will be material to its business, financial condition or results of operation. The Company intends to continue monitoring Year 2000 compliance matters. However, there can be no assurance that unforeseen problems will not arise in connection with this issue. PART II OTHER INFORMATION ITEM 5. OTHER INFORMATION 1. Sarah B. Fjelstul was elected Vice President on August 27, 1998. 2. Effective August 27, 1998, the registrant issued a warrant entitling Ronald B. Thomas to purchase 739,613 shares of the registrant's common stock, at a price of $.35 per share. The right to purchase shares may be exercised at any time through August 27, 2008. The Warrant was awarded to Mr. Thomas by the Board of Directors for his services to the registrant. ITEM 6. EXHIBITS Exhibit 10(i) - Warrant Issued to Ronald B. Thomas Dated August 27, 1998. 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. Dated: November 6, 1998 ASTROCOM CORPORATION (Registrant) By: Ronald B. Thomas, President and Chief Executive Officer By: Sarah B. Fjelstul Vice President and Corporate Controller (Principal Accounting Officer) Exhibit 10(i) WARRANT ISSUED TO RONALD B. THOMAS DATED AUGUST 27, 1998 WARRANT FOR PURCHASE OF COMMON STOCK OF ASTROCOM CORPORATION (A Minnesota Corporation) 739,613 shares This certifies that Ronald B. Thomas (hereinafter the "Holder"), is entitled to purchase from Astrocom Corporation (hereinafter the "Company") 739,613 fully paid and nonassessable shares of Common Stock of the Company, par value $.10 per share, pursuant to the terms and conditions hereinafter set forth, at the price of $.35 per share. 1. The rights represented by this Warrant shall vest immediately: THIS WARRANT IS SUBJECT TO THE TERMS OF THE LEGEND SET FORTH ON THE LAST PAGE HEREOF. The rights represented by this Warrant may be exercised, when vested as provided above, by the surrender of this Warrant at the principal office of the Company and upon payment to the Company by certified check or bank draft of the purchase price for the shares to be purchased. Holder shall also execute and deliver such agreements and representations concerning Holder's intention not to distribute the Common Stock so obtained and such other matters as the Company may reasonably request in order to permit issuance of the shares of Common Stock pursuant to exemptions from registration under federal and state laws, provided, however, that the unavailability of any such exemption shall not affect the Company's obligation to issue shares of its Common Stock pursuant hereto. Upon any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to Holder within a reasonable time, not exceeding fifteen days, and, unless this Warrant has expired, a new Warrant representing the number of shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to Holder within such time. 2. (a) If at any time the Company receives a written request therefor from Holder with respect to shares of Common Stock issued pursuant to this Warrant not theretofore registered under the Securities Act of 1933 (the "Act"), the Company shall prepare and file a Registration Statement on Form S-3 (or any successor form subsequently promulgated by the Securities and Exchange Commission as a replacement for Form S-3) under the Act covering the shares which are the subject of such request and shall use its best efforts to cause such Registration Statement to become effective. The Company shall be obligated to prepare, file and cause to become effective one Registration Statement on Form S-3 pursuant to this subparagraph 2(a). In the event that Holder determines for any reason not to proceed with the registration at any time before the Registration Statement has been declared effective by the Securities and Exchange Commission, and Holder requests the Company to withdraw such Registration Statement (if theretofore filed), and such Registration Statement is withdrawn with respect to the shares covered thereby, and Holder agrees to bear his own expenses incurred in connection therewith and to reimburse the Company for the expenses incurred by it attributable to the registration of such shares, then Holder shall not be deemed to have exercised his right to require the Company to register shares pursuant to this subparagraph 2(a). (b) If at any time the Company shall determine to proceed with the actual preparation and filing of a Registration Statement under the Act in connection with the proposed offer and sale for money of any of its securities by it or any of its securityholders, the Company shall give written notice to Holder, and upon the written request of Holder given within 30 days after receipt of such notice from the Company, the Company will, except as herein provided, cause all shares of Common Stock issued to Holder pursuant to the exercise of this Warrant to be included in such Registration Statement, to the extent requested by Holder in writing within said 30-day period; provided, however, that the Company shall not be required to give notice or include any shares of Common Stock in such registration if the proposed registration is of an employees' stock option, stock purchase or compensation plan and the shares of Common Stock held by Holder cannot be included in the registration form appropriate thereto, or if the securities are proposed to be issued in exchange for securities or assets or in connection with a merger with or acquisition of another corporation. If any registration pursuant to this section shall be underwritten in whole or in part, the Company may require that Holder's shares requested for inclusion pursuant to this section be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters; and if in the good faith judgment of the managing underwriter of such public offering the inclusion of all of Holder's shares covered by the request of Holder for registration under this section would reduce the number of shares to be offered by the Company (or the prospective seller of the shares to be registered, if other than the Company) or interfere with the successful marketing of the shares to be offered by the Company (or the prospective seller of the shares to be registered, if other than the Company), the number of shares of Holder otherwise to be included in the underwritten public offering under this section may be eliminated or reduced. (c) With respect to any registration pursuant to subparagraphs 2(a) or 2(b) above, the Company shall bear the following fees, costs and expenses: All registration, filing and NASD fees, printing expenses, fees and disbursements of counsel and accountants for the Company, fees and disbursements of counsel for the underwriter or underwriters of such securities (if required by such underwriter or underwriters), all internal Company expenses, the premiums or other costs of all policies of insurance against liability arising out of the public offering, and all legal fees and disbursements and other expenses of complying with state securities laws. Underwriting discounts and commissions and transfer taxes for the shares sold by Holder and any other expenses incurred by Holder not expressly included above shall be borne by Holder. 3. The Company covenants and agrees that all shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable and free from all taxes, liens, and charges with respect to the issuance thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for the purpose of issuance upon the exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 4. In the event that the Company shall, at any time prior to the expiration date of this Warrant and prior to the exercise hereof: (a) declare or pay to the holders of the Common Stock a dividend payable in any kind of shares of stock of the Company; or (b) change or divide or otherwise reclassify its Common Stock into the same or a different number of shares with or without par value, or into shares of any class or classes; or (c) consolidate or merge with, or transfer its property as an entirety or substantially as an entirety to, any other corporation; then, upon the subsequent exercise of this Warrant, Holder shall receive for the exercise, such additional shares of stock of the Company, or such reclassified shares of stock of the Company, or such shares or securities of the Company or any other entity resulting from the occurrence of any such event which he would have been entitled to receive had he exercised this Warrant prior to the happening of any of the foregoing events. 5. The certificates representing the shares to be issued upon exercise of the rights represented by this Warrant which have not been registered under applicable federal and state laws will bear a legend substantially as follows: "The securities represented by this certificate have not been registered under the Securities Act of 1933 or the securities act of any state. The securities have been acquired for investment and may not be sold, transferred for value, pledged, hypothecated or otherwise encumbered unless (1) pursuant to an effective registration of them under the Securities Act of 1933 and the applicable securities act of any state, or (2) there is presented to the corporation an opinion of counsel acceptable to counsel for the corporation to the effect that such registration is not required." By exercise of this Warrant Holder agrees to be bound by the terms of such legend. 6. This Warrant shall not entitle Holder to any voting rights or other rights as a stockholder of the Company. 7. This Warrant shall not be transferable by Holder, other than pursuant to registration under federal and state securities laws or an exemption from such registration, the availability of which shall be reasonably determined by the Company, and then only: (a) to members of the immediate family of Holder or trusts for the benefit of the immediate family of Holder; or (b) as provided in paragraph 8 below. 8. In the event of the death of Holder prior to the expiration date of this Warrant, and prior to its exercise, this Warrant shall be exercisable to the extent provided above until the expiration date of this Warrant, but only by the executors or administrators of the estate of Holder or by the persons to whom Holder's rights shall pass by Holder's Will, or the laws of descent and distribution. 9. This Warrant is being executed and delivered in the State of Minnesota, and this Warrant shall be construed in accordance with the laws of such State. 10. This Warrant shall expire and be void unless exercised on or before August 27, 2008. WITNESS the signature of the Company's duly authorized officer as of the 27th day of August, 1998. ASTROCOM CORPORATION By _______________________________________ Its Chairman of the Board THE WARRANT REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("THE ACT") OR UNDER APPLICABLE STATE LAWS. THE WARRANT MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED EXCEPT AS PROVIDED ABOVE AND NO TRANSFER OF IT WILL BE MADE BY THE CORPORATION OR ITS TRANSFER AGENT IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE WARRANT UNDER THE ACT, AS AMENDED, A "NO ACTION" LETTER OF THE SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. FURTHERMORE THE WARRANT MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED EXCEPT AS PROVIDED ABOVE AND NO TRANSFER OF IT WILL BE MADE BY THE CORPORATION OR ITS TRANSFER AGENT IN THE ABSENCE OF AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION THAT SUCH TRANSFER DOES NOT REQUIRE COMPLIANCE WITH APPLICABLE STATE LAW OR THAT SUCH COMPLIANCE HAS BEEN EFFECTED. -----END PRIVACY-ENHANCED MESSAGE-----