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
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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
<C> <C>
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
</TABLE>
See accompanying notes to financial statements.
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<CAPTION>
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ASTROCOM CORPORATION
BALANCE SHEETS
(UNAUDITED)
Sep. 30, 1998 Dec. 31, 1997
ASSETS
<S> <C> <C>
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
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<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
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
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
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ASTROCOM CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended Sep 30,
1998 1997
<S> <C> <C>
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.
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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:
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<CAPTION>
September 30, 1998 December 31, 1997
<S> <C> <C>
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
</TABLE>
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.
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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:
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<CAPTION>
Three Months Ended % Increase Nine Months Ended % Increase
September 30, (Decrease) September 30, (Decrease)
1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
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)%
</TABLE>
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.
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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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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)
<PAGE>
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.<PAGE>
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.
