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Griffin Securities reiterates Unilife Corp ($UNIS) target with $10.50 target


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Griffin Securities reiterates $UNIS target with $10.50 target

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Griffin Securities reiterates Unilife Corp ($UNIS) target with $10.50 target

  1. 1. UPDATE REPORT Medical Device Industry May 23, 2011 KEITH A. MARKEY, PH.D., M.B.A. 212-514-7914 KMARKEY@GRIFFINSECURITIES.COM UNILIFE CORPORATION (NASDAQGM: UNIS) Unilife ready to usher in a new era in drug delivery: o Operations adjusted as full commercialization approaches o Shipments of Unifill® syringes to start in July o Long-term strategy centers on high-quality, specialty drug delivery devices o Financial resources in place through fiscal 2012 We reiterate our BUY recommendation and our target price of $10.50 per share. Share Price (5/20/11) $5.18 52-Week Price Low / High $3.85 - $7.08 Mkt. Capitalization (issued) $330 million Shares Outstanding (issued) 63.85 million 12-month Target Price $10.50 Website FY 2011 Loss per share ($0.68) FY 2012 Loss per share ($0.49) Source: BigCharts.comUnilife Corporation (NasdaqGM: UNIS) is a the drug company’s most important revenuemedical device company with novel technologies sources, as well as four small subgroups infor safety syringes with retractable needles. Its other areas. Validation shipments of one milliondevices offer features preferred by the U.S. units in all are set to commence in early fiscalOccupational Safety & Health Administration, 2012 (begins July 1st), enabling Sanofi to initiateautomatic activation of needle retraction and drug stability testing. Supply contracts shoulduser-controlled rate of retraction. Unilife’s first follow so that sufficient inventory is available forsyringe will have a fixed needle, though another 2013 commercial launches, just whenwith interchangeable needles is not far behind. regulations requiring the use of safety syringes will take effect throughout the European Union.The Company’s most important product line isits Unifill® brand of syringes, which have glass Unilife has begun talks with other drugbarrels and are designed to be prefilled with companies worldwide. Some may wantinjectable drugs by pharmaceutical manufac- exclusive rights to Unifill syringes for their ownturers. Sanofi, the largest user of prefilled key therapeutic areas to gain a productsyringes in the world, provided $40 million to differentiator and competitive advantage. Thishelp set up the manufacturing system in strategy seems appropriate for both research-exchange for the right to negotiate for exclusive based and large generic drug companies. Butaccess to the Unifill® fixed-needle syringe in exclusivity will come at a premium price, andspecific therapeutic areas. That negotiation was that will suit Unilife, since its strategy is tocompleted with Unilife granting Sanofi exclusivity become the pharmaceutical industry’s preferredfor antithrombotic agents and vaccines, two of supplier of high-quality drug delivery devices.Griffin Securities, Inc., 17 State Street, New York, NY, 10004 1 Please Review Disclosures on Page 9 of this Research Report
  2. 2. Unilife Corporation May 23, 2011UNILIFE ADJUSTS OPERATIONS TO FOCUS ON COMMERCIALIZATIONManagement has been actively engaging drug manufacturers in discussions, which have led to severalrequests for validation shipments. Additional personnel have been hired to enable upper management tofocus its attention more on operational issues. And in that regard, Unilife hired Ramin Mojdeh, anexperienced executive from Becton, Dickinson to serve as its Chief Operating Officer.At the end of the March quarter of fiscal 2011 (ends June 30th), management started implementingimportant initiatives to put the Company into a commercial mode of operation. This necessitated hardchoices that eliminated some positions, including the department that set up the Unifill manufacturingsystem. The corporate reorientation also involved adding marketing expertise to expedite acceptance ofthe Unifill syringe by the pharmaceutical industry.The Company began forming product-oriented design groups to serve as the foundation of its R&Dprogram. These groups are comprised of personnel from multiple departments to ensure that all aspectsof new projects are addressed from the very earliest stages of design through commercialization. Eachteam will have a dedicated orientation, either by project type or client. Unilife has already begun workingon specific projects for pharmaceutical companies that want to utilize its unique designs as a differentiatorfor their drugs. The Company intends to work under contract on the development of new products,thereby offsetting its R&D costs and limiting its risks.In setting up the R&D design groups, Unilife is taking advantage of a trend toward outsourcing by thepharmaceutical industry. But more importantly, the Company is positioning itself to become a preferredprovider of premium drug delivery devices. Underpinning this long-term strategy is its extensive patentestate that forms a strong barrier against direct competition. We like this plan because it should maximizethe value of its patents, avoids the price-sensitive market of commodity devices, and limits investments incapital equipment, notably the machinery that would be required to compete in the high-volume, genericportion of the needle/syringe market.VALIDATION SHIPMENTS OF UNIFILL SYRINGES TO START IN JULYUnilife remains on target to deliver its first shipment of Unifill syringes to Sanofi in early July. This isimportant for several reasons. First, it marks the fulfillment of the industrialization agreement between thetwo companies through which Sanofi supported the development of the production process for thissyringe. Second, it demonstrates once more that Unilife is a reliable partner for pharmaceuticalcompanies – the Company has not missed a single milestone as it first set up operations in a leasedfacility in Pennsylvania, registered its stock on NasdaqGM, financed an expansion of its infrastructure,and subsequently moved into a new office/manufacturing plant of its own design. But just as important,the validation shipments will open a new era for Unilife and the drug industry. The initial syringes will beused for drug stability testing, a prerequisite to gaining regulatory approval of each drug-devicecombination. The syringes must be able to hold the drug for two years without a loss of the drug’spotency. This will not be a problem with the Unifill syringes, because the Company had the forethought toensure all components that come into contact with a drug are already used by the industry and have metthe stability requirements of regulators worldwide.Once the validation shipments have begun, we believe corporate clients will engage in seriousnegotiations for commercial supply contracts, since it will take time for both parties to build inventory inpreparation for launch. Sanofi should be among the first to arrive at the bargaining table, though they maynot necessarily be the first to sign a contract. That’s because they already have exclusive rights to theirtwo most important therapeutic areas, at least through mid-2014 as long as they commercialize productsin those areas by that time. Accordingly, other companies that are seeking access to Unilife’s technologyin their own areas of interest may have a greater motivation to sign exclusive supply agreements aheadof their competitors. We believe Unilife will announce the deals in a timely manner, but it is possible thattheir new clients will demand anonymity for competitive reasons. Similarly, we may not learn which drugswill be supplied in Unifill syringes upon the completion of the contracts. The Company has alreadyindicated that discussions with potential clients have included both drugs that are already on the marketGRIFFIN SECURITIES EQUITIES RESEARCH 2
  3. 3. Unilife Corporation May 23, 2011and others that are under development. (Note that there is a large number of biological agents in R&Dpipelines that must be injected.) Thus, near-term demand will depend heavily on which type of product isinvolved in a supply contract and what geographic market(s) the drug-device combination will enter. Sincethe European Union’s requirement for safety syringes goes into effect in 2013, we would not be surprisedif many of the earliest deals, entailing drugs available in prefilled syringes, will involve Unifill syringesdestined for Europe. As shown in the following chart, there are 83 drugs (left scale: number of drugs)approved or in R&D pipelines at 19 companies in the pharmaceutical industry that are now available orare suitable for subcutaneous administration via a prefilled Unifill syringe. Chart 1. Potential Target Drugs for the Unifill Syringe 14 Other Vaccines 12 Respiratory MS 10 Musculo Skeletal Immunosuppresants Immunostimulants 8 Hormone Therapy Diabetes 6 Bone Calcium Regulation Analgesics 4 Anti rheumatics Alzheimers disease 2 Anti infectives Anti thrombotics 0 Anti neoplastics Sanofi aventis P10 P11 P12 P13 P2 P3 P4 P5 P6 P7 P8 P9 OtherFINANCIAL RESOURCES IN PLACE THROUGH FISCAL 2012The operational changes that recently took place resulted in one-time severance costs and extra stock-based compensation in the third fiscal quarter. With these expenses and the cost of moving into the newheadquarters/manufacturing complex in the prior period now behind the Company, we are looking foroperating costs to decline in the fourth fiscal quarter and then increase gradually as infrastructureexpands to satisfy clients’ demands for outsourced R&D support and for syringe production. (See pages 6and 7 for income statements by quarter and fiscal year, respectively.) These estimates are consistent withthe announced $12 million cost-reduction achieved with the recent operational reorganization.The cost savings should reduce Unilife’s cash burn through the end of fiscal 2012. Indeed, the Companyhas stated that a recent $12 million credit line for equipment financing that will yield $8 million initially (forequipment in place), plus the cash that it already has on its balance sheet (see page 4) will fundoperations through the next fiscal year. Nonetheless, Unilife has filed a registration statement that willenable it to raise additional funds through an equity or debt offering. This flexibility is important, especiallyfor a young company that is entering into contract negotiations with larger clients because it promotes amore even-handed discussion.GRIFFIN SECURITIES EQUITIES RESEARCH 3
  4. 4. Unilife Corporation May 23, 2011BALANCE SHEET# (FISCAL YEAR ENDS JUNE 30 TH .)# All data are in thousands. ASSETS 3/31/2011 6/30/2010 Current Assets Cash & equivalents 30,188 20,750 Accounts Receivable 6 1,556 Inventory 564 797 Other 430 637 Total Current Assets $ 31,188 $ 23,740 Property & equipment $ 53,562 $ 29,972 Intangible assets 12,959 10,832 Other 489 273 Total Assets $ 98,198 $ 64,817 LIABILITIES Current Liabilities Accounts payable $ 3,559 $ 6,044 Debt due 2,297 1,648 Accrued expenses 3,060 2,911 Deferred revenue 2,633 2,188 Total Current Liabilities $ 11,549 $ 12,791 Long-term debt $ 19,362 $ 1,093 Deferred revenue 5,924 6,563 Total Long-Term Liabilities $ 25,286 $ 7,656 Shareholders Equity Common stock 636 548 Additional paid-in-capital 166,918 122,397 Accumulated Deficit (109,787) (79,650) Accum. Comprehensive Income 3,596 1,075 Total Shareholders Equity $ 61,363 $ 44,370 Total liabilities & equity $ 98,198 $ 64,817INCOME STATEMENTSOur near-term revenue estimates reflect several assumptions. We’ve included the final milestonepayment from the Sanofi industrialization agreement in the fourth quarter of this fiscal year and made asmall provision for sales of the plastic Unitract syringe through distributors. More importantly, we’veassumed that Unilife will ship the first 1 million syringes produced to Sanofi in two installments, one ineach of its first two quarters of fiscal 2012. The price of these syringes was set at a significant premium inthe industrialization agreement, probably to cover the absorption of start-up costs and a relatively low,initial production volume, so revenues will be disproportionately high. Our estimates for the second andsubsequent periods of fiscal 2012 also reflect validation shipments to other drug companies, as well asmodest revenue from outsourced R&D contracts (on the Industrialization fee line). (Note that theestimates in this report are presented using Unilife’s current fiscal year, rather than the calendar-yearpresentation of the last report, dated March 10, 2011.)We believe the premium price of the syringes shipped to Sanofi will result in reasonable gross margins.Thereafter, our estimates reflect an assumption that efficiencies are achieved as production volumegrows. Nonetheless, we have not provided for gross margins on syringes to reach optimal levels untilfiscal 2014, when a production line with an annual capacity of 150 million units is operating near its peakvolume. By 2015, the launch of a client-dedicated delivery device should help to raise gross profitabilityeven further.GRIFFIN SECURITIES EQUITIES RESEARCH 4
  5. 5. Unilife Corporation May 23, 2011Operating expenses are projected to trend upward as the Company expands its infrastructure to meet itscontractual obligations for the supply of syringes and client-dedicated devices. Depreciation/amortizationrelated to syringe manufacturing/shipping is included in cost of goods sold starting in 2012 when syringeshipments commence; the remainder is booked as an operating expense. We believe Unilife will at somepoint expand its technology base via licensing deals and/or acquisitions, but we have not included suchopportunities in our projections. Moreover, provisions for income taxes have been made for financialaccounting purposes, even though the Company will be able to limit its cash liabilities in its early years ofprofitability through net operating loss carryforwards.Finally, our share net estimates do not provide for additional external financings, since the timing and sizeof such activity is uncertain. However, we have allowed for stock-based compensation and the conversionof options/warrants in estimating the number of shares outstanding.VALUATION OF UNIS SHARESOur 12-month target price is based on the following calculation: We multiplied our 2015 projectedearnings of $1.12 per share by a P/E ratio of 22, resulting in a future price of $22.64, and then discountedthat back three years at an annual rate of 33% to get a 12-month price target of $10.50.Investors should be aware that validation shipments of syringes and the signing of commercial supplyagreements will likely provide ample near-term milestones to stimulate interest in Unilife. Accordingly, webelieve UNIS shares merit a BUY rating and that they are suitable for growth-oriented investmentportfolios.GRIFFIN SECURITIES EQUITIES RESEARCH 5
  6. 6. QUARTERLY INCOME STATEMENTS Unilife Corporation Fiscal Year 2010 Fiscal Year 2011 Fiscal Year 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Industrialization fees $ 1,745 $ 2,088 $ 1,250 $ 1,235 $ 1,350 $ $ $ 700 $ 950 $ 400 $ 400 $ 500 Licensing fees 683 746 576 561 577 630 642 640 640 640 640 640GRIFFIN SECURITIES EQUITIES RESEARCH Product sales & other 680 411 591 856 1,616 1,132 8 105 4,000 5,000 6,000 7,000 Total Revenues $ 3,108 $ 3,245 $ 2,417 $ 2,652 $ 3,543 $ 1,762 $ 650 $ 1,445 $ 5,590 $ 6,040 $ 7,040 $ 8,140 Cost of products sold 829 474 569 599 1,175 824 450 26 3,800 3,900 4,500 5,000 Gross Profit $ 2,279 $ 2,771 $ 1,848 $ 2,053 $ 2,368 $ 938 $ 200 $ 1,419 $ 1,790 $ 2,140 $ 2,540 $ 3,140 Operating expenses R&D expense 399 287 2,599 910 1,005 1,416 $ 2,723 $ 2,201 $ 2,250 $ 2,300 $ 2,350 $ 2,400 SG&A expense 3,742 7,517 7,008 10,429 8,012 9,054 9,117 7,302 7,300 7,350 7,400 7,500 Deprec. & amortization 291 1,009 390 624 787 878 827 828 250 250 250 250 Total operating costs 4,432 8,813 9,997 11,963 9,804 11,348 12,667 10,331 9,800 9,900 10,000 10,150 Operating profit/(loss) $ (2,153) $ (6,042) $ (8,149) $ (9,910) $ (7,436) $ (10,410) $ (12,467) $ (8,912) $ (8,010) $ (7,760) $ (7,460) $ (7,010) Interest expense (47) (14) (30) (34) (32) (32) (177) (299) (290) (290) (285) (285) Interest income 5 252 450 359 122 82 128 113 120 105 90 85 Other income/(expense) 131 (111) (35) (120) 100 2 (17) Pretax profit/(loss) $ (2,064) $ (5,915) $ (7,764) $ (9,705) $ (7,246) $ (10,358) $ (12,533) $ (9,098) $ (8,180) $ (7,945) $ (7,655) $ (7,210) Income taxes Net profit/(loss) $ (2,064) $ (5,915) $ (7,764) $ (9,705) $ (7,246) $ (10,358) $ (12,533) $ (9,098) $ (8,180) $ (7,945) $ (7,655) $ (7,210) Earnings/(loss) per share $ (0.06) $ (0.13) $ (0.15) $ (0.18) $ (0.14) $ (0.19) $ (0.20) $ (0.15) $ (0.13) $ (0.13) $ (0.12) $ (0.11) Shares outstanding 36,762 45,555 52,497 53,190 53,190 55,194 61,505 62,000 62,500 63,000 63500 63500 Fiscal year ends on June 30th of the calendar year. All figures are in thousands, except per-share data. Estimates are shown in italics. Q3, FY 2010 excludes a one-time $4.3 million expense for the acquisition of patent rights to safety syringe technology. May 23, 20116
  7. 7. Unilife Corporation May 23, 2011ANNUAL INCOME STATEMENT# (FISCAL YEAR ENDS JUNE 30 TH .) 2010 2011 2012 2013 2014 2015 Industrialization fees $ 6,318 $ 2,050 $ 2,250 $ 2,300 $ 2,400 $ 2,400 Licensing fees 2,566 2,490 2,560 2,750 3,000 3,250 Product sales & other 2,538 2,860 22,000 114,396 241,987 340,236 Total Revenues $ 11,422 $ 7,400 $ 26,810 $ 119,446 $ 247,387 $ 345,886 Cost of products sold 2,471 2,475 17,200 64,399 122,934 163,810 Gross Profit $ 8,951 $ 4,925 $ 9,610 $ 55,047 $ 124,452 $ 182,076 Operating expenses R&D expense 4,195 7,345 9,300 9,300 9,500 10,000 SG&A expense 28,696 33,485 29,550 30,000 31,000 32,000 Deprec. & amortization 2,314 3,320 1,000 1,000 1,000 1,000 Total operating costs 35,205 44,150 39,850 40,300 41,500 43,000 Operating profit/(loss) $ (26,254) $ (39,225) $ (30,240) $ 14,747 $ 82,952 $ 139,076 Interest expense (125) (540) (1,150) (1,150) (1,150) (1,150) Interest income 1,066 530 400 450 450 500 Other income/(expense) (135) Pretax profit/(loss) $ (25,448) $ (39,235) $ (30,990) $ 14,047 $ 82,252 $ 138,426 Income taxes 4,514 31,636 52,982 Net profit/(loss) $ (25,448) $ (39,235) $ (30,990) $ 9,533 $ 50,616 $ 85,444 Earnings/(loss) per share $ (0.54) $ (0.68) $ (0.49) $ 0.13 $ 0.67 $ 1.12 Shares outstanding 46,837 57,975 63,125 75,000 75,500 76,000# All figures are in thousands, except per-share data. Estimates are shown in italics. Fiscal 2010 R&D costs exclude a one-timecharge of $4.3 million (paid in stock) for the acquisition of patents pertaining to safety-syringe technology.GRIFFIN SECURITIES EQUITIES RESEARCH 7
  8. 8. Unilife Corporation May 23, 2011INVESTMENT CONCERNS AND RISKSFor a complete description of risks and uncertainties related to Unilife Corporation’s business,see Unilife’s Annual Reports, which can be accessed directly from the Company’s website, Potential risks include: Stock risk and market risk: There is a limited trading market for the Company’s common stock, partly because it trades on both the NasdaqGM and Australian bourses. There can be no assurance that an active and liquid U.S. trading market will develop or, if developed, that it will be sustained, which could limit one’s ability to buy or sell the Company’s common stock at a desired price. Indeed, the shares may trade at prices on the two exchanges that differ by more than would be determined by foreign exchange rates alone. Investors should also consider technical risks common to many small- cap or micro-cap stock investments, such as small float, risk of dilution, dependence upon key personnel, and the strength of competitors that may be larger and better capitalized. Competitive risk: The medical device market continues to evolve, and research and development are expected to continue. Other companies are already established players in the needle & syringe market and are actively engaged in the development of new safety devices that may directly or indirectly compete with those being pursued by Unilife. These companies may have substantially greater research and development capabilities, as well as significantly greater marketing, financial, and human resources than Unilife. Products still in development phases: The Company’s ready-to-fill syringes and many other models are still at a pre-commercialization stage. Such products may appear to be promising, but may not reach commercialization for various reasons, including failure to achieve regulatory approvals with customers’ drugs, reliability concerns, and/or the inability to be manufactured at a reasonable cost. And even if its products are commercialized, there can be no assurance that they will be accepted, which may prevent the Company from becoming profitable. Funding requirements: It is difficult to predict Unilife’s future capital requirements. The Company may need additional financing to continue funding the development of its products and their production. There is no guarantee that it can secure the desired future capital or, if sufficient capital is secured, that current shareholders will not suffer significant dilution. Regulatory risk: There is no guarantee that Unilife’s products will be approved by the U.S. Food and Drug Administration (FDA) or international regulatory bodies for marketing in the U.S. or abroad. Patent risk: The medical device industry is one in which patents have not always provided sufficient protection against competition. Moreover, the sector has had sizable patent disputes that have resulted in large settlement awards. There can be no assurance that Unilife’s patents will provide sufficient protection against competitors and that patent litigation will not become a financial burden.GRIFFIN SECURITIES EQUITIES RESEARCH 8
  9. 9. Unilife Corporation May 23, 2011DISCLOSURESANALYST(s) CERTIFICATION: The analyst(s) responsible for covering the securities in this report certifythat the views expressed in this research report accurately reflect their personal views about UnilifeCorporation. (the “Company”) and its securities. The analyst(s) responsible for covering the securities inthis report certify that no part of their compensation was, is, or will be directly or indirectly related to thespecific recommendation or view contained in this research report.MEANINGS OF RATINGS: Our rating system is based upon 12 to 36 month price targets. BUY describesstocks that we expect to appreciate by more than 20%. HOLD describes stocks that we expect to changeplus or minus 20%. SELL describes stocks that we expect to decline by more than 20%. SC describesstocks that Griffin Securities has Suspended Coverage of this Company and price target, if any, for thisstock, because it does not currently have a sufficient basis for determining a rating or target and/or GriffinSecurities is redirecting its research resources. The previous investment rating and price target, if any,are no longer in effect for this stock and should not be relied upon. NR describes stocks that are NotRated, indicating that Griffin Securities does not cover or rate this Company.DISTRIBUTION OF RATINGS: Currently Griffin Securities has assigned BUY ratings on 93% of companies it covers,HOLD ratings on 7%, and SELL ratings on 0%. Griffin Securities has provided investment banking services for 11%of companies in which it has had BUY ratings in the past 12 months and 20% for companies in which it has hadHOLD, NR, or no coverage in the past 12 months or has suspended coverage (SC) in the past 12 months.MARKET MAKING: Griffin Securities does not maintain a market in the shares of this Company or anyother Company mentioned in the report.FORWARD-LOOKING STATEMENTS: This Report contains forward-looking statements, which involverisks and uncertainties. Actual results may differ significantly from such forward-looking statements.Factors that might cause such a difference include, but are not limited to, those discussed in the “RiskFactors” section in the SEC filings available in electronic format through SEC Edgar filings on the Internet.DISCLOSURES FOR OTHER COMPANIES MENTIONED IN THIS REPORT: To obtain applicablecurrent disclosures in electronic format for the subject companies in this report, please refer to SEC Edgarfilings at In particular, for a description of risks and uncertainties related to subjectcompanies’ businesses in this report, see the “Risk Factors” section in the SEC filings.PRICE CHART – 2-year BUY BUY BUY Source: Big Charts.comInitial Coverage (Australian exchange): 8/19/2009; share price, A$0.59; rating, BUY; 12-month pricetarget, A$3.65. Update report: 1/29/2010; share price, A$1.45; rating, BUY; 12-month price target,A$2.75. Update report (NasdaqGM): 3/31/2010; share price, $5.93; rating, BUY; 12-month price target,$15.00; Update report: 3/10/2011, share price, $4.25; rating, BUY; 12-month price target, $10.50;5/20/11; share price: $5.18; rating, BUY; 12-month price target, $10.50.GRIFFIN SECURITIES EQUITIES RESEARCH 9
  10. 10. Unilife Corporation May 23, 2011The price chart for UNIS shares trading on the NasdaqGM market merits a brief discussion. Becauseinvestors who held the original Australian equity had to ask to receive the U.S. listed stock, there wererelatively few shares available for trading in the month of February 2010. As a result, the price wasunusually volatile. By March, a larger number of shares were available for trading on the NasdaqGM, andthe volatility subsided, even though trading activity was uneven.COMPENSATION OR SECURITIES OWNERSHIP: The analyst(s) responsible for covering the securitiesin this report receive compensation based upon, among other factors, the overall profitability of GriffinSecurities, including profits derived from investment banking revenue. The analyst(s) that prepared theresearch report did not receive any compensation from the Company or any other companies mentionedin this report in connection with the preparation of this report. Keith A. Markey the analyst responsible forcovering the securities in this report, currently owns common stock in the Company, and in the future theanalyst(s) may from time to time engage in transactions with respect to the Company or other companiesmentioned in the report. Griffin Securities from time to time in the future may request expenses to be paidfor copying, printing, mailing and distribution of the report by the Company and other companiesmentioned in this report. Griffin Securities expects to receive, or intends to seek, compensation forinvestment banking services from the Company in the next three months.GENERAL: Griffin Securities, Inc. (“Griffin Securities”) a FINRA (formerly known as the NASD) memberfirm with its principal office in New York, New York, USA is an investment banking firm providingcorporate finance, merger and acquisitions, brokerage, and investment opportunities for institutional,corporate, and private clients. The analyst(s) are employed by Griffin Securities. Our researchprofessionals provide important input into our investment banking and other business selectionprocesses. Our salespeople, traders, and other professionals may provide oral or written marketcommentary or trading strategies to our clients that reflect opinions that are contrary to the opinionsexpressed herein, and our proprietary trading and investing businesses may make investment decisionsthat are inconsistent with the recommendations expressed herein.Griffin Securities may from time to time perform corporate finance or other services for some companiesdescribed herein and may occasionally possess material, nonpublic information regarding suchcompanies. This information is not used in preparation of the opinions and estimates herein. While theinformation contained in this report and the opinions contained herein are based on sources believed tobe reliable, Griffin Securities has not independently verified the facts, assumptions and estimatescontained in this report. Accordingly, no representation or warranty, express or implied, is made as to,and no reliance should be placed on, the fairness, accuracy, completeness or correctness of theinformation and opinions contained in this report.The information contained herein is not a complete analysis of every material fact in respect to anycompany, industry or security. This material should not be construed as an offer to sell or the solicitationof an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Weare not soliciting any action based on this material. It is for the general information of clients of GriffinSecurities. It does not take into account the particular investment objectives, financial situations, or needsof individual clients. Before acting on any advice or recommendation in this material, clients shouldconsider whether it is suitable for their particular circumstances and, if necessary, seek professionaladvice. Certain transactions - including those involving futures, options, and other derivatives as well asnon-investment-grade securities - give rise to substantial risk and are not suitable for all investors. Thematerial is based on information that we consider reliable, but we do not represent that it is accurate orcomplete, and it should not be relied on as such. The information contained in this report is subject tochange without notice and Griffin Securities assumes no responsibility to update the report. In addition,regulatory, compliance, or other reasons may prevent us from providing updates.GRIFFIN SECURITIES EQUITIES RESEARCH 10