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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998 COMMISSION FILE NO. 0-26068
------------------------
ACACIA RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4405754
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation organization)
12 SOUTH RAYMOND AVENUE, PASADENA CA 91105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 449-6431
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /.
At May 12, 1998, 4,676,218 shares of common stock, no par value, of the
Registrant were outstanding.
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ACACIA RESEARCH CORPORATION
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS..................................... 3
Consolidated Balance Sheets........................................... 3
Consolidated Statements of Operations................................. 4
Consolidated Statements of Cash Flows................................. 5
Notes to Consolidated Financial Statements............................ 6
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................ 9
ITEM 3. 12
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............
PART II. OTHER INFORMATION................................................................ 14
ITEM 1. LEGAL PROCEEDINGS..................................................... 14
ITEM 2. CHANGES IN SECURITIES................................................. 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 14
ITEM 5. OTHER INFORMATION..................................................... 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................... 14
SIGNATURE................................................................................... 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ACACIA RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, 1998 DECEMBER 31, 1997
--------------- -----------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................................. $ 6,106,042 $ 1,366,878
Management fees and other receivables..................................... 52,856 235,059
Receivables from affiliates............................................... 27,084 0
Prepaid expenses.......................................................... 98,993 83,603
Income tax receivable..................................................... 110,000 110,000
--------------- -----------------
Total current assets.................................................... 6,394,975 1,795,540
Equipment, furniture, and fixtures, net....................................... 235,943 241,661
Notes receivable, net......................................................... 376,008 376,008
Investment in affiliates, at equity........................................... 1,552,305 1,204,802
Partnership interests, at equity.............................................. 643,154 586,393
Patents, net of accumulated amortization...................................... 5,572,420 3,877,250
Goodwill, net of accumulated amortization..................................... 1,310,841 757,697
Organization costs, net of accumulated amortization........................... 19,700 14,282
--------------- -----------------
$ 16,105,346 $ 8,853,633
--------------- -----------------
--------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses..................................... $ 164,325 $ 169,796
Accrued compensation...................................................... 0 50,684
Legal settlement payable.................................................. 144,756 226,089
--------------- -----------------
Total current liabilities............................................... 309,081 446,569
Notes payable, net of discount................................................ 1,162,000 0
--------------- -----------------
Total liabilities....................................................... 1,471,081 446,569
--------------- -----------------
Minority interests............................................................ 90,374 227,364
--------------- -----------------
Stockholders' equity
Common stock, no par value; 10,000,000 shares authorized; 3,965,580 shares
in 1998 and 3,143,074 shares in 1997 issued and outstanding............. 17,957,774 10,712,984
Warrants to purchase common stock......................................... 384,739 370,122
Accumulated deficit....................................................... (3,703,322) (2,706,606)
Note receivable secured by common stock................................... (95,300) (196,800)
--------------- -----------------
Total stockholders' equity.............................................. 14,543,891 8,179,700
--------------- -----------------
$ 16,105,346 $ 8,853,633
--------------- -----------------
--------------- -----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------
(RESTATED)
MAR. 31, 1998 MAR. 31, 1997
------------- -------------
<S> <C> <C>
Revenues
Gain on sale of investments......... $ 0 $ 50,000
Equity in earnings (losses) of
affiliates........................ 15,800 (144,698)
Management fees..................... 30,777 32,202
Interest income..................... 16,189 14,915
------------- -------------
Total revenues...................... 62,766 (47,581)
------------- -------------
Expenses
Marketing, general, and
administrative expenses........... 484,816 547,136
Research and development expenses... 367,543 165,386
Amortization of patents and
goodwill.......................... 383,284 0
Interest expense.................... 604 0
Legal settlement expense............ 0 460,000
------------- -------------
Total expenses...................... 1,236,247 1,172,522
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Loss before income taxes and minority
interests............................. (1,173,481) (1,220,103)
Benefit for income taxes................ 0 (40,107)
------------- -------------
Loss before minority interests.......... (1,173,481) (1,179,996)
Minority interests...................... (176,765) (69,784)
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Net loss................................ $ (996,716) $ (1,110,212)
------------- -------------
------------- -------------
Loss per common share
Basic............................... ($0.30) ($0.54)
Diluted............................. ($0.30) ($0.54)
Weighted average number of common and
potential common shares outstanding
used in computation of loss per share
Basic............................... 3,336,701 2,039,644
Diluted............................. 3,336,701 2,039,644
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
----------------------------
(RESTATED)
MAR. 31, 1998 MAR. 31, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (996,716) $ (1,110,212)
Adjustments to reconcile net loss to net cash used in operating activities:
Legal settlement expense........................................................ 0 460,000
Depreciation and amortization................................................... 404,240 12,529
Deferred income tax benefit..................................................... 0 (42,507)
Gain on sales of investments.................................................... 0 (50,000)
Equity in (earnings) losses of affiliates....................................... (15,800) 144,698
Minority interest in net loss................................................... (176,765) (69,784)
Issuance of warrants for services............................................... 15,869 0
Changes in assets and liabilities, net of effects of acquisitions:
Management fees and other receivables, prepaid expenses, patents and other
assets...................................................................... 142,870 49,263
Accounts payable, accrued expenses, accrued compensation, and other
liabilities................................................................. (137,491) 169,562
------------- -------------
Net cash used in operating activities........................................... (763,793) (436,451)
------------- -------------
Cash flows from investing activities:
Payment received on advances to affiliate....................................... 0 10,592
Advances to affiliates.......................................................... (27,084) (4,588)
Withdrawals from partnerships................................................... 0 400,000
Proceeds from sales of investments.............................................. 0 50,000
Payments received on notes receivable........................................... 0 21,000
Capitalized expenditures........................................................ (11,708) (29,589)
------------- -------------
Net cash (used in) provided by investing activities............................. (38,792) 447,415
------------- -------------
Cash flows from financing activities:
Payments on notes payable....................................................... 0 (102,500)
Proceeds from notes payable..................................................... 1,400,000 62,860
Discount on notes payable....................................................... (238,000) 0
Proceeds from note receivable secured by common stock........................... 101,500 0
Proceeds from exercise of stock options......................................... 470,850 198,750
Capital contributions from minority shareholders of subsidiaries................ 138,686 0
Proceeds from sale of common stock, net of issuance costs....................... 3,668,713 50,000
------------- -------------
Net cash provided by financing activities....................................... 5,541,749 209,110
------------- -------------
Increase (decrease) in cash and cash equivalents.................................... 4,739,164 220,074
Cash and cash equivalents, beginning................................................ 1,366,878 292,701
------------- -------------
Cash and cash equivalents, ending................................................... $ 6,106,042 $ 512,775
------------- -------------
------------- -------------
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock for additional equity in consolidated subsidiaries and
affiliates.................................................................... 3,034,909 0
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Acacia Research Corporation (the "Company") was incorporated on January 25,
1993 under the laws of the State of California. The Company provides investment
advisory services, and also provides management services to, and makes direct
investments in emerging corporations with intellectual property rights, most of
which are involved in developing new or unproven technologies. There is no
assurance that any or all such technologies will be successful, and even if
successful, that the development of such technologies can be commercialized.
At March 31, 1998, the Company had significant economic interests in five
companies that it has formed and takes an active role in each company's growth
and advancement. These companies are: Whitewing Labs, Inc. ("Whitewing"),
MerkWerks Corporation ("MerkWerks"), CombiMatrix Corporation ("CombiMatrix"),
Soundview Technologies Incorporated ("Soundview Technologies"), and Greenwich
Information Technologies LLC ("Greenwich Information Technologies"). In
addition, as a registered investment advisor, the Company is a general partner
in two private investment partnerships and is an investment advisor to two
offshore private investment corporations.
On July 6, 1997, the Company purchased from two individuals a total of
2,625,000 shares of common stock of Soundview Technologies (the "Soundview
Shares") for a total purchase price of $4,225,000, consisting of 400,000 shares
of common stock of the Company, $500,000 in cash, and the issuance of non-
recourse promissory notes to each of the two individuals in the aggregate
principal amount of $900,000. These notes were repaid prior to December 31,
1997. The Soundview Shares represent 35% of the outstanding capital stock of
Soundview Technologies. As a result of the transaction, the Company owned over
50% of the outstanding common stock of Soundview Technologies. The acquisition
was accounted for under the purchase method. The excess of the purchase price
over the fair value of the net assets acquired was assigned to patents and
goodwill of approximately $4,061,000 and $836,000, respectively. The results of
operations of Soundview Technologies have been consolidated with those of the
Company since the date of the acquisition (see Note 2).
In January 1998, the Company purchased a total of 401,359 shares of common
stock of MerkWerks for a total purchase price of $646,184 consisting of 85,975
shares of common stock of the Company. As a result of the transaction, the
Company increased its equity ownership in MerkWerks from 69.5% to 89.6%. The
acquisition was accounted for under the purchase method. The excess of the
purchase price over the fair value of the net assets acquired was assigned to
goodwill of approximately $646,184, which is being amortized over the estimated
useful life of 3 years.
In January 1998, the Company purchased a total of 100,000 shares of common
stock of CombiMatrix for a total purchase price of $161,000 consisting of 22,085
shares of common stock of the Company. As a result of the transaction, the
Company increased its equity ownership in CombiMatrix from 51.4% to 52.7%. The
acquisition was accounted for under the purchase method. The excess of the
purchase price over the fair value of the net assets acquired was assigned to
patents of approximately $156,642, which will be amortized over the life of the
patent upon approval.
In January 1998, the Company purchased a total of 1,144,000 shares of common
stock of Soundview Technologies for a total purchase price of $1,841,834
consisting of 244,336 shares of common stock of the Company. As a result of the
transaction, the Company increased its equity ownership in Soundview
Technologies from 51.4% to 66.7%. The acquisition was accounted for under the
purchase method. The excess of the purchase price over the fair value of the net
assets acquired was assigned to patents of approximately $1,816,350, which is
being amortized over its estimated remaining useful life of approximately 5
years.
6
<PAGE>
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS (CONTINUED)
In January 1998, the Company purchased an additional 3.31% interest in
Greenwich Information Technologies for a total purchase price of $385,891
consisting of 51,017 shares of common stock of the Company. As a result of the
transaction, the Company increased its ownership of Greenwich Information
Technologies from 30.02% to 33.33%.
On March 17, 1998, the Company announced that its Board of Directors
declared a two-for-one split of the Company's common stock subject to approval
by shareholders, of an amendment of the Company's Articles of Incorporation to
increase the number of authorized common shares. The split will be effected
through a dividend of one share of common stock for each common share
outstanding. The proposed amendment will be voted on by shareholders of record
as of April 6, 1998 at the Company's annual meeting to be held on May 19, 1998.
If approved, the Company will distribute the stock dividend on or about June 12,
1998, for each share held of record at the close of business on May 29, 1998.
In March 1998, CombiMatrix completed a private debt financing raising gross
proceeds of $1.45 million through the issuance of 290 units, each unit
consisting of one $5,000 principal unsecured promissory note ("Subordinated
Note") and 500 common stock purchase warrants. Each Subordinated Note will bear
simple interest at the rate of 6% per annum on the outstanding principal
balance. Accrued interest shall be due and payable annually on January 15th of
each year until the Subordinated Notes are paid in full. Principal shall be due
and payable in full on the third anniversary of each Subordinated Note. Each
common stock purchase warrant entitles the holder to purchase one share of
CombiMatrix common stock at an exercise price of $2.00, subject to adjustment,
during a period of three years, expiring in March 2001. In accordance with APB
Opinion No. 14, "Accounting for Convertible Debt and Debt Issued With Stock
Purchase Warrants," $480 of each unit purchased has been attributed to the
warrants included in each unit resulting in debt discount.
In March 1998, the Company completed a private equity financing raising
gross proceeds of $3.65 million through the sale of 317,393 units, each unit
consisting of one share of the Company's common stock and one three-year
callable common stock purchase warrant. Each common stock purchase warrant
entitles the holder to purchase one share of the Company's common stock at a
price of $15.00 per share and is callable by the Company once the closing bid
price of the Company's common stock averages $20.00 or above for 20 consecutive
trading days on the Nasdaq National Market System.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments, which
consist only of normal recurring adjustments, necessary to present fairly the
consolidated financial position of the Company and its subsidiaries at March 31,
1998 and the consolidated results of operations and cash flows for the three
months ended March 31, 1998 and March 31, 1997. This interim financial
information and notes thereto should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. The Company's
consolidated results of operations and cash flows for interim periods are not
necessarily indicative of the results to be expected for any other interim
period or the full year.
STOCK-BASED COMPENSATION--Compensation cost of stock options issued to
employees is accounted for in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. Compensation cost
attributable to such options is recognized based on the difference, if any,
between the closing market price of the stock on the date of grant and the
exercise price of the option. Compensation cost of stock options and warrants
issued to non-employee service providers is accounted
7
<PAGE>
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for under the fair value method required be Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
RECLASSIFICATIONS--Certain reclassifications of prior year's amounts have
been made to conform to the 1998 presentation.
RESTATEMENT--As a result of the July 1, 1997 Soundview Shares acquisition
(see Note 1), the Company's consolidated operating results and cash flows for
the three months ended March 31, 1997 have been restated to account for the
Company's 16.4% ownership interest in Soundview Technologies on the equity
method. Previously, the Company accounted for its investment in Soundview
Technologies during this period on the cost method. The effect of this
restatement is to increase previously reported equity in losses of affiliates
for the three months ended March 31, 1997 by $27,441 and decrease net income by
a corresponding amount in the consolidated statement of operations.
3. NOTE RECEIVABLE SECURED BY COMMON STOCK
Note receivable secured by common stock of $95,300 at March 31, 1998 and
$196,800 at December 31, 1997, respectively, represents amounts loaned to a
stockholder secured by the Company's common stock. These amounts have been
classified as contra-equity because in the event the stockholder fails to remit
payment, the Company will receive shares of the Company's common stock.
Subsequent to March 31, 1998, and through May 8, 1998, payments of approximately
$92,500 were received.
4. COMMITMENTS AND CONTINGENCIES
On May 7, 1997, the Company entered into a Settlement Agreement terminating
a lawsuit brought by Ann P. Hodges, a former director of the Company, and her
husband Christopher D. Hodges. The suit alleged that the Company breached a
contract with Ann Hodges by improperly refusing to permit her to exercise an
option to purchase 100,000 shares of common stock of the Company, and sought
$950,000 in damages from the Company. Under terms of the Settlement Agreement,
the Hodges have received $25,000 in cash and options to purchase 120,600 shares
of the Company's common stock at an exercise price equal to $4.25 per share. The
underlying shares will vest over a period of 18 months, and remain exercisable
until the Hodges realize total profits of up to $475,000 (measured as the
aggregate difference between the market value of the shares on the date of
exercise and the exercise price). If, following the exercise or termination of
the option, the Hodges have not realized profits of $475,000, the Company would
be obligated to make a cash payment to the Hodges equal to the shortfall. The
estimated fair value of the options granted under this settlement is $435,000
plus the $25,000 cash paid and was charged to legal settlement expense in the
consolidated statements of operations in 1997. At May 8, 1998, the remaining
estimated liability was $10,000.
5. SUBSEQUENT EVENTS
On April 2, 1998, the Company acquired a 25% membership interest in a new
affiliate company, Internet Software LLC, at a purchase price of $2.5 million.
Internet Software LLC has developed proprietary software products for use on the
Internet. The first product, scheduled for release in July 1998, will be
targeted for broad-base usage by individuals and corporations. Internet Software
LLC has five patent applications pending as well as other intellectual property.
The founder of Internet Software LLC is an officer of Soundview Technologies and
a shareholder of the Company.
8
<PAGE>
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SUBSEQUENT EVENTS (CONTINUED)
In April 1998, the Company completed a private placement of 400,000 units,
each unit consisting of one share of common stock and one common stock purchase
warrant. Each common stock purchase warrant entitles the holder to purchase one
share of the Company's common stock at an exercise price of $18.50. This private
placement generated gross proceeds to the Company of $5.6 million, which will be
used for general corporate purposes.
In May 1998, the Company entered into a lease commitment for 5,449-sq. ft.
of new office space. This lease commitment provides for minimum rental payments
for 60 months, excluding renewal options. If consummated based on current cost
estimates, the monthly payments will approximate $11,987.80 over the lease term.
This new office space will replace the Company's existing office space.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Reference is made in particular to the description of the Company's plans
and objectives for future operations, assumptions underlying such plans and
objectives, and other forward-looking statements included in this report. Such
statements may be identified by the use of forward-looking terminology such as
"may," "will," "expect," "believe," "estimate," "anticipate," "intend,"
"continue," or similar terms, variations of such terms or the negative of such
terms. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties, which could cause actual
results to differ materially from those described in the forward-looking
statements. Such statements address future events and conditions concerning
capital expenditures, earnings, litigation, regulatory matters, markets for
products and services, liquidity and capital resources, and accounting matters.
Actual results in each case could differ materially from those anticipated in
such statements by reason of factors such as future economic conditions, changes
in consumer demand, legislative, regulatory and competitive developments in
markets in which the Company and its affiliates operate, and other circumstances
affecting anticipated revenues and costs. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based. Additional factors that
could cause such results to differ materially from those described in the
forward-looking statements are set forth in connection with the forward-looking
statement.
GENERAL
The following discussion is based primarily on the consolidated balance
sheets of the Company as of March 31, 1998, and on the operations of the Company
for the period from January 1, 1998 to March 31, 1998. The discussion compares
the activities for the three months ended March 31, 1998 to the activities for
the three months ended March 31, 1997.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. As a result of the
Company's increased ownership position in Soundview Technologies, the Company
has restated its operating results for the three months ended March 31, 1997 to
report the Company's then 16.4% ownership interest in Soundview Technologies
during that period on the equity method. Subsequent to the Company attaining a
majority position in July 1997, the Company's financial statements include the
accounts of Soundview Technologies on a consolidated basis.
RESULTS OF OPERATIONS
REVENUES
The Company reported revenues of $62,766 in the three months ended March 31,
1998 compared to losses of $47,581 for the three months ended March 31, 1997.
GAINS ON SALES OF INVESTMENTS. Gains on sales of investments were
$50,000 for the three months ended March 31, 1997 as compared to no gain for
the three months ended March 31, 1998. The gains for the three months ended
March 31, 1997 is comprised of gains on sales of interests in CombiMatrix.
The Company is presently focusing on the development of its various business
interests. In earlier periods, the Company sold portions of its holdings
primarily to raise the capital necessary to acquire interests in new
companies as well as provide working capital for ongoing operations. Until
the Company generates sufficient revenue from operations of its various
business concerns, the Company, from time to time, may sell a portion of its
equity interests when that interest has appreciated to a
10
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
value that management believes is prudent and market conditions are
favorable. However, the Company intends to retain significant interests in
its current and future holdings.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES. The Company reported equity
in earnings of affiliates of $15,800 for the three months ended March 31,
1998, compared to equity in losses of affiliates of $144,698 for the
year-earlier period. Such gains for the period ended March 31, 1998 are
comprised of a gain of $54,188 on the Company's capital investments as a
general partner in two private investment partnerships offset by a loss of
$4,255 for the Company's investment in Whitewing Labs, and a loss of $34,133
for the Company's investment in Greenwich Information Technologies, as
determined by the equity method of accounting. Losses for 1997 are primarily
comprised of a gain of $38,095 on the Company's capital investments as a
general partner in two private investment partnerships offset by a loss of
$118,180 for the Company's investment in Whitewing Labs, a loss of $27,441
for the Company's investment in Soundview Technologies, and a loss of
$34,602 for the Company's investment in Greenwich Information Technologies,
as determined by the equity method of accounting.
MANAGEMENT FEES. For the three months ended March 31, 1998, management
fee income, which does not include any performance fee income, was $30,777
as compared to management fee income during the three months ended March 31,
1997, which includes a modest amount of performance fee income, of $32,202.
The Company derived management fees from four private investment funds
managed by the Company. Performance fees for the four private investment
funds are generally paid to the Company at the end of the Company's (and the
four funds') fiscal year. However, in regard to the Company's two domestic
private investment funds, performance fees may not be paid until a partner
has been invested in one of these funds for a period of twelve months.
Therefore, a performance fee may be paid to the Company on the twelve-month
anniversary of a partner's investment in a domestic private investment fund
and thereafter at the end of the fiscal year.
Management fee revenue for the Company's investment advisory services is
derived from quarterly management fees that are based on a percentage of the
amount of money invested in the funds under management and annual
performance fees that are based on a percentage of any profits that may be
realized by the funds' investment activities. The Company may share
management fees or direct a certain amount of brokerage to a broker in
return for the broker's referral of prospective clients to its investment
advisory business. The Company may also employ consultants to whom it will
pay cash or a portion of the advisory fees paid by clients referred to the
Company by such consultant.
EXPENSES
Total expenses increased from $1,172,522 for the three months ended March
31, 1997 to $1,236,247 for the three months ended March 31, 1998 primarily due
to the amortization of patents and goodwill arising from the purchase of a
majority ownership interest in Soundview Technologies, expenses relating to the
expansion of CombiMatrix's and MerkWerks' research and development efforts, and
the inclusion of expenses incurred by Soundview Technologies on a consolidated
basis.
MARKETING, GENERAL AND ADMINISTRATIVE. For the three months ended March
31, 1998, marketing, general and administrative expenses decreased to
$484,816 as compared to $547,136 for the three months ended March 31, 1997.
During the period ended in 1997, expenses include legal fees associated with
the settlement of a lawsuit while there was no such expense in the
comparable period in 1998. Expenses during the 1998 period include
consolidation with Soundview Technologies. Soundview Technologies'
marketing, general and administrative expenses were $61,222.
RESEARCH AND DEVELOPMENT EXPENSE. The Company incurred research and
development expenses of $367,543 during the three months ended March 31,
1998, compared to expenses of $165,386 during the three months ended March
31, 1997. Such expenses for 1998 period are comprised of expenses
11
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
incurred by CombiMatrix of $295,653, expenses incurred by MerkWerks of
$42,086, and expenses incurred by Soundview Technologies of $29,804.
Research and development expense for the 1997 period are comprised of
expenses incurred by CombiMatrix of $141,138 and expenses incurred by
MerkWerks of $24,248. No expenses are attributable to Soundview Technologies
during the 1997 period as the Company reported its investment on the equity
method of accounting.
AMORTIZATION OF PATENTS AND GOODWILL. The Company reported amortization
expenses relating to patents and goodwill of $383,284 for the three months
ended March 31, 1998 as compared to no such expense during the three month
period ended March 31, 1997. This relates to the Company's purchase of a
majority interest in Soundview Technologies as well the purchase of
additional equity interests in MerkWerks, CombiMatrix, and Greenwich
Information Technologies whereby the Company is incurring amortization
expenses each quarter for periods ranging from three to five years relating
to the intangible assets acquired.
LEGAL SETTLEMENT EXPENSE. The Company incurred a one-time charge of
$460,000 relating to a legal settlement during the three months ended March
31, 1997. Management of the Company believes that settling this litigation
on the agreed upon terms prevented unnecessary litigation costs as well as
the unnecessary diversion of Company resources and was in the best interests
of the Company.
PROVISION FOR INCOME TAXES
For the three month period ended March 31, 1997, the Company recorded a
benefit of $40,107 while no tax benefit or expense was recorded for the three
month period ended March 31, 1998. Management believes sufficient uncertainty
exists regarding the use of the Company's net loss carryforwards, therefore a
100% valuation allowance has been established for losses for the three months
ended March 31, 1998.
MINORITY INTERESTS
Minority interests in losses of consolidated subsidiaries increased to
$176,765 for the three months ended March 31, 1998, compared to $69,784 for the
three months ended March 31, 1997. The increase is primarily attributable to
increased losses generated by the consolidated subsidiaries during the three
months ended March 31, 1998 and the consolidation of Soundview Technologies. The
Company's investment in Soundview Technologies for the three months ended March
31, 1997 was accounted for under the equity method.
INFLATION
Inflation has not had a significant impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had cash and cash equivalents of
$6,106,042, working capital of $6,085,894, and a ratio of current assets to
current liabilities of 20.7:1 on a consolidated basis. The increase in cash and
cash equivalents (which also affected the levels of working capital and the
quick ratio) was due primarily to the financing activities undertaken by the
Company or its subsidiaries during the three months ended March 31, 1998.
On March 19, 1998, CombiMatrix (which is consolidated with the Company)
completed a private placement of units, each consisting of a 6% unsecured
subordinated promissory note and 500 warrants to purchase 500 shares of the
common stock of CombiMatrix, which raised gross proceeds of approximately $1.45
million. The net proceeds are to be used by CombiMatrix as working capital for
general corporate purposes and research and development of its technologies.
12
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
On March 29, 1998, the Company raised net proceeds of approximately $3.5
million in a private placement of 317,393 units, each unit consisting of one
share of the Company's common stock and a warrant to purchase one share of the
Company's common stock. Of the net proceeds, $2.5 million were used to acquire a
25% membership interest in Internet Software LLC on April 2, 1998 and the
remaining amount is to be used by the Company as working capital for general
corporate purposes.
The Company anticipates continuing to increase its liquidity and capital
resources during the second quarter. In April 1998, the Company raised net
proceeds of approximately $5.4 million in a private placement of 400,000 units,
each unit consisting of one share of the Company's common stock and a warrant to
purchase one share of the Company's common stock. The net proceeds are to be
used by the Company as working capital for general corporate purposes.
The Company expects to receive additional funds as the result of persons
exercising their rights to exercise certain warrants to purchase shares of the
Company's common stock. As part of a private placement completed by the Company
in June 1997, investors received 290,200 warrants to purchase one share of the
Company's common stock at an exercise price of $7.50 per share. The warrants
were callable upon 30 days notice if the closing bid price of the Company's
common stock exceeded $10.00 for twenty or more consecutive trading days. If the
warrants are called, holders must either exercise such warrants prior to the
expiration of such 30-day period or the warrants will be redeemed for $0.01 per
warrant. On April 7, 1998, the Company issued notice to the holders of the
warrants issued in June 1997 calling such warrants. All holders have exercised
such warrants.
Warrants issued by the Company in private placements completed in November
1997, March 1998, and April 1998 each contain similar call and redemption
provisions for closing bid prices of $15.00, $20.00, and $25.00 per share,
respectively. The exercise price for the warrants are $11.50, $15.00, and $18.50
per share, respectively. In the event the requirements to call the warrants are
satisfied, the Company may call such warrants and the Company expects that most,
if not all, holders to exercise such warrants in response. There can be no
assurance that the closing bid price of the Company's common stock will exceed
such thresholds or that, if so, the Company will decide to call the warrants.
The Company anticipates that revenues from operations, working capital
reserves, and the proceeds of the previously described financing transaction
will provide sufficient funds for its operating expenses in the next twelve
months. The Company intends to seek additional financing to take advantage of
business opportunities as well as for general working capital. There can be no
assurance that the Company will not encounter unforeseen difficulties that may
deplete its capital resources more rapidly than anticipated. Any efforts to seek
additional funds could be made through equity, debt, or other external financing
and there can be no assurance that additional funding will be available on
favorable terms, if at all. Such financing transactions may be dilutive to
existing investors.
YEAR 2000 ISSUES
The Company has assessed its internal computer systems and believes these
systems are or will easily become Year 2000 compliant. However, the Company's
investment advisory services rely to some extent on brokers and other service
providers and, although the Company believes they have or are taking steps to
become Year 2000 compliant, the Company can provide no assurance that their
systems will be compliant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
13
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
SALES OF UNREGISTERED SECURITIES
In January 1998, the Company completed a series of independent, but related
transactions, which resulted in the acquisition by the Company of additional
equity ownership in four of the Company's affiliates in exchange for issuances
of shares of the Company's common stock. A total of 44 transactions were
completed. The Company's sales of these shares of its common stock were exempt
from registration, as private placements, under Section 4(2) of the Securities
Act of 1933, as amended, and Regulation D promulgated thereunder. The aggregate
number of shares (or percentage membership interests in the case of Greenwich
Information Technologies) acquired and the number of shares of the Company's
common stock issued are set forth below:
<TABLE>
<CAPTION>
NO. OF AFFILIATE
SHARES OF NO. OF COMPANY
ACQUIRED SHARES ISSUED
----------------- ---------------
<S> <C> <C>
CombiMatrix............................................... 100,000 22,085
Greenwich Information Technologies........................ 3.31% 51,017
MerkWerks................................................. 401,359 85,975
Soundview Technologies.................................... 1,144,000 244,336
-------
Total................................................. 403,413
-------
-------
</TABLE>
On March 29, 1998, the Company sold 317,393 units at a purchase price of
$11.50 per unit, each unit representing one common stock purchase warrant and
one share of the Company's common stock, to 6 accredited investors. Each common
stock purchase warrant entitles its holder to purchase one share of the
Company's common stock (subject to adjustment) at an exercise price of $15.00
per share, subject to adjustment, and expires on March 29, 2001. Finders
involved in this transaction received finders fees for 100,000 Units at a rate
of $1.15 per unit placed for an aggregate total of $115,000. The Company's sale
of these units was exempt from registration, as a private placement, under
Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4.1 Form of Common Stock Warrant Agreement
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Current report filed February 11, 1998 (event date January 27, 1998)
(Item 2 and Item 7)
14
<PAGE>
SIGNATURE
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.
<TABLE>
<S> <C> <C>
ACACIA RESEARCH CORPORATION
By: /s/ R. BRUCE STEWART
-----------------------------------------
R. Bruce Stewart
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
Date: May 12, 1998
15
<PAGE>
No.
------------
FORM OF COMMON STOCK PURCHASE WARRANT
THIS SECURITY AND ANY SHARES ISSUED UPON EXERCISE OF THIS SECURITY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THE APPLICABLE SECURITY HAS BEEN REGISTERED UNDER THE ACT
AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED AND (2) AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO
THE EFFECT THAT REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
ACACIA RESEARCH CORPORATION
WARRANT TO PURCHASE COMMON STOCK
This certifies that, for value received, ___________________ ("the
Holder") is entitled to subscribe for and purchase up to _________ shares
(subject to adjustment from time to time pursuant to the provisions of
Section 5 hereof) of fully paid and nonassessable Common Stock of Acacia
Research Corporation, a California corporation (the "Company"), at the price
specified in Section 2 hereof, as such price may be adjusted from time to
time pursuant to Section 5 hereof (the "Warrant Price"), subject to the
provisions and upon the terms and conditions hereinafter set forth and
callable by the Company upon the terms and conditions set forth in Section 1
hereof.
As used herein, the term "Common Stock" shall mean the Company's
presently authorized Common Stock, no par value, and any stock into or for
which such Common Stock may hereafter be converted or exchanged.
This Warrant is issued pursuant to that certain Subscription Agreement
between the Holder and the Company dated _____________.
l. TERM OF WARRANT; CALLABILITY BY COMPANY.
The purchase right represented by this Warrant is exercisable, in whole
or in part, at any time during a period beginning on the date hereof and
ending March 29, 2001. However, during the three-year period, the Company
will have the right to redeem all of the Warrants on 30 days prior written
notice at a redemption price of $0.01 per Warrant if (a) the closing bid
price of the Company's Common Stock averages $20.00 or above for 20
consecutive trading days after the Common Stock reaches a closing bid price
of at least $20.00 on the Nasdaq National Market System and (b) the
registration statement covering the resale of the shares of the Company's
Common Stock underlying this Warrant has been declared effective by the
Securities and Exchange Commission. If the Company elects to exercise its
redemption right, the Holder of this Warrant may either exercise the Warrant,
in whole or in part, or tender the Warrant to the Company for redemption, in
whole or in part. Within five business days after the end of the 30-day
period, the Company will mail a check for the redemption price to the Holder
of this Warrant
1
<PAGE>
should this Warrant remain outstanding in whole or in part as of the end of
the 30-day period, whether or not the Holder has surrendered this Warrant for
redemption. This Warrant may not be exercised after the end of such 30-day
period.
2. WARRANT PRICE
The Warrant Price is $15.00 per share, subject to adjustment from time
to time pursuant to the provisions of Section 5 hereof.
3. METHOD OF EXERCISE: PAYMENT; ISSUANCE OF NEW WARRANT.
Subject to Section 1 hereof, the purchase right represented by this
Warrant may be exercised by the Holder, in whole or in part, by the surrender
of this Warrant (with the notice of exercise form attached hereto as Exhibit
1 duly executed) at the principal office of the Company and by the payment to
the Company, by cashier's check or wire transfer, of an amount equal to the
then applicable Warrant Price per share multiplied by the number of shares
then being purchased. The Company agrees that the shares so purchased shall
be deemed to be issued to the Holder as the record owner of such shares as of
the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. In the event of
any exercise of the rights represented by this Warrant, certificates for the
shares of stock so purchased shall be delivered to the Holder within 15 days
thereafter and, unless this Warrant has been fully exercised or expired, a
new Warrant representing the portion of the shares, if any, with respect to
which this Warrant shall not then have been exercised, shall also be issued
to the Holder within such 15 day period.
4. STOCK FULLY PAID; RESERVATION OF SHARES.
All Common Stock 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
issue thereof. 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 the issuance upon exercise of the purchase 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.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
The kind of securities purchasable upon the exercise of this Warrant,
the Warrant Price and the number of shares purchasable upon exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence
of the following events:
(a) RECLASSIFICATION, CONSOLIDATION, OR MERGER. In case of any
reclassification or change of outstanding securities of the class
issuable upon exercise of this Warrant (other than a change in par
value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or in case of
any consolidation or merger of the Company with or into another
corporation, other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in
2
<PAGE>
any reclassification or change of outstanding securities issuable upon
exercise of this Warrant, the Company, or such successor, as the case
may be, shall execute a new Warrant, providing that the Holder of this
Warrant shall have the right to exercise such new Warrant and procure
upon such exercise, in lieu of each share of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of
stock, other securities, money and property receivable upon such
reclassification, change, consolidation, or merger by a Holder of one
share of Common Stock. Such new Warrant shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5. The provisions of this
subparagraph (a) shall similarly apply to successive reclassification,
changes, consolidations, and mergers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant remains outstanding and unexpired shall
subdivide or combine its common stock, or distribute dividends on its
common stock payable in Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in
the case of a combination or dividend.
(c) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Warrant Price pursuant to any of subparagraphs (a) through (c) of this
Section 5, the number of shares of Common Stock purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained
by multiplying the number of shares purchasable immediately prior to
such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment
and the denominator of which shall be the Warrant Price immediately
thereafter.
6. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to Section 5
hereof, the Company shall prepare a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, the Warrant Price after giving effect to such adjustment and
the number of shares then purchasable upon exercise of this Warrant, and
shall cause copies of such certificate to be mailed (by first class mail,
postage prepaid) to the Holder of this Warrant at the address specified in
Section 10(c) hereof, or at such other address as may be provided to the
Company in writing by the Holder of this Warrant.
7. FRACTIONAL SHARES.
No fractional shares of Common Stock will be issued in conjunction with
any exercise hereunder, but in lieu of such fractional shares the Company
shall make a cash payment therefore on the basis of the Warrant Price then in
effect.
8. COMPLIANCE WITH SECURITIES ACT.
The Holder of this Warrant, by acceptance hereof, agrees that this
Warrant and the shares of Common Stock to be issued on exercise hereof are
being acquired for investment and that it will not offer, sell or otherwise
dispose of this Warrant or any shares of Common Stock to be issued
3
<PAGE>
upon exercise hereof except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Act"). This
Warrant and all shares of Common Stock issued upon exercise of this Warrant
(unless registered under the Act) shall be stamped and imprinted with a
legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE ACT"), OR APPLICABLE STATE SECURITIES LAWS AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH
LAWS IS NOT REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION
UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED."
9. TRANSFER AND EXCHANGE OF WARRANT.
This Warrant is not transferrable or exchangeable without the
consent of the Company.
10. MISCELLANEOUS.
(a) NO RIGHTS AS SHAREHOLDER. The Holder of this Warrant shall
not be entitled to vote or receive dividends or be deemed the Holder of
Common Stock or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the Holder of this Warrant, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issuance of stock, reclassification of
stock, change of par value or change of stock to no par value, consolidation,
merger, conveyance or otherwise) or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until the Warrant shall
have been exercised and the shares purchasable upon the exercise hereof shall
have become deliverable, as provided herein.
(b) REPLACEMENT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction, or mutilation of this Warrant
and, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company, at its expense, will execute and deliver, in lieu of
this Warrant, a new Warrant of like tenor.
(c) NOTICE. Any notice given to either party under this Warrant
shall be in writing, and any notice hereunder shall be deemed to have been
given upon the earlier of delivery thereof by hand delivery, by courier, or
by standard form of telecommunication or three (3) business days after the
mailing thereof in the U.S. mail if sent registered mail with postage
prepaid, addressed to the Company at its principal executive offices and to
the Holder at its address set forth in the Company's books and records or at
such other address as the Holder may have provided to the Company in writing.
4
<PAGE>
(d) GOVERNING LAW. This Warrant shall be governed and construed
under the laws of the State of California.
This Warrant is executed as of this ____________________.
ACACIA RESEARCH CORPORATION
By:
---------------------------------
Name:
------------------------------
Title:
-----------------------------
5
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: ACACIA RESEARCH CORPORATION
1. The undersigned hereby elects to purchase ______________________
shares of Common Stock of Acacia Research Corporation pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price
of such shares in full.
2. Please issue a certificate or certificates representing said shares
of Common Stock in the name of the Holder at the address specified below:
------------------------------------
(Name)
------------------------------------
(Address)
------------------------------------
(Address)
3. The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment
and not with a view to, or for resale in connection with, the distribution
thereof and that the undersigned has no present intention of distributing or
reselling such shares.
------------------------------------
(Name of Holder)
------------------------------------
(Signature of Holder)
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,106,042
<SECURITIES> 0
<RECEIVABLES> 189,940
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,394,975
<PP&E> 358,122
<DEPRECIATION> 122,179
<TOTAL-ASSETS> 16,105,346
<CURRENT-LIABILITIES> 309,081
<BONDS> 0
0
0
<COMMON> 17,957,774
<OTHER-SE> 289,439
<TOTAL-LIABILITY-AND-EQUITY> 16,105,346
<SALES> 0
<TOTAL-REVENUES> 62,766
<CGS> 0
<TOTAL-COSTS> 1,235,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 604
<INCOME-PRETAX> (1,173,481)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,173,481)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (996,716)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1995 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1995 SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 788,611 1,306,959 1,808,614 512,775
<SECURITIES> 0 0 0 0
<RECEIVABLES> 74,994 212,599 192,277 213,827
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 2,915,258 2,345,516 2,955,655 1,806,335
<PP&E> 79,990 313,320 291,125 277,068
<DEPRECIATION> 16,421 90,040 84,286 57,505
<TOTAL-ASSETS> 3,843,954 8,720,342 6,269,702 5,255,100
<CURRENT-LIABILITIES> 353,784 1,457,260 923,708 1,170,161
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 3,547,680 8,758,337 5,496,595 4,255,743
<OTHER-SE> (208,252) 83,732 (31,492) (45,892)
<TOTAL-LIABILITY-AND-EQUITY> 3,843,954 8,720,342 6,269,702 5,255,100
<SALES> 0 0 0 0
<TOTAL-REVENUES> 3,517,711 316,919 267,567 (47,581)
<CGS> 0 0 0 0
<TOTAL-COSTS> 1,399,042 2,700,134 1,689,678 1,172,522
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> 2,118,669 (2,383,215) (1,422,411) (1,220,103)
<INCOME-TAX> 287,817 (166,796) (167,767) (40,107)
<INCOME-CONTINUING> 1,830,852 (2,316,419) (1,254,644) (1,179,996)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,831,311 (2,050,533) (1,140,718) (1,110,212)
<EPS-PRIMARY> 1.08 (0.89) (0.55) (0.54)
<EPS-DILUTED> 0.77 (0.89) (0.55) (0.54)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 292,701 1,088,346 1,412,735 740,984
<SECURITIES> 0 0 0 0
<RECEIVABLES> 298,038 128,938 252,160 229,483
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 1,206,501 2,961,535 3,184,078 2,898,612
<PP&E> 247,485 101,149 177,891 215,811
<DEPRECIATION> 45,436 20,704 29,429 37,248
<TOTAL-ASSETS> 5,175,445 5,094,038 6,304,057 6,687,684
<CURRENT-LIABILITIES> 643,099 154,459 526,093 1,086,589
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 4,071,993 3,572,966 3,827,465 3,895,287
<OTHER-SE> (226,252) (203,002) (144,002) (141,002)
<TOTAL-LIABILITY-AND-EQUITY> 5,175,445 4,385,505 6,304,057 6,687,684
<SALES> 0 0 0 0
<TOTAL-REVENUES> 3,062,358 1,827,681 3,016,426 3,143,212
<CGS> 0 0 0 0
<TOTAL-COSTS> 2,640,504 427,285 993,251 1,383,019
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> 421,854 1,400,396 2,023,175 1,760,193
<INCOME-TAX> 606,141 (6,625) 893,245 831,950
<INCOME-CONTINUING> (184,287) 1,407,021 1,129,930 928,443
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 17,022 879,790 1,180,932 1,012,349
<EPS-PRIMARY> 0.01 0.47 0.63 0.53
<EPS-DILUTED> 0.01 0.35 0.46 0.38
</TABLE>
