<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the Quarterly Period Ended September 30, 1998 Commission File No. 0-26068
ACACIA RESEARCH CORPORATION
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(Exact name of registrant as specified in its charter)
California 95-4405754
- ---------------------------------------- --------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation organization)
12 South Raymond Avenue, Pasadena CA 91105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 449-6431
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 November 11, 1998, 10,182,815 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>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
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 . . . . . . . . . . . . . . . . . . . . .10
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . .19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .19
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . .19
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . .20
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . .20
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . .20
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . .20
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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ACACIA RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1998 December 31, 1997
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 8,536,000 $ 1,367,000
Management fees and other receivables 50,000 235,000
Receivables from affiliates 17,000 0
Prepaid expenses 118,000 84,000
Income tax receivable 110,000 110,000
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Total current assets 8,831,000 1,796,000
Equipment, furniture, and fixtures, net 411,000 242,000
Notes receivable, net 139,000 376,000
Investment in affiliates, at equity 3,913,000 1,205,000
Partnership interests, at equity 1,632,000 586,000
Patents, net of accumulated amortization 5,021,000 3,877,000
Goodwill, net of accumulated amortization 1,125,000 758,000
Organization costs, net of accumulated
amortization 17,000 14,000
Other assets, net of accumulated amortization 149,000 0
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$ 21,238,000 $ 8,854,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 176,000 $ 170,000
Accrued compensation 0 51,000
Legal settlement payable 0 226,000
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Total current liabilities 176,000 447,000
Notes payable, net of discount 1,202,000 0
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Total liabilities 1,378,000 447,000
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Minority interests 0 227,000
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Stockholders' equity
Common stock, no par value; 30,000,000
shares authorized; 10,166,815 shares in
1998 and 6,286,148 shares in 1997
issued and outstanding 26,807,000 10,713,000
Warrants to purchase common stock 100,000 371,000
Accumulated deficit (7,047,000) (2,707,000)
Note receivable secured by common stock 0 (197,000)
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Total stockholders' equity 19,860,000 8,180,000
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$ 21,238,000 $ 8,854,000
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</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
For the Three and Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Gain on sale of investments $ 0 $ 50,000 $ 0 $ 0
Equity in losses
of affiliates (447,000) (160,000) (326,000) (17,000)
Management fees 118,000 389,000 44,000 49,000
Interest income 196,000 38,000 115,000 17,000
------------ ------------ ------------ -----------
Total revenues (133,000) 317,000 (167,000) 49,000
------------ ------------ ------------ -----------
Expenses
Marketing, general, and
administrative expenses 1,990,000 1,458,000 726,000 546,000
Research and development
expenses 1,288,000 553,000 514,000 243,000
Amortization of patents and
goodwill 1,156,000 199,000 398,000 195,000
Interest expense 88,000 30,000 42,000 26,000
Legal settlement expense 0 460,000 0 0
------------ ------------ ------------ -----------
Total expenses 4,522,000 2,700,000 1,680,000 1,010,000
------------ ------------ ------------ -----------
Loss before income taxes and
minority interests (4,655,000) (2,383,000) (1,847,000) (961,000)
Provision (benefit) For Income Taxes 0 (167,000) 0 1,000
------------ ------------ ------------ -----------
Loss before minority interests (4,655,000) (2,216,000) (1,847,000) (962,000)
Minority interests (315,000) (166,000) (68,000) (52,000)
------------ ------------ ------------ -----------
Net loss $ (4,340,000) $ (2,050,000) (1,779,000) $ (910,000)
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Loss per common share
Basic ($0.50) ($0.37) ($0.18) ($0.20)
Diluted ($0.50) ($0.37) ($0.18) ($0.20)
Weighted average number of common
and potential common shares
outstanding used in computation
of loss per share
Basic 8,727,572 5,611,461 10,004,549 4,632,071
Diluted 8,727,572 5,611,461 10,004,549 4,632,071
</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
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,340,000) $ (2,050,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Legal settlement expense 0 435,000
Depreciation and amortization 1,275,000 252,000
Deferred income tax benefit 0 (170,000)
Equity in losses of affiliates 447,000 160,000
Minority interest in net loss (315,000) (166,000)
Compensation expense relating to stock options 212,000 83,000
Changes in assets and liabilities, net of effects of
acquisitions:
Management fees and other receivables, prepaid
expenses, patents and other assets 74,000 179,000
Accounts payable, accrued expenses, accrued
compensation, and other liabilities (45,000) 20,000
------------ ------------
Net cash used in operating activities (2,692,000) (1,257,000)
------------ ------------
Cash flows from investing activities:
Payment received on advances to affiliate 0 53,000
Advances to affiliates (17,000) 0
Withdrawals from partnerships 0 400,000
Purchase of equity investment (2,552,000) 0
Capitalized expenditures (227,000) (59,000)
Purchase of partnership interest (1,023,000) 0
Payment for purchase of Soundview Technologies, net
of cash acquired 0 (132,000)
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Net cash (used in) provided by investing activities (3,819,000) 262,000
------------ ------------
Cash flows from financing activities:
Payments on notes payable 0 (541,000)
Proceeds from notes payable 1,400,000 0
Payments of debt issuance costs (144,000) 0
Proceeds from note receivable secured by common stock 194,000 44,000
Proceeds from exercise of stock options and
warrants 3,676,000 430,000
Capital contributions from minority
shareholders of subsidiaries 161,000 535,000
Collection of subscription receivable 0 89,000
Proceeds from sale of common stock, net of
issuance costs 8,393,000 1,451,000
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Net cash provided by financing activities 13,680,000 2,008,000
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Increase in cash and cash equivalents 7,169,000 1,013,000
Cash and cash equivalents, beginning 1,367,000 293,000
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Cash and cash equivalents, ending $ 8,536,000 $ 1,306,000
------------ ------------
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Supplemental schedule of non-cash investing and
financing activities:
Issuance of common stock for additional equity in
consolidated subsidiaries and affiliates $ 3,035,000 $ 0
Increase in equity investment due to receipt of
affiliate stock as payment on note receivable $ 240,000 $ 0
Increase in stockholders' equity as a result of
legal settlement payable fulfillment $ 226,000 $ 0
Discount on notes payable due to warrant issuance $ 238,000 $ 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 September 30, 1998, the Company had significant economic interests in
six companies 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"), Greenwich Information Technologies LLC ("Greenwich
Information Technologies"), and Internet Software LLC ("Internet
Software"). 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 800,000
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 book 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 $646,000 consisting of
171,950 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 fair value of the net assets
acquired was assigned to goodwill of approximately $646,000, 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
44,170 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 book value of the net
assets acquired was assigned to patents of approximately $157,000, which
will be amortized over the life of the patent upon issuance.
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
$1,842,000 consisting of 488,672 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
book value of the net assets acquired was assigned to patents of
approximately $1,816,000, which is being amortized over its estimated
remaining useful life of approximately 5 years.
6
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ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $386,000
consisting of 102,034 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%.
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 common stock purchase warrants to purchase 500 shares of common
stock. Each Subordinated Note will bear 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," $850 of each unit issued has been attributed to the warrants
included in each unit resulting in debt discount. The Company invested
$50,000 in this private placement. If, prior to the maturity date of the
subordinated notes, CombimatriMatrix has an offering of its common stock or
senior securities convertible into its common stock that has gross proceeds
exceeding $500,000 that does not involve certain exempt transactions, the
holders of the subordinated notes shall be offered the opportunity to
acquire shares of CombiMatrix common stock in exchange for the then
outstanding principal amount of the subordinated notes. Holders will be
entitled to only one opportunity to exchange Subordinated Notes into
CombiMatrix common stock.
In March 1998, the Company completed a private equity financing raising
gross proceeds of $3.65 million through the sale of 634,786 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 $7.50 per share and is callable by
the Company once the closing bid price of the Company's common stock
averages $10.00 or above for 20 consecutive trading days on the Nasdaq
National Market System.
On April 2, 1998 the Company acquired a 25% membership interest in a new
affiliate company, Internet Software. The purchase price for the 25%
interest in Internet Software consisted of $2.5 million in cash. The
Company accounts for its investment using the equity method. The excess of
the investment over the Company's share in the underlying net assets of
Internet Software is being amortized over a seven-year period.
In April 1998, the Company completed a private equity financing raising
gross proceeds of $5.6 million through the sale of 800,000 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 $9.25 per share and is callable by the Company once the closing
bid price of the Company's common stock averages $12.50 or above for 20
consecutive trading days on the Nasdaq National Market System.
On June 30, 1998 the Company increased its ownership in Whitewing from
18% to 23.5% as a result of accepting 159,750 shares of Whitewing stock
as payment on a note receivable with a carrying value of $240,000 (See
Note 6).
7
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ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
September 30, 1998 and the consolidated results of operations and cash
flows for the three and nine months ended September 30, 1998 and 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 for under the fair value method required by 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.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial
Accounting Standards Board Issued Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). The Company will adopt SFAS 131 in its 1998
year end reporting. The adoption of SFAS 131 deals only with disclosure
matters and is not expected to have a material effect on the Company's
Consolidated Financial Statements.
3. COMMON STOCK SPLIT
On March 17, 1998, the Company announced that its Board of Directors
declared a two-for-one split of the Company's common stock in the form of a
stock dividend of one share of common stock for each share outstanding.
The Company distributed the stock dividend on June 12, 1998, for each share
held of record at the close of business on May 29, 1998. All references to
number of common shares and per share information in the consolidated
financial statements and related footnotes have been adjusted as
appropriate to reflect the stock split for all periods presented.
4. NOTE RECEIVABLE SECURED BY COMMON STOCK
Note receivable secured by common stock of $197,000 at December 31, 1997
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. As of September 30, 1998, all
amounts secured by shares of the Company's common stock have been paid.
5. COMMITMENTS AND CONTINGENCIES
In May 1998, the Company entered into a lease commitment for 5,449
square-feet of new office space. This lease commitment provides for
minimum rental payments for 60 months, excluding renewal options. The
monthly payments will approximate $12,000 over the lease term. This
office space will replace the Company's existing principal executive
offices.
8
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ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. NOTES RECEIVABLE
On June 30, 1998, the Company entered into a settlement agreement
pertaining to a promissory note with a carrying value of $240,000 secured
by the common stock of Whitewing held by the Company. Per the settlement
agreement, the Company accepted as payment the Whitewing stock being held
as collateral. As of December 31, 1997 the note was written down to the
collateral value.
7. LITIGATION
In July 1998 PG Distribution, Inc. of Omaha, Nebraska filed a complaint
in the United States District Court, District of Delaware, against
Soundview Technologies Incorporated, seeking a declaratory judgement that
United States Patent No. 4,554,584 (relating to a video and audio blanking
system) is invalid. In October 1998, PG Distribution Inc. and Parental
Guide Company, LLC filed a notice of dismissal of the litigation against
Soundview Technologies and agreed to pay royalties to Soundview
Technologies under a non-exclusive, non-transferable license to make, use
and sell, or lease products under the claims of Soundview Technologies'
patent.
9
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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 Year 2000 readiness, 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 September 30, 1998, and on the operations of the Company
for the period from January 1, 1998 to September 30, 1998. The discussion
compares the activities for the nine and three months ended September 30, 1998
to the activities for the nine and three months ended September 30, 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
had restated its operating results for the six months ended June 30, 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. In April 1998, the
Company acquired a 25% interest in a new affiliate company, Internet Software
LLC. The Company accounts for this investment using the equity method.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
REVENUES
The Company reported a loss in net revenues of $133,000 in the nine months ended
September 30, 1998 compared to net revenues of $317,000 for the nine months
ended September 30, 1997.
10
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RESULTS OF OPERATIONS (continued)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (continued)
REVENUES (continued)
GAINS ON SALES OF INVESTMENTS. Gains on sales of investments were
$50,000 for the nine months ended September 30, 1997 as compared to no
such gain for the nine months ended September 30, 1998. Such gain for
the nine months ended September 30, 1997 is comprised of gains on sales
of interests in CombiMatrix. The Company is 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 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 LOSSES OF AFFILIATES. The Company reported equity in losses
of affiliates of $447,000 for the nine months ended September 30, 1998,
compared to equity in losses of affiliates of $160,000 for the
year-earlier period. Losses for the period ended September 30, 1998
are comprised of a gain of $21,000 on the Company's capital investments
as a general partner in two private investment partnerships, offset by
a loss of $70,000 for the Company's investment in Whitewing Labs, a
loss of $114,000 for the Company's investment in Greenwich Information
Technologies, and a loss of $284,000 for the Company's investment in
Internet Software LLC, as determined by the equity method of
accounting. The loss attributable to Internet Software LLC includes an
amortization expense relating to the excess of the investment over the
Company's share in the underlying net assets of Internet Software LLC
of $138,000. Losses for 1997 are primarily comprised of a gain of
$120,000 on the Company's capital investments as a general partner in
two private investment partnerships offset by a loss of $168,000 for
the Company's investment in Whitewing Labs, a loss of $44,000 for the
Company's investment in Soundview Technologies, and a loss of $68,000
for the Company's investment in Greenwich Information Technologies, as
determined by the equity method of accounting. No earnings or losses
are attributable to Internet Software LLC during the 1997 period as the
Company made this acquisition in 1998.
MANAGEMENT FEES. The Company derived management fees from four private
investment funds managed by the Company. For the nine months ended
September 30, 1998, management fee income was $118,000 as compared to
management fee income during the nine months ended September 30, 1997,
of $389,000. A modest amount of performance fee income is included in
the nine months ended September 30, 1998, while a substantially larger
amount of performance fee income is included in the nine month period
ended September 30, 1997 due to the twelve-month anniversary of one of
the offshore investment funds managed by the Company occurring in May
1997. In regard to the two offshore private investment funds managed by
the Company, performance fees may not be paid until the fund's first
anniversary and thereafter on December 31 of each year. As both
offshore private investment funds have been in operation for over one
year, performance fees may only be paid at the end of the 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 initial investment in a domestic
private investment fund and thereafter at the end of the fiscal year.
11
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RESULTS OF OPERATIONS (continued)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (continued)
REVENUES (continued)
MANAGEMENT FEES (continued)
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 in relation 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.
INTEREST INCOME. For the nine months ended September 30, 1998, interest
income was $196,000 as compared to interest income during the nine
months ended September 30, 1997, of $38,000. The increase is due to the
Company having higher cash balances during the nine months ended
September 30, 1998 as compared to the same period in 1997.
EXPENSES
Total expenses increased from $2,700,000 for the nine months ended September
30, 1997 to $4,522,000 for the nine months ended September 30, 1998 primarily
due to the amortization of patents and goodwill arising from the purchase of
a majority ownership interest in Soundview Technologies and the acquisition
of additional equity interests in MerkWerks and Soundview Technologies as
well as to the inclusion of expenses incurred by Soundview Technologies on a
consolidated basis, expenses relating to an increase in the Company's
head count and higher wages, and expenses relating to the expansion of
CombiMatrix's and MerkWerks's research and development efforts.
MARKETING, GENERAL AND ADMINISTRATIVE. For the nine months ended
September 30, 1998, marketing, general and administrative expenses were
$1,990,000 as compared to $1,458,000 for the nine months ended September
30, 1997. During 1998, the Company's expenses increased due to general
expansion of the Company, including an increase in the number of personnel
as the Company added marketing and general office staff as well as higher
wages and payroll expenses. Marketing, general and administrative expense
during the 1998 period include consolidation with Soundview Technologies
for the full nine-month period, while expenses during the 1997 period
include only the three-month period ended September 30, 1997. Soundview
Technologies' marketing, general and administrative expenses were $167,000
for the 1998 period and $77,000 for the 1997 period. The Company expects
higher general and administrative expenses as it moves into new facilities.
RESEARCH AND DEVELOPMENT EXPENSE. The Company incurred research and
development expense of $1,288,000 during the nine months ended September
30, 1998, compared to $553,000 during the nine months ended September
30, 1997. Such expense for 1998 period are comprised of expenses
incurred by CombiMatrix of $993,000, expenses incurred by MerkWerks of
$173,000, and expenses incurred by Soundview Technologies of $122,000.
Research and development expense for the 1997 period is comprised of
expenses incurred by CombiMatrix of $435,000, expenses incurred by
MerkWerks of $75,000, and expenses incurred by Soundview Technologies of
$43,000. Research and development expense during the 1998 period
include consolidation with Soundview Technologies for the full nine-
month period, while expense during the 1997 period include only the
three-month period ended September 30, 1997.
12
<PAGE>
RESULTS OF OPERATIONS (continued)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (continued)
EXPENSES (continued)
AMORTIZATION OF PATENTS AND GOODWILL. The Company reported amortization
expenses relating to patents and goodwill of $1,156,000 for the nine
months ended September 30, 1998 as compared to $199,000 during the nine
month period ended September 30, 1997. This increase relates to the
Company's purchase of a majority interest in Soundview Technologies in
July 1997 as well the purchase of additional equity interests in
MerkWerks and Soundview Technologies in January 1998 whereby the
Company is incurring amortization expenses each quarter for periods
ranging from three to five years relating to the intangible assets
acquired. As a result, amortization expenses at or above the 1998
level is expected to continue for the foreseeable future.
INTEREST EXPENSE. Interest expense for the nine months ended September
30, 1998 was $88,000 as compared to $30,000 in the comparable period in
1997. The expense incurred for the nine months ended September 30, 1998
is primarily attributable to CombiMatrix and relates to three-year 6%
unsecured subordinated promissory notes issued by CombiMatrix in a
private offering completed in March 1998. Warrants to purchase
CombiMatrix common stock were also issued in this private placement.
For financial statement purposes, the proceeds from the private
placement were allocated between the warrants and the notes resulting in
a discount on the notes. Such discount is amortized over the terms of
the notes and treated as additional interest expense. As a result,
reported interest is higher than the cash amount of interest that will
actually be paid to the noteholders. Subject to certain terms and
conditions, these notes are due and payable in March 2001. Interest on
these notes is payable each year on January 15 during the term of each
note.
LEGAL SETTLEMENT EXPENSE. The Company incurred a one-time charge of
$460,000 relating to a legal settlement during the nine months ended
September 30, 1997. There was no comparable expense in 1998.
PROVISION FOR INCOME TAXES
For the nine month period ended September 30, 1997, the Company recorded a
benefit of $167,000 while no tax benefit or expense was recorded for the nine
month period ended September 30, 1998.
MINORITY INTERESTS
Minority interests in losses of consolidated subsidiaries increased to
$315,000 for the nine months ended September 30, 1998, compared to $166,000
for the nine months ended September 30, 1997. The increase is primarily
attributable to increased losses generated by the consolidated subsidiaries
during the nine months ended September 30, 1998 and the consolidation of
Soundview Technologies for the full nine month period. The Company's
investment in Soundview Technologies for the first six months of the nine
month period ended September 30, 1997 was accounted for under the equity
method.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
REVENUES
The Company reported a loss in net revenues of $167,000 in the three months
ended September 30, 1998 compared to net revenue of $49,000 for the three months
ended September 30, 1997.
GAINS ON SALES OF INVESTMENTS. No gains on sales of investments were
recorded for the three months ended September 30, 1998 and September 30,
1997.
13
<PAGE>
RESULTS OF OPERATIONS (continued)
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (continued)
REVENUES (continued)
EQUITY IN LOSSES OF AFFILIATES. The Company reported equity in losses
of affiliates of $326,000 for the three months ended September 30, 1998,
compared to equity in losses of affiliates of $17,000 for the
year-earlier period. Such losses for the period ended September 30,
1998 are comprised of a loss of $60,000 on the Company's capital
investments as a general partner in two private investment partnerships,
a loss of $43,000 for the Company's investment in Whitewing Labs, a loss
of $40,000 for the Company's investment in Greenwich Information
Technologies, and a loss of $183,000 for the Company's investment in
Internet Software LLC as determined by the equity method of accounting.
The loss attributable to Internet Software LLC includes an amortization
expense relating to the excess of the investment over the Company's
share in the underlying net assets of Internet Software LLC of $69,000.
Losses for 1997 are comprised of a gain of $23,000 on the Company's
capital investments as a general partner in two private investment
partnerships offset by a loss of $25,000 for the Company's investment in
Whitewing Labs, and a loss of $15,000 for the Company's investment in
Greenwich Information Technologies, as determined by the equity method
of accounting. No earnings or losses are attributable to Internet
Software LLC during the 1997 period as the Company made this acquisition
in 1998.
MANAGEMENT FEES. The Company derived management fees from four private
investment funds managed by the Company. For the three months ended
September 30, 1998, management fee income, which includes a modest
amount of performance fee income, was $44,000 as compared to management
fee income, which includes a modest amount of performance fee income,
during the three months ended September 30, 1997, of $49,000. In regard
to the two offshore private investment funds managed by the Company,
performance fees may not be paid until the fund's first anniversary and
thereafter on December 31 of each year. As both offshore private
investment funds have been in operation for over one year, performance
fees may only be paid at the end of the 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 initial 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 in relation 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.
INTEREST INCOME. For the three months ended September 30, 1998,
interest income was $115,000 as compared to interest income during the
three months ended September 30, 1997, of $17,000. The increase is due
to the Company having higher cash balances during the three months ended
September 30, 1998 as compared to the same period in 1997.
14
<PAGE>
RESULTS OF OPERATIONS (continued)
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (continued)
EXPENSES
Total expenses increased from $1,010,000 for the three months ended September
30, 1997 to $1,680,000 for the three months ended September 30, 1998 primarily
due to the amortization of patents and goodwill arising from the purchase of a
majority ownership interest in Soundview Technologies and the acquisition of
additional equity interests in MerkWerks and Soundview Technologies as well as
to the inclusion of expenses incurred by Soundview Technologies on a
consolidated basis, expenses relating to an increase in the Company's head count
and higher wages, and expenses relating to the expansion of CombiMatrix's and
MerkWerks's research and development efforts.
MARKETING, GENERAL AND ADMINISTRATIVE. For the three months ended
September 30, 1998, marketing, general and administrative expenses
increased to $726,000 as compared to $546,000 for the three months ended
September 30, 1997. Expenses include consolidation with Soundview
Technologies of $27,000 for the period ended September 30, 1998 and
$77,000 for the period ended September 30, 1997. During 1998, the
Company's expenses increased due to general expansion of the Company,
including an increase in the number of personnel as the Company added
general office staff as well as higher wages and payroll expenses. The
Company expects higher general and administrative expenses as it moves
into new facilities.
RESEARCH AND DEVELOPMENT EXPENSE. The Company incur research and
development expense of $514,000 during the three months ended September
30, 1998, compared to $243,000 during the three months ended September
30, 1997. Such expense for the 1998 period is comprised of expenses
incurred by CombiMatrix of $385,000, expenses incurred by MerkWerks of
$90,000, and expenses incurred by Soundview Technologies of $39,000.
Research and development expense for the 1997 period are comprised of
expenses incurred by CombiMatrix of $178,000, expenses incurred by
MerkWerks of $22,000, and expenses incurred by Soundview Technologies of
$43,000.
AMORTIZATION OF PATENTS AND GOODWILL. The Company reported amortization
expenses relating to patents and goodwill of $398,000 for the three
months ended September 30, 1998 as compared to $195,000 during the three
month period ended September 30, 1997. This relates to the Company's
purchase of a majority interest in Soundview Technologies in July 1997
as well the purchase of additional equity interests in MerkWerks and
Soundview Technologies in January 1998 whereby the Company is incurring
amortization expenses each quarter for periods ranging from three to
five years relating to the intangible assets acquired. As a result,
amortization expenses at or above the 1998 level is expected to continue
for the foreseeable future.
INTEREST EXPENSE. Interest expense for the three months ended September
30, 1998 was $42,000 as compared to $26,000 in the comparable period in
1997. The expense incurred for the three months ended September 30,
1998 is primarily attributable to CombiMatrix and relates to three-year
6% unsecured subordinated promissory notes issued by CombiMatrix in a
private offering completed in March 1998. Warrants to purchase
CombiMatrix common stock were also issued in this private placement.
For financial statement purposes, the proceeds from the private
placement were allocated between the warrants and the notes resulting in
a discount on the notes. Such discount is amortized over the terms of
the notes and treated as additional interest expense. As a result,
reported interest is higher than the cash amount of interest that will
actually be paid to the noteholders. Subject to certain terms and
conditions, these notes are due and payable in March 2001. Interest on
these notes is payable each year on January 15 during the term of each
note.
LEGAL SETTLEMENT EXPENSE. The Company did not incur charges relating
to legal settlements during the three month periods ending September 30,
1998 and September 30, 1997.
15
<PAGE>
RESULTS OF OPERATIONS (continued)
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (continued)
PROVISION FOR INCOME TAXES
For the three month period ended September 30, 1997, the Company recorded an
expense of $1,000 while no tax benefit or expense was recorded for the three
month period ended September 30, 1998.
MINORITY INTERESTS
Minority interests in losses of consolidated subsidiaries increased to
$68,000 for the three months ended September 30, 1998, compared to $52,000
for the three months ended September 30, 1997. The increase is primarily
attributable to increased losses generated by the consolidated subsidiaries
during the three months ended September 30, 1998.
INFLATION
Inflation has not had a significant impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash and cash equivalents of
$8,536,000 and working capital of $8,655,000 on a consolidated basis. In May
1998, the Company entered into a lease commitment for new office space to
increase and replace its existing office space. This lease commitment
provides for minimum monthly lease payments of $12,000 for a period of 60
months as compared to the Company's currently monthly lease payment of
approximately $3,000. The Company anticipates moving into the new office
space in December 1998. To meet the Company's increased needs, the Company
will incur expenses to upgrade its computer and telephone systems in
conjunction with the move as well as expenses incurred specific to the move,
which includes furniture, fixtures, and equipment currently estimated at
$100,000. The Company has no other material commitments for capital
expenditures at the present time.
Warrants issued by the Company in private placements completed in November
1997, March 1998, and April 1998 contain call and redemption provisions
should the closing bid of the Company's common stock exceed $7.50, $10.00,
and $12.50, respectively for twenty or more consecutive trading days. The
exercise price for the common stock underlying the warrants are $5.75, $7.50,
and $9.25 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 all such thresholds or that, if so, the Company will decide
to call the warrants.
The Company has no committed lines of credit or other committed funding.
However, the Company anticipates that existing working capital reserves will
provide sufficient funds for its operating expenses for at least the next
twelve months in the absence of making any major new investments. The
Company intends to seek additional financing to fund new or existing
businesses. 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.
16
<PAGE>
YEAR 2000 ISSUES
Many of the world's computer systems (including those in non-information
technology equipment and systems) currently record years in a two-digit
format, rather than four, to define the applicable year. Computer systems
that recognize a date using "00" as the year 1900 rather than the year 2000
may produce errors or system failures. In addition, the fact that the Year
2000 is a non-standard leap year may create difficulties for some systems. A
few systems may also be affected by certain dates in the month of September
1999. Because the activities of many businesses are affected by dates or are
date-related, the inability to use such date information correctly could lead
to business disruption in the U.S. and internationally (the "Year 2000"
Issue). The potential costs and uncertainties associated with the Year 2000
Issue will depend on a number of factors, including software, hardware and
the nature of the industry in which a company operates. Additionally,
companies must coordinate with other entities with which they electronically
interact.
The following discussion contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, including
the following: estimated timetables for implementation and completion of the
phases of the Company's Year 2000 plan; projections of expenditures regarding
the Year 2000 plan; statements regarding the possible effects of the Year
2000 Issue on the Company's business and that of third parties with whom the
Company does business; and possible contingency plans of the Company.
The Company has been reviewing its systems and programs to identify those
subject to the Year 2000 Issue, and is in the process of upgrading and/or
modifying its affected internal systems to achieve compliance. In addition,
the Company is working with its major external suppliers to assess their
compliance and remediation efforts and the Company's exposure to them. The
Company is in various stages of reviewing, testing and making software
repairs and upgrades to those systems and programs that it believes will be
affected by the Year 2000 Issue. Because the Year 2000 project is an ongoing
companywide endeavor, the state of the Company's and its majority-owned
subsidiaries', MerkWerks Corporation, CombMatrix Corporation, and Soundview
Technologies Corporation ("Subsidiaries"), progress changes daily. With the
exception of the financial figures, which are provided as of September 30,
1998, the information contained in this disclosure is made as of November 12,
1998, which is the latest practical date for providing such information. The
Company is monitoring and assisting minority-owned affiliates, Internet
Software LLC and Greenwich Information Technologies LLC, in addressing the
Year 2000 Issue as it applies to their businesses. The Company's other
minority-owned affiliate, Whitewing Labs, is a publicly traded Company.
Information pertaining to the Year 2000 Issue as it applies to Whitewing Labs
is available in its reports filed with the Securities and Exchange Commission.
Although the Company relies on computer technology to conduct business and
has the potential to be affected by the Year 2000 Issue, most of the
Company's internal systems are not affected. However, due to the
interdependent nature of computer systems, particularly with regard to the
Company's investment advisory services, the Company and its Subsidiaries may
be adversely impacted by the Year 2000 Issue depending on whether it, its
Subsidiaries, or other entities not affiliated with the Company address this
issue successfully.
The Company's Year 2000 compliance plan is comprised of four phases:
Assessment, Remediation, Testing and Implementation.
The Assessment phase includes preparing an inventory of systems that the
Company anticipates will be affected by the Year 2000 Issue as well as
creating a strategy to evaluate and address potential problems. The Company
currently plans to complete a final Assessment of its and its Subsidiaries'
important internal systems by December 31, 1998.
17
<PAGE>
In the Remediation phase, software corrections, upgrades, software patches,
and bug fixes will be made to remedy identified Year 2000 deficiencies in
software, hardware, operating systems, network devices and phone systems.
The Remediation phase also includes sending questionnaires requesting Year
2000 compliance assurances to vendors of such systems. The majority of the
Company's internal systems are currently in the Remediation phase. However,
the Company's Subsidiaries have not yet begun the Remediation phase. The
Company currently plans to complete Remediation of its important components
by March 31, 1999 and expects that the Subsidiaries' Remediation of their
important components will be completed by June 30, 1999. Certain systems
that are insignificant to the Company's and its Subsidiaries' operations may
not be made Year 2000 compliant by December 31, 1999, but the Company does
not anticipate that this would have a materially adverse impact on the
Company's or Subsidiaries' business, results of operations or financial
condition.
Testing will be conducted on both existing and new systems which may be
affected by the Year 2000 Issue as well as systems that have been fixed,
upgraded or otherwise altered in the Remediation phase during 1999.
The Company's investment advisory services is dependent upon a complex
worldwide network of information technology systems that contain date fields,
including data feeds to the Company's internal systems as well as stock
market links. The Company's ability to minimize the effects of the Year 2000
Issue is highly dependent upon the efforts of third parties. The failure of
organizations such as securities exchanges, securities clearing
organizations, banks, vendors, clients or governmental regulatory agencies to
resolve their own processing issues with respect to the Year 2000 Issue in a
timely manner could have a materially adverse effect on the Company's
business, results of operations, or financial condition, threatening the
Company's ability to manage client assets, communicate information to
clients, management of fund portfolios on a day-to-day basis, and comply with
federal securities laws as well as compromise recordkeeping and other
compliance systems. The Securities Industry Association recently conducted
Beta tests that were run in "future time" and employed test scripts to check
functionality. These tests resulted in problems completing a minimal amount
of mock trades due to Year 2000 changes. An industry-wide simulation is
scheduled to begin in March 1999, which should provide the Company with more
information to assess potential risks in this area.
Other than third-party long distance telephone and data lines and public
utility suppliers of electrical power, the Company's business operations are
not heavily dependent on non-information technology ("non-IT") components,
systems or third-party vendors. The Company is conducting an assessment of
Company managed or leased non-IT components including building, mechanical,
air conditioning, electrical, security and conveyance systems for Year 2000
compliance. Most of these non-IT systems cannot easily be tested for Year
2000 compliance; however, the Company does not believe that the failure of
any of its non-IT systems, other than electrical or long distance data and
voice lines, would have a materially adverse effect upon its business,
results of operation or financial condition.
The Company is beginning to develop a contingency plan, which it expects to
complete by July 1999. However, alternatives to use of normal systems,
especially those systems relevant to the Company's investment advisory
services, or supplies of electricity or long distance voice and data lines
are limited. A broader failure of third-party systems, in particular,
externally-managed data lines, communication systems, telephone or electrical
systems would materially and adversely affect the Company's ability to carry
on business operations in any regular fashion. Although the Company is
investigating alternative solutions, it is not clear that an adequate
contingency plan can be developed for such failures.
18
<PAGE>
Based upon current information, the Company estimates that the total cost of
implementing its Year 2000 plan, including costs associated to the
redeployment of existing personnel who have and will spend significant
administrative time and effort in addressing the Year 2000 Issue, will not be
material. The Company has incurred, to date, less than $5,000 in direct Year
2000 costs. However, Year 2000 cost estimates may change as the Year 2000
approaches, during which time the Company's and its Subsidiaries' Year 2000
readiness efforts are expected to become more defined. Costs incurred
relating to making the Company's and its Subsidiaries' systems Year 2000
compliant are being expensed in the period in which they are incurred. Future
cost are not expected to exceed $10,000.
The Company's expectations about future costs and the timely completion of
its Year 2000 modifications are subject to uncertainties that could cause
actual results to differ materially from what has been discussed above.
Factors that could influence the amount of future costs and the effective
timing of remediation efforts include, the success of the Company in
identifying computer programs and non-information technology systems that are
subject to the Year 2000 Issue, the nature and amount of programming and
testing required to upgrade or replace each of the affected programs and
systems, the nature and amount of testing, the rate and magnitude of related
labor and consulting costs, and the success of the Company's external
counterparties and suppliers in addressing the Year 2000 Issue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 17, 1998, PG Distribution, Inc. of Omaha, Nebraska filed a complaint
in the United States District Court, District of Delaware, against Soundview
Technologies Incorporated, seeking a declaratory judgement that United States
Patent No. 4,554,584 (relating to a video and audio blanking system) is
invalid.
On October 5, 1998, PG Distribution, Inc. and Parental Guide Company, LLC
filed a notice of dismissal of the litigation against Soundview Technologies
and agreed to pay royalties to Soundview Technologies under a non-exclusive,
non-transferable license to make, use and sell, or lease products under the
claims of Soundview Technologies' patent.
ITEM 2. CHANGES IN SECURITIES
None.
19
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
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.
ACACIA RESEARCH CORPORATION
By: /s/ R. BRUCE STEWART
------------------------------------------------------
R. Bruce Stewart
Chief Financial Officer (principal financial officer)
Date: November 12, 1998
20
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<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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<PP&E> 573,000
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