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 Quarter Ended June 30, 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 (I.R.S. Employer Identification No.)
of 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
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 August 13, 1998, 10,103,140 shares of common stock, no par value, of the
Registrant were outstanding.
ACACIA RESEARCH CORPORATION
Table Of Contents
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. . . . .17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 17
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 18
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 19
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2
ACACIA RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,1998 AND DECEMBER 31, 1997
(UNAUDITED)
JUNE 30, 1998 DECEMBER 31, 1997
-------------- -----------------
ASSETS
Current assets
Cash and cash equivalents..................................... $10,046,000 $ 1,367,000
Management fees and other receivables......................... 47,000 235,000
Receivables from affiliates................................... 16,000 0
Prepaid expenses.............................................. 119,000 84,000
Income tax receivable......................................... 110,000 110,000
---------- --------------
Total current assets........................................ 10,338,000 1,796,000
Equipment, furniture, and fixtures, net......................... 272,000 242,000
Notes receivable, net........................................... 139,000 376,000
Investment in affiliates, at equity............................. 4,169,000 1,205,000
Partnership interests, at equity................................ 683,000 586,000
Patents, net of accumulated amortization........................ 5,288,000 3,877,000
Goodwill, net of accumulated amortization....................... 1,218,000 758,000
Organization costs, net of accumulated amortization............. 18,000 14,000
Other assets.................................................... 29,000 0
---------- --------------
$22,154,000 $ 8,854,000
---------- --------------
---------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses......................... $ 186,000 $ 170,000
Accrued compensation.......................................... 0 51,000
Legal settlement payable...................................... 0 226,000
---------- --------------
Total current liabilities................................... 186,000 447,000
Notes payable, net of discount.................................. 1,182,000 0
---------- --------------
Total liabilities........................................... 1,368,000 447,000
---------- --------------
Minority interests.............................................. 0 227,000
---------- --------------
Stockholders' equity
Common stock, no par value; 30,000,000 shares authorized;
9,503,726 shares in 1998 and 6,286,148 shares in 1997 issued
and outstanding............................................. 25,822,000 10,713,000
Warrants to purchase commom stock............................. 232,000 371,000
Accumulated deficit........................................... (5,268,000) (2,707,000)
Note receivable secured by common stock....................... 0 (197,000)
---------- --------------
Total stockholders' equity.................................. 20,786,000 8,180,000
---------- --------------
$22,154,000 $ 8,854,000
---------- --------------
---------- --------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED) (UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
(RESTATED) (RESTATED)
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
-------------- ------------- ------------- -------------
Revenues
Gain on sale of investments.............. $ 0 $ 50,000 $ 0 $ 0
Equity in earnings (losses) of
affiliates............................. (121,000) (143,000) (137,000) 1,000
Management fees.......................... 74,000 341,000 43,000 308,000
Interest income.......................... 86,000 20,000 70,000 6,000
---------- ---------- ---------- -----------
Total revenues........................... 39,000 268,000 (24,000) 315,000
---------- ---------- ---------- -----------
Expenses
Marketing, general, and administrative
expenses............................... 1,270,000 916,000 785,000 369,000
Research and development expenses........ 773,000 310,000 406,000 144,000
Amortization of patents and goodwill..... 758,000 0 375,000 0
Interest expense......................... 46,000 4,000 45,000 4,000
Legal settlement expense................. 0 460,000 0 0
---------- ---------- ---------- -----------
Total expenses........................... 2,847,000 1,690,000 1,611,000 517,000
---------- ---------- ---------- -----------
Loss before income taxes and minority
interests................................ (2,808,000) (1,422,000) (1,635,000) (202,000)
Benefit for income taxes................... 0 (168,000) 0 (127,000)
---------- ---------- ---------- -----------
Loss before minority interests............. (2,808,000) (1,254,000) (1,635,000) (75,000)
Minority interests......................... (247,000) (113,000) (70,000) (44,000)
---------- ---------- ---------- -----------
Net loss................................... $(2,561,000) $(1,141,000) $(1,565,000) $(31,000)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Loss per common share
Basic.................................... ($0.33) ($0.28) ($0.17) ($0.01)
Diluted.................................. ($0.33) ($0.28) ($0.17) ($0.01)
Weighted average number of common and
potential common shares outstanding used
in computation of loss per share
Basic.................................... 7,823,939 4,134,259 8,961,832 4,188,625
Diluted.................................. 7,823,939 4,134,259 8,961,832 4,188,625
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
SIX MONTHS ENDED
(RESTATED)
JUNE 30, 1998 JUNE 30, 1997
-------------- -------------
Cash flows from operating activities:
Net loss........................................................... $(2,561,000) $(1,141,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Legal settlement expense......................................... 0 435,000
Depreciation and amortization.................................... 827,000 26,000
Deferred income tax benefit...................................... 0 (66,000)
Gain on sales of investments..................................... 0 50,000
Equity in losses of affiliates................................... 121,000 143,000
Minority interest in net loss.................................... (247,000) (113,000)
Changes in assets and liabilities, net of effects of acquisitions:
Management fees and other receivables, prepaid expenses, patents
and other assets............................................... 97,000 155,000
Accounts payable, accrued expenses, accrued compensation, and
other liabilities.............................................. (34,000) 23,000
---------- ----------
Net cash used in operating activities............................ (1,797,000) (488,000)
---------- ----------
Cash flows from investing activities:
Payment received on advances to affiliate........................ 0 57,000
Advances to affiliates........................................... (16,000) (4,000)
Withdrawals from partnerships.................................... 0 400,000
Purchase of equity investment.................................... (2,558,000) (50,000)
Payments received on notes receivable............................ 0 21,000
Capitalized expenditures......................................... (67,000) (27,000)
---------- ----------
Net cash (used in) provided by investing activities.............. (2,641,000) 397,000
---------- ----------
Cash flows from financing activities:
Payments on notes payable........................................ 0 (178,000)
Proceeds from notes payable...................................... 1,400,000 0
Proceeds from note receivable secured by common stock............ 197,000 0
Compensation expense relating to stock options................... 49,000 0
Proceeds from exercise of stock options and warrants............. 3,071,000 0
Proceeds from sale of common stock, net of issuance costs........ 8,400,000 1,785,000
---------- ----------
Net cash provided by financing activities........................ 13,117,000 1,607,000
---------- ----------
Increase in cash and cash equivalents.............................. 8,679,000 1,516,000
Cash and cash equivalents, beginning............................... 1,367,000 293,000
---------- ----------
Cash and cash equivalents, ending.................................. $10,046,000 $1,809,000
---------- ----------
---------- ----------
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
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
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 June 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
6
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS (CONTINUED)
approximately $1,816,000, which is being amortized over its estimated remaining
useful life of approximately 5 years.
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 is 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 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,
CombiMatrix 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 Note. 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 $270,000 (See note 6).
7
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 June 30, 1998 and the
consolidated results of operations and cash flows for the three and six months
ended June 30, 1998 and June 30, 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.
RESTATEMENT
As a result of the July 6, 1997 Soundview Shares acquisition (see Note 1),
the Company's consolidated operating results and cash flows for the three and
six months ended June 30, 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 and
six months ended June 30, 1997 by $17,000 and $44,000, respectively, and
decrease net income by a corresponding amount in the consolidated statement of
operations.
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.
8
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 June 30, 1998, all amounts secured by shares of
the Company's common stock have been repaid.
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.
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, and no additional write-off was required.
7. SUBSEQUENT EVENTS
In July 1998, the Company subscribed to purchase securities proposed to
be issued by CombiMatrix in the amount of $3,000,000.
In July 1998, the Company invested an additional $500,000 in each of its
domestic private investment partnerships in which the Company is a general
partner.
In July 1998, PG Distribution, Inc. of Omaha, Nebraska filed a complaint
in the United States District Court, District of Columbia, against Soundview
Technologies (a majority-owned subsidiary of the Company), seeking a
declaratory judgement that United States Patent No. 4,554,584 (relating to a
video and audio blanking system) is invalid. Soundview Technologies has not
been provided with any information upon which to evaluate the basis of the
complaint. Soundview Technologies continues to assert its rights under the
patent.
9
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, Year 2000 issues, 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 June 30, 1998, and on the operations of the
Company for the period from January 1, 1998 to June 30, 1998. The discussion
compares the activities for the six and three months ended June 30, 1998 to
the activities for the six and three months ended June 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
has restated its operating results for the three and 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.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
REVENUES
The Company reported revenues of $39,000 for the six months ended June 30, 1998
compared to revenues of $268,000 for the six months ended June 30, 1997.
10
RESULTS OF OPERATIONS (continued)
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 (continued)
REVENUES (continued)
GAIN ON SALES OF INVESTMENTS. Gain on sales of investments were
$50,000 for the six months ended June 30, 1997 as compared to no such
gain for the six months ended June 30, 1998. The gain for the six
months ended June 30, 1997 is comprised of gain 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.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES. The Company reported equity in
losses of affiliates of $121,000 for the six months ended June 30, 1998,
compared to equity in losses of affiliates of $143,000 for the year-earlier
period. Losses for the period ended June 30, 1998 are comprised of a gain
of $82,000 on the Company's capital investments as a general partner in two
private investment partnerships offset by a loss of $27,000 for the
Company's investment in Whitewing, a loss of $74,000 for the Company's
investment in Greenwich Information Technologies, and a loss of $102,000
for the Company's investment in Internet Software as determined by the
equity method of accounting. Losses for 1997 are primarily comprised of
a gain of $97,000 on the Company's capital investments as a general partner
in two private investment partnerships offset by a loss of $142,000 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 $54,000 for the
Company's investment in Greenwich Information Technologies, as determined
by the equity method of accounting.
MANAGEMENT FEES. The Company derives management fees from four private
investment funds managed by the Company. For the six months ended June 30,
1998, management fee income was $74,000 as compared to management fee
income during the six months ended June 30, 1997, of $341,000. A modest
amount of performance fee income is included in the six months ended June
30, 1998, while a substantially larger amount of performance fee income is
included in the six month period ended June 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
RESULTS OF OPERATIONS (continued)
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 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 six months ended June 30, 1998, interest income
was $86,000 as compared to interest income during the six months ended June
30, 1997, of $20,000. The increase is due to the Company having higher
cash balances during the six months ended June 30, 1998 as compared to the
same period in 1997.
EXPENSES
Total expenses increased from $1,690,000 for the six months ended June 30,
1997 to $2,847,000 for the six months ended June 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, in addition to the inclusion of
expenses incurred by Soundview Technologies on a consolidated basis and to
expenses relating to an increase in the Company's headcount and higher wages,
the expansion of CombiMatrix's and MerkWerks' research and development
efforts, and fees associated with the registration of the Company's common
stock.
MARKETING, GENERAL AND ADMINISTRATIVE. For the six months ended June 30,
1998, marketing, general and administrative expenses were $1,270,000 as
compared to $916,000 for the six months ended June 30, 1997. During the
period ended in 1997, expenses include legal fees associated with the
settlement of a lawsuit in addition to normal operating expenses. Expenses
during the 1998 period include consolidation with Soundview Technologies.
Soundview Technologies' marketing, general and administrative expenses
were $140,000. 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. In addition, 1998 expenses
included transactional costs assicated with the Company's investing and
financing activities, which included registration, filing and listing
fees relating to additional shares of common stock issued by the Company.
The Company expects higher general and administrative expenses as it
moves into new facilities.
RESEARCH AND DEVELOPMENT EXPENSE. The Company incurred research and
development expenses of $773,000 during the six months ended June 30, 1998,
compared to expenses of $310,000 during the six months ended June 30, 1997.
Such expenses for the 1998 period are comprised of expenses incurred by
CombiMatrix of $608,000, expenses incurred by MerkWerks of $82,000, and
expenses incurred by Soundview Technologies of $83,000. Research and
development expenses for the 1997 period are comprised of expenses incurred
by CombiMatrix of $257,000 and expenses incurred by MerkWerks of $53,000.
No expenses are attributable to Soundview Technologies during the 1997
period as the Company reported its investment on the equity method of
accounting.
12
RESULTS OF OPERATIONS (continued)
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 (continued)
EXPENSES (continued)
AMORTIZATION OF PATENTS AND GOODWILL. The Company reported amortization
expenses relating to patents and goodwill of $758,000 for the six months
ended June 30, 1998 while there was no such expense during the six month
period ended June 30, 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 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 expense at or above this level is expected to
continue for the foreseeable future.
INTEREST EXPENSE. Interest expense for the six months ended June 30,
1998 was $46,000 as compared to $4,000 in the comparable period in 1997.
This expense incurred for the six months ended June 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 six months ended June
30, 1997. There was no comparable expense in 1998.
PROVISION FOR INCOME TAXES
For the six month period ended June 30, 1997, the Company recorded a benefit of
$168,000 while no tax benefit or expense was recorded for the six month period
ended June 30, 1998.
MINORITY INTERESTS
Minority interests in losses of consolidated subsidiaries increased to $247,000
for the six months ended June 30, 1998, compared to $113,000 for the six months
ended June 30, 1997. The increase is primarily attributable to increased losses
generated by the consolidated subsidiaries during the six months ended June 30,
1998 and the consolidation of Soundview Technologies. The Company's investment
in Soundview Technologies for the six months ended June 30, 1997 was accounted
for under the equity method.
THREE MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
REVENUES
The Company reported losses of $24,000 in the three months ended June 30, 1998
compared to revenues of $315,000 for the three months ended June 30, 1997.
GAIN ON SALES OF INVESTMENTS. No gain on sales of investments were
recorded for the three months ended June 30, 1998 and June 30, 1998.
13
RESULTS OF OPERATIONS (continued)
THREE MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 (continued)
REVENUES (continued)
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES. The Company reported equity in
losses of affiliates of $137,000 for the three months ended June 30, 1998,
compared to equity in earnings of affiliates of $1,000 for the year-earlier
period. Such losses for the period ended June 30, 1998 are comprised of a
gain of $28,000 on the Company's capital investments as a general partner
in two private investment partnerships offset by a loss of $23,000 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 $102,000
for the Company's investment in Internet Software as determined by the
equity method of accounting. Earnings for 1997 are primarily comprised of
a gain of $59,000 on the Company's capital investments as a general partner
in two private investment partnerships offset by a loss of $24,000 for the
Company's investment in Whitewing Labs, a loss of $15,000 for the Company's
investment in Soundview Technologies, and a loss of $19,000 for the
Company's investment in Greenwich Information Technologies, as determined
by the equity method of accounting.
MANAGEMENT FEES. The Company derives management fees from four private
investment funds managed by the Company. For the three months ended June
30, 1998, management fee income was $43,000 as compared to management fee
income during the three months ended June 30, 1997, of $308,000. A modest
amount of performance fee income is included in the three months ended June
30, 1998, while a substantially larger amount of performance fee income is
included in the three month period ended June 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.
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 June 30, 1998, interest income
was $70,000 as compared to interest income during the three months ended
June 30, 1997, of $6,000. The increase is due to the Company having higher
cash balances during the three months ended June 30, 1998 as compared to
the same period in 1997.
14
RESULTS OF OPERATIONS (continued)
THREE MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 (continued)
EXPENSES
Total expenses increased from $517,000 for the three months ended June 30,
1997 to $1,611,000 for the three months ended June 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, in addition to the inclusion of
expenses incurred by Soundview Technologies on a consolidated basis and to
expenses relating to an increase in the Company's headcount and higher wages,
the expansion of CombiMatrix's and MerkWerks' research and development
efforts, and fees associated with the registration of the Company's common
stock.
MARKETING, GENERAL AND ADMINISTRATIVE. For the three months ended June 30,
1998, marketing, general and administrative expenses increased to $785,000
as compared to $369,000 for the three months ended June 30, 1997. Expenses
during the 1998 period include consolidation with Soundview Technologies.
Soundview Technologies' marketing, general and administrative expenses were
$79,000. 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. In addition, 1998 expenses included
transactional costs associated with the Company's investing and financing
activities, which included registration, filing, and listing fees relating
to additional shares of common stock issued by the Company as well as
professional fees associated with the Company's stock split. Certain of the
expenses relating to the Company's annual report and proxy were incurred
in the second quarter of 1998, which were incurred in the first quarter of
1997. The Company expects higher general and administrative expenses as it
moves into new facilities.
RESEARCH AND DEVELOPMENT EXPENSE. The Company incurred research and
development expenses of $406,000 during the three months ended June 30,
1998, compared to expenses of $144,000 during the three months ended June
30, 1997. Such expenses for 1998 period are comprised of expenses incurred
by CombiMatrix of $312,000, expenses incurred by MerkWerks of $40,000, and
expenses incurred by Soundview Technologies of $54,000. Research and
development expense for the 1997 period are comprised of expenses incurred
by CombiMatrix of $116,000 and expenses incurred by MerkWerks of $28,000.
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 $375,000 for the three
months ended June 30, 1998 as compared to no such expense during the
three month period ended June 30, 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, 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 expense at or above this level is expected to
continue for the foreseeable future.
INTEREST EXPENSE. Interest expense for the three months ended June 30,
1998 was $45,000 as compared to $4,000 in the comparable period in 1997.
This expense incurred for the three months ended June 30, 1998 is
primarily attributable to CombiMatrix and relates to three-year 6%
unsecured subordinated promissory notes issued by CombiMatrix in
connection with 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 ended June 30, 1998
and June 30, 1997.
15
RESULTS OF OPERATIONS (continued)
THREE MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 (continued)
PROVISION FOR INCOME TAXES
For the three month period ended June 30, 1997, the Company recorded a benefit
of $127,000 while no tax benefit or expense was recorded for the three month
period ended June 30, 1998.
MINORITY INTERESTS
Minority interests in losses of consolidated subsidiaries increased to
$70,000 for the three months ended June 30, 1998, compared to $44,000 for the
three months ended June 30, 1997. The increase is primarily attributable to
increased losses generated by the consolidated subsidiaries during the three
months ended June 30, 1998 and the consolidation of Soundview Technologies.
The Company's investment in Soundview Technologies for the three months ended
June 30, 1997 was accounted for under the equity method.
INFLATION
Inflation has not had a significant impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and cash equivalents of $10,046,000,
and working capital of $10,152,000 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 current monthly lease payments of $3,000. The
Company anticipates moving into the new office space in October 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 in
addition to expenses incurred specific to the move, which includes
furniture, fixtures, and equipment. The Company has no other material
commitments for capital expenditures at the present time.
The Company has $1.4 million of debt maturing in March 2001, which is
associated with a private placement completed by CombiMatrix in March 1998.
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 prices 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 any of 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
16
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 business
opportunities. 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 is working to resolve the potential impact of the year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. The year 2000 problem is the
result of computer programs being written in two digits, rather than four, to
define the applicable year. Any of the Company's programs that recognize a
date using "00" as the year 1900 rather than the year 2000 could result in
errors or system failures. The Company has assessed its internal computer
systems and has identified some software that utilize embedded date codes
which may experience operational problems when the year 2000 is reached. The
Company plans to make modifications to the identified software during 1998
and test the changes in 1998 and 1999. All new software systems are verified
to be year 2000 compliant prior to purchase. However, due to the
interdependent nature of computer systems, particularly with regard to the
Company's investment advisory services, the Company may be adversely impacted
in the year 2000 depending on whether it or other entities not affiliated
with the Company address this issue successfully. In late July, several large
securities firms, exchanges and processing agencies handled mock trades to
determine how the stock markets' extensive computerized trading systems will
handle the year 2000 problem. This test resulted in problems completing
approximately 1 percent of the mock trades due to year 2000 changes. An
industry-wide simulation will begin in March 1999, which should provide the
Company with more information to assess and disclose potential risks in this
area.
The Company is also communicating with suppliers, financial institutions,
and others with which it conducts business to identify and attempt to resolve
year 2000 issues that may adversely affect the Company's business. If
necessary modifications and conversions by the Company and those with which
it conducts business are not completed in a timely manner, the year 2000 issue
may have a material adverse effect on the Company's consolidated results of
operations. Based on preliminary information, costs of addressing potential
problems are not currently expected to have a material adverse impact on the
Company's financial position and will expensed as incurred. However, there
can be no assurance that the Company's or another company's failure to ensure
year 2000 capability in a timely manner would not have an adverse effect on
the Company. Accordingly, the Company plans to devote the resources to
resolve all significant 2000 issues in a timely manner.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
PG Distribution, Inc. of Omaha, Nebraska filed a complaint on July 17, 1998
in the United States District Court, District of Delaware (Civil Action No.
98-420), 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. Soundview Technologies has not been
provided with any information upon which to evaluate the basis of this
complaint, including any evidence to support the complaint's allegations.
Soundview Technologies continues to assert its rights under the patent.
ITEM 2. CHANGES IN SECURITIES
STOCK SPLIT
On March 16, 1998, the Company's board of directors declared a two-for-one split
of the Company's Common Stock in the form of a 100% stock dividend (the "Stock
Split"). The Company distributed the stock dividend on or about June 12, 1998
for each share held of record at the close of business on May 29, 1998.
SALES OF UNREGISTERED SECURITIES
In April 1998, the Company sold 800,000 units to 27 accredited investors at a
purchase price of $7.00 per unit, each unit consisting of one share of the
Company's common stock, and one common stock purchase warrant. Each common
stock purchase warrant entitles its holder to purchase one share of the
Company's common stock at an exercise price of $9.25 per share, subject to
adjustment, and expires on April 28, 2001. Finders involved in this
transaction received finders fees at a rate of $0.70 per unit placed. 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 (the
"Securities Act"), and Regulation D promulgated thereunder.
WARRANT CALL
In April 1998, the Company gave notice to holders of all Common Stock
Purchase Warrants purchased in a private placement of securities in June 1997
that it was exercising its redemption rights with respect to such warrants.
At the time of notice, warrants to purchase 520,400 shares of the Company's
common stock at an exercise price of $3.75 per share were outstanding. As a
result, all warrants were exercised prior to the redemption time (May 11,
1998).
The Company concurrently gave notice to holders of all Finder Warrants issued
as part of finders fees paid in the same June 1997 private placement. All of
these warrants to purchase 55,740 shares of the Company's common stock at an
exercise price of $2.75 per share were also exercised prior to the May 11,
1998 redemption time.
The Company's sale of common stock upon exercise of the various warrants was
exempt as a private placement, under Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on May 19, 1998. The business at
the meeting was the election of directors, approval of amendments to the 1996
Stock Option Plan to increase the authorized number of shares of Common Stock
subject to the 1996 Stock Option Plan by 500,000 shares (after giving effect
to the Stock Split) as well as to clarify existing transfer restrictions and
provide for limited exceptions, approval of an amendment to the Articles of
Incorporation to increase the number of authorized shares of Common Stock
from 10,000,000 to 30,000,000, and ratification of the selection of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
year ending December 31, 1998. Each of the proposals was adopted. (All vote
numbers reflect subsequent two-for-one stock split.)
The number of votes for and withheld for each director were as follows:
NAME FOR WITHHELD
- ---- --- --------
R. Bruce Stewart 6,499,292 32,200
Paul R. Ryan 6,499,292 32,200
Thomas B. Akin 6,499,292 32,200
Fred A. de Boom 6,399,292 132,200
Edward W. Frykman 6,399,292 132,200
The number of votes for, against, and abstaining for the amendments to the 1996
Stock Option Plan were as follows:
BROKER
FOR AGAINST ABSTAINING NON-VOTES
--- ------- ---------- ---------
4,241,890 124,890 30,020 2,134,692
The number of votes for, against, and abstaining for the amendment to the
Articles of Incorporation were as follows:
BROKER
FOR AGAINST ABSTAINING NON-VOTES
--- ------- ---------- ---------
6,406,472 105,100 19,920 0
The number of votes for, against, and abstaining for the ratification of
PricewaterhouseCoopers LLP were as follows:
BROKERS
FOR AGAINST ABSTAINING NON-VOTES
--- ------- ---------- ---------
6,490,372 1,400 39,720 0
ITEM 5. OTHER INFORMATION
The Company hereby advises shareholders that until further notice March 10,
1999 is the date after which notice of a shareholder sponsored proposal
submitted outside the processes of Rule 14a-8 under the Securities Exchange
Act of 1934 (i.e., a proposal to be presented at the next annual meeting of
shareholders but not submitted for inclusion in the Company's proxy
statement) will be considered untimely under the SEC's proxy rules. The
Company to date has not established any advance notice provision for
shareholder proposals.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Articles of Incorporation, as amended
10.11 Lease of Company's Executive Offices at 55 South Lake
Avenue, Pasadena, California 91101
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Current report event date April 2, 1998 (Item 2 and Item 7) was
filed with the SEC on April 17, 1998 and subsequently amended by filings on
Form 8-K/A made on June 16, 1998 and June 26, 1998.
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: August 13, 1998
19