-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JlJr8uBiRRrprD9aed3RrGV1Dy/s3moKc4GGaN7b0qnGzsF13QWGKMu666d0DLN5 Huk4+FxEIKbtkAJCIo56Fw== /in/edgar/work/0000898430-00-003471/0000898430-00-003471.txt : 20001115 0000898430-00-003471.hdr.sgml : 20001115 ACCESSION NUMBER: 0000898430-00-003471 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACACIA RESEARCH CORP CENTRAL INDEX KEY: 0000934549 STANDARD INDUSTRIAL CLASSIFICATION: [6282 ] IRS NUMBER: 954405754 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26068 FILM NUMBER: 767762 BUSINESS ADDRESS: STREET 1: 55 SOUTH LAKE AVE STREET 2: STE B CITY: PASADENA STATE: CA ZIP: 91101 BUSINESS PHONE: 6264496431 MAIL ADDRESS: STREET 1: 12 S RAYMOND AVENUE STREET 2: SUITE B CITY: PASADENA STATE: CA ZIP: 91105 10-Q 1 0001.txt FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 September 30, 2000 Commission File No. 0-26068 ACACIA RESEARCH CORPORATION (Exact name of registrant as specified in its charter) Delaware 95-4405754 (State or other jurisdiction (I.R.S. Employer of incorporation organization) Identification No.)
55 South Lake Avenue, Pasadena CA 91101 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (626) 396-8300 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 10, 2000 the registrant had 16,078,087 shares of Common Stock, $0.001 par value, issued and 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............................................. 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 16 Part II. Other Information Item 2. Changes in Securities............................................ 17 Item 6. Exhibits and Reports on Form 8-K................................. 17 Signatures................................................................. 18
2 ACACIA RESEARCH CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share information)
September 30, December 31, 2000 1999 ------------- ------------ (Unaudited) ASSETS ------ Current assets Cash and cash equivalents......................... $ 44,485 $ 37,631 Accounts receivable............................... 9 -- Management fees and other receivables............. 61 60 Receivables from affiliates....................... 12 318 Short-term investments............................ 40,863 -- Deposit on investment............................. -- 3,000 Prepaid expenses.................................. 627 208 Other assets...................................... 440 -- -------- -------- Total current assets............................ 86,497 41,217 Property and equipment, net......................... 3,142 1,154 Investment in affiliates, at equity................. 3,336 4,636 Investment in affiliates, at cost................... 3,000 -- Patents, net of accumulated amortization............ 9,226 3,534 Goodwill, net of accumulated amortization........... 4,970 1,012 Other assets........................................ 561 238 -------- -------- $110,732 $ 51,791 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities Accounts payable and accrued expenses............. $ 4,573 $ 1,633 Notes Payable..................................... 100 -- -------- -------- Total current liabilities....................... 4,673 1,633 Deferred income taxes............................... 2,729 -- Total liabilities............................... 7,402 1,633 -------- -------- Minority interests.................................. 25,129 4,896 -------- -------- Stockholders' equity Common stock, par value $.001 per share; 60,000,000 shares authorized; 16,016,087 and 13,607,193 shares issued and outstanding as of September 30, 2000 and December 31, 1999, respectively..................................... 16 14 Additional paid-in capital........................ 116,081 62,283 Warrants to purchase common stock................. 86 58 Accumulated deficit............................... (37,982) (17,093) -------- -------- Total stockholders' equity...................... 78,201 45,262 -------- -------- $110,732 $ 51,791 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 3 ACACIA RESEARCH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share information)
Nine Months Ended Three Months Ended --------------------------- --------------------------- September 30, September 30, September 30, September 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- (Unaudited) Revenues: Grant income.......... $ 17 $ -- $ -- -- Advertising........... 40 -- 18 -- Capital management fee income............... -- 116 -- 25 ---------- ---------- ---------- ---------- Total revenues...... 57 116 18 25 ---------- ---------- ---------- ---------- Operating expenses: Research and development expenses............. 7,577 2,190 5,947 1,150 Marketing, general, and administrative expenses............. 24,646 2,602 10,338 827 Amortization of patents and goodwill............. 1,571 1,205 708 417 ---------- ---------- ---------- ---------- Total operating expenses........... 33,794 5,997 16,993 2,394 ---------- ---------- ---------- ---------- Operating loss........ (33,737) (5,881) (16,975) (2,369) ---------- ---------- ---------- ---------- Other income (expense): Interest income....... 2,370 217 1,161 73 Interest expense...... (1) (123) -- (41) Equity in income of partnerships......... -- (47) -- (98) Equity in losses of affiliates........... (1,353) (906) (529) (285) Other income.......... 27 -- 3 -- ---------- ---------- ---------- ---------- Total other income (expense).......... 1,043 (859) 635 (351) ---------- ---------- ---------- ---------- Loss before income taxes and minority interests.............. (32,694) (6,740) (16,340) (2,720) Benefit (provision) for income taxes........... 29 (20) 38 -- ---------- ---------- ---------- ---------- Loss before minority interests.............. (32,665) (6,760) (16,302) (2,720) Minority interests...... 11,969 357 5,405 357 ---------- ---------- ---------- ---------- Net loss................ $ (20,696) $ (6,403) $ (10,897) $ (2,363) ========== ========== ========== ========== Loss per common share Basic................. $ (1.42) $ (0.61) $ (0.69) $ (0.22) Diluted............... $ (1.42) $ (0.61) $ (0.69) $ (0.22) Weighted average number of common and potential common shares outstanding used in computation of loss per share Basic and Diluted..... 14,556,606 10,436,987 15,724,930 10,748,875
The accompanying notes are an integral part of these consolidated financial statements. 4 ACACIA RESEARCH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Nine Months Ended --------------------------- September 30, September 30, 2000 1999 ------------- ------------- (Unaudited) Cash flows from operating activities: Net loss........................................... $(20,696) $(6,403) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.................... 2,043 1,362 Write-down of notes payable...................... -- 9 Equity in loss of affiliates and partnerships.... (1,353) 953 Minority interest in net loss.................... (11,974) (357) Compensation expense relating to stock options/warrants................................ 2,840 127 Change for acquired in-process research and development..................................... 2,508 -- Deferred tax benefit............................. (41) -- Other............................................ 93 -- Changes in assets and liabilities, net of effects of acquisitions: Management fees and other receivables, prepaid expenses, and other assets...................... (790) 118 Accounts payable, accrued expenses and other liabilities..................................... 856 412 -------- ------- Net cash used in operating activities............ (23,808) (3,779) -------- ------- Cash flows from investing activities: Advances to affiliates............................. -- (101) Capital contribution to equity investments......... (54) (25) Purchase of additional equity in consolidated subsidiaries...................................... (628) (31) Withdrawals from partnerships...................... -- 500 Purchase of partnership interest................... -- (59) Purchase of property and equipment................. (2,623) (548) Purchase of short-term investments................. (40,863) -- -------- ------- Net cash used in investing activities.............. (44,168) (264) -------- ------- Cash flows from financing activities: Proceeds from exercise of stock options and warrants.......................................... 16,840 4,134 Capital contributions from minority shareholders of subsidiaries...................................... 35,673 1,571 Proceeds from sale of common stock, net of issuance costs............................................. 22,317 3,272 -------- ------- Net cash provided by financing activities.......... 74,830 8,977 -------- ------- Increase in cash and cash equivalents.............. 6,854 4,934 Cash and cash equivalents, beginning............... 37,631 7,508 -------- ------- Cash and cash equivalents, ending.................. $ 44,485 $12,442 ======== ======= Supplemental schedule of non-cash investing and financing activities: Issuance of common stock for additional equity in consolidated subsidiary......................... $11,634 $288
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. On December 28, 1999, the Company changed its state of incorporation from California to Delaware. The Company is currently engaged in developing new technology-related businesses. The Company's business focus is to identify and develop opportunities in the life science sector that will be created by commercializing the new biochip technology of the Company's subsidiary, CombiMatrix Corporation, and other related investments in that sector. By providing capital, management, technical advice, and on-going operational support, we provide an infrastructure that allows early-stage companies to focus on their core strengths: creating new products and services. This support, in turn, allows developing businesses the opportunity to reduce their time to market. We also obtain ownership positions, through strategic investments, in businesses that fit well within our scope of expertise. At September 30, 2000, the Company had significant economic interests in a number of companies. Majority owned subsidiaries include: CombiMatrix Corporation ("CombiMatrix"), MerkWerks Corporation ("MerkWerks"), Soundbreak.com Incorporated ("Soundbreak.com"), and Soundview Technologies Incorporated ("Soundview Technologies"). We also own significant minority interest in: EC Company Greenwich Information Technologies LLC ("Greenwich Information Technologies"), Mediaconnex Communications, Inc. ("Mediaconnex") and Signature-mail.com llc ("Signature-mail.com"). In January 2000, the Company acquired a 7.6% interest in The EC Company for $3 million in a $17.3 million "non-voting" Series B Preferred Stock private placement. The EC Company is a leader in business-to-business Internet exchange transactions for mid-market suppliers. In February 2000, the Company issued a redemption notice for common stock purchase warrants issued in its December 1999 private placement. Holders of these warrants had 30 days to exercise the warrants at a price of $26.00 per share. As a result, all of these warrants were exercised prior to the redemption date with the Company receiving proceeds of approximately $14.8 million for the issuance of 578,238 shares of common stock. In March 2000, CombiMatrix completed a private equity financing raising gross proceeds of $17.5 million through the sale of 3.5 million shares of CombiMatrix common stock. The Company invested $10 million in this private placement and acquired 2 million shares. As a result of the transaction, the Company increased its equity ownership in CombiMatrix from 50.01% to 51.8%. CombiMatrix issued warrants in conjunction with the private placement for finders fees. A total of 31,050 warrants to purchase CombiMatrix's common stock at a per share exercise price of $5.50 were issued. Also in March 2000, Soundbreak.com completed a Series C "non-voting" Convertible Preferred private equity financing raising gross proceeds of approximately $19 million through the sale of 188,437 Series C Preferred shares. The Company invested $9 million in this private placement and acquired 90,000 Preferred shares. As a result of the transaction, the Company's equity ownership in Soundbreak.com decreased from 73.6% to 66.9%, on an as-converted basis. Each share of the Series C Preferred Stock is convertible into 15 shares of Soundbreak.com's common stock. Soundbreak.com issued warrants in conjunction with the private placement for finders fees. A total of 40,838 warrants to purchase Soundbreak.com's common stock at a per share exercise price of $6.66 were issued. 6 ACACIA RESEARCH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In July 2000, the Company increased its ownership of privately held CombiMatrix Corporation from 51.8% to 61.4%. The Company acquired the additional ownership position from existing shareholders of CombiMatrix in exchange for approximately 489,000 restricted shares of the Company's common stock, valued at approximately $11.6 million. This purchase was accounted for as a step acquisition. The purchase price was allocated to the fair value of assets acquired and liabilities assumed, including acquired in-process research and development. The amount attributable to goodwill was $2.9 million which is amortized using the straight line method over the estimated remaining useful life of five years. The amount attributable to in-process research and development of $2.5 million was charged to expense and is included in the Statements of Operations for the three and nine months ended September 30, 2000. In July 2000, the Company completed an institutional private equity financing raising gross proceeds of $23.7 million through the sale of 861,638 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 $33.00 per share and is callable by the Company once the closing bid price of the Company's common stock averages $39.60 or above for 20 consecutive trading days on the Nasdaq National Market System. The Company issued an additional 11,000 units in lieu of cash payments in conjunction with the private placement for finders fees. In August 2000, CombiMatrix completed a private equity financing raising gross proceeds of $36 million through the sale of 4 million shares of CombiMatrix common stock. The Company invested $17.5 million in this private placement and acquired 1,944,445 shares. As a result of the transaction, the Company decreased its equity ownership in CombiMatrix from 61.4% to 58.4%. The Acacia Research Corporation 1996 Stock Option Plan (the "1996 Plan") provides for the grant of Nonqualified Stock Options and Incentive Stock Options to key employees, including officers of the Company and its subsidiaries and certain other individuals. In May 2000, the Company increased the authorized number of shares of common stock subject to the amended 1996 Plan by 1,000,000 shares to a total of 4,000,000 shares. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION--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, 2000 and the consolidated results of operations and cash flows for the three and nine months ended September 30, 2000 and 1999. 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, 1999. 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. RECLASSIFICATIONS--Certain reclassifications of prior year's amounts have been made to conform to the 2000 presentation. 7 LOSS PER SHARE--Losses per share is presented on both a basic and diluted basis. A reconciliation of the denominator of the basic EPS computation to the denominator of the diluted EPS computation is as follows:
Nine Months Ended Three Months Ended --------------------------- --------------------------- September 30, September 30, September 30, September 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Weighted Average Number of Common Shares Outstanding Computation of Basic EPS...................... 14,556,606 10,436,987 15,724,930 10,748,875 Dilutive Effect of Outstanding Stock Options and Warrants(a)............. -- -- -- -- Weighted Average Number of Common and Potential Common Shares Outstanding Used in Computation of Diluted EPS.............. 14,556,606 10,436,987 15,724,930 10,748,875
(a) Potential common shares of 1,243,836 and 823,143 for the nine months ended September 30, 2000 and September 30, 1999, respectively, and 1,078,693 and 1,105,992 for the three months ended September 30, 2000 and September 30, 1999, respectively, have been excluded for the per share calculation because the effect of their inclusion would be anti-dilutive. SHORT-TERM INVESTMENTS--Our short-term investments are held in a variety of interest bearing instruments including: high-grade corporate bonds, commercial paper, and money market accounts. These investments are classified as available for sale and carried at fair market value at September 30, 2000, which approximates cost. 3. SEGMENT INFORMATION The Company has three reportable segments: Corporate Portfolio, CombiMatrix and Soundbreak.com. The Corporate Portfolio segment makes direct investments in emerging companies with intellectual property rights, most of which are involved in developing new or unproven technologies. CombiMatrix is developing a proprietary biochip array processor system for the rapid, cost competitive synthesis of DNA, peptides and other chemical compounds on a software programmable semiconductor chip. This proprietary technology has significant applications in the areas of genomics, proteomics and diagnostics. Soundbreak.com is a new media company featuring 24-hour audio and video streaming of music performances and live performances hosted by professional talent targeting a demographic of viewers under age 35 and including extensive viewer interaction formats. The Company evaluates segment performances based on earnings potential and cost of future completed products or services. Material intercompany transactions and transfers have been eliminated in consolidation. The accounting policies of the segments are the same as those used in the preparation of the Company's consolidated financial statements. 8 ACACIA RESEARCH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The table below presents information about the Company's reportable segments for the nine months ended September 30, 2000 and 1999 (in thousands).
Nine months ended Corporate September 30, 2000 Portfolio CombiMatrix Soundbreak.com Other Total ------------------ --------- ----------- -------------- ------ -------- Revenue.................. $ -- $ 17 $ -- $ 40 $ 57 Amortization of patents and goodwill............ 1,560 -- -- 11 1,571 Other income............. 26 -- -- 1 27 Interest income.......... 989 845 466 70 2,370 Interest expense......... 1 -- -- -- 1 Equity in losses of affiliates.............. 1,353 -- -- -- 1,353 Loss before minority interests and income taxes................... 9,499 7,317 14,047 1,831 32,694 Segment assets........... 45,540 51,182 10,959 3,051 110,732 Investments in affiliates, at equity... 3,336 -- -- -- 3,336 Investments in affiliates, at cost..... 3,000 -- -- -- 3,000 Capital Expenditures..... 472 888 990 273 2,623 Nine months ended Corporate September 30, 1999 Portfolio CombiMatrix Soundbreak.com Other Total ------------------ --------- ----------- -------------- ------ -------- Revenue.................. $ 116 $ -- $ -- $ -- $ 116 Amortization of patents and goodwill............ 1,195 -- -- 10 1,205 Other income............. -- -- -- -- -- Interest income.......... 194 20 3 -- 217 Interest expense......... -- 123 -- -- 123 Equity in losses of affiliates ............. 906 -- -- -- 906 Equity in income of partnerships............. 47 47 Loss before minority interests and income taxes................... 4,223 1,772 493 252 6,740 Segment assets........... 15,408 2,634 4,600 171 22,813 Investments in affiliates, at equity... 2,600 -- -- -- 2,600 Investments in affiliates, at cost..... 1,334 -- -- -- 1,334 Capital Expenditures..... 95 28 413 12 548
9 ACACIA RESEARCH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The table below presents information about the Company's reportable segments for the three months ended September 30, 2000 and 1999 (in thousands).
Three Months Ended Corporate September 30, 2000 Portfolio CombiMatrix Soundbreak.com Other Total ------------------ --------- ----------- -------------- ------ -------- Revenue.................. $ -- $ -- $ -- $ 18 $ 18 Amortization of patents and goodwill............ 704 -- -- 4 708 Other income............. 2 -- -- 1 3 Interest income.......... 351 609 178 23 1,161 Interest expense......... -- -- -- -- -- Equity in losses of affiliates.............. 529 -- -- -- 529 Loss before minority interests and income taxes................... 4,834 5,132 4,934 1,440 16,340 Segment assets........... 45,540 51,182 10,959 3,051 110,732 Investments in affiliates, at equity... 3,336 -- -- -- 3,336 Investments in affiliates, at cost..... 3,000 -- -- -- 3,000 Purchase of property and equipment............... 114 780 159 270 1,323 Three Months Ended Corporate September 30, 1999 Portfolio CombiMatrix Soundbreak.com Other Total ------------------ --------- ----------- -------------- ------ -------- Revenue.................. $ 25 $ -- $ -- $ -- $ 25 Amortization of patents and goodwill............ 413 -- -- 3 416 Other income............. -- -- -- -- Interest income.......... 59 10 3 -- 72 Interest expense......... -- 40 -- -- 40 Equity in losses of affiliates.............. 286 -- -- -- 286 Equity in losses of partnerships............ (3) (3) Loss before minority interests and income taxes................... -- 693 493 100 2,720 Segment assets........... 15,408 2,634 4,600 171 22,813 Investments in affiliates, at equity... 2,600 -- -- -- 2,600 Investments in affiliates, at cost..... 1,334 -- -- -- 1,334 Purchase of property and equipment............... 18 4 413 12 447
10 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 our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this report. Such statements may be identified by the use of forward-looking terminology such as "may," "will," "expect," "believe," "estimate," "anticipate," "intend," "continue," or similar terms, variations of such terms or the negative of such terms. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. Such statements address future events and conditions concerning capital expenditures, earnings, litigation, regulatory matters, markets for products and services, liquidity and capital resources, and accounting matters. Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which the Company and its affiliates operate, and other circumstances affecting anticipated revenues and costs. The Company expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this report to reflect any change in our 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 and the Company's Annual Report on Form 10-K and Registration Statement on Form S-3/A dated September 29, 2000 filed with the Securities and Exchange Commission. General The following discussion is based primarily on our consolidated balance sheet as of September 30, 2000, and on our operations for the period from January 1, 2000 to September 30, 2000. The discussion compares the activities for the nine and three months ended September 30, 2000 to the activities for the nine and three months ended September 30, 1999. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. Results of Operations
Nine Months Ended Three Months Ended September 30, September 30, ------------------------- ------------------------- 2000 1999 2000 1999 ------------ ----------- ------------ ----------- Revenues................ $57,000 $ 116,000 $ 18,000 $ 25,000 Operating expenses...... (33,794,000) (5,997,000) (16,993,000) (2,394,000) Other income (expense), net.................... 1,043,000 (859,000) 635,000 (351,000) Minority interests...... 11,969,000 357,000 5,405,000 357,000 Provision (benefit) for income taxes........... 29,000 (20,000) 38,000 -- ------------ ----------- ------------ ----------- Net loss................ $(20,696,000) $(6,403,000) $(10,897,000) $(2,363,000) ============ =========== ============ ===========
Form 10-Q--Period ended September 30, 2000 For the Nine Months Ended September 30, 2000 and September 30, 1999 Revenues Grant Income. During the nine months ended September 30, 2000, grant income was $17,000 as compared to no grant income during the nine months ended September 30, 1999. The grant income resulted from CombiMatrix's award of three contracts from the federal government with respect to its biochip technology. 11 CombiMatrix was awarded two grants in July 1999 for Phase I SBIR from the Department of Energy and the Department of Defense. CombiMatrix was further awarded a Phase II SBIR Department of Defense contract for the use of its biochip technology to develop nanode array sensor microchips in January 2000. Advertising. During the nine months ended September 30, 2000, advertising income was $40,000 as compared to no advertising income during the nine months ended September 30, 1999. Revenues attributable to advertising were earned by a newly acquired company. Capital Management Fees. During the nine months ended September 30, 2000, capital management fee income, which includes performance fee income, was $0 as compared to $116,000 in capital management fee income generated during the nine months ended September 30, 1999. No capital management fee income was earned in the nine months ended September 30, 2000 because we closed the Acacia Capital Management division on December 31, 1999. Costs associated with exiting this business were not material. Operating Expenses Total operating expenses increased to $33,794,000 during the nine months ended September 30, 2000 from $5,997,000 during the nine months ended September 30, 1999 primarily due to expenses relating to the operating activities of Soundbreak.com, an increase in our compensation costs and rent for larger office facilities, a charge for acquired in-process research and development, and an expansion of CombiMatrix's research and development efforts. Research and Development Expenses. We incurred research and development expenses of $7,577,000 for the nine months ended September 30, 2000, compared to expenses of $2,190,000 during the nine months ended September 30, 1999. Such expenses for the nine months ended September 30, 2000 are comprised of expenses primarily incurred by CombiMatrix, which increased to $4,992,000 from $1,580,000 in the prior period, due to an increase in the number of CombiMatrix personnel and laboratory facilities as it expanded its research and development efforts, and $2,508,000 of acquired in-process research and development expense resulting from the acquisition of additional ownership position from existing CombiMatrix shareholders. In July, 2000, we increased our ownership of CombiMatrix from 51.8% to 61.4%. We acquired the additional ownership position from existing shareholders of CombiMatrix in exchange for approximately 489,000 restricted shares of our common stock, valued at approximately $11.6 million. This purchase was accounted for as a step acquisition. The purchase price was allocated to the fair value of assets acquired and liabilities assumed, including acquired in process research and development. Marketing, General and Administrative Expenses. We incurred marketing, general and administrative expenses of $24,646,000 for the nine months ended September 30, 2000, compared to expenses of $2,602,000 during the nine months ended September 30, 1999. During the nine months ended September 30, 2000, these expenses increased due to general expansion of the Company, including an increase in business development expenses as we explore new business opportunities, an increase in office expenses relating to our move to larger office facilities, and an increase in salaries and fringe benefits primarily due to an increase in the number of our personnel as well as higher wages and payroll expenses. Soundbreak.com's marketing, general and administrative expenses were $14,513,000 for the nine months ended September 30, 2000, compared to expenses of $496,000 during the nine months ended September 30, 1999. Of the September 30, 2000 amount, approximately $6,413,000 million is attributable to marketing expenses, which were spent in connection with Soundbreak.com's initial advertising campaign. CombiMatrix is increasing its employee base and has made extensive use of consultants to assist in solving specialized issues or providing particular services. Product development and commercialization relating to CombiMatrix's technology will require additional personnel in areas such as regulatory affairs, marketing and general operations. We anticipate that CombiMatrix will continue to hire additional managerial and clerical employees in future periods. In addition, during 2000, CombiMatrix relocated from the San Francisco bay area 12 to the Seattle, Washington area. This relocation was completed during the third quarter, and related costs of $152,000 were incurred in the quarter ended June 30, 2000 and costs of $463,000 were incurred in the three months ended September 30, 2000. Marketing, general and administrative expenses include $2,840,000 and $127,000 of noncash stock compensation expenses related to options and warrants issued to employees and non-employee consultants for the nine months ended September 30, 2000 and 1999, respectively. Amortization of Patents and Goodwill. We reported amortization expenses relating to patents and goodwill of $1,571,000 during the nine months ended September 30, 2000, which was an increase from $1,205,000 during the nine months ended September 30, 1999. As a result of our purchase of additional equity interests in Soundview Technologies in July 1997 and January 1998, in MerkWerks in January 1998 and June 1999, and in CombiMatrix in July 2000, we are incurring amortization expenses each quarter for periods ranging from three to five years relating to the intangible assets acquired. Amortization expenses at or above the current level are expected to continue for the foreseeable future. Other Income (Expense) We reported other income of $1,043,000 for the nine months ended September 30, 2000 compared to other expense of $859,000 for the nine months ended September 30, 1999. Interest Income. During the nine months ended September 30, 2000, interest income was $2,370,000 as compared to interest income during the nine months ended September 30, 1999, of $217,000. The increase is due to higher cash balances in the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999. We received $56 million in cash from outside investors in connection with our warrant call and private placements for Acacia, Soundbreak.com and CombiMatrix during the nine months ended September 30, 2000. Interest Expense. Interest expense for the nine months ended September 30, 2000 was $1,000 as compared to $123,000 during the nine months ended September 30, 1999. The expense incurred during the nine months ended September 30, 1999 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. During the fourth quarter of 1999, CombiMatrix offered holders of the unsecured subordinated notes the opportunity to convert their outstanding principal balance into CombiMatrix Common Stock and all noteholders had converted as of December 1999. Equity in Loss of Partnerships. We reported no equity in loss of partnerships in the nine months ended September 30, 2000, compared to equity in loss of partnerships of $47,000 for the nine months ended September 30, 1999. The decrease was a result of the liquidation of the partnerships during 1999. Equity in Losses of Affiliates. We reported equity in losses of affiliates of $1,353,000 in the nine months ended September 30, 2000, compared to equity in losses of affiliates of $906,000 in the nine months ended September 30, 1999. Losses during the nine months ended September 30, 2000 were primarily attributable to a loss of $865,000 for our investment in Mediaconnex. This amount was offset by a decrease in the recognized losses for Whitewing Labs, Greenwich, and Signature-mail.com totaling $489,000 for the nine months ended September 30, 2000 as compared to $906,000 for the nine month period ended September 30, 1999. Minority Interests Minority interests in the losses of consolidated subsidiaries increased to $11,969,000 in the nine months ended September 30, 2000 as compared to $357,000 in the nine months ended September 30, 1999. The increase in minority interests relates to the CombiMatrix private placements and Soundbreak.com initial funding and private placements. Minority shareholders participated in the losses of CombiMatrix and Soundbreak.com for the nine months ended September 30, 2000. 13 For the Three Months Ended September 30, 2000 and September 30, 1999 Revenues Advertising. During the three months ended September 30, 2000, advertising income was $18,000 as compared to no advertising income during the three months ended September 30, 1999. Revenues attributable to advertising were earned by a newly acquired company. Capital Management Fees. During the three months ended September 30, 2000, capital management fee income, which includes performance fee income, was $0 as compared to $25,000 in capital management fee income generated during the three months ended September 30, 1999. No capital management fee income was earned during the three months ended September 30, 2000, because we closed the Acacia Capital Management division on December 31, 1999. Costs associated with exiting this business were not material. Operating Expenses Total operating expenses increased to $16,993,000 during the three months ended September 30, 2000 from $2,394,000 during the three months ended September 30, 1999 primarily due to expenses relating to the operating activities of Soundbreak.com, an increase in our compensation costs and rent for larger office facilities, a charge for acquired in-process research and development, and an expansion of CombiMatrix's research and development efforts. Research and Development Expenses. We incurred research and development expenses of $5,947,000 for the three months ended September 30, 2000, compared to expenses of $1,150,000 during the three months ended September 30, 1999. Such expenses for the three months ended September 30, 2000 are comprised of expenses primarily incurred by CombiMatrix, which increased to $3,413,000 from $635,000 in the prior period, due to an increase in the number of CombiMatrix personnel and laboratory facilities as it expanded its research and development efforts, and $2,508,000 of acquired in process research and development expense resulting from the acquisition of additional ownership position from existing CombiMatrix shareholders. In July, 2000 we increased our ownership of CombiMatrix from 51.8% to 61.4%. Marketing, General and Administrative Expenses. We incurred marketing, general and administrative expenses of $10,338,000 for the three months ended September 30, 2000, compared to expenses of $827,000 during the three months ended September 30, 1999. During the three months ended September 30, 2000, these expenses increased due to general expansion of the Company, including an increase in business development expenses as we explore new business opportunities, an increase in office expenses relating to our move to larger office facilities, and an increase in salaries and fringe benefits primarily due to an increase in the number of our personnel as well as higher wages and payroll expenses. Soundbreak.com's marketing, general and administrative expenses were $5,112,000 for the three months ended September 30, 2000. Of this amount, approximately $4,200,000 is attributable to marketing expenses, which were spent in connection with Soundbreak.com's initial advertising campaign. CombiMatrix has increased its employee base and has made extensive use of consultants to assist in solving specialized issues or providing particular services. Product development and commercialization relating to CombiMatrix's technology will require additional personnel in areas such as regulatory affairs, marketing and general operations. We anticipate that CombiMatrix will continue to hire additional managerial and clerical employees in future periods. In addition, during June 2000, CombiMatrix relocated from the San Francisco bay area to the Seattle, Washington area. This relocation was completed during the third quarter and related costs of $463,000 were incurred in the three months ended September 30, 2000. Marketing, general and administrative expenses include $2,320,000 and $77,000 of noncash stock compensation expenses related to options and warrants issued to employees and non-employee consultants in the three months ended September 30, 2000 and 1999, respectively. 14 Amortization of Patents and Goodwill. We reported amortization expenses relating to patents and goodwill of $708,000 during the three months ended September 30, 2000, which was an increase from $417,000 during the three months ended September 30, 1999. As a result of our purchase of additional equity interests in Soundview Technologies in July 1997 and January 1998, in MerkWerks in January 1998 and June 1999, and in CombiMatrix in August 1999 and July 2000, we are incurring amortization expenses each quarter for periods ranging from three to five years relating to the intangible assets acquired. Amortization expenses at or above the current level are expected to continue for the foreseeable future. Other Income (Expense) We reported other income of $635,000 for the three months ended September 30, 2000 compared to other expense of $351,000 for the three months ended September 30, 1999. Interest Income. During the three months ended September 30, 2000, interest income was $1,161,000 as compared to interest income during the three months ended September 30, 1999, of $73,000. The increase is due to higher cash balances in the three months ended September 30, 2000 as compared to the three months ended September 30, 1999. We received $23.7 million in cash from outside investors in connection with our private placement and CombiMatrix private placement during the three months ended September 30, 2000. Interest Expense. Interest expense for the three months ended September 30, 2000 was $0 as compared to $41,000 during the three months ended September 30, 1999. The expense incurred during the three months ended June 30, 1999 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. During the fourth quarter of 1999, CombiMatrix offered holders of the unsecured subordinated notes the opportunity to convert their outstanding principal balance into CombiMatrix Common Stock and all noteholders had converted as of December 1999. Equity in Loss of Partnerships. We reported no equity in loss of partnerships in the three months ended September 30, 2000, compared to equity in income of partnerships of $98,000 for the three months ended September 30, 1999. The decrease was a result of the liquidation of the partnerships during 1999. Equity in Losses of Affiliates. We reported equity in losses of affiliates of $529,000 in the three months ended September 30, 2000, compared to equity in losses of affiliates of $285,000 in the three months ended September 30, 1999. Losses during the three months ended September 30, 2000 were primarily attributable to a loss of $322,000 for our investment in Mediaconnex. This amount was offset by a decrease in the recognized losses for Whitewing Labs, Greenwich, and Signature-mail.com totaling $207,000 for the three months ended September 30, 2000 as compared to $285,000 for the three month period ended September 30, 1999. Minority Interests Minority interests in the losses of consolidated subsidiaries increased to $5,405,000 in the three months ended September 30, 2000 as compared to $357,000 in the three months ended September 30, 1999. The increase in minority interests relates to the CombiMatrix private placements and Soundbreak.com initial funding and private placements. Minority shareholders participated in the losses of CombiMatrix and Soundbreak.com for the three months ended September 30, 2000. 15 Liquidity and Capital Resources At September 30, 2000, we had cash and short-term investments of $85.3 million on a consolidated basis, of which the parent company had $25.5 million and our subsidiaries had $59.7 million. Working capital was $81.8 million on a consolidated basis at September 30, 2000. Highlights of the financing and commitment activities for the nine months ended September 30, 2000 include: First Quarter: . $14.8 million of proceeds received from the exercise of common stock purchase warrants issued in the December 1999 private placement. . $17.5 million of gross proceeds from a private equity financing completed for CombiMatrix, in which we contributed $10 million. . $19 million of gross proceeds from a private equity financing completed for Soundbreak.com, in which we contributed $9 million. Second Quarter: . We entered into a lease commitment for additional office space, which increased our monthly lease payment from approximately $22,000 to $26,000. The amendment calls for reimbursement of improvements to the expansion space approximating $19,000 by the landlord. The lease began October 1, 2000 and ends in November 2003. . Acacia Launchpad LLC entered into a one-year lease commitment for new office space. The monthly lease payments are approximately $14,000 per month. Third Quarter: . In July 2000, we increased our ownership of CombiMatrix from 51.8% to 61.4%. We acquired the additional ownership position from existing shareholders of CombiMatrix in exchange for approximately 489,000 restricted shares of Acacia's common stock. . $23.7 million of gross proceeds from a private equity financing. . $36.0 million of gross proceeds from a private equity financing completed for CombiMatrix, in which we contributed $17.5 million. We have no committed lines of credit or other committed funding. However, we anticipate that existing working capital reserves will provide sufficient funds for our operating expenses and investment activities for at least the next twelve months. For new or existing businesses that require additional capital needs above the funds provided by us, we intend to seek additional financing. There can be no assurance that we will not encounter unforeseen difficulties that may deplete our capital resource 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk We are not a party to derivative financial instruments at or during the three month period ended September 30, 2000. 16 PART II OTHER INFORMATION Item 2. Changes in Securities In July 2000, the Company sold 861,638 units to accredited investors at a purchase price of $27.50 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 $33.00 per share, subject to adjustment, and expires on July 20, 2003. Finders involved in this transaction received finders fees at a rate of $2.093 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 and Regulation D promulgated thereunder. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K None 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACACIA RESEARCH CORPORATION /s/ Paul Ryan By: _________________________________ Paul Ryan Chief Executive Officer (Authorized Signatory) /s/ Mary Rose Colonna By: _________________________________ Mary Rose Colonna Vice President of Finance/Controller (Chief Accounting Officer) Date: November 14, 2000 18 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-2000 SEP-30-2000 44,485 0 82 0 0 86,497 3,142 835 110,732 4,673 0 0 0 116,097 (37,896) 110,732 0 57 0 33,794 (1,043) 0 1 (32,694) 29 (32,665) 0 0 0 (20,696) (1.42) (1.42)
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