<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 2, 1998
ACACIA RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
California 0-26068 95-4405754
- -------------------------------------------------------------------------------
(State or other jurisdiction of (Commission File (Employer Identification No.)
incorporation) Number)
12 Raymond Avenue, Pasadena, California 91105
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (626) 449-6431
- -------------------------------------------------------------------------------
Not applicable.
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
This Form 8-K/A, Amendment No. 2 is being filed for the purpose of correcting
a typographical error to the "Report of Independent Accountants."
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements for Internet Software LLC for the periods from
October 6, 1997 (inception) through March 31, 1998. Financial
statements for the period October 6, 1997 (inception) through
December 31, 1997 have been audited.
(b) Pro forma financial information (unaudited).
(c) Exhibits
2.1* Amended and Restated Operating Agreement of Internet
Software LLC dated April 2, 1998 by and between H. Lee
Browne, Michael Lloyd, Nicholas E. K. Heckett, and Acacia
Research Corporation (certain portions omitted and filed
separately with the Securities and Exchange Commission
pursuant to an application for confidential treatment).
* Previously filed as an exhibit to registrant's Form 8-K filed on
April 17, 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
/s/ Paul R. Ryan
- ----------------
By: Paul R. Ryan
President and Chief Executive Officer
DATED: June 25, 1998
<PAGE>
Financial Statements
INTERNET SOFTWARE LLC
(A development stage enterprise)
For the Periods from October 6, 1997 (inception) through March 31, 1998
<PAGE>
Internet Software LLC
(A development stage enterprise)
Table of Contents
<TABLE>
<S> <C>
Report of Independent Accountants 1
Financial Statements
Balance Sheets 2
Statements of Operations 3
Statements of Members' Deficit 4
Statements of Cash Flows 5
Notes to Financial Statements 6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Internet Software LLC
(A development stage enterprise)
In our opinion, the accompanying balance sheet and the related statements of
operations, of members' deficit and of cash flows present fairly, in all
material respects, the financial position of Internet Software LLC (a
development stage enterprise) at December 31, 1997, and the results of its
operations and its cash flows for the period from October 6, 1997 (inception)
through December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
Los Angeles, California
June 5, 1998
<PAGE>
INTERNET SOFTWARE LLC
(A development stage enterprise)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 25,549 $ 22,640
-------- --------
Total current assets 25,549 22,640
Equipment, furniture, and fixtures, net 8,899 8,439
Patents 15,041 32,760
-------- --------
$ 49,489 $ 63,839
-------- --------
-------- --------
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 63,068 $ 94,635
-------- --------
Total current liabilities 63,068 94,635
Note payable to Member 0 70,000
-------- --------
Total liabilities 63,068 164,635
-------- --------
Members' deficit (13,579) (100,796)
-------- --------
$ 49,489 $ 63,839
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
<PAGE>
INTERNET SOFTWARE LLC
(A development stage enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
October 6, 1997 (inception) (Unaudited) October 6, 1997 (inception)
through Three months ended through
December 31, 1997 March 31, 1998 March 31, 1998
--------------------------- ------------------ ---------------------------
<S> <C> <C> <C>
Expenses
Marketing, general, and administrative expenses $ 56,253 $ 64,945 $ 121,198
Research and development expenses 117,326 56,368 173,694
--------- --------- ---------
Total expenses 173,579 121,313 294,892
--------- --------- ---------
Net loss $173,579 $121,313 $294,892
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
<PAGE>
INTERNET SOFTWARE LLC
(A development stage enterprise)
STATEMENTS OF MEMBERS' DEFICIT
<TABLE>
<CAPTION>
Managing Non-Managing
Members Member Total
-------- ------------ ----------
<S> <C> <C> <C>
1997
Balance at October 6, 1997 (inception) $ 0 $ 0 $ 0
Contributions 10,000 150,000 160,000
Net loss (156,221) (17,358) (173,579)
--------- -------- ---------
Balance at December 31, 1997 (146,221) 132,642 (13,579)
1998
Contributions 39,096 0 39,096
Withdrawals (5,000) 0 (5,000)
Net loss (109,182) (12,131) (121,313)
--------- -------- ---------
Balance at March 31, 1998 (Unaudited) $(221,307) $120,511 $(100,796)
--------- -------- ---------
--------- -------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
<PAGE>
INTERNET SOFTWARE LLC
(A development stage enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
October 6, 1997 (inception) (Unaudited) October 6, 1997 (inception)
through Three months ended through
December 31, 1997 March 31, 1998 March 31, 1998
--------------------------- ------------------ ---------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(173,579) $(121,313) $(294,892)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 307 460 767
Increase in accounts payable 63,068 31,567 94,635
--------- --------- ---------
Net cash used in operating activities (110,204) (89,286) (199,490)
--------- --------- ---------
Cash flows from investing activities:
Increase in patents (15,041) (17,719) (32,760)
Purchase of equipment, furniture and fixtures (9,206) 0 (9,206)
--------- --------- ---------
Net cash used in investing activities (24,247) (17,719) (41,966)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from note payable to Member 0 70,000 70,000
Withdrawal of capital by Member 0 (5,000) (5,000)
Capital contributions from Members 160,000 39,096 199,096
--------- --------- ---------
Net cash provided by financing activities 160,000 104,096 264,096
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 25,549 (2,909) 22,640
Cash and cash equivalents, beginning 0 25,549 0
--------- --------- ---------
Cash and cash equivalents, ending $ 25,549 $ 22,640 $ 22,640
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
INTERNET SOFTWARE LLC (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. DEVELOPMENT STAGE COMPANY
Internet Software LLC (the "Company") (formerly known as Greenwich
Technologies LLC), a Delaware Limited Liability Company, was formed on
October 6, 1997 and expires on December 31, 2047. The Company maintains
offices in the State of Connecticut. The Company has developed
proprietary software products for use on the Internet. Two of the
Company's managers founded the Company and participated in the creation of
the Company's technologies, which have been under development for the past
two years. The first product, scheduled for release in July 1998, will be
targeted for broad-base usage by individuals and corporations. The
Company has five patent applications pending as well as other intellectual
property. There is no assurance that any or all of such technologies will
be successful, and even if successful, that the development of such
technologies can be commercialized.
The Company is a development stage enterprise and has incurred losses
since its inception. At December 31, 1997, the Company had members'
deficit of $13,579 and losses during the development stage of $173,579.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents.
EQUIPMENT, FURNITURE AND FIXTURES - Equipment, furniture and fixtures
are recorded at cost. Depreciation is computed on the straight-line
basis over the estimated life of the assets, which is estimated to be
approximately five years.
PATENTS - Patents, once issued, are amortized on the straight-line method
over their estimated remaining useful lives.
RESEARCH AND DEVELOPMENT - Costs for research and development efforts
are charged to operations when incurred.
UNAUDITED INFORMATION - The information presented as of March 31, 1998
and for the period from October 6, 1997 (inception) through March 31,
1998 and from January 1, 1998 to March 31, 1998, has not been audited.
In the opinion of management, the unaudited information includes all
adjustments, consisting only of normal recurring adjustments, necessary
to present fairly the results for the periods presented. The
information disclosed in the notes to the financial statements as of
such dates and for such periods are also unaudited.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial
instruments include cash and cash equivalents and accounts payable. The
carrying value of these financial instruments approximates fair value
due to their short-term maturity.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates the
recoverability of long-lived assets by measuring the carrying amount of
the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not
sufficient to recover the carrying value of such assets, the assets are
adjusted to their fair values. Based on these evaluations, there were
no adjustments to the carrying value of long-lived assets for the
periods ending March 31, 1998 and December 31, 1997.
6
<PAGE>
INTERNET SOFTWARE LLC (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from these estimates.
INCOME TAXES - The Company intends to elect to file its federal and
state income tax returns under the Limited Liability Company (LLC)
provisions of the Internal Revenue Code and related state tax codes,
allowing the Company partnership tax treatment. All Members are
responsible for taxes, if any, on their proportionate share of taxable
income.
ORGANIZATION - Per the operating agreement, the business and affairs of
the Company are managed by the Managing Members except for situations in
which the approval of the Members is expressly required. Allocation
of income and losses is allocated in accordance with the operating
agreement and is proportionate to ownership interest.
3. EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture, and fixtures consist of the following at December
31, 1997:
<TABLE>
<S> <C>
Computer equipment $ 8,556
Furniture and fixtures 650
--------
9,206
Accumulated depreciation (307)
--------
$8,899
--------
--------
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
In December 1997, the Company entered into a licensing agreement to obtain
and protect the Company's right to produce certain software products
designed for use on the Internet. Such agreement contains a provision for
minimum royalty payments over the terms of the licensing agreement of
approximately $2,500 per annum, beginning in fiscal 1998 and continuing
through approximately 2003. The Company paid $3,500 to enter the agreement
and as of March 31, 1998, no royalty payments had been made.
5. NOTE PAYABLE TO MEMBER
As of March 31, 1998, the Company had a note payable to a Member of the
Company in connection with a loan, proceeds of which were to be used for
working capital. The note bore interest at a rate of 10% per annum and was
due June 5, 1998. As of April 2, 1998, the note, including accrued
interest, was paid in full.
7
<PAGE>
INTERNET SOFTWARE LLC (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
6. SUBSEQUENT EVENT
On April 2, 1998, Acacia Research Corporation purchased a 25% membership
interest from the Company in exchange for $2,500,000 in cash. A Managing
Member of the Company is an officer of a subsidiary of Acacia Research
Corporation and is also a significant shareholder but not an officer or
director of Acacia Research Corporation. Concurrent with this purchase,
the Company's operating agreement was amended to provide for Senior Member
status for all existing Members and Acacia Research Corporation. Senior
Members will be entitled to, among other things, appoint Managers of the
Company to manage the operations of the Company.
8
<PAGE>
ACACIA RESEARCH CORPORATION
Pro Forma Financial Information
(Unaudited)
The following pro forma financial information reflects the acquisition by
Acacia Research Corporation ("Acacia Research") on April 2, 1998 of a 25%
interest in Internet Software LLC. The purchase price for the 25% interest
in Internet Software LLC consisted of $2,500,000 in cash. Acacia Research
will account for its investment using the equity method.
The unaudited pro forma balance sheet at March 31, 1998 gives effect to the
investment in Internet Software LLC assuming the transaction was consummated
as of March 31, 1998. The unaudited pro forma statements of operations for
the period ended December 31, 1997 and the three months ended March 31, 1998
give effect to the acquisition of Internet Software LLC assuming the
transaction was consummated as of the beginning of the periods presented.
The unaudited pro forma statements of operations are not necessarily
indicative of the operating results that would have been achieved had the
acquisition been consummated as presented; and should not be construed as
representative of future operating results. The pro forma financial
information should also be read in conjunction with Acacia Research's
consolidated financial statements and notes thereto set forth in its Annual
Report on Form 10-K for the year ended December 31, 1997 and its quarterly
report on Form 10-Q for the three months ended March 31, 1998.
Acacia Research's investment in Internet Software LLC was made with proceeds
of a private equity financing completed on March 29, 1998, which was
primarily targeted for this acquisition. Acacia Research raised gross
proceeds of $3.65 million in this private equity financing through the sale
of 317,393 units, each unit consisting of one share of Acacia Research common
stock and one three-year callable stock purchase warrant.
<PAGE>
ACACIA RESEARCH CORPORATION
PRO FORMA BALANCE SHEET
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustmemts As Adjusted
------------ -------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 6,106,042 $ (2,500,000)(a) $ 3,606,042
Management fees and other receivables 52,856 52,856
Receivables from affiliates 27,084 27,084
Prepaid expenses 98,993 98,993
Income tax receivable 110,000 110,000
----------- ------------ -----------
Total current assets 6,394,975 (2,500,000) 3,894,975
Equipment, furniture, and fixtures, net 235,943 235,943
Notes receivable, net 376,008 376,008
Investment in affiliates, at equity 1,552,305 2,500,000 (a) 4,052,305
Partnership interests, at equity 643,154 643,154
Patents, net of accumulated amortization 5,572,420 5,572,420
Goodwill, net of accumulated amortization 1,310,841 1,310,841
Organization costs, net of accumulated amortization 19,700 19,700
----------- ------------ -----------
$16,105,346 $ 0 $16,105,346
----------- ------------ -----------
----------- ------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 164,325 $ $ 164,325
Legal settlement payable 144,756 144,756
----------- ------------ -----------
Total current liabilities 309,081 0 309,081
Notes payable, net of discount 1,162,000 1,162,000
----------- ------------ -----------
Total liabilities 1,471,081 0 1,471,081
----------- ------------ -----------
Minority interests 90,374 0 90,374
----------- ------------ -----------
Stockholders' equity
Common stock, no par value; 10,000,000 shares
authorized; 3,965,580 shares issued and
outstanding 17,957,774 17,957,774
Warrants to purchase commom stock 384,739 384,739
Accumulated deficit (3,703,322) (3,703,322)
Note receivable secured by common stock (95,300) (95,300)
----------- ------------ -----------
Total stockholders' equity 14,543,891 0 14,543,891
----------- ------------ -----------
$ 16,105,346 $ 0 $16,105,346
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
(a) To record Acacia Research's purchase of a 25% interest in
Internet Software LLC in exchange for cash.
<PAGE>
ACACIA RESEARCH CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustmemts As Adjusted
------------ -------------- -------------
<S> <C> <C> <C>
Revenues
Equity in earnings (losses) of affiliates $ 15,800 $ (155,553)(a) $ (139,753)
Management fees 30,777 30,777
Interest income 16,189 16,189
---------- ---------- -----------
Total revenues 62,766 (155,553) (92,787)
---------- ---------- -----------
Expenses
Marketing, general, and administrative
expenses 484,816 484,816
Research and development expenses 367,543 367,543
Amortization of patents and goodwill 383,284 383,284
Interest expense 604 604
---------- ---------- -----------
Total expenses 1,236,247 0 1,236,247
---------- ---------- -----------
Loss before income taxes and minority interests (1,173,481) (155,553) (1,329,034)
Benefit for income taxes 0 0 0
---------- ---------- -----------
Loss before minority interests (1,173,481) (155,553) (1,329,034)
Minority interests (176,765) (176,765)
---------- ---------- -----------
Net loss $ (996,716) $ (155,553) $ (1,152,269)
---------- ---------- -----------
---------- ---------- -----------
Loss per common share
Basic ($0.30) ($0.35)
Diluted ($0.30) ($0.35)
Weighted average number of common and potential
common shares outstanding used in
computation of loss per share
Basic 3,336,701 3,336,701
Diluted 3,336,701 3,336,701
</TABLE>
(a) To record 25% equity in losses of Internet Software LLC;
including amortization of the excess of investment over
investor's share in the underlying net assets of investee
over a five year period.
<PAGE>
ACACIA RESEARCH CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustmemts As Adjusted
------------ -------------- -------------
<S> <C> <C> <C>
Revenues
Gain on sale of investments $ 49,475 $ $ 49,475
Equity in losses of affiliates (160,738) (165,970)(a) (326,708)
Management fees 490,966 490,966
Interest income 52,075 52,075
---------- ---------- ---------
Total revenues 431,778 (165,970) 265,808
---------- ---------- ---------
Expenses
Marketing, general, and administrative expenses 2,145,162 2,145,162
Research and development expenses 887,890 887,890
Amortization of patents and goodwill 459,147 459,147
Legal settlement expense 460,000 460,000
---------- ---------- ---------
Total expenses 3,952,199 0 3,952,199
---------- ---------- ---------
Loss before income taxes and minority interests (3,520,421) (165,970) (3,686,391)
Benefit for income taxes (250,132) (250,132)
---------- ---------- ---------
Loss before minority interests (3,270,289) (165,970) (3,436,259)
Minority interests (410,910) (410,910)
---------- ---------- ---------
Net loss $(2,859,379) $ (165,970) $ (3,025,349)
---------- ---------- ---------
---------- ---------- ---------
Loss per common share
Basic ($1.15) ($1.22)
Diluted ($1.15) ($1.22)
Weighted average number of common and potential
common shares outstanding used in computation of
loss per share
Basic 2,481,143 2,481,143
Diluted 2,481,143 2,481,143
</TABLE>
(a) To record 25% equity in losses of Internet Software LLC;
including amortization of the excess of investment over
investor's share in the underlying net assets of investee
over a five year period.
