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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
(AMENDMENT NO. 2)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NO. 0-26068
------------------------
ACACIA RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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 (Zip Code)
offices)
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Registrant's telephone number, including area code: (626) 396-8300
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /.
At May 3, 2000 the registrant had 14,497,548 shares of Common Stock, $0.001
par value, issued and oustanding.
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ACACIA RESEARCH CORPORATION
TABLE OF CONTENTS
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<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets................................. 3
Consolidated Statements of Operations....................... 4
Consolidated Statements of Cash Flows....................... 5
Notes to Consolidated Financial Statements.................. 6
SIGNATURE...................................................................................... 9
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INTRODUCTORY NOTE
The Registrant amends its Form 10-Q for the period ended March 31, 2000 to
revise disclosure regarding loss per share in Note 2 to the Consolidated
Financial Statements.
2
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ACACIA RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
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<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
--------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 62,171 $ 37,631
Management fees and other receivables..................... 33 60
Receivables from affiliates............................... 11 318
Deposit on investment..................................... -- 3,000
Prepaid expenses.......................................... 3,176 208
-------- --------
Total current assets.................................... 65,391 41,217
Property and equipment, net................................. 1,623 1,154
Investment in affiliates, at equity......................... 4,350 4,636
Investment in affiliates, at cost........................... 3,000 --
Patents, net of accumulated amortization.................... 3,283 3,534
Goodwill, net of accumulated amortization................... 885 1,012
Other assets................................................ 398 238
-------- --------
$ 78,930 $ 51,791
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses..................... $ 1,554 $ 1,293
-------- --------
Total current liabilities............................... 1,554 1,293
Other liabilities........................................... 340 340
-------- --------
Total liabilities....................................... 1,894 1,633
-------- --------
Minority interests.......................................... 19,522 4,896
-------- --------
Stockholders' equity
Common stock, par value $.001 per share;
60,000,000 shares authorized; 14,373,498 shares in 2000
and 13,607,193 shares in 1999 issued and outstanding.... 14 14
Additional paid-in capital................................ 78,155 62,283
Warrants to purchase common stock......................... -- 58
Accumulated deficit....................................... (20,655) (17,093)
-------- --------
Total stockholders' equity.............................. 57,514 45,262
-------- --------
$ 78,930 $ 51,791
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
MARCH 31, 2000 MARCH 31, 1999
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Grant income.............................................. $ 17 $ --
Capital management fee income............................. -- 61
---------- ----------
Total revenues............................................ 17 61
---------- ----------
Operating expenses:
Research and development expenses......................... 734 469
Marketing, general, and administrative expenses........... 4,586 832
Amortization of patents and goodwill...................... 417 390
---------- ----------
Total operating expenses.................................. 5,737 1,691
---------- ----------
Operating loss............................................ (5,720) (1,630)
---------- ----------
Other income (expense):
Interest income........................................... 427 72
Interest expense.......................................... (1) (41)
Equity in income (loss) of partnerships................... -- 44
Equity in losses of affiliates............................ (286) (433)
Other income.............................................. 20 --
---------- ----------
Total other income (expense).............................. 160 (358)
---------- ----------
Loss before income taxes and minority interests............. (5,560) (1,988)
Provision for income taxes.................................. (7) (16)
---------- ----------
Loss before minority interests.............................. (5,567) (2,004)
Minority interests.......................................... 2,005 --
---------- ----------
Net loss.................................................... $ (3,562) $ (2,004)
========== ==========
Loss per common share
Basic..................................................... $ (0.26) $ (0.20)
Diluted................................................... $ (0.26) $ (0.20)
Weighted average number of common and potential common
shares outstanding used in computation of loss per share
Basic..................................................... 13,852,360 10,209,926
Diluted................................................... 13,852,360 10,209,926
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
MARCH 31, 2000 MARCH 31, 1999
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(3,562) $(2,004)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 515 439
Amortization of discount on notes payable................. -- 20
Equity in loss of affiliates and partnerships............. 286 389
Minority interest in net loss............................. (2,005) --
Compensation expense relating to stock options/warrants... 508 24
Other..................................................... -- 9
Changes in assets and liabilities, net of effects of
acquisitions:
Management fees and other receivables, prepaid expenses,
and other assets........................................ (2,794) 278
Accounts payable, accrued expenses and other
liabilities............................................. 261 (99)
------- -------
Net cash used in operating activities..................... (6,791) (944)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equity investments, net of cash acquired...... -- (2)
Purchase of partnership interest.......................... -- (37)
Capitalized expenditures.................................. (606) (92)
------- -------
Net cash used in investing activities..................... (606) (131)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable............................... -- 120
Proceeds from exercise of stock options and warrants...... 15,431 --
Capital contributions from minority shareholders of
subsidiaries............................................ 16,506 --
------- -------
Net cash provided by financing activities................. 31,937 120
------- -------
Increase in cash and cash equivalents....................... 24,540 (955)
Cash and cash equivalents, beginning........................ 37,631 7,508
------- -------
Cash and cash equivalents, ending........................... $62,171 $ 6,553
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Acacia Research Corporation (the "Company") was incorporated on January 25,
1993 under the laws of the State of California. On December 28, 1999, the
Company changed its state of incorporation from California to Delaware. As a
result, all shares of the Company's common stock were converted into shares of
the Delaware corporation. The stockholders also approved an increase in the
number of the Company's authorized shares of common stock from 30 million to
60 million and authorized the issuance of up to 20 million shares of preferred
stock, whose rights, privileges, preferences, and powers would be determined at
a later date. Acacia Research is currently engaged in developing new
technology-related businesses. By providing seed capital, critical management
and technical advice, and on-going operational support, the Company provides 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. The
Company also obtains ownership positions, through strategic investments, in
businesses that fit well with existing operating companies.
At March 31, 2000, the Company had significant economic interests in eight
companies and takes an active role in each company's growth and advancement.
These companies are: Acacia Launchpad LLC ("Launchpad"), MerkWerks Corporation
("MerkWerks"), Soundbreak.com Incorporated ("Soundbreak.com"), Soundview
Technologies Incorporated ("Soundview Technologies"), CombiMatrix Corporation
("CombiMatrix"), Signature-mail.com llc ("Signature-mail.com"), Mediaconnex
Communications, Inc. ("Mediaconnex"), and Greenwich Information Technologies LLC
("Greenwich Information Technologies").
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 the December 1999 private placement. Holders of
these warrants had 30 days to redeem the notice at an exercise 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 50.0% to 51.8%.
CombiMatrix issued warrants in conjunction with the private placement for
finders fees. A total of 22,036 warrants to purchase CombiMatrix's common stock
at a per share exercise price of $5.00 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 decreased its
equity ownership in Soundbreak.com 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
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ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 March 31, 2000 and the consolidated results
of operations and cash flows for the three months ended March 31, 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.
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
2000 1999
---------- ---------
<S> <C> <C>
Weighted Average Number of Common Shares Outstanding
Computation of Basic EPS.................................. 13,852,360 10,209,926
Dilutive Effect of Outstanding Stock Option and Warrants
(a)....................................................... -- --
Weighted Average Number of Common and Potential Common
Shares Outstanding Used in Computation of Diluted EPS..... 13,852,360 10,209,926
</TABLE>
(a) Potential common shares of 1,565,304 and 410,587 for the three months ended
March 31, 2000 and March 31, 1999, respectively, have been excluded for the
per share calculation because the effect of their inclusion would be
anti-dilutive.
3. SEGMENT INFORMATION
The Company has three reportable segments: Corporate Portfolio, CombiMatrix
and Soundbreak.com.
The Corporate Portfolio segment makes direct investments in emerging
corporations with intellectual property rights, most of which are involved in
developing new or unproven technologies.
CombiMatrix engages in a highly specialized and focused research effort in
combinatorial chemistry. It seeks to streamline the drug discovery process and
has demonstrated the preliminary feasibility of its proprietary technologies. It
is developing a proprietary biochip array processor system that integrates
semiconductor technology with new developments in biotechnology and chemistry.
Soundbreak.com has developed a dynamic website that fuses the live
entertainment value of radio with the power of the Internet. Initially targeting
lovers of alternative music, Soundbreak.com offers a robust web experience with
live, 24-hour global webcasts hosted by professional digital jocks, state of the
art graphics, and extensive communication and user feedback tools.
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.
7
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ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SEGMENT INFORMATION (CONTINUED)
The table below presents information about the Company's reportable segments
for the three months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
CORPORATE
2000 PORTFOLIO COMBIMATRIX SOUNDBREAK.COM OTHER TOTAL
---- --------- ----------- -------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue................................... $ -- $ 17 $ -- $ -- $ 17
Amortization of patents and goodwill...... 414 -- -- 3 417
Other income.............................. 20 -- -- -- 20
Interest income........................... 326 17 61 23 427
Interest expense.......................... 1 -- -- -- 1
Equity in losses of affiliates............ 286 -- -- -- 286
Loss before minority interests and income
taxes................................... 2,086 885 2,426 163 5,560
Segment assets............................ 35,666 18,221 22,838 2,205 78,930
Investments in affiliates, at equity...... 4,350 -- -- -- 4,350
Investments in affiliates, at cost........ 3,000 -- -- -- 3,000
Purchase of property and equipment........ 94 -- 474 -- 568
</TABLE>
<TABLE>
<CAPTION>
CORPORATE
1999 PORTFOLIO COMBIMATRIX OTHER TOTAL
---- --------- ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Management fee income.................................. $ 61 $ -- $ -- $ 61
Amortization of Patents and Goodwill................... 387 -- 3 390
Interest income........................................ 63 9 -- 72
Interest expense....................................... -- 41 -- 41
Equity in losses of affiliates......................... 433 -- -- 433
Equity in income of partnerships....................... 44 -- -- 44
Loss before minority interests and Income taxes........ 1,372 482 86 1,940
Segment assets......................................... 17,079 567 183 17,829
Investments in affiliates, at equity................... 3,047 -- -- 3,047
Partnerships interests, at equity...................... 1,912 -- -- 1,912
Capital expenditures................................... 70 22 -- 92
</TABLE>
8
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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.
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<S> <C> <C>
ACACIA RESEARCH CORPORATION
By: /s/ MARY ROSE COLONNA
-----------------------------------------
Mary Rose Colonna
VICE PRESIDENT, FINANCE, AND
CONTROLLER
(AUTHORIZED SIGNATORY)
</TABLE>
Date: October 2, 2000
9
