acacia_10q-063007.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
__________________________________________________
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 2007
Commission
File Number 0-26068
ACACIA
RESEARCH CORPORATION
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
|
|
95-4405754
|
(State
or Other Jurisdiction of
|
|
(I.R.S.
Employer
|
Incorporation
or Organization)
|
|
Identification
No.)
|
|
|
|
|
|
|
500
Newport Center Drive, Newport Beach, CA
|
|
92660
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (949)
480-8300
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 filing requirements for
the
past 90 days.
Yes
þ
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
|
|
Accelerated
filer þ
|
|
Non-accelerated
filer ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes ¨ No þ
As
of
July 27, 2007, 29,356,953 shares of Acacia Research-Acacia Technologies common
stock were issued and outstanding. As of July 27, 2007 59,875,769 shares of
Acacia Research-CombiMatrix common stock were issued and
outstanding.
ACACIA
RESEARCH CORPORATION
Table
of Contents
Part
I. Financial Information
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
Acacia
Research Corporation Consolidated Financial Statements
|
|
|
|
|
|
Consolidated
Balance Sheets as of June 30, 2007 and December
31, 2006 (Unaudited)
|
1
|
|
|
|
|
Consolidated
Statements of Operations and Comprehensive Income (Loss) for the
Three
Months and Six Months Ended June 30, 2007
and
2006 (Unaudited)
|
2
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Six Months Ended June
30, 2007 and 2006 (Unaudited)
|
3
|
|
|
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
4
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results
of Operations
|
16
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
29
|
|
|
|
Item
4.
|
Controls
and Procedures
|
29
|
|
|
|
|
|
|
Part
II. Other Information
|
|
|
|
Item
1.
|
Legal
Proceedings
|
30
|
|
|
|
Item
1A.
|
Risk
Factors
|
30
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
30
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
31
|
|
|
|
Item
6.
|
Exhibits
|
31
|
|
|
|
Signatures
|
32
|
|
|
Exhibit
Index
|
33
|
*NOTE:
Refer to the Acacia Research Corporation consolidating unaudited segment
information for separate Acacia Technologies group and CombiMatrix group
financial information for the periods presented (Refer to Note 9). The separate
financial information of the two groups is being provided as additional
disclosure regarding the financial performance of the two divisions and to
provide investors with information regarding the potential value and operating
results of the respective businesses, which may affect the respective share
values. The separate financial information should be reviewed in conjunction
with Acacia Research Corporation’s consolidated financial statements and
accompanying notes. The presentation of separate financial information is
not
intended to indicate that we have changed the title to any of our assets
or
changed the responsibility for any of our liabilities, nor is it intended
to
indicate that the rights of our creditors have been changed. Acacia Research
Corporation, and not the individual groups, is the issuer of the securities.
Holders of the two securities are stockholders of Acacia Research Corporation
and do not have a separate and exclusive interest in the respective
groups.
ACACIA
RESEARCH CORPORATION
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share and per share information)
(Unaudited)
|
|
June
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
35,067
|
|
$
|
32,215
|
|
Short-term
investments
|
|
|
15,308
|
|
|
12,783
|
|
Accounts
receivable
|
|
|
2,180
|
|
|
269
|
|
Prepaid
expenses, inventory, and other assets
|
|
|
1,403
|
|
|
1,187
|
|
Total
current assets related to discontinued operations - Split-off of
CombiMatrix Corporation
|
|
|
13,991
|
|
|
15,552
|
|
Total
current assets
|
|
|
67,949
|
|
|
62,006
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
|
|
322
|
|
|
221
|
|
Patents,
net of accumulated amortization
|
|
|
17,279
|
|
|
18,515
|
|
Goodwill
|
|
|
121
|
|
|
121
|
|
Other
assets
|
|
|
84
|
|
|
79
|
|
Total
non-current assets related to discontinued operations - Split-off
of
CombiMatrix Corporation
|
|
|
27,261
|
|
|
28,662
|
|
|
|
$
|
113,016
|
|
$
|
109,604
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
2,147
|
|
$
|
2,201
|
|
Royalties
and legal fees payable
|
|
|
2,176
|
|
|
1,684
|
|
Deferred
revenues
|
|
|
251
|
|
|
360
|
|
Total
current liabilities related to discontinued operations - Split-off
of
CombiMatrix Corporation
|
|
|
2,263
|
|
|
3,211
|
|
Total
current liabilities
|
|
|
6,837
|
|
|
7,456
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
67
|
|
|
31
|
|
Total
non-current liabilities related to discontinued operations - Split-off
of
CombiMatrix Corporation
|
|
|
10,318
|
|
|
7,808
|
|
Total
liabilities
|
|
|
17,222
|
|
|
15,295
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
stockholders' equity:
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
|
|
|
|
|
Acacia
Research Corporation, par value $0.001 per share; 10,000,000 shares
authorized;
|
|
|
|
|
|
|
|
no
shares issued or outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock
|
|
|
|
|
|
|
|
Acacia
Research - Acacia Technologies stock, par value $0.001 per share;
100,000,000
|
|
|
|
|
|
|
|
shares
authorized; 29,356,953 and 28,231,701 shares issued and outstanding
as
of
|
|
|
|
|
|
|
|
June
30, 2007 and December 31, 2006, respectively
|
|
|
29
|
|
|
28
|
|
Acacia
Research - CombiMatrix stock, par value $0.001 per share; 100,000,000
shares
|
|
|
|
|
|
|
|
authorized;
59,875,769 and 50,365,810 shares issued and outstanding as
of
|
|
|
|
|
|
|
|
June
30, 2007 and December 31, 2006, respectively
|
|
|
60
|
|
|
50
|
|
Additional
paid-in capital
|
|
|
333,089
|
|
|
326,599
|
|
Accumulated
comprehensive income
|
|
|
(5
|
)
|
|
2
|
|
Accumulated
deficit
|
|
|
(237,379
|
)
|
|
(232,370
|
)
|
Total
stockholders' equity
|
|
|
95,794
|
|
|
94,309
|
|
|
|
$
|
113,016
|
|
$
|
109,604
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
ACACIA
RESEARCH CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In
thousands, except share and per share information)
(Unaudited)
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2007
|
|
June
30, 2006
|
|
June
30, 2007
|
|
June
30, 2006
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
5,865
|
|
$
|
14,371
|
|
$
|
31,050
|
|
$
|
19,088
|
|
Total
revenues
|
|
|
5,865
|
|
|
14,371
|
|
|
31,050
|
|
|
19,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing,
general and administrative expenses (including non-cash
stock compensation expense of $1,144 and $1,907 for the three and six
months ended June 30, 2007 and $889 and $1,937 for the three
and six
months ended June 30, 2006)
|
|
|
4,190
|
|
|
2,986
|
|
|
8,518
|
|
|
6,492
|
|
Legal
expenses - patents
|
|
|
1,069
|
|
|
1,082
|
|
|
2,436
|
|
|
1,448
|
|
Inventor
royalties and contingent legal fees expense - patents
|
|
|
3,406
|
|
|
7,847
|
|
|
17,528
|
|
|
10,118
|
|
Amortization
of patents
|
|
|
1,314
|
|
|
1,326
|
|
|
2,630
|
|
|
2,669
|
|
Write-off
of patent-related intangible asset
|
|
|
-
|
|
|
297
|
|
|
-
|
|
|
297
|
|
Total
operating expenses
|
|
|
9,979
|
|
|
13,538
|
|
|
31,112
|
|
|
21,024
|
|
Operating
income (loss)
|
|
|
(4,114
|
)
|
|
833
|
|
|
(62
|
)
|
|
(1,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and investment income
|
|
|
650
|
|
|
394
|
|
|
1,057
|
|
|
753
|
|
Total
other income
|
|
|
650
|
|
|
394
|
|
|
1,057
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes
|
|
|
(3,464
|
)
|
|
1,227
|
|
|
995
|
|
|
(1,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(124
|
)
|
|
(70
|
)
|
|
(148
|
)
|
|
(38
|
)
|
Income
(loss) from continuing operations - Acacia Technologies
group
|
|
|
(3,588
|
)
|
|
1,157
|
|
|
847
|
|
|
(1,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - Split-off of CombiMatrix Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations - Split-off of CombiMatrix
Corporation
|
|
|
(3,667
|
)
|
|
(3,500
|
)
|
|
(5,800
|
)
|
|
(11,220
|
)
|
Net
income (loss)
|
|
|
(7,255
|
)
|
|
(2,343
|
)
|
|
(4,953
|
)
|
|
(12,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short-term investments
|
|
|
(9
|
)
|
|
4
|
|
|
(8
|
)
|
|
3
|
|
Unrealized
gains on foreign currency translation
|
|
|
1
|
|
|
-
|
|
|
1
|
|
|
4
|
|
Sale
of interest in subsidiary's cumulative translation
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(61
|
)
|
Comprehensive
income (loss)
|
|
$
|
(7,263
|
)
|
$
|
(2,339
|
)
|
$
|
(4,960
|
)
|
$
|
(12,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations - Attributable to the Acacia Technologies
group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) from continuing operations
|
|
$
|
(3,588
|
)
|
$
|
1,157
|
|
$
|
847
|
|
$
|
(1,221
|
)
|
Basic
earnings (loss) per share
|
|
|
(0.13
|
)
|
|
0.04
|
|
|
0.03
|
|
|
(0.04
|
)
|
Diluted
earnings (loss) per share
|
|
|
(0.13
|
)
|
|
0.04
|
|
|
0.03
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - Attributable to the CombiMatrix group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations - Split-off of CombiMatrix
Corporation
|
|
$
|
(3,667
|
)
|
$
|
(3,500
|
)
|
$
|
(5,800
|
)
|
$
|
(11,220
|
)
|
Basic
and diluted loss per share
|
|
|
(0.06
|
)
|
|
(0.09
|
)
|
|
(0.11
|
)
|
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acacia
Research - Acacia Technologies stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,298,328
|
|
|
27,507,024
|
|
|
28,071,069
|
|
|
27,454,066
|
|
Diluted
|
|
|
28,298,328
|
|
|
30,324,732
|
|
|
31,064,677
|
|
|
27,454,066
|
|
Acacia
Research - CombiMatrix stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
57,143,839
|
|
|
39,018,844
|
|
|
54,842,813
|
|
|
39,005,696
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
ACACIA
RESEARCH CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2007
|
|
June
30, 2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(4,953
|
) |
$
|
(12,441
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,687
|
|
|
2,704
|
|
Non-cash
stock compensation
|
|
|
1,907
|
|
|
1,937
|
|
Deferred
taxes
|
|
|
-
|
|
|
(36
|
)
|
Loss
on disposal of discontinued operations
|
|
|
5,800 |
|
|
11,220 |
|
Write-off
of patent-related intangible asset
|
|
|
-
|
|
|
297
|
|
Other
|
|
|
(21
|
)
|
|
(87
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,911
|
)
|
|
696
|
|
Prepaid
expenses, inventory and other assets
|
|
|
119
|
|
|
(346
|
)
|
Accounts
payable and accrued expenses
|
|
|
(82
|
)
|
|
175
|
|
Royalties
and legal fees payable
|
|
|
492
|
|
|
(1,106
|
)
|
Deferred
revenues
|
|
|
(109
|
)
|
|
(207
|
)
|
Net
cash provided by operating activities from continuing
operations
|
|
|
3,929
|
|
|
2,806
|
|
Net
cash used in operating activities from discontinued
operations
|
|
|
(7,018
|
)
|
|
(7,969
|
)
|
Net
cash used in operating activities
|
|
|
(3,089
|
)
|
|
(5,163
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(160
|
)
|
|
(29
|
)
|
Purchase
of available-for-sale investments
|
|
|
(5,477
|
)
|
|
(11,932
|
)
|
Sale
of available-for-sale investments
|
|
|
2,959
|
|
|
11,786
|
|
Business
acquisition
|
|
|
-
|
|
|
(16
|
)
|
Patent
acquisition costs
|
|
|
(1,395
|
)
|
|
(1,020
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities from continuing
operations
|
|
|
(4,073
|
)
|
|
(1,211
|
)
|
Net
cash provided by (used in) investing activities from discontinued
operations
|
|
|
(3,960
|
)
|
|
2,927
|
|
Net
cash provided by (used in) investing activities
|
|
|
(8,033
|
)
|
|
1,716
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from the exercise of stock options
|
|
|
3,159
|
|
|
335
|
|
Net
cash provided by financing activities from continuing
operations
|
|
|
3,159
|
|
|
335
|
|
Net
cash provided by (used in) financing activities from discontinued
operations
|
|
|
5,369
|
|
|
(7
|
)
|
Net
cash provided by financing activities
|
|
|
8,528
|
|
|
328
|
|
|
|
|
|
|
|
|
|
Decrease
in cash and cash equivalents
|
|
|
(2,594
|
)
|
|
(3,119
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning (inclulding cash and cash equivalents
related to discontinued operations-split-off of CombiMatrix Corporation
of
$7,829 and $5,666, respectively)
|
|
|
40,044
|
|
|
20,164
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, ending
|
|
|
37,450
|
|
|
17,045
|
|
|
|
|
|
|
|
|
|
Less
cash and cash equivalents of discontinued operations,
ending
|
|
|
(2,383
|
)
|
|
(930
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents of continuing operations, ending
|
|
$
|
35,067
|
|
$
|
16,115
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description
of Business. Acacia
Research Corporation (“we,” “us” and “our”) operates in one reportable segment
referred to as the Acacia Technologies group. As discussed below and more
fully
in Note 7, Acacia Research Corporation’s CombiMatrix group (primarily comprised
of Acacia Research Corporation’s wholly owned subsidiary, CombiMatrix
Corporation and its subsidiary), which was previously presented as a separate
reportable segment, will be split-off from Acacia Research Corporation,
effective August 15, 2007. As such, the assets and liabilities of the
CombiMatrix group in the accompanying consolidated balance sheets, the results
of operations for the CombiMatrix group in the accompanying consolidated
statements of operations and the cash flows for the CombiMatrix group in
the
accompanying consolidated cash flow statements, have been segregated from
continuing operations and presented as Discontinued Operations, in accordance
with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets” (“SFAS No. 144”). Accordingly, the CombiMatrix group’s assets,
liabilities, results of operations and cash flows for all prior periods
presented have been reclassified to Discontinued Operations to conform to
the
current period presentation.
Acacia
Technologies Group
The
Acacia Technologies group, a division of Acacia Research Corporation, develops,
acquires, licenses and enforces patented technologies. The
Acacia Technologies group currently owns or controls the rights to 77 patent
portfolios, covering technologies used in a wide variety of industries. The
Acacia Technologies group is primarily comprised of certain of Acacia Research
Corporation’s wholly owned subsidiaries and limited liability companies
including:
·
Acacia
Global Acquisition Corporation
·
Acacia
Media Technologies Corporation
·
Acacia
Patent Acquisition Corporation
·
Acacia
Technologies Services Corporation
·
Automated
Facilities Management Corporation
·
AV
Technologies LLC
·
Broadcast
Data Retrieval Corporation
·
Broadcast
Innovation LLC
·
Computer
Acceleration Corporation
·
Computer
Cache Coherency Corporation
·
Computer
Docking Station Corporation
·
Contacts
Synchronization Corporation
·
Creative
Internet Advertising Corporation
·
Credit
Card Fraud Control Corporation
·
Database
Structures Inc.
·
Data
Encryption Corporation
·
Data
Innovation LLC
·
Diagnostic
Systems Corporation
·
Digital
Security Systems Corporation
·
Disc
Link Corporation
·
Email
Link Corporation
·
Financial
Systems Innovation LLC
·
Fluid
Dynamics Corporation
·
High
Resolution Optics Corporation
·
Hospital
Systems Corporation
|
·
Information
Technology Innovation LLC
·
InternetAd
LLC
·
IP
Innovation LLC
·
KY
Data Systems LLC
·
Location
Based Services Corporation
·
Micromesh
Technology Corporation
·
Microprocessor
Enhancement Corporation
·
Mobile
Traffic Systems Corporation
·
New
Medium LLC
·
Parallel
Processing Corporation
·
Parking
Security Systems Corporation
·
Peer
Communications Corporation
·
Priority
Access Solutions Corporation
·
Product
Activation Corporation
·
Refined
Recommendations Corporation
·
Remote
Video Camera Corporation
·
Resource
Scheduling Corporation
·
Safety
Braking Corporation
·
Screentone
Systems Corporation
·
Secure
Access Corporation
·
Soundview
Technologies LLC
·
Spreadsheet
Automation Corporation
·
TechSearch
LLC
·
Telematics
Corporation
·
VData
LLC
|
The
Acacia Technologies group also includes all corporate assets, liabilities,
and
related transactions of Acacia Research Corporation attributed to Acacia
Research Corporation’s intellectual property licensing and enforcement business.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CombiMatrix
Group
Our
life
sciences business, referred to as the “CombiMatrix group,” a division of Acacia
Research Corporation, is comprised of our wholly owned subsidiary, CombiMatrix
Corporation and CombiMatrix Corporation’s wholly owned subsidiary, CombiMatrix
Molecular Diagnostics, and includes all corporate assets, liabilities and
transactions related to Acacia Research Corporation’s life sciences business.
The
CombiMatrix
group is seeking to become a diversified biotechnology business, through
the
development of proprietary technologies, products and services in the areas
of
drug development, genetic analysis, molecular diagnostics, nanotechnology
research, defense and homeland security markets, as well as other potential
markets where its products and services could be utilized. The technologies
developed include a platform technology to rapidly produce customizable,
in-situ
synthesized, oligonucleotide arrays for use in identifying and determining
the
roles of genes, gene mutations and proteins. This technology has a wide range
of
potential applications in the areas of genomics, proteomics, biosensors,
drug
discovery, drug development, diagnostics, combinatorial chemistry, material
sciences and nanotechnology. Other technologies include proprietary molecular
synthesis and screening methods for the discovery of potential new drugs.
CombiMatrix Molecular Diagnostics, Inc. (“CMDX”), a wholly owned subsidiary of
CombiMatrix Corporation located in Irvine California, has developed capabilities
of producing arrays that utilize bacterial artificial chromosomes, which
also
enable genetic analysis.
CombiMatrix
Group Split-off Transaction and Related Discontinued
Operations. In
January 2006, Acacia Research Corporation’s board of directors approved a plan
for its wholly owned subsidiary, CombiMatrix Corporation, to become an
independent public company. CombiMatrix Corporation’s registration statement on
Form S-1 was declared effective by the Securities and Exchange Commission
on
June 8, 2007. Following the redemption period required by Acacia Research
Corporation’s Restated Certificate of Incorporation, on August 15,
2007 (the “Redemption Date”), CombiMatrix Corporation will split-off from Acacia
Research Corporation through the redemption of all outstanding shares of
Acacia
Research-CombiMatrix common stock (the “Split-off Transaction”). On the
Redemption Date, every ten (10) shares of Acacia Research-CombiMatrix stock
outstanding on August 15, 2007, will be redeemed for one (1) share of common
stock of CombiMatrix Corporation. As of June 30, 2007, CombiMatrix Corporation
continues to be wholly owned by Acacia Research Corporation, and will continue
to be wholly owned by Acacia Research Corporation until the August 15, 2007
Redemption Date. Subsequent to the Redemption Date, Acacia Research Corporation
will no longer own any equity interests in CombiMatrix Corporation and the
two
companies will operate independently of each other.
Refer
to
Note 7 for information regarding presentation of the assets, liabilities,
results of operations and cash flows for the CombiMatrix group as Discontinued
Operations in the accompanying consolidated financial statements for all
periods
presented, in accordance with guidance set forth in SFAS No. 144.
Capital
Structure.
Acacia
Research Corporation has two classes of common stock called Acacia
Research-Acacia Technologies common stock (“AR-Acacia Technologies stock”) and
Acacia Research-CombiMatrix common stock (“AR-CombiMatrix stock”). AR-Acacia
Technologies stock is intended to reflect separately the performance of Acacia
Research Corporation’s Acacia Technologies group. AR-CombiMatrix stock is
intended to reflect separately the performance of Acacia Research Corporation’s
CombiMatrix group. Although the AR-Acacia Technologies stock and the
AR-CombiMatrix stock are intended to reflect the performance of our different
business groups, they are both classes of common stock of Acacia Research
Corporation and are not stock issued by the respective groups.
Basis
of Presentation.
The
accompanying unaudited consolidated financial statements include the accounts
of
Acacia Research Corporation and its wholly owned and majority-owned subsidiaries
and investments accounted for under the equity method. Material intercompany
transactions and balances have been eliminated in consolidation.
The
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, certain information and footnotes required by generally accepted
accounting principles in annual financial statements have been omitted or
condensed in accordance with quarterly reporting requirements of the Securities
and Exchange Commission (“SEC”). These interim consolidated financial statements
should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 2006, as reported by us in our Annual Report on Form 10-K.
The
year-end consolidated balance sheet data was derived from audited financial
statements but does not include all disclosures required by accounting
principles generally accepted in the United States of America.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The
consolidated financial statements of Acacia Research Corporation include
all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary for a fair statement of our financial position as of June 30,
2007, and results of operations and cash flows for the interim periods
presented. The results of operations for the three and six months ended June
30,
2007 are not necessarily indicative of the results to be expected for the
entire
year.
Separate
Group Presentation.
AR-Acacia Technologies stock and AR-CombiMatrix stock are intended to reflect
the separate performance of the respective division of Acacia Research
Corporation. The Acacia Technologies group and the CombiMatrix group are
not
separate legal entities. Holders of AR-Acacia Technologies stock and
AR-CombiMatrix stock are stockholders of Acacia Research Corporation. As
a
result, holders of AR-Acacia Technologies stock and AR-CombiMatrix stock
continue to be subject to all of the risks of an investment in Acacia Research
Corporation and all of its businesses, assets and liabilities. The assets
Acacia
Research Corporation attributes to one of the groups could be subject to
the
liabilities of the other group. The group financial information has been
prepared in accordance with generally accepted accounting principles in the
United States of America, and taken together, comprise all the accounts included
in the corresponding consolidated financial statements of Acacia Research
Corporation. The financial information of the groups reflects the financial
condition, results of operations, and cash flows of the businesses included
therein. The financial information of the groups includes the accounts or
assets
of Acacia Research Corporation specifically attributed to the groups and
were
prepared using amounts included in Acacia Research Corporation’s consolidated
financial statements. Refer to Note 9 for separate group financial
information.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues
and
expenses during the reporting period. Actual results could differ from these
estimates.
Concentrations.
Three licensees
individually accounted for 21%, 14% and 14% of the Acacia Technologies group’s
license fee revenues recognized during the three months ended June 30, 2007,
and
two licensees
individually accounted for 31% and 20% of the Acacia Technologies group’s
license fee revenues recognized during the six months ended June 30,
2007.
Four
licensees individually accounted for 23%, 21%, 10% and 10% of the Acacia
Technologies group’s license fee revenues recognized during the three months
ended June 30, 2006, and two licensees individually accounted for 17% and
16% of
the Acacia Technologies group’s license fee revenues recognized during the six
months ended June 30, 2006. Two licensees individually represented approximately
39% and 21% of the Acacia Technologies group’s accounts receivable at June 30,
2007. Three licensees individually represented approximately 37%, 24% and
13% of
the Acacia Technologies group’s accounts receivable at December 31,
2006.
Stock-Based
Compensation. Effective
January 1, 2006, Acacia Research Corporation adopted the provisions of Statement
of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”
(“SFAS No. 123R”), which sets forth the accounting requirements for
“share-based” compensation payments to employees and non-employee directors and
requires that compensation cost relating to share-based payment transactions
be
recognized in the statement of operations. The compensation cost for all
stock-based awards is measured at the grant date, based on the fair value
of the
award, and is recognized as an expense, on a straight-line basis, over the
employee’s requisite service period (generally the vesting period of the equity
award) which is generally two to four years.
The
fair
value of each option award is estimated on the date of grant using a
Black-Scholes option valuation model. The fair value of restricted stock
awards
is determined by the product of the number of shares granted and the grant
date
market price of the underlying common stock.
SFAS
No.
123R requires stock-based compensation expense to be recorded only for those
awards expected to vest using an estimated forfeiture rate. Acacia Research
Corporation estimates pre-vesting option forfeitures at the time of grant
and
reflects the impact of estimated pre-vesting option forfeitures on compensation
expense recognized.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Income
Taxes.
Effective January 1, 2007, Acacia Research Corporation adopted FASB
Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income
Taxes,” which clarifies the accounting for uncertainty in income taxes
recognized in the financial statements in accordance with FASB Statement
No. 109, “Accounting for Income Taxes.” FIN 48 provides guidance on the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosures, and transition. In accordance with FIN 48, a tax position
is a position in a previously filed tax return or a position expected to
be
taken in a future tax filing that is reflected in measuring current or deferred
income tax assets and liabilities. Tax positions shall be recognized only
when
it is more likely than not (likelihood of greater than 50%), based on technical
merits, that the position will be sustained upon examination. Tax positions
that
meet the more likely than not threshold should be measured using a probability
weighted approach as the largest amount of tax benefit that is greater than
50%
likely of being realized upon settlement. The adoption of FIN 48 did not
have a
material impact on our consolidated or separate group financial position,
results of operations or cash flows.
The
total
amount of unrecognized tax benefits as of January 1, 2007 and June 30, 2007
was
$56,000, all of which, if recognized, would affect the effective tax rate.
Acacia
Research Corporation recognizes interest and penalties with respect to
unrecognized tax benefits in income tax expense. We have identified no
uncertain tax position for which it is reasonably possible that the total
amount
of unrecognized tax benefits will significantly increase or decrease within
12
months.
Acacia
Research Corporation is subject to taxation in the U.S. and various state
jurisdictions. With
no
material exceptions, Acacia Research Corporation is no longer subject to
U.S.
federal or state examinations by tax authorities for years before 2001.
At
December 31, 2006, the Acacia Technologies group’s U.S. federal and state income
tax net operating loss carryforwards were approximately $53,727,000 (excluding
NOLs related to subsidiaries for which Acacia Research Corporation does not
file
a consolidated return) and $54,700,000, expiring between 2007 and 2026.
At
December 31, 2006, the CombiMatrix group had federal net operating loss
carryforwards of approximately $117,056,000, which will begin to expire in
2010
through 2026.
At
December 31, 2006, consolidated federal research and development (“R&D”)
credit carryforwards were approximately $4,014,000, which begin to expire
in
2017. Due to uncertainties surrounding our ability to generate future taxable
income to realize these assets, a full valuation allowance has been established
to offset our net deferred tax assets. All NOLs and tax credits attributed
to
the Acacia Technologies group will be retained by the Acacia Research
Corporation, subsequent to the Split-off Transaction. All NOLs and tax credits
attributed to the CombiMatrix group will be retained by the CombiMatrix group
and will not be available to Acacia Research Corporation, subsequent to the
Split-off Transaction.
Utilization
of the NOL and R&D credit carryforwards may be subject to a substantial
annual limitation due to ownership change limitations that may have occurred
or
that could occur in the future, as required by Section 382 of the Internal
Revenue Code of 1986, as amended (the “Code”), as well as similar state
provisions. These ownership changes may limit the amount of NOL and R&D
credit carryforwards that can be utilized annually to offset future taxable
income and tax, respectively. In general, an “ownership change” as defined by
Section 382 of the Code results from a transaction or series of transactions
over a three-year period resulting in an ownership change of more than 50
percentage points of the outstanding stock of a company by certain stockholders
or public groups. Since Acacia Research Corporation’s formation, we have raised
capital through the issuance of capital stock on several occasions (both
before
and after its public offering) which, combined with the purchasing stockholders’
subsequent disposition of those shares, may have resulted in such an ownership
change, or could result in an ownership change in the future upon subsequent
disposition.
Acacia
Research Corporation has not completed a study to assess whether an ownership
change has occurred or whether there have been multiple ownership changes
since
Acacia Research Corporation’s formation due to the complexity and cost
associated with such a study, and the fact that there may be additional such
ownership changes in the future. If Acacia Research Corporation has experienced
an ownership change at any time since its formation, utilization of the NOL
or
R&D credit carryforwards would be subject to an annual limitation under
Section 382 of the Code, which is determined by first multiplying the value
of
Acacia Research Corporation's stock at the time of the ownership change by
the
applicable long-term, tax-exempt rate, and then could be subject to additional
adjustments, as required. Any limitation may result in expiration of a portion
of the NOL or R&D credit carryforwards before utilization. Further, until a
study is completed and any limitation known, no amounts are being considered
as
an uncertain tax position or disclosed as an unrecognized tax benefit under
FIN
48. Due to the existence of the valuation allowance, future changes in our
unrecognized tax benefits will not impact our effective tax rate. Any
carryforwards that will expire prior to utilization as a result of such
limitations will be removed from deferred tax assets with a corresponding
reduction of the valuation allowance.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3.
EARNINGS PER SHARE
Earnings
(Loss) Per Share. Basic
earnings per share for each class of common stock is computed by dividing
the
income or loss allocated to each class of common stock by the weighted-average
number of outstanding shares of that class of common stock. Diluted earnings
per
share is computed by dividing the income or loss allocated to each class
of
common stock by the weighted-average number of outstanding shares of that
class
of common stock including the dilutive effect of common stock equivalents.
Potentially dilutive common stock equivalents primarily consist of employee
stock options, unvested restricted stock grants and common stock purchase
warrants.
The
earnings or losses allocated to each class of common stock are determined
by
Acacia Research Corporation’s board of directors. This determination is
generally based on the net income or loss amounts of the corresponding group
determined in accordance with accounting principles generally accepted in
the
United States of America, consistently applied. Acacia Research Corporation
believes this method of allocation is systematic and reasonable. The Acacia
Research Corporation board of directors can, at its discretion, change the
method of allocating earnings or losses to each class of common stock at
any
time.
The
following table presents a reconciliation of basic and diluted income (loss)
per
share:
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2007
|
|
June
30, 2006
|
|
June
30, 2007
|
|
June
30, 2006
|
|
Acacia
Research - Acacia Technologies stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average number of common shares outstanding
|
|
|
28,298,328
|
|
|
27,507,024
|
|
|
28,071,069
|
|
|
27,454,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive stock options and restricted stock awards
|
|
|
-
|
|
|
2,817,708
|
|
|
2,993,607
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average number of common shares outstanding
|
|
|
28,298,328
|
|
|
30,324,732
|
|
|
31,064,677
|
|
|
27,454,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
stock options and restricted stock excluded from the computation
of
diluted income (loss) per share because the effect of inclusion
would have
been anti-dilutive
|
|
|
6,170,926
|
|
|
1,831,746
|
|
|
2,008,176
|
|
|
6,533,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acacia
Research - CombiMatrix stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average number of common shares
outstanding
|
|
|
57,143,839
|
|
|
39,018,844
|
|
|
54,842,813
|
|
|
39,005,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
outstanding stock options excluded from the computation of diluted
loss
per share because the effect of inclusion would have been
anti-dilutive
|
|
|
7,073,105
|
|
|
6,861,499
|
|
|
7,073,105
|
|
|
6,861,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
outstanding common stock purchase warrants excluded from the computation
of diluted loss per share because the effect of inclusion would
have been
anti-dilutive
|
|
|
23,838,648
|
|
|
1,879,888
|
|
|
23,838,648
|
|
|
1,879,888
|
|
4.
INTANGIBLE ASSETS
Acacia
Research Corporation’s only identifiable intangible assets at June 30, 2007 and
December 31, 2006, are patents. Patent related accumulated amortization totaled
$14,433,000 and $11,802,000 as of June 30, 2007 and December 31, 2006,
respectively.
The
Acacia Technologies group’s patents have remaining estimated economic useful
lives ranging from one to seven years. The weighted average remaining estimated
economic useful life of the Acacia Technologies group’s patents is four years.
Annual aggregate amortization expense is estimated to be $2,719,000 for the
remainder of 2007, $4,119,000 in 2008, $3,668,000 in 2009, $3,477,000 in 2010
and $2,523,000 in 2011. At June 30, 2007 and December 31, 2006, all of our
acquired intangible assets other than goodwill were subject to
amortization.
For
the
six months ended June 30, 2007 and 2006, the Acacia Technologies group paid
patent acquisition costs totaling $1,395,000 and $1,020,000 in connection with
the acquisition of the rights to additional patent portfolios. The patents
acquired have estimated economic useful lives ranging from five to seven
years.
5.
RECENT ACCOUNTING PRONOUNCEMENTS
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other items at fair
value, with unrealized gains and losses related to these financial instruments
reported in earnings at each subsequent reporting date. We are currently
assessing the impact, if any, of adopting SFAS No. 159 on our consolidated
and
separate group financial position, results of operations and cash
flows.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 establishes a common definition for fair value to be
applied to US GAAP guidance requiring use of fair value, establishes a framework
for measuring fair value, and expands disclosure about such fair value
measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. We are currently assessing the impact, if any, of adopting
SFAS No. 157 on our consolidated and separate group financial position, results
of operations and cash flows.
6.
COMMITMENTS AND CONTINGENCIES
Litigation
and Patent Enforcement
Acacia
Research Corporation is subject to claims, counterclaims and legal actions
that
arise in the ordinary course of business. Management believes that the ultimate
liability with respect to these claims and legal actions, if any, will not
have
a material effect on our financial position, results of operations or cash
flows. Companies comprising the Acacia Technologies group are often required
to
engage in litigation to enforce their patents and patent rights.
Inventor
Royalties and Contingent Legal Expenses
In
connection with the acquisition of certain patents and patent rights, certain
companies included in the Acacia Technologies group executed related agreements
which grant to the former owners of the respective patents or patent rights,
the
right to receive inventor royalties based on future net license fee revenues
(as
defined in the respective agreements) generated by the Acacia Technologies
group
as a result of licensing the respective patents or patent portfolios. Inventor
royalties paid pursuant to the agreements are expensed in the consolidated
statement of operations and comprehensive income (loss) in the period that
the
related license fee revenues are recognized.
In
connection with the Acacia Technologies group’s licensing and enforcement
activities, the Acacia Technologies group may retain the services of law firms
that specialize in intellectual property licensing and enforcement and patent
law. These law firms may be retained on a contingent fee basis in which the
law
firms are paid on a scaled percentage of any negotiated license fees,
settlements or judgments awarded based on how and when the license fees,
settlements or judgments are obtained by the Acacia Technologies group. In
instances where the Acacia Technologies group does not recover license fees
from
potential infringers, no contingent legal fees are paid; however, the Acacia
Technologies group may be liable for certain out of pocket legal costs incurred
pursuant to the underlying legal services agreement. Legal fees advanced by
contingent law firms that are required to be paid in the event that no license
recoveries are obtained by the Acacia Technologies group are expensed as
incurred and included in liabilities in the statement of financial
position.
Guarantees
and Indemnifications
Acacia
Research Corporation has made guarantees and indemnities under which it may
be
required to make payments to a guaranteed or indemnified party, in relation
to
certain transactions, including revenue transactions in the ordinary course
of
business. In connection with certain facility leases Acacia Research Corporation
has indemnified its lessors for certain claims arising from the facility or
the
lease. Acacia Research Corporation indemnifies its directors and officers to
the
maximum extent permitted under the laws of the State of Delaware. However,
Acacia Research Corporation has a directors and officers insurance policy that
may reduce its exposure in certain circumstances and may enable it to recover
a
portion of future amounts that may be payable, if any. The duration of the
guarantees and indemnities varies and, in many cases is indefinite but subject
to statute of limitations. The majority of guarantees and indemnities do not
provide any limitations of the maximum potential future payments Acacia Research
Corporation could be obligated to make. To date, we have made no payments
related to these guarantees and indemnities. Acacia Research Corporation
estimates the fair value of its indemnification obligations as insignificant
based on this history and has therefore, not recorded any liability for these
guarantees and indemnities in the accompanying consolidated balance
sheets.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7.
DISCONTINUED OPERATIONS
In
January 2006, Acacia Research Corporation’s board of directors approved a plan
for its wholly owned subsidiary, CombiMatrix Corporation, to become an
independent public company. CombiMatrix Corporation’s registration statement on
Form S-1 was declared effective by the SEC on June 8, 2007. Following the
redemption period required by Acacia Research Corporation’s Restated
Certificate of Incorporation, on August 15, 2007 (the “Redemption
Date”), CombiMatrix Corporation will split-off from Acacia Research Corporation
through the redemption of all outstanding shares of Acacia Research-CombiMatrix
common stock (“AR-CombiMatrix stock”). On the Redemption Date, every ten (10)
shares of AR-CombiMatrix stock outstanding on August 15, 2007, will be redeemed
for one (1) share of common stock of CombiMatrix Corporation. As of June 30,
2007 CombiMatrix Corporation continues to be wholly owned by Acacia Research
Corporation, and will continue to be wholly owned by Acacia Research Corporation
until the August 15, 2007 Redemption Date. Subsequent to the Redemption Date,
Acacia Research Corporation will no longer own any equity interests in
CombiMatrix Corporation and the two companies will operate independently of
each
other.
In
accordance with guidance set forth in SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” since the assets, liabilities,
results of operations and cash flows of the CombiMatrix group will be eliminated
from the ongoing operations of Acacia Research Corporation as a result of the
eventual consummation of the Split-off Transaction (on the Redemption Date)
and
Acacia Research Corporation will not have any continuing involvement in the
operations of the CombiMatrix group subsequent to the consummation of the
Split-off Transaction, Acacia Research Corporation’s accompanying consolidated
balance sheet, statements of operations and statement of cash flows for the
current periods presented reflect the assets, liabilities, results of operations
and cash flows for the CombiMatrix group as Discontinued Operations. Financial
statements presented for comparable prior year periods have also been restated
to reflect the assets, liabilities, results of operations and cash flows for
the
CombiMatrix group as Discontinued Operations. The CombiMatrix group was
previously presented as a separate operating segment of Acacia Research
Corporation under SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information.”
Refer
to
Note 9 for detailed information regarding the assets and liabilities of the
CombiMatrix group that have been segregated from continuing operations and
presented as discontinued operations in the accompanying consolidated balance
sheets. Refer to Note 9 for detailed information regarding the revenues and
expenses of the CombiMatrix group that have been segregated from continuing
operations and reported as Discontinued Operations in the accompanying
consolidated statements of operations. Refer to Note 9 for detailed information
regarding cash flows from operating, investing and financing activities of
the
CombiMatrix group that have been segregated from continuing operations and
reported as Discontinued Operations in the accompanying consolidated statements
of cash flows. Upon consummation of the Split-off Transaction on the Redemption
Date, the Split-off Transaction will be accounted for by Acacia Research
Corporation at historical cost. Accordingly, no gain or loss on disposal will
be
recognized in the statement of operations by Acacia Research Corporation.
Net
loss
from Discontinued operations related to the CombiMatrix group includes direct
costs incurred in connection with the Split-off Transaction, originally included
in Acacia Research Corporation corporate accounts, totaling $100,000 and
$136,000 for the three and six months ended June 30, 2007 and $58,000 and
$89,000 for the three and six months ended June 30, 2006.
8.
EQUITY FINANCING
On
May 4,
2007, Acacia Research Corporation executed a registered direct offering with
certain directors of CombiMatrix Corporation and other unaffiliated investors
raising gross proceeds of $5,000,000 through the issuance of 6,780,931 units.
Each unit consists of one share of AR-CombiMatrix common stock and 1.5 ten-year
common stock warrants, for a total of 6,780,931 shares and warrants to purchase
10,171,397 shares of AR-CombiMatrix common stock, respectively, issued to
investors. Each warrant entitles the holder to purchase a share of
AR-CombiMatrix stock at a price of $0.55 per share. The proceeds from this
financing were attributed to the CombiMatrix group, and are reflected in net
cash provided by financing activities from discontinued operations in the
accompanying Acacia Research Corporation consolidated statement of cash
flows.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
9.
CONSOLIDATING SEGMENT INFORMATION
Acacia
Research Corporation has adopted the provisions of SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information.” Our chief
operating decision maker is considered to be Acacia Research Corporation’s Chief
Executive Officer (“CEO”). The CEO reviews and evaluates financial information
presented on a group basis as presented below. Management evaluates performance
based on the profit or loss from continuing operations and financial position
of
its segments. As of the June 30, 2007, Acacia Research Corporation has one
reportable segment, as described earlier in Note 1.
Material
intercompany transactions and transfers have been eliminated in consolidation.
The accounting policies of Acacia Research Corporation’s reportable segment (and
the CombiMatrix group) are the same as those described in the summary of
significant accounting policies.
Presented
below is consolidating financial information for our reportable segment, the
Acacia Technologies group, reflecting the continuing business of the Acacia
Technologies group, and the discontinued operations of the CombiMatrix group
(refer to Note 7 regarding Discontinued Operations). Earnings attributable
to
each group has been determined in accordance with accounting principles
generally accepted in the United States of America.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidating
Balance Sheets
(In
thousands)
(Unaudited)
|
|
At
June 30, 2007
|
|
At
December 31, 2006
|
|
|
|
Acacia
|
|
|
|
Reclass
|
|
|
|
Acacia
|
|
|
|
Reclass
|
|
|
|
|
|
Technologies
|
|
CombiMatrix
|
|
Discontinued
|
|
|
|
Technologies
|
|
CombiMatrix
|
|
Discontinued
|
|
|
|
|
|
Group
|
|
Group
(1)
|
|
Operations
(1)
|
|
Consolidated
|
|
Group
|
|
Group
(1)
|
|
Operations
(1)
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
35,067
|
|
$
|
2,383
|
|
$
|
(2,383
|
)
|
$
|
35,067
|
|
$
|
32,215
|
|
$
|
7,829
|
|
$
|
(7,829
|
)
|
$
|
32,215
|
|
Short-term
investments
|
|
|
15,308
|
|
|
10,414
|
|
|
(10,414
|
)
|
|
15,308
|
|
|
12,783
|
|
|
6,513
|
|
|
(6,513
|
)
|
|
12,783
|
|
Accounts
receivable
|
|
|
2,180
|
|
|
481
|
|
|
(481
|
)
|
|
2,180
|
|
|
269
|
|
|
605
|
|
|
(605
|
)
|
|
269
|
|
Prepaid
expenses, inventory and other assets
|
|
|
1,403
|
|
|
713
|
|
|
(713
|
)
|
|
1,403
|
|
|
1,187
|
|
|
605
|
|
|
(605
|
)
|
|
1,187
|
|
Receivable
from CombiMatrix group
|
|
|
40
|
|
|
-
|
|
|
(40
|
)
|
|
-
|
|
|
380
|
|
|
-
|
|
|
(380
|
)
|
|
-
|
|
Total
current assets related to discontinued operations - Split-off of
CombiMatrix Corporation
|
|
|
-
|
|
|
-
|
|
|
13,991
|
|
|
13,991
|
|
|
-
|
|
|
-
|
|
|
15,552
|
|
|
15,552
|
|
Total
current assets
|
|
|
53,998
|
|
|
13,991
|
|
|
(40
|
)
|
|
67,949
|
|
|
46,834
|
|
|
15,552
|
|
|
(380
|
)
|
|
62,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
|
|
322
|
|
|
1,486
|
|
|
(1,486
|
)
|
|
322
|
|
|
221
|
|
|
1,785
|
|
|
(1,785
|
)
|
|
221
|
|
Patents,
net of accumulated amortization
|
|
|
17,279
|
|
|
6,712
|
|
|
(6,712
|
)
|
|
17,279
|
|
|
18,515
|
|
|
7,292
|
|
|
(7,292
|
)
|
|
18,515
|
|
Goodwill
|
|
|
121
|
|
|
16,918
|
|
|
(16,918
|
)
|
|
121
|
|
|
121
|
|
|
16,918
|
|
|
(16,918
|
)
|
|
121
|
|
Other
assets
|
|
|
84
|
|
|
2,145
|
|
|
(2,145
|
)
|
|
84
|
|
|
79
|
|
|
2,667
|
|
|
(2,667
|
)
|
|
79
|
|
Total
non current assets related to discontinued operations - Split-off
of
CombiMatrix Corporation
|
|
|
-
|
|
|
-
|
|
|
27,261
|
|
|
27,261
|
|
|
-
|
|
|
-
|
|
|
28,662
|
|
|
28,662
|
|
|
|
$
|
71,804
|
|
$
|
41,252
|
|
$
|
(40
|
)
|
$
|
113,016
|
|
$
|
65,770
|
|
$
|
44,214
|
|
$
|
(380
|
)
|
$
|
109,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
2,147
|
|
$
|
1,937
|
|
$
|
(1,937
|
)
|
$
|
2,147
|
|
$
|
2,201
|
|
$
|
2,846
|
|
$
|
(2,846
|
)
|
$
|
2,201
|
|
Royalties
and legal fees payable
|
|
|
2,176
|
|
|
-
|
|
|
-
|
|
|
2,176
|
|
|
1,684
|
|
|
-
|
|
|
-
|
|
|
1,684
|
|
Current
portion of deferred revenues
|
|
|
251
|
|
|
326
|
|
|
(326
|
)
|
|
251
|
|
|
360
|
|
|
365
|
|
|
(365
|
)
|
|
360
|
|
Payable
to Acacia Technologies group
|
|
|
-
|
|
|
40
|
|
|
(40
|
)
|
|
-
|
|
|
-
|
|
|
380
|
|
|
(380
|
)
|
|
-
|
|
Total
current liabilities related to discontinued operations - Split-off
of
CombiMatrix Corporation
|
|
|
-
|
|
|
-
|
|
|
2,263
|
|
|
2,263
|
|
|
-
|
|
|
-
|
|
|
3,211
|
|
|
3,211
|
|
Total
current liabilities
|
|
|
4,574
|
|
|
2,303
|
|
|
(40
|
)
|
|
6,837
|
|
|
4,245
|
|
|
3,591
|
|
|
(380
|
)
|
|
7,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenues, net of current portion
|
|
|
-
|
|
|
939
|
|
|
(939
|
)
|
|
-
|
|
|
-
|
|
|
1,076
|
|
|
(1,076
|
)
|
|
-
|
|
Warrant
liability
|
|
|
-
|
|
|
9,379
|
|
|
(9,379
|
)
|
|
-
|
|
|
-
|
|
|
6,732
|
|
|
(6,732
|
)
|
|
-
|
|
Other
liabilities
|
|
|
67
|
|
|
-
|
|
|
-
|
|
|
67
|
|
|
31
|
|
|
-
|
|
|
-
|
|
|
31
|
|
Total
non current liabilities related to discontinued operations - Split-off
of
CombiMatrix Corporation
|
|
|
-
|
|
|
-
|
|
|
10,318
|
|
|
10,318
|
|
|
-
|
|
|
-
|
|
|
7,808
|
|
|
7,808
|
|
Total
liabilities
|
|
|
4,641
|
|
|
12,621
|
|
|
(40
|
)
|
|
17,222
|
|
|
4,276
|
|
|
11,399
|
|
|
(380
|
)
|
|
15,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AR
- Acacia Technologies stock
|
|
|
67,163
|
|
|
-
|
|
|
-
|
|
|
67,163
|
|
|
61,494
|
|
|
-
|
|
|
-
|
|
|
61,494
|
|
AR
- CombiMatrix stock - Split-off of CombiMatrix Corporation
|
|
|
-
|
|
|
28,631
|
|
|
-
|
|
|
28,631
|
|
|
-
|
|
|
32,815
|
|
|
-
|
|
|
32,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
67,163
|
|
|
28,631
|
|
|
-
|
|
|
95,794
|
|
|
61,494
|
|
|
32,815
|
|
|
-
|
|
|
94,309
|
|
|
|
$
|
71,804
|
|
$
|
41,252
|
|
$
|
(40
|
)
|
$
|
113,016
|
|
$
|
65,770
|
|
$
|
44,214
|
|
$
|
(380
|
)
|
$
|
109,604
|
|
(1)
Refer
to Note 7 regarding presentation of the CombiMatrix group as discontinued
operations.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidating
Statements of Operations
(In
thousands)
(Unaudited)
|
|
For
the Three Months Ended June 30, 2007
|
|
For
the Six Months Ended June 30, 2007
|
|
|
|
Acacia
|
|
|
|
Reclass
|
|
|
|
Acacia
|
|
|
|
Reclass
|
|
|
|
|
|
Technologies
|
|
CombiMatrix
|
|
Discontinued
|
|
|
|
Technologies
|
|
CombiMatrix
|
|
Discontinued
|
|
|
|
|
|
Group
|
|
Group
|
|
Operations
(1)
|
|
Consolidated
|
|
Group
|
|
Group
|
|
Operations
(1)
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
contracts
|
|
$
|
-
|
|
$
|
679
|
|
$
|
(679
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
1,228
|
|
$
|
(1,228
|
)
|
$
|
-
|
|
License
fees
|
|
|
5,865
|
|
|
-
|
|
|
-
|
|
|
5,865
|
|
|
31,050
|
|
|
-
|
|
|
-
|
|
|
31,050
|
|
Products
and service contracts
|
|
|
-
|
|
|
657
|
|
|
(657
|
)
|
|
-
|
|
|
-
|
|
|
1,245
|
|
|
(1,245
|
)
|
|
-
|
|
Total
revenues
|
|
|
5,865
|
|
|
1,336
|
|
|
(1,336
|
)
|
|
5,865
|
|
|
31,050
|
|
|
2,473
|
|
|
(2,473
|
)
|
|
31,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of government contract revenues
|
|
|
-
|
|
|
641
|
|
|
(641
|
)
|
|
-
|
|
|
-
|
|
|
1,175
|
|
|
(1,175
|
)
|
|
-
|
|
Cost
of product sales
|
|
|
-
|
|
|
248
|
|
|
(248
|
)
|
|
-
|
|
|
-
|
|
|
551
|
|
|
(551
|
)
|
|
-
|
|
Research
and development expenses (including non-cash stock compensation
expense)
|
|
|
-
|
|
|
1,102
|
|
|
(1,102
|
)
|
|
-
|
|
|
-
|
|
|
2,950
|
|
|
(2,950
|
)
|
|
-
|
|
Marketing,
general and administrative expenses (including non-cash stock compensation
expense)
|
|
|
4,190
|
|
|
2,404
|
|
|
(2,404
|
)
|
|
4,190
|
|
|
8,518
|
|
|
4,927
|
|
|
(4,927
|
)
|
|
8,518
|
|
Legal
expenses - patents
|
|
|
1,069
|
|
|
-
|
|
|
-
|
|
|
1,069
|
|
|
2,436
|
|
|
-
|
|
|
-
|
|
|
2,436
|
|
Inventor
royalties and contingent legal fees expense - patents
|
|
|
3,406
|
|
|
-
|
|
|
-
|
|
|
3,406
|
|
|
17,528
|
|
|
-
|
|
|
-
|
|
|
17,528
|
|
Amortization
of patents
|
|
|
1,314
|
|
|
344
|
|
|
(344
|
)
|
|
1,314
|
|
|
2,630
|
|
|
662
|
|
|
(662
|
)
|
|
2,630
|
|
Loss
from equity investment
|
|
|
-
|
|
|
250
|
|
|
(250
|
)
|
|
-
|
|
|
-
|
|
|
522
|
|
|
(522
|
)
|
|
-
|
|
Total
operating expenses
|
|
|
9,979
|
|
|
4,989
|
|
|
(4,989
|
)
|
|
9,979
|
|
|
31,112
|
|
|
10,787
|
|
|
(10,787
|
)
|
|
31,112
|
|
Operating
income (loss)
|
|
|
(4,114
|
)
|
|
(3,653
|
)
|
|
3,653
|
|
|
(4,114
|
)
|
|
(62
|
)
|
|
(8,314
|
)
|
|
8,314
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and investment income
|
|
|
650
|
|
|
131
|
|
|
(131
|
)
|
|
650
|
|
|
1,057
|
|
|
281
|
|
|
(281
|
)
|
|
1,057
|
|
Warrant
gains (charges)
|
|
|
-
|
|
|
(145
|
)
|
|
145
|
|
|
-
|
|
|
-
|
|
|
2,233
|
|
|
(2,233
|
)
|
|
-
|
|
Total
other income (expense)
|
|
|
650
|
|
|
(14
|
)
|
|
14
|
|
|
650
|
|
|
1,057
|
|
|
2,514
|
|
|
(2,514
|
)
|
|
1,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes
|
|
|
(3,464
|
)
|
|
(3,667
|
)
|
|
3,667
|
|
|
(3,464
|
)
|
|
995
|
|
|
(5,800
|
)
|
|
5,800
|
|
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(124
|
)
|
|
-
|
|
|
-
|
|
|
(124
|
)
|
|
(148
|
)
|
|
-
|
|
|
-
|
|
|
(148
|
)
|
Net
income (loss) from continuing operations
|
|
|
(3,588
|
)
|
|
(3,667
|
)
|
|
3,667
|
|
|
(3,588
|
)
|
|
847
|
|
|
(5,800
|
)
|
|
5,800
|
|
|
847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - Split-off of CombiMatrix Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations - Split-off of CombiMatrix
Corporation
|
|
|
-
|
|
|
-
|
|
|
(3,667
|
)
|
|
(3,667
|
)
|
|
-
|
|
|
-
|
|
|
(5,800
|
)
|
|
(5,800
|
)
|
Net
income (loss)
|
|
$
|
(3,588
|
)
|
$
|
(3,667
|
)
|
$
|
-
|
|
$
|
(7,255
|
)
|
$
|
847
|
|
$
|
(5,800
|
)
|
$
|
-
|
|
$
|
(4,953
|
)
|
(1)
Refer
to Note 7 regarding presentation of the CombiMatrix group as discontinued
operations.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidating
Statements of Operations
(In
thousands)
(Unaudited)
|
|
For
the Three Months Ended June 30, 2006
|
|
For
the Six Months Ended June 30, 2006
|
|
|
|
Acacia
|
|
|
|
Reclass
|
|
|
|
Acacia
|
|
|
|
Reclass
|
|
|
|
|
|
Technologies
|
|
CombiMatrix
|
|
Discontinued
|
|
|
|
Technologies
|
|
CombiMatrix
|
|
Discontinued
|
|
|
|
|
|
Group
|
|
Group
|
|
Operations
(1)
|
|
Consolidated
|
|
Group
|
|
Group
|
|
Operations
(1)
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
contract
|
|
$
|
-
|
|
$
|
574
|
|
$
|
(574
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
838
|
|
$
|
(838
|
)
|
$
|
-
|
|
License
fees
|
|
|
14,371
|
|
|
-
|
|
|
-
|
|
|
14,371
|
|
|
19,088
|
|
|
-
|
|
|
-
|
|
|
19,088
|
|
Products
and service contracts
|
|
|
-
|
|
|
1,218
|
|
|
(1,218
|
)
|
|
-
|
|
|
-
|
|
|
2,199
|
|
|
(2,199
|
)
|
|
-
|
|
Total
revenues
|
|
|
14,371
|
|
|
1,792
|
|
|
(1,792
|
)
|
|
14,371
|
|
|
19,088
|
|
|
3,037
|
|
|
(3,037
|
)
|
|
19,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of government contract revenues
|
|
|
-
|
|
|
542
|
|
|
(542
|
)
|
|
-
|
|
|
-
|
|
|
792
|
|
|
(792
|
)
|
|
-
|
|
Cost
of product sales
|
|
|
-
|
|
|
340
|
|
|
(340
|
)
|
|
-
|
|
|
-
|
|
|
561
|
|
|
(561
|
)
|
|
-
|
|
Research
and development expenses (including non-cash stock compensation
expense)
|
|
|
-
|
|
|
2,182
|
|
|
(2,182
|
)
|
|
-
|
|
|
-
|
|
|
4,561
|
|
|
(4,561
|
)
|
|
-
|
|
Marketing,
general and administrative expenses (including non-cash stock compensation
expense)
|
|
|
2,986
|
|
|
3,176
|
|
|
(3,176
|
)
|
|
2,986
|
|
|
6,492
|
|
|
7,119
|
|
|
(7,119
|
)
|
|
6,492
|
|
Legal
expenses - patents
|
|
|
1,082
|
|
|
-
|
|
|
-
|
|
|
1,082
|
|
|
1,448
|
|
|
-
|
|
|
-
|
|
|
1,448
|
|
Inventor
royalties and contingent legal fees expense - patents
|
|
|
7,847
|
|
|
-
|
|
|
-
|
|
|
7,847
|
|
|
10,118
|
|
|
-
|
|
|
-
|
|
|
10,118
|
|
Amortization
of patents
|
|
|
1,326
|
|
|
385
|
|
|
(385
|
)
|
|
1,326
|
|
|
2,669
|
|
|
709
|
|
|
(709
|
)
|
|
2,669
|
|
Write-off
of patent-related intangible asset
|
|
|
297
|
|
|
-
|
|
|
-
|
|
|
297
|
|
|
297
|
|
|
-
|
|
|
-
|
|
|
297
|
|
Loss
from equity investments
|
|
|
-
|
|
|
294
|
|
|
(294
|
)
|
|
-
|
|
|
-
|
|
|
533
|
|
|
(533
|
)
|
|
-
|
|
Total
operating expenses
|
|
|
13,538
|
|
|
6,919
|
|
|
(6,919
|
)
|
|
13,538
|
|
|
21,024
|
|
|
14,275
|
|
|
(14,275
|
)
|
|
21,024
|
|
Operating
income (loss)
|
|
|
833
|
|
|
(5,127
|
)
|
|
5,127
|
|
|
833
|
|
|
(1,936
|
)
|
|
(11,238
|
)
|
|
11,238
|
|
|
(1,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and investment income
|
|
|
394
|
|
|
137
|
|
|
(137
|
)
|
|
394
|
|
|
753
|
|
|
318
|
|
|
(318
|
)
|
|
753
|
|
Loss
on sale of interest in subsidiary
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(84
|
)
|
|
84
|
|
|
-
|
|
Warrant
gains (charges)
|
|
|
-
|
|
|
1,490
|
|
|
(1,490
|
)
|
|
-
|
|
|
-
|
|
|
(250
|
)
|
|
250
|
|
|
-
|
|
Total
other income (expense)
|
|
|
394
|
|
|
1,627
|
|
|
(1,627
|
)
|
|
394
|
|
|
753
|
|
|
(16
|
)
|
|
16
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes
|
|
|
1,227
|
|
|
(3,500
|
)
|
|
3,500
|
|
|
1,227
|
|
|
(1,183
|
)
|
|
(11,254
|
)
|
|
11,254
|
|
|
(1,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Provision)
benefit for income taxes
|
|
|
(70
|
)
|
|
-
|
|
|
-
|
|
|
(70
|
)
|
|
(38
|
)
|
|
34
|
|
|
(34
|
)
|
|
(38
|
)
|
Net
income (loss) from continuing operations
|
|
|
1,157
|
|
|
(3,500
|
)
|
|
3,500
|
|
|
1,157
|
|
|
(1,221
|
)
|
|
(11,220
|
)
|
|
11,220
|
|
|
(1,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - Split-off of CombiMatrix Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations - Split-off of CombiMatrix
Corporation
|
|
|
-
|
|
|
-
|
|
|
(3,500
|
)
|
|
(3,500
|
)
|
|
-
|
|
|
-
|
|
|
(11,220
|
)
|
|
(11,220
|
)
|
Net
income (loss)
|
|
$
|
1,157
|
|
$
|
(3,500
|
)
|
$
|
-
|
|
$
|
(2,343
|
)
|
$
|
(1,221
|
)
|
$
|
(11,220
|
)
|
$
|
-
|
|
$
|
(12,441
|
)
|
(1)
Refer
to Note 7 regarding presentation of the CombiMatrix group as discontinued
operations.
ACACIA
RESEARCH CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidating
Statements of Cash Flows
(In
thousands)
(Unaudited)
|
|
For
The Six Months Ended June 30, 2007
|
|
For
The Six Months Ended June 30, 2006
|
|
|
|
Acacia
|
|
|
|
Reclass
|
|
|
|
Acacia
|
|
|
|
Reclass
|
|
|
|
|
|
Technologies
|
|
CombiMatrix
|
|
Discontinued
|
|
|
|
Technologies
|
|
CombiMatrix
|
|
Discontinued
|
|
|
|
|
|
Group
|
|
Group
(1)
|
|
Operations
(1)
|
|
Consolidated
|
|
Group
|
|
Group
(1)
|
|
Operations
(1)
|
|
Consolidated
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
847
|
|
$
|
(5,800
|
)
|
$
|
|
|
$
|
(4,953
|
) |
$
|
(1,221
|
)
|
$
|
(11,220
|
)
|
$
|
|
|
$
|
(12,441
|
)
|
Adjustments
to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,687
|
|
|
947
|
|
|
(947
|
)
|
|
2,687
|
|
|
2,704
|
|
|
1,016
|
|
|
(1,016
|
)
|
|
2,704
|
|
Non-cash
stock compensation
|
|
|
1,907
|
|
|
736
|
|
|
(736
|
)
|
|
1,907
|
|
|
1,937
|
|
|
1,168
|
|
|
(1,168
|
)
|
|
1,937
|
|
Allowance
for bad debt
|
|
|
-
|
|
|
225
|
|
|
(225
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Deferred
taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(36
|
)
|
|
(34
|
)
|
|
34
|
|
|
(36
|
)
|
Non-cash
warrant charges (credit)
|
|
|
-
|
|
|
(2,233
|
)
|
|
2,233
|
|
|
-
|
|
|
-
|
|
|
250
|
|
|
(250
|
)
|
|
-
|
|
Stock
issued to consultant
|
|
|
-
|
|
|
209
|
|
|
(209
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Loss
on disposal of discontinued operations
|
|
|
- |
|
|
- |
|
|
5,800 |
|
|
5,800 |
|
|
- |
|
|
- |
|
|
11,220 |
|
|
11,220 |
|
Write-off
of patent-related intangible asset
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
297
|
|
|
-
|
|
|
-
|
|
|
297
|
|
Loss
from equity investment
|
|
|
-
|
|
|
522
|
|
|
(522
|
)
|
|
-
|
|
|
-
|
|
|
533
|
|
|
(533
|
)
|
|
-
|
|
Loss
on sale of interest in subsidiary
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
84
|
|
|
(84
|
)
|
|
-
|
|
Other
|
|
|
(21
|
)
|
|
27
|
|
|
(27
|
)
|
|
(21
|
)
|
|
(87
|
)
|
|
124
|
|
|
(124
|
)
|
|
(87
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
Accounts
receivable
|
|
|
(1,911
|
)
|
|
(101
|
)
|
|
101
|
|
|
(1,911
|
)
|
|
696
|
|
|
(228
|
)
|
|
228
|
|
|
696
|
|
Prepaid
expenses, inventory and other assets
|
|
|
119
|
|
|
(98
|
)
|
|
98
|
|
|
119
|
|
|
(346
|
)
|
|
(133
|
)
|
|
133
|
|
|
(346
|
)
|
Accounts
payable and accrued expenses
|
|
|
(82
|
)
|
|
(1,284
|
)
|
|
1,284
|
|
|
(82
|
)
|
|
175
|
|
|
240
|
|
|
(240
|
)
|
|
175
|
|
Royalties
and legal fees payable
|
|
|
492
|
|
|
-
|
|
|
-
|
|
|
492
|
|
|
(1,106
|
)
|
|
-
|
|
|
-
|
|
|
(1,106
|
)
|
Deferred
revenues
|
|
|
(109
|
)
|
|
(176
|
)
|
|
176
|
|
|
(109
|
)
|
|
(207
|
)
|
|
9
|
|
|
(9
|
)
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities from continuing
operations
|
|
|
3,929
|
|
|
(7,026
|
)
|
|
7,026
|
|
|
3,929
|
|
|
2,806
|
|
|
(8,191
|
)
|
|
8,191
|
|
|
2,806
|
|
Net
cash provided by (used in) operating activities from discontinued
operations
|
|
|
8
|
|
|
-
|
|
|
(7,026
|
)
|
|
(7,018
|
)
|
|
222
|
|
|
-
|
|
|
(8,191
|
)
|
|
(7,969
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
3,937
|
|
|
(7,026
|
)
|
|
-
|
|
|
(3,089
|
)
|
|
3,028
|
|
|
(8,191
|
)
|
|
-
|
|
|
(5,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(160
|
)
|
|
(69
|
)
|
|
69
|
|
|
(160
|
)
|
|
(29
|
)
|
|
(450
|
)
|
|
450
|
|
|
(29
|
)
|
Purchase
of available-for-sale investments
|
|
|
(5,477
|
)
|
|
(4,980
|
)
|
|
4,980
|
|
|
(5,477
|
)
|
|
(11,932
|
)
|
|
(1,021
|
)
|
|
1,021
|
|
|
(11,932
|
)
|
Sale
of available-for-sale investments
|
|
|
2,959
|
|
|
1,089
|
|
|
(1,089
|
)
|
|
2,959
|
|
|
11,786
|
|
|
6,520
|
|
|
(6,520
|
)
|
|
11,786
|
|
Business
acquisition
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(16
|
)
|
|
-
|
|
|
-
|
|
|
(16
|
)
|
Purchase
of additional interests in equity method investee
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,400
|
)
|
|
1,400
|
|
|
-
|
|
Patent
acquisition costs
|
|
|
(1,395
|
)
|
|
-
|
|
|
-
|
|
|
(1,395
|
)
|
|
(1,020
|
)
|
|
-
|
|
|
-
|
|
|
(1,020
|
)
|
Sale
of interest in subsidiary
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(369
|
)
|
|
369
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities from continuing
operations
|
|
|
(4,073
|
)
|
|
(3,960
|
)
|
|
3,960
|
|
|
(4,073
|
)
|
|
(1,211
|
)
|
|
3,280
|
|
|
(3,280
|
)
|
|
(1,211
|
)
|
Net
cash provided by (used in) investing activities from discontinued
operations
|
|
|
-
|
|
|
-
|
|
|
(3,960
|
)
|
|
(3,960
|
)
|
|
(353
|
)
|
|
-
|
|
|
3,280
|
|
|
2,927
|
|
Net
cash provided by (used in) investing activities
|
|
|
(4,073
|
)
|
|
(3,960
|
)
|
|
-
|
|
|
(8,033
|
)
|
|
(1,564
|
)
|
|
3,280
|
|
|
-
|
|
|
1,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash attributed to the Acacia Technologies group
|
|
|
2,988
|
|
|
-
|
|
|
171
|
|
|
3,159
|
|
|
153
|
|
|
-
|
|
|
182
|
|
|
335
|
|
Net
cash attributed to the CombiMatrix group
|
|
|
-
|
|
|
5,540
|
|
|
(5,540
|
)
|
|
-
|
|
|
-
|
|
|
175
|
|
|
(175
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities from continuing
operations
|
|
|
2,988
|
|
|
5,540
|
|
|
(5,369
|
)
|
|
3,159
|
|
|
153
|
|
|
175
|
|
|
7
|
|
|
335
|
|
Net
cash provided by financing activities from discontinued
operations
|
|
|
-
|
|
|
-
|
|
|
5,369
|
|
|
5,369
|
|
|
-
|
|
|
-
|
|
|
(7
|
)
|
|
(7
|
)
|
Net
cash provided by financing activities
|
|
|
2,988
|
|
|
5,540
|
|
|
-
|
|
|
8,528
|
|
|
153
|
|
|
175
|
|
|
-
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
2,852
|
|
|
(5,446
|
)
|
|
-
|
|
|
(2,594
|
)
|
|
1,617
|
|
|
(4,736
|
)
|
|
-
|
|
|
(3,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning
|
|
|
32,215
|
|
|
7,829
|
|
|
-
|
|
|
40,044
|
|
|
14,498
|
|
|
5,666
|
|
|
-
|
|
|
20,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, ending
|
|
$
|
35,067
|
|
$
|
2,383
|
|
$
|
-
|
|
$
|
37,450
|
|
$
|
16,115
|
|
$
|
930
|
|
$
|
-
|
|
$
|
17,045
|
|
(1)
Refer
to Note 7 regarding presentation of the CombiMatrix group as discontinued
operations.
Item
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Cautionary
Statement
You
should read the following discussion and analysis in conjunction with the
consolidated financial statements and related notes thereto contained in Part
I,
Item 1 of this report. The information contained in this Quarterly Report on
Form 10-Q is not a complete description of our businesses or the risks
associated with an investment in our common stock. We urge you to carefully
review and consider the various disclosures made by us in this report and in
our
other reports filed with the Securities and Exchange Commission, or SEC,
including our Annual Report on Form 10-K for the year ended December 31, 2006,
filed with the SEC on March 14, 2007.
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 product development, 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
we and our subsidiaries operate, results of litigation and other circumstances
affecting anticipated revenues and costs. We expressly disclaim any obligation
or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein 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
statements and in our “Risk Factors” incorporated by reference in Part II, Item
1A of this report.
Businesses
As
used
in this Form 10-Q, “we,” “us” and “our” refer to Acacia Research Corporation and
its subsidiary companies.
Acacia
Research Corporation, a Delaware corporation, was originally incorporated in
California in January 1993 and reincorporated in Delaware in December
1999.
The
following discussion is based primarily on our unaudited consolidated balance
sheet as of June 30, 2007, and on our unaudited consolidated statement of
operations for the period from January 1, 2007 to June 30, 2007. The discussion
compares the activities for the three and six months
ended
June 30, 2007, to the activities for the three and six months ended June 30,
2006. This information should be read in conjunction with the accompanying
unaudited consolidated financial statements and notes thereto. This information
should also be read in conjunction with the “Risk Factors” incorporated by
reference in Part II, Item 1A of this report.
Acacia
Research Corporation (“we,” “us” and “our”) operates in one reportable segment
referred to as the Acacia Technologies group. As discussed below, the
CombiMatrix group, which was previously presented as a separate reportable
segment, will be split-off from Acacia Research Corporation, effective August
15, 2007 (the “Split-off Transaction”). As such, the results of operations for
the CombiMatrix group in the accompanying consolidated financial statements
are
presented as part of Acacia Research Corporation’s results from discontinued
operations in accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” or SFAS No. 144. Accordingly, the CombiMatrix
group’s results of operations in prior periods have been reclassified to
discontinued operations to conform to the current period
presentations.
Acacia
Research Corporation has two classes of common stock called Acacia
Research-Acacia Technologies common stock (“AR-Acacia Technologies stock”) and
Acacia Research-CombiMatrix common stock (“AR-CombiMatrix stock”). AR-Acacia
Technologies stock is intended to reflect separately the performance of Acacia
Research Corporation’s Acacia Technologies group. AR-CombiMatrix stock is
intended to reflect separately the performance of Acacia Research Corporation’s
CombiMatrix group. Although the AR-Acacia Technologies stock and the
AR-CombiMatrix stock are intended to reflect the performance of our different
business groups, they are both classes of common stock of Acacia Research
Corporation and are not stock issued by the respective groups. The Acacia
Technologies group and the CombiMatrix group are not separate legal entities.
As
a result, holders of AR-Acacia Technologies stock and AR-CombiMatrix stock
continue to be subject to all of the risks of an investment in Acacia Research
Corporation and all of its businesses, assets and liabilities. The assets Acacia
Research Corporation attributes to one of the groups could be subject to the
liabilities of the other group.
Acacia
Technologies Group.
Our
intellectual property licensing business, referred to as the “Acacia
Technologies group,” develops, acquires, licenses and enforces patented
technologies. The Acacia Technologies group generates license fee revenues
from the granting of licenses for the use of its patented technologies. The
Acacia Technologies group assists patent holders with the prosecution and
development of their patent portfolios, the protection of their patented
inventions from unauthorized use, the generation of licensing revenue from
users
of their patented technologies and, if necessary, with the enforcement against
unauthorized users of their patented technologies. The Acacia Technologies
group
currently owns or controls the rights to 77 patent portfolios, which include
U.S. patents, and in certain instances, foreign counterparts, covering
technologies used in a wide variety of industries.
CombiMatrix
Group.
Our
life
sciences business, referred to as the “CombiMatrix group,” is seeking to become
a broadly diversified biotechnology business, through the development of
proprietary technologies, products and services in the areas of drug
development, genetic analysis, molecular diagnostics, nanotechnology research,
defense and homeland security markets, as well as other potential markets where
its products and services could be utilized. The technologies that the
CombiMatrix group has developed include a platform technology to rapidly produce
customizable, in-situ
synthesized, oligonucleotide arrays for use in identifying and determining
the
roles of genes, gene mutations and proteins. This technology has a wide range
of
potential applications in the areas of genomics, proteomics, biosensors, drug
discovery, drug development, diagnostics, combinatorial chemistry, material
sciences and nanotechnology. The CombiMatrix group has also developed the
capabilities of producing arrays that utilize bacterial artificial chromosomes
on its arrays, also enabling genetic analysis. Other technologies include
proprietary molecular synthesis and screening methods for the discovery of
potential new drugs.
CombiMatrix
Group Split-off Transaction and Related Discontinued
Operations. In
January 2006, Acacia Research Corporation’s board of directors approved a plan
for its wholly owned subsidiary, CombiMatrix Corporation, to become an
independent public company. CombiMatrix Corporation’s registration statement on
Form S-1 was declared effective by the SEC on June 8, 2007. Following the
redemption period required by Acacia Research Corporation’s Restated
Certificate of Incorporation, on August 15, 2007 (“Redemption Date”),
CombiMatrix Corporation will split-off from Acacia Research Corporation through
the redemption of all outstanding shares of AR-CombiMatrix stock. Refer to
“Discontinued Operations” below for information regarding presentation of the
results of operations for the CombiMatrix group as Discontinued Operations
in
the accompanying consolidated financial statements for all periods presented,
in
accordance with guidance set forth in SFAS No. 144.
Management’s
Discussion and Analysis of Financial Condition and Results
of Operations - CombiMatrix Group.
As a
result of CombiMatrix Corporation’s Registration Statement on Form S-1 being
declared effective by the SEC on June 8, 2007, CombiMatrix Corporation is
required to file Quarterly reports on Form 10-Q with the SEC, beginning with
the
quarterly period ended June 30, 2007. For information and analysis of the
results of operations, financial position and cash flows for the CombiMatrix
group for the periods presented, refer to Part I, Item 2. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
included in CombiMatrix Corporation’s Quarterly Report on Form 10-Q, for the
quarterly period ended June 30, 2007, incorporated herein by reference and
filed
herewith as Exhibit 99.1.
Overview
Acacia
Technologies Group
The
Acacia Technologies group’s operating activities for the three and six months
ended June 30, 2007 and 2006, were principally focused on the continued
development, licensing and enforcement of its patent portfolios, including
the
continued pursuit of multiple ongoing technology licensing and enforcement
programs and the commencement of new technology licensing and enforcement
programs. In addition, we continued our focus on business development, including
the acquisition of several additional patent portfolios and the continued
pursuit of opportunities to partner with patent owners and provide Acacia
Technologies group’s unique intellectual property licensing, development and
enforcement services.
License
fee revenues recognized for the three months ended June 30, 2007 totaled $5.9
million, versus $14.4 million for
the
comparable 2006 period.
License
fee revenues recognized for the six months ended June 30, 2007 totaled $31.1
million, versus $19.1 million for the comparable 2006 period. Acacia
Technologies group management measures and assesses the performance and growth
of our patent licensing and enforcement business based on total license fee
revenues recognized across all of our technology licensing and enforcement
programs on a trailing twelve-month basis. Trailing twelve-month revenues for
the Acacia Technologies group were $46.8 million as of June 30, 2007, as
compared to $55.3 million as of March 31, 2007, $34.8 million at December 31,
2006, and $34.1 million at June 30, 2006.
Revenues
for the three months ended June 30, 2007 included license fees from 20 new
licensing agreements covering 8 of our technology licensing and enforcement
programs, as compared to 27 new licensing agreements covering 9 of our
technology licensing programs in the comparable 2006 period. Revenues for the
six months ended June 30, 2007 included license fees from 42 new licensing
agreements covering 12 of our technology licensing and enforcement programs,
as
compared to 48 new licensing agreements covering 12 of our technology licensing
programs in the comparable 2006 period. The Acacia Technologies group generated
licensing revenues from 5 new technology licensing and enforcement programs
during the six months ended June 30, 2007, including our Spreadsheet Automation
technology, Rule-Based Monitoring technology, Digital Color Correction for
Video
Graphics Systems technology, Virtual Computer Workspace technology and Portable
Storage Devices with Links technology licensing programs. Revenues for the
six
months ended June 30, 2007 also included fees from the licensing of our DMT®
technology, Audio/Video Enhancement and Synchronization technology, Audio
Communications Fraud Detection technology, Credit Card Fraud Protection
technology, Image Resolution Enhancement technology, Pop-Up Advertising
technology, and Product Activation technology licensing programs. To date,
the
Acacia Technologies group has generated revenues from 25 of its technology
licensing and enforcement programs.
Marketing,
general and administrative expenses increased during the three and six months
ended June 30, 2007, as compared to the three and six months ended June 30,
2006, due primarily to the addition of licensing, business development and
engineering personnel since the end of the comparable 2006 periods and the
overall continued growth and expansion of the Acacia Technologies group’s
ongoing licensing and enforcement business. These increases were partially
offset by a decrease in consulting expenses due to the expiration of the
consulting agreement with the former CEO of Global Patent Holdings, LLC in
January 2007. Inventor royalties expenses and contingent legal fees expenses
decreased during the three months ended June 30, 2007, versus the comparable
2006 period and increased during the six months ended June 30, 2007, versus
the
comparable 2006 period, primarily due to the related fluctuations in license
fee
revenues, as discussed above, and the impact of the varying economic terms
related to inventor agreements and contingent legal fee arrangements associated
with the revenue generating patent portfolios in each period.
During
the six months ended June 30, 2007, the Acacia Technologies group continued
to
execute its business strategy in the area of patent portfolio acquisitions,
including the acquisition of, or the acquisition of the rights to, the following
patent portfolios covering a variety of applications, including the
following:
|
·
|
Wireless
Digital Messaging.
This patented technology generally relates to transmitting digital
content
to wireless devices, such as cell phones, PDAs, MP3 players and laptop
computers, including wireless systems that deliver digital content,
such
as images, graphics, photographs, image-embedded e-mail and facsimiles.
Among the primary applications for this technology are mobile phone
picture messaging and email/fax
delivery.
|
|
·
|
Pointing
Device.
This patented technology generally relates to hand held devices that
include pointing devices, such as a joy stick, capable of carrying
out
multiple user selectable functions.
|
|
·
|
Storage
Technology.
This patented technology generally relates to diverse aspects of
storage
devices and related technology. The patented technology generally
covers
data transfer, fault tolerance, caching, data integrity and error
correction.
|
|
·
|
Vehicle
Anti-Theft Parking Systems.
This patented technology generally relates to methods of automatically
identifying a vehicle through a characteristic, such as a license
plate
number, in order to deter vehicle theft. This technology is applicable
to
airports, hotels, shopping centers and other parking areas that employ
access control.
|
|
·
|
Encrypted
Media & Playback.
This patented technology generally relates to encryption/decryption
techniques used in media and players. It covers the devices and methods
used to play back movies and other content from encrypted media.
This
technology is applicable to media such as high definition discs and
stand-alone players, as well as game consoles and PC's with high
definition drives.
|
|
·
|
Parallel
Processing with Shared Memory. This
patented technology generally relates to a parallel processor comprising
multiple processing elements capable of performing parallel operations
with access to shared memory. This technology may be applicable to
computing systems, game consoles and graphic
processing.
|
|
·
|
Text
Auto-Completion.
This patented technology generally relates to systems and software
that
perform auto-completion of user text entry. This technology may be
used in
cell phones/PDA's, computers, email clients, web browsers, search
engines
and other applications where auto-completion makes text entry more
efficient.
|
|
·
|
Electronic
Message Advertising.
This patented technology generally relates to the software, methods
and
systems used in insert, transmit and display background images and
graphics. This technology may be used in instant messaging "skins"
and
email backgrounds.
|
|
·
|
Physical
Access Control. This
patented technology generally relates to security systems that use
smart
cards to allow entry to restricted areas. This technology may be
used in
military and civilian government facilities as well as corporate
environments that require verifiable personnel
access.
|
|
·
|
Remote
Management of Imaging Devices.
This
patented technology generally relates to systems and methods that
provide
remote control and monitoring of networked imaging devices such as
copiers, printers and fax machines.
|
|
·
|
Communication
Resource Monitoring. This
patented technology generally relates to systems and methods that
track
and report network communications resource activity. This technology
may be used in enterprise software systems to give management visibility
into computer and network resource utilization and to facilitate
IT
operations expense chargebacks.
|
|
·
|
Purifying
Nucleic Acids. These
patents generally relate to methods and equipment used to purify
plasmid
DNA products. This technology may be used in the production of ultrapure
pharmaceutical quality nucleic acids for DNA-vaccines and gene therapies.
The technology is applicable to biotech products for a wide variety
of
diseases.
|
|
·
|
Flash
Memory, Computer and Gaming Console Graphics and DRAM (Dynamic Random
Access Memory). In
June 2007, Acacia Patent Acquisition Corporation purchased 3 patent
portfolios, consisting of 36 U.S. patents, covering semiconductor
technologies relating to Flash
Memory, Computer and Gaming Console Graphics and DRAM (Dynamic Random
Access Memory),
from Alliance Semiconductor Corporation.
|
|
|
Flash
Memory. This
patented technology consists of 16 flash memory patents relating
to
architecture, manufacturing and operation of flash memory, including
NOR
flash. The patented technology covers techniques for enhancing
the
performance and reliability of the flash memory cell. NOR flash
memory is
extensively used in cell phones.
|
|
|
Computer
Graphics. This
patented technology consists of 14 graphics processing patents,
mostly
relating to the architecture of graphic systems. The patented technology
relates to graphics processing systems that use an on-chip memory
as a
frame buffer and to systems comprising multiple graphics processors.
The
technology has applications in high-end personal computers and
gaming
consoles.
|
|
|
DRAM
(Dynamic Random Access Memory). This
patented technology consists of DRAM patents relating to the design
and
implementation of DRAM memory cells. These patents cover techniques
to
implement DRAM cells that are small in size, resulting in higher
memory
density and enhanced performance. This type of memory has applications
in
personnel computers and gamins
systems.
|
Refer
to
“Liquidity and Capital Resources” below for information regarding the impact of
patent and patent rights acquisitions on the Acacia Technologies group’s
financial statements for the periods presented.
As
of
June 30, 2007, the Acacia Technologies group also had several executed letters
of intent with third-party patent portfolio owners regarding the potential
acquisition of additional patent portfolios. Future patent portfolio
acquisitions will continue to expand and diversify the Acacia Technologies
group’s revenue generating opportunities and accelerate the execution of our
business strategy, as we continue to build our leadership position in patent
licensing.
Patent
Enforcement Litigation
Companies
comprising the Acacia Technologies group are often required to engage in
litigation to enforce their patents and patent rights. In the litigation listed
below, certain companies comprising the Acacia Technologies group are parties
to
ongoing litigation alleging infringement of certain of our patented technologies
by the companies listed. Current patent enforcement litigation, by related
patented technology, is as follows:
Audio/Video
Enhancement and Synchronization Technology
|
·
|
New
Medium Technologies, LLC, AV Technologies, LLC, IP Innovation LLC,
and
Technology Licensing Corporation v. Barco NV, Miranda Technologies,
Toshiba Corporation, Toshiba America Consumer Products, L.L.C., and
Syntax-Brillian Corporation. United States District Court for the
Northern
District of Illinois. Filed 9/29/05. Case No.
1:05-cv-05620.
|
Computer
Memory Cache Coherency Technology
|
·
|
Computer
Cache Coherency Corporation v. VIA Technologies, Inc., Via Technologies,
Inc. (USA) and Intel Corporation. United States District Court for
the
Northern District of California. Filed 12/2/04. Case No.
5:05-cv-01668.
|
Credit
Card Fraud Protection Technology
|
·
|
Financial
Systems Innovation, LLC and Paul N. Ware v. The Kroger Company. United
States District Court for the Northern District of Georgia. Filed
3/3/04.
Case No. 4:04-cv-00065.
|
|
·
|
Financial
Systems Innovation, LLC and Paul N. Ware v. Costco Wholesale Corporation.
United States District Court for the Northern District of Texas.
Filed
6/30/04. Case No. 4:04-cv-00479.
|
|
·
|
Financial
Systems Innovation, LLC and Paul N. Ware v. Circuit City Stores,
Inc.,
Officemax Incorporated, Staples, Inc., Cracker Barrel Old Country
Store,
Inc., Fry’s Electronics, Inc., and Rite Aid Corporation. United States
District Court for the Northern District of Georgia. Filed 7/19/05.
Case
No. 4:05-cv-00156.
|
|
·
|
Reinalt-Thomas
Corporation, dba Discount Tire Corporation, v. Acacia Research
Corporation, Paul N. Ware and Financial Systems Innovation, LLC.
United
States District Court for the District of Arizona. Filed 10/27/05.
Case
No. 2:05-cv-03459.
|
|
·
|
Lone
Star Steakhouse and Saloon, Inc. v. Acacia Technologies group and
Financial Systems Innovation, LLC. United States District Court for
the
District of Kansas. Filed 8/5/05. Case No.
6:05-cv-01249.
|
|
·
|
Paul
N. Ware and Financial Systems Innovation, L.L.C., v. Abercrombie
&
Fitch Stores, Inc., Aeropostale, Inc., Aerogroup Retail Holdings,
Inc.,
Aldo Group, Inc., Anntaylor Retail, Inc., Autozone Stores, Inc.,
Aveda
Corporation, Barnes & Noble Booksellers, Inc., Barnes & Noble
Bookstores, Inc., Bath & Body Works, LLC, Bebe Stores, Inc., Bed Bath
& Beyond, Inc., Best Buy Co., Inc., The Body Shop Americas, Inc.,
Bloomingdales, Inc., Borders, Inc., BJ's Wholesale Club, Inc., Bose
Corporation, Brandsmart U.S.A., Inc., Brookstone Stores, Inc., Brown
Group
Retail, Inc., Build-A-Bear Workshop, Inc., Burlington Coat Factory
Warehouse Corporation, The Cato Corporation, Charming Shoppes Outlet
Stores, Inc., Chevron U.S.A., Inc., Chico's Retail Services, Inc.,
Christopher & Banks, Inc., Coach, Inc., Conocophillips Company, Cost
Plus, Inc., Delhaize America, Inc., Dillard's, Inc., Dollar General
Corporation, Dollar Tree Stores, Inc., Enterprise Rent-A-Car Company
of
Tennessee, Euromarket Designs, Inc., Family Dollar Stores of Georgia,
Inc., Fedex Kinko's Office and Print Services, Inc., The Finish Line,
Inc., Forever 21 Retail, Inc., Gamestop, Inc., Genesco, Inc., Godiva
Chocolatier, Inc., Gucci America, Inc., Guess? Retail, Inc., Guitar
Center
Stores, Inc., Gymboree Retail Stores, Inc., Hallmark Cards, Incorporated,
Helzberg's Diamond Shops, Inc. , The Hertz Corporation, Hollywood
Entertainment Corporation, The Home Depot, Inc., Hot Topic, Inc.,
Ikea
Georgia, LLC, Ingles Markets, Incorporated, J Choo USA, Inc., Jo-Ann
Stores, Inc., Kohl's Department Stores, Inc., L'Oreal USA Products,
Inc.,
Lego Brand Retail, Inc., Leslie's Poolmart, Inc., Limited Brands,
Limited
Brands Store Operations, Inc., LVMH Perfumes and Cosmetics, Inc.,
Macy's
South, LLC, Mother's Work, Inc., The Neiman-Marcus Group, Inc., Nordstrom,
Inc., O'Reilly Automotive, Inc., Pacific Sunwear Stores Corp., Party
City
Corporation, The Pep Boys-Manny, Moe & Jack, Polo Ralph Lauren
Corporation, Publix Super Markets, Inc., Recreational Equipment,
Inc.,
Regis Corporation, Restoration Hardware, Inc., Retail Brand Alliance,
Inc., Retail Ventures, Inc., Richemont North America, Inc., Ross
Stores,
Inc., Saks Fifth Avenue, Inc., Sephora USA, Inc., Sharper Image
Corporation, Shell Oil Company, The Sherwin-Williams Company, Shoe
Carnival, Inc., Stein Mart, Inc., Steve Madden Retail, Inc., Swarovski
Retail Ventures, LTD., The Talbots, Inc., Tiffany and Company, Timberland
Retail, Inc. The TJX Companies, Inc., Toys "R" US-Delaware, Inc.,
U-Haul
Co. of Georgia, Urban Outfitters, Inc., Valero Marketing and Supply
Company, Wal-Mart Stores, Inc., The Wet Seal Retail, Inc., Wilson’s
Leather of Georgia, Inc., Wolfgang Puck Catering and Events, LLC,
The
Yankee Candle Company, Inc., Z Gallerie. United States District Court
for
the Northern District of Georgia. Filed 6/19/07. Case No. 4:07-cv-00122.
|
Computing
Device Performance Technology
|
·
|
Computer
Acceleration Corporation vs. Microsoft Corporation. United States
District
Court for the Eastern District of Texas. Filed 7/6/06. Case No.
9:06-cv-0140.
|
Data
Encryption Technology
|
·
|
Data
Encryption Corporation v. Microsoft Corporation and Dell Computer
Corporation. United States District Court for the Central District
of
California. On appeal to the U.S. Court of Appeals for the Federal
Court.
Lower Court Case No. 2:05-cv-05531.
|
Digital
Media Transmission Technology
|
·
|
In
accordance with the Transfer Order issued February 24, 2005, by the
Judicial Panel on Multidistrict Litigation, all of the following
Digital
Media Transmission Technology cases have been transferred to the
Northern
District of California. The lead case number is
5:05-cv-01114.
|
|
·
|
Acacia
Media Technologies Corporation v. Comcast Cable Communications, LLC,
Charter Communications, Inc., The DirectTV Group, Inc., Echostar
Communications Corporation, Cox Communications, Inc., Hospitality
Network,
Inc. (a wholly owned subsidiary of Cox that supplies hotel on-demand
TV
services), Mediacom, LLC, Armstrong Group, Arvig Communication Systems,
Block Communications, Inc., Cable America Corporation, Cable One,
Inc.,
Cannon Valley Communications, Inc., East Cleveland Cable TV and
Communications, LLC, Loretel Cablevision, Massillon Cable TV, Inc.,
Mid-Continent Media, Inc., NPG Cable, Inc., Savage Communications,
Inc.,
Sjoberg's Cablevision, Inc., US Cable Holdings LP, and Wide Open
West,
LLC, Time Warner Cable, Cablevision Systems Corporation, Insight
Communications Company, Cebridge Communications and Bresnan
Communications.
|
|
·
|
Acacia
Media Technologies Corporation v. New Destiny Internet Group, Inc.,
Audio
Communications Inc., VS Media Inc., Ademia Multimedia, LLC, International
Web Innovations, Inc., Offendale Commercial BV, Ltd., Adult Entertainment
Broadcast Network, Cybertrend, Inc., Lightspeed Media Corporation,
Adult
Revenue Services, Innovative Ideas International, AskCS.com, Game
Link,
Inc., Cybernet Ventures, Inc., ACMP, LLC, Global AVS, Inc. d/b/a
DrewNet,
and National A-1 Advertising.
|
Electronic
Address List Management Technology
|
·
|
Contacts
Synchronization Corporation v. AT&T Mobility LLC, Cingular Wireless
LLV, Sprint Nextel Corp., T-Mobile USA, Inc., Cellco Partnership,
Verizon
Wireless, Sprint Spectrum LP, Sprint Communications Company L.P.,
Nextel
Operations, Inc., Nextel Of California, Inc., Nextel Communications
of The
Mid-Atlantic, Inc., Nextel of New York, Inc., Nextel South Corp,
Nextel of
Texas, Inc., Nextel West Corp. Alltel Communications, Inc. United
States
District Court for the Western District of Wisconsin. Filed 5/2/07.
Case
No. 07-C-0250-C.
|
Electronic
Message Advertising Technology
|
·
|
Creative
Internet Advertising Corporation v. Yahoo! Inc., Time Warner Inc.,
dba AOL
LLC. United States District Court for the Eastern District of Texas.
Filed
7/26/07. Case No. 6:07-cv-00354.
|
Fluid
Flow Control and Monitoring Technology
|
·
|
Fluid
Dynamics Corporation v. American Standard Companies, Inc., dba The
Trane
Co.; Honeywell International, Inc. dba Honeywell Business Solutions;
Sierra Monitor Corporation, dba Telecom Site Management Products;
Echelon
Corporation; Computrols, Inc.; Richards-Zeta Building Intelligence,
Inc.;
Jordan Acquisition Group, LLC, dba American Auto-Matrix, Inc.; and
ASI
Controls, Inc. United States District Court for the Eastern District
of
Texas. Filed 5/18/07. Case No.
2:07-cv-00198.
|
High
Resolution Optics Technology
|
·
|
Theodore
Whitney and High Resolution Optics Corporation v. The United States.
United States Court of Federal Claims. Filed 8/23/06. Case No.
1:06-cv-00601.
|
Interactive
Television Technology
|
·
|
Broadcast
Innovation, LLC and IO Research, Ltd. v. Charter Communications,
Inc.
United States District Court for the District of Colorado. Case No.
1:03-cv-02223. On appeal to the U.S. Court of Appeals for the Federal
Court from 9/28/04 to 11/21/05. Remanded to the U. S. District Court
for
further proceedings on 11/21/05.
|
|
·
|
Broadcast
Innovation, LLC v. Echostar Communications Corporation. United States
District Court for the District of Colorado. Filed 11/9/01. Case
No.
1:01-cv-02201.
|
Information
Monitoring Technology
|
·
|
Diagnostic
Systems Corporation v. Symantec Corporation; CA, Inc.,
|
F-Secure,
Inc., NetIQ Corporation, Quest Software Inc., and NetScout Systems, Inc., United
States District Court for the Central District of California. Filed 12/14/06.
Case No. 8 06-cv-01211.
Laptop
Connectivity Technology
|
·
|
Computer
Docking Station Corporation v. Dell, Inc., Gateway, Inc., Toshiba
America,
Inc., and Toshiba America Information Systems, Inc., United States
District Court for the Western District of Wisconsin. On appeal to
the
U.S. Court of Appeals for the Federal Court. Lower Court Case No.
06-c-0032-c.
|
Microprocessor
Enhancement Technology
|
·
|
Microprocessor
Enhancement Corporation and Michael H. Branigin v. Texas Instruments,
Incorporated. United States District Court for the Central District
of
California. On appeal to the U.S. Court of Appeals for the Federal
Court.
Lower Court Case No. 8:05-cv-00323.
|
|
·
|
Microprocessor
Enhancement Corporation and Michael H. Branigin v. Intel Corporation.
United States District Court for the Central District of California.
On
appeal to the U.S. Court of Appeals for the Federal Court. Lower
Court
Case No. Case No. 2:05-cv-05667.
|
Multi-Dimensional
Bar Code Technology
|
·
|
Cognex
Corporation v. VCode Holdings, Inc., VData LLC, Acacia Research
Corporation, dba Acacia Technologies Group, and Veritec Inc. United
States
District Court for the District of Minnesota. Filed 3/13/06. Case
No.
0:06-cv-01040.
|
|
·
|
VCode
Holdings, Inc. and VData, LLC v. Cognex Corporation. United States
District Court for the Eastern District of Texas. Filed 4/13/07.
Case No.
2:07-cv-00138.
|
|
·
|
VData
LLC and VCode Holdings, Inc. v. Aetna, Inc., PNY Technologies Inc.,
A144
and Merchant’s Credit Guide Co. United States District Court for the
District of Minnesota. Filed 5/8/06. Case No.
0:06-cv-01701.
|
Parallel
Processing with Shared MemoryTechnology
|
·
|
Parallel
Processing Corporation v. Sony Corporation of America. United States
District Court for the Eastern District of Texas. Filed 7/26/07.
Case No.
6:07-cv-00353.
|
Peer
to Peer Communications Technology
|
·
|
Peer
Communications Corporation v. Skype Technologies SA, Skype, Inc.,
and
eBay, Inc. United States District Court for the Eastern District
of Texas.
Filed 8/22/06. Case No.
6:06-cv-00370.
|
Physical
Access Control Technology
|
·
|
James
Romano and Secure Access Corporation v. The United States. United
States
Court of Federal Claims. Filed 6/18/07. Case No.
1:07-cv-00396.
|
Portable
Storage Devices With Links Technology
|
·
|
Disc
Link Corporation v. H&R Block Digital Tax Solutions, LLC, F/K/A
H&R Block Digital Tax Solutions, Inc., Block Financial Corporation,
Riverdeep, Inc., Oracle Corporation, SAP America, Inc. d/b/a SAP
Americas,
SAP AG, Bentley Systems, Inc., SPSS, Inc., Solidworks Corporation,
Sonic
Solutions, Corel Corporation, Corel, Inc., MISYS PLC, Adtran, Inc.,
Eastman Kodak Company, CA, Inc., UGS Corp., Business Objects Americas,
Business Objects SA, Trend Micro Incorporated (California Corporation),
EMC Corporation, Borland Software Corporation, Novell, Inc., Compuware
Corporation and Avid Technology, Inc. United States District Court
for the
Eastern District of Texas. Filed 4/10/07. Lead Case No. 5:07-cv-00058.
Consolidated with Case No. Case No.
5:06-cv-00295
|
Telematics
Technology
|
·
|
Telematics
Corporation v. UPS, Inc. (an Ohio corporation); UPS, Inc. (a New
York
Corporation), UPS Logistics Technologies, Inc.; @Road, Inc.; Motorola,
Inc.; RyderTruck Rental, Inc.; Sprint Spectrum, L.P.; Nextel of
California, Inc.; Nextel Communications of the Mid-Atlantic, Inc.;
Nextel
of New York, Inc.; Nextel South Corp.; Nextel of Texas, Inc.; Nextel
West
Corp.; Teletrac, Inc., Cellco Partnership d/b/a Verizon Wireless
and Xata
Corporation. United States District Court for the Northern District
of
Georgia. Filed 1/16/07. Case No. 1:07-cv-00105.
|
User
Activated Internet Advertising Technology
|
·
|
InternetAd
Systems, LLC v. Turner Broadcasting System, Inc., Knight Ridder Digital,
Condenet, Inc., United States District Court for the Northern District
of
Texas. Filed 6/15/06. Case No. 3:06-cv-01063.
|
Vehicle
Magnetic Braking Technology
|
·
|
Safety
Braking Corporation, Magnetar Technologies Corp., and G&T
Conveyor
Co. v. Six Flags, Inc., Six Flags Theme Parks Inc., SF Partnership,
Tierco
Maryland, Inc., Busch Entertainment Corp., Cedar Fair LP, Paramount
Parks,
Inc., NBC Universal, Inc., Universal Studios, Inc., Blackstone Group
L.P.,
United States District Court for the District of Delaware. Filed
3/1/07.
Case No. 1:07-cv-00127.
|
Wireless
Traffic Information Technology
|
·
|
Mobile
Traffic Systems Corporation v. Cobra Electronics Corp., Garmin USA,
Inc.,
Magellan Navigation, Inc. and TomTom, Inc. United States District
Court
for the Northern District of Alabama. Filed 4/11/07. Case No.
5:07-cv-00653.
|
Critical
Accounting Estimates
Our
unaudited interim financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.
Preparation of these statements requires management to make judgments and
estimates. Some accounting policies have a significant impact on amounts
reported in these financial statements. A summary of significant accounting
policies and a description of accounting policies that are considered critical
may be found in our 2006 Annual Report on Form 10-K, filed on March 14, 2007,
in
the Notes to the Consolidated Financial Statements and the Critical Accounting
Estimates section. In addition, refer to Note 2 to the consolidated interim
financial statements included in Part I, Item 1 of this report.
Acacia
Research Corporation Consolidated
Comparison
of the Results
of Operations for the Three
and Six Months Ended June 30, 2007 and 2006
Net
Income (Loss) (In thousands)
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2007
|
|
June
30, 2006
|
|
June
30, 2007
|
|
June
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations - Acacia Technologies
group
|
|
$
|
(3,588
|
)
|
$
|
1,157
|
|
$
|
847
|
|
$
|
(1,221
|
)
|
Loss
from discontinued operations - Split-off of CombiMatrix
Corporation
|
|
|
(3,667
|
)
|
|
(3,500
|
)
|
|
(5,800
|
)
|
|
(11,220
|
)
|
Net
loss
|
|
|
(7,255
|
)
|
|
(2,343
|
)
|
|
(4,953
|
)
|
|
(12,441
|
)
|
The
changes in net income (loss) from continuing operations for the periods
presented were primarily due to operating results and activities of the Acacia
Technologies group, as discussed below.
Revenues
(In thousands)
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2007
|
|
June
30, 2006
|
|
June
30, 2007
|
|
June
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
5,865
|
|
$
|
14,371
|
|
$
|
31,050
|
|
$
|
19,088
|
|
License
Fees.
Revenues
for the three months ended June 30, 2007 included license fees from 20 new
licensing agreements covering 8 of our technology licensing and enforcement
programs, as compared to 27 new licensing agreements covering 9 of our
technology licensing and enforcement programs in the comparable 2006 period.
Revenues for the six months ended June 30, 2007 included license fees from
42
new licensing agreements covering 12 of our technology licensing and enforcement
programs, as compared to 48 new licensing agreements covering 12 of our
technology licensing and enforcement programs in the comparable 2006 period.
License fee revenues recognized by the Acacia Technologies group fluctuate
from
period to period primarily based on the following factors:
|
·
|
the
dollar amount of agreements executed each period, which is primarily
driven by the nature and characteristics of the technology being
licensed
and the magnitude of infringement associated with a specific
licensee;
|
|
·
|
the
specific terms and conditions of agreements executed each period
and the
periods of infringement contemplated by the respective
payments;
|
|
· |
fluctuations
in the total number of agreements
executed;
|
|
·
|
fluctuations
in the sales results or other royalty per unit activities of our
licensees
that impact the calculation of license fees
due;
|
|
· |
the
timing of the receipt of periodic license fee payments and/or reports
from
licensees; and
|
|
·
|
fluctuations
in the net number of active licensees period to
period.
|
Costs
incurred in connection with the Acacia Technologies group’s ongoing licensing
activities, other than inventor royalties expense, contingent legal fees expense
and patent-related legal expenses, are included in marketing, general and
administrative expenses in the accompanying consolidated statements of
operations.
Operating
Expenses (In thousands)
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2007
|
|
June
30, 2006
|
|
June
30, 2007
|
|
June
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Marketing,
general and administrative expenses (including non-cash stock compensation
expense of $1,144 and $1,907 for the three and six months ended
June 30,
2007 and $889 and $1,937 for the three and six months ended June
30,
2006)
|
|
$
|
4,190
|
|
$
|
2,986
|
|
$
|
8,518
|
|
$
|
6,492
|
|
Legal
expenses - patents
|
|
|
1,069
|
|
|
1,082
|
|
|
2,436
|
|
|
1,448
|
|
Inventor
royalties and contingent legal fees expense - patents
|
|
|
3,406
|
|
|
7,847
|
|
|
17,528
|
|
|
10,118
|
|
Amortization
of patents
|
|
|
1,314
|
|
|
1,326
|
|
|
2,630
|
|
|
2,669
|
|
Write-off
of patent-related intangible asset
|
|
|
-
|
|
|
297
|
|
|
-
|
|
|
297
|
|
Marketing,
General and Administrative Expenses. The
net
increase for the periods presented was due primarily to the Acacia Technologies
group’s addition of licensing, business development and engineering personnel
since the end of the comparable 2006 period and an increase in other personnel
related expenses, a one-time severance charge for an
employee separation under the Acacia Research Corporation Executive
Severance Plan in the first quarter of 2007 and an increase in corporate,
general and administrative costs related to the continued growth and expansion
of Acacia Technologies group’s ongoing operations. These increases were
partially offset by a decrease in consulting expenses due to the expiration
of
the consulting agreement with the former CEO of Global Patent Holdings, LLC
in
January 2007. Non-cash stock compensation charges increased during the three
months ended June 30, 2007, as compared to the three months ended June 30,
2006
due to the issuance of additional equity based incentive awards to new and
existing employees during the second quarter of 2007. There were no new grants
of equity based incentive awards to existing employees during fiscal 2006.
Non-cash stock compensation expense remained relatively flat during the six
months ended June 30, 2007 and 2006 due to the reversal of certain non-cash
stock compensation charges recorded in prior periods resulting from the
pre-vesting forfeiture of certain share-based awards in connection with the
employee separation referred to above.
A
summary
of the main drivers of the change in marketing, general and administrative
expenses for the periods presented is as follows (in thousands):
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2007
vs. 2006
|
|
2007
vs. 2006
|
|
Increase
in personnel expenses
|
|
$
|
809
|
|
$
|
1,343
|
|
Decrease
in GPH Acquisition related consulting expenses
|
|
|
(250
|
)
|
|
(425
|
)
|
One-time
severance charge for employee separation
|
|
|
-
|
|
|
360
|
|
Increase
in foreign taxes paid on licensing fees
|
|
|
6
|
|
|
151
|
|
Increase
in patent development / commercialization and other marketing,
general and
administrative costs
|
|
|
384
|
|
|
627
|
|
Increase
(decrease) in non-cash stock compensation expense
|
|
|
255
|
|
|
(30
|
)
|
Legal
Expense - Patents.
Patent-related legal expenses include patent-related prosecution and enforcement
costs incurred by outside patent attorneys engaged on an hourly basis and the
out-of-pocket expenses incurred by law firms engaged on a contingent fee basis.
Patent-related legal expenses fluctuate from period to period based on patent
enforcement and prosecution activity associated with ongoing licensing and
enforcement programs and the timing of the commencement of new licensing and
enforcement programs in each period. Patent-related legal expenses include
case
related costs billed by outside counsel for economic analyses and damages
assessments, expert witnesses and other consultants, case related audio/video
presentations for the court, and other litigation support and administrative
costs. We expect patent-related legal expenses to continue to fluctuate period
to period based on the factors summarized above in connection with the Acacia
Technologies group’s ongoing patent commercialization and enforcement programs.
Refer to “Patent Enforcement Litigation” included in Part I, Item 2, above.
Inventor
Royalties and Contingent Legal Fees Expense.
For the
three and six months ended June 30, 2007, inventor royalties expenses were
$1.6
million
and $7.1
million, respectively, as compared to $4.0 million and $5.3 million for the
three and six months ended June 30, 2006. Contingent legal fees expenses
incurred during the three and six months ended June 30, 2007 were $1.8 million
and $10.4 million, respectively, as compared to $3.8 million and $4.8 million
during the three and six months ended June 30, 2006, respectively. The change
in
inventor royalties expense and contingent legal fees expense for the periods
presented correlates directly with the fluctuations in license fee revenues
for
the periods presented, as discussed above, and also reflects the impact of
the
specific mix of patent portfolios with varying economic terms generating the
revenues for the periods presented. The majority of the Acacia Technologies
group’s patent portfolios are subject to patent and patent rights agreements
with inventors containing provisions granting to the original patent owner
the
right to receive inventor royalties based on future net revenues, as defined
in
the respective agreements, and may also be subject to contingent legal fee
arrangements with external law firms engaged on a contingent fee basis. The
economic terms of the inventor and contingent arrangements, if any, vary across
the Acacia Technologies group’s patent portfolios. As such, inventor royalties
and contingent legal fees expenses fluctuate period to period based on the
amount of revenues recognized each period and the mix of specific patent
portfolios generating revenues each period.
Write-off
of Patent-related Intangible Asset.
During
the three months ended June 30, 2006, the Acacia Technologies group recorded
a
non-cash impairment charge of $297,000, related to the write-off of a
patent-related intangible asset. During the second quarter of 2006,
pursuant
to the terms of the respective license agreement, management elected to
terminate its rights to exclusively license and enforce the patent, resulting
in
the write-off of the remaining carrying value of the patent-related intangible
asset as of June 30, 2006.
Discontinued
Operations - Split-off of CombiMatrix Corporation
In
January 2006, Acacia Research Corporation’s board of directors approved a plan
for its wholly owned subsidiary, CombiMatrix Corporation, to become an
independent public company. CombiMatrix Corporation’s registration statement on
Form S-1 was declared effective by the SEC on June 8, 2007. Following the
redemption period required by Acacia Research Corporation’s Restated
Certificate of Incorporation, on August 15, 2007 (the “Redemption
Date”), CombiMatrix Corporation will split-off from Acacia Research Corporation
through the redemption of all outstanding shares of AR-CombiMatrix common stock.
On the Redemption Date, every ten (10) shares of AR-CombiMatrix stock
outstanding on August 15, 2007, will be redeemed for one (1) share of common
stock of CombiMatrix Corporation. As of June 30, 2007 CombiMatrix Corporation
continues to be wholly owned by Acacia Research Corporation, and will continue
to be wholly owned by Acacia Research Corporation until the August 15, 2007
Redemption Date. Subsequent to the Redemption Date, Acacia Research Corporation
will no longer own any equity interests in CombiMatrix Corporation and the
two
companies will operate independently of each other.
In
accordance with guidance set forth in SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” since the assets, liabilities,
results of operations and cash flows of CombiMatrix group will be eliminated
from the ongoing operations of Acacia Research Corporation as a result of the
eventual consummation of the Split-off Transaction (on the Redemption Date)
and
Acacia Research Corporation will not have any continuing involvement in the
operations of CombiMatrix group subsequent to the consummation of the Split-off
Transaction, Acacia Research Corporation’s accompanying consolidated balance
sheet, statements of operations and statement of cash flows for the current
periods presented reflect the assets, liabilities, results of operations and
cash flows for the CombiMatrix group as Discontinued Operations. Financial
statements presented for comparable prior year periods have also been restated
to reflect the assets, liabilities, results of operations and cash flows for
the
CombiMatrix group as Discontinued Operations. The CombiMatrix group was
previously presented as a separate operating segment of Acacia Research
Corporation under SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information.”
Refer
to
Note 9 to the Acacia Research Corporation consolidated financial statements
included elsewhere herein for detailed information regarding the assets and
liabilities of the CombiMatrix group that have been segregated from continuing
operations and presented as discontinued operations in the accompanying
consolidated balance sheets. Refer to Note 9 to the Acacia Research Corporation
consolidated financial statements included elsewhere herein for detailed
information regarding the revenues and expenses of the CombiMatrix group that
have been segregated from continuing operations and reported as discontinued
operations in the accompanying consolidated statements of operations. Refer
to
Note 9 to the Acacia Research Corporation consolidated financial statements
included elsewhere herein for detailed information regarding the cash flow
activities of the CombiMatrix group that have been segregated from continuing
operations and reported as discontinued operations in the accompanying
consolidated statements of cash flows. Upon consummation of the Split-off
Transaction on the Redemption Date, the Split-off Transaction will be accounted
for by Acacia Research Corporation at historical cost. Accordingly, no gain
or
loss on disposal will be recognized in the statement of operations by Acacia
Research Corporation.
Net
loss
from discontinued operations related to the CombiMatrix group includes direct
costs incurred in connection with the Split-off Transaction, originally included
in Acacia Research Corporation corporate accounts, totaling $100,000 and
$136,000 for the three and six months ended June 30, 2007 and $58,000 and
$89,000 for the three and six months ended June 30, 2006.
Inflation
Inflation
has not had a significant impact on Acacia Research Corporation.
Liquidity
and Capital Resources
Cash
and
cash equivalents and short term investments related to the continuing operations
of the Acacia Technologies group totaled $50.4 million at June 30, 2007,
compared to $45.0 million at December 31, 2006.
Working
capital related to the continuing operations of the Acacia Technologies group
at
June 30, 2007 was $49.4 million, compared to $42.6 million at
December 31, 2006. The change in working capital related to the continuing
operations of the Acacia Technologies group was due primarily to the impact
of
net cash flow activities as discussed below.
The
net
increase (decrease) in cash and cash equivalents for the periods presented
was
comprised of the following (in thousands):
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2007
|
|
June
30, 2006
|
|
Net
cash provided by (used in) operations:
|
|
|
|
|
|
Acacia
Technologies group:
|
|
|
|
|
|
Continuing
operating activities
|
|
$
|
3,929
|
|
$
|
2,806
|
|
Continuing
investing activities
|
|
|
(4,073
|
)
|
|
(1,211
|
)
|
Continuing
financing activities
|
|
|
3,159
|
|
|
335
|
|
Discontinued
operations of Soundbreak.com
|
|
|
8
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
Discontinued
Operations - Split-off of CombiMatrix group:
|
|
|
|
|
|
|
|
Discontinued
operating activities
|
|
|
(7,026
|
)
|
|
(8,191
|
)
|
Discontinued
investing activities
|
|
|
(3,960
|
)
|
|
3,280
|
|
Discontinued
financing activities
|
|
|
5,369
|
|
|
(7
|
) |
|
|
|
|
|
|
|
|
Decrease
in cash and cash equivalents
|
|
$
|
(2,594
|
)
|
$
|
(3,119
|
)
|
Cash
Flows from Continuing Operating Activities.
Cash
receipts from licensees for the Acacia Technologies group for the six months
ended June 30, 2007, increased to $29.0 million from $19.6 million in the
comparable 2006 period. Cash outflows from operations for the Acacia
Technologies group for the six months ended June 30, 2007, increased to $25.1
million from $16.7 million in the comparable 2006 period. The increase in
license fee payments received was partially offset by increases in inventor
royalties expenses, contingent legal fees expenses, patent-related legal
expenses, personnel expenses, and other corporate, general and administrative
expenses, as described above, and the impact of the timing of payments to
inventors, attorneys and other vendors.
Cash
Flows from Continuing Investing Activities. The
change in net cash flows used in investing activities was primarily due to
net
purchases and sales of available-for-sale investments by the Acacia Technologies
group in connection with ongoing short-term cash management activities during
the periods presented. Acacia Technologies group net cash outflows from
investing activities for the six months ended June 30, 2007 also included patent
related acquisition costs totaling $1,395,000, as compared to $1,020,000 in
the
comparable 2006 period.
Cash
Flows from Continuing Financing Activities. Net
cash
flows provided by financing activities during the six months ended June 30,
2007
included proceeds from the exercise of AR-Acacia Technologies stock options
totaling $3.2 million, as compared to $335,000 for the comparable 2006 period.
Cash
Flows from Discontinued Operations. Cash
flows from discontinued operations includes the net operating, investing and
financing cash flows related to the discontinued operations of the CombiMatrix
group. Refer to “Discontinued Operations - Split-off of CombiMatrix Corporation”
above.
Management
believes that the Acacia Technologies group’s cash and cash equivalent balances,
anticipated cash flow from operations and other external sources of available
credit, will be sufficient to meet its cash requirements through at least August
2008 and for the foreseeable future. The Acacia Technologies group may however
encounter unforeseen difficulties that may deplete its capital resources more
rapidly than anticipated, including those set forth in the Acacia Technologies
group Risk Factors on page 25 of our Annual Report on Form 10-K for the year
ended December 31, 2006, filed with the SEC on March 14, 2007. Any efforts
to
seek additional funding 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. If the Acacia Technologies group fails
to obtain additional funding when needed, it may not be able to execute its
business plans and its business may suffer.
Acacia
Research Corporation’s cash and cash equivalent and short term investment
balances, cash flows and anticipated cash flows from operations and other
sources of external credit, are attributed to the Acacia Technologies group
and
the CombiMatrix group based on the respective assets of the specific businesses
comprising each group. Issuances of AR-Acacia Technologies stock (and the
proceeds thereof) are attributed to the Acacia Technologies group and issuances
of AR-CombiMatrix stock (and the proceeds thereof) are attributed to the
CombiMatrix group. The
cash
and cash equivalent balances, anticipated cash flow from operations, and other
external sources of available credit of one group are not generally available
to
the other group. Neither
of the groups is obligated to fund the ongoing operations of the other group.
Management has no intent to use the cash and cash equivalent balances,
anticipated cash flow from operations, and other external sources of available
credit of one group to fund the ongoing operations of the other
group.
Off-Balance
Sheet Arrangements
We
have
not entered into off-balance sheet financing arrangements, other than operating
leases. We have no significant commitments for capital expenditures in 2007.
We
have no committed lines of credit or other committed funding or long-term debt.
The following table lists material known future cash commitments related to
the
continuing operations of the Acacia Technologies group as of June 30,
2007:
|
|
Payments
Due by Period (in thousands)
|
|
Contractual
Obligations
|
|
Remaining
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
and
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$
|
280
|
|
$
|
696
|
|
$
|
724
|
|
$
|
753
|
|
$
|
783
|
|
$
|
131
|
|
Total
contractual cash obligations
|
|
$
|
280
|
|
$
|
696
|
|
$
|
724
|
|
$
|
753
|
|
$
|
783
|
|
$
|
131
|
|
Recent
Accounting Pronouncements
Refer
to
Note 2 and Note 5 to the Acacia Research Corporation consolidated financial
statements included in Part I, Item 1 of this report.
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Our
exposure to market risk is limited primarily to interest income sensitivity,
which is affected by changes in the general level of United States interest
rates, particularly because a significant portion of our investments are in
short-term debt securities issued by the U.S. government, U.S. corporations,
institutional money market funds and other money market instruments. The primary
objective of our investment activities is to preserve principal while at the
same time maximizing the income received without significantly increasing risk.
To minimize risk, we maintain a portfolio of cash, cash equivalents and
short-term investments in a variety of investment-grade securities and with
a
variety of issuers, including corporate notes, commercial paper and money market
instruments. Due to the nature of our short-term investments, we believe that
we
are not subject to any material market risk exposure. We do not have any
derivative financial instruments.
Item
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
(a) Under
the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as amended. Based on this evaluation, our principal executive officer and our
principal financial officer concluded that, as of the end of the period covered
by this quarterly report, our disclosure controls and procedures were effective
to ensure that the information required to be disclosed by us in the reports
that we file or submit under the Securities Exchange Act of 1934 is accumulated
and communicated to management, including our chief executive officer and chief
financial officer, to allow timely decisions regarding required disclosure,
and
that such information is recorded, processed, summarized and reported within
the
time periods prescribed by the SEC.
Changes
in Internal Controls
(b) There
were no changes in our internal control over financial reporting that occurred
during our last fiscal quarter (the quarter ended June 30, 2007) that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART
II--OTHER INFORMATION
Item
1. LEGAL PROCEEDINGS
Refer
to
Note 7 to the Acacia Research Corporation consolidated financial statements,
contained in Part I, Item 1. of this report, and hereby incorporated by
reference.
Refer
to
Part II, Item 1. “Legal Proceedings” included in CombiMatrix Corporation’s
Quarterly Report on Form 10-Q, for the quarterly period ended June 30, 2007,
incorporated herein by reference and filed herewith as Exhibit
99.2.
Item
1A.
RISK FACTORS
An
investment in our common stock involves a number of risks. Before making a
decision to purchase our securities, you should carefully consider all of the
risks described in this quarterly report and in our annual report on Form 10-K
for the year ended December 31, 2006, filed with the Securities and Exchange
Commission on March 14, 2007. If any of the risks included in this quarterly
report or our annual report actually occur, our business, financial condition
and results of operations could be materially adversely affected. If this were
to occur, the trading price of our securities could decline significantly and
you may lose all or part of your investment. You
should carefully review the “Risk Factors” set forth on pages 25 through 49 of
our annual report on Form 10-K for the year ended December 31, 2006, filed
with
the Securities and Exchange Commission on March 14, 2007, and the risk factors
included in our Form 8-K filed with the Commission on April 27, 2007, and hereby
incorporated by reference.
You
should also carefully review the “Risk Factors” included in Part II, Item 1A. of
CombiMatrix Corporation’s Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2007, incorporated herein by reference and filed herewith as
Exhibit 99.3.
Item
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
In
May
2007, Acacia Research Corporation sold 340,000 shares of unregistered Acacia
Research-CombiMatrix common stock pursuant to a consulting services agreement
between CombiMatrix Corporation and a third-party consultant. Pursuant to the
terms of the agreement, 306,000 shares of Acacia Research-CombiMatrix common
stock were issued to the consultant on May 29, 2007, and an additional 30,000
shares and 4,000 shares of Acacia
Research-CombiMatrix common stock
will be
issued to the consultant in August 2007 and November 2007, respectively. The
term of the consulting services agreement expires in November 2007.
The
shares of Acacia Research-CombiMatrix common stock issued pursuant to the
consulting services agreement as of August 15, 2007 (the “Redemption Date” as
defined at Part I Item 2. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”), will be redeemed for shares of
CombiMatrix Corporation common stock in connection with the Split-off
Transaction described at Part I Item 2. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” earlier herein. Subsequent to the
Redemption Date, CombiMatrix Corporation common stock shares will be issued
to
the consultant pursuant to the terms of the consulting services
agreement.
The
issuance and sale of the securities was exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933 by virtue of
Section 4(2) and Rule 506 of Regulation D. The
sale
did not involve a public offering or general solicitation and was limited to
a
single accredited investor. No
commissions were paid on the issuance and sale of the shares. The
stock
certificates issued pursuant to the consulting agreement have contained and
will
contain a restrictive legend in accordance with Rule 144.
Item
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
We
held
our annual meeting of stockholders on May 15, 2007 in Newport Beach,
California.
(i)
At
the annual meeting, the following persons were elected directors for a
three-year term ending in 2010 based on the voting results below:
Name
|
|
For
|
|
Withheld
|
|
Robert
L. Harris, II
|
|
|
480,914,223
|
|
|
9,667,156
|
|
Fred
A. deBoom
|
|
|
479,498,960
|
|
|
11,082,418
|
|
Amit
Kumar, Ph.D.
|
|
|
478,407,843
|
|
|
12,173,536
|
|
The
following persons' terms as directors continued after the annual meeting and
end
in 2008: Thomas B. Akin, Edward W. Frykman.
The
following persons’ terms as directors continued after the annual meeting and end
in 2009: Paul R. Ryan, G. Louis Graziadio, III, Rigdon Currie.
(ii)
The stockholders approved the 2007 Acacia Technologies Stock Incentive
Plan. The voting results were as follows:
For
|
|
Against
|
|
Abstain
|
|
Broker
Non-Votes
|
|
127,994,623
|
|
|
104,276,725
|
|
|
1,545,722
|
|
|
256,764,309
|
|
Item
6. EXHIBITS
4.1
|
Form
of Warrant Certificate (1)
|
|
|
10.1
|
Form
of Securities Purchase Agreement (1)
|
|
|
31.1
|
Certifications
of the Chief Executive Officer provided pursuant to Section 302 of
the
Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Certifications
of the Chief Financial Officer provided pursuant to Section 302 of
the
Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Certifications
of the Chief Executive Officer provided pursuant to 18 U.S.C. Section
1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
32.2
|
Certifications
of the Chief Financial Officer provided pursuant to 18 U.S.C. Section
1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
99.1
|
Part
I, Item 2. “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” incorporated
by reference to CombiMatrix Corporation’s Quartelry Report on Form 10-Q,
for the Quarterly Period ended June 30, 2007.
|
|
|
99.2
|
Part
II, Item 1. “Legal Proceedings” incorporated
by reference to CombiMatrix Corporation’s Quartelry Report on Form 10-Q,
for the Quarterly Period ended June 30, 2007.
|
|
|
99.3
|
Part
II, Item 1A. “Risk Factors” incorporated
by reference to CombiMatrix Corporation’s Quartelry Report on Form 10-Q,
for the Quarterly Period ended June 30,
2007.
|
_________________
(1)
Incorporated by reference to the Form 8-K of Acacia Research Corporation filed
with the Commission on May 9, 2007, as File No. 07829749.
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
By: /S/
Paul R.
Ryan
Paul
R.
Ryan
Chief
Executive Officer
(Authorized
Signatory)
By: /S/
Clayton J.
Haynes
Clayton
J. Haynes
Chief
Financial Officer /Treasurer
(Principal
Financial Officer)
Date:
August
6,
2007
EXHIBIT
INDEX
EXHIBIT
NUMBER
|
|
EXHIBIT
|
|
|
|
4.1
|
|
Form
of Warrant Certificate (1)
|
|
|
|
10.1
|
|
Form
of Securities Purchase Agreement (1)
|
|
|
|
31.1
|
|
Certifications
of the Chief Executive Officer provided pursuant to Section 302 of
the
Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
Certifications
of the Chief Financial Officer provided pursuant to Section 302 of
the
Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certifications
of the Chief Executive Officer provided pursuant to 18 U.S.C. Section
1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
32.2
|
|
Certifications
of the Chief Financial Officer provided pursuant to 18 U.S.C. Section
1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
99.1
|
|
Part
I, Item 2. “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” incorporated
by reference to CombiMatrix Corporation’s Quartelry Report on Form 10-Q,
for the Quarterly Period ended June 30, 2007.
|
|
|
|
99.2
|
|
Part
II, Item 1. “Legal Proceedings” incorporated
by reference to CombiMatrix Corporation’s Quartelry Report on Form 10-Q,
for the Quarterly Period ended June 30, 2007.
|
|
|
|
99.3
|
|
Part
II, Item 1A. “Risk Factors” incorporated
by reference to CombiMatrix Corporation’s Quartelry Report on Form 10-Q,
for the Quarterly Period ended June 30,
2007.
|
___________________
(1)
Incorporated by reference to the Form 8-K of Acacia Research Corporation filed
with the Commission on May 9, 2007, as File No.
07829749.
33