AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 2002

                                                      REGISTRATION NO. 333-87654
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                 AMENDMENT NO. 6
                                       TO
                                    FORM S-4
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933

                                   ----------

                           ACACIA RESEARCH CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                   ----------



                                                             
            DELAWARE                          6282                       954405754
  (STATE OR OTHER JURISDICTION      (PRIMARY STANDARD INDUSTRIAL     (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)    CLASSIFICATION CODE NUMBER)   IDENTIFICATION NUMBER)


                            500 NEWPORT CENTER DRIVE
                             NEWPORT BEACH, CA 92660
                                 (949) 480-8300
          (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
             AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

                                  PAUL R. RYAN
                           ACACIA RESEARCH CORPORATION
                            500 NEWPORT CENTER DRIVE
                             NEWPORT BEACH, CA 92660
                                 (949) 480-8300
          (NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
                   INCLUDING AREA CODE, OF AGENT FOR SERVICE)

                                   ----------

                                   COPIES TO:
                                 MARK J. KELSON
                               D. STANLEY ROWLAND
                     ALLEN MATKINS LECK GAMBLE & MALLORY LLP
                            1901 AVENUE OF THE STARS
                                   SUITE 1800
                           LOS ANGELES, CA 90067-6019

                                   ----------

     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the registration statement becomes effective.

     If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]

     If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]

     If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]





                         CALCULATION OF REGISTRATION FEE
================================================================================================================================
                                                                                                 PROPOSED
                                                                            PROPOSED MAXIMUM      MAXIMUM
                                                             AMOUNT TO BE    OFFERING PRICE      AGGREGATE         AMOUNT OF
        TITLE OF SECURITIES TO BE REGISTERED                  REGISTERED       PER SHARE       OFFERING PRICE   REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                      
Acacia Research Corporation-Acacia Technologies Common
Stock, par value $0.001 per share (1).....................    19,640,808          N/A               N/A           $17,313.97(4)
--------------------------------------------------------------------------------------------------------------------------------
Acacia Research Corporation-CombiMatrix Common Stock, par
value $0.001 per share (2)................................    10,963,277          N/A               N/A                  N/A(4)
--------------------------------------------------------------------------------------------------------------------------------
Acacia Research Corporation-CombiMatrix Common Stock, par
value $0.001 per share (3)................................    11,987,274          N/A               N/A           $ 1,703.01(5)
================================================================================================================================
TOTAL                                                                                                             $19,016.98
================================================================================================================================


(1)  Represents the maximum number of shares of Acacia Research
     Corporation-Acacia Technologies Common Stock to be issued in connection
     with the recapitalization, based on 19,640,808 shares of the Common Stock
     of Acacia Research Corporation outstanding.

(2)  Represents the maximum number of shares of Acacia Research
     Corporation-CombiMatrix Common Stock to be issued in connection with the
     recapitalization, based on 19,640,808 shares of the Common Stock of Acacia
     Research Corporation outstanding.

(3)  Represents the maximum number of shares of Acacia Research
     Corporation-CombiMatrix Common Stock to be issued in connection with the
     merger of Acacia Research Corporation and CombiMatrix Corporation, based on
     11,987,274 shares of the Common Stock of CombiMatrix Corporation
     outstanding, excluding shares held by Acacia Research Corporation and its
     affiliates.

(4)  Pursuant to Rule 457(f)(1) and 457(c) under the Securities Act, this
     portion of the registration fee has been calculated based on per share
     prices of the Common Stock of Acacia Research Corporation of $9.585 and
     $4.175 (the average of the high and low price per share of the Common Stock
     of Acacia Research Corporation on the Nasdaq National Market on April 29,
     2002 and October 22, 2002, respectively). $17,309.58 of this fee has been
     previously paid.

(5)  Pursuant to Rule 457(f)(2) under the Securities Act and Rule 0-11(a)(4) and
     0-11(c)(1)(i) under the Securities Exchange Act of 1934, this portion of
     the registration fee has been calculated, as of April 29, 2002 and as of
     October 22, 2002, based upon the then-current book values of CombiMatrix
     Corporation of $19,425,072 and $5,393,484, respectively, and the percentage
     of the outstanding shares of CombiMatrix Corporation Common Stock that will
     be exchanged in the merger for the shares of AR-CombiMatrix Common Stock
     being included in this registration statement on such dates, 41.6% and
     17.5%, respectively. $1,616.17 of this fee has been previously paid.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.

================================================================================

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.



                                 PROXY STATEMENT
                                       OF
                           ACACIA RESEARCH CORPORATION

                      SPECIAL MEETING OF STOCKHOLDERS TO BE
     HELD AT 610 NEWPORT CENTER DRIVE, SUITE 130, NEWPORT BEACH, CALIFORNIA
                AT 1:30 P.M., PACIFIC TIME, ON DECEMBER 11, 2002

                                   ----------

                                  PROSPECTUS OF
                           ACACIA RESEARCH CORPORATION

ACACIA RESEARCH CORPORATION -                    ACACIA RESEARCH CORPORATION -
  COMBIMATRIX COMMON STOCK                     ACACIA TECHNOLOGIES COMMON STOCK

TO OUR STOCKHOLDERS:

     You are invited to attend a special meeting of our stockholders at which
you will be asked to consider and adopt a recapitalization proposal recommended
by our board of directors.

     We propose to create two new classes of common stock called "AR-CombiMatrix
stock" and "AR-Acacia Technologies stock." AR-CombiMatrix stock is intended to
reflect separately the performance of our subsidiary CombiMatrix Corporation,
and to benefit from its research and development efforts. AR-Acacia Technologies
stock is intended to reflect separately the performance of our media technology
business and to benefit from the licensing of its technology and sale of its
products. Although the AR-CombiMatrix stock and the AR-Acacia Technologies stock
are intended to reflect the performance of different business groups within our
company, they are both classes of common stock of Acacia Research Corporation
and are not stock issued by the respective groups.

     If stockholders approve the recapitalization, each share of your existing
common stock would be converted into approximately 0.5582 of a share of
AR-CombiMatrix stock (subject to adjustment as described in this proxy
statement) and one share of AR-Acacia Technologies stock.

     At the special meeting, you will also be asked to consider and approve a
merger proposal pursuant to which we would acquire the outstanding shares of
CombiMatrix Corporation not already held by us, and CombiMatrix Corporation
would become our wholly-owned subsidiary. In the merger, the stockholders of
CombiMatrix Corporation other than Acacia Research would receive one share of
AR-CombiMatrix stock for each share of CombiMatrix Corporation common stock
which they own immediately prior to the merger.

     At the special meeting, you will also be asked to consider and approve
related proposals to adopt separate new stock incentive plans for each business
group.

     We have applied to list the AR-CombiMatrix stock and the AR-Acacia
Technologies stock on the NASDAQ National Market under the symbols "CBMX" and
"ACTG", respectively.

     Our board unanimously recommends that you vote in favor of the
recapitalization proposal, the merger proposal and the adoption of the new stock
incentive plans. None of the proposals will be implemented unless all proposals
are approved. This proxy statement and prospectus provides you with detailed
information about the proposals. We encourage you to read this entire document
carefully.


/S/ PAUL R. RYAN

Paul R. Ryan
CHAIRMAN AND CHIEF EXECUTIVE OFFICER

     THE RECAPITALIZATION, MERGER AND RELATED PROPOSALS INVOLVE CERTAIN RISKS.
PLEASE READ THE "RISK FACTORS" BEGINNING ON PAGE 41.

     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROXY STATEMENT AND PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

     This proxy statement and prospectus is dated November 8, 2002 and is first
being mailed to stockholders on or about November 12, 2002.



                       WHERE YOU CAN FIND MORE INFORMATION

     We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
the materials we file at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the Public Reference Rooms. Our Commission
filings are also available to the public from the SEC's World Wide Web site on
the Internet at HTTP://WWW.SEC.GOV. This site contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC. You may also read and copy this information at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.

     We maintain a site on the Internet at HTTP://WWW.ACACIARES.COM. The
information contained in our website is not part of this prospectus/proxy
statement and you should not rely on it in deciding whether or not to vote in
favor of the proposals set forth herein.

     The SEC allows us to "incorporate by reference" the information that we
file with the SEC. This means that we can disclose important information to you
by referring you to another document filed separately with the SEC under the
Securities Exchange Act of 1934 (the "Exchange Act"). The information
incorporated by reference is deemed to be part of this prospectus/proxy
statement, except for any information superseded by information in this
prospectus. We have filed with the SEC and incorporate by reference:

     o    our annual report on Form 10-K for the fiscal year ended December 31,
          2001;

     o    our current report on Form 8-K, dated June 11, 2002, filed with the
          SEC on June 11, 2002;

     o    our quarterly report on Form 10-Q for the quarter ended March 31,
          2002; and

     o    our quarterly report on Form 10-Q for the quarter ended June 30, 2002.

     Any documents we file pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this prospectus/proxy statement until the special
meeting will automatically be deemed to be incorporated by reference in this
prospectus/proxy statement and to be part hereof from the date of filing those
documents. Any statement contained in this prospectus/proxy statement or in a
document incorporated by reference shall be deemed to be modified or superseded
for all purposes to the extent that a statement contained in this
prospectus/proxy statement or in any other document which is also incorporated
by reference modifies or supersedes that statement.

     We will provide without charge to each person to whom a copy of this
prospectus/proxy statement is delivered, upon such person's written or oral
request, a copy of any and all of the information incorporated by reference in
this prospectus/proxy statement, other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into the information
that this prospectus incorporates. Request should be directed to:

                           Acacia Research Corporation
                           500 Newport Center Drive
                           Newport Beach, California 92660
                           Attention:  Secretary
                           Telephone: (949) 480-8300

     TO OBTAIN TIMELY DELIVERY, YOU MUST MAKE THIS REQUEST NO LATER THAN FIVE
BUSINESS DAYS BEFORE DECEMBER 11, 2002, THE DATE OF THE SPECIAL MEETING.

     You should rely only on the information provided in this prospectus/proxy
statement (including the appendices) in considering how to vote your shares on
the proposals discussed herein. We have authorized no one to provide you with
different information. You should not assume that the information in this
prospectus/proxy statement is accurate as of any date other than the date on the
front of this document.



                           ACACIA RESEARCH CORPORATION
                            500 NEWPORT CENTER DRIVE
                             NEWPORT BEACH, CA 92660

                                   ----------

                            NOTICE OF SPECIAL MEETING
                                 OF STOCKHOLDERS
                         TO BE HELD ON DECEMBER 11, 2002

                                   ----------

November 8, 2002

     Notice is hereby given that a special meeting of the stockholders of Acacia
Research Corporation will be held at 1:30 p.m. on December 11, 2002, at 610
Newport Center Drive, Suite 130, Newport Beach, California 92660. The special
meeting will be held for the following purposes and to transact such other
business as may properly come before the meeting or any postponements or
adjournments thereof:

     1. To consider and act upon a proposal to amend our certificate of
incorporation to create two new classes of common stock called "AR-CombiMatrix
stock" and "AR-Acacia Technologies stock" and to divide each outstanding share
of our common stock into a fraction of a share of AR-CombiMatrix stock and one
share of AR-Acacia Technologies stock.

     2. To consider and act upon a proposal to approve and adopt an agreement
and plan of reorganization pursuant to which (a) CombiMatrix Corporation will
merge with and into a subsidiary which we have formed for this purpose and (b)
we will issue to the stockholders of CombiMatrix Corporation, other than Acacia
Research Corporation, one share of AR-CombiMatrix stock for each share of
CombiMatrix Corporation common stock that is outstanding on the effective date
of the merger and held by such stockholder.

     3. To consider and act upon a proposal to adopt the 2002 CombiMatrix Stock
Incentive Plan.

     4. To consider and act upon a proposal to adopt the 2002 Acacia
Technologies Stock Incentive Plan.

     Information relating to these proposals is contained in the attached proxy
statement and prospectus. None of the proposals will be implemented unless all
four are approved by our stockholders.

     Our board of directors has fixed the close of business on November 1, 2002
as the record date for the determination of stockholders entitled to notice of
and to vote at the special meeting. Only stockholders of record at the close of
business on that date will be entitled to vote at the meeting. A list of those
stockholders will be available for inspection before or at the meeting at the
request of a stockholder. Our transfer books will not be closed.

                                  By order of the Board of Directors,


                                  /S/ ROBERT A. BERMAN

                                  Robert A. Berman
                                  SENIOR VICE PRESIDENT OF BUSINESS DEVELOPMENT,
                                  GENERAL COUNSEL AND SECRETARY



                                TABLE OF CONTENTS
                                -----------------



                                                                                                  PAGE
                                                                                                  ----
                                                                                                
QUESTIONS AND ANSWERS................................................................................1

PROXY STATEMENT SUMMARY..............................................................................5

CONSOLIDATING SELECTED FINANCIAL INFORMATION........................................................20

RISK FACTORS........................................................................................41
       Risks Relating to the Recapitalization.......................................................41
       Risks Relating to the Merger.................................................................48
       Risks Relating to the CombiMatrix Group......................................................50
       Risks Relating to the Acacia Technologies Group..............................................56

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS...................................................60

STOCKHOLDERS MEETING................................................................................61

THE RECAPITALIZATION PROPOSAL.......................................................................65
       Description of the Recapitalization..........................................................65
       Background of and Reasons for the Recapitalization Proposal..................................65
       Recommendation of Our Board of Directors.....................................................69
       Opinion of A.G. Edwards......................................................................69
       Management and Allocation Policies...........................................................74
       Policies Subject to Change Without Stockholder Approval......................................74
       Allocation of Assets.........................................................................75
       Fiduciary and Management Responsibilities....................................................75
       Dividend Policy..............................................................................76
       Financing Activities.........................................................................76
       Inter-Group Contracts and Access to Technology and Know-How..................................77
       Review of Corporate Opportunities............................................................77
       Financial Statements; Allocation Matters.....................................................77
       Taxes........................................................................................78
       Common Stock Ownership of Directors and Senior Officers......................................78
       Description of AR-CombiMatrix Stock and AR-Acacia Technologies Stock.........................78
       Material United States Federal Income Tax Consequences of the Recapitalization...............88
       Stock Exchange Listings......................................................................91
       Exchange Procedures..........................................................................91
       Stock Transfer Agent and Registrar...........................................................91
       Financial Advisors...........................................................................91
       Effect on Existing Options and Warrants......................................................92
       No Dissenters' Rights with Respect to Recapitalization Proposal..............................92
       No Regulatory Approvals......................................................................92

THE MERGER PROPOSAL.................................................................................93
       Description of the Merger....................................................................93
       Issuance of Shares; Ownership Interests......................................................93
       Background of and Reasons for the Merger.....................................................94
       Recommendation of Our Board of Directors.....................................................94
       Table Regarding Security Ownership of Certain Beneficial Owners and Management...............95
       Accounting Treatment.........................................................................96
       Material United States Federal Income Tax Consequences of the Merger.........................97
       Federal Securities Laws Consequences; Stock Transfer Restriction Agreements.................101



                                       i





                                                                                                  PAGE
                                                                                                  ----
                                                                                               
PRINCIPAL PROVISIONS OF THE MERGER AGREEMENT.......................................................102
       General Description of the Merger...........................................................102
       Effective Time..............................................................................102
       Conversion of Shares and Consideration to Be Received in the Merger.........................102
       Exchange of CombiMatrix Corporation Stock Certificates......................................102
       Treatment of CombiMatrix Corporation Stock Options..........................................103
       Treatment of CombiMatrix Corporation Warrants...............................................103
       Treatment of CombiMatrix Corporation Benefits and Other Employee Matters....................103
       Representations and Warranties..............................................................103
       Principal Covenants.........................................................................104
       Conditions to the Consummation of the Merger................................................104
       Termination.................................................................................106
       Effect of Termination.......................................................................107
       Amendments and Waivers......................................................................107
       No Relief from Liability for Willful Breach.................................................107

ACACIA RESEARCH CORPORATION........................................................................108
       Business....................................................................................108
       Management..................................................................................110

COMBIMATRIX GROUP..................................................................................114
       Business....................................................................................114
       Management..................................................................................129

ACACIA TECHNOLOGIES GROUP..........................................................................133
       Business....................................................................................133
       Management..................................................................................137

ACACIA RESEARCH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS...................................140

COMBIMATRIX GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS.............................................160

ACACIA TECHNOLOGIES GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS.....................................178

ADOPTION OF 2002 COMBIMATRIX STOCK INCENTIVE PLAN AND 2002 ACACIA
       TECHNOLOGIES STOCK INCENTIVE PLAN...........................................................192

OTHER ITEMS........................................................................................200

INDEX TO FINANCIAL INFORMATION.....................................................................F-1
       Acacia Research Corporation - Accountants' Report and Financial Statements..................F-2
       CombiMatrix Corporation - Accountants' Report and Financial Statements.....................F-53
       Acacia Technologies Group - Accountants' Report and Financial Statements...................F-76
       CombiMatrix Group - Accountants' Report and Financial Statements...........................F-99

ANNEXES
       Annex A   Agreement and Plan of Reorganization
       Annex B   Proposed Restated Certificate of Incorporation
       Annex C   Proposed Common Stock Policies
       Annex D   2002 CombiMatrix Stock Incentive Plan
       Annex E   2002 Acacia Technologies Stock Incentive Plan
       Annex F   Tax Opinion of PricewaterhouseCoopers LLP
       Annex G   Opinion of A.G. Edwards & Sons, Inc.



                                       ii



                              QUESTIONS AND ANSWERS

                                  THE PROPOSALS

1.   WHY AM I RECEIVING THIS PROXY STATEMENT?

     We are distributing this proxy statement and prospectus to you in
connection with a special meeting of our stockholders. At the special meeting,
you will be asked to consider and vote upon the following proposals:

     o    RECAPITALIZATION PROPOSAL: A proposal to amend and restate our
          certificate of incorporation to create two new classes of common
          stock, called "AR-CombiMatrix stock" and "AR-Acacia Technologies
          stock", and to divide each outstanding share of our existing common
          stock into a fraction of a share of AR-CombiMatrix stock and one share
          of AR-Acacia Technologies stock.

     o    MERGER PROPOSAL: A proposal to approve the merger agreement with
          CombiMatrix Corporation, the merger of CombiMatrix Corporation into a
          wholly owned subsidiary of Acacia Research and the issuance of shares
          of AR-CombiMatrix stock to the stockholders of CombiMatrix Corporation
          other than Acacia Research in connection with the merger.

     o    ADOPTION OF 2002 COMBIMATRIX STOCK INCENTIVE PLAN: A proposal to adopt
          the 2002 CombiMatrix Stock Incentive Plan to provide for the granting
          of stock awards and options in AR-CombiMatrix stock.

     o    ADOPTION OF 2002 ACACIA TECHNOLOGIES STOCK INCENTIVE PLAN: A proposal
          to adopt the 2002 Acacia Technologies Stock Incentive Plan to provide
          for the granting of stock awards and options in AR-Acacia Technologies
          stock.

If any of these proposals is not approved, we will not implement any of the
other proposals.

2.   IF THE PROPOSED RECAPITALIZATION WERE APPROVED, WHAT WOULD BE THE NEW
     CLASSES OF COMMON STOCKS?

     We refer to the two new classes of common stocks as AR-CombiMatrix stock
and AR-Acacia Technologies stock. We refer to the AR-CombiMatrix stock and the
AR-Acacia Technologies stock together as the "common stock."

     o    The AR-CombiMatrix stock is intended to reflect the separate
          performance of our subsidiary CombiMatrix Corporation. We refer to
          this business group, or division, as the "CombiMatrix group."

     o    The AR-Acacia Technologies stock is intended to reflect the separate
          performance of our media technology business. We refer to this
          business group, or division, as the "Acacia Technologies group."

     All of our existing businesses will be attributed to the two groups.
Although the two classes of stock are intended to reflect the separate
performances of the respective groups, we cannot assure you that the market
values of the two classes will in fact reflect the performance of the respective
groups as we intend because holders will not have a separate and exclusive
interest in the respective groups. Holders will continue to be common
stockholders of Acacia Research and will not hold a direct or exclusive interest
in either group. As such, they will be subject to all risks associated with an
investment in Acacia Research and all of our businesses, assets and liabilities.

3.   HOW WILL I BENEFIT FROM THE PROPOSED RECAPITALIZATION?

     You will be able to separately value the AR-CombiMatrix stock and the
AR-Acacia Technologies stock. You will also be able to invest and trade in
either or both stocks depending on your investment objectives.


                                      -1-



4.   WHAT KIND OF FINANCIAL INFORMATION WILL I RECEIVE IN THE FUTURE?

     You will continue to receive our consolidated financial information for
Acacia Research as a whole. In addition, you will receive separate audited
financial statements and other business and financial information, including
separate management's discussion and analysis, for both the CombiMatrix group
and the Acacia Technologies group. The financial statements for the groups
should be read in conjunction with the consolidated financial information for
Acacia Research.

5.   WHAT WILL HAPPEN TO MY EXISTING SHARES OF ACACIA RESEARCH IF THE
     RECAPITALIZATION TAKES PLACE AS PROPOSED?

     In the recapitalization, each outstanding share of Acacia Research common
stock will be converted into a fraction of a share of AR-CombiMatrix stock and
one share of AR-Acacia Technologies stock.

     The fraction of a share of AR-CombiMatrix stock into which each outstanding
share of Acacia Research common stock will be converted will be equal to the
quotient obtained by dividing (a) the number of shares of CombiMatrix
Corporation common stock owned by Acacia Research immediately prior to the
effective time of the merger by (b) the total number of shares of Acacia
Research common stock issued and outstanding immediately prior to the effective
time. As of November 1, 2002, this fraction was 0.5582.

     The percentage of the issued and outstanding shares of AR-CombiMatrix stock
that will be received by the holders of Acacia Research common stock will be
equal to the percentage of the issued and outstanding shares of CombiMatrix
Corporation common stock held by Acacia Research immediately prior to the
effective time of the merger. As of November 1, 2002, this percentage was 47.7%.

6.   WILL THE RECAPITALIZATION PROPOSAL RESULT IN A CHANGE OF CONTROL OF ACACIA
     RESEARCH?

     No.

7.   WILL THE RECAPITALIZATION PROPOSAL RESULT IN A DISTRIBUTION OR SPIN-OFF?

     No. This proposal will not result in a distribution or spin-off of our
assets or liabilities. Holders of AR-CombiMatrix stock and AR-Acacia
Technologies stock will continue to be stockholders of a single company and
subject to all risks associated with an investment in Acacia Research and all of
our businesses, assets and liabilities.

8.   WHAT VOTING RIGHTS WILL I HAVE AFTER THE RECAPITALIZATION?

     Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock will vote
together as a single class (except in certain limited circumstances). Each share
of AR-CombiMatrix stock will entitle the holder to one vote. Each share of
AR-Acacia Technologies stock will entitle the holder, for any particular vote,
to a number of votes equal to the average market value of a share of AR-Acacia
Technologies stock divided by the average market value of a share of
AR-CombiMatrix stock over a specified 20-trading day period ending on the 10th
trading day prior to the record date for determining the stockholders entitled
to vote.

9.   WHEN WILL YOU IMPLEMENT THE RECAPITALIZATION AND MERGER PROPOSALS?

     We plan to implement the recapitalization and merger proposals as soon as
practicable after stockholder approval.

10.  SHOULD I SEND IN MY STOCK CERTIFICATES NOW?

     No. We will send written instructions to you on how to exchange your stock
certificates for new stock certificates after the recapitalization is completed.


                                      -2-



                               THE SPECIAL MEETING

11.  WHEN AND WHERE WILL THE SPECIAL MEETING BE HELD?

     We will hold the special meeting at 1:30 p.m. on December 11, 2002, at 610
Newport Center Drive, Suite 130, Newport Beach, California 92660.

12.  WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?

     You are entitled to vote at the special meeting if you owned shares of our
common stock as of the record date for the special meeting, which was the close
of business on November 1, 2002. On November 1, 2002, there were 19,640,808
shares of our common stock issued and outstanding. For each share of our common
stock owned on that date, you will have one vote at the special meeting. The
shares of existing common stock held in our treasury will not be entitled to
vote or counted in determining the number of outstanding shares.

13.  HOW DO I VOTE?

     After you have carefully read this proxy statement, mail your signed proxy
card in the enclosed return envelope as soon as possible so that your shares may
be represented at the special meeting of stockholders. You may also attend the
meeting in person instead of submitting a proxy. If your shares are held in
"street name"' by your broker, your broker will vote your shares only if you
provide instructions on how to vote. You should follow the directions provided
by your broker regarding how to instruct your broker to vote your shares.

14.  CAN I CHANGE MY VOTE AFTER MAILING MY PROXY?

     Yes. You may change your vote by delivering a signed notice of revocation
or a later-dated, signed proxy card to the corporate secretary of Acacia
Research before the special meeting of stockholders or by attending the special
meeting of stockholders and voting in person.

15.  WHAT IS A "QUORUM" AT THE SPECIAL MEETING?

     A "quorum" is a majority of the outstanding shares entitled to vote. The
shares may be present or represented by proxy. For the purposes of determining a
quorum, shares held by brokers or nominees will be treated as present even if
the broker or nominee does not have discretionary power to vote on a particular
matter or if instructions were never received from the beneficial owner. These
shares are called "broker non-votes." Abstentions will be counted as present for
quorum purposes.

16.  WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?

     Amending our certificate of incorporation to create two new classes of
common stock and adopting the agreement and plan of reorganization relating to
the merger will each require the affirmative vote of a majority of our
outstanding common stock. Adopting the 2002 CombiMatrix Stock Incentive Plan and
the 2002 Acacia Technologies Stock Incentive Plan will each require the
affirmative vote of a majority of the shares of our common stock present or
represented and entitled to vote at the special meeting.

     As of November 1, 2002, 2.2% of our outstanding common stock was owned by
our executive officers, directors and their affiliates. As of November 1, 2002,
47.7% of CombiMatrix Corporation's outstanding common stock was owned by Acacia
Research and its executive officers, directors and their affiliates and 10.0% by
CombiMatrix Corporation's executive officers, directors and their affiliates.

17.  WHAT IF I DO NOT PROVIDE MY BROKER WITH INSTRUCTIONS ON HOW TO VOTE MY
     SHARES?

     If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them, and the
shares will be considered "broker non-votes". However, the "street name" shares
will be considered present for quorum purposes. For these broker non-votes and
the merger proposal,


                                      -3-



broker non-votes will have the effect of a "no" vote. For adopting the 2002
CombiMatrix Stock Incentive Plan and 2002 Acacia Technologies Stock Incentive
Plan, broker non-votes will be treated as not present and as not entitled to
vote and will have no effect on the result of the vote even though the same
shares would be considered present for the purpose of establishing a quorum and
would be considered as voting against the recapitalization proposal and the
merger proposal. You should therefore be sure to provide your broker with
instructions on how to vote your shares. Please check the voting form used by
your broker to see if it offers telephone or internet voting.

18.  WHAT HAPPENS IF I ABSTAIN FROM VOTING?

     Proxies marked "abstain" will be counted as shares present for the purpose
of determining the presence of a quorum, but for purposes of determining the
outcome of a proposal, shares represented by such proxies will not be treated as
affirmative votes. For all proposals, an abstention will have the effect of a
"no" vote.


                                      -4-



                             PROXY STATEMENT SUMMARY

     THIS SUMMARY, TOGETHER WITH THE "QUESTIONS AND ANSWERS" ON THE PRECEDING
PAGES, HIGHLIGHTS IMPORTANT SELECTED INFORMATION FROM THIS DOCUMENT. TO
UNDERSTAND THE RECAPITALIZATION, THE MERGER AND THE PROPOSED NEW STOCK INCENTIVE
PLANS FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
RECAPITALIZATION, THE MERGER AND THE PROPOSED NEW STOCK INCENTIVE PLANS, YOU
SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED
YOU TO.

                           ACACIA RESEARCH CORPORATION

     Our business consists of the businesses of the CombiMatrix group and the
Acacia Technologies group, each of which are described below. Our principal
executive offices are located at 500 Newport Center Drive, Newport Beach,
California 92660, and our telephone number is (949) 480-8300.

   COMBIMATRIX GROUP

     The CombiMatrix group is principally comprised of our subsidiary
CombiMatrix Corporation, which is engaged in the development of a proprietary
universal biochip with applications in the genomics, proteomics and
combinatorial chemistry markets. CombiMatrix Corporation's principal executive
offices are located at 6500 Harbour Heights Parkway, Mukilteo, Washington 98275,
and its telephone number is (425) 493-2000.

     For the fiscal year ended December 31, 2001, the CombiMatrix group had net
revenues of $456,000 and a loss from continuing operations of $46.8 million
before amounts attributable to minority interests of $18.8 million. The
CombiMatrix group's loss from continuing operations after amounts attributable
to minority interests was $28.0 million for the fiscal year ended December 31,
2001. The CombiMatrix group's total assets at December 31, 2001 were $48.0
million.

     For the six months ended June 30, 2002, the CombiMatrix group had net
revenues of $687,000 and a loss from continuing operations of $15.9 million
before amounts attributable to minority interests of $6.4 million. The
CombiMatrix group's loss from continuing operations after amounts attributable
to minority interests was $9.5 million for the six months ended June 30, 2002.
The CombiMatrix group's total assets at June 30, 2002 were $37.7 million.

   ACACIA TECHNOLOGIES GROUP

     The Acacia Technologies group is principally comprised of our media
technologies business and is engaged in the development, licensing and
protection of its intellectual property and proprietary technologies in the
media technologies industry.

     For the fiscal year ended December 31, 2001, the Acacia Technologies group
had net revenues of $24.2 million and net income from continuing operations of
$7.0 million before amounts attributable to minority interests of $1.3 million.
Net income from the Acacia Technologies group's continuing operations after
amounts attributable to minority interests was $5.8 million. The Acacia
Technologies group's total assets at December 31, 2001 were $62.9 million.

     For the six months ended June 30, 2002, the Acacia Technologies group
recorded a net loss from continuing operations of $6.6 million. Amounts
attributable to minority interests were not material for the six months ended
June 30, 2002. The Acacia Technologies group's total assets at June 30, 2002
were $55.3 million.


                                      -5-



                          THE RECAPITALIZATION PROPOSAL

   REASONS FOR THE RECAPITALIZATION PROPOSAL

     We believe that the recapitalization proposal will have the following
benefits:

     o    increase in market awareness of our two distinct businesses;

     o    attraction of industry-specific investors and improved analyst
          coverage by industry specific institutional analysts;

     o    creation of two new acquisition currencies to help us pursue strategic
          opportunities;

     o    realization of the potential values of our two distinct businesses;
          and

     o    increased liquidity and financing flexibility with respect to our
          existing businesses.

   RISK FACTORS RELATED TO RECAPITALIZATION PROPOSAL

     When evaluating the recapitalization proposal, you should be aware that
there are many risks, including:

     o    the risks associated with an investment in a single company and all of
          our businesses, assets and liabilities;

     o    limited separate stockholder rights granted to holders of each class
          of common stock;

     o    risks associated with the relative voting power of the two classes of
          common stock which will fluctuate based on their relative average
          market values;

     o    the lack of legal precedent with respect to the fiduciary duties of
          the board of directors of a company having two classes of common
          stock, the rights of which are defined by reference to separate
          businesses of the company;

     o    the potential for stockholders of each class of common stock to have
          diverging or conflicting interests;

     o    the possibility that either class of stock, or both, will not meet the
          requirements for listing on the Nasdaq National Market, which could
          adversely affect the liquidity and share price of the stock;

     o    the ability of our board of directors to change management and
          allocation policies without stockholder approval;

     o    the ability to transfer funds between the groups;

     o    the ability of our board of directors to allocate financing costs
          between groups that do not reflect the separate borrowing costs of the
          groups;

     o    the possibility that one group could be charged a greater portion of
          the total corporate tax liability;

     o    limits on consideration to be received upon disposition of assets of a
          group;

     o    the effects of our capital structure and variable vote per share on
          potential acquisitions of a group or class of common stock;

     o    the effect of market values of a class of common stock on stockholder
          rights;


                                      -6-



     o    no assurances as to the market price or liquidity of the
          AR-CombiMatrix stock or the AR-Acacia Technologies stock following the
          recapitalization; and

     o    the lack of legal precedent with respect to the tax treatment of the
          recapitalization and the new classes of common stock.

   COMPARISON OF EXISTING COMMON STOCK WITH AR-COMBIMATRIX STOCK AND AR-ACACIA
TECHNOLOGIES STOCK

     If the recapitalization proposal is approved and the merger is consummated,
our common stock will consist of two classes: AR-CombiMatrix stock and AR-Acacia
Technologies stock. The terms of the two new classes of common stock are set
forth in the proposed restated certificate of incorporation, which is attached
as ANNEX B to this document. We encourage you to read the proposed restated
certificate carefully in its entirety.

     The following table provides a comparison of our existing common stock and
the AR-CombiMatrix stock and the AR-Acacia Technologies stock. You should keep
in mind that the AR-CombiMatrix stock and the AR-Acacia Technologies stock are
both classes of common stock of Acacia Research, and are not stock issued by
each respective group. Holders of a class of stock will not have a separate,
direct legal interest in the assets attributed to the respective group. As a
result, you will continue to be subject to all of the risks associated with an
investment in Acacia Research and all of our businesses, assets and liabilities.
Financial effects from one group that affect our consolidated results of
operations or financial condition could, if significant, affect the results of
operations or financial condition of the other group.


                                      -7-





                              EXISTING                                       THE RECAPITALIZATION PROPOSAL
                               COMMON                -------------------------------------------------------------------------
                                STOCK                        AR-COMBIMATRIX STOCK              AR-ACACIA TECHNOLOGIES STOCK
                  --------------------------------   -----------------------------------   -----------------------------------
                                                                                  
DIVIDENDS:        We have not paid any cash          We currently do not intend to pay     We currently do not intend to pay
                  dividends on our existing          cash dividends on the                 cash dividends on the AR-Acacia
                  commonstock and we                 AR-CombiMatrix stock.                 Technologies stock.
                  currently do not intend to
                  pay cash dividends on
                  our existing common stock.

                  Any future dividends on our        Any future dividends on the           Any future dividends on the
                  existing common stock will be      AR-CombiMatrix stock will be paid     AR-Acacia Technologies stock will
                  paid at the discretion of our      at the discretion of our board of     be paid at the discretion of our
                  board of directors based           directors based primarily upon the    board of directors based primarily
                  primarily upon the financial       financial condition, results of       upon the financial condition,
                  condition, results of operations   operations and business               results of operations and business
                  and business requirements of       requirements of the CombiMatrix       requirements of the Acacia
                  Acacia Research. Dividends         group and Acacia Research as a        Technologies group and Acacia
                  cannot exceed the assets from      whole. Dividends can not exceed the   Research as a whole. Dividends can
                  which we can legally pay           lesser of (1) our funds from which    not exceed the lesser of (1) our
                  dividends under Delaware law.      we can legally pay dividends under    funds from which we can legally pay
                                                     Delaware law and (2) an amount        dividends under Delaware law and
                                                     similar to the funds from which the   (2) an amount similar to the funds
                                                     CombiMatrix group could legally pay   from which the Acacia Technologies
                                                     dividends under Delaware law as a     group could legally pay dividends
                                                     separate corporation.                 under Delaware law if it were a
                                                                                           separate corporation.

VOTING RIGHTS:    One vote per share.                The AR-CombiMatrix stock will have    Each share of AR-Acacia
                                                     one vote per share.                   Technologies stock will have a
                                                                                           variable vote equal to the ratio of
                                                                                           the average market values of one
                                                                                           share of AR-Acacia Technologies
                                                                                           stock to one share of
                                                                                           AR-CombiMatrix stock calculated
                                                                                           over a 20-trading day period ending
                                                                                           on the tenth trading day prior to
                                                                                           each record date for a
                                                                                           stockholders' meeting or consent.
                                                                                           Accordingly, a share of AR-Acacia
                                                                                           Technologies stock may have more
                                                                                           than, less than or exactly one vote
                                                                                           per share.



                                      -8-





                              EXISTING                                       THE RECAPITALIZATION PROPOSAL
                               COMMON                -------------------------------------------------------------------------
                                STOCK                        AR-COMBIMATRIX STOCK              AR-ACACIA TECHNOLOGIES STOCK
                  --------------------------------   -----------------------------------   -----------------------------------
                                                                                  
                                                     The holders of AR-CombiMatrix stock   The holders of AR-Acacia
                                                     and AR-Acacia will generally vote     Technologies stock and
                                                     together as a single stock will       AR-CombiMatrix Technologies stock
                                                     generally vote together as a          will generally vote together as a
                                                     single class. In limited              single class. In limited
                                                     circumstances, such as a proposed     circumstances, such as a proposed
                                                     change limited circumstances, such    change limited circumstances, such
                                                     as a proposed change in the rights    as a proposed change in the rights
                                                     in the rights of a class of stock,    in the rights of a class of stock,
                                                     holders of one or both of a class     holders of one or both of a class
                                                     of stock, holders of one or both      of stock, holders of one or both
                                                     classes of common classes of common   classes of common classes of common
                                                     stock may be entitled under           stock may be entitled under
                                                     Delaware law or stock may be          Delaware law or stock may be
                                                     entitled under Delaware law or        entitled under Delaware law or
                                                     under stock under stock exchange      under stock under stock exchange
                                                     regulations to vote as a separate     regulations to vote as a separate
                                                     class.                                class.

RIGHTS ON SALE    None.                              If we sell all or substantially all   If we sell all or substantially all
OF ALL OR                                            of the properties and assets          of the properties and assets
SUBSTANTIALLY                                        attributed to the CombiMatrix         attributed to the Acacia
ALL ASSETS OF A                                      group, we must either (1)             Technologies group, we must either
GROUP:                                               distribute through a dividend or      (1) distribute through a dividend
                                                     redemption to holders of              or redemption to holders of
                                                     AR-CombiMatrix stock an amount        AR-Acacia Technologies stock an
                                                     equal to the net proceeds of the      amount equal to the net proceeds of
                                                     sale, or (2) convert each share of    the sale, or (2) convert each share
                                                     AR-CombiMatrix stock into a number    of AR-Acacia Technologies stock
                                                     of shares of AR-Acacia Technologies   into a number of shares of
                                                     stock at a 10% premium over the       AR-CombiMatrix stock at a 10%
                                                     then current value. We may, but       premium over the then current
                                                     will not be required to, distribute   value. We may, but will not be
                                                     the net proceeds or convert the       required to, distribute the net
                                                     AR-CombiMatrix stock if we receive    proceeds or convert the AR-Acacia
                                                     in the sale primarily equity          Technologies stock if we receive in
                                                     securities of the acquirer or its     the sale primarily equity
                                                     parent and it is primarily engaged    securities of the acquirer or its
                                                     in one or more businesses similar     parent and it is primarily engaged
                                                     or complementary to the business of   in one or more businesses similar
                                                     the CombiMatrix group.                or complementary to the business of
                                                                                           the Acacia Technologies group.

CONVERSION AT     None.                              We may, at any time, convert each     We may, at any time, convert each
OPTION OF                                            share of AR-CombiMatrix stock into    share of AR-Acacia Technologies
ACACIA                                               a number of shares of AR-Acacia       stock into a number of shares of
RESEARCH:                                            Technologies stock at a 10% premium   AR-CombiMatrix stock at a 10%
                                                     over the average market values of     premium over the average market
                                                     such shares.                          values of such shares.

REDEMPTION IN     None.                              We may redeem the AR-CombiMatrix      We may redeem the AR-Acacia
EXCHANGEFOR                                          stock for all of the shares of the    Technologies stock for all of the
STOCK OF                                             common stock of one or more of our    shares of the common stock of one
SUBSIDIARY:                                          wholly owned subsidiaries that hold   or more of our wholly owned
                                                     all of the assets and liabilities     subsidiaries that hold all of the
                                                     attributed to the CombiMatrix         assets and liabilities attributed
                                                     group.                                to the Acacia Technologies group.



                                      -9-





                              EXISTING                                       THE RECAPITALIZATION PROPOSAL
                               COMMON                -------------------------------------------------------------------------
                                STOCK                        AR-COMBIMATRIX STOCK              AR-ACACIA TECHNOLOGIES STOCK
                  --------------------------------   -----------------------------------   -----------------------------------
                                                                                  
LIQUIDATION:      If we are liquidated, holders of   If we are liquidated, holders of      If we are liquidated, holders of
                  our existing common stock will     AR-CombiMatrix stock will be          AR-Acacia Technologies stock will
                  be entitled to receive our net     entitled to a portion of any assets   be entitled to a portion of any
                  assets remaining for               remaining for distribution to         assets remaining for distribution
                  distribution to holders of         holders of common stock on a per      to holders of common stock on a per
                  common stock.                      share basis in proportion to the      share basis in proportion to the
                                                     liquidation units per share of        liquidation units per share of
                                                     AR-CombiMatrix stock.Each share of    AR-Acacia Technologies stock. Each
                                                     AR-CombiMatrix stock will have one    share of AR-Acacia Technologies
                                                     liquidation unit.                     stock will have a number of
                                                                                           liquidation units equal to the
                                                                                           ratio of the average market values
                                                                                           of one share of AR-Acacia
                                                                                           Technologies stock to one share of
                                                                                           AR-CombiMatrix stock. This ratio
                                                                                           will be determined approximately
                                                                                           two months after the
                                                                                           recapitalization.



                                      -10-



   HOW EACH NEW CLASS OF STOCK WILL REFLECT THE PERFORMANCE OF THE RESPECTIVE
GROUP

     Each new class of stock is designed to reflect the financial performance of
the respective group, rather than the performance of Acacia Research as a whole.
The chief mechanisms intended to cause the AR-CombiMatrix stock and the
AR-Acacia Technologies stock to reflect the financial performance of the
respective group are provisions in our proposed restated certificate of
incorporation governing dividends and distributions to each class of stock.
Under these provisions, we will:

     o    factor the assets and liabilities and income or losses attributable to
          the respective group into the determination of the amount available to
          pay dividends, if any, on the shares issued for the respective group;
          and

     o    require Acacia Research to exchange, redeem or distribute a dividend
          on the stock of a group if all or substantially all of the assets
          allocated to the respective group are sold to a third party.

     Hence, the market value of each new class of stock will reflect investors'
expectations to participate in the earnings, growth and profits of their
respective group through potential payment of dividends and distributions upon a
sale of the group's assets. We cannot assure you, however, that the market
values of AR-CombiMatrix stock and AR-Acacia Technologies stock will in fact
reflect the performance of the CombiMatrix group and the Acacia Technologies
group as we intend because holders of these stocks will not hold a direct or
exclusive interest in the separate groups. In addition, we cannot assure you
that we will ever pay dividends on the AR-CombiMatrix stock or the AR-Acacia
Technologies stock. To date, we have not paid cash dividends on our existing
common stock and do not anticipate paying cash dividends on the AR-CombiMatrix
stock or the AR-Acacia Technologies stock for the foreseeable future. Future
dividends, if any, on the AR-CombiMatrix stock and the AR-Acacia Technologies
stock will be payable when, as and if declared by our board of directors.

   LISTING OF SHARES

     Our existing common stock is listed on the NASDAQ National Market under the
symbol "ACRI". We have applied for the AR-CombiMatrix stock and AR-Acacia
Technologies stock to be listed on the NASDAQ National Market under the symbols
"CBMX" and "ACTG", respectively. There is a risk that even if the shares are
listed on the NASDAQ National Market, the shares may not continue to qualify for
listing on the NASDAQ National Market if the trading prices do not meet minimum
requirements. See below "Risk Factors - The AR-CombiMatrix stock might not
qualify for listing on the NASDAQ National Market, which could adversely affect
its liquidity and price". As soon as the recapitalization is effective, our
existing common stock will be de-listed.

   MANAGEMENT AND ALLOCATION POLICIES

     We have established policies designed to accomplish the fundamental
objective of the recapitalization proposal, which is to separate the business
and operations of the Acacia Technologies group from those of the CombiMatrix
group. These policies establish guidelines to help us allocate debt, corporate
overhead, interest, taxes and other shared activities between the two groups on
an objective basis and, generally, to ensure that transactions between the
CombiMatrix group and the Acacia Technologies group are made on terms that
approximate terms that could be obtained from unaffiliated third parties.

   MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE
RECAPITALIZATION

     We believe, and we have received an opinion from PricewaterhouseCoopers LLP
to the effect that, no gain or loss will be recognized by Acacia Research or you
for U.S. federal income tax purposes as a result of the recapitalization except
with respect to cash received by you instead of a fractional share of
AR-CombiMatrix stock. However, there are no court decisions or other authorities
bearing directly on transactions similar to the recapitalization proposal. In
addition, the Internal Revenue Service has announced that it will not issue
rulings on the characterization of stock with characteristics similar to the
AR-CombiMatrix stock and the AR-Acacia Technologies stock. Therefore, the tax
treatment of the recapitalization is subject to some uncertainty.


                                      -11-



     Tax matters are very complicated and the tax consequences of the
recapitalization to you will depend on the facts of your own situation. We urge
you to consult your tax advisors for a full description of the tax consequences
of the recapitalization to you.

   NO DISSENTERS' RIGHTS REGARDING RECAPITALIZATION PROPOSAL

     Stockholders of Acacia Research will not have any dissenters' or appraisal
rights with respect to the proposed recapitalization.

   NO REGULATORY APPROVALS

     No state or federal regulatory approvals are required for the
recapitalization.


                                      -12-



                               THE MERGER PROPOSAL

   REASONS FOR THE MERGER

     We believe that the merger will:

     o    facilitate the implementation of the recapitalization proposal;

     o    provide liquidity to the stockholders of CombiMatrix Corporation;

     o    enable us to benefit from a management and operational structure that
          can leverage our strength while retaining operating flexibility;

     o    allow the groups to leverage synergies of an integrated management
          team, streamlined operations and strengthened infrastructure; and

     o    permit certain major decisions regarding the CombiMatrix group to be
          made more quickly.

     However, you should note that achieving these objectives is subject to
particular risks which we discuss below in the section entitled "Risk Factors."

   RISK FACTORS RELATED TO THE MERGER PROPOSAL

     When evaluating the merger proposal, you should be aware that there are
many risks, including:

     o    an exchange ratio that does not take into account any changes in the
          market price of our stock or the CombiMatrix Corporation common stock;

     o    the risk that the merger will close despite material adverse changes
          to us or to the CombiMatrix Corporation;

     o    potential adverse effects on our combined financial results;

     o    possible dilution as a result of change of control provisions in our
          option plans;

     o    risks associated with fluctuations in operating results, unpredictable
          revenues and stock price volatility;

     o    the development stage nature of the CombiMatrix group and its unproven
          technology;

     o    no assurances regarding the ability of either group or the combined
          company to obtain additional capital, if needed; and

     o    the expiration of the Acacia Technologies group's patent on the V-chip
          technology.

   WHAT OUR STOCKHOLDERS WILL HOLD AFTER THE MERGER

     Holders of Acacia Research common stock will not receive any shares in
connection with the merger. However, as a result of the recapitalization, each
share of our common stock will be split into a fraction of a share of
AR-CombiMatrix stock and one share of AR-Acacia Technologies stock. Based on the
issued outstanding shares of CombiMatrix Corporation common stock as of November
1, 2002, the percentage interest in AR-CombiMatrix stock to be received by our
stockholders will be approximately 47.7%.

     We will not issue any fractional shares of AR-CombiMatrix stock or
AR-Acacia Technologies stock in the recapitalization. Instead, you will receive
cash for any fractional share of AR-CombiMatrix stock owed to you in an amount
based upon the trading price of AR-CombiMatrix stock following the
recapitalization.


                                      -13-



   WHAT COMBIMATRIX CORPORATION STOCKHOLDERS WILL HOLD AFTER THE MERGER

     In the merger, CombiMatrix Corporation stockholders, other than Acacia
Research, will receive one share of the new AR-CombiMatrix stock for each share
of CombiMatrix Corporation common stock that they own immediately prior to the
effective time of the merger. Their percentage ownership interest in the issued
and outstanding shares of AR-CombiMatrix stock immediately after the effective
time of the merger will be the same as their percentage ownership interest in
the issued and outstanding shares of CombiMatrix Corporation common stock
immediately prior to the effective time of the merger. Based on the issued and
outstanding shares on November 1, 2002, this percentage interest would be
approximately 52.3%.

     Based upon the number of shares of CombiMatrix Corporation common stock
outstanding on November 1, 2002, we will issue approximately 12,005,274 shares
of AR-CombiMatrix stock to CombiMatrix Corporation stockholders in the merger.
This number is subject to adjustment for any stock issuances by CombiMatrix
Corporation between November 1, 2002 and the effective time of the merger.

     CombiMatrix Corporation stockholders should not send in their stock
certificates for exchange until instructed to do so after completion of the
merger.

   COMPARISON OF EXISTING COMBIMATRIX CORPORATION COMMON STOCK WITH
AR-COMBIMATRIX STOCK

     If the recapitalization proposal is approved and the merger is consummated,
CombiMatrix Corporation's common stock will be converted into AR-CombiMatrix
stock. The terms of the AR-CombiMatrix stock are set forth in the proposed
restated certificate of incorporation, which is attached as Annex B to this
document. We encourage you to read the proposed restated certificate carefully
in its entirety.

     The following table provides a comparison of CombiMatrix Corporation's
existing common stock and the AR-CombiMatrix stock. You should keep in mind that
the AR-CombiMatrix stock is a class of common stock of Acacia Research, and is
not stock issued by the CombiMatrix group. Holders of AR-CombiMatrix stock will
not have a separate, direct legal interest in the assets attributed to the
CombiMatrix group. As a result, holders of CombiMatrix Corporation's common
stock will become subject to all of the risks associated with an investment in
Acacia Research and all of its businesses, assets and liabilities. Financial
effects from one group that affect Acacia Research's consolidated results of
operations or financial condition could, if significant, affect the results of
operations or financial condition of the other group.


                                      -14-





                                                           THE MERGER PROPOSAL
                           -----------------------------------------------------------------------------------
                                         EXISTING
                                 COMBIMATRIX CORPORATION
                                       COMMON STOCK                             AR-COMBIMATRIX STOCK
                           ----------------------------------------   ----------------------------------------
                                                                
LIQUIDITY:                 Shares of CombiMatrix Corporation's        We have applied to list the
                           common stock are not publicly traded on    AR-CombiMatrix stock on the NASDAQ
                           any exchange or stock market and are not   National Market under the symbol "CBMX"
                           registered with the Securities and         and are registering the issuance of the
                           Exchange Commission.                       AR-CombiMatrix stock with the Securities
                                                                      and Exchange Commission pursuant to the
                                                                      registration statement of which this
                                                                      proxy statement and prospectus is a
                                                                      part.

DIVIDENDS:                 CombiMatrix Corporation has not paid any   We currently do not intend to pay cash
                           cash dividends on its existing common      dividends on the AR-CombiMatrix stock.
                           stock and CombiMatrix Corporation
                           currently does not intend to pay cash
                           dividends on its existing common stock.

                           Any future dividends on CombiMatrix        Any future dividends on the
                           Corporation's existing common stock will   AR-CombiMatrix stock will be paid at the
                           be paid at the discretion of CombiMatrix   discretion of our board of directors
                           Corporation's board of directors based     based primarily upon the financial
                           primarily upon the financial condition,    condition, results of operations and
                           results of operations and business         business requirements of the CombiMatrix
                           requirements of CombiMatrix Corporation.   group and Acacia Research as a whole.
                           Dividends cannot exceed the assets from    Dividends can not exceed the lesser of
                           which we can legally pay dividends under   (1) our funds from which we can legally
                           Delaware law.                              pay dividends under Delaware law and (2)
                                                                      an amount similar to the funds from
                                                                      which the CombiMatrix group could
                                                                      legally pay dividends under Delaware law
                                                                      as a separate corporation.

VOTING RIGHTS:             One vote per share.                        The AR-CombiMatrix stock will have one
                                                                      vote per share.

                                                                      The holders of AR-CombiMatrix stock and
                                                                      AR-Acacia Technologies stock will
                                                                      generally vote together as a single
                                                                      class. In limited circumstances, such as
                                                                      a proposed change in the rights of a
                                                                      class of stock, holders of one or both
                                                                      classes of common stock may be entitled
                                                                      under Delaware law or under stock
                                                                      exchange regulations to vote as a
                                                                      separate class.



                                      -15-





                                                           THE MERGER PROPOSAL
                           -----------------------------------------------------------------------------------
                                         EXISTING
                                 COMBIMATRIX CORPORATION
                                       COMMON STOCK                             AR-COMBIMATRIX STOCK
                           ----------------------------------------   ----------------------------------------
                                                                
RIGHTS ON SALE OF ALL      If CombiMatrix Corporation were to sell    If we sell all or substantially all of
OR SUBSTANTIALLY ALL       all or substantially all of its            the properties and assets attributed to
ASSETS OF A GROUP:         properties and assets, CombiMatrix         the CombiMatrix group, we must either
                           Corporation would be required to receive   (1) distribute through a dividend or
                           the approval of a majority of its          redemption to holders of AR-CombiMatrix
                           stockholders at a duly called meeting.     stock an amount equal to the net
                                                                      proceeds of the sale, or (2) convert
                                                                      each share of AR-CombiMatrix stock into
                                                                      a number of shares of AR-Acacia
                                                                      Technologies stock at a 10% premium over
                                                                      the then current value. We may, but will
                                                                      not be required to, distribute the net
                                                                      proceeds or convert the AR-CombiMatrix
                                                                      stock if we receive in the sale
                                                                      primarily equity securities of the
                                                                      acquirer or its parent and it is
                                                                      primarily engaged in one or more
                                                                      businesses similar or complementary to
                                                                      the business of the CombiMatrix group.

CONVERSION AT OPTION       None.                                      Acacia Research may, at any time,
OF ACACIA RESEARCH:                                                   convert each share of AR-CombiMatrix
                                                                      stock into a number of shares of
                                                                      AR-Acacia Technologies stock at a 10%
                                                                      premium over the average market values
                                                                      of such shares.

REDEMPTION IN EXCHANGE     None.                                      Acacia Research may redeem the
FOR STOCK OF SUBSIDIARY:                                              AR-CombiMatrix stock for all of the
                                                                      shares of the common stock of one or
                                                                      more of our wholly owned subsidiaries
                                                                      that hold all of the assets and
                                                                      liabilities attributed to the
                                                                      CombiMatrix group.

LIQUIDATION:               If CombiMatrix Corporation is              If Acacia Research is liquidated,
                           liquidated, holders of its existing        holders of AR-CombiMatrix stock will be
                           common stock will be entitled to receive   entitled to a portion of any assets
                           its net assets remaining for               remaining for distribution to holders of
                           distribution to holders of CombiMatrix     common stock on a per share basis in
                           Corporation common stock.                  proportion to the liquidation units per
                                                                      share of AR-CombiMatrix stock. Each
                                                                      share of AR-CombiMatrix stock will have
                                                                      one liquidation unit.



                                      -16-



   THE MERGER AGREEMENT

     We have attached a copy of the merger agreement as ANNEX A to this
document. We encourage you to read the merger agreement carefully in its
entirety because it is the legal document governing the merger.

   MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     We believe, and have received an opinion from PricewaterhouseCoopers LLP to
the effect that, no gain or loss will be recognized by Acacia Research or you
for U.S. federal income tax purposes as a result of the merger except with
respect to cash received by you instead of a fractional share of AR-CombiMatrix
stock. However, there are no court decisions or other authorities bearing
directly on transactions similar to the merger proposal. In addition, the
Internal Revenue Service has announced that it will not issue rulings on the
characterization of stock with characteristics similar to the AR-CombiMatrix
stock. Therefore, the tax treatment of the merger is subject to some
uncertainty.

     Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. We urge you to consult your
tax advisors for a full description of the tax consequences of the merger to
you.

   APPRAISAL OR DISSENTERS' RIGHTS IN CONNECTION WITH THE MERGER

     Stockholders of Acacia Research will not have any dissenters' or appraisal
rights under Delaware law in connection with the merger because they will own
publicly traded securities both before and after the merger. CombiMatrix
Corporation stockholders who object to the merger, however, will have
dissenters' appraisal rights.

   ACCOUNTING TREATMENT

     We will account for the acquisition of the equity interest in CombiMatrix
Corporation in the merger as a purchase of a business. Under this method of
accounting, the assets acquired and liabilities assumed of CombiMatrix
Corporation will be recorded at their fair value as of the date of their
acquisition, and any excess of our purchase price over the fair value will be
accounted for as goodwill.

   REGULATORY MATTERS

     We are not aware of any material governmental or regulatory requirements
that must be complied with regarding the merger, other than federal securities
laws and the filing of documents describing principal terms of the merger
agreement with the Secretary of State of Delaware.

   CONDITIONS TO THE MERGER

     We will complete the merger only if specific conditions are satisfied or,
in some cases, waived.

   TERMINATION OF THE AGREEMENT AND PLAN OF REORGANIZATION

     Our board of directors and the CombiMatrix Corporation board of directors
can jointly agree to terminate the merger agreement at any time before the
merger is completed. In addition, either company can terminate the merger
agreement if the merger is not completed by December 31, 2002 and under certain
other circumstances.


                                      -17-



                              STOCK INCENTIVE PLANS

     The 2002 CombiMatrix Stock Incentive Plan and the 2002 Acacia Technologies
Stock Incentive Plan are intended to serve as successor plans to the existing
stock option plans of Acacia Research and CombiMatrix Corporation.

     At the time of the recapitalization, all outstanding options to purchase
Acacia Research common stock will be converted into options to purchase
AR-CombiMatrix stock and AR-Acacia Technologies stock and transferred to the
2002 CombiMatrix Stock Incentive Plan and the 2002 Acacia Technologies Stock
Incentive Plan, respectively. Upon the consummation of the merger, all
outstanding options to purchase CombiMatrix Corporation common stock will be
converted into options to purchase AR-CombiMatrix stock and transferred to the
2002 CombiMatrix Stock Incentive Plan. The replacement options will continue to
be governed by the terms of the original options unless our compensation
committee decides to extend one or more features of the new plans to these
options. Adjustments will be made in the exercise price of the options to
maintain the spread between the exercise price and the market price before and
after the recapitalization and the merger.

     After the recapitalization, no further options will be granted under the
currently existing stock option plans of Acacia Research and CombiMatrix
Corporation. Instead all new options will be granted under either the 2002
CombiMatrix Stock Incentive Plan or the 2002 Acacia Technologies Stock Incentive
Plan. The terms of the proposed new plans are identical, except that
AR-CombiMatrix stock can only be issued under the 2002 CombiMatrix Stock
Incentive Plan and AR-Acacia Technologies stock can only be issued under the
2002 Acacia Technologies Stock Incentive Plan.

     The individuals eligible to participate in the new plans include officers,
employees, board members and consultants of Acacia Research and our
subsidiaries. The number of shares of AR-CombiMatrix stock that will be
authorized under the CombiMatrix Plan will be equal to 9,000,000 minus the sum
of (i) the number of shares of CombiMatrix Corporation common stock issued under
the CombiMatrix Corporation stock option plans prior to the time of the merger
and (ii) a percentage of the number of shares of Acacia Research common stock
issued under the Acacia Research stock option plans prior to the time of the
merger. The number of shares of AR-Acacia Technologies stock that will be
authorized under the Acacia Technologies Plan will be equal to 5,700,000 minus
the number of shares of Acacia Research common stock issued under the Acacia
Research stock option plans prior to the time of the merger. The share reserve
under each plan will increase automatically in January of each year beginning in
2003 by three percent (3%) of the total number of shares of the related common
stock outstanding on the last trading day of December in the prior calendar
year. Unless otherwise provided in the documents evidencing an option, a change
in control of Acacia Research will result in all discretionary options issued
under the plans to vest immediately and become immediately exercisable.

                               RECENT DEVELOPMENTS

     On September 30, 2002, CombiMatrix Corporation and Dr. Donald Montgomery,
an officer and stockholder of CombiMatrix Corporation, entered into a settlement
agreement with Nanogen, Inc. to settle all pending litigation between the
parties. Pursuant to the terms of the settlement agreement, CombiMatrix
Corporation agreed to pay Nanogen $500,000 within 30 days of the settlement and
an additional $500,000 within one year of the settlement. CombiMatrix
Corporation also agreed to make quarterly payments to Nanogen equal to 12.5% of
total sales of products developed by CombiMatrix Corporation and its affiliates
and based on the patents that had been in dispute in the litigation, up to an
annual maximum of $1,500,000. The minimum quarterly payments under the
settlement agreement will be $37,500 per quarter for the period from October 1,
2003 through October 1, 2004, and $25,000 per quarter thereafter until the
patents expire. The patents at issue, U.S. Patent Nos. 6,093,302, 6,280,595 and
6,444,111, expire in 2018 and cover CombiMatrix Corporation's core technology.
Also pursuant to the settlement agreement, CombiMatrix Corporation agreed to
issue 4,016,346 shares, or 17.5% of its outstanding shares post-issuance, to
Nanogen, subject to antidilution provisions under specified circumstances,
including the exercise of outstanding options and warrants and issuances of
additional capital stock of CombiMatrix Corporation, for a period of up to three
years.


                                      -18-



     In our subsidiary Soundview Technologies' pending litigation against
certain television manufacturers, the Consumer Electronics Manufacturers
Association and the Consumer Electronics Association in which Soundview
Technologies has alleged that the defendants have infringed on Soundview
Technologies' V-chip patent and committed antitrust violations, in September
2002, the court granted a motion for summary judgment filed by the defendants.
In granting the motion, the court ruled that the defendants have not infringed
on Soundview Technologies' patent. While we are currently exploring strategies
in response to this ruling and intend to appeal it, litigation is inherently
uncertain and we can give no assurance that we will be successful in any such
appeal.


                                      -19-



                  CONSOLIDATING SELECTED FINANCIAL INFORMATION

                           ACACIA RESEARCH CORPORATION

     The historical consolidating selected financial data set forth below as of
December 31, 2001 and 2000 and for the years ended December 31, 2001, 2000 and
1999 have been derived from our audited consolidated financial statements
included elsewhere in this proxy statement, and should be read in conjunction
with those financial statements (including notes thereto). The selected
financial data as of December 31, 1999, 1998 and 1997 and for the years ended
December 31, 1998 and 1997 have been derived from audited consolidated financial
statements not included in this proxy statement, but which were previously filed
with the SEC.

     The historical consolidating selected financial data set forth below as of
June 30, 2002 and 2001 and for the three and six months ended June 30, 2002 and
2001 have been derived from and should be read in conjunction with our unaudited
interim consolidated financial statements included elsewhere herein. In the
opinion of management, the unaudited interim consolidated financial statements
include all material adjustments, consisting of only normal, recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for the periods presented.

     We are providing the following consolidating financial information
including amounts related to the Acacia Technologies group and the CombiMatrix
group to assist you in your analysis of the financial aspects of the
recapitalization and merger proposals. The selected financial information of the
Acacia Technologies group and the CombiMatrix group is being provided so that
you may have additional information regarding the historical financial
performance of the two divisions and the performance, potential value and
profitability of the respective businesses which may affect the respective share
values.

     Acacia Research derived the Acacia Technologies group and CombiMatrix group
balance sheet data and statement of operations data from the separate audited
financial statements of the Acacia Technologies group and CombiMatrix group for
the years ended December 31, 2001, 2000 and 1999 included elsewhere herein, and
the table should be read in conjunction with those financial statements and
related notes. The historical selected financial data for the Acacia
Technologies group and the CombiMatrix group as of June 30, 2002 and 2001 and
for the three and six months ended June 30, 2002 and 2001 have been derived from
and should be read in conjunction with the unaudited interim financial
statements of the Acacia Technologies group and the CombiMatrix group included
elsewhere herein. In the opinion of management, the separate unaudited interim
financial statements for the Acacia Technologies group and the CombiMatrix group
include all material adjustments, consisting of only normal, recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for the periods presented.

     The AR-Acacia Technologies stock and the AR-CombiMatrix stock is intended
to reflect the separate performance of the respective divisions of Acacia
Research, rather than the performance of Acacia Research Corporation as a whole.
The chief mechanisms intended to cause the AR-Acacia Technologies stock and the
AR-CombiMatrix stock to reflect the financial performance of the respective
groups are provisions in our proposed restated certificate of incorporation and
common stock policies governing dividends and distributions to each class of
stock which specifically require the allocation of earnings to each class based
upon the performance of the two groups determined in accordance with generally
accepted accounting principles. Under these provisions, Acacia Research will
factor the assets and liabilities and income or losses attributable to the
respective groups, determined as described above, into the determination of the
amounts available to pay dividends, if any, on the shares issued for the
respective groups; and require Acacia Research to exchange, redeem or distribute
a dividend on the stock of a group if all or substantially all of the assets
allocated to the respective group are sold to a third party.

     We expect that the market value of each new class of stock will reflect the
performance of the respective groups primarily because we believe that the
performance of a group and the possibility and amount of any dividend to
stockholders, or distribution upon a sale of a group, will link the market price
of the shares to the performance of the respective group. We cannot assure you,
however, that the market values of AR-CombiMatrix stock and AR-Acacia
Technologies stock will in fact reflect the performance of the CombiMatrix group
and the Acacia Technologies group as we intend because holders of these stocks
will not hold a direct or exclusive interest in the separate groups. The Acacia
Technologies group and the CombiMatrix group are not separate legal entities.


                                      -20-



Holders of AR-Acacia Technologies stock and AR-CombiMatrix stock will be
stockholders of Acacia Research. As a result, they will continue to be subject
to all of the risks of an investment in Acacia Research and all of its
businesses, assets and liabilities. The assets Acacia Research Corporation
attributes to one group could be subject to the liabilities of the other group.

     This information is only a summary. You should read it in conjunction with
the separate Acacia Research, Acacia Technologies group and CombiMatrix group
historical financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained
elsewhere herein.

                   CONSOLIDATING STATEMENT OF OPERATIONS DATA
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA):



                                                                FOR THE YEARS ENDED DECEMBER 31,
                                             ------------------------------------------------------------------
                                                2001          2000          1999          1998          1997
                                             -----------   -----------   -----------   -----------   ----------
                                                                                      
REVENUES:
Acacia Technologies Group ................   $    24,180   $        40   $       122   $       382   $      491
CombiMatrix Group ........................           456            17           144            --           --
Eliminations .............................            --            --            --            --           --
                                             -----------   -----------   -----------   -----------   ----------
ACACIA RESEARCH CORPORATION ..............   $    24,636   $        57   $       266   $       382   $      491
                                             ===========   ===========   ===========   ===========   ==========
OPERATING INCOME (LOSS)(5):
Acacia Technologies Group ................   $     5,858   $   (12,606)  $    (4,955)  $    (3,724)  $   (2,299)
CombiMatrix Group ........................       (49,056)      (24,557)       (2,625)       (2,118)      (1,121)
Eliminations .............................            --            --            --            --           --
                                             -----------   -----------   -----------   -----------   ----------
ACACIA RESEARCH CORPORATION ..............   $   (43,198)  $   (37,163)  $    (7,580)  $    (5,842)  $   (3,420)
                                             ===========   ===========   ===========   ===========   ==========
OTHER INCOME (EXPENSE), NET:
Acacia Technologies Group ................   $     2,111   $    (2,897)  $      (818)  $      (489)  $     (109)
CombiMatrix Group ........................         2,055         1,662          (224)          (56)           9
Eliminations .............................            --            --            --            --           --
                                             -----------   -----------   -----------   -----------   ----------
ACACIA RESEARCH CORPORATION ..............   $     4,166   $    (1,235)  $    (1,042)  $      (545)  $     (100)
                                             ===========   ===========   ===========   ===========   ==========
INCOME (LOSS) FROM CONTINUING OPERATIONS
   BEFORE MINORITY INTERESTS:
Acacia Technologies Group ................   $     7,034   $   (15,509)  $    (5,791)  $    (4,213)  $   (2,158)
CombiMatrix Group ........................       (46,846)      (22,816)       (2,851)       (2,174)      (1,112)
Eliminations .............................            --            --            --            --           --
                                             -----------   -----------   -----------   -----------   ----------
ACACIA RESEARCH CORPORATION ..............   $   (39,812)  $   (38,325)  $    (8,642)  $    (6,387)  $   (3,270)
                                             ===========   ===========   ===========   ===========   ==========
MINORITY INTERESTS:
Acacia Technologies Group ................   $    (1,277)  $       866   $       (27)  $        56   $      113
CombiMatrix Group ........................        18,817         8,300         1,248           142          298
Eliminations .............................            --            --            --            --           --
                                             -----------   -----------   -----------   -----------   ----------
ACACIA RESEARCH CORPORATION ..............   $    17,540   $     9,166   $     1,221   $       198   $      411
                                             ===========   ===========   ===========   ===========   ==========
LOSS FROM CONTINUING OPERATIONS:
Acacia Technologies Group ................   $     5,757   $   (14,643)  $    (5,818)  $    (4,157)  $   (2,045)
CombiMatrix Group ........................       (28,029)      (14,516)       (1,603)       (2,032)        (814)
Eliminations .............................            --            --            --            --           --
                                             -----------   -----------   -----------   -----------   ----------
ACACIA RESEARCH CORPORATION ..............   $   (22,272)  $   (29,159)  $    (7,421)  $    (6,189)  $   (2,859)
                                             ===========   ===========   ===========   ===========   ==========
LOSS FROM DISCONTINUED OPERATIONS (1):
Acacia Technologies Group ................   $        --   $    (9,554)  $      (776)  $        --   $       --
CombiMatrix Group ........................            --            --            --            --           --
Eliminations .............................            --            --            --            --           --
                                             -----------   -----------   -----------   -----------   ----------
ACACIA RESEARCH CORPORATION ..............   $        --   $    (9,554)  $      (776)  $        --   $       --
                                             ===========   ===========   ===========   ===========   ==========
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE:
Acacia Technologies Group ................   $     5,757   $   (24,197)  $    (6,594)  $    (4,157)  $   (2,045)
CombiMatrix Group ........................       (28,029)      (14,516)       (1,603)       (2,032)        (814)
Eliminations .............................            --            --            --            --           --
                                             -----------   -----------   -----------   -----------   ----------
ACACIA RESEARCH CORPORATION ..............   $   (22,272)  $   (38,713)  $    (8,197)  $    (6,189)  $   (2,859)
                                             ===========   ===========   ===========   ===========   ==========



                                      -21-





                                                                FOR THE YEARS ENDED DECEMBER 31,
                                             ------------------------------------------------------------------
                                                2001          2000          1999          1998          1997
                                             -----------   -----------   -----------   -----------   ----------
                                                                                      
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
   PRINCIPLE DUE TO BENEFICIAL CONVERSION
   FEATURE:
Acacia Technologies Group ................   $        --   $        --   $        --   $        --   $       --
CombiMatrix Group ........................            --          (246)           --            --           --
Eliminations .............................            --            --            --            --           --
                                             -----------   -----------   -----------   -----------   ----------
ACACIA RESEARCH CORPORATION ..............   $        --   $      (246)  $        --   $        --   $       --
                                             ===========   ===========   ===========   ===========   ==========
NET LOSS:
Acacia Technologies Group ................   $     5,757   $   (24,197)  $    (6,594)  $    (4,157)      (2,045)
CombiMatrix Group ........................       (28,029)      (14,762)       (1,603)       (2,032)        (814)
Eliminations .............................            --            --            --            --           --
                                             -----------   -----------   -----------   -----------   ----------
ACACIA RESEARCH CORPORATION ..............   $   (22,272)  $   (38,959)  $    (8,197)  $    (6,189)  $   (2,859)
                                             ===========   ===========   ===========   ===========   ==========
Loss per common share:
Basic and diluted
Loss from continuing operations ..........   $     (1.16)  $     (1.78)  $     (0.59)  $     (0.58)  $    (0.42)
Loss from discontinued operations ........            --         (0.58)        (0.06)           --           --
Cumulative effect of change in accounting
    principle ............................            --         (0.02)           --            --           --
                                             -----------   -----------   -----------   -----------   ----------
NET LOSS .................................   $     (1.16)  $     (2.38)  $     (0.65)  $     (0.58)  $    (0.42)
                                             ===========   ===========   ===========   ===========   ==========
Weighted average number of common and
   potential shares outstanding used in
   computation of loss per common
   share(2):
Basic ....................................    19,259,256    16,346,099    12,649,133    10,748,982    6,739,996
Diluted ..................................    19,259,256    16,346,099    12,649,133    10,748,982    6,739,996



                                      -22-





                                           FOR THE THREE MONTHS ENDED JUNE 30,   FOR THE SIX MONTHS ENDED JUNE 30,
                                           -----------------------------------   ---------------------------------
                                                   2002          2001                   2002          2001
                                                -----------   -----------            -----------   -----------
                                                       (UNAUDITED)                          (UNAUDITED)
                                                                                       
Revenues
    Acacia Technologies Group .........         $        --   $    10,000            $        --   $    12,440
    CombiMatrix Group .................                 438            91                    687           274
    Eliminations ......................                  --            --                     --            --
                                                -----------   -----------            -----------   -----------
    ACACIA RESEARCH CORPORATION .......         $       438   $    10,091            $       687   $    12,714
                                                ===========   ===========            ===========   ===========

    OPERATING INCOME (LOSS)(5):
    Acacia Technologies Group .........         $    (3,062)  $     3,850            $    (5,325)  $     2,610
    CombiMatrix Group .................             (10,002)      (13,787)               (16,216)      (28,348)
    Eliminations ......................                  --            --                     --            --
                                                -----------   -----------            -----------   -----------
    ACACIA RESEARCH CORPORATION .......         $   (13,064)  $    (9,937)           $   (21,541)  $   (25,738)
                                                ===========   ===========            ===========   ===========

    OTHER INCOME (EXPENSE), NET:
    Acacia Technologies Group .........         $      (905)  $       473            $    (1,547)  $       884
    CombiMatrix Group .................                  89           558                    278         1,291
    Eliminations ......................                  --            --                     --            --
                                                -----------   -----------            -----------   -----------
    ACACIA RESEARCH CORPORATION .......         $      (816)  $     1,031            $    (1,269)  $     2,175
                                                ===========   ===========            ===========   ===========
    INCOME (LOSS) FROM CONTINUING
        OPERATIONS BEFORE MINORITY
        INTERESTS:
    Acacia Technologies Group .........         $    (3,931)  $     4,056            $    (6,807)  $     3,178
    CombiMatrix Group .................              (9,874)      (13,190)               (15,859)      (26,982)
    Eliminations ......................                  --            --                     --            --
                                                -----------   -----------            -----------   -----------
    ACACIA RESEARCH CORPORATION .......         $   (13,805)  $    (9,134)           $   (22,666)  $   (23,804)
                                                ===========   ===========            ===========   ===========

    MINORITY INTERESTS:
    Acacia Technologies Group .........         $       125   $      (959)           $       162   $    (1,286)
    CombiMatrix Group .................               3,979         5,321                  6,377        10,839
    Eliminations ......................                  --            --                     --            --
                                                -----------   -----------            -----------   -----------
    ACACIA RESEARCH CORPORATION .......         $     4,104   $     4,362            $     6,539   $     9,553
                                                ===========   ===========            ===========   ===========

    NET LOSS:
    Acacia Technologies Group .........         $    (3,806)  $     3,097            $    (6,645)  $     1,892
    CombiMatrix Group .................              (5,895)       (7,869)                (9,482)      (16,143)
    Eliminations ......................                  --            --                     --            --
                                                -----------   -----------            -----------   -----------
    ACACIA RESEARCH CORPORATION .......         $    (9,701)  $    (4,772)           $   (16,127)  $   (14,251)
                                                ===========   ===========            ===========   ===========

    Loss per common share:
    Basic and diluted
    Loss from continuing operations ...         $     (0.49)  $     (0.25)           $     (0.82)  $     (0.74)
    NET LOSS ..........................         $     (0.49)  $     (0.25)           $     (0.82)  $     (0.74)
                                                ===========   ===========            ===========   ===========
    Weighted average number of common
        and potential shares outstanding
        used in computation of loss per
        common share(2):
    Basic .............................          19,634,549    19,503,549             19,622,363    19,260,094
    Diluted ...........................          19,634,549    19,503,549             19,622,363    19,260,094



                                      -23-



CONSOLIDATING BALANCE SHEET DATA (IN THOUSANDS):



                                                   AT DECEMBER 31,                   AT JUNE 30,
                                   -----------------------------------------------   -----------
                                     2001       2000      1999      1998     1997       2002
                                   --------   -------   -------   -------   ------   -----------
                                                                                     (UNAUDITED)
                                                                     
TOTAL ASSETS(5):
Acacia Technologies Group ......   $ 62,926   $37,062   $49,788   $19,267   $8,497     $55,325
CombiMatrix Group ..............     47,963    61,561     2,003     3,648      357      37,703
Eliminations(4) ................        (30)     (107)       --    (3,146)      --         (88)
                                   --------   -------   -------   -------   ------     -------
ACACIA RESEARCH CORPORATION ....   $110,859   $98,516   $51,791   $19,769   $8,854     $92,940
                                   ========   =======   =======   =======   ======     =======
LONG-TERM INDEBTEDNESS:
Acacia Technologies Group ......   $     --   $    --   $    --   $    --   $   --     $    --
CombiMatrix Group ..............         --        --        --     1,222       --          --
Eliminations ...................         --        --        --        --       --          --
                                   --------   -------   -------   -------   ------     -------
ACACIA RESEARCH CORPORATION ....   $     --   $    --   $    --   $ 1,222   $   --     $    --
                                   ========   =======   =======   =======   ======     =======
TOTAL LIABILITIES(3)(5):
Acacia Technologies Group ......   $  5,723   $ 5,075   $ 1,304   $   436   $  425     $ 5,472
CombiMatrix Group ..............     14,131    15,880       229     4,538       22      15,424
Eliminations(4) ................        (30)     (107)      100    (3,146)      --         (88)
                                   --------   -------   -------   -------   ------     -------
ACACIA RESEARCH CORPORATION ....   $ 19,824   $20,848   $ 1,633   $ 1,828   $  447     $20,808
                                   ========   =======   =======   =======   ======     =======
MINORITY INTERESTS(3):
Acacia Technologies Group ......   $  2,194   $ 2,012   $ 3,992   $    --   $   81     $ 1,899
CombiMatrix Group ..............     30,109    15,512       904        --      146      27,480
Eliminations ...................         --        --        --        --       --          --
                                   --------   -------   -------   -------   ------     -------
ACACIA RESEARCH CORPORATION ....   $ 32,303   $17,524   $ 4,896   $    --   $  227     $29,379
                                   ========   =======   =======   =======   ======     =======
STOCKHOLDERS' EQUITY:
Acacia Technologies Group ......   $ 55,009   $29,975   $44,492   $18,845   $7,991     $47,954
CombiMatrix Group ..............      3,723    30,169       770      (904)     189      (5,201)
Eliminations ...................         --        --        --        --       --          --
                                   --------   -------   -------   -------   ------     -------
ACACIA RESEARCH CORPORATION ....   $ 58,732   $60,144   $45,262   $17,941   $8,180     $42,753
                                   ========   =======   =======   =======   ======     =======


----------
(1)  On February 13, 2001, the board of directors of Soundbreak.com, Inc., one
     of our majority-owned subsidiaries, resolved to cease operations as of
     February 15, 2001 and liquidate the remaining assets and liabilities of the
     company. Operating results in 1999 have been restated to present
     Soundbreak.com as discontinued operations. See Note 9 to the 2001
     consolidated financial statements.

(2)  Potential common shares for the three months ended March 31, 2002 and 2001,
     and in 2001, 2000, 1999, 1998 and 1997 have been excluded from the per
     share calculation because the effect of their inclusion would be
     anti-dilutive. In addition, all share and per share information has been
     adjusted as appropriate for all periods presented to reflect a two-for-one
     stock split effected in March 1998 and a ten percent (10%) stock dividend
     distributed on December 5, 2001 for stockholders of record as of November
     21, 2001.

(3)  Effective January 1, 2001, we changed our accounting policy for balance
     sheet classification of employee stock-based compensation resulting from
     awards in consolidated subsidiaries. As a result, effective January 1,
     2001, amortized non-cash stock compensation charges related to subsidiary
     stock options are included in minority interests in our consolidated
     balance sheet. Prior to the change in accounting policy, amortized non-cash
     stock compensation charges related to subsidiary stock options were
     reflected as "accrued stock compensation" in consolidated liabilities.
     There is no impact on previous consolidated statements of operations as a
     result of this change in accounting policy.

(4)  Represents intercompany receivables/payables between the groups. In 1998,
     the intercompany receivable/payable was $3.1 million related to funds
     advanced by Acacia Research to fund CombiMatrix Corporation's operations.
     These amounts were repaid by CombiMatrix Corporation in 1999.

(5)  MANAGEMENT ALLOCATION POLICIES. The management and allocation policies
     applicable to the preparation of the financial statements of the Acacia
     Technologies group and the CombiMatrix group and as a result, to the
     measurement by which dividends or performance are determined for each
     group, may be modified or rescinded, or additional policies may be adopted,
     at the sole discretion of the Board at any time without approval of the
     stockholders. The Acacia Technologies group's and the CombiMatrix group's
     financial statements reflect the application of the management and
     allocation policies adopted by the Board to various corporate activities,
     as described below. Management has no plans to change allocation methods or
     the composition of the groups. The CombiMatrix group financial statements
     should be read in conjunction with the Acacia Research Corporation
     consolidated financial statements and related notes.

     CORPORATE GENERAL AND ADMINISTRATIVE SERVICES AND FACILITIES. Acacia
     Research allocates the cost of corporate general and administrative
     services and facilities between the Acacia Technologies group and the
     CombiMatrix group, generally based upon utilization. Where determinations
     based on utilization alone are impracticable, Acacia Research uses other
     methods and criteria that management believes to be equitable and to
     provide a reasonable estimate of the cost attributable to each group.
     Direct salaries, payroll taxes and fringe benefits are allocated to the
     groups based on the percentage of actual time incurred by specific
     employees to total annual time available and direct costs including
     postage, insurance, legal fees, accounting and tax are allocated to the
     groups based on specific identification of costs


                                      -24-



     incurred on behalf of each group. Other direct costs, including direct
     depreciation expense, computer costs, general office supplies and rent are
     allocated to the groups based on the ratio of direct salaries to total
     salaries. Indirect costs, including indirect salaries and benefits,
     investor relations, rent, general office supplies and indirect depreciation
     are allocated to the groups based on the ratio of direct salaries allocated
     to each group to total direct salaries. For the CombiMatrix group the
     totals for these allocations were $0.3 million and $0.4 million and $0.6
     million for the three and six months ended June 30, 2002 and 2001,
     respectively, and $1.4 million, $0.9 million and $0.4 million for 2001,
     2000, and 1999, respectively. For the Acacia Technologies group the totals
     for these allocations were $1.3 million and $0.8 million and $2.4 million
     and $2.6 million for the three and six months ended June 30, 2002 and 2001,
     respectively; and $4.6 million, $7.7 million and $3.1 million for 2001,
     2000, and 1999, respectively.

     ASSETS AND LIABILITIES. In general, Acacia Research Corporation's assets
     and liabilities have been attributed to the Acacia Technologies group and
     the CombiMatrix group based on the respective assets and liabilities of the
     businesses comprising each group. Net intangible assets recorded at the
     Acacia Research Corporation level, primarily consisting of acquired patents
     and goodwill balances, have been attributed to the respective businesses
     comprising each group to which the intangibles and goodwill relate.

     ALLOCATION OF FEDERAL AND STATE INCOME TAXES. Acacia Research Corporation
     determines its federal income taxes and the federal income taxes of its
     subsidiaries that own assets allocated between the groups on a consolidated
     basis. Acacia Research Corporation allocates consolidated federal income
     tax provisions and related tax payments or refunds between the Acacia
     Technologies' group and CombiMatrix group based principally on the taxable
     income and tax credits directly attributable to each group. Such
     allocations reflect each group's contribution, whether positive or
     negative, to Acacia Research Corporation's consolidated federal taxable
     income and consolidated federal tax liability and tax credit position.
     Acacia Research Corporation will credit tax benefits that cannot be used by
     the group generating those benefits but can be used on a consolidated basis
     to the group that generated such benefits.

     TREASURY AND CASH MANAGEMENT POLICIES. Information regarding Treasury and
     Cash Management policies for the Acacia Technologies group and the
     CombiMatrix group are included in the notes to the separate financial
     statements for the Acacia Technologies group and the CombiMatrix group
     included elsewhere herein.


                                      -25-



OTHER FACTORS AFFECTING COMPARABILITY:

     o    In 1997, we acquired a controlling interest in Soundview Technologies.
          The 1996 amounts have been restated for the effects of our increased
          interest in Soundview. Prior to this restatement, we reported loss of
          $161,000 in equity in earnings of affiliates and net income of
          $293,000.

     o    The Acacia Technologies group revenues presented from 1999 to 1997
          primarily relate to capital management fee income, including
          performance fee income, recorded by the Acacia Capital Management
          division. During the fourth quarter of 1999, Acacia Research closed
          its Acacia Capital Management division. Acacia Capital Management was
          a general partner in two private investment partnerships and was an
          investment advisor to two offshore private investment corporations.

     o    In the fourth quarter of 2000, we recorded $1.0 million in write-offs
          of other early-stage investments and $2.6 million in write-offs of
          equity investments.

     o    During the year ended December 31, 2000, CombiMatrix Corporation,
          recorded deferred non-cash stock compensation charges aggregating
          approximately $53.8 million in connection with the granting of stock
          options. Deferred non-cash stock compensation charges are being
          amortized by the CombiMatrix group over the respective option grant
          vesting periods, which range from one to four years. Non-cash stock
          compensation charges totaled $20.0 million and $10.0 million in 2001
          and 2000, respectively. Non-cash stock compensation charges were not
          significant in prior periods.

     o    In connection with Acacia Research's increased focus on the media
          technologies and life sciences sectors, certain of Acacia Research's
          businesses allocated to the Acacia Technologies group ceased
          operations and certain investments were written off in 2000. As a
          result, marketing, general and administrative costs related to
          salaries, benefits, consulting, legal and other professional costs
          were significantly reduced in 2001.


                                      -26-



UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

     The following unaudited pro forma consolidated financial information
reflects the pro forma effect on Acacia Research's unaudited consolidated
balance sheet as of June 30, 2002 and consolidated statements of operations for
the year ended December 31, 2001 (audited) and for the six months ended June 30,
2002 (unaudited) from the recapitalization of Acacia Research and the merger and
related acquisition by Acacia Research of the remaining 52.3% of the CombiMatrix
Corporation common stock that Acacia Research does not already own. As such, the
Acacia Research pro forma consolidated statements are based upon the
consolidated financial statements of Acacia Research adjusted to give effect to
the recapitalization and merger transactions.

     The unaudited pro forma balance sheet gives effect to the proposed
recapitalization and merger as if they had taken place on June 30, 2002 and
reflects authorization and issuances of the two new share classes and the
purchase adjustment to the carrying value of the acquired assets and liabilities
of CombiMatrix Corporation based on a preliminary valuation. The unaudited pro
forma statement of operations for the year ended December 31, 2001 and for the
six months ended June 30, 2002 reflects the merger and recapitalization as if
they had taken place on January 1, 2001.

     Upon consummation of the recapitalization, each share of existing Acacia
Research common stock will be converted into approximately 0.5582 of a share of
AR-CombiMatrix stock (subject to adjustment as described in this proxy
statement) and one share of AR-Acacia Technologies stock.

     If the merger is approved, Acacia Research will account for the merger
using the purchase method of accounting. Under this method of accounting, the
acquired assets and liabilities assumed of CombiMatrix Corporation, including
intangible assets, will be adjusted to their fair market values. Consistent with
generally accepted accounting principles in the United States of America,
amounts assigned to purchased in-process research and development -- i.e.,
CombiMatrix Corporation research and development projects that are still in
process at the closing of the merger, but which, if unsuccessful, have no
alternative future use -- must be charged as expenses on the date that the
merger is consummated.

     The unaudited pro forma consolidated statements are based upon information
set forth in this document and assumptions included in the accompanying notes.
After consummation of the merger, Acacia Research anticipates completion of the
valuations and other studies of significant assets, liabilities and business
operations of CombiMatrix Corporation. Using this information, Acacia Research
will make a final purchase price allocation between tangible assets and
liabilities, identifiable intangible assets, in-process research and development
and goodwill. The impact of these changes, principally affecting intangible
assets, related amortization, goodwill and in-process research and development,
could be material. Accordingly, the purchase price allocation adjustments made
in connection with the development of Acacia Research's unaudited pro forma
statements are preliminary and have been made solely for the purpose of
developing the Acacia Research pro forma statements.

     Upon consummation of the merger, CombiMatrix Corporation stockholders,
other than Acacia Research, will receive one share of the AR-CombiMatrix stock
for each share of CombiMatrix Corporation common stock that they own. The shares
of AR-CombiMatrix stock that will be issued to CombiMatrix Corporation
stockholders, other than Acacia Research, in the merger are expected to
represent approximately 52.3% of the outstanding shares of CombiMatrix
Corporation common stock, excluding stock options.

     Based upon the number of shares of CombiMatrix Corporation common stock
outstanding on November 1, 2002, approximately 12.0 million shares of
AR-CombiMatrix stock, including 4,016,364 shares of CombiMatrix Corporation
common stock issued to Nanogen, Inc. on October 1, 2002, will be issued to
CombiMatrix Corporation stockholders in the merger. See Note K to the unaudited
pro forma financial statements.

     The unaudited pro forma consolidated balance sheet and statements of
operations are for informational purposes only. They do not purport to indicate
the results that would have actually been obtained had the recapitalization and
merger been completed on the assumed date or for the periods presented, or which
may be obtained in the future. To produce the pro forma consolidated financial
information, Acacia Research allocated the purchase price using its best
estimates. The unaudited pro forma consolidated balance sheet and consolidated


                                      -27-



statement of operations should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements, including the notes, of Acacia Research
appearing in "Acacia Research Corporation - Accountant's Report and Financial
Statement" on page F-2.


                                      -28-



                           ACACIA RESEARCH CORPORATION
                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                               AS OF JUNE 30, 2002
             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)



                                                                                            Acacia Research
                                                            Acacia Research    Pro Forma      Corporation
                                                              Corporation     Adjustments      Pro Forma
                                                            ---------------   -----------   ---------------
                                                                                      
                           ASSETS
Current assets:
  Cash and cash equivalents                                    $  49,712                       $  49,712
  Short-term investments                                          16,699                          16,699
  Prepaid expenses, other receivables and other assets             2,682                           2,682
                                                               ---------                       ---------
    Total current assets                                          69,093                          69,093

Property and equipment, net of accumulated depreciation            4,575                           4,575
Investment in affiliate, at cost                                   3,000                           3,000
Patents, net of accumulated amortization                          10,857        7,800 (A)         18,657
Goodwill, net of accumulated amortization                          4,627       37,900 (A)         40,000
                                                                               (2,527)(G)
Other assets                                                         788                             788
                                                               ---------                       ---------
                                                               $  92,940                       $ 136,113
                                                               =========                       =========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable, accrued expenses and other                 $   5,699          800 (A)      $   6,499
  Current portion of deferred revenues                             8,842       (2,527)(G)          6,315
  Current portion of capital lease obligation                        976                             976
                                                               ---------                       ---------
    Total current liabilities                                     15,517                          13,790

Deferred income taxes                                              3,679        3,100 (A)          6,779
Deferred revenues, net of current portion                            266                             266
Capital lease obligation, net of current portion                   1,346                           1,346
                                                               ---------                       ---------
    Total liabilities                                             20,808                          22,181
                                                               ---------                       ---------
                                                                               (7,800)(A)
Minority interests                                                29,379      (18,900)(B)          2,679
                                                               ---------                       ---------
Stockholders' equity:
  Acacia Technologies common stock (Note H)                           20                              20
  CombiMatrix common stock (Note H)                                   --           12 (A)             12

  Additional paid-in capital                                     158,672       59,888 (A)        246,282
                                                                               26,502 (B)
                                                                                1,220 (C)
  Deferred stock compensation                                         --       (7,602)(B)         (8,822)
                                                                               (1,220)(C)
  Warrants to purchase common stock                                  199                             199
  Comprehensive loss                                                   1                               1
  Accumulated deficit                                           (116,139)     (10,300)(A)       (126,432)
                                                               ---------                       ---------
    Total stockholders' equity                                    42,753                         111,253
                                                               ---------                       ---------
                                                               $  92,940                       $ 136,113
                                                               =========                       =========


          See  Notes to Unaudited Pro Forma Consolidated Financial Statements


                                      -29-



                           ACACIA RESEARCH CORPORATION
            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 2001
             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)



                                                                                                              Acacia
                                                                                 Acacia                      Research
                                                                                Research      Pro Forma    Corporation
                                                                               Corporation   Adjustments    Pro Forma
                                                                               -----------   -----------   -----------
                                                                                                  
Revenues:
  License fee income                                                           $    24,180                 $    24,180
  Grant revenue                                                                        456                         456
                                                                               -----------                 -----------
    Total revenues                                                                  24,636                      24,636
                                                                               -----------                 -----------
Operating expenses:
  Research and development expenses                                                 18,839        134 (F)       18,973
  Marketing, general and administrative expenses                                    46,300        272 (F)       46,572
  Amortization of patents and goodwill                                               2,695      1,114 (E)        3,809
  Loss on disposal of consolidated subsidiaries                                         --                          --
                                                                               -----------                 -----------
    Total operating expenses                                                        67,834                      69,354
                                                                               -----------                 -----------
  Operating loss                                                                   (43,198)                    (44,718)
                                                                               -----------                 -----------
Other income (expense):
  Interest income                                                                    3,762                       3,762
  Realized gains on short-term investments                                             350                         350
  Unrealized gains on short-term investments                                           237                         237
  Interest expense                                                                     (65)                        (65)
  Equity in losses of affiliates                                                      (195)                       (195)
  Other income                                                                          77                          77
                                                                               -----------                 -----------
    Total other income (expense)                                                     4,166                       4,166
                                                                               -----------                 -----------
Loss from operations before income taxes and minority interests                    (39,032)                    (40,552)
Provisions for income taxes                                                           (780)       442 (E)         (338)
                                                                               -----------                 -----------
Loss from operations before minority interests                                     (39,812)                    (40,890)
Minority interests                                                                  17,540    (18,757)(D)       (1,217)
                                                                               -----------                 -----------
Net loss                                                                       $   (22,272)                $   (42,107)
                                                                               ===========                 ===========
Loss per common share:
  Basic loss per share                                                         $     (1.16)
                                                                               ===========
  Diluted loss per share                                                       $     (1.16)
                                                                               ===========
Weighted average number of common and potential common shares outstanding in
computation of loss per share:
  Basic                                                                         19,592,459
  Diluted                                                                       19,592,459

Pro forma Earnings (loss) per common and potential common share:

Net income (loss) attributed to AR-Acacia Technologies stock                                               $     5,758 (H)
                                                                                                           ===========
    Per Basic share                                                                                        $      0.29 (H)
                                                                                                           ===========
    Per Diluted share                                                                                      $      0.29 (H)
                                                                                                           ===========

Net income (loss) attributed to AR-CombiMatrix stock                                                       $   (47,865)
                                                                                                           ===========
    Per Basic share                                                                                        $     (2.09)(H)
                                                                                                           ===========
    Per Diluted share                                                                                      $     (2.09)(H)
                                                                                                           ===========

Weighted average shares - AR-Acacia Technologies stock
    Basic                                                                                                   19,640,808 (I)
    Diluted                                                                                                 20,176,962 (I)

Weighted average shares - AR-CombiMatrix stock
    Basic                                                                                                   22,950,551 (I)(K)
    Diluted                                                                                                 22,950,551 (I)(K)


       See Notes to Unaudited Pro Forma Consolidated Financial Statements


                                      -30-



                           ACACIA RESEARCH CORPORATION
            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2002
             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)



                                                                                                              Acacia
                                                                                  Acacia                     Research
                                                                                Research      Pro Forma    Corporation
                                                                               Corporation   Adjustments    Pro Forma
                                                                               -----------   -----------   -----------
                                                                                                  
Revenues:
   Grant revenue                                                               $       413                 $       413
   Product revenue                                                                     274                         274
                                                                               -----------                 -----------
      Total revenues                                                                   687                         687
                                                                               -----------                 -----------
Operating expenses:
   Cost of sales                                                                       253                         253
   Research and development expenses                                                 8,807        67 (F)         8,874
   Marketing, general and administrative expenses                                   12,040       136 (F)        12,176
   Amortization of patents and goodwill                                              1,128       557 (E)         1,685
                                                                               -----------                 -----------
      Total operating expenses                                                      22,228                      22,988
                                                                               -----------                 -----------
   Operating loss                                                                  (21,541)                    (22,301)
                                                                               -----------                 -----------
Other income (expense):
   Interest income                                                                     700                         700
   Realized gains on short-term investments                                         (1,483)                     (1,483)
   Unrealized gains on short-term investments                                         (477)                       (477)
   Interest expense                                                                   (121)                       (121)
   Equity in losses of affiliates
   Other income                                                                        112                         112
                                                                               -----------                 -----------
      Total other income (expense)                                                  (1,269)                     (1,269)
                                                                               -----------                 -----------
Loss from operations before income taxes and minority interests                    (22,810)                    (23,570)
Provisions for income taxes                                                            144       221 (E)           365
                                                                               -----------                 -----------
Loss from operations before minority interests                                     (22,666)                    (23,205)
Minority interests                                                                   6,539    (6,334)(D)           205
                                                                               -----------                 -----------
Net loss                                                                       $   (16,127)                $   (23,000)
                                                                               ===========                 ===========
Loss per common share:
   Basic loss per share                                                        $     (0.82)
                                                                               ===========
   Diluted loss per share                                                      $     (0.82)
                                                                               ===========
Weighted average number of common and potential common shares outstanding in
computation of loss per share:
   Basic                                                                        19,622,363
   Diluted                                                                      19,622,363

Pro forma Earnings (loss) per common and potential common share:

Net income (loss) attributed to AR-Acacia Technologies stock                                               $    (6,645)(H)
                                                                                                           ===========
   Per Basic share                                                                                         $     (0.34)(H)
                                                                                                           ===========
   Per Diluted share                                                                                       $     (0.34)(H)
                                                                                                           ===========

Net income (loss) attributed to AR-CombiMatrix stock                                                       $   (16,355)(H)(J)
                                                                                                           ===========
   Per Basic share                                                                                         $     (0.71)(H)
                                                                                                           ===========
   Per Diluted share                                                                                       $     (0.71)(H)
                                                                                                           ===========

Weighted average shares - AR-Acacia Technologies stock
   Basic                                                                                                    19,640,808 (I)
   Diluted                                                                                                  19,640,808 (I)

Weighted average shares - AR-CombiMatrix stock
   Basic                                                                                                    22,950,551 (I)
   Diluted                                                                                                  22,950,551 (I)


       See Notes to Unaudited Pro Forma Consolidated Financial Statements


                                      -31-



                          NOTES TO UNAUDITED PRO FORMA
                        CONSOLIDATED FINANCIAL STATEMENTS
            (TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     The Acacia Research unaudited pro forma consolidated statements are based
upon the consolidated financial statements of Acacia Research adjusted to give
effect to the proposed recapitalization of Acacia Research and the creation of
two new classes of common stock and the merger and related acquisition by Acacia
Research of the remaining 52% of the CombiMatrix Corporation common stock that
Acacia Research does not already own.

     The unaudited pro forma consolidated balance sheet gives effect to the
proposed recapitalization and merger as if it had taken place on June 30, 2002
and reflects the new capital structure and total purchase adjusted to the
carrying value of assets and liabilities based on a preliminary valuation. The
unaudited pro forma consolidated statements of operations for the year ended
December 31, 2001 and the six months ended June 30, 2002 reflect these
transactions as if they had taken place on January 1, 2001.

     On March 20, 2002, Acacia Research Corporation's Board of Directors (the
"Board") approved a plan that would create two new classes of common stock
called "Acacia Research Corporation - CombiMatrix common stock" ("AR-CombiMatrix
stock") and "Acacia Research Corporation - Acacia Technologies common stock"
("AR-Acacia Technologies stock"). AR-CombiMatrix stock is intended to reflect
separately the performance of the CombiMatrix group and to benefit from its
research and the development efforts. AR-Acacia Technologies stock is intended
to reflect separately the performance of Acacia Research's media technology
business and to benefit from the licensing of its technology and sales of its
products. Each share of existing Acacia Research Corporation common stock will
be converted into a fraction of a share of AR-CombiMatrix stock and one share of
AR-Acacia Technologies stock. The fraction of a share of AR-CombiMatrix stock
into which each outstanding share of Acacia Research common stock will be
converted will be equal to the quotient obtained by dividing (a) the number of
shares of CombiMatrix Corporation common stock owned by Acacia Research
immediately prior to the effective time of the merger by (b) the total number of
shares of Acacia Research common stock issued and outstanding immediately prior
to the effective time. As of November 1, 2002, this fraction was 0.5582. Acacia
Research has applied to list the AR-CombiMatrix stock and the AR-Acacia
Technologies stock on the NASDAQ National Market under the symbols "CBMX" and
"ACTG", respectively. The recapitalization does not have an impact on the pro
forma consolidated statement of operations.

     On March 20, 2002, Acacia Research and CombiMatrix Corporation entered into
a merger agreement pursuant to which CombiMatrix Corporation stockholders, other
than Acacia Research, will receive one share of AR-CombiMatrix stock for each
share of CombiMatrix Corporation common stock that they own. The merger will be
accounted for using the purchase method of accounting. There is currently no
quoted market price for CombiMatrix Corporation in order to value the equity
interest to be acquired of that entity. There is also no quoted market price of
the AR-CombiMatrix stock. The merger transaction will be valued at the date of
acquisition when the registration is completed, using the AR-CombiMatrix stock
(based on the quoted market price once that stock begins trading) multiplied by
the actual number of AR-CombiMatrix shares to be issued by Acacia Research to
the stockholders of CombiMatrix Corporation other than Acacia Research.
Management believes, for the purposes of the unaudited pro forma information,
the most indicative current value of AR- CombiMatrix stock is based upon
management's estimate of the relative value of CombiMatrix Corporation as
reflected in Acacia Research's stock price. Management believes that a
reasonable estimate of the current relative fair value of CombiMatrix
Corporation reflected in Acacia Research's current market value is approximately
60%. This estimate reflects management's assessment of the relative stages of
Acacia Research's businesses and gives consideration to the current agreement
between CombiMatrix Corporation and Roche Diagnostics GmbH and the current stage
at which the Acacia Technologies licensing activities have progressed.
Accordingly, management has used 60% of Acacia Research's recent average stock
price of $4.54, divided by the conversion rate of 0.5582 as the ascribed value
of a share of AR-CombiMatrix for purposes of preparing the pro forma financial
information ((0.60 x $4.54) /0.5582 = $5.00). The recent average stock price for
Acacia Research of $4.54 used in the unaudited pro forma information was based
on a five-day average (September 24 - September 30, 2002) of Acacia Research's
quoted closing market price per share as listed on the NASDAQ national market
system. Accordingly, Acacia Research's cost to acquire the 52% of CombiMatrix
Corporation not already owned, calculated to be $60.7 million assuming an
AR-CombiMatrix stock price, once effective, of $5.00 per share on the date of
consummation, will be allocated on a pro rata basis to the assets acquired and
liabilities assumed according to their respective fair values, with the excess


                                      -32-



purchase price being allocated to goodwill. A 10%, 20% and 30% increase and
decrease in the value of the Acacia Research stock price used in the preparation
of the unaudited pro forma information would impact the ascribed value of a
share of the AR-CombiMatrix stock and as a result, the estimated cost to acquire
the 52% of CombiMatrix Corporation not already owned by approximately $4.0
million and $7.3 million, $10.0 million and $13.1 million, $16.0 million and $19
million, respectively. The total estimated cost to acquire the remaining 52% of
CombiMatrix Corporation common stock reflected in the accompanying unaudited pro
forma financial statements is subject to change based on the actual market price
of the AR-CombiMatrix stock once the AR-CombiMatrix stock begins trading. A
change in total cost will result in a corresponding change in goodwill.

     MANAGEMENT'S REASONABLE ESTIMATE OF THE RELATIVE CURRENT FAIR VALUE OF
COMBIMATRIX CORPORATION AS REFLECTED IN ACACIA RESEARCH'S RECENT AVERAGE STOCK
PRICE IS SOLELY FOR THE PURPOSES OF PREPARING THE UNAUDITED PRO FORMA
CONSOLIDATED INFORMATION. NEITHER THE ESTIMATED PERCENTAGE NOR THE ASSUMED STOCK
MARKET PRICE THAT CAN BE DERIVED THEREFROM ARE INTENDED TO BE INDICATIVE OF
ACTUAL STOCK PRICES, THE RELATIVE VALUES OF THE SHARES AFTER THE
RECAPITALIZATION AND MERGER, OR THE VALUE OF COMBIMATRIX CORPORATION OR EITHER
OF THE TWO GROUPS. THE ASSUMED RELATIVE PERCENTAGE VALUE, THE ASSUMED STOCK
MARKET PRICE, AND THE PURCHASE PRICE ALLOCATION ADJUSTMENTS MADE IN CONNECTION
WITH THE DEVELOPMENT OF THE ACACIA RESEARCH UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS HAVE BEEN MADE SOLELY FOR THE PURPOSE OF DEVELOPING SUCH
ACACIA RESEARCH UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND SHOULD
NOT BE CONSIDERED INDICATIVE OF ACTUAL PRICES, VALUES OR PERFORMANCE FOLLOWING
THE RECAPITALIZATION.

     THE FINAL ALLOCATION OF THE PURCHASE CONSIDERATION IS ALSO DEPENDENT UPON
VALUATIONS AND OTHER STUDIES THAT ARE NOT YET COMPLETE. ACCORDINGLY, THE
PURCHASE PRICE ALLOCATION ADJUSTMENTS MADE IN CONNECTION WITH THE DEVELOPMENT OF
THE ACACIA RESEARCH UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS HAVE
BEEN MADE SOLELY FOR THE PURPOSE OF DEVELOPING SUCH ACACIA RESEARCH UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND SHOULD NOT BE CONSIDERED
INDICATIVE OF ACTUAL STOCK PRICES FOLLOWING THE RECAPITALIZATION AND MERGER.

     The Acacia Research unaudited pro forma consolidated financial statements
are not necessarily indicative of what the actual financial results would have
been had the transactions described above taken place on June 30, 2002 or
January 1, 2001, nor do they purport to indicate results of future operations.

     The Acacia Research unaudited pro forma consolidated statements have been
prepared on the basis of assumptions described in the notes below, including
assumptions relating to the allocation of the consideration paid for the 52% of
CombiMatrix Corporation not already owned based on preliminary estimates of fair
value. The actual allocation of the consideration may differ from that reflected
in the Acacia Research unaudited pro forma consolidated financial statements
after valuations and other procedures to be performed after the closing of the
merger have been completed. Below is a table of the estimated acquisition cost,
purchase price adjustment and annual amortization of the intangible assets
acquired:



                                                                           Annual
                                                        Amortization    Amortization
                                                            Life       of Intangibles
                                                        ------------   --------------
                                                                  
Estimated Acquisition Costs:
   Exchange of AR-CombiMatrix tracking
   stock for CombiMatrix Corporation stock   $59,900
   Acquisition expenses                          800
                                             -------
      Total Estimated Acquisition Cost       $60,700
                                             =======
Purchase Price Allocation:
      Fair value of 52.3% of CombiMatrix
      Corporation net tangible assets at
      June 30, 2002                          $ 7,800
      Intangible assets acquired:
         Core technology/patent                7,800       7 years         $1,114
         Deferred Income Taxes (40%)          (3,100)
         In-process research and development  10,300
         Goodwill                             37,900
                                             -------                       ------
            Total                            $60,700                       $1,114
                                             -------                       ------



                                      -33-



     The total purchase price, the fair value of assets and liabilities
acquired, the allocation of purchase price and the lives of the intangible
assets will be determined upon completion of the merger and may vary from the
amounts presented herein. The valuation is expected to be completed upon the
consummation of the transaction.

     As a result of the merger, Acacia Research expects to incur a write-off
related to in-process research and development ("IPR&D") totaling approximately
$10.3 million. The unaudited pro forma consolidated balance sheet includes the
effect of the write-off related to IPR&D. The pro forma statement of operations
does not reflect this one-time charge. The charge related to in-process research
and development will be reflected in Acacia Research's consolidated financial
statements when the merger is consummated and will be allocated to the
CombiMatrix group.

     The fair value assigned to the IPR&D was estimated by discounting to
present value the cash flows expected to result from our IPR&D project once it
has reached technological feasibility. A discount rate consistent with the risks
of the project was used to estimate the present value of future cash flows. In
estimating future cash flows, Acacia Research management considered the
contribution of its core technology (for which a United States patent was
obtained in July 2000) that would be required for successful exploitation of
purchased in-process technology in order to value the core and in-process
technology discretely. As a result, future cash flows relating to the purchased
IPR&D project were reduced in order to reflect the contribution of core
technology to the IPR&D project. The cash flows from the project attributable to
core technology were then separately valued to determine the intangible asset
value of purchased core technology (listed in the table above). In determining
the contribution of core technology to our in-process project, Acacia Research
management analyzed their historical research and development efforts applicable
to obtaining their patent from the United States government versus their efforts
to commercially develop the technology in various IPR&D projects. The ratio of
core technology research and development spending to IPR&D spending at the time
of the merger was applied to the IPR&D project cash flows to determine cash
flows relating to core technology.

     The nature of the efforts to develop the purchased IPR&D into commercially
viable products principally relates to the completion and/or acceleration of
existing development programs. These efforts include testing current and
alternative materials used in microarray design, testing of existing and
alternative methods for microarray synthesis, developing prototype machinery
(including operating software) to synthesize, hybridize and read individual
microarrays, and to perform numerous experiments, or assays, with actual target
samples in order to determine customer protocols and procedures for using our
microarray system. The costs of these efforts have been included in the
projections to successfully launch the purchased IPR&D project. The resulting
net cash flows from the project are based on Acacia Research and CombiMatrix
Corporation's management estimates of revenues, cost of sales, research and
development expenses, sales and marketing expenses, general and administrative
expenses, the anticipated effect of income taxes, and required returns on
working capital, fixed assets and other assets necessary to support the
generation of these cash flows.

     The discounting of net cash flows relating to core technology back to their
present value is primarily based on CombiMatrix Corporation's weighted average
cost of capital ("WACC"). The WACC calculation produces the average required
rate of return of an investment in an operating enterprise, based on various
required rates of return from investments in various areas of that enterprise.
The weighted average discount rate was approximately 25% and is the rate used in
discounting the net cash flows attributable to purchased core technology.

     The forecast data employed in the valuation analyses was based upon product
level forecast information obtained by Acacia Research from numerous internal
and external resources. These resources included publicly available databases,
external market research consultants, company-sponsored focus group data and
internal market experts. Acacia Research senior management reviewed and
challenged the forecast data and related assumptions and utilized the
information in analyzing IPR&D. The forecast data and assumptions are inherently
uncertain and unpredictable. However, based upon the information available at
this time, Acacia Research management believes the forecast data and assumptions
to be reasonable. These assumptions may be incomplete or inaccurate, and no
assurance can be given that unanticipated events and circumstances will not
occur. Accordingly, actual results may vary from the forecasted results. Any
such variance may result in a material adverse effect on Acacia Research's
financial condition and results of operations.

     In the allocation of the purchase price to the IPR&D, the concept of
alternative future use was specifically considered for the program under
development. The acquired IPR&D consists of CombiMatrix Corporation's work


                                      -34-



to complete each of the identified programs. The program is very specific to the
research market for which it is intended. There are no alternative uses for the
in-process program in the event that the program fails in its continued
development or is otherwise not feasible. The development effort for the
acquired IPR&D does not possess an alternative future use for Acacia as defined
by generally accepted accounting principles.

     Below is a brief description of the acquired IPR&D project including an
estimation of when our management believes that we may realize revenues from the
sale of these products.

     GENOMICS BIOLOGICAL ARRAY SYSTEM.

     As described elsewhere in this document, our genomics biological array
processor system is being developed to discretely immobilize sequences of DNA or
RNA within individual test sites on a modified semiconductor chip coated with a
three-dimensional layer of porous material. The system also includes proprietary
hardware units and related software applications to be able to synthesize
materials onto the chips, apply target samples of genetic materials and
interpret the results. The purpose of this system will be in gene expression
profiling and SNP genotyping, which could lead to the better understanding of
gene function and ultimately therapeutic discovery to fight disease. Our
projected cash flow models from commercializing this system include servicing
our existing relationship with Roche as well as other strategic partners,
pharmaceutical, biotech and academic institutions. Our projected cash flows from
commercializing this system assume that the majority of our revenues received
will be in the form of royalties earned from licensing our genomics biological
array system to certain strategic partners including Roche, and that royalty
streams from these licensing arrangements will not commence until 2003. Although
current research and development efforts in commercializing this system have
been positive, there can be no assurance that the system will be successfully
launched and broadly accepted by the pharmaceutical, biotech and academic
research fields. The estimated stage of completion for this program as of the
acquisition date is expected to be approximately 79%, and we estimate that
future costs through commercial launch will be approximately $12.0 million. A
discount rate of 32% was utilized in discounting the estimated cash flows from
commercialization of the genomics biological array system, yielding a value for
our genomics IPR&D project of approximately $19.7 million.

     The Acacia Research pro forma consolidated statements give effect to the
following pro forma adjustments:

     A. Application of purchase accounting to the merger, reflecting the
estimated acquisition cost noted above and the issuance of shares of
AR-CombiMatrix stock. Components of the estimated acquisition cost reflect:

     o    Acquisition of the remaining 52% of CombiMatrix Corporation stock not
          already owned by Acacia Research through an exchange of one share of
          AR-CombiMatrix stock, for each share of CombiMatrix Corporation common
          stock, or approximately 12.0 million shares of AR-CombiMatrix stock in
          the aggregate. The merger transaction will be valued, at the date of
          acquisition when the registration is completed, using the
          AR-CombiMatrix stock (based on the quoted market price once that stock
          begins trading). The purchase price was based upon the ascribed
          AR-CombiMatrix common stock price of $5.00 per share, multiplied by
          approximately 12.0 million shares acquired of which $12,000 and $59.9
          million were reflected as common stock and additional paid-in capital,
          respectively. Upon consummation of the acquisition, CombiMatrix
          Corporation will be wholly owned by Acacia Research.

     o    Acquisition expenses of $800,000, including investment banking fees,
          legal and accounting fees, filing and registration costs.

     o    Elimination of the 52% of equity interest related to the net assets of
          CombiMatrix Corporation as of June 30, 2002, totalling $7.8 million.


                                      -35-



     Components of the purchase price allocation listed above and reflected in
the Acacia Research pro forma consolidated statements include the following:

     o    Core Technology/Patents. To determine the value of the core
          technology/patents, the expected future cash flow attributable to the
          core technology/patents was discounted, taking into account risks
          related to the characteristics and applications of the technology,
          existing and future markets, and assessment of the life cycle stage of
          the technology. The analysis resulted in a valuation of approximately
          $7.8 million for developed technology, which had reached technological
          feasibility and therefore was capitalizable. Core technology/patents
          is being amortized on a straight-line basis over a period of 7 years,
          which is management's estimate of the remaining economic useful life.

     o    In-process Research and Development. The project identified as
          in-process research and development at CombiMatrix Corporation, as
          discussed above, is the project that will be underway at the time of
          the merger and would, after consummation of the merger, require
          additional effort to establish technological feasibility. As discussed
          above, the analysis resulted in a valuation of approximately $10.3
          million for in-process research and development.

     o    Goodwill. The preliminary goodwill allocation of $37.9 million was
          determined by subtracting the estimated values allocated to the
          identifiable tangible net assets, identifiable core technology,
          deferred income taxes and in-process research and development,
          acquired from the total estimated purchase price. Deferred income
          taxes are set up at an estimated effective tax rate of 40% of
          increased book basis in identifiable intangibles of $7.8 million. In
          accordance with Statement of Financial Accounting Standards No. 142,
          the goodwill is not being amortized and will be reviewed for
          impairment annually.

     B. To reflect CombiMatrix Corporation's unamortized deferred stock-based
compensation of $7.6 million (deduction from stockholder's equity). In
consolidation, Acacia Research classified accrued subsidiary stock-based
compensation charges as minority interest.

     C. Exchange of approximately 3.5 million outstanding options exercisable to
purchase shares of CombiMatrix Corporation common stock into options exercisable
to purchase approximately 3.5 million shares of AR-CombiMatrix stock having the
same terms and conditions as the CombiMatrix Corporation common stock options.
As a result, the pro forma balance sheet includes deferred stock-based
compensation of $1.2 million related to the estimated increase in intrinsic
value of the CombiMatrix Corporation options upon remeasurement using the
assumed market price of the CombiMatrix Corporation common stock of $5.00 per
share. All of the CombiMatrix Corporation stock options were granted after
Acacia Research first acquired control. As such, the exchange of awards is
considered a modification (or settlement) of a stock-based compensation
arrangement and not part of the purchase price.

     D. Elimination of the 52% interest in CombiMatrix Corporation not already
owned by Acacia Research related to the net loss of CombiMatrix Corporation for
the year ended December 31, 2001, and the six months ended June 30, 2002 due to
100% ownership interest subsequent to the merger.

     E. Incremental amortization of intangible assets resulting from the merger.
Intangible assets are being amortized on a straight-line basis over periods
described above. Tax provision adjusted by 40% of incremental amortization.

     F. Estimated amortization of stock-based compensation expense related to
the conversion of outstanding options exercisable to purchase shares of
CombiMatrix Corporation common stock to options exercisable to purchase
AR-CombiMatrix stock, as discussed in pro forma adjustment C. above.

     G. To adjust deferred revenue recorded by CombiMatrix Corporation at June
30, 2002 and acquired in the merger, to reflect the fair value of the continuing
obligations as of the assumed date of the merger. The reduction of deferred
revenues results in a corresponding reduction in amounts assigned to goodwill.


                                      -36-



     H. If the recapitalization is implemented, the aggregate number of shares
of stock which Acacia Research will have authority to issue is 110,000,000
shares, of which 50,000,000 shares shall be shares of a class of common stock
designated as "AR-CombiMatrix stock," having a par value of $0.001 per share,
50,000,000 shares shall be shares of a class of common stock designated as
"AR-Acacia Technologies stock," having a par value of $0.001 per share, and
10,000,000 shares shall be shares of a class of preferred stock having a par
value of $0.001 per share (the "Preferred Stock") and issuable in one or more
series as determined by the board of directors pursuant to the proposed restated
certificate of incorporation. Holders of AR-CombiMatrix stock and AR-Acacia
Technologies stock will vote together as a single class (except in certain
limited circumstances). Each share of AR-CombiMatrix stock will entitle the
holder to one vote. Each share of AR-Acacia Technologies stock will entitle the
holder, for any particular vote, to a number of votes equal to the average
market value of a share of AR-Acacia Technologies stock divided by the average
market value of a share of AR-CombiMatrix stock over a specified 20-trading day
period ending on the 10th trading day prior to the record date for determining
the stockholders entitled to vote.

     Holders of each class of common stock are entitled to receive ratably such
dividends, if any, as may be declared by the board of directors out of funds
legally available therefore.

     Under our restated certificate of incorporation, in the event of our
dissolution, liquidation or winding up, after payment or provision for payment
of the debts and other liabilities and full preferential amounts to which
holders of any preferred stock are entitled, regardless of the group to which
such shares of preferred stock were attributed, the holders of AR-CombiMatrix
stock and AR-Acacia Technologies stock will be entitled to receive our assets
remaining for distribution to holders of common stock on a per share basis in
proportion to the liquidation units per share of such class. This provision
provides for the distribution of assets upon a liquidation that reflects the
initial relative economic interests of the respective classes of stock. Each
share of AR-CombiMatrix stock will have one liquidation unit. Each share of
AR-Acacia Technologies stock will have a number of liquidation units equal to
the quotient of the average market value of a share of AR-Acacia Technologies
stock over the 20-trading day period ending on the 40th trading day after the
effective date of the recapitalization, divided by the average market value of a
share of AR-CombiMatrix stock over the same period.

     Holders of each class of common stock have no preemptive, subscription,
redemption or conversion rights. Management, at its discretion may, at any time,
convert each share of AR-CombiMatrix stock into a number of shares of AR-Acacia
Technologies stock at a 10% premium over the average market price.

     Each new class of stock is designed to reflect the financial performance of
the respective group, rather than the performance of Acacia Research as a whole.
The chief mechanisms intended to cause the AR-CombiMatrix stock and the
AR-Acacia Technologies stock to reflect the financial performance of the
respective group are provisions in Acacia Research's proposed restated
certificate of incorporation governing dividends and distributions. Under these
provisions, Acacia Research will:

     o    factor the assets and liabilities and income or losses attributable to
          the respective group into the determination of the amount available to
          pay dividends on the shares issued for the respective group; and

     o    require Acacia Research to exchange, redeem or distribute a dividend
          on the stock of a group if all or substantially all of the assets
          allocated to the respective group are sold to a third party.

     Management of Acacia Research cannot assure the holders of AR-CombiMatrix
stock or AR-Acacia Technologies stock that the market values of the two share
classes will in fact reflect the separate performance of each class of stock.
Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock will be
stockholders of Acacia Research and as a result, will be subject to all of the
risks of an investment in Acacia Research and all of its businesses, assets and
liabilities. Financial effects from one group that affect Acacia Research's
consolidated results of operations or financial condition could, if significant,
affect the results of operations or financial condition of the other group.

     Acacia Research's board of directors, subject to state laws and limits in
our proposed restated certificate of incorporation, including those discussed
above, will be able to declare dividends on AR-CombiMatrix stock and AR-Acacia
Technologies stock in its discretion. To date, Acacia Research has never paid or
declared cash dividends


                                      -37-



on shares of our stock, nor do we anticipate paying cash dividends on either of
the two new classes of stock in the foreseeable future.

     The allocation of corporate expenses is generally based on utilization and
is in accordance with Acacia Research Corporation's proposed restated
certificate of incorporation, for the purpose of measuring earnings available to
stockholders of AR-CombiMatrix stock and AR-Acacia Technologies stock and does
not necessarily reflect the financial condition, cash flows and operating
results of each division as if it were a stand-alone entity. The management and
allocation policies applicable to the preparation of the financial statements of
the CombiMatrix group and the Acacia Technologies group may be modified or
rescinded, or additional policies may be adopted, at the sole discretion of
Acacia Research's board of directors at any time without approval of the
stockholders. Acacia Research's management and board of directors have the
ability to: transfer funds between the groups at the discretion of management
and the board of directors; allocate financing costs between groups that may not
reflect the separate borrowing costs of the groups; and charge a greater or
lesser portion of the total corporate tax liability to the groups than that
which would have been charged if the groups were stand-alone entities.

     Acacia Research's management and board of directors do not presently intend
to modify or rescind the methodologies and assumptions underlying the
allocations in the pro forma financial statements.

     I. The pro forma weighted average shares for both basic and diluted
earnings (loss) per share was determined as follows:



                                                                                             FOR THE SIX
                                                                       FOR THE YEAR ENDED    MONTHS ENDED
                                                                       DECEMBER 31, 2001    JUNE 30, 2002
                                                                       ------------------   -------------
                                                                                        
AR-Acacia Technologies stock:

   Weighted Average Number of AR - Acacia Technologies shares
      Outstanding Used in Computation of Basic EPS (1):                    19,640,808         19,640,808
   Dilutive Effect of Outstanding Stock Options and Warrants (2)              536,154                 --
                                                                           ----------         ----------
   Weighted Average Number of AR - Acacia Technologies shares
      Outstanding Used in Computation of Diluted EPS:                      20,176,962         19,640,808
                                                                           ==========         ==========
AR-CombiMatrix stock:

   Weighted Average Number of AR - CombiMatrix shares
      Outstanding Used in Computation of Basic LPS (3):                    22,950,551         22,950,551
   Dilutive Effect of Outstanding Stock Options and Warrants (4)                   --                 --
                                                                           ----------         ----------
   Weighted Average Number of AR - CombiMatrix shares
      Outstanding Used in Computation of Diluted LPS:                      22,950,551         22,950,551
                                                                           ==========         ==========


----------
(1)  Represents number of shares that would be issued assuming the transaction
     occurred on June 30, 2002. Weighted average number of AR-Acacia
     Technologies shares outstanding determined as if shares were issued as of
     the beginning of 2001.

(2)  Represents potential AR-Acacia Technologies shares for 2001 calculated
     using the treasury method. Potential common shares of 536,154 at June 30,
     2002 have been excluded from the per share calculation because the effect
     of their inclusion would be anti-dilutive.

(3)  Calculation of Weighted Average Number of AR - CombiMatrix shares
     Outstanding:


                                      -38-





                                                                                      AR-CombiMatrix
                                                                                       Shares to be
                                                                    AR-CombiMatrix      Issued to
                                                                     Shares to be      CombiMatrix      Total AR-
                                                                   Issued to Acacia    Corporation     CombiMatrix
                                                                       Research          Minority      Shares to be
                                                                     Stockholders      Stockholders       Issued
                                                                   ----------------   --------------   ------------
                                                                                               
Acacia Research Corporation common stock outstanding at
   June 30, 2002                                                      19,640,808
CombiMatrix Corporation common stock outstanding at
   June 30, 2002                                                                        22,950,551
Conversion ratio                                                      1 to .5582        1 to .5223
Acacia Research shares converted to AR-CombiMatrix shares             10,963,277                        10,963,277
CombiMatrix Corporation shares converted to ARCombiMatrix
   shares                                                                               11,987,274      11,987,274
                                                                                                        -----------
Total                                                                                                   22,950,551
                                                                                                        ===========


(4)  Potential common shares of 3,791,942 at June 30, 2002 have been excluded
     from the per share calculation because the effect of their inclusion would
     be anti-dilutive.

J.   Net income attributed to the AR-CombiMatrix stock was determined as
     follows:



                                                                                                   Reference to
                                                                                                     Notes to
                                                                                                   Unaudited Pro
                                                                    For the Year                      Forma
                                                                       Ended       For the Six     Consolidated
                                                                    December 31,   Months Ended      Financial
                                                                       2001        June 30, 2002    Statements
                                                                    ------------   -------------   -------------
                                                                                             
2001 CombiMatrix group net loss before pro forma adjustments:         $(28,029)      $ (9,482)
                                                                      ========       ========
Pro forma adjustments:
Stock based compensation amortization                                     (406)          (203)        Note (F)
Amortization of intangibles                                             (1,114)          (557)        Note (E)
Tax effects of amortization of intangibles                                 442            221         Note (E)
Elimination of minority interests share of losses                      (18,757)        (6,334)        Note (D)
                                                                      --------       --------
Pro forma net loss attributed to the AR-CombiMatrix stock             $(47,865)      $(16,355)
                                                                      ========       ========


     K.   SUBSEQUENT EVENTS.

     On September 30, 2002, CombiMatrix Corporation and Dr. Donald Montgomery,
an officer and stockholder of CombiMatrix Corporation, entered into a settlement
agreement with Nanogen, Inc. to settle all pending litigation between the
parties. Pursuant to the terms of the settlement agreement, CombiMatrix
Corporation agreed to issue 4,016,346 shares, or 17.5% of its outstanding shares
post-issuance, to Nanogen, Inc., subject to antidilution provisions under
specified circumstances for a period of up to three years. Due to the
significant impact of the settlement agreement with Nanogen, Inc. on the number
of shares of CombiMatrix Corporation that Acacia Research did not already own as
of October 3, 2002 and on the purchase price of the CombiMatrix Corporation
common stock that Acacia Research did not already own as of November 1, 2002,
the unaudited pro forma financial statements as of and for the six months ended
June 30, 2002 and for the year ended December 31, 2001 also give effect to the
impact of the CombiMatrix Corporation common shares issued to Nanogen, Inc.
pursuant to the settlement agreement executed on September 30, 2002.
Accordingly, the purchase price for the CombiMatrix Corporation common stock
that Acacia Research does not already own as of June 30, 2002 includes, on a pro
forma basis, the 4,016,346 shares issued to Nanogen, Inc. pursuant to the
settlement agreement as if the settlement was executed on June 30, 2002.
Additionally, all pro forma share and per-share information presented reflects
the impact of the settlement agreement with Nanogen, Inc. as if the settlement
was executed on June 30, 2002.

     The issuance of shares by CombiMatrix Corporation to Nanogen, Inc.
decreases Acacia Research Corporations consolidated ownership interest in
CombiMatrix Corporation from 58% to 48%. Acacia Research


                                      -39-



Corporation continues to possess the ability to direct or cause the direction of
the management and policies of CombiMatrix Corporation, primarily through Acacia
Research Corporation's ability to elect the majority of the board of directors
of CombiMatrix Corporation, pursuant to a stockholder agreement with an officer
of CombiMatrix Corporation. This stockholder agreement stipulates that,
collectively, Acacia Research Corporation and the officer who is party to the
stockholder agreement, will vote their shares such that the board will be
comprised of the directors nominated by Acacia Research Corporation and the
stockholder. The stockholder is generally prohibited from selling his shares and
Acacia Research Corporation has a right of first refusal should the stockholder
wish to sell his shares. Accordingly, the Company will continue to account for
its investment in CombiMatrix Corporation under the consolidation method of
accounting.

     The reflection, on a pro forma basis, of the issuance of common stock by
CombiMatrix Corporation to Nanogen, Inc. as described above does not have any
impact on the historical financial statements as of and for the six months ended
June 30, 2002, or for the year ended December 31, 2001 presented in the
unaudited pro forma financial statements herein.

     The book value of CombiMatrix Corporation as of June 30, 2002 and September
30, 2002 was $15,017,109 and $5,393,484, respectively. Approximately $1 million
of the decrease in book value is due to the settlement of CombiMatrix
Corporation's litigation with Nanogen, Inc. The remainder of such decrease is
the result of operating losses incurred in the ordinary course of CombiMatrix
Corporation's business, and not from any material adverse developments.
CombiMatrix Corporation incurs substantial research and development in the
ordinary course of its business, and defers the recognition of substantial
portions of its revenue under its agreements with Roche until the achievement of
all of the relevant milestones, resulting in operating losses and a decrease in
book value.


                                      -40-



                                  RISK FACTORS

     The risk factors beginning on this page discuss risks arising from a
capital structure with two separate classes of common stock. The risk factors
beginning on page 48 discuss risks related to the merger. The risk factors
beginning on page 50 discuss risks related to each group.

                     RISKS RELATING TO THE RECAPITALIZATION

YOU WILL REMAIN STOCKHOLDERS OF ONE COMPANY, AND THE FINANCIAL PERFORMANCE OF
ONE GROUP COULD AFFECT THE OTHER, THUS EXPOSING THE HOLDERS OF EACH GROUP'S
STOCK TO THE RISKS OF AN INVESTMENT IN THE ENTIRE COMPANY.

     Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock will be
stockholders of a single company. The CombiMatrix group and the Acacia
Technologies group are not separate legal entities. As a result, stockholders
will continue to be subject to all of the risks of an investment in Acacia
Research and all of our businesses, assets and liabilities. The issuance of the
AR-CombiMatrix stock and the AR-Acacia Technologies stock and the allocation of
assets and liabilities and stockholders' equity between the CombiMatrix group
and the Acacia Technologies group will not result in a distribution or spin-off
to stockholders of any of our assets or liabilities and will not affect
ownership of our assets or responsibility for our liabilities or those of our
subsidiaries. The assets we attribute to one group could be subject to the
liabilities of the other group, whether such liabilities arise from lawsuits,
contracts or indebtedness that we attribute to the other group. If we are unable
to satisfy one group's liabilities out of the assets we attribute to it, we may
be required to satisfy those liabilities with assets we have attributed to the
other group.

     Financial effects from one group that affect our consolidated results of
operations or financial condition could, if significant, affect the results of
operations or financial condition of the other group and the market price of the
common stock relating to the other group. In addition, net losses of either
group and dividends or distributions on, or repurchases of, either class of
common stock will reduce the funds we can pay as dividends on each class of
common stock under Delaware law. For these reasons, you should read our
consolidated financial information with the financial information we provide for
each group.

THE HOLDERS OF AR-COMBIMATRIX STOCK AND THE HOLDERS OF AR-ACACIA TECHNOLOGIES
STOCK WILL HAVE ONLY LIMITED SEPARATE STOCKHOLDER RIGHTS.

     Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock will have
the rights customarily held by common stockholders. They will have these
specific rights related to their corresponding group:

     o    certain rights with regard to dividends and liquidation;

     o    requirements for a mandatory dividend, redemption or conversion upon
          the disposition of all or substantially all of the assets of their
          corresponding group; and

     o    a right to vote on matters as a separate voting class in the limited
          circumstances provided under Delaware law, by stock exchange rules or
          as determined by our board of directors (such as an amendment of our
          certificate of incorporation that changes the rights, privileges or
          preferences of the class of stock held by such stockholder).

     We will not hold separate stockholder meetings for holders of
AR-CombiMatrix stock and AR-Acacia Technologies stock.


                                      -41-



THE HOLDERS OF AR-COMBIMATRIX STOCK AND THE HOLDERS OF AR-ACACIA TECHNOLOGIES
STOCK WILL HAVE CERTAIN LIMITS ON THEIR RESPECTIVE VOTING POWERS.

     GROUP COMMON STOCK WITH A MAJORITY OF VOTING POWER CAN CONTROL VOTING
     OUTCOMES.

     The holders of AR-CombiMatrix stock and AR-Acacia Technologies stock will
vote together as a single class, except in limited circumstances. If a separate
vote on a matter by the holders of either the AR-CombiMatrix stock or the
AR-Acacia Technologies stock is not required under Delaware law or by stock
exchange rules, and if our board of directors does not require a separate vote,
either class of common stock that is entitled to more than the number of votes
required to approve such matter could control the outcome of such vote - even if
the matter involves a divergence or conflict of the interests between the
holders of the AR-CombiMatrix stock and the AR-Acacia Technologies stock. In
addition, if the holders of common stock having a majority of the voting power
of all shares of common stock outstanding approve a merger, the terms of which
did not require separate class voting under stock exchange rules, then the
merger could be consummated -- even if the holders of a majority of either class
of common stock were to vote against the merger.

     GROUP COMMON STOCK WITH LESS THAN MAJORITY VOTING POWER CAN BLOCK ACTION IF
     A CLASS VOTE IS REQUIRED.

     If Delaware law, stock exchange rules or our board of directors requires a
separate vote on a matter by the holders of either the AR-CombiMatrix stock or
the AR-Acacia Technologies stock, such as a proposal to amend the terms of one
class of stock, those holders could prevent approval of the matter, even if the
holders of a majority of the total number of votes cast or entitled to be cast,
voting together as a class, were to vote in favor of it.

     HOLDERS OF ONLY ONE CLASS OF COMMON STOCK CANNOT ENSURE THAT THEIR VOTING
     POWER WILL BE SUFFICIENT TO PROTECT THEIR INTERESTS.

     Since the relative voting power per share of AR-CombiMatrix stock and
AR-Acacia Technologies stock will fluctuate based on the market values of the
two classes of common stock, the relative voting power of a class of common
stock could decrease. As a result, holders of shares of only one of the two
classes of common stock cannot ensure that their voting power will be sufficient
to protect their interests. Please see page 80 for an example of the calculation
of the number of votes and relative voting power of each stock at assumed
trading prices.

THE RESTATED CERTIFICATE OF INCORPORATION MAY BE AMENDED TO INCREASE OR DECREASE
THE AUTHORIZED SHARES OF EITHER CLASS OF COMMON STOCK WITHOUT THE APPROVAL OF
EACH CLASS VOTING SEPARATELY.

     The restated certificate of incorporation provides that an amendment to the
restated certificate to increase or decrease the number of authorized shares of
either class of common stock will require the approval of the holders of a
majority of the voting power of all shares of common stock, voting together as a
single class, and will not require the approval of each class of stock voting as
a separate class. Accordingly, if the holders of one class of common stock hold
a majority of the voting power of all shares of common stock, then that majority
could approve an amendment to the restated articles to increase or decrease the
authorized shares of stock of either class without the approval of the holders
of the minority class of stock.

STOCKHOLDERS MAY NOT HAVE ANY REMEDIES FOR BREACH OF FIDUCIARY DUTIES IF ANY
ACTION BY OUR DIRECTORS OR OFFICERS HAS A DISADVANTAGEOUS EFFECT ON EITHER CLASS
OF COMMON STOCK.

     Stockholders may not have any remedies if any action or decision of our
directors and officers has a disadvantageous effect on either class of common
stock compared to the other class of common stock. We are not aware of any legal
precedent under Delaware law involving the fiduciary duties of directors and
officers of corporations having two classes of common stock, or separate classes
or series of capital stock, the rights of which, like the AR-CombiMatrix stock
and AR-Acacia Technologies stock, are defined by reference to separate
businesses of the corporation.

     Principles of Delaware law established in cases involving differing
treatment of two classes of capital stock or two groups of holders of the same
class of capital stock provide that a board of directors owes an equal duty to
all


                                      -42-



stockholders regardless of class or series. Under these principles of Delaware
law and the related principle known as the "business judgment rule," absent
abuse of discretion, a good faith business decision made by a disinterested and
adequately informed board of directors, board of directors' committee or officer
with respect to any matter having different effects on holders of AR-CombiMatrix
stock and holders of AR-Acacia Technologies stock would be a defense to any
challenge to such determination made by or on behalf of the holders of either
class of common stock.

     Following the completion of the recapitalization and the merger, our
executive officers, directors and their affiliates will beneficially own
approximately 5.1% of the outstanding AR-CombiMatrix stock and 8.8% of the
outstanding AR-Acacia Technologies stock, assuming the conversion of each share
of Acacia Research common stock into 0.5582 share of AR-CombiMatrix stock and
one share of AR-Acacia Technologies stock.

NUMEROUS POTENTIAL CONFLICTS OF INTERESTS EXIST BETWEEN THE AR-COMBIMATRIX STOCK
AND THE AR-ACACIA TECHNOLOGIES STOCK WHICH MAY BE DIFFICULT TO RESOLVE BY OUR
BOARD OR WHICH MAY BE RESOLVED ADVERSELY TO ONE OF THE CLASSES.

     The existence of separate classes of common stock could give rise to
occasions when the interests of the holders of AR-CombiMatrix stock and
AR-Acacia Technologies stock diverge or conflict. Examples include
determinations by our directors or officers to:

     o    pay or omit the payment of dividends on AR-CombiMatrix stock or
          AR-Acacia Technologies stock;

     o    allocate consideration to be received by holders of each of the
          classes of common stock in connection with a merger or consolidation
          involving Acacia Research;

     o    convert one class of common stock into shares of the other;

     o    approve certain dispositions of the assets of either group;

     o    allocate the proceeds of future issuances of our stock either to the
          Acacia Technologies group or the CombiMatrix group;

     o    allocate corporate opportunities between the groups; and

     o    make other operational and financial decisions with respect to one
          group that could be considered detrimental to the other group.

     When making decisions with regard to matters that create potential
diverging or conflicting interests, our directors and officers will act in
accordance with their fiduciary duties, the terms of the restated certificate of
incorporation, and, to the extent applicable, the management and allocation
policies described herein.

     THE PERFORMANCE OF ONE GROUP OR THE DIVIDENDS PAID TO ONE GROUP MAY
     ADVERSELY AFFECT THE DIVIDENDS AVAILABLE FOR THE OTHER GROUP.

     Our board of directors currently has no intention to pay dividends on the
AR-CombiMatrix stock or the AR-Acacia Technologies stock. Determinations as to
future dividends on the AR-CombiMatrix stock and the AR-Acacia Technologies
stock will be based primarily on the financial condition, results of operations
and business requirements of the relevant group and Acacia Research as a whole.
Subject to the limitations referred to below, our board of directors has the
authority to declare and pay dividends on the AR-CombiMatrix stock and the
AR-Acacia Technologies stock in any amount and could, in its sole discretion,
declare and pay dividends exclusively on the AR-CombiMatrix stock, exclusively
on the AR-Acacia Technologies stock, or on both, in equal or unequal amounts.
Our board of directors will not be required to consider the amount of dividends
previously declared on each class, the respective voting or liquidation rights
of each class or any other factor.


                                      -43-



     The performance of one group may cause our board of directors to pay more
or less dividends on the common stock relating to the other group than if that
other group was a stand-alone company. In addition, Delaware law and the new
certificate of incorporation impose limitations on the amount of dividends which
may be paid on each class of common stock.

     PROCEEDS OF MERGERS OR CONSOLIDATIONS MAY BE ALLOCATED UNFAVORABLY.

     The recapitalization proposal does not contain any provisions governing how
consideration to be received by holders of common stock in connection with a
merger or consolidation involving Acacia Research is to be allocated among
holders of each class of common stock. Our board of directors will determine the
percentage of the consideration to be allocated to holders of each class of
common stock in any such transaction. Such percentage may be materially more or
less than that which might have been allocated to such holders had our board of
directors chosen a different method of allocation.

     HOLDERS OF EITHER CLASS OF COMMON STOCK MAY BE ADVERSELY AFFECTED BY A
     CONVERSION OF GROUP COMMON STOCK.

     Our board of directors could, in its sole discretion and without
stockholder approval, determine to convert shares of AR-Acacia Technologies
stock into shares of AR-CombiMatrix stock, or vice versa, at a time when either
or both classes of common stock may be considered to be overvalued or
undervalued. Any such conversion would dilute the interests in Acacia Research
of the holders of the class of common stock being issued in the conversion. It
could also give holders of shares of the class of common stock converted a
greater or lesser premium than any premium that might be paid by a third-party
buyer of all or substantially all of the assets of the group whose stock is
converted.

     HOLDERS OF EITHER CLASS OF COMMON STOCK COULD BE ADVERSELY AFFECTED BY A
     DISPOSITION OF THE ASSETS ALLOCATED TO THEIR RESPECTIVE GROUPS.

     Our board of directors could, in its sole discretion and without
stockholder approval, determine to dispose of all or substantially all the
assets of a group. If a disposition of group assets occurs at a time when those
assets are considered undervalued, then holders of that group's stock would
receive less consideration than they could have received had the assets been
disposed of at a time when they had a higher value.

     PROCEEDS OF FUTURE ISSUANCES OF OUR STOCK COULD BE ALLOCATED UNFAVORABLY.

     We may in the future issue a new class of stock, such as a class of
preferred stock, or additional shares of AR-CombiMatrix stock or AR-Acacia
Technologies stock. Proceeds from any future issuance of any class of stock
would be allocated among the CombiMatrix or the Acacia technologies group as
determined by our board of directors. There is no requirement that the proceeds
from an issuance of AR-CombiMatrix stock or AR-Acacia Technologies stock be
allocated to the corresponding group. Such allocations might be materially more
or less for the respective groups than what might have been allocated had our
board of directors chosen a different allocation method. Also, any designated
preferred class may be designed to reflect the performance of Acacia Research as
a whole, rather than the performance of the CombiMatrix group or the Acacia
Technologies group.

     ALLOCATION OF CORPORATE OPPORTUNITIES COULD FAVOR ONE GROUP OVER ANOTHER.

     Our board of directors may be required to allocate corporate opportunities
between the groups. In some cases, our directors could determine that a
corporate opportunity, such as a business that we are acquiring, should be
shared by the groups. Any such decisions could favor one group at the expense of
the other.

     OTHER OPERATIONAL AND FINANCIAL DECISIONS WHICH MAY FAVOR ONE GROUP OVER
     THE OTHER.

     Our board of directors or our senior officers will review other operational
and financial matters affecting the CombiMatrix group and the Acacia
Technologies group, including the allocation of financing resources and capital,
technology and know-how and corporate overhead, taxes, debt, interest and other
matters. Any decision of our board of directors or our senior officers in these
matters could favor one group at the expense of the other.


                                      -44-



OUR BOARD OF DIRECTORS MAY CHANGE OUR MANAGEMENT AND ALLOCATION POLICIES WITHOUT
STOCKHOLDER APPROVAL TO THE DETRIMENT OF EITHER GROUP.

     Our board of directors may modify or rescind our policies with respect to
the allocation of corporate overhead, taxes, debt, interest and other matters,
or may adopt additional policies, in its sole discretion without stockholder
approval. However, our board of directors has no present intention to do so. A
decision to modify or rescind these policies, or adopt additional policies could
have different effects on holders of either class of common stock or could
result in a benefit or detriment to one class of stockholders compared to the
other class. Our board of directors will make any such decision in accordance
with its good faith business judgment that the decision is in the best interests
of Acacia Research and all of our stockholders as a whole.

EITHER GROUP MAY FINANCE THE OTHER GROUP ON TERMS UNFAVORABLE TO ONE OF THE
GROUPS.

     We may transfer cash and other property between groups to finance their
business activities. The group providing the financing will be subject to the
risks relating to the group receiving the financing. We will account for those
transfers generally as a short-term or long-term loan between groups or as a
repayment of a previous borrowing.

THERE ARE LIMITS ON THE CONSIDERATION WHICH MAY BE RECEIVED BY THE STOCKHOLDERS
IN THE EVENT OF THE DISPOSITION OF ASSETS OF A GROUP.

     The restated certificate of incorporation provides that if a disposition of
all or substantially all of the properties and assets of either group occurs, we
must, subject to certain exceptions:

     o    distribute through a dividend or redemption to holders of the class of
          common stock relating to such group an amount equal to the net
          proceeds of such disposition; or

     o    convert at a 10% premium such common stock into shares of the class of
          common stock relating to the other group.

     If the group subject to the disposition were a separate, independent
company and its shares were acquired by another person, certain costs of that
disposition, including corporate level taxes, might not be payable in connection
with that acquisition. As a result, stockholders of the separate, independent
company might receive a greater amount than the net proceeds that would be
received by holders of the class of common stock relating to that group if the
assets of such group were sold. In addition, we cannot assure you that the net
proceeds per share of the common stock relating to that group will be equal to
or more than the market value per share of such common stock prior to or after
announcement of a disposition.

     The term "substantially all of the properties and assets" of a group is
subject to potentially conflicting interpretations. Resolution of such a dispute
could adversely impact the holders of either the class of common stock related
to the assets being disposed or the holders of the other class because the
consideration, if any, to be received by the holders of the class related to the
disposed assets may depend on whether the disposition involved "substantially
all" of the properties and assets of that class.

HOLDERS OF EITHER CLASS OF COMMON STOCK MAY BE ADVERSELY AFFECTED BY A
REDEMPTION OF THEIR COMMON STOCK.

     We are entitled to redeem the outstanding common stock relating to a group
when all or substantially all of that group's assets are sold. We can redeem the
assets for cash, securities, a combination of cash and securities or other
property at fair value. A disposition-related redemption could occur when the
assets being disposed of are considered undervalued. If that is the case, the
holders of our common stock related to that group would receive less
consideration for their shares than they may deem reasonable.

     We can also redeem on a pro rata basis all of the outstanding shares of a
group's common stock for shares of the common stock of one or more of our
wholly-owned subsidiaries. If this were to occur, the holders of the redeemed
class of common stock would no longer have stockholder voting rights in Acacia
Research or any other


                                      -45-



benefits to be derived from holding a class of stock in Acacia Research. In
addition, if the outstanding shares of a class of our common stock are redeemed
for shares that are not publicly traded, the holders of such redeemed stock will
no longer be able to publicly trade their shares and accordingly their
investment will be substantially less liquid.

THE PROPOSED CAPITAL STRUCTURE AND THE VARIABLE VOTE PER SHARE COULD ENABLE A
POTENTIAL ACQUIRER TO TAKE CONTROL OF ACACIA RESEARCH THROUGH THE ACQUISITION OF
ONLY ONE OF THE CLASSES OF OUR COMMON STOCK.

     A potential acquirer could acquire control of Acacia Research by acquiring
shares of common stock having a majority of the voting power of all shares of
common stock outstanding. Such a majority could be obtained by acquiring a
sufficient number of shares of both classes of common stock or, if one class of
common stock has a majority of such voting power, only shares of that class. We
expect that initially the AR-CombiMatrix stock will have a majority of the
voting power. As a result, initially, it might be possible for an acquiror to
obtain control of Acacia Research by purchasing only shares of AR-CombiMatrix
stock.

DECISIONS BY DIRECTORS AND OFFICERS THAT AFFECT DIFFERENTLY ONE CLASS OF OUR
COMMON STOCK COMPARED TO THE OTHER COULD ADVERSELY AFFECT THE MARKET VALUE OF
EITHER OR BOTH OF THE CLASSES OF OUR COMMON STOCK.

     The relative voting power per share of the AR-CombiMatrix stock and the
AR-Acacia Technologies stock and the number of shares of one class of common
stock issuable upon the conversion of the other class of common stock will vary
depending upon the relative market values of the AR-CombiMatrix stock and the
AR-Acacia Technologies stock. The market value of either or both classes of
common stock could be affected by market reaction to decisions by our board of
directors or our management that investors perceive to affect differently one
class of common stock compared to the other. These decisions could involve
changes to our management and allocation policies, allocations of corporate
opportunities and financing resources between groups, and changes in dividend
policies.

SINCE THERE HAS BEEN NO PRIOR MARKET FOR THE AR-COMBIMATRIX STOCK OR THE
AR-ACACIA TECHNOLOGIES STOCK, WE CANNOT PROVIDE ANY ASSURANCES AS TO THE MARKET
PRICE OR LIQUIDITY OF EACH OF THOSE STOCKS.

     Because there has been no prior market for the AR-Acacia Technologies stock
or the AR-CombiMatrix stock, we can not assure you of their respective market
prices or liquidity following the recapitalization. If an active market does
develop, we can not assure you that it will be maintained. Until an orderly
market does develop for the AR-CombiMatrix stock and the AR-Acacia Technologies
stock, their respective trading prices may fluctuate significantly.

MARKET VALUE OF AR-COMBIMATRIX STOCK AND AR-ACACIA TECHNOLOGIES STOCK RECEIVED
IN THE RECAPITALIZATION MAY BE LESS THAN MARKET VALUE OF OUR EXISTING COMMON
STOCK.

     We cannot assure you that the combined market values of the shares of
AR-Acacia Technologies stock and AR-CombiMatrix stock received in the
recapitalization will equal or exceed the market value of a share of our
existing common stock prior to the recapitalization. The capital structure of
having two separate classes of common stock for the two groups is more complex
than having a single class of common stock and not directly comparable to common
stock of companies that have been spun off by their parent companies. The
complex nature of the two classes of stock, and the potential difficulty that
investors may have in understanding these terms, may adversely affect the market
price of the AR-CombiMatrix stock and the AR-Acacia Technologies stock. Examples
of these terms include:

     o    board discretion in making determinations affecting the two groups,
          such as handling potential conflicts of interest between the two
          groups and possibly changing allocation policies between the groups;

     o    redemption and conversion rights applicable upon the disposition of
          all or substantially all of the assets attributed to either group;


                                      -46-



     o    the ability of our board to convert shares of one class of common
          stock into shares of the other class of common stock; and

     o    variable voting rights of the two classes of stock.

THE AR-COMBIMATRIX STOCK AND AR-ACACIA TECHNOLOGIES STOCK MIGHT NOT QUALIFY FOR
LISTING ON THE NASDAQ NATIONAL MARKET, WHICH COULD ADVERSELY AFFECT THE
LIQUIDITY AND PRICE OF THE STOCK.

     We have applied for listing of the AR-CombiMatrix stock on the NASDAQ
National Market. Any approval would be conditioned upon the stock closing at a
minimum bid price of five dollars per share on the first trading day following
the closing of the merger and recapitalization. While we anticipate that the
stock will meet this trading price requirement, if it does not, the stock would
not qualify for continued listing on the NASDAQ National Market and would
instead be listed on the NASDAQ SmallCap Market. If the closing bid price of the
stock on the first trading day were less than four dollars per share, the stock
would not qualify for the NASDAQ SmallCap Market and would trade on the OTC
Bulletin Board or on another exchange on which we may apply for listing.

     NASDAQ has informed us that the AR-Acacia Technologies stock will be
treated as a continued listing on the NASDAQ National Market. In order to
continue to qualify for NASDAQ National Market listing, the minimum bid price of
the AR-Acacia Technologies stock must be one dollar per share or higher. If the
minimum bid price requirement were not satisfied, the AR-Acacia Technologies
stock would be listed on the NASDAQ SmallCap Market, the OTC Bulletin Board or
on another exchange on which we may apply for listing.

     If the AR-CombiMatrix stock or AR-Acacia Technologies stock does not
qualify for listing or continued listing, as applicable, on the NASDAQ National
Market , the liquidity and price of such stock could be adversely affected by
internal policies of some institutional investors prohibiting the purchase of
low-priced stocks. The failure of either class of stock to qualify for listing
or continued listing on the NASDAQ National Market could also adversely affect
analyst coverage of such class or classes of stock, which in turn could
adversely affect the liquidity and share price of such stock. Additionally,
transaction costs on low-priced stocks such as brokers' commissions generally
represent a higher percentage of their total share value than would be the case
with higher-priced stocks.

INVESTORS MAY NOT VALUE THE AR-COMBIMATRIX STOCK AND THE AR-ACACIA TECHNOLOGIES
STOCK BASED ON GROUP FINANCIAL INFORMATION AND POLICIES.

     We cannot assure you that investors will value the AR-CombiMatrix stock and
the AR-Acacia Technologies stock based on the reported financial results and
prospects of the separate groups or the dividend policies established by our
board of directors with respect to those groups. Holders of AR-CombiMatrix stock
and AR-Acacia Technologies stock will continue to be common stockholders of
Acacia Research subject to all the risks associated with an investment in Acacia
Research as a whole. Additionally, the separate stockholder rights related to
each group are limited and relate to events that may never occur such as
dividend and liquidation rights and the disposition of all or substantially all
of the assets of a group. Accordingly, investors may discount the value of
AR-CombiMatrix stock and AR-Acacia Technologies stock because both groups are
part of a common enterprise rather than a stand-alone entity and each class of
stock has limited separate stockholder rights.

HOLDERS OF AR-COMBIMATRIX STOCK AND AR-ACACIA TECHNOLOGIES STOCK MAY NOT RECEIVE
A PREMIUM FROM AN INVESTOR ACQUIRING CONTROL OF THEIR RESPECTIVE CLASSES OF
STOCK.

     Control of AR-CombiMatrix stock or AR-Acacia Technologies stock may not
provide control of Acacia Research as a whole. Accordingly, unlike many
acquisition transactions, holders of AR-CombiMatrix stock and AR-Technologies
stock may not receive a controlling interest premium from an investor acquiring
control of their respective classes of stock.


                                      -47-



THERE ARE CERTAIN PROVISIONS IN THE PROPOSED RECAPITALIZATION THAT COULD HAVE
ANTITAKEOVER EFFECTS.

     The existence of the two classes of common stock could, under certain
circumstances, prevent stockholders from profiting from an increase in the
market value of their shares as a result of a change in control of Acacia
Research by delaying or preventing such change in control. The existence of two
classes of common stock could present complexities and could, in certain
circumstances, pose obstacles, financial and otherwise, to an acquiring person.
We could, in the sole discretion of our board of directors and without
stockholder approval, exercise the right to convert the shares of one class of
common stock into shares of the other at a 10% premium over their respective
average market values. This conversion could result in additional dilution to
persons seeking control of Acacia Research.

     Our board of directors could issue shares of preferred stock or common
stock that could be used to create voting or other impediments to discourage
persons seeking to gain control of Acacia Research, and preferred stock could
also be privately placed with purchasers favorable to our board of directors in
opposing such action.

THE INTERNAL REVENUE SERVICE COULD ASSERT THAT THE RECEIPT OF GROUP COMMON STOCK
IS TAXABLE.

     We have been advised by PricewaterhouseCoopers LLP that no income, gain or
loss will be recognized by you or us for federal income tax purposes as a result
of the recapitalization proposal, except for any cash received instead of
fractional shares of AR-CombiMatrix stock. Nevertheless, there are no court
decisions or other authorities bearing directly on the effect of the features of
the AR-CombiMatrix stock and the AR-Acacia Technologies stock. In addition, the
Internal Revenue Service has announced that it will not issue rulings on the
characterization of stock with characteristics similar to the AR-CombiMatrix
stock and the AR-Acacia Technologies stock. It is possible, therefore, that the
Internal Revenue Service could in the future assert that the receipt of the
AR-CombiMatrix stock or the AR-Acacia Technologies stock as well as the
subsequent exchange of such common stock could be taxable to you and to us.

                          RISKS RELATING TO THE MERGER

HOLDERS OF EXISTING COMBIMATRIX CORPORATION COMMON STOCK WILL RECEIVE A FIXED
NUMBER OF SHARES OF AR-COMBIMATRIX STOCK DESPITE CHANGES IN THE MARKET VALUE OF
OUR COMMON STOCK PRIOR TO THE MERGER.

     Upon completion of the merger, each share of existing CombiMatrix
Corporation common stock will be exchanged for one share of AR-CombiMatrix
stock. This exchange ratio will not be adjusted for changes in the market price
of either CombiMatrix Corporation common stock or Acacia Research common stock,
and neither party to the merger agreement is permitted to terminate the merger
agreement solely because of changes in the market price of either party's common
stock.

THE MERGER MAY GO FORWARD EVEN THOUGH THERE IS A CHANGE THAT IS MATERIALLY
ADVERSE TO THE BUSINESS, ASSETS, LIABILITIES OR FINANCIAL CONDITION OF ACACIA
RESEARCH, THE ACACIA TECHNOLOGIES GROUP OR THE COMBIMATRIX GROUP.

     In general, either Acacia Research or CombiMatrix Corporation can refuse to
complete the merger if there is a material adverse change affecting the other
party before the closing. Nevertheless, certain material changes, including a
change in general economic conditions or changes affecting the industries
generally in which the parties operate, an adverse change related to any change
in accounting requirements or principles or any change in applicable laws, rules
or regulations or in the interpretation of such accounting requirements or
principles, or a decrease in the market price or trading volume of the parties'
common stock or litigation relating to such decrease, will not prevent the
merger from going forward, even if they would have a material adverse effect on
the Acacia Technologies group or the CombiMatrix group.


                                      -48-



THE MERGER COULD ADVERSELY AFFECT OUR COMBINED FINANCIAL RESULTS.

     If the benefits of the merger do not exceed the costs associated with the
merger, including any dilution to our stockholders resulting from the issuance
of additional shares in connection with the merger, our financial results,
including earnings per share, could be adversely affected.

     The application of purchase accounting to the merger transaction will
result in the recording of approximately $13.5 million in identifiable
intangibles and $27.2 million in goodwill, based upon the assumed stock price of
AR-CombiMatrix stock as set forth in the unaudited pro forma financial
information included elsewhere herein. The assumed stock price is not intended
to be indicative of the actual stock price and has been used solely for the
purpose of developing the unaudited pro forma financial information. The actual
stock price may be significantly different than the assumed stock price, and the
estimate of intangible assets may therefore also be significantly different than
the amounts set forth below. Intangible assets and goodwill recorded in
connection with the merger transaction are subject to reviews for impairment.
Identifiable intangibles are required to be reviewed for impairment whenever
events or changes in circumstances, indicate that the carrying amount of an
asset may not be recoverable. Examples of such events or changes in
circumstances include: a significant decrease in the market value of an asset, a
significant change in the extent or manner in which an asset is used or a
significant adverse change in legal factors or in the business climate that
could affect the value of an asset.

     Goodwill is required to be tested for impairment on an annual basis and
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying
amount. Examples of such events or circumstances include: a significant adverse
change in legal factors or in the business climate, an adverse action or
assessment by a regulator, or unanticipated competition.

     Intangible assets and or goodwill amounts recorded may be determined to be
impaired resulting in the recording of a charge to income for the amount that
the carrying value of such assets exceeds their fair value.

     Costs associated with the merger transaction, including related legal,
accounting, investment advisor and other consulting and administrative costs are
estimated to total $800,000. In addition, consistent with generally accepted
accounting principles in the United States of America, amounts assigned to
purchased in-process research and development (related to CombiMatrix
Corporation research and development projects that are still in process at the
closing of the merger, but which, if unsuccessful, have no alternative future
use) must be charged as expenses on the date that the merger is consummated.
Estimated purchased in-process research and development costs associated with
the merger transaction total approximately $10.3 million and will be recorded as
a charge to income in Acacia Research's consolidated statement of income and
attributed to the CombiMatrix group immediately upon consummation of the merger
transaction.

THE MERGER MAY TRIGGER CHANGE OF CONTROL PROVISIONS CONTAINED IN EMPLOYEE OPTION
PLANS AS WELL AS IN AGREEMENTS ENTERED INTO BETWEEN OFFICER AND DIRECTORS.

     As of November 1, 2002, the officers and directors of CombiMatrix
Corporation owned stock options to purchase an aggregate of 1,399,000 shares of
CombiMatrix Corporation common stock, 768,953 of which were not vested. As of
November 1, 2002, the employees of CombiMatrix Corporation, excluding officers
and directors, owned stock options to purchase an aggregate of 2,318,660 shares
of CombiMatrix Corporation common stock, 722,099 of which were not vested.

     Our board of directors believes that neither the merger nor the
recapitalization will cause an acceleration of vesting of options to purchase
CombiMatrix Corporation common stock pursuant to the terms of the CombiMatrix
Corporation stock option plans or change of control agreements between
CombiMatrix Corporation and its officers and directors. If it was determined,
however, that the merger transaction triggered the change in control provisions
included in the CombiMatrix Corporation stock option plans, CombiMatrix
Corporation stock options currently outstanding to purchase 1,491,052 shares of
CombiMatrix Corporation common stock would vest immediately upon consummation of
the merger transaction. This would cause dilution of 6.5% to holders of
AR-CombiMatrix stock following the recapitalization and merger.


                                      -49-



THERE ARE NOT CURRENTLY ANY LOCK-UP AGREEMENTS WITH COMBIMATRIX CORPORATION
STOCKHOLDERS.

     The stockholders of CombiMatrix Corporation, including Nanogen, Inc., have
not entered into any lock-up agreements restricting their ability to sell the
shares of AR-CombiMatrix stock that they would receive in the merger. If they do
not enter into such lock-up agreements, with the exception of "affiliates" (as
defined in Rule 144 under the Securities Act) of Acacia Research and CombiMatrix
Corporation, who will be subject to the resale restrictions contained in Rule
145 under the Securities Act, they will be able to freely sell their shares of
AR-CombiMatrix stock immediately after merger and such sales could adversely
affect the market price of the AR-CombiMatrix stock.

ENTERING INTO MARKET STANDOFF AGREEMENTS WILL RESTRICT THE ABILITY OF CERTAIN
STOCKHOLDERS OF COMBIMATRIX CORPORATION TO SELL THEIR MERGER SHARES.

     It is a condition to our obligation to complete the merger that each
CombiMatrix Corporation stockholder who is an officer, director or employee of
CombiMatrix Corporation enter into a market standoff agreement with us. The
stockholders who enter into a market standoff agreement will be forced to hold
the shares of AR-CombiMatrix stock that they receive in the merger for six
months. This restriction will prevent such stockholders from selling their
AR-CombiMatrix shares at potentially advantageous times during this six-month
period and may expose such stockholders to a substantial risk of loss of their
investment.

THE PROPOSED INCREASE IN AUTHORIZED BUT UNISSUED SHARES COULD RESULT IN DILUTION
TO EXISTING STOCKHOLDERS.

     The recapitalization would result in increasing our authorized common stock
from 60,000,000 to 100,000,000 shares. Those 100,000,000 shares could be issued
in the form of up to 50,000,000 shares of AR-CombiMatrix stock and up to
50,000,000 shares of AR-Acacia Technologies stock. In the recapitalization, our
authorized but unissued shares of common stock would increase from 40,359,192
shares of existing common stock to 57,408,641 shares of AR-CombiMatrix stock and
AR-Acacia Technologies stock. Although we have no current plans to issue more
stock after the recapitalization and merger, we could issue additional shares of
common stock pursuant to our increased authorized capitalization. If we do so,
the ownership interests held by our existing stockholders could decline and the
trading price of the two new classes of common stock could be adversely
affected.

                     RISKS RELATING TO THE COMBIMATRIX GROUP

THE RISK FACTORS BEGINNING ON THIS PAGE DISCUSS RISKS RELATING TO THE
COMBIMATRIX GROUP. AS A HOLDER OF AR-COMBIMATRIX STOCK, YOU WILL BE A HOLDER OF
THE COMMON STOCK OF ONE COMPANY, ACACIA RESEARCH, AND THE RISKS ASSOCIATED WITH
THE ACACIA TECHNOLOGIES GROUP COULD AFFECT THE AR-COMBIMATRIX STOCK. AS SUCH, WE
URGE YOU TO READ CAREFULLY THE SECTION "RISKS RELATING TO THE ACACIA
TECHNOLOGIES GROUP" BEGINNING ON PAGE 56.THE COMBIMATRIX GROUP HAS A HISTORY OF
LOSSES AND EXPECTS TO INCUR ADDITIONAL LOSSES IN THE FUTURE.

     The CombiMatrix group has sustained substantial losses since its inception.
The CombiMatrix group may never become profitable or if it does, it may never be
able to sustain profitability. We expect the CombiMatrix group to incur
significant research and development, marketing, general and administrative
expenses. As a result, we expect the CombiMatrix group to incur significant
losses for the foreseeable future.

THE COMBIMATRIX GROUP MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF
FLUCTUATIONS IN ITS QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE ITS STOCK
PRICE TO DECLINE.

     The CombiMatrix group's revenues and operating results have fluctuated in
the past and may continue to fluctuate significantly from quarter to quarter in
the future. It is possible that in future periods the CombiMatrix group's
revenues could fall below the expectations of securities analysts or investors,
which could cause the market price of the AR-CombiMatrix stock to decline. The
following are among the factors that could cause the CombiMatrix group's
operating results to fluctuate significantly from period to period:

     o    its unpredictable revenue sources, as described below;


                                      -50-



     o    the nature, pricing and timing of the CombiMatrix group's and its
          competitors' products;

     o    changes in the CombiMatrix group's and its competitors' research and
          development budgets;

     o    expenses related to, and the CombiMatrix group's ability to comply
          with, governmental regulations of its products and processes; and

     o    expenses related to, and the results of, patent filings and other
          proceedings relating to intellectual property rights.

     The CombiMatrix group anticipates significant fixed expenses due in part to
its need to continue to invest in product development. It may be unable to
adjust its expenditures if revenues in a particular period fail to meet its
expectations, which would harm its operating results for that period. As a
result of these fluctuations, the CombiMatrix group believes that
period-to-period comparisons of the CombiMatrix group's financial results will
not necessarily be meaningful, and you should not rely on these comparisons as
an indication of its future performance.

THE COMBIMATRIX GROUP'S REVENUES WILL BE UNPREDICTABLE, AND THIS MAY HARM ITS
FINANCIAL CONDITION.

     The amount and timing of revenues that the CombiMatrix group may realize
from its business will be unpredictable because:

     o    whether any products are commercialized and generate revenues depends,
          in part, on the efforts and timing of its potential customers;

     o    its sales cycles may be lengthy; and

     o    it cannot be sure as to the timing of receipt of payment for its
          products.

     As a result, the CombiMatrix group's revenues may vary significantly from
quarter to quarter, which could make its business difficult to manage and cause
its quarterly results to be below market expectations. If this happens, the
price of the CombiMatrix group's common stock may decline significantly.

TECHNOLOGY COMPANY STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY
DEPRESS THE PRICE OF THE AR-COMBIMATRIX STOCK.

     The current stock price of Acacia Research may bear no relationship to the
price at which the AR-CombiMatrix stock will trade upon completion of the
recapitalization. The stock market has experienced significant price and volume
fluctuations, and the market prices of technology companies, particularly
biotechnology companies, has been highly volatile. We believe that various
factors may cause the market price of the AR-CombiMatrix stock to fluctuate,
perhaps substantially, including, among others, announcements of:

     o    its or its competitors' technological innovations;

     o    developments or disputes concerning patents or proprietary rights;

     o    supply, manufacturing or distribution disruptions or other similar
          problems;

     o    proposed laws regulating participants in the biotechnology industry;

     o    developments in relationships with collaborative partners or
          customers;

     o    its failure to meet or exceed securities analysts' expectations of its
          financial results; or

     o    a change in financial estimates or securities analysts'
          recommendations.


                                      -51-



     In the past, companies that have experienced volatility in the market price
of their stock have been the objects of securities class action litigation. If
the AR-CombiMatrix stock was the object of securities class action litigation,
it could result in substantial costs and a diversion of management's attention
and resources, which could materially harm the business and financial results of
the CombiMatrix group.

THE COMBIMATRIX GROUP IS IN THE DEVELOPMENT STAGE DEPLOYING UNPROVEN
TECHNOLOGIES WHICH MAKES EVALUATION OF ITS BUSINESS AND PROSPECTS DIFFICULT AND
IT MAY BE FORCED TO CEASE OPERATIONS IF IT DOES NOT DEVELOP COMMERCIALLY
SUCCESSFUL PRODUCTS.

     The CombiMatrix group has not proven its ability to commercialize products.
In order to successfully commercialize any products, it will have to make
significant investments, including investments in research and development and
testing, to demonstrate their technical benefits and cost-effectiveness.
Problems frequently encountered in connection with the commercialization of
products using new and unproven technologies might limit its ability to develop
and commercialize its products. For example, the CombiMatrix group's products
may be found to be ineffective, unreliable or otherwise unsatisfactory to
potential customers. The CombiMatrix group may experience unforeseen technical
complications in the processes it uses to develop, manufacture, customize or
receive orders for its products. These complications could materially delay or
limit the use of any products the CombiMatrix group attempts to commercialize,
substantially increase the anticipated cost of its products or prevent it from
implementing its processes at appropriate quality and scale levels, thereby
causing its business to suffer.

THE COMBIMATRIX GROUP MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, AND IF
ADDITIONAL CAPITAL IS NOT AVAILABLE ON ACCEPTABLE TERMS, THE COMBIMATRIX GROUP
MAY HAVE TO CURTAIL OR CEASE OPERATIONS.

     The CombiMatrix group's future capital requirements will be substantial and
will depend on many factors including how quickly it commercializes its
products, the progress and scope of its collaborative and independent research
and development projects, the filing, prosecution, enforcement and defense of
patent claims and the need to obtain regulatory approval for certain products in
the United States or elsewhere. Changes may occur that would cause the
CombiMatrix group's available capital resources to be consumed significantly
sooner than it expects.

     The CombiMatrix group may be unable to raise sufficient additional capital
on favorable terms or at all. If it fails to do so, it may have to curtail or
cease operations or enter into agreements requiring it to relinquish rights to
certain technologies, products or markets because it will not have the capital
necessary to exploit them.

IF THE COMBIMATRIX GROUP DOES NOT ENTER INTO SUCCESSFUL PARTNERSHIPS AND
COLLABORATIONS WITH OTHER COMPANIES, IT MAY NOT BE ABLE TO FULLY DEVELOP ITS
TECHNOLOGIES OR PRODUCTS, AND ITS BUSINESS WOULD BE HARMED.

     Since the CombiMatrix group does not possess all of the resources necessary
to develop and commercialize products that may result from its technologies, it
will need either to grow its sales, marketing and support group or make
appropriate arrangements with strategic partners to market, sell and support its
products. The CombiMatrix group believes that it will have to enter into
strategic partnerships to develop and commercialize future products. If it does
not enter into adequate agreements, or if its existing arrangements or future
agreements are not successful, its ability to develop and commercialize products
will be impacted negatively, and its revenues will be adversely affected.

     The current business of the CombiMatrix group is substantially dependent on
its existing arrangement with Roche. The CombiMatrix group currently relies upon
payments by Roche for a majority of its future revenues and expends a majority
of its resources toward fulfilling its contractual obligations to Roche. Roche's
primary service to the CombiMatrix group is to distribute and proliferate its
technology platform. If the CombiMatrix group were to lose its relationship with
Roche, the CombiMatrix group would be required to establish a distribution
agreement with another partner or distribute its technology platform itself.
This could prove difficult, time-consuming and expensive, and the CombiMatrix
group may not be successful in achieving this objective.


                                      -52-



THE COMBIMATRIX GROUP HAS LIMITED EXPERIENCE COMMERCIALLY MANUFACTURING,
MARKETING OR SELLING ANY OF ITS POTENTIAL PRODUCTS, AND UNLESS IT DEVELOPS THESE
CAPABILITIES, IT MAY NOT BE SUCCESSFUL.

     Even if the CombiMatrix group is able to develop its products for
commercial release, it has limited experience in manufacturing its products in
the volumes that will be necessary for it to achieve commercial sales and in
marketing or selling its products to potential customers. We cannot assure you
that the CombiMatrix group will be able to commercially produce its products on
a timely basis, in sufficient quantities or on commercially reasonable terms.

THE COMBIMATRIX GROUP FACES INTENSE COMPETITION AND WE CANNOT ASSURE YOU THAT IT
WILL BE SUCCESSFUL.

     The CombiMatrix group expects to compete with companies that design,
manufacture and market instruments for analysis of genetic variation and
function and other applications using established sequential and parallel
testing technologies. The CombiMatrix group is also aware of other biotechnology
companies that have or are developing testing technologies for the SNP
genotyping, gene expression profiling and proteomic markets. The CombiMatrix
group anticipates that it will face increased competition in the future as new
companies enter the market with new technologies and its competitors improve
their current products.

     The markets for the CombiMatrix group's products are characterized by
rapidly changing technology, evolving industry standards, changes in customer
needs, emerging competition and new product introductions. One or more of the
CombiMatrix group's competitors may offer technology superior to those of the
CombiMatrix group and render its technology obsolete or uneconomical. Many of
its competitors have greater financial and personnel resources and more
experience in marketing, sales and research and development than it has. Some of
its competitors currently offer arrays with greater density than it does and
have rights to intellectual property, such as genomic information or proprietary
technology, which provides them with a competitive advantage. If the CombiMatrix
group is not able to compete successfully, its business and financial condition
would be materially harmed.

IF THE COMBIMATRIX GROUP'S NEW AND UNPROVEN TECHNOLOGY IS NOT USED BY
RESEARCHERS IN THE PHARMACEUTICAL, BIOTECHNOLOGY AND ACADEMIC COMMUNITIES, ITS
BUSINESS WILL SUFFER.

     The CombiMatrix group's products may not gain market acceptance. In that
event, it is unlikely that its business will succeed. Biotechnology and
pharmaceutical companies and academic research centers have historically
analyzed genetic variation and function using a variety of technologies, and
many of them have made significant capital investments in existing technologies.
Compared to existing technologies, the CombiMatrix group's technologies are new
and unproven. In order to be successful, its products must meet the commercial
requirements of the biotechnology, pharmaceutical and academic communities as
tools for the large-scale analysis of genetic variation and function. Market
acceptance will depend on many factors, including:

     o    the development of a market for its tools for the analysis of genetic
          variation and function, the study of proteins and other purposes;

     o    the benefits and cost-effectiveness of its products relative to others
          available in the market;

     o    its ability to manufacture products in sufficient quantities with
          acceptable quality and reliability and at an acceptable cost;

     o    its ability to develop and market additional products and enhancements
          to existing products that are responsive to the changing needs of its
          customers;

     o    the willingness and ability of customers to adopt new technologies
          requiring capital investments or the reluctance of customers to change
          technologies in which they have made a significant investment; and

     o    the willingness of customers to transmit test data and permit the
          CombiMatrix group to transmit test results over the Internet, which
          will be a necessary component of its product and services packages
          unless customers purchase or license its equipment for use in their
          own facilities.


                                      -53-



IF THE MARKET FOR ANALYSIS OF GENOMIC INFORMATION DOES NOT DEVELOP OR IF GENOMIC
INFORMATION IS NOT AVAILABLE TO THE COMBIMATRIX GROUP'S POTENTIAL CUSTOMERS, ITS
BUSINESS WILL NOT SUCCEED.

     The CombiMatrix group is designing its technology primarily for
applications in the biotechnology, pharmaceutical and academic communities. The
usefulness of the CombiMatrix group's technology depends in part upon the
availability of genomic data. The CombiMatrix group is initially focusing on
markets for analysis of genetic variation and function, namely SNP genotyping
and gene expression profiling. These markets are new and emerging, and they may
not develop as the CombiMatrix group anticipates, or at all. Also, researchers
may not seek or be able to convert raw genomic data into medically valuable
information through the analysis of genetic variation and function. If genomic
data is not available for use by the CombiMatrix group's customers or if its
target markets do not emerge in a timely manner, or at all, demand for its
products will not develop as it expects, and it may never become profitable.

THE COMBIMATRIX GROUP'S FUTURE SUCCESS DEPENDS ON THE CONTINUED SERVICE OF ITS
ENGINEERING, TECHNICAL AND KEY MANAGEMENT PERSONNEL AND ITS ABILITY TO IDENTIFY,
HIRE AND RETAIN ADDITIONAL ENGINEERING, TECHNICAL AND KEY MANAGEMENT PERSONNEL.

     There is intense competition for qualified personnel in the CombiMatrix
group's industry, particularly for engineers and senior level management. Loss
of the services of, or failure to recruit, engineers or other technical and key
management personnel could be significantly detrimental to the group and could
adversely affect its business and operating results. The CombiMatrix group may
not be able to continue to attract and retain engineers or other qualified
personnel necessary for the development of its products and business or to
replace engineers or other qualified personnel who may leave the group in the
future. The CombiMatrix group's anticipated growth is expected to place
increased demands on its resources and likely will require the addition of new
management personnel.

THE EXPANSION OF THE COMBIMATRIX GROUP'S PRODUCT LINES MAY SUBJECT IT TO
REGULATION BY THE UNITED STATES FOOD AND DRUG ADMINISTRATION AND FOREIGN
REGULATORY AUTHORITIES, WHICH COULD PREVENT OR DELAY ITS INTRODUCTION OF NEW
PRODUCTS.

     If the CombiMatrix group manufactures, markets or sells any products for
any regulated clinical or diagnostic applications, those products will be
subject to extensive governmental regulation as medical devices in the United
States by the FDA and in other countries by corresponding foreign regulatory
authorities. The process of obtaining and maintaining required regulatory
clearances and approvals is lengthy, expensive and uncertain. Products that
CombiMatrix manufactures, markets or sells for research purposes only are not
subject to governmental regulations as medical devices or as analyte specific
reagents to aid in disease diagnosis. We believe that the CombiMatrix group's
success will depend upon commercial sales of improved versions of products,
certain of which cannot be marketed in the United States and other regulated
markets unless and until the CombiMatrix group obtains clearance or approval
from the FDA and its foreign counterparts, as the case may be. Delays or
failures in receiving these approvals may limit our ability to benefit from new
CombiMatrix group products.

AS THE COMBIMATRIX GROUP'S OPERATIONS EXPAND, ITS COSTS TO COMPLY WITH
ENVIRONMENTAL LAWS AND REGULATIONS WILL INCREASE, AND FAILURE TO COMPLY WITH
THESE LAWS AND REGULATIONS COULD HARM ITS FINANCIAL RESULTS.

     The CombiMatrix group's operations involve the use, transportation, storage
and disposal of hazardous substances, and as a result it is subject to
environmental and health and safety laws and regulations. As the CombiMatrix
group expands its operations, its use of hazardous substances will increase and
lead to additional and more stringent requirements. The cost to comply with
these and any future environmental and health and safety regulations could be
substantial. In addition, the CombiMatrix group's failure to comply with laws
and regulations, and any releases of hazardous substances into the environment
or at its disposal sites, could expose the CombiMatrix group to substantial
liability in the form of fines, penalties, remediation costs and other damages,
or could lead to a curtailment or shut down of its operations. These types of
events, if they occur, would adversely impact the group's financial results.


                                      -54-



THE COMBIMATRIX GROUP'S BUSINESS DEPENDS ON ISSUED AND PENDING PATENTS, AND THE
LOSS OF ANY PATENTS OR THE GROUP'S FAILURE TO SECURE THE ISSUANCE OF PATENTS
COVERING ELEMENTS OF ITS BUSINESS PROCESSES WOULD MATERIALLY HARM ITS BUSINESS
AND FINANCIAL CONDITION.

     The CombiMatrix group's success depends on its ability to protect and
exploit its intellectual property. The CombiMatrix group currently has two
patents issued in the United States, one patent issued in Europe and more than
42 patent applications pending in the United Sates, Europe and elsewhere. The
patent application process before the Unites States Patent and Trademark Office
and other similar agencies in other countries is initially confidential in
nature. Patents that are filed outside the United States, however, are published
approximately eighteen months after filing. The CombiMatrix group cannot
determine in a timely manner whether patent applications covering technology
that competes with its technology have been filed in the United States or other
foreign countries or which, if any, will ultimately issue or be granted as
enforceable patents. Some of the CombiMatrix group's patent applications may
claim compositions, methods or uses that may also be claimed in patent
applications filed by others. In some or all of these applications, a
determination of priority of inventorship may need to be decided in a proceeding
before the United States Patent and Trademark Office or a foreign regulatory
body or a court. If the CombiMatrix group is unsuccessful in these proceedings,
it could be blocked from further developing, commercializing or selling
products. Regardless of the ultimate outcome, this process is time-consuming and
expensive.

ANY INABILITY TO ADEQUATELY PROTECT THE COMBIMATRIX GROUP'S PROPRIETARY
TECHNOLOGIES COULD MATERIALLY HARM THE COMBIMATRIX GROUP'S COMPETITIVE POSITION
AND FINANCIAL RESULTS.

     If the CombiMatrix group does not protect its intellectual property
adequately, competitors may be able to use its technologies and erode any
competitive advantage that it may have. The laws of some foreign countries do
not protect proprietary rights to the same extent as the laws of the United
States, and many companies have encountered significant problems in protecting
their proprietary rights abroad. These problems can be caused by the absence of
rules and methods for defending intellectual property rights.

     The patent positions of companies developing tools for the biotechnology,
pharmaceutical and academic communities, including the CombiMatrix group's
patent position, generally are uncertain and involve complex legal and factual
questions. The CombiMatrix group will be able to protect its proprietary rights
from unauthorized use by third parties only to the extent that its proprietary
technologies are covered by valid and enforceable patents or are effectively
maintained as trade secrets. The CombiMatrix group's existing patents and any
future issued or granted patents it obtains may not be sufficiently broad in
scope to prevent others from practicing its technologies or from developing
competing products. There also is a risk that others may independently develop
similar or alternative technologies or designs around the CombiMatrix group's
patented technologies. In addition, others may oppose or invalidate its patents,
or its patents may fail to provide it with any competitive advantage. Enforcing
the CombiMatrix group's intellectual property rights may be difficult, costly
and time-consuming and ultimately may not be successful.

     The CombiMatrix group also relies upon trade secret protection for its
confidential and proprietary information. While it has taken security measures
to protect its proprietary information, these measures may not provide adequate
protection for its trade secrets or other proprietary information. The
CombiMatrix group seeks to protect its proprietary information by entering into
confidentiality and invention disclosure and transfer agreements with employees,
collaborators and consultants. Nevertheless, employees, collaborators or
consultants may still disclose its proprietary information, and the CombiMatrix
group may not be able to meaningfully protect its trade secrets. In addition,
others may independently develop substantially equivalent proprietary
information or techniques or otherwise gain access to its trade secrets.

ANY LITIGATION TO PROTECT THE COMBIMATRIX GROUP'S INTELLECTUAL PROPERTY OR ANY
THIRD-PARTY CLAIMS OF INFRINGEMENT, COULD DIVERT SUBSTANTIAL TIME AND MONEY FROM
THE COMBIMATRIX GROUP'S BUSINESS AND COULD SHUT DOWN SOME OF ITS OPERATIONS.

     The CombiMatrix group's commercial success depends in part on its
non-infringement of the patents or proprietary rights of third parties. Many
companies developing tools for the biotechnology and pharmaceutical industries
use litigation aggressively as a strategy to protect and expand the scope of
their intellectual property


                                      -55-



rights. Accordingly, third parties may assert that the CombiMatrix group is
employing their proprietary technology without authorization. In addition, third
parties may claim that use of the CombiMatrix group's technologies infringes
their current or future patents. The CombiMatrix group could incur substantial
costs and the attention of its management and technical personnel could be
diverted while defending ourselves against any of these claims. The CombiMatrix
group may incur the same liabilities in enforcing its patents against others.
The CombiMatrix group has not made any provision in its financial plans for
potential intellectual property related litigation, and it may not be able to
pursue litigation as aggressively as competitors with substantially greater
financial resources.

     If parties making infringement claims against the CombiMatrix group are
successful, they may be able to obtain injunctive or other equitable relief,
which effectively could block the CombiMatrix group's ability to further
develop, commercialize and sell products, and could result in the award of
substantial damages against it. If the CombiMatrix group is unsuccessful in
protecting and expanding the scope of its intellectual property rights, its
competitors may be able to develop, commercialize and sell products that compete
with it using similar technologies or obtain patents that could effectively
block its ability to further develop, commercialize and sell its products. In
the event of a successful claim of infringement against it, the CombiMatrix
group may be required to pay substantial damages and either discontinue those
aspects of its business involving the technology upon which it infringed or
obtain one or more licenses from third parties. While the CombiMatrix group may
license additional technology in the future, it may not be able to obtain these
licenses at a reasonable cost, or at all. In that event, it could encounter
delays in product introductions while it attempts to develop alternative methods
or products, which may not be successful. Defense of any lawsuit or failure to
obtain any of these licenses could prevent it from commercializing available
products.

NANOGEN, INC. WILL BE THE LARGEST HOLDER OF THE AR-COMBIMATRIX STOCK.

     As part of a settlement of outstanding litigation among CombiMatrix
Corporation, Dr. Donald Montgomery and Nanogen, Inc., CombiMatrix Corporation
issued 4,016,346 shares of its common stock, or 17.5% of its total outstanding
shares post-issuance. Following the merger and recapitalization, Nanogen, Inc.
will hold approximately 17.5% of the outstanding AR-CombiMatrix stock, assuming
the conversion of each share of Acacia Research common stock into 0.5582 share
of AR-CombiMatrix stock and one share of AR-Acacia Technologies stock in the
recapitalization. As a result, Nanogen, Inc. will be the largest stockholder of
both the AR-CombiMatrix stock and Acacia Research, and may be able to exert
greater influence than other stockholders over matters submitted to our
stockholders for approval, including the election and removal of directors and
the approval of any merger, consolidation or sale of all or substantially all of
our assets. Nanogen, Inc. may make decisions that are adverse to the interests
of other stockholders.

                 RISKS RELATING TO THE ACACIA TECHNOLOGIES GROUP

     The risk factors beginning on this page discuss risks relating to the
Acacia Technologies group. As a holder of AR-Acacia Technologies stock, you will
be a holder of the common stock of one company, Acacia Research Corporation, and
the risks associated with the CombiMatrix group could affect the AR-Acacia
Technologies stock. As such, we urge you to read carefully the section "Risks
Relating to the CombiMatrix Group" beginning on page 50.

THE V-CHIP TECHNOLOGY PATENT HELD BY THE ACACIA TECHNOLOGIES GROUP WILL EXPIRE
IN JULY 2003, AND IF THE GROUP DOES NOT DEVELOP OTHER RECURRING SOURCES OF
REVENUE, ITS FINANCIAL CONDITION WILL BE ADVERSELY IMPACTED.

     The Acacia Technologies group, and Acacia Research as a whole, has
generated substantially all of its revenues from licensing the patented V-chip
technology to television manufacturers. The Acacia Technologies group's patent
on the V-chip technology will expire in July 2003. The Acacia Technologies group
will not be able to collect royalties for televisions containing V-chip
technology sold after the expiration of that patent, but it may still collect
revenues from the sale of such televisions in the U.S. before that date. The
Acacia Technologies group is beginning to market its digital media transmission
technology and is developing other technologies and products. The eventual
licensing and sale of these technologies is intended to replace the revenue
currently being generated by licensing its V-chip technology. If the Acacia
Technologies group does not succeed in developing such technologies or is unable
to commercially license its existing and future technologies, its financial
condition will be adversely impacted.


                                      -56-



THE ACACIA TECHNOLOGIES GROUP MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF
FLUCTUATIONS IN ITS QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE THE PRICE OF
AR-ACACIA TECHNOLOGIES STOCK TO DECLINE.

     The Acacia Technologies group revenues and operating results have
fluctuated in the past and may continue to fluctuate significantly from quarter
to quarter in the future. It is possible that in future periods the Acacia
Technologies group's revenues could fall below the expectations of securities
analysts or investors, which could cause the market price of the AR-Acacia
Technologies stock to decline. The following are among the factors that could
cause the Acacia Technologies group's operating results to fluctuate
significantly from period to period:

     o    its unpredictable revenue sources, as described below;

     o    costs related to acquisitions, alliances, licenses and other efforts
          to expand its operations;

     o    the timing of payments under the terms of any customer or license
          agreements into which the Acacia Technologies group may enter; and

     o    expenses related to, and the results of, patent filings and other
          proceedings relating to intellectual property rights.

THE ACACIA TECHNOLOGIES GROUP'S REVENUES WILL BE UNPREDICTABLE, AND THIS MAY
HARM ITS FINANCIAL CONDITION.

     The amount and timing of revenues that the Acacia Technologies group may
realize from its business will be unpredictable because:

     o    whether the Acacia Technologies group generates revenues depends, in
          part, on the success of its licensing efforts;

     o    its cycle of obtaining licensees may be lengthy; and

     o    it cannot be sure as to the timing of receipt of payment.

     As a result, the Acacia Technologies group's revenues may vary
significantly from quarter to quarter, which could make its business difficult
to manage and cause its quarterly results to be below market expectations. If
this happens, the price of the AR-Acacia Technologies stock may decline
significantly.

TECHNOLOGY COMPANY STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY
DEPRESS THE PRICE OF AR-ACACIA TECHNOLOGIES STOCK.

     The current stock price of Acacia Research common stock may bear no
relationship to the price at which the AR-Acacia Technologies stock will trade
upon completion of the recapitalization. The stock market has experienced
significant price and volume fluctuations, and the market prices of technology
companies have been highly volatile. We believe that various factors may cause
the market price of the AR-Acacia Technologies stock to fluctuate, perhaps
substantially, including, among others, announcements of:

     o    its or its competitors' technological innovations;

     o    developments or disputes concerning patents or proprietary rights;

     o    developments in relationships with licensees;

     o    its failure to meet or exceed securities analysts' expectations of its
          financial results; or

     o    a change in financial estimates or securities analysts'
          recommendations.


                                      -57-



     In the past, companies that have experienced volatility in the market price
of their stock have been the objects of securities class action litigation. If
the AR-Acacia Technologies stock was the object of securities class action
litigation, it could result in substantial costs and a diversion of management's
attention and resources, which could materially harm the business and financial
results of the Acacia Technologies group.

THE ACACIA TECHNOLOGIES GROUP FACES INTENSE COMPETITION, AND WE CANNOT ASSURE
YOU THAT IT WILL BE SUCCESSFUL.

     The Acacia Technologies group believes that Soundview Technologies' V-chip
technology is protected by enforceable patent rights. Other companies, however,
may develop competing technologies that offer better or less expensive
alternatives to those offered by Soundview Technologies. Many potential
competitors, including television manufacturers, have significantly greater
resources.

     Although the Acacia Technologies group believes that Acacia Media
Technologies has marketing and licensing rights to enforceable patents and other
intellectual property relating to video and audio on demand, the Acacia
Technologies group cannot assure you that other companies will not develop
competing technologies that offer better or less expensive alternatives to those
offered by Acacia Media Technologies. In the event a competing technology
emerges, Acacia Media Technologies would expect substantial additional
competition.

THE MARKETS SERVED BY THE ACACIA TECHNOLOGIES GROUP ARE SUBJECT TO RAPID
TECHNOLOGICAL CHANGE, AND IF THE ACACIA TECHNOLOGIES GROUP IS UNABLE TO DEVELOP
AND INTRODUCE NEW PRODUCTS, ITS REVENUES COULD STOP GROWING OR COULD DECLINE.

     The markets served by the Acacia Technologies group frequently undergo
transitions in which products rapidly incorporate new features and performance
standards on an industry-wide basis. Products for communications applications,
as well as for high-speed computing applications, are based on continually
evolving industry standards. A significant portion of the Acacia Technologies
group's revenues in recent periods has been, and is expected to continue to be,
derived from sales of products based on existing transmission standards.
However, the Acacia Technologies group's ability to compete in the future will
depend on its ability to identify and ensure compliance with evolving industry
standards.

THE ACACIA TECHNOLOGIES GROUP'S SUCCESS IS BASED ON ITS ABILITY TO PROTECT ITS
PROPRIETARY TECHNOLOGY AND ITS ABILITY TO DEFEND ITSELF AGAINST INFRINGEMENT
CLAIMS.

     The success of the Acacia Technologies group relies, to varying degrees, on
its proprietary rights and their protection or exclusivity. Although reasonable
efforts will be taken to protect the Acacia Technologies group's proprietary
rights, the complexity of international trade secret, copyright, trademark and
patent law, and common law, coupled with limited resources and the demands of
quick delivery of products and services to market, create risk that these
efforts will prove inadequate. For example, in our pending litigation against
certain television manufacturers alleging their infringement of Soundview
Technologies' V-chip patent, a motion for summary judgment filed by the
defendants was granted in September 2002. The court ruled that the defendants
have not infringed on Soundview Technologies' patent. If we are unsuccessful in
our intended appeal of this ruling, legal principles would preclude us from
claiming infringement of our patents by other parties. Accordingly, if we are
unsuccessful in this or other litigation to protect our intellectual property
rights, the future revenues of the Acacia Technologies group could be adversely
affected.

     From time to time, the Acacia Technologies group may be subject to
third-party claims in the ordinary course of business, including claims of
alleged infringement of proprietary rights. Any such claims may harm the Acacia
Technologies group by subjecting it to significant liability for damage and
invalidating its proprietary rights. These types of claims, with or without
merit, could subject the Acacia Technologies group to costly litigation and
diversion of its technical and management personnel. The Acacia Technologies
group depends largely on the protection of enforceable patent rights. The Acacia
Technologies group has applications on file with the U.S. Patent and Trademark
Office seeking patents on its core technologies and has patents or rights to
patents that have been issued. We cannot assure you that the pending patent
applications of the Acacia Technologies group will be issued, that third parties
will not violate, or attempt to invalidate these intellectual property rights,
or that certain aspects of those intellectual property will not be
reverse-engineered by third parties without violating the patent rights of the
Acacia Technologies group.


                                      -58-



     For Acacia Media Technologies and Soundview Technologies, proprietary
rights constitute their only significant assets. The Acacia Technologies group
also owns licenses from third parties and it is possible that it could become
subject to infringement actions based upon such licenses. The Acacia
Technologies group generally obtains representations as to the origin and
ownership of such licensed content. However, this may not adequately protect the
Acacia Technologies group. The Acacia Technologies group enters into
confidentiality agreements with third parties and generally limits access to
information relating to its proprietary rights. Despite these precautions, third
parties may be able to gain access to and use the Acacia Technologies group's
proprietary rights to develop competing technologies and products with similar
or better features and prices. Any substantial unauthorized use of the Acacia
Technologies group's proprietary rights could materially and adversely affect
its business and operational results.


                                      -59-



                             SPECIAL NOTE REGARDING
                           FORWARD-LOOKING STATEMENTS

     This proxy statement contains forward-looking statements within the meaning
of the federal securities laws. Forward-looking statements are statements that
predict or describe future events or trends and that do not relate solely to
historical matters. You can generally identify forward-looking statements as
statements containing the words "may," "will," "expect," "believe," "estimate,"
"anticipate," "intend," "continue," and other similar expressions or the
negative of these terms. You should be aware that the matters described in our
forward-looking statements are subject to known and unknown risks, uncertainties
and other unpredictable factors, many of which are beyond our control.
Statements regarding the following subjects are forward-looking by their nature:

          o    our business strategies;

          o    market trends and risks;

          o    assumptions regarding economic conditions;

          o    circumstances affecting anticipated revenues and costs; and

          o    legislative, regulatory and competitive developments.

     These forward-looking statements are subject to various risks and
uncertainties, including those related to:

          o    the recent slowdown affecting technology companies;

          o    our ability to successfully develop products;

          o    rapid technological change in our markets;

          o    anticipated sources of future revenues;

          o    changes in demand for our future products;

          o    our ability to raise capital in the future; and

          o    the adequacy of our capital resources to fund our operations.

     Other risks, uncertainties and factors, including those discussed under
"Risk Factors" in this proxy statement or described in reports that we file from
time to time with the Securities and Exchange Commission, such as our Form 10-K
and 10-Q, could cause our actual results and those of our industries' to differ
materially from those projected in any forward-looking statements we make. We
are not obligated to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.


                                      -60-



                              STOCKHOLDERS MEETING

DATE, TIME AND PLACE OF MEETING

     We are providing this proxy statement to you in connection with the
solicitation of proxies by our board of directors for use at the special
meeting. The special meeting will be held on December 11, 2002, at 1:30 p.m.,
Pacific time, at 610 Newport Center Drive, Suite 130, Newport Beach, California
92660. This proxy statement is first being mailed to our stockholders on or
about November 12, 2002.

RECORD DATE

     We have established November 1, 2002 as the record date for the special
meeting. Only holders of record of shares of our existing common stock at the
close of business on this date will be eligible to vote at the special meeting.

PROPOSALS TO BE CONSIDERED AT THE MEETING

     You will be asked to consider and vote on the four proposals described in
this proxy statement.

     If any of the proposals is not approved, we will not implement any of the
other proposals.

     We do not expect that any other matter will be brought before the special
meeting. If, however, other matters are properly presented, the individuals
named on your proxy card will vote in accordance with their judgment with
respect to those matters.

VOTE REQUIRED TO APPROVE THE PROPOSALS

     The recapitalization proposal and the merger proposal will require the
favorable vote of a majority of the outstanding shares of our existing common
stock. As a result, abstentions and broker non-votes on the recapitalization
proposal and the merger proposal will have the same effect as "no" votes. Broker
non-votes occur when a broker returns a proxy but does not have authority to
vote on a particular proposal.

     Each of the related stock incentive plan proposals will be decided by the
favorable vote of a majority of the shares present or represented and entitled
to vote at the special meeting. Abstentions will have the same effect as "no"
votes on these two proposals. Broker non-votes will not affect the outcome of
these two proposals.

     Each outstanding share of existing common stock is entitled to one vote on
each proposal. As of November 1, 2002, the most recent practicable date prior to
the date of this proxy statement, we had issued and outstanding 19,640,808
shares of existing common stock. The shares of existing common stock held in our
treasury will not be entitled to vote or counted in determining the number of
outstanding shares. Approval of the merger and the recapitalization will require
a majority vote our outstanding common stock. As of November 1, 2002, 2.2% of
our outstanding common stock was owned by our executive officers, directors and
their affiliates.

     The merger is also conditional on obtaining a majority vote of the
outstanding common stock of CombiMatrix Corporation. As of November 1, 2002,
10.0% of CombiMatrix Corporation's outstanding common stock was owned by its
executive officers, directors and their affiliates, and 17.5% is owned by
Nanogen, Inc., an unrelated third party.

QUORUM

     In order to carry on the business of the special meeting, we must have a
quorum. This means a majority of the outstanding shares of our existing common
stock must be represented in person or by proxy at the special meeting.
Abstentions and broker non-votes will count for quorum purposes.


                                      -61-



PROCEDURE FOR VOTING BY PROXY

     If you properly fill in your proxy card and send it to us in time to vote,
your shares will be voted as you have directed. If you sign the proxy card but
do not make specific choices, the individuals named on your proxy card will vote
your shares in favor of approval and adoption of each proposal. If you mark
"abstain" on your proxy card, your shares will be counted as present for
purposes of determining the presence of a quorum. If necessary, unless you have
indicated on your proxy card that you wish to vote against one or more of the
proposals, the individuals named on your proxy card may vote in favor of a
proposal to adjourn the special meeting to a later date in order to solicit and
obtain sufficient votes for any of the proposals.

     A proxy card is enclosed for your use. To vote without attending the
special meeting in person, you should complete, sign, date and return the proxy
card in the accompanying envelope, which is postage-paid if mailed in the United
States.

     If you have completed and returned a proxy card, you can still vote in
person at the special meeting. You may revoke your proxy before it is voted by
submitting a new proxy card with a later date, by voting in person at the
special meeting or by filing with the Secretary of Acacia Research a written
revocation of proxy. Attendance at the special meeting will not of itself
constitute revocation of a proxy.

PRO FORMA TABLE REGARDING SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

     The following table sets forth pro forma information regarding the
beneficial ownership of the AR-CombiMatrix stock and the AR-Acacia Technologies
stock, based on share ownership information known to us as of November 1, 2002
and assuming that the recapitalization and merger were effective as of such date
and assuming that each share of Acacia Research common stock would convert into
0.5582 of a share of AR-CombiMatrix stock and one share of AR-Acacia
Technologies stock. The table sets forth information regarding (i) all persons
known to us to beneficially own five percent (5%) or more of Acacia Research
common stock, (ii) each director, (iii) each executive officer of Acacia
Research, (iv) all current directors and executive officers as a group, and (v)
each person who will own five percent (5%) or more of the AR-CombiMatrix stock
or the AR-Acacia Technologies stock following the recapitailization and merger.



                                                AR-COMBIMATRIX STOCK          AR-ACACIA TECHNOLOGIES STOCK
                                            ------------------------------   ------------------------------
                                            AMOUNT AND NATURE                AMOUNT AND NATURE
                                              OF BENEFICIAL                    OF BENEFICIAL
BENEFICIAL OWNER(1)                             OWNERSHIP       PERCENT(2)       OWNERSHIP       PERCENT(2)
-----------------------------------------   -----------------   ----------   -----------------   ----------
                                                                                        
Paul R. Ryan                                     512,019(3)         2.2%          852,346(4)        4.2%
Thomas B. Akin                                   102,185(5)           *           136,039(6)          *
Fred A. de Boom                                   31,370(7)           *            56,200(8)          *
Edward W. Frykman                                 36,165(9)           *            64,790(10)         *
Robert L. Harris, II                             276,461(11)        1.2%          448,256(12)       2.2%
G. Louis Graziadio, III                           12,280(13)          *            22,000(14)         *
Amit Kumar, Ph.D.                                242,046(15)          *           245,766(16)       1.2%
Clayton Haynes                                    18,420(17)          *            33,000(18)         *
All Directors and Executive Officers as a
   Group (eight persons)                       1,179,121(19)        4.9%        1,858,397(20)       8.8%
Nanogen, Inc.                                  4,016,346           17.5%                0             *
Donald D. Montgomery, Ph.D.                    2,281,484(21)        9.9%           28,786             *


----------
*    Less than one percent

(1)  The address for Dr. Kumar and Dr. Montgomery is the principal offices of
     CombiMatrix Corporation, located at 6500 Harbour Heights Parkway, Mukilteo,
     Washington 98275; the address for Nanogen, Inc. is 10398 Pacific Center
     Court, San Diego, California, 92121; and the address for each other person
     is the principal offices of Acacia Research Corporation, located at 500
     Newport Center Drive, Newport Beach, California 92660..


                                      -62-



(2)  The percentage of shares beneficially owned is based on 22,968,551 shares
     of AR-CombiMatrix stock and 19,640,808 shares of AR-Acacia Technologies
     stock outstanding as of November 1, 2002. Beneficial ownership is
     determined under rules and regulations of the Securities and Exchange
     Commission. Shares of AR-Acacia Technologies stock and AR-CombiMatrix stock
     subject to options that are currently exercisable or exercisable within 60
     days after November 1, 2002 are deemed to be outstanding and beneficially
     owned by the person holding such options for the purpose of computing the
     number of shares beneficially owned and the percentage ownership of such
     person, but are not deemed to be outstanding for the purpose of computing
     the percentage ownership of any other person. Except as indicated in the
     footnotes to this table, and subject to applicable community property laws,
     we believe that such persons have sole voting and investment power with
     respect to all shares of the AR-CombiMatrix stock and AR-Acacia
     Technologies stock shown as beneficially owned by them.

(3)  Includes 327,138 shares of AR-CombiMatrix stock issuable upon exercise of
     options that are currently exercisable or will become exercisable within 60
     days of November 1, 2002.

(4)  Includes 521,129 shares of AR-Acacia Technologies stock issuable upon
     exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(5)  Includes 68,003 shares of AR-CombiMatrix stock issuable upon exercise of
     options that are currently exercisable or will become exercisable within 60
     days of November 1, 2002, and 34,183 shares held by Talkot Crossover Fund,
     L.E, of which Mr. Akin serves as managing general partner.

(6)  Includes 74,800 shares of AR-Acacia Technologies stock issuable upon
     exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002, and 61,239 shares held by
     Talkot Crossover Fund, L.E, of which Mr. Akin serves as managing general
     partner.

(7)  Includes 18,420 shares of AR-CombiMatrix stock issuable upon exercise of
     options that are currently exercisable or will become exercisable within 60
     days of November 1, 2002.

(8)  Includes 33,000 shares of AR-Acacia Technologies stock issuable upon
     exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(9)  Includes 28,244 shares of AR-CombiMatrix stock issuable upon exercise of
     options that are currently exercisable or will become exercisable within 60
     days of November 1, 2002.

(10) Includes 50,600 shares of AR-Acacia Technologies stock issuable upon
     exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(11) Includes 276,461 shares of AR-CombiMatrix stock issuable upon exercise of
     options that are currently exercisable or will become exercisable within 60
     days of November 1, 2002.

(12) Includes 448,256 shares of AR-Acacia Technologies stock issuable upon
     exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(13) Includes 12,280 shares of AR-CombiMatrix stock issuable upon exercise of
     options that are currently exercisable or will become exercisable within 60
     days of November 1, 2002.

(14) Includes 22,000 shares of AR-Acacia Technologies stock issuable upon
     exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(15) Includes 241,432 shares of AR-CombiMatrix stock issuable upon exercise of
     options that are currently exercisable or will become exercisable within 60
     days of November 1, 2002.

(16) Includes 244,666 shares of AR-Acacia Technologies stock issuable upon
     exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(17) Includes 18,420 shares of AR-CombiMatrix stock issuable upon exercise of
     options that are currently exercisable or will become exercisable within 60
     days of November 1, 2002.

(18) Includes 33,000 shares of AR-Acacia Technologies stock issuable upon
     exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(19) Includes 990,399 shares of AR-CombiMatrix stock issuable upon exercise of
     options that are currently exercisable or will become exercisable within 60
     days of November 1, 2002.


                                      -63-



(20) Includes 1,427,451 shares of AR-Acacia Technologies stock issuable upon
     exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(21) Includes 19,254 shares of AR-CombiMatrix stock issuable upon exercise of
     options that are currently exercisable or will become exercisable within 60
     days of November 1, 2002.


                                      -64-



                          THE RECAPITALIZATION PROPOSAL

                       DESCRIPTION OF THE RECAPITALIZATION

     You are being asked to consider and approve the recapitalization under
which each outstanding share of our existing common stock will be converted into
a fraction of a share of AR-CombiMatrix stock and one share of AR-Acacia
Technologies stock. The fraction of a share of AR-CombiMatrix stock into which
each outstanding share of Acacia Research common stock will be converted will be
equal to the quotient obtained by dividing (a) the number of shares of
CombiMatrix Corporation common stock owned by Acacia Research immediately prior
to the effective time of the merger by (b) the total number of shares of Acacia
Research common stock issued and outstanding immediately prior to the effective
time. As of October 3, 2002, this fraction was 0.5582, but this fraction is
subject to change prior to the effective time of the merger based on any change
in the number of shares owned by Acacia Research and any change in the number of
outstanding shares of CombiMatrix Corporation.

     If the recapitalization is implemented, your rights as stockholders will be
governed by the proposed restated certificate of incorporation which is attached
as ANNEX B. The restated certificate of incorporation contains the terms of the
AR-CombiMatrix stock and the AR-Acacia Technologies stock. Accordingly, you
should carefully read the restated certificate of incorporation.

     If the recapitalization proposal is approved, we plan to implement the
recapitalization by filing the restated certificate of incorporation with the
Delaware Secretary of State. We presently anticipate that this filing will be
made as soon as possible after the special meeting. No state or federal
regulatory approvals are required for the consummation of the recapitalization.

     Our board of directors may determine not to implement the recapitalization
proposal for any reason at any time prior to the effective time of the
recapitalization, either before or after stockholder approval. In addition, the
restated certificate of incorporation may be amended prior to the effective time
of the recapitalization; however, we have no current plans to make such an
amendment.

           BACKGROUND OF AND REASONS FOR THE RECAPITALIZATION PROPOSAL

     Our board of directors approved the recapitalization proposal and the
merger proposal following its review of various alternatives for maximizing
stockholder value, advancing our financial and strategic objectives and creating
flexibility for our future growth. The recapitalization proposal is designed to
separate the performance of the two groups and to charge the managers of each
group with the responsibility of maximizing the returns from their businesses.
The merger proposal is designed to consolidate our ownership and capture the
value of our principal subsidiary, and permit us to effectuate the
recapitalization by creating the CombiMatrix group in a manner that reflects
fully the value of CombiMatrix Corporation.

     At a meeting held on February 25, 2002, our board of directors considered a
variety of proposals to increase the overall value of the existing common stock.
Our board of directors had extensive discussions with our senior financial and
legal officers, as well as representatives of Allen Matkins Leck Gamble &
Mallory LLP, our legal adviser ("Allen Matkins"). Among the alternatives which
our directors considered were:

     o    the preservation of the current equity and operating structure;

     o    the creation of two classes of common stock to reflect separately the
          results of our subsidiary CombiMatrix Corporation and our media
          technology business; and

     o    an initial public offering of common stock of CombiMatrix Corporation
          and the spin-off of the balance of that company to holders of our
          existing common stock.


                                      -65-



     Our board of directors used several criteria to contrast the benefits and
drawbacks of these transaction alternatives to you including:

     o    tax efficiency;

     o    capital markets acceptance;

     o    likelihood of success;

     o    flexibility to provide equity incentives for employees;

     o    ability of CombiMatrix Corporation to raise equity capital in the
          future; and

     o    long-term maximization of our investment in CombiMatrix Corporation.

     Our board of directors concluded that an initial public offering or
spin-off of shares of CombiMatrix Corporation would not be feasible at this time
because an initial public offering would not achieve the separation and
maximization of the value of our two business groups, and market conditions have
prevented CombiMatrix Corporation and similar companies from having the access
to capital necessary for an initial public offering at this time. Our board of
directors concluded that a spin-off of shares was not feasible due to tax
constraints and because such a spin-off would not provide a vehicle for raising
equity capital.

     Our board of directors further concluded that to effectuate the
recapitalization proposal, it would be beneficial to acquire the minority
interests in CombiMatrix Corporation. Minority interests were created primarily
in connection with the sale of CombiMatrix Corporation common stock to third
parties in connection with its initial formation in April 1996 several private
equity financings (for the purposes of raising capital for ongoing operations)
occurring during the period from May 1997 to August 2000 and settlement of
litigation. In March 2000, in the most recent of the private equity financings,
Acacia Research purchased 2,000,000 shares of CombiMatrix Corporation common
stock at $5.00 per share. At October 3, 2002, CombiMatrix Corporation had
approximately 240 stockholders other than Acacia Research, none of which were
our affiliates. From time to time, Acacia Research has purchased shares directly
from other stockholders. Shares purchased from such stockholders occurred on
separate occasions in 1998, 2000 and 2001 and involved a total of 1,578,850
shares. None of the shares purchased were purchased from affiliates of Acacia
Research or CombiMatrix Corporation.

     Our board of directors reached the conclusion that it would be beneficial
to acquire the CombiMatrix minority interests due to the fact that owning 100%
of CombiMatrix Corporation would provide several benefits to Acacia Research and
its stockholders including:

     o    the AR-CombiMatrix stock would reflect fully the value of CombiMatrix
          Corporation, increasing the group's overall value and potential access
          to capital following the merger and recapitalization;

     o    Acacia Research would retain full control over CombiMatrix
          Corporation, freeing Acacia Research to act in the best interests of
          Acacia Research and its stockholders without concern of harming the
          CombiMatrix Corporation minority stockholders; and

     o    Acacia Research could potentially avoid claims of unfair treatment to
          CombiMatrix Corporation's minority stockholders by permitting them to
          participate in the recapitalization and achieve liquidity for their
          ownership interests in CombiMatrix Corporation.

     Our board of directors discussed at length the valuation methodology that
would be used in valuing CombiMatrix Corporation common stock in the merger. Our
board determined that because the merger would be contingent on approval of the
recapitalization proposal and CombiMatrix Corporation stockholders would receive
only AR-CombiMatrix stock in the merger, the CombiMatrix Corporation
stockholders would be issued a percentage of AR-CombiMatrix stock representing
their existing percentage ownership interests in CombiMatrix Corporation. At the
meeting on February 25, 2002, our board of directors approved the
recapitalization and merger


                                      -66-



transaction in principle, recognizing that the proposals would be subject to a
number of conditions, including negotiation of a definitive merger agreement and
a determination by our accountants that the recapitalization and merger would be
tax-free to you and us.

     On February 26, 2002, the CombiMatrix Corporation board of directors met to
consider the proposed merger. At this meeting, CombiMatrix Corporation
management and its financial, accounting and legal advisors reviewed with these
directors the status of negotiations and potential transaction terms under
discussion. The disinterested director reviewed an overview of various aspects
of the proposed transaction structure, including the proposed exchange ratio of
the merger and a review of businesses and assets that were proposed to be
attributed to the new classes of Acacia Research common stock. At that meeting
the CombiMatrix Corporation board of directors approved the formation of a
special committee consisting of its disinterested director, Rigdon Currie, to
consider and evaluate the benefits of the merger, negotiate the terms of the
transaction, consider whether such terms and conditions are fair, from a
financial point of view, to CombiMatrix Corporation and its stockholders, and
report such findings and make a recommendation to the CombiMatrix Corporation
board. The special committee was also authorized to hire financial and legal
advisers and other experts it deemed necessary. At that meeting, the CombiMatrix
Corporation board of directors approved in principle the merger, subject to a
number of conditions, including the negotiation of a definitive merger
agreement, receipt of a fairness opinion, the favorable recommendation of the
special committee and other customary conditions. Accordingly, although the
proposed exchange ratio for the merger had been approved by the boards of both
Acacia Research and CombiMatrix Corporation by February 28, 2002, final
agreement on the exchange ratio remained subject to approval or re-negotiation
by the special committee and receipt of a fairness opinion, among other
conditions.

     At the February 26, 2002 meeting, the CombiMatrix Corporation board also
referred the merger proposal to the CombiMatrix Corporation joint business
development committee, which is a committee established under CombiMatrix
Corporation's charter documents for the purpose of resolving conflicts of
interest. The joint business development committee is comprised of an equal
number of designees of Acacia Research and CombiMatrix Corporation. It was
intended that this equal representation would help resolve potential conflicts
of interest between the two companies in a manner that would be fair to both
companies. The joint business development committee considered and approved the
merger proposal on March 19, 2002.

     The members of the joint business development committee designated by
Acacia Research are Paul Ryan, Robert Harris and Robert Berman, and the
designees appointed by CombiMatrix Corporation are Amit Kumar, Scott Burell and
Donald Montgomery. Messrs. Ryan, Harris and Berman are the Chairman and Chief
Executive Officer, President, and Senior Vice President of Business Development,
General Counsel and Secretary respectively of Acacia Research. Messrs. Kumar,
Burrell, and Montgomery are the President and Chief Executive Officer, Senior
Vice President of Finance and Treasurer, and Senior Vice President and Chief
Technology Officer, respectively, of CombiMatrix Corporation. In addition
Messrs. Ryan and Harris are directors of Acacia Research and Messrs. Ryan, Kumar
and Montgomery are directors of CombiMatrix Corporation.

     On February 26, 2002, after the board meeting, the special committee
appointed by the board elected to engage the law firm of McKenna & Cuneo LLP
("McKenna") as legal counsel to the special committee. Thereafter on March 19,
2002, the special committee engaged A.G. Edwards & Sons, Inc. to act as
financial adviser to the special committee and to analyze a number of valuation
metrics applicable to the potential transaction based upon materials previously
distributed to the board. Commencing on March 21, 2002, A.G. Edwards conducted a
financial investigation of CombiMatrix Corporation's business and operations and
performed certain analyses. Among other things, representatives of A.G. Edwards
met with CombiMatrix Corporation officers and key employees and reviewed various
documents, financial statements and projections and other reports and material
provided by us and CombiMatrix Corporation.

     On March 8, 2002, Allen Matkins circulated an initial draft of the merger
agreement. There ensued over the next several weeks a series of conference calls
and negotiations followed by numerous revisions and recirculations of the merger
agreement. During this period of time, representatives of Acacia Research and
Allen Matkins conducted due diligence and spoke on numerous occasions regarding
the documents to be prepared in connection with the recapitalization.


                                      -67-



     Between March 8, 2002 and March 19, 2002, there were several discussions
between representatives of the CombiMatrix Corporation special committee and us
in which the terms of the merger agreement were discussed and negotiated.
However, as a result of these negotiations, it was agreed that certain of the
representations and warranties made under the merger agreement would survive for
a 180 days following the merger instead of terminating upon consummation of the
merger as originally proposed, and that stock options of CombiMatrix Corporation
employees would be assumed by Acacia Research. During these negotiations, the
special committee consulted with McKenna, A.G. Edwards and CombiMatrix
Corporation management.

     On March 19, 2002, our board of directors met and confirmed its prior
conclusions concerning alternatives available to us and identified the following
as the advantages of the recapitalization proposal and the merger proposal:

     o    The creation of two classes of common stock intended to reflect
          separately the performance of the CombiMatrix group and the Acacia
          Technologies group is expected to increase stockholder value and
          accommodate investor interests by more specifically tracking the
          earnings, cash flows and investment results of each group. The
          AR-CombiMatrix stock is expected to be valued in the market based on
          the success of its research and development efforts and progress in
          meeting its business plan. The AR-Acacia Technologies stock's
          valuation is expected to be based on growth in earnings and cash
          flows. As a result, we expect that holders of AR-CombiMatrix stock and
          AR-Acacia Technologies stock will be distinct investor groups;

     o    The merger should permit the AR-CombiMatrix stock to reflect fully the
          value of CombiMatrix Corporation, should provide greater marketability
          of the AR-CombiMatrix stock by increasing its attractiveness to
          potential investors as a result of the ability to fully control
          CombiMatrix Corporation, and should eliminate potential claims by the
          CombiMatrix Corporation minority stockholders regarding their ability
          to participate in the recapitalization;

     o    The creation of two classes of common stock should facilitate research
          coverage by industry specific research analysts, and thus should
          provide increased market awareness of Acacia Research and each of the
          two groups;

     o    The creation of two classes of common stock should enhance the
          autonomy of each of the groups by allowing each group and its
          management to focus on that group's own identity, business strategy,
          financial model and culture and to structure employee incentives which
          are tied directly to the share performance of that group;

     o    The financial and strategic flexibility, after the recapitalization,
          for us to raise capital for the CombiMatrix group and the Acacia
          Technologies group and to engage in mergers, acquisitions, strategic
          investments, capital restructurings and other transactions affecting
          either the CombiMatrix group or the Acacia Technologies group should
          be enhanced as a result of the availability of two different equity
          securities. In the ordinary course of business, our board of directors
          may consider such transactions from time to time, but it has no
          current plans or intentions with respect to any specific transaction;

     o    The recapitalization benefits the stockholders of CombiMatrix
          Corporation by providing them liquid, publicly-traded NASDAQ listed
          shares; and

     o    The implementation of the recapitalization proposal and the merger
          proposal is not expected to be taxable to us or you, except for cash
          received instead of fractional shares of AR-CombiMatrix stock.

     Our board of directors also considered the following potential
disadvantages of the recapitalization proposal and the merger proposal:

     o    The recapitalization proposal requires a complex capital structure
          that may not be well-understood by investors and thus could inhibit
          the efficient valuation of either or both classes of common stock;


                                      -68-



     o    The potential diverging or conflicting interests of the two groups and
          the issues that could arise in resolving any conflicts;

     o    Investors in the AR-CombiMatrix stock and the AR-Acacia Technologies
          stock will be exposed to the risks of our consolidated businesses and
          liabilities because both groups remain legally a part of Acacia
          Research;

     o    The market values of the AR-CombiMatrix stock and the AR-Acacia
          Technologies stock could be affected by market reaction to decisions
          by our board of directors and management that investors perceive to
          affect differently one class of common stock compared to the other,
          such as decisions regarding the allocation of assets, expenses,
          liabilities and corporate opportunities and financing resources
          between the groups;

     o    The possible inability or increased difficulty of receiving a ruling
          from the Internal Revenue Service in connection with a proposed
          acquisition to be effected using either the AR-CombiMatrix stock or
          the AR-Acacia Technologies stock; and

     o    The risks related to the recapitalization and merger as set forth in
          the risk factors beginning on page 41.

     Our board of directors determined that on balance the potential advantages
of the recapitalization proposal outweigh the potential disadvantages and
concluded that the recapitalization proposal is in the best interests of Acacia
Research and our stockholders. In addition, after an extensive discussion and
considering such factors as the fairness of the consideration to be paid to the
stockholders of CombiMatrix Corporation from a financial point of view and the
terms of the merger agreement, our board determined that the merger proposal is
in our best interests and the best interests of our stockholders.

     On March 19, 2002, our board of directors unanimously approved the
agreement and plan of merger, implementing the recapitalization and the calling
of the special meeting.

     On March 19, 2002, the board of directors of CombiMatrix Corporation met to
discuss and evaluate the merger. The board of CombiMatrix Corporation noted that
the CombiMatrix Corporation special committee had met with representatives of
McKenna and A.G. Edwards on several occasions and that the special committee and
McKenna had negotiated the terms of the merger agreement. After an extensive
discussion and considering numerous factors, including the liquidity that could
be attained by the CombiMatrix Corporation stockholders as a result of the
merger and recapitalization, the consideration being paid in the merger and
other factors it deemed relevant, the CombiMatrix Corporation board of directors
unanimously approved the agreement and plan of merger and the calling of a
special meeting; subject, however, to receipt of an opinion of A.G. Edwards that
the consideration to be paid to the stockholders of CombiMatrix Corporation is
fair from a financial point of view.

                    RECOMMENDATION OF OUR BOARD OF DIRECTORS

     OUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE RECAPITALIZATION
PROPOSAL AND BELIEVES THAT THE RECAPITALIZATION PROPOSAL IS IN THE BEST
INTERESTS OF ACACIA RESEARCH AND OUR STOCKHOLDERS. OUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU APPROVE THE RECAPITALIZATION PROPOSAL.

                             OPINION OF A.G. EDWARDS

     On behalf of CombiMatrix Corporation and its board of directors, the
CombiMatrix Corporation special committee retained A.G. Edwards to render an
opinion as to whether the consideration to be received by the minority
stockholders of CombiMatrix Corporation in the proposed merger was fair, from a
financial point of view, to the minority stockholders. A.G. Edwards issued an
opinion, as of April 17, 2002, that the consideration to be received by the
minority stockholders of CombiMatrix Corporation in the proposed merger was
fair, from a financial point of view, to the minority stockholders.


                                      -69-



     A.G. Edwards, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. A.G. Edwards is not
aware of any present or contemplated relationship between A.G. Edwards and
CombiMatrix Corporation or its directors and officers or its stockholders, or
between A.G. Edwards and Acacia Research or its directors and officers or its
stockholders, which in A.G. Edwards' opinion would affect its ability to render
a fair and independent opinion in this matter.

     In arriving at its written opinion, A.G. Edwards considered, among other
things: (i) the signed merger agreement and discussions with counsel
representing Acacia Research, CombiMatrix Corporation and the special committee
concerning the merger agreement and other related documents; (ii) the historical
and future business and operations of Acacia Research, CombiMatrix Corporation
and Acacia Media Technologies Corporation; (iii) the historical financial
performance of Acacia Research through a review of their audited financial
results; (iv) the historical and forecasted financial statements for CombiMatrix
Corporation as prepared by its management; (v) an investigation of the future
operational and financial performance and anticipated cash needs of CombiMatrix
and Acacia Media Technologies Corporation, respectively; (vi) an investigation
regarding the current operations and future prospects of CombiMatrix Corporation
and Acacia Media Technologies Corporation, primarily through discussions with
the managements of CombiMatrix Corporation and Acacia Media Technologies
Corporation, respectively; (vii) the biological array processor market and the
primary market segments CombiMatrix Corporation will pursue; (viii) the market
data for stocks of public companies in the same or similar markets as
CombiMatrix Corporation; (ix) an investigation of the existing patent portfolio
of Acacia Media Technologies Corporation through discussions with internal and
external counsel representing Acacia Media Technologies Corporation; (x) an
investigation of the role and responsibilities of Acacia Research concerning the
post-merger management and operations of CombiMatrix Corporation and Acacia
Media Technologies Corporation; (xi) the history and performance of "tracking"
stocks and similar transaction structures; (xii) an investigation of studies
related to marketability discounts applied to minority interests in private
companies; (xiii) Acacia Research's annual report on Form 10-K for its fiscal
year ended December 31, 2001, Acacia Research's quarterly reports on Form 10-Q
for its fiscal quarters ended March 31, 2001, June 30, 2001 and September 30,
2001, and certain other publicly available information for CombiMatrix
Corporation and Acacia Research; and (xiv) such other studies and analyses that
A.G. Edwards considered appropriate.

     In preparing its opinion, A.G. Edwards has assumed and relied upon the
accuracy and completeness of all financial and other information that was
publicly available, or supplied or otherwise made available to A.G. Edwards by
CombiMatrix Corporation, Acacia Research and Acacia Media Technologies
Corporation. A.G. Edwards has not been engaged to, and therefore has not,
verified the accuracy or completeness of any such information. A.G. Edwards has
relied upon the assurances of the managements of CombiMatrix Corporation, Acacia
Research and Acacia Media Technologies Corporation that they are not aware of
any facts that would make any financial or other information inaccurate or
misleading. For purposes of the opinion, management of CombiMatrix Corporation
provided A.G. Edwards with projections regarding the future financial
performance of CombiMatrix Corporation. These projections vary from historical
trends primarily because CombiMatrix Corporation has been a development stage
company and management anticipates that future revenues and results of
operations will reflect the results of the company's research and development
efforts and the sale of products and services that were previously in
development. A.G. Edwards has been informed and assumed that financial
projections supplied to, discussed with or otherwise made available to it
reflect the best currently available estimates and judgments of the management
of CombiMatrix Corporation as to the expected future financial performance of
CombiMatrix Corporation. A.G. Edwards has not independently verified such
information or assumptions nor does it express any opinion with respect thereto.

     A.G. Edwards has not made any independent valuation or appraisal of the
assets or liabilities of CombiMatrix Corporation, Acacia Research or Acacia
Media Technologies Corporation, nor has it been furnished with any such
valuations or appraisals. A.G. Edwards also did not independently attempt to
assess or value any of the intangible assets (including goodwill) nor did it
make any independent assumptions with respect to their application in the
merger.

     A.G. Edwards was not engaged to and did not review, nor is it expressing
any opinion with respect to, any alternative transaction or strategic
alternatives that may be available to CombiMatrix Corporation or its minority


                                      -70-



stockholders. A.G. Edwards has not expressed any opinion as to what the value of
CombiMatrix Corporation's common stock has been or will be, nor have we
considered the tax implications of the merger. A.G. Edwards' opinion also does
not address the merits of the underlying decision by CombiMatrix Corporation to
engage in the merger. A.G. Edwards' opinion is necessarily based on the
economic, market and other conditions as in effect on, and the information made
available to A.G. Edwards as of April 17, 2002. A.G. Edwards has not undertaken
any process to update its opinion since its issuance on April 17, 2002,
therefore the opinion and the process and procedures described herein do not
reflect any change in market conditions or the financial condition or prospects
of CombiMatrix Corporation, Acacia Research or Acacia Media Technologies
Corporation since that date.

     The full text of the written opinion of A.G. Edwards dated April 17, 2002
setting forth the assumptions made, matters considered and limitations on
reviews undertaken, is attached hereto as Annex G to this proxy statement and
prospectus and is incorporated herein by reference. Minority stockholders of
CombiMatrix Corporation are urged to read the opinion, together with the
assumptions and considerations set forth therein, in its entirety. A.G. EDWARDS'
OPINION WAS PREPARED FOR THE INFORMATION OF THE SPECIAL COMMITTEE OF THE BOARD
OF DIRECTORS OF COMBIMATRIX CORPORATION AND DOES NOT CONSTITUTE A RECOMMENDATION
AS TO HOW ANY HOLDER OF THE OUTSTANDING SHARES OF COMBIMATRIX CORPORATION'S
COMMON STOCK SHOULD VOTE WITH RESPECT TO THE MERGER.

     Several factors influenced A.G. Edwards' opinion regarding the exchange of
a minority interest in a privately held company for an economic interest in a
publicly-traded entity. A.G. Edwards analyzed these factors and compared the
benefits, the risks and concerns of owning the proposed class of publicly traded
stock versus owning a minority position in an illiquid, privately held company.

     The following is a summary of the analyses used by A.G. Edwards in
rendering its opinion.

     ANALYSIS OF TRACKING STOCKS. A.G. Edwards researched and analyzed a number
of factors typically associated with stocks structured to reflect the
performance of a particular business segment or unit within a corporation (i.e.
tracking stocks) and their application in this transaction. As part of its
analysis, A.G. Edwards reviewed a number of independent third-party studies
concerning the benefits, risks and historical performance of publicly-traded
tracking stocks. A.G. Edwards' analysis evaluated certain risks associated with
tracking stocks and the mitigating factors proposed in the transaction. These
risks were mitigated in a variety of ways. For example, (a) the risk related to
AR-CombiMatrix stockholders having limited and variable voting rights was
mitigated by the fact that voting rights with respect to the two classes of
stock will be based on relative market capitalization and management believes
that the aggregate market value, and hence voting right, of AR-CombiMatrix stock
will be greater than the aggregate market value, and hence voting right, of the
AR-Acacia Technologies stock; (b) the risk that there will be limited remedies
available if a business decision disadvantages AR-CombiMatrix stockholders is
mitigated by the fact that our board of directors has a fiduciary duty to all
the stockholders and the fact that minority stockholders will have voting rights
with respect to certain issues including potential mergers; and (c) the risk
related to the potential for divergent or conflicting stockholder interests has
been mitigated by the establishment of policies and guidelines for our board of
directors for the resolution of potential divergent or conflicting interests.
These mitigating factors are not necessarily unique to this transaction and are
similar to mitigating factors commonly associated with other tracking stocks.
A.G. Edwards also compared marketability discounts typically associated with
tracking stocks against the marketability discounts typically associated with
minority positions in private companies.

     ANALYSIS OF IMPACTS ON MINORITY STOCKHOLDERS' INTERESTS. A.G. Edwards
reviewed the potential impact of the proposed transactions on a number of
factors affecting the value of the minority stockholders' interests, including
changes in economic interests, liquidity, marketability discounts, access to
capital, research coverage, legal ownership, voting rights, voting control,
board representation, management and reporting and disclosure. The impact of the
proposed transactions on these factors is summarized in the following table:


                                      -71-





-----------------------------------------------------------------------------------------------------------------------------------

FACTOR              PRE-TRANSACTION                                        POST-TRANSACTION
-----------------------------------------------------------------------------------------------------------------------------------
                                                                     
Economic            Approximately 42%(1) economic interest in              Approximately 42%(1) economic interest AR-CombiMatrix
Interests           CombiMatrix Corporation via its common stock.          stock.
-----------------------------------------------------------------------------------------------------------------------------------

Liquidity           Illiquid, private company stock.                       Publicly-traded stock with liquidity opportunities
                                                                           dictated by trading volumes and market-making.
-----------------------------------------------------------------------------------------------------------------------------------

Marketability       Typical discounts are 30-45% for minority              Discounts for tracking stocks are typically smaller than
Discount            positions in private companies.                        discounts for illiquid minority positions.
-----------------------------------------------------------------------------------------------------------------------------------

Access to           Limited.                                               May be improved due to public trading status.
Capital
-----------------------------------------------------------------------------------------------------------------------------------

Research Coverage   None.                                                  Significantly increases probability of research coverage
                                                                           due to independence and business focus.
-----------------------------------------------------------------------------------------------------------------------------------

Legal               Approximately 42%(1) minority ownership.               42%(1) minority ownership of AR-CombiMatrix shares with
Ownership                                                                  priority claim on CombiMatrix Corporation's assets upon
                                                                           a liquidity event. No ownership of AR-Acacia
                                                                           Technologies shares.
-----------------------------------------------------------------------------------------------------------------------------------

Voting Rights       In proportion to shares owned of CombiMatrix           One share equals one vote; overall voting power
                    Corporation, but no rights pertaining to Acacia        dependent on relative market value of AR-CombiMatrix and
                    Research.                                              AR-Acacia Technologies common stock. No separate class
                                                                           voting rights.
-----------------------------------------------------------------------------------------------------------------------------------

Voting Control      Acacia Research controls voting with 58%(2)            Part of a diffuse stockholder base with no blocking or
                    ownership stake and 12%(3) additional voting control   controlling party.
                    through stockholder agreement.
-----------------------------------------------------------------------------------------------------------------------------------

Board               CombiMatrix Corporation-specific board significantly   Acacia Research board with no separate corporate
Representation      controlled by Acacia Research.                         governance.

                    No rights regarding election of Acacia Research        Minority stockholders will have voting rights regarding
                    board.                                                 Acacia Research board.
-----------------------------------------------------------------------------------------------------------------------------------

Management          Current CombiMatrix Corporation management.            Same.
-----------------------------------------------------------------------------------------------------------------------------------

Reporting and       Treated as significant part of Acacia Research's       Same.
Disclosure          business; therefore segment information and material
                    events disclosed as if group was an SEC-reporting
                    company.
-----------------------------------------------------------------------------------------------------------------------------------


(1)  Percentage as of April 17, 2002, the date of A.G. Edwards'  opinion.  As of
     November 1, the percentage was 52%.

(2)  Percentage as of April 17, 2002. As of November 1, the percentage was 48%.

(3)  Percentage as of April 17, 2002. As of November 1, the percentage was 10%.


                                      -72-



     A.G. Edwards believes that its analyses of the above items must be
considered as a whole and that selecting individual items or portions of such
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying the analyses set forth in the A.G.
Edwards report and its fairness opinion. A.G. Edwards concluded that the impact
on these items, taken as a whole, supported its conclusion as to the fairness of
the consideration.

     VOTING RIGHTS AND VALUATION ANALYSIS. Due to the fact that the relative
voting rights of the AR-CombiMatrix stock and the AR-Acacia Technologies stock
will be determined by the public market values of the stocks, A.G. Edwards
utilized several methodologies to establish an initial valuation range for each
group solely for the purposes of comparing voting rights following the
transactions. A.G. Edwards concluded that the stockholders of AR-CombiMatrix
stock would likely have majority voting control following the recapitalization
and merger based upon the fact that the results of the valuation analyses
indicated that the AR-CombiMatrix stock would have a higher relative initial
valuation than the AR-Acacia Technologies stock. These valuation methodologies
included (i) an analysis of companies that could be considered comparable to
CombiMatrix Corporation, (ii) a discounted cash flow analysis utilizing
CombiMatrix management's projections of anticipated future cash flows, (iii) an
analysis of the cost of acquiring Acacia Technologies' patent portfolio, and
(iv) a comparison of the implied value of CombiMatrix Corporation and the Acacia
Technologies group to the overall value of Acacia Research.

     A.G. Edwards concluded that the voting rights of existing CombiMatrix
minority stockholders were not likely to be adversely affected by the merger and
recapitalization. This finding was based principally upon the fact that both
prior to and following the proposed transactions the minority stockholders will
have a minority stockholder interest and that such stockholders constitute and
will constitute a group of mostly unrelated individuals and entities unable to
exert effective control over CombiMatrix Corporation and Acacia Research, as
applicable.

     OTHER MATTERS. The preparation of a fairness opinion is not necessarily
susceptible to partial analyses or summary. In rendering its fairness opinion,
A.G. Edwards applied its judgment to a variety of complex analyses and
assumptions. A.G. Edwards may have given various analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions. The assumptions made, and the judgments
applied, by A.G. Edwards in rendering its opinion are not readily susceptible to
description beyond that set forth in the written text of the fairness opinion
itself.

     We have not requested, nor has A.G. Edwards provided, an updated fairness
opinion as a result of events subsequent to April 17, 2002, because we do not
believe that such subsequent events materially change the basic analyses and
conclusions underlying A.G. Edwards' opinion. Events subsequent to April 17,
2002, including the settlement with Nanogen, Inc., resulted in a change in the
ownership percentages of the stockholders of CombiMatrix Corporation. The impact
of the changed ownership percentages on the pre- and post-transaction economic
interest, legal ownership, and voting control components of A.G. Edwards'
analysis is reflected in the footnotes to the table above. Notwithstanding such
changes in the percentage interests held by each CombiMatrix stockholder,
including Acacia Research, it is our view that the effect of the
recapitalization and merger on the CombiMatrix minority stockholders remains the
same, in that each share of CombiMatrix Corporation common stock will still be
exchanged for one share of AR-CombiMatrix stock, CombiMatrix Corporation
stockholders will still be entitled to receive the same percentage of the
AR-CombiMatrix stock as their percentage interest in CombiMatrix Corporation
common stock immediately prior to the recapitalization and merger, CombiMatrix
stockholders will still obtain greater liquidity for their shares, and there
will be no material impact on the other factors discussed in the table above.

     Notwithstanding the fact that following the recapitalization and merger,
Nanogen, Inc. will hold approximately 17.5% of the outstanding AR-CombiMatrix
stock, we do not believe that it is likely that Nanogen, Inc. will be able to
exercise control or materially influence the business of Acacia Research
following the recapitalization and merger. The reasons for this belief include
(i) the fact that Nanogen, Inc. will be a minority stockholder of both the
AR-CombiMatrix stock and Acacia Research as a whole, with a voting interest of
less than 17.5% on all matters on which the AR-CombiMatrix stock and the
AR-Acacia Technologies stock vote together, (ii) we do not believe that Nanogen,
Inc. has organized or is likely to organize a voting group that will be able to
exercise significant influence, and (iii) the lack of any special voting rights
or other contractual rights that would allow Nanogen, Inc. to exert influence or
control over Acacia Research beyond, the voting power represented by its shares
of AR-CombiMatrix stock.


                                      -73-



     A.G. Edwards' opinion does not cover the fairness of the transaction to
Nanogen, Inc., because Nanogen, Inc. became a stockholder of CombiMatrix
Corporation after the date of A.G. Edwards' opinion, which is limited to its
date.

     In performing its analyses, A.G. Edwards made numerous assumptions with
respect to industry performance and general business and economic conditions,
which are beyond the control of CombiMatrix Corporation. Such analyses were
prepared solely as part of A.G. Edwards' analysis of the fairness of the
consideration to be received by CombiMatrix Corporation in the merger, pursuant
to the merger agreement, and were provided to CombiMatrix Corporation's special
committee in connection with the delivery of A.G. Edwards' fairness opinion. In
addition, as described above, A.G. Edwards' opinion and presentation to
CombiMatrix Corporation's special committee of the board of directors was one of
many factors taken into consideration by the special committee in making its
determination to approve the merger agreement.

     The terms of the engagement of A.G. Edwards by CombiMatrix Corporation are
set forth in a letter agreement dated March 13, 2002 between A.G. Edwards and
CombiMatrix Corporation. Pursuant to the terms of that agreement and an
amendment dated August 2, 2002, as compensation for rendering its opinion to the
special committee, CombiMatrix Corporation agreed to pay A.G. Edwards total fees
of $375,000. In addition, CombiMatrix Corporation agreed to reimburse A.G.
Edwards for the reasonable travel and out-of-pocket expenses incurred in
connection with its engagement. CombiMatrix Corporation and Acacia Research have
agreed to indemnify A.G. Edwards against certain liabilities in connection with
the engagement of A.G. Edwards.

                       MANAGEMENT AND ALLOCATION POLICIES

     One of the fundamental objectives of the recapitalization proposal is to
separate the business and operations of the two groups and to operate each group
on a stand-alone basis. In order to accomplish this objective in a fair and
equitable manner, our board of directors has established management and
allocation policies to help us allocate costs and charges between the two groups
on an objective basis. These policies pertain to issues such as the allocation
of debt, corporate overhead, interest, dividends, finances, taxes and other
charges between the two groups, the financing of each group, corporate
opportunities and competition between groups. We will allocate our corporate
overhead to each group based upon the use of services by that group, where
practicable. Corporate overhead includes costs of our personnel and employee
benefits, legal, accounting and auditing, tax, insurance, investor relations and
stockholder services and services related to our board of directors. We will
allocate in a similar manner a portion of our costs of administrative shared
services, such as information technology services. Where determinations based on
use alone are not practical, we will use other methods and criteria that we
believe are equitable and provide a reasonable estimate of the cost attributable
to the groups.

     Our board of directors will establish a standing committee with the
authority to (i) interpret, make determinations under, and oversee the
implementation of the Common Stock Policies other than as they relate to
dividends; (ii) adopt additional general policies; and (iii) engage third party
service providers to assist in discharging its duties.

             POLICIES SUBJECT TO CHANGE WITHOUT STOCKHOLDER APPROVAL

     We have summarized the management and allocation policies as we expect them
to be effective upon the recapitalization. We are not requesting stockholder
approval of these policies.

     Our board of directors may modify or rescind these policies, or may adopt
additional policies, in its sole discretion without stockholder approval. This
could have different effects upon holders of AR-CombiMatrix stock and holders of
AR-Acacia Technologies stock or could result in a benefit or detriment to one
class of stockholders compared to the other class. Our board of directors would
make any such decision in accordance with its good faith business judgment that
such decision is in the best interests of Acacia Research and all of our
stockholders as a whole.


                                      -74-



                              ALLOCATION OF ASSETS

     These policies set forth our board of directors' intention regarding the
attribution of assets. Assets are to be attributed between the two groups
principally according to the assets attributable to the separate businesses that
comprise each group. The CombiMatrix group is comprised of the businesses
relating to CombiMatrix Corporation and Advanced Material Sciences, a
majority-owned subsidiary of CombiMatrix Corporation, and the assets of Acacia
Research directly attributable to the CombiMatrix group. The Acacia Technologies
group is principally comprised of the businesses relating to Soundview
Technologies Incorporated and Acacia Media Technologies Corporation, and the
assets of Acacia Research directly attributable to the Acacia Technologies
group. We currently intend to attribute all of our present and future interests
worldwide in our life sciences business to the CombiMatrix group and to
attribute all of our present and future interests worldwide in our media
technology businesses to the Acacia Technologies group.

                    FIDUCIARY AND MANAGEMENT RESPONSIBILITIES

     Because the CombiMatrix group and the Acacia Technologies group will
continue to be a part of a single company, our directors and officers will have
the same fiduciary duties to holders of the AR-CombiMatrix stock and the
AR-Acacia Technologies stock that they currently have to the holders of our
existing common stock. Under Delaware law, absent an abuse of discretion, a
director or officer will be deemed to have satisfied his or her fiduciary duties
to Acacia Research and our stockholders if that person is disinterested and acts
in accordance with his or her good faith business judgment in the interests of
Acacia Research and all of our stockholders as a whole. Our board of directors
and chief executive officer, in establishing policies with regard to
intra-company matters such as business transactions between groups and
allocations of assets, liabilities, debt, corporate overhead, taxes, interest,
corporate opportunities and other matters, will consider various factors and
information which could benefit or cause detriment to the stockholders of the
respective groups and will make determinations in the best interests of Acacia
Research and all of our stockholders as a whole.

     It is unlikely that the interests of the CombiMatrix group and the Acacia
Technologies group will conflict because they operate in very different types of
businesses. If and when there are conflicting interests between the two groups,
the directors of Acacia Research will use good faith business judgment to
resolve such conflicts. The board will also seek to form two committees of
independent directors, one related to each group, to evaluate the fairness of a
contemplated transaction from the perspective of each group if the board
determines that the nature of the conflicting interests warrant doing so.

     Because the recapitalization will result in no change in our corporate
structure, Paul R. Ryan, our Chairman and Chief Executive Officer, will have the
same duties and responsibilities for the management of our assets and businesses
which comprise the CombiMatrix group and the Acacia Technologies group following
the recapitalization as he has now. The individuals named below will hold the
positions in Acacia Research listed next to their names and will continue to
have the same general responsibilities that they had prior to the
recapitalization. The costs attributable to their responsibilities will be
allocated as discussed below under "--Financial Statements; Allocation
Matters-Corporate Overhead and Administrative Shared Services."



NAME                  POSITIONS WITH THE COMPANY
-------------------   ----------------------------------------------------------------------------
                   
Paul R. Ryan          Chairman and Chief Executive Officer
Robert L. Harris II   President
Clayton J. Haynes     Senior Vice President, Chief Financial Officer and Treasurer
Robert A. Berman      Senior Vice President of Business Development, General Counsel and Secretary
Roy Mankovitz         Senior Vice President, Intellectual Property
Robert B. Stewart     Senior Vice President, Corporate Development
Andrew H. Duncan      Vice President, Business Development
John H. Roop          Vice President, Engineering
Alejandro Magana      Vice President, International Licensing



                                      -75-



     Our board of directors has designated separate management teams for each of
the CombiMatrix group and the Acacia Technologies group, consisting of officers
of the subsidiaries that make up those groups, to ensure that the efforts of
each team of managers are focused on the business and operations for which they
have responsibility. These individuals are named in "CombiMatrix
Group-Business-Management" and "Acacia Technologies Group-Business-Management."

                                 DIVIDEND POLICY

     We have not paid cash dividends on our existing common stock and do not
anticipate paying cash dividends on the AR-CombiMatrix stock or the AR-Acacia
Technologies stock for the foreseeable future.

     In making its dividend decisions regarding the AR-CombiMatrix stock and the
AR-Acacia Technologies stock, our board of directors will rely on the respective
financial statements of the CombiMatrix group and the Acacia Technologies group.
See the historical financial statements of the CombiMatrix group and the Acacia
Technologies group included in this proxy statement. The method of calculating
net income (loss) per share for the AR-CombiMatrix stock and the AR-Acacia
Technologies stock is set forth in the restated certificate of incorporation in
ANNEX B under the definitions of Acacia Research Corporation Earnings (Loss)
Attributable to the CombiMatrix Group and Acacia Research Corporation Earnings
(Loss) Attributable to the Acacia Technologies Group. We encourage you to
carefully read these definitions.

     Our board of directors does not currently intend to change the
above-described dividend policy but reserves the right to do so at any time
based primarily on the financial condition, results of operations and capital
requirements of the respective groups and of Acacia Research as a whole. Future
dividends on the AR-CombiMatrix stock and the AR-Acacia Technologies stock will
be payable when, as and if declared by our board of directors out of the lesser
of (1) all funds of Acacia Research legally available therefor and (2) the
amount calculated under the definition of that group's Available Dividend Amount
contained in the restated certificate of incorporation in ANNEX B. We encourage
you to carefully read these definitions. Each group's Available Dividend Amount
is intended to be similar to the amount that would be legally available for the
payment of dividends on the stock for that group under Delaware law if that
group were a separate company.

                              FINANCING ACTIVITIES

     GENERAL. We will continue to manage most financial activities on a
centralized basis. These activities include the investment of surplus cash, the
issuance and repayment of short-term and long-term debt and the issuance and
repurchase of any preferred stock. If Acacia Research transfers cash or other
property allocated to one group to the other group, we will account for such
transfer as a short term loan unless the board of directors determines that a
given transfer (or type of transfer) should be accounted for as a long-term
loan, a capital contribution, or as a return of capital.

     Other than cash advances exceeding $25 million, our board of directors has
not adopted specific criteria to determine which of the foregoing will be
applied to a particular transfer of cash or property from one group to the
other. Our board of directors will make these determinations, either in specific
instances or by setting applicable policies generally, in the exercise of its
business judgment based on all relevant circumstances, including the financing
needs and objectives of the receiving group, the investment objectives of the
transferring group, the availability, cost and time associated with alternative
financing sources, prevailing interest rates and general economic conditions. We
will make all transfers of material assets from one group to the other on a fair
value basis for the foregoing purposes, as determined by our board of directors.

     Although we may allocate our debt and preferred stock between groups, the
debt and preferred stock will remain our obligations and all of our stockholders
will be subject to the risks associated with those obligations.

     INTER-GROUP LOANS. Cash or other property that we allocate to one group
that is transferred to the other group, if accounted for as a short-term loan,
will bear interest at a rate equal to that at which we can borrow such funds.


                                      -76-



     EQUITY ISSUANCES AND REPURCHASES AND DIVIDENDS. We will reflect all
financial effects of issuances and repurchases of shares of AR-CombiMatrix stock
or shares of AR-Acacia Technologies stock entirely in the financial statements
of that group. We will reflect financial effects of dividends or other
distributions on, and purchases of, shares of AR-CombiMatrix stock or AR-Acacia
Technologies stock entirely in the respective financial statements of the
CombiMatrix group and the Acacia Technologies group.

           INTER-GROUP CONTRACTS AND ACCESS TO TECHNOLOGY AND KNOW-HOW

     The terms of all current and future material transactions, relationships
and other matters between the groups, including those as to which the groups may
have potentially divergent interests, will be determined on a basis that the
board of directors, or management following guidelines or principles established
by the board of directors, considers to be in the best interests of Acacia
Research and its stockholders as a whole.

     Each group will have free access to all of our technology and know-how
(excluding products and services of the other group) that may be useful in that
group's business, subject to obligations and limitations applicable to Acacia
Research and to such exceptions that its board of directors may determine. The
groups will consult with each other on a regular basis concerning technology
issues that affect both groups.

                        REVIEW OF CORPORATE OPPORTUNITIES

     Our board of directors will review any matter which involves the allocation
of a corporate opportunity to either the CombiMatrix group or the Acacia
Technologies group or in part to the CombiMatrix group and in part to the Acacia
Technologies group. In accordance with Delaware law, our board of directors will
make its determination with regard to the allocation of any such opportunity and
the benefit of such opportunity in accordance with their good faith business
judgment of the best interests of Acacia Research and all of our stockholders as
a whole. Among the factors that our board of directors may consider in making
this allocation is whether a particular corporate opportunity is principally
related to the business of the CombiMatrix group or the Acacia Technologies
group; whether one group, because of its managerial or operational expertise,
will be better positioned to undertake the corporate opportunity; and existing
contractual agreements and restrictions.

                    FINANCIAL STATEMENTS; ALLOCATION MATTERS

     We will prepare financial statements in accordance with generally accepted
accounting principles, consistently applied, for the CombiMatrix group and the
Acacia Technologies group, and these financial statements, taken together, will
comprise all of the accounts included in our corresponding consolidated
financial statements. The financial statements of each of the CombiMatrix group
and the Acacia Technologies group will reflect the financial condition, results
of operations and cash flows of the businesses included therein.

     Group financial statements will also include allocated portions of our
debt, interest, corporate overhead and costs of administrative shared services
and taxes. We will make these allocations for the purpose of preparing each
group's financial statements; however, holders of AR-CombiMatrix stock and
AR-Acacia Technologies stock will continue to be subject to all of the risks
associated with an investment in Acacia Research and all of our businesses,
assets and liabilities. See the historical financial statements for the
CombiMatrix group and the Acacia Technologies group included in this proxy
statement.

     In addition to allocating debt and interest as described above, our board
of directors has adopted certain allocation policies, each of which is reflected
in the financial statements of the respective groups included in this proxy
statement. In general, we will allocate our corporate overhead to each group
based upon the use of services by that group where practicable. Corporate
overhead includes costs of our personnel and employee benefits, legal,
accounting and auditing, tax, insurance, investor relations and stockholder
services and services related to our board of directors. We will allocate in a
similar manner a portion of our costs of administrative shared services, such as
information technology services. Where determinations based on use alone are not
practical, we will use other methods and criteria that we believe are equitable
and that provide a reasonable estimate of the cost attributable to the groups.


                                      -77-



                                      TAXES

     We will determine our federal income taxes and those of our subsidiaries
which own assets allocated between the groups on a consolidated basis. We will
allocate consolidated federal income tax provisions and related tax payments or
refunds between the groups based principally on the financial statements income,
taxable income and tax credits directly attributable to each group under
generally accepted accounting principles. Such allocations will reflect each
group's contribution, whether positive or negative, to our consolidated federal
taxable income and the consolidated federal tax liability and tax credit
position. We will credit tax benefits that can not be used by the group
generating those benefits but can be used on a consolidated basis to the group
that generated such benefits. Inter-group transactions will be treated as taxed
as if each group were a stand-alone company.

             COMMON STOCK OWNERSHIP OF DIRECTORS AND SENIOR OFFICERS

     As a policy, our board of directors will periodically monitor the ownership
of shares of AR-CombiMatrix stock and shares of AR-Acacia Technologies stock by
our directors and senior officers and our option grants to them so that their
interests are generally aligned with the two classes of common stock and with
their duty to act in the best interests of Acacia Research and our stockholders
as a whole. However, because of the anticipated differences in trading values
between the AR-CombiMatrix stock and the AR-Acacia Technologies stock, the
actual value of their interests in the AR-CombiMatrix stock and AR-Acacia
Technologies stock will vary significantly. Our board of directors will monitor
our affiliates' ownership and option grants in the two classes of stock to try
to avoid making additional option grants to affiliates that might incentivize
them to favor one group over the other.

      DESCRIPTION OF AR-COMBIMATRIX STOCK AND AR-ACACIA TECHNOLOGIES STOCK

     Following is a summary of the material terms of the AR-CombiMatrix stock
and the AR-Acacia Technologies stock. The summary is not complete. We encourage
you to read the proposed restated certificate of incorporation which is attached
as ANNEX B.

   AUTHORIZED AND OUTSTANDING SHARES

     Our existing certificate of incorporation authorizes us to issue 80,000,000
shares of stock, consisting of 60,000,000 shares of common stock, par value
$0.001 per share, and 20,000,000 shares of preferred stock, par value $0.001 per
share. Our board of directors may issue shares of preferred stock in series,
without stockholder approval. As of November 1, 2002, a total of 19,640,808
shares of our existing common stock and no shares of preferred stock were issued
and outstanding.

     The new certificate of incorporation will authorize Acacia Research to
issue 110,000,000 shares of stock as follows: 50,000,000 shares of a class of
common stock, designated as Acacia Research Corporation-CombiMatrix Common Stock
(the "AR-CombiMatrix stock"), 50,000,000 shares of a class of common stock,
designated as Acacia Research Corporation-Acacia Technologies Common Stock (the
"AR-Acacia Technologies stock"), and 10,000,000 shares of preferred stock.
Shares of each class of stock will have a par value of $0.001 per share. We will
be able to issue shares of preferred stock in series, without stockholder
approval.

     Immediately after the recapitalization and merger, assuming the number of
shares of existing Acacia Research common stock and CombiMatrix Corporation
common stock then outstanding is the same as the number outstanding on November
1, 2002, a total of 22,968,551 shares of AR-CombiMatrix stock and 19,640,808
shares of the AR-Acacia Technologies stock will be issued and outstanding.

   REASONS FOR INCREASE IN AUTHORIZED COMMON STOCK

     The increase in authorized shares is necessary in order to implement the
various aspects of the recapitalization proposal and the issuance of shares in
connection with the merger. The authorization of approximately 33,000,000 shares
of AR-CombiMatrix stock and approximately 27,000,000 shares of AR-Acacia
Technologies stock is needed for the recapitalization and merger to occur. These
estimates include approximately 10,000,000 shares of AR-CombiMatrix stock and
approximately 8,000,000 shares of AR-Acacia Technologies stock


                                      -78-



that will need to be reserved for issuance pursuant to option plans and
outstanding options and warrants. Further, as described under "--Conversion and
Redemption," our board of directors has the right to convert one class of common
stock into the other. The number of shares issuable in a conversion will vary
based on the relative market values of the two classes of common stock and the
number of outstanding shares of common stock being converted and whether or not
the conversion will be at a 10% premium. Our board of directors may also
authorize the issuance of stock dividends.

     If our board of directors determines that a conversion or a stock dividend
is in the best interests of Acacia Research, but at that time sufficient
authorized shares of common stock are not available, its stockholders would be
required to approve an amendment to the restated certificate of incorporation.

     Our board of directors believes that an increase in the number of
authorized shares of common stock at this time is in the best interests of
Acacia Research so that we have available the number of shares needed for
possible future conversion, dividends, acquisitions or capital raising, and for
our new stockholder rights plan and employee benefit plans.

     Other than the issuance of shares under our employee benefit plans or our
outstanding warrants and the issuance of options for AR-CombiMatrix stock and
AR-Acacia Technologies stock as discussed under "--Options to be Issued upon the
Recapitalization and Merger," or the issuance of shares to Nanogen, Inc. as
discussed below under the heading "Antidilution Provisions," we have no present
understanding or agreement for the issuance of any additional shares of
AR-CombiMatrix stock or AR-Acacia Technologies stock. Although our board of
directors has no present intention of doing so, the additional shares that would
be authorized for issuance if the recapitalization and merger is implemented
could be issued in one or more transactions that would make a takeover of Acacia
Research more difficult and, therefore, less likely, even though a takeover
might be financially beneficial to Acacia Research and our stockholders. We have
no knowledge of any person or entity that intends to seek a controlling interest
in Acacia Research or to make a takeover proposal.

     We may issue the authorized but unissued shares of AR-CombiMatrix stock and
AR-Acacia Technologies stock for any proper corporate purpose, which could
include any of the purposes set forth above. We will not solicit the approval of
our stockholders for the issuance of additional authorized shares of
AR-CombiMatrix stock or AR-Acacia Technologies stock unless our board of
directors believes that approval is advisable or is required by stock exchange
regulations or Delaware law.

   DIVIDENDS

     Dividends on the AR-CombiMatrix stock and dividends on the AR-Acacia
Technologies stock will be limited to an amount not greater than the Available
Dividend Amount (as defined in the restated certificate of incorporation) for
the relevant group. The Available Dividend Amount under our restated certificate
of incorporation is essentially the same as legally available funds under
Delaware law, both of which consist of either the surplus (market value of
assets less liabilities and par value) or, if there is no surplus, the net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.

     In addition, Delaware law limits the amount of distributions on capital
stock to legally available funds as defined under Delaware law, which are
determined on the basis of our entire company, and not only the respective
groups. As a result, the amount of legally available funds will reflect the
amount of any net losses of each group, any distributions on AR-CombiMatrix
stock, AR-Acacia Technologies stock or any preferred stock and any repurchases
of AR-CombiMatrix stock, AR-Acacia Technologies stock or certain preferred
stock. Dividend payments on the AR-CombiMatrix stock and on the AR-Acacia
Technologies stock could be precluded because legally available funds are not
available under Delaware law, even though the Available Dividend Amount test for
the particular relevant group was met. We cannot assure you that there will be
an Available Dividend Amount for either group.

     Subject to the prior payment of dividends on any outstanding shares of
preferred stock and the limitations described above, our board of directors will
be able, in its sole discretion, to declare and pay dividends exclusively on the
AR-CombiMatrix stock, exclusively on the AR-Acacia Technologies stock or on
both, in equal or unequal amounts. In making its dividend decisions, our board
of directors will not be required to take into account the


                                      -79-



relative Available Dividend Amounts for the two groups, the amount of prior
dividends declared on either class, the respective voting or liquidation rights
of either class or any other factor.

   VOTING RIGHTS

     Currently, holders of our existing common stock have one vote per share on
all matters submitted to stockholders.

     Under our proposed restated certificate of incorporation the entire voting
power of the stockholders of Acacia Research will be vested in the holders of
common stock, who will be entitled to vote on any matter on which the holders of
our stock are, by law or by the provisions of the restated certificate of
incorporation, entitled to vote, except as otherwise provided by law, by the
terms of any outstanding preferred stock or by any provision of the new
certificate of incorporation restricting the power to vote on a specified matter
to other stockholders.

     Holders of common stock will vote as a single class on each matter on which
holders of common stock are generally entitled to vote.

     On all matters as to which both classes of common stock will vote together
as a single class:

     o    each share of AR-CombiMatrix stock will have one vote; and

     o    each share of AR-Acacia Technologies stock will have a number of votes
          equal to the quotient of the average market value of a share of
          AR-Acacia Technologies stock over the 20-trading day period ending on
          the 10th trading day prior to the record date for determining the
          holders of common stock entitled to vote, divided by the average
          market value of a share of AR-CombiMatrix stock over the same period.

     Accordingly, the relative per share voting rights of the AR-CombiMatrix
stock and the AR-Acacia Technologies stock will fluctuate depending on changes
in the relative market values of shares of such classes of common stock. The
purpose of the floating voting power is to link voting power to relative
economic interests in Acacia Research.

     EXAMPLES OF THE CALCULATION OF THE NUMBER OF VOTES EACH SHARE OF AR-ACACIA
TECHNOLOGIES STOCK WOULD BE ENTITLED ON ALL MATTERS ON WHICH HOLDERS OF
AR-COMBIMATRIX STOCK AND AR-ACACIA TECHNOLOGIES STOCK VOTE AS A SINGLE CLASS

     EXAMPLE #1: If the average market values for the 20-trading day valuation
period were $4 for the AR-Acacia Technologies stock and $6 for the
AR-CombiMatrix stock, each share of AR-CombiMatrix stock would have one vote and
each share of AR-Acacia Technologies stock would have 0.67 votes based on the
following calculation:

             $4
             -- = 0.67 votes
             $6

     Based on the assumptions in this example, and assuming 20 million shares of
AR-CombiMatrix stock and 20 million shares of AR-Acacia Technologies stock were
outstanding, the shares of AR-CombiMatrix stock would represent approximately
60% of our total voting power and the shares of AR-Acacia Technologies stock
would represent approximately 40% of our total voting power.


                                      -80-



     EXAMPLE #2: If the average market values for the 20-trading day valuation
period were $5 for the AR-Acacia Technologies stock and $5 for the
AR-CombiMatrix stock, each share of AR-CombiMatrix stock would have one vote and
each share of AR-Acacia Technologies stock would have one (1) vote based on the
following calculation:

             $5
             -- = 1.0 vote
             $5

     Based on the assumptions in this example, and assuming 20 million shares of
AR-CombiMatrix stock and 20 million shares of AR-Acacia Technologies stock were
outstanding, the shares of AR-CombiMatrix stock would represent approximately
50% of our total voting power and the shares of AR-Acacia Technologies stock
would represent approximately 50% of our total voting power.

     EXAMPLE #3: If the average market values for the 20-trading day valuation
period were $6 for the AR-Acacia Technologies stock and $4 for the
AR-CombiMatrix stock, each share of AR-CombiMatrix stock would have one vote and
each share of AR-Acacia Technologies stock would have 1.50 votes based on the
following calculation:

             $6
             -- = 1.50 votes
             $4

     Based on the assumptions in this example, and assuming 20 million shares of
AR-CombiMatrix stock and 20 million shares of AR-Acacia Technologies stock were
outstanding, the shares of AR-CombiMatrix stock would represent approximately
40% of our total voting power and the shares of AR-Acacia Technologies stock
would represent approximately 60% of our total voting power.

     These examples, each of which is based on the assumption that the total
number of issued and outstanding shares of each class is 20,000,000, are
summarized in the table below:



                              ASSUMED                                       RELATIVE
                            SHARE PRICE     VOTING RIGHTS    TOTAL VOTES   VOTING POWER
                            -----------   ----------------   -----------   ------------
                                                                   
EXAMPLE #1:
   AR-CombiMatrix               $6         1.0 vote/share     20,000,000       60%
   AR-Acacia Technologies       $4        0.67 votes/share    13,333,333       40%

EXAMPLE #2:
   AR-CombiMatrix               $5         1.0 vote/share     20,000,000       50%
   AR-Acacia Technologies       $5         1.0 vote/share     20,000,000       50%

EXAMPLE #3:
   AR-CombiMatrix               $4         1.0 vote/share     20,000,000       40%
   AR-Acacia Technologies       $6        1.50 votes/share    30,000,000       60%


     IN THESE EXAMPLES WE HAVE PROVIDED A BETTER UNDERSTANDING OF THE MECHANICS
SURROUNDING THE CALCULATION OF VOTING POWER. IT SHOULD NOT BE ASSUMED THAT THE
EXAMPLES USED ARE IN ANY WAY INDICATIVE OF THE RESPECTIVE COMMON STOCK TRADING
PRICES FOLLOWING THE MERGER AND RECAPITALIZATION.

     We will set forth the number of outstanding shares of AR-CombiMatrix stock
and AR-Acacia Technologies stock in our Annual Reports on Form 10-K and our
Quarterly Reports on Form 10-Q filed under the Securities Exchange Act of 1934.
We will disclose in any proxy statement for a stockholders' meeting the number
of outstanding shares and per share voting rights of the AR-CombiMatrix stock
and the AR-Acacia Technologies stock.


                                      -81-



     If shares of only one class of common stock are outstanding, each share of
that class will have one vote. If either class of common stock is entitled to
vote as a separate class with respect to any matter, each share of that class
will, for purpose of such vote, have one vote on such matter.

     Fluctuations in the relative voting rights of the AR-CombiMatrix stock and
the AR-Acacia Technologies stock could influence an investor interested in
acquiring and maintaining a fixed percentage of the voting power of Acacia
Research to acquire such percentage of both classes of common stock and would
limit the ability of investors in one class to acquire for the same
consideration relatively more or less votes per share than investors in the
other class.

     The holders of AR-CombiMatrix stock and AR-Acacia Technologies stock will
not have any rights to vote separately as a class on any matter coming before
stockholders of Acacia Research, except for certain limited class voting rights
provided under Delaware law. In addition to the approval of the holders of a
majority of the voting power of all shares of common stock voting together as a
single class, the approval of a majority of the outstanding shares of the
AR-CombiMatrix stock or the AR-Acacia Technologies stock, voting as a separate
class, would be required under Delaware law to approve any amendment to the
restated certificate of incorporation that would change the par value of the
shares of the class or alter or change the powers, preferences or special rights
of the shares of such class so as to affect them adversely. As permitted by
Delaware law, the restated certificate of incorporation will provide that an
amendment to the restated certificate of incorporation that increases or
decreases the number of authorized shares of AR-CombiMatrix stock or AR-Acacia
Technologies stock will only require the approval of the holders of a majority
of the voting power of all shares of common stock, voting together as a single
class, and will not require the approval of the holders of the class of common
stock affected by such amendment, voting as a separate class.

   CONVERSION AND REDEMPTION

     Our existing certificate of incorporation currently does not provide for
either mandatory or optional conversion or redemption of our existing common
stock. The recapitalization proposal will permit the conversion or redemption of
the AR-CombiMatrix stock and the AR-Acacia Technologies stock as described
below.

   MANDATORY DIVIDEND, REDEMPTION OR CONVERSION OF COMMON STOCK IF DISPOSITION
OF GROUP ASSETS OCCURS

     If Acacia Research sells, transfers, assigns or otherwise disposes of, in
one transaction or a series of related transactions, all or substantially all of
the properties and assets attributed to either group (a "disposition"), we are
required, except as described below, to:

     o    pay a dividend in cash and/or securities or other property to the
          holders of shares of the class of common stock relating to the group
          subject to the disposition having a fair value equal to the net
          proceeds of the disposition; or

     o    (A) if the disposition involves all, but not merely substantially all,
          of such properties and assets, redeem all outstanding shares of common
          stock relating to that group in exchange for cash and/or securities or
          other property having a fair value equal to the net proceeds of the
          disposition; or (B) if the disposition involves substantially all, but
          not all, of such properties and assets, redeem that number of whole
          shares of the class of common stock relating to that group as have in
          the aggregate an average market value, during the period of ten
          consecutive trading days beginning on the 26th trading day immediately
          succeeding the consummation date, closest to the net proceeds of the
          disposition; and the redemption price will be cash and/or securities
          or other property having a fair value equal to such net proceeds; or

     o    convert each outstanding share of such class of common stock into a
          number of shares of common stock relating to the other group equal to
          110% of the ratio of the average market value of one share of common
          stock relating to the group subject to the disposition to the average
          market value of one share of common stock relating to the other group
          during the 10-trading day period beginning on the 26th trading day
          following the disposition date.


                                      -82-



     The purpose of this provision is to provide holders of each class of stock
with an economic interest in the proceeds of the disposition of the assets of
the respective group.

     Stockholder approval is typically required for the sale of all or
substantially all of a company's assets. However, we may dispose of all or
substantially all of the assets attributed to either group without stockholder
approval provided those assets do not constitute all or substantially all of the
assets of Acacia Research as a whole.

     We may only pay a dividend or redeem shares of common stock as set forth
above if we have legally available funds under Delaware law and the amount to be
paid to holders is less than or equal to the Available Dividend Amount for the
group. We are required to pay such dividend or complete such redemption or
conversion on or prior to the 95th trading day following the disposition.

     For purposes of determining whether a disposition has occurred,
"substantially all of the properties and assets" attributed to either group
means a portion of such properties and assets:

     o    that represents at least 80% of the then fair value of the properties
          and assets attributed to that group; or

     o    from which were derived at least 80% of the aggregate revenues of that
          group for the immediately preceding twelve fiscal quarterly periods.

     The "net proceeds" of a disposition means an amount equal to what remains
of the gross proceeds of the disposition after any payment of, or reasonable
provision is made as determined by our board of directors for:

     o    any taxes payable by us, or which would have been payable but for the
          utilization of tax benefits attributable to the group not subject to
          the disposition, in respect of the disposition or in respect of any
          resulting dividend or redemption;

     o    any transaction costs, including, without limitation, any legal,
          investment banking and accounting fees and expenses; and

     o    any liabilities of or attributed to the group subject to the
          disposition, including, without limitation, any liabilities for
          deferred taxes, any indemnity or guarantee obligations incurred in
          connection with the disposition or otherwise, any liabilities for
          future purchase price adjustments and any preferential amounts plus
          any accumulated and unpaid dividends in respect of the preferred stock
          attributed to that group.

     We may elect to pay the dividend or redemption price in connection with a
disposition either in the same form as the proceeds of the disposition were
received or in any other combination of cash, securities or other property that
our board of directors or, in the case of securities that have not been publicly
traded for a period of at least 15 months, an independent investment banking
firm, determines will have an aggregate market value of not less than the fair
value of the net proceeds.


                                      -83-



     EXAMPLE OF THE PROVISIONS REQUIRING A MANDATORY DIVIDEND, REDEMPTION OR
CONVERSION IF A DISPOSITION OCCURS

     If (1) 20 million shares of AR-CombiMatrix stock and 20 million shares of
AR-Acacia Technologies stock were outstanding, (2) the net proceeds of the
disposition of substantially all, but not all, of the assets of the Acacia
Technologies group equals $80 million, (3) the average market value of the
AR-Acacia Technologies stock during the 10-trading day valuation period was $4
per share and (4) the average market value of the AR-CombiMatrix stock during
the same valuation period was $8 per share, then we could do any of the
following:

     (1)  pay a dividend to the holders of shares of AR-Acacia Technologies
          stock equal to:

                        Net Proceeds                     =     Amount per share
          -------------------------------------------
                Number of Outstanding Shares of
                  AR-Acacia Technologies stock

                        $80 million                      =     $4 per share
          -------------------------------------------
                     20 million shares

     (2)  redeem for $4 per share a number of shares of AR-Acacia Technologies
          stock equal to:

                     Net Proceeds
          -------------------------------------------
          Average Market Value of AR-Acacia
                  Technologies stock                     =     Number of shares

                        $80 million
          -------------------------------------------
                        $4 per share                     =     20,000,000 shares

     (3)  convert each outstanding share of AR-Acacia Technologies stock into a
          number of shares of AR-CombiMatrix stock equal to:

                        Average Market Value of AR-Acacia
                               Technologies stock           =   Number of Shares
                        ---------------------------------
          1.1     X        Average Market Value of AR-
                                 CombiMatrix stock

                                    $4 per share            =   0.55 shares
                        ---------------------------------
          1.1     X                 $8 per share

     IN THESE EXAMPLES WE HAVE PROVIDED A BETTER UNDERSTANDING OF THE MECHANICS
SURROUNDING THE CALCULATION OF VOTING POWER. IT SHOULD NOT BE ASSUMED THAT THE
EXAMPLES USED ARE IN ANY WAY INDICATIVE OF THE RESPECTIVE COMMON STOCK TRADING
PRICES FOLLOWING THE MERGER AND RECAPITALIZATION.


                                      -84-



   EXCEPTIONS TO THE DIVIDEND, REDEMPTION OR CONVERSION REQUIREMENT IF A
DISPOSITION OCCURS

     We are not required to take any of the above actions for any disposition of
all or substantially all of the properties and assets attributed to either group
in a transaction or series of related transactions that results in our receiving
for such properties and assets primarily equity securities of any entity that:

     (1)  acquires such properties or assets, succeeds to the business conducted
          with such properties or assets, or controls such acquirer or
          successor; and

     (2)  engages primarily or proposes to engage primarily in one or more
          businesses similar or complementary to the businesses conducted by
          that group prior to the disposition, as determined by our board of
          directors.

     The purpose of the exception is to enable us technically to "dispose" of
properties or assets of a group to other entities engaging or proposing to
engage in businesses similar or complementary to those of that group without
requiring a dividend on, or a conversion or redemption of, the class of common
stock of that group, so long as we hold an equity interest in that entity. A
joint venture in which we own a direct or indirect equity interest is an example
of such an acquirer. We are not required to control that entity, whether by
ownership or contract provisions.

     We are also not required to effect a dividend, redemption or conversion if
the disposition is:

     o    of all or substantially all of our properties and assets in one
          transaction or a series of related transactions in connection with our
          dissolution, liquidation or winding up and the distribution of our
          assets to stockholders;

     o    on a pro rata basis, such as in a spin-off, to the holders of all
          outstanding shares of the class of common stock relating to the group
          subject to the disposition; or

     o    made to any person or entity controlled by us, as determined by our
          board of directors.

   NOTICES IF DISPOSITION OF GROUP ASSETS OCCURS

     Not later than the 20th trading day after the consummation of a
disposition, we will announce publicly by press release:

     o    the estimated net proceeds of the disposition;

     o    the number of shares outstanding of the class of common stock relating
          to the group subject to the disposition; and

     o    the number of shares of such class of common stock into or for which
          convertible securities are then convertible, exchangeable or
          exercisable and the conversion, exchange or exercise price thereof.

     Not earlier than the 36th trading day and not later than the 40th trading
day after the consummation of the disposition, we will announce publicly by
press release whether we will pay a dividend or redeem shares of common stock
with the net proceeds of the disposition or convert the shares of common stock
of the group subject to the disposition into the other class of common stock.

     We are required to cause to be mailed to each holder of shares of the class
of common stock relating to the group subject to the disposition the additional
notices and other information required by the restated certificate of
incorporation.


                                      -85-



   CONVERSION OF COMMON STOCK AT OPTION OF ACACIA RESEARCH AT ANY TIME

     Our board of directors may at any time convert each share of AR-CombiMatrix
stock into a number of shares of AR-Acacia Technologies stock equal to 110% of
the ratio of the average market values of the AR-CombiMatrix stock to the
AR-Acacia Technologies stock over a 20-trading day period. Conversely, our board
of directors may also at any time convert each share of AR-Acacia Technologies
stock into a number of shares of AR-CombiMatrix stock equal to 110% of the ratio
of the average market values of the AR-Acacia Technologies stock to the
AR-CombiMatrix stock over a 20-trading day period. We will calculate the ratio
as of the fifth trading day prior to the date Acacia Research mails the
conversion notice to holders.

     These provisions allow us the flexibility to recapitalize the two classes
of common stock into one class of common stock that would, after such
recapitalization, represent an equity interest in all of our businesses. The
optional conversion or redemption could be exercised at any future time if our
board of directors determines that, under the facts and circumstances then
existing, an equity structure consisting of two classes of common stock was no
longer in the best interests of all of its stockholders. Such exchange could be
exercised, however, at a time that is disadvantageous to the holders of one of
the classes of common stock.

     Many factors could affect the market values of the AR-CombiMatrix stock or
the AR-Acacia Technologies stock, including our results of operations and those
of each of the groups, trading volume and general economic and market
conditions. Market values could also be affected by decisions by our board of
directors or our management that investors perceive to affect differently one
class of common stock compared to the other. These decisions could include
changes to our management and allocation policies, transfers of assets between
groups, allocations of corporate opportunities and financing resources between
the groups and changes in dividend policies.

   REDEMPTION IN EXCHANGE FOR STOCK OF SUBSIDIARY

     Our board of directors may redeem on a pro rata basis all of the
outstanding shares of AR-CombiMatrix stock or AR-Acacia Technologies stock for
shares of the common stock of one or more of our wholly-owned subsidiaries which
own all of the assets and liabilities attributed to the relevant group. We may
redeem shares of common stock for subsidiary stock only if we have legally
available funds under Delaware law.

     These provisions are intended to give us increased flexibility with respect
to spinning-off the assets of one of the groups by transferring the assets of
that group to one or more wholly-owned subsidiaries and redeeming the shares of
common stock related to that group in exchange for stock of such subsidiary or
subsidiaries. As a result of any such redemption, holders of each class of
common stock would hold securities of separate legal entities operating in
distinct lines of business. Such a redemption could be authorized by our board
of directors at any time in the future if it determines that, under the facts
and circumstances then existing, an equity structure comprised of the
AR-CombiMatrix stock and the AR-Acacia Technologies stock is no longer in the
best interests of all of our stockholders as a whole.

   SELECTION OF SHARES FOR REDEMPTION

     If less than all of the outstanding shares of a class of common stock are
to be redeemed, we will redeem such shares proportionately from among the
holders of outstanding shares of such common stock or by such method as may be
determined by our board of directors to be equitable.

   FRACTIONAL INTERESTS; TRANSFER TAXES

     We will not be required to issue fractional shares of any capital stock or
any fractional securities to any holder of either class of common stock upon any
conversion, redemption, dividend or other distribution described above. If a
fraction is not issued to a holder, we will pay cash instead of such fraction.

     We will pay all documentary, stamp or similar issue or transfer taxes that
may be payable in respect of the issue or delivery of any shares of capital
stock and/or other securities on conversion or redemption of shares.


                                      -86-



   LIQUIDATION

     Currently, in the event of our liquidation, dissolution or termination,
after payment, or provision for payment, of its debts and other liabilities and
the payment of full preferential amounts to which the holders of any preferred
stock are entitled, holders of existing common stock are entitled to share
equally in the remaining net assets of Acacia Research.

     Under the restated certificate of incorporation, in the event of our
dissolution, liquidation or winding up, after payment or provision for payment
of the debts and other liabilities and full preferential amounts to which
holders of any preferred stock are entitled, regardless of the group to which
such shares of preferred stock were attributed, the holders of AR-CombiMatrix
stock and AR-Acacia Technologies stock will be entitled to receive our assets
remaining for distribution to holders of common stock on a per share basis in
proportion to the liquidation units per share of such class. The purpose of this
provision is to provide for the distribution of assets upon a liquidation that
reflects the initial relative economic interests of the respective classes of
stock.

     Each share of AR-CombiMatrix stock will have one liquidation unit. Each
share of AR-Acacia Technologies stock will have a number of liquidation units
equal to the quotient of the average market value of a share of AR-Acacia
Technologies stock over the 20-trading day period ending on the 40th trading day
after the effective date of the recapitalization, divided by the average market
value of a share of AR-CombiMatrix stock over the same period.

     After the number of liquidation units to which each share of AR-Acacia
Technologies stock is entitled has been calculated in accordance with this
formula, that number will not be changed without the approval of holders of the
class of common stock adversely affected except as described below. As a result,
after the date of the calculation of the number of liquidation units to which
the AR-Acacia Technologies stock is entitled the liquidation rights of the
holders of the respective classes of common stock may not bear any relationship
to the relative market values or the relative voting rights of the two classes.
We consider that liquidation is a remote contingency and believe that, in
general, these liquidation provisions are immaterial to trading in the
AR-CombiMatrix stock and the AR-Acacia Technologies stock.

     No holder of AR-CombiMatrix stock will have any special right to receive
specific assets of the CombiMatrix group and no holder of AR-Acacia Technologies
stock will have any special right to receive specific assets of the Acacia
Technologies group in the case of a dissolution, liquidation or winding up of
Acacia Research.

     If we subdivide or combine the outstanding shares of either class of common
stock or declare a dividend or other distribution of shares of either class of
common stock to holders of such class of common stock, the number of liquidation
units of either class of common stock will be appropriately adjusted, as
determined by our board of directors, to avoid any dilution in the aggregate,
relative liquidation rights of any class of common stock.

     Neither a merger nor consolidation of Acacia Research into or with any
other corporation, nor any sale, transfer or lease of all or any part of the
assets of Acacia Research, will, alone, be deemed a liquidation or winding up of
Acacia Research, or cause the dissolution of Acacia Research, for purposes of
these liquidation provisions.

   DETERMINATIONS BY OUR BOARD OF DIRECTORS

     Any determinations made in good faith by our board of directors under any
provision described under "Description of AR-CombiMatrix Stock and AR-Acacia
Technologies Stock," and any determinations with respect to any group or the
rights of holders of shares of either class of common stock, will be final and
binding on all of our stockholders, subject to the rights of stockholders under
applicable Delaware law and under the federal securities laws.

   PREEMPTIVE RIGHTS

     Neither the holders of AR-CombiMatrix stock nor the holders of AR-Acacia
Technologies stock will have any preemptive rights or any rights to convert
their shares into any other securities of Acacia Research.


                                      -87-



   ANTIDILUTION PROVISIONS

     Pursuant to a September 30, 2002 settlement agreement with Nanogen, Inc.,
CombiMatrix Corporation agreed to issue to Nanogen 4,016,346 shares, or 17.5% of
its outstanding shares post-issuance, and agreed to issue additional shares of
CombiMatrix Corporation common stock or, following the merger and
recapitalization, AR-CombiMatrix stock, to Nanogen under specified
circumstances, for the purpose of maintaining Nanogen's 17.5% ownership interest
in the CombiMatrix Corporation common stock. Specifically, Nanogen shall receive
additional shares of CombiMatrix Corporation common stock or AR-CombiMatrix
stock:

     o    for a period of three years from the date of the settlement agreement,
          in an amount equal to 17.5% of the number of shares of stock issued
          upon exercise of currently outstanding options and warrants to
          purchase CombiMatrix Corporation common stock or AR-CombiMatrix stock,
          as applicable, as well as any additional options and/or warrants
          granted prior to the date on which the stock is first publicly traded;

     o    for the period beginning on the date of the settlement agreement and
          ending on the earlier of (i) the date on which the CombiMatrix
          Corporation common stock or AR-CombiMatrix stock is first publicly
          traded or (ii) the date which is 100 days after the date of the
          settlement agreement, in an amount equal to 17.5% of the number of
          additional shares issued of CombiMatrix Corporation common stock or
          AR-CombiMatrix stock;

     o    for the period beginning on the date which is 100 days following the
          date of the settlement agreement and ending on the earlier of (i) the
          date on which the CombiMatrix Corporation common stock or
          AR-CombiMatrix stock is first publicly traded or (ii) the date which
          is 270 days after the date of the settlement agreement, in amount
          equal to the 17.5% of the number of shares of CombiMatrix Corporation
          common stock or AR-CombiMatrix common stock issued to any of
          CombiMatrix Corporation's existing stockholders, directors, officers
          or employees as of the date of the settlement agreement, or to
          specified strategic partners of CombiMatrix Corporation.

 MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE RECAPITALIZATION

     The following discussion is a summary of the material United States federal
income tax consequences of the proposed recapitalization. The discussion insofar
as it relates to you addresses only those of you who hold your Acacia Research
common stock, and will, after the recapitalization, hold your AR-Acacia
Technologies stock and AR-CombiMatrix stock, as capital assets. This summary
does not discuss all aspects of United States federal income taxation that may
be relevant to Acacia Research or our stockholders in light of their respective
particular tax circumstances, nor does it discuss any state, local, foreign or
non-income tax consequences. This discussion does not address the federal income
tax consequences that may be applicable to taxpayers subject to special
treatment under the Internal Revenue Code of 1986, as amended, which will be
referred to as the "Code" in the following discussion. For example, taxpayers
that may be subject to special treatment under the Code include:

     o    tax-exempt entities;

     o    partnerships, S corporations and other pass-through entities;

     o    mutual funds;

     o    small business investment companies;

     o    regulated investment companies;

     o    insurance companies and other financial institutions;

     o    dealers in securities;


                                      -88-



     o    traders that mark to market;

     o    stockholders who hold their shares as part of a hedge, appreciated
          financial position, straddle or conversion transaction;

     o    stockholders who acquired their shares through the exercise of options
          or otherwise as compensation or through a tax-qualified retirement
          plan; and

     o    individuals who are not citizens or residents of the United States,
          foreign corporations and other foreign entities.

     This discussion is based on the Code, Treasury Department regulations,
published positions of the Internal Revenue Service, which is referred to in the
following discussion as the "IRS," and court decisions now in effect, all of
which are subject to change. In particular, the United States Congress could
enact legislation or the Treasury Department could issue regulations or other
guidance, including, without limitation, regulations issued pursuant to its
broad authority under Section 337(d) of the Code, affecting the treatment of
stock with characteristics similar to the AR-Acacia Technologies stock and the
AR-CombiMatrix stock. Any such change, which may or may not be retroactive,
could alter the tax consequences discussed in this document.

     PricewaterhouseCoopers LLP has provided an opinion to us, based on the law
in effect as of the date of the filing of this proxy statement and prospectus,
regarding the material federal income tax consequences of the proposed
recapitalization. The opinion has been filed with the Securities and Exchange
Commission as an exhibit to the registration statement of which this proxy
statement and prospectus forms a part. The opinion relies on certain factual
background information which, in all material respects, is set forth in this
proxy statement and prospectus and on representations as to certain factual
matters and covenants, including those contained in the certificates furnished
by officers of Acacia Research to PricewaterhouseCoopers LLP, for purposes of
rendering its opinion. The opinion also relies on the following assumptions:

     o    The completion of the recapitalization in accordance with this proxy
          statement and prospectus.

     o    At all times relevant to the recapitalization, including periods
          following the recapitalization to the extent relevant, Acacia Research
          (i) is duly formed and in good standing under all applicable laws and
          regulations and (ii) will be treated as a corporation for United
          States federal income tax purposes under relevant IRS regulations.

     o    All items described as debt or stock in connection with the
          recapitalization have been, or will be, properly classified as debt or
          stock, respectively, for United States federal income tax purposes.

     o    Except as otherwise discussed in this proxy statement and prospectus,
          the stock of any entity described as "voting" stock will have the
          right to vote for all corporate directors, on a per share basis which
          is proportionate with all other shares of the entity's voting stock.

     o    Under applicable Delaware corporate law, the AR-CombiMatrix stock and
          the AR-Acacia Technologies stock will both qualify as voting stock of
          Acacia Research.

     o    The recapitalization (i) will be duly documented, (ii) will be
          effected in a manner that complies with all applicable legal and
          regulatory requirements, and (iii) will satisfy the arm's-length
          standard of section 482 of the Code and the IRS regulations issued
          thereunder because the terms of the recapitalization are assumed to be
          comparable to the terms of similar transactions between arm's-length
          parties. In addition, in the case of any transfer of stock in exchange
          for cash or other stock , the value of the consideration received will
          be approximately equal to the value of the shares surrendered.

     o    With respect to the shares of AR-Acacia Technologies stock and
          AR-CombiMatrix stock received by the Acacia Research stockholders in
          exchange for their Acacia Research common stock pursuant to the
          recapitalization, the Acacia Research stockholders will become the
          legal and beneficial owner of such


                                      -89-



          shares for purposes of all applicable laws and regulations at such
          time as title to such shares vests with them pursuant to the
          recapitalization.

     If any of the background information, or any of these assumptions, factual
representations or covenants are inaccurate, the conclusions contained in the
opinion could be affected.

     It is a condition to our obligation to consummate the recapitalization that
we receive an opinion of PricewaterhouseCoopers LLP, based upon reasonably
requested representation letters and dated as of the closing date of the
recapitalization, to the effect that the recapitalization will be treated as a
reorganization described in Section 368(a)(1)(E) of the Code under the law in
effect as of the closing date of the recapitalization, and we will not recognize
gain or loss by reason of the issuance of the AR-CombiMatrix stock and the
AR-Acacia Technologies stock, under the law in effect as of the closing date of
the recapitalization.

     The material United States federal income tax consequences of the
recapitalization proposal, as set forth in the opinion filed as an exhibit to
this proxy statement and prospectus are as follows:

     o    The AR-CombiMatrix stock and the AR-Acacia Technologies stock will be
          treated as stock of Acacia Research for federal income tax purposes.

     o    The exchange by you of your Acacia Research common stock for
          AR-CombiMatrix stock and AR-Acacia Technologies stock will constitute
          a recapitalization within the meaning of section 368(a)(1)(E) of the
          Code. We will be "a party to a reorganization" within the meaning of
          section 368(b) of the Code.

     o    No gain or loss will be recognized by you on the exchange of your
          Acacia Research common stock solely for AR-CombiMatrix stock and
          AR-Acacia Technologies stock.

     o    The payment of cash in lieu of fractional share interests of
          AR-CombiMatrix stock will be treated as if the fractional shares were
          distributed as part of the exchange to the exchange agent and then
          were purchased by the exchange agent. These cash payments will be
          treated as full payment for the stock as provided in section 1001 of
          the Code. Accordingly, you will recognize taxable gain on the receipt
          of such cash payment in an amount equal to the lesser of: (i) the
          amount of the cash payment you receive, or (ii) the excess of (A) the
          sum of the aggregate fair market values of the shares of
          AR-CombiMatrix stock and AR-Acacia Technologies stock you receive in
          the recapitalization, plus the amount of the cash payment received,
          over (B) your basis in all of your shares of Acacia Research common
          stock surrendered in the recapitalization.

     o    Your basis in the AR-CombiMatrix stock will equal a portion of your
          basis in the Acacia Research common stock surrendered in the exchange
          based on the relative fair market of the AR-CombiMatrix stock as
          compared to the total consideration received by you pursuant to the
          recapitalization. The holding period of the AR-CombiMatrix stock to be
          received by you will include the holding period of the Acacia Research
          common stock surrendered in exchange therefor, provided that you held
          the Acacia Research common stock as a capital asset as of the date of
          the exchange.

     o    Your basis in the AR-Acacia Technologies stock will equal a portion of
          your basis in the Acacia Research common stock surrendered in the
          exchange based on the relative fair market of the AR-Acacia
          Technologies stock as compared to the total consideration received by
          you pursuant to the recapitalization. The holding period of the
          AR-Acacia Technologies stock to be received by you will include the
          holding period of the Acacia Research common stock surrendered in
          exchange therefor, provided that you held the Acacia Research common
          stock as a capital asset as of the date of the exchange.

     o    No gain or loss will be recognized by us on the issuance of
          AR-CombiMatrix stock and AR-Acacia Technologies stock in exchange for
          the Acacia Research common stock.


                                      -90-



   NO IRS RULING

     We have not sought any ruling from the IRS in connection with the proposed
recapitalization. The IRS has announced that it will not issue advance rulings
on the classification of instruments similar to the AR-Acacia Technologies stock
and the AR-CombiMatrix stock that have certain voting and liquidation rights in
an issuing corporation but whose dividend rights are determined by reference to
the earnings of a segregated portion of the issuing corporation's assets,
including assets held by a subsidiary of the issuing corporation. In addition,
there are no court decisions or other authorities that bear directly on the tax
effects of the issuance and classification of stock with the features of the
AR-Acacia Technologies stock and the AR-CombiMatrix stock. Further, the tax
opinion described above is not binding on the IRS or the courts. Thus, it is
possible that the IRS could successfully take the position that:

     o    the AR-Acacia Technologies stock and the AR-CombiMatrix stock is stock
          of a separate corporation, not stock of Acacia Research;

     o    the receipt of AR-Acacia Technologies stock and AR-CombiMatrix stock
          in exchange for your Acacia Research common stock pursuant to the
          recapitalization is a taxable event to you, in which case you may be
          required to recognize taxable dividend income up to an amount equal to
          the lesser of: (i) the combined fair market value of the
          AR-CombiMatrix stock and AR-Acacia Technologies stock received, or
          (ii) Acacia Research's current and accumulated earnings and profits,
          if any, and you would be required to recognize a taxable gain in an
          amount equal to the excess of the combined fair market value of the
          AR-CombiMatrix stock and AR-Acacia Technologies stock received (less
          any dividend income you recognize) over your tax basis in your Acacia
          Research shares; and/or

     o    we recognized a significant taxable gain by reason of the
          recapitalization.

     The preceding summary of the tax opinion and related matters does not
purport to be a complete analysis or discussion of all potential tax effects
relevant to the recapitalization. Thus, you are urged to consult your own tax
advisors as to the specific tax consequences to you of the recapitalization,
including tax return reporting requirements, the applicability and effect of
federal, state, local, foreign and other tax laws and the effect of any proposed
changes in the tax laws.

                             STOCK EXCHANGE LISTINGS

     We have applied to list the AR-CombiMatrix stock and the AR-Acacia
Technologies stock on the NASDAQ National Market under the symbols "CBMX" and
"ACTG", respectively.

                               EXCHANGE PROCEDURES

     Upon consummation of the recapitalization, your stock certificates for our
existing common stock will represent shares of AR-CombiMatrix stock and
AR-Acacia Technologies stock. Shortly after the recapitalization, holders of
Acacia Research common stock will receive instructions on how they may exchange
their existing stock certificates for new certificates representing their
AR-CombiMatrix stock and their AR-Acacia Technologies stock. Prior to the
receipt of the new certificates, stockholders will be able to trade their shares
of AR-CombiMatrix stock and AR-Acacia Technologies stock through book entry with
our transfer agent, U.S. Stock Transfer Corporation.

                       STOCK TRANSFER AGENT AND REGISTRAR

     Our existing transfer agent, U.S. Stock Transfer Corporation, will act as
the registrar and transfer agent for both the AR-CombiMatrix stock and the
AR-Acacia Technologies stock.

                               FINANCIAL ADVISORS

     William Blair & Company, L.L.C. is acting as our sole advisor with respect
to the structuring of the recapitalization proposal. William Blair & Company's
role as our advisor has consisted of analyzing the current


                                      -91-



capitalization and organizational structure of our company and our subsidiaries,
meeting with us and helping us to develop a strategy on how best to improve the
capitalization and organizational structure, and responding to questions and
comments regarding the strategy raised by our management. We have agreed to pay
William Blair & Company a fee of $350,000.

     We have also agreed to reimburse William Blair & Company for their
reasonable out-of-pocket expenses, including the fees and expenses of their
lawyers, and to indemnify them against liabilities under the Securities Act of
1933, as amended (the "Securities Act"), and certain other liabilities.

                     EFFECT ON EXISTING OPTIONS AND WARRANTS

     If the recapitalization is implemented, each outstanding option and warrant
to acquire a share of Acacia Research common stock under our existing stock
option plans or warrants will be converted into separately exercisable options
or warrants, as the case may be, to acquire a fraction of a share of
AR-CombiMatrix stock and one share of AR-Acacia Technologies stock. The exact
conversion ratio for shares of AR-CombiMatrix stock will be equal to the
quotient obtained by dividing (a) the number of shares of CombiMatrix
Corporation common stock owned by Acacia Research immediately prior to the
effective time of the merger by (b) the total number of shares of Acacia
Research common stock issued and outstanding immediately prior to the effective
time. As of November 1, 2002, this fraction was 0.5582. The exercise price for
the resulting AR-Acacia Technologies stock options and warrants and
AR-CombiMatrix stock options and warrants will be calculated by multiplying the
exercise price under such existing stock option or warrant by a fraction, the
numerator of which is the result obtained by multiplying the opening price of
the applicable class of common stock underlying such option on the first date
such stocks are traded after the recapitalization times the applicable
conversion ratio and the denominator of which is the sum of such amounts for the
AR-CombiMatrix stock and the AR-Acacia Technologies stock.

     We intend to file a registration statement on Form S-8 to register shares
of AR-Acacia Technologies stock subject to AR-Acacia Technologies stock options.
We expect the registration statement will be effective shortly after the
effective time of the recapitalization.

         NO DISSENTERS' RIGHTS WITH RESPECT TO RECAPITALIZATION PROPOSAL

     Under Delaware law, stockholders who dissent from the recapitalization
proposal will not have appraisal rights with respect to the recapitalization.

                             NO REGULATORY APPROVALS

     No state or federal regulatory approvals are required for the
recapitalization.


                                      -92-



                               THE MERGER PROPOSAL

                            DESCRIPTION OF THE MERGER

     In the proposed merger, CombiMatrix Corporation will merge with and into a
specially-formed, wholly-owned subsidiary of Acacia Research. The merger
subsidiary will be the surviving corporation and will be renamed "CombiMatrix
Corporation." As a result of the merger, each outstanding share of CombiMatrix
Corporation common stock, other than those shares held by Acacia Research, will
be automatically converted into the right to receive one share of AR-CombiMatrix
stock. Shares of CombiMatrix Corporation common stock held by Acacia Research or
held by CombiMatrix Corporation as treasury stock will be canceled and will not
be converted into AR-CombiMatrix stock.

                     ISSUANCE OF SHARES; OWNERSHIP INTERESTS

     In the merger, holders of CombiMatrix Corporation common stock other than
Acacia Research will receive one share of AR-CombiMatrix stock for each share of
CombiMatrix Corporation common stock owned by such stockholders immediately
prior to the merger. In the recapitalization, the holders of Acacia Research
common stock will receive the same number of shares of AR-CombiMatrix stock as
the number of shares of CombiMatrix Corporation common stock held by Acacia
Research immediately prior to the effective time of the merger.

     As a result of these transactions, (a) holders of CombiMatrix Corporation
common stock other than Acacia Research will receive the same percentage of the
issued and outstanding shares of AR-CombiMatrix stock as such stockholders'
percentage ownership interest in the issued and outstanding shares of
CombiMatrix Corporation common stock immediately prior to the effective time of
the merger and (b) holders of Acacia Research common stock will receive, in the
aggregate, the same percentage of the issued and outstanding shares of
AR-CombiMatrix stock as Acacia Research's percentage ownership interest in the
issued and outstanding shares of CombiMatrix Corporation common stock
immediately prior to the effective time of the merger.

     The specific percentage of the issued and outstanding shares of
AR-CombiMatrix stock that will be received in the merger by holders of Acacia
Research common stock and CombiMatrix Corporation common stock will depend on
the specific percentage of the issued and outstanding shares of CombiMatrix
Corporation common stock owned by Acacia Research and the holders of CombiMatrix
Corporation common stock immediately prior to the effective time of the merger.
As of November 1, 2002, Acacia Research owned 47.7% of the issued and
outstanding shares of CombiMatrix Corporation common stock and the stockholders
of CombiMatrix Corporation other than Acacia Research owned the remaining 52.3%.
Accordingly, if the merger were to have occurred on November 1, 2002, holders of
Acacia Research common stock would have received 47.7% of the issued and
outstanding shares of AR-CombiMatrix stock and holders of CombiMatrix
Corporation common stock other than Acacia Research would have received 52.3% of
the issued and outstanding shares of AR-CombiMatrix stock.

     The relative percentage interests calculated on a fully diluted basis will
depend upon the number of options and warrants outstanding immediately prior to
the effective time of the merger. Based on the number of options and warrants
outstanding as of November 1, 2002, and not including shares to be issued to
Nanogen, Inc. pursuant to anti-dilution provisions of the settlement agreement
discussed in "Recent Developments" above, the holders of Acacia Research common
stock and options and warrants to purchase Acacia Research common stock would
receive 41.0% of the shares of AR-CombiMatrix stock calculated on a fully
diluted basis and the holders of CombiMatrix Corporation common stock, options
and warrants (other than Acacia Research) would receive 59.0% of the issued and
outstanding shares of AR-CombiMatrix stock calculated on a fully diluted basis.
The number of outstanding options and warrants of Acacia Research, and the
number of outstanding shares, options and warrants of CombiMatrix Corporation,
as of November 1, 2002, are set forth in the table below:


                                      -93-



                   ACACIA RESEARCH AND COMBIMATRIX CORPORATION
                    OUTSTANDING SHARES, OPTIONS AND WARRANTS
                             AS OF NOVEMBER 1, 2002
                   -------------------------------------------

ACACIA RESEARCH
   Issued and outstanding shares                            19,640,808
                                                            ----------
      Vested options and warrants                            4,288,319
      Unvested options and warrants                          1,399,089
                                                            ----------
   Outstanding options and warrants                          5,687,408
                                                            ==========
         Total                                              25,328,216

                                                        HELD BY STOCKHOLDERS
                                          HELD BY            OTHER THAN
                                      ACACIA RESEARCH      ACACIA RESEARCH
                                      ---------------   --------------------
COMBIMATRIX CORPORATION
   Issued and outstanding shares        10,963,277          12,005,274
                                        ----------          ----------
      Vested options and warrants                0           2,264,658*
      Unvested options and warrants              0           1,491,052*
                                        ----------          ----------
   Outstanding options and warrants              0           3,755,710
                                        ==========          ==========
         Total                          10,963,277          15,760,984*

     *    Does not include additional shares to be issued to Nanogen, Inc.
          pursuant to anti-dilution provisions of the settlement agreement
          discussed in "Recent Developments" above.

                    BACKGROUND OF AND REASONS FOR THE MERGER

     Please see "The Recapitalization Proposal - Background of and Reasons for
the Recapitalization Proposal" for detailed information regarding the background
of and reasons for the merger.

                    RECOMMENDATION OF OUR BOARD OF DIRECTORS

     OUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE MERGER PROPOSAL AND
BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF ACACIA RESEARCH AND OUR
STOCKHOLDERS. ACCORDINGLY, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU APPROVE THE MERGER PROPOSAL.


                                      -94-



 TABLE REGARDING SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information regarding the beneficial
ownership of the CombiMatrix Corporation stock as of November 1, 2002. The table
sets forth information regarding (i) all persons known to us to beneficially own
five percent (5%) or more of the CombiMatrix Corporation's common stock, (ii)
each director of CombiMatrix Corporation, (iii) each executive officer of
CombiMatrix Corporation, and (iv) all current directors and executive officers
as a group.



                                                      COMBIMATRIX CORPORATION COMMON STOCK
                                                  --------------------------------------------
                                                  AMOUNT AND NATURE OF BENEFICIAL
BENEFICIAL OWNER(1)                                          OWNERSHIP              PERCENT(2)
-----------------------------------------------   -------------------------------   ----------
                                                                                
Acacia Research Corporation (3)                             10,963,277                47.7%
Nanogen, Inc.                                                4,016,346                17.5%
Amit Kumar, Ph.D. (4)                                          104,862                   *
Donald D. Montgomery, Ph.D. (3)(5)                           2,265,416                 9.9%
Warren G. Hargis (6)                                            85,833                   *
Scott Burell, CPA (7)                                           20,000                   *
Jeffrey B. Oster, Ph.D. (8)                                     86,666                   *
Edward M. Eadeh (9)                                            113,020                   *
Brooke P. Anderson, Ph.D. (10)                                  67,861                   *
Brett L. Undem (11)                                             63,194                   *
Peter G. Edelman, Ph.D. (12)                                    10,313                   *
Paul R. Ryan (13)                                               36,250                   *
Robert L. Harris, II (14)                                       26,250                   *
Rigdon Currie (15)                                              48,750                   *
R. Bruce Stewart (16)                                           36,250                   *
Thomas B. Akin (17)                                             26,250                   *
All Directors and Executive Officers as a Group
(fourteen persons)(18)                                       2,990,915                12.6%


----------
*    Less than one percent

(1)  The address for Acacia Research Corporation, Mr. Ryan, Mr. Harris, Mr.
     Stewart and Mr. Akin is the principal offices of Acacia Research, located
     at 500 Newport Center Drive, Newport Beach, California 92660; the address
     for Nanogen, Inc. is 10398 Pacific Center Court, San Diego, California,
     92121; and the address for each other person is the principal offices of
     CombiMatrix Corporation, located at 6500 Harbour Heights Parkway, Mukilteo,
     Washington 98275.

(2)  The percentage of shares beneficially owned is based on 22,968,551 shares
     of CombiMatrix Corporation common stock outstanding as of November 1, 2002.
     Beneficial ownership is determined under rules and regulations of the
     Securities and Exchange Commission. Shares of CombiMatrix Corporation
     common stock subject to options that are currently exercisable or
     exercisable within 60 days after November 1, 2002 are deemed to be
     outstanding and beneficially owned by the person holding such options for
     the purpose of computing the number of shares beneficially owned and the
     percentage ownership of such person, but are not deemed to be outstanding
     for the purpose of computing the percentage ownership of any other person.
     Except as indicated in the footnotes to this table, and subject to
     applicable community property laws, we believe that such persons have sole
     voting and investment power with respect to all shares of CombiMatrix
     Corporation common stock shown as beneficially owned by them.

(3)  On April 19, 1996, an Agreement of Shareholders was executed by and between
     Acacia Research and Dr. Montgomery in connection with the issuance of
     CombiMatrix Corporation's common stock. Acacia Research and Dr. Montgomery
     may be deemed to be a "group" for purposes of 13(d)(3) of the Securities
     Exchange Act of 1934, as amended. Acacia Research and Dr. Montgomery may
     therefore be deemed to beneficially own those shares listed as beneficially
     owned by the other. The Agreement of Shareholders provides for certain
     rights and obligations regarding the nomination and election of directors.
     The listed holders disclaim beneficial ownership of the shares except to
     the extent that they have a pecuniary interest therein.


                                      -95-



(4)  Includes 104,862 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(5)  Includes 15,416 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(6)  Includes 78,333 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(7)  Includes  20,000 shares of  CombiMatrix  Corporation  common stock issuable
     upon  exercise of options  that are  currently  exercisable  or will become
     exercisable within 60 days of November 1, 2002.

(8)  Includes 86,666 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(9)  Includes 113,020 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(10) Includes 33,061 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(11) Includes 52,083 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(12) Includes 10,313 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(13) Includes 36,250 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(14) Includes 26,250 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(15) Includes 48,750 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(16) Includes 36,250 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(17) Includes 26,250 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

(18) Includes 687,504 shares of CombiMatrix Corporation common stock issuable
     upon exercise of options that are currently exercisable or will become
     exercisable within 60 days of November 1, 2002.

                              ACCOUNTING TREATMENT

     We will account for the acquisition of the equity interest of CombiMatrix
Corporation not held by us in the merger as a purchase of a business. Under this
method of accounting, the assets acquired and liabilities assumed of CombiMatrix
Corporation, including intangible assets, will be recorded at their fair market
values as of the date of their acquisition. The results of operations and cash
flows of CombiMatrix Corporation will be included in the financial statements of
the CombiMatrix group following the completion of the recapitalization and
merger.

     Consistent with generally accepted accounting principles ("GAAP"), amounts
assigned to purchased in-process research and development -- i.e., CombiMatrix
Corporation research and development projects that are still in process at the
closing of the merger, but which, if unsuccessful, have no alternative future
use -- must be charged as expenses on the date that the merger closes. As a
result of the merger, based on estimates used in the unaudited proforma
financial information provided elsewhere herein, we expect to incur a write-off
related to in-process research and development totaling approximately $10.3
million. The charge related to in-process research and development will be
reflected in Acacia Research Corporation's consolidated financial statement when
the merger is consummated and will be allocated to the CombiMatrix group.


                                      -96-



     Results of operations of CombiMatrix Corporation, including the related
amortization of intangible assets and write-off of in-process research and
development associated with the merger, will be included in the results of
operations of the CombiMatrix group subsequent to the date on which the merger
is completed.

      MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     The following discussion is a summary of the material United States federal
income tax consequences of the proposed merger. This summary does not discuss
all aspects of United States federal income taxation that may be relevant to
Acacia Research or our stockholders in light of their respective particular tax
circumstances, nor does it discuss any state, local, foreign or non-income tax
consequences. This discussion does not address the federal income tax
consequences that may be applicable to taxpayers subject to special treatment
under the Internal Revenue Code of 1986, as amended, which will be referred to
as the "Code" in the following discussion. For example, taxpayers that may be
subject to special treatment under the Code include:

     o    tax-exempt entities;

     o    partnerships, S corporations and other pass-through entities;

     o    mutual funds;

     o    small business investment companies;

     o    regulated investment companies;

     o    insurance companies and other financial institutions;

     o    dealers in securities;

     o    traders that mark to market;

     o    stockholders who hold their shares as part of a hedge, appreciated
          financial position, straddle or conversion transaction;

     o    stockholders who acquired their shares through the exercise of options
          or otherwise as compensation or through a tax-qualified retirement
          plan; and

     o    individuals who are not citizens or residents of the United States,
          foreign corporations and other foreign entities.

     This discussion is based on the Code, Treasury Department regulations,
published positions of the Internal Revenue Service, which is referred to in the
following discussion as the "IRS," and court decisions now in effect, all of
which are subject to change. In particular, the United States Congress could
enact legislation or the Treasury Department could issue regulations or other
guidance, including, without limitation, regulations issued pursuant to its
broad authority under Section 337(d) of the Code, affecting the treatment of
stock with characteristics similar to the AR-CombiMatrix stock. Any such change,
which may or may not be retroactive, could alter the tax consequences discussed
in this document.

     PricewaterhouseCoopers LLP has provided an opinion to us, based on the law
in effect as of the date of the filing of this proxy statement and prospectus,
regarding the material federal income tax consequences of the proposed merger.
The opinion has been filed with the Securities and Exchange Commission as an
exhibit to the registration statement of which this proxy statement and
prospectus forms a part. The opinion relies on certain factual background
information, which in all material respects, is set forth in this proxy
statement and prospectus and on representations as to certain factual matters
and covenants, including those contained in the certificates furnished by
officers of Acacia Research and CombiMatrix Corporation to
PricewaterhouseCoopers LLP, for purposes of rendering its opinion. The opinion
also relies on the following assumptions:


                                      -97-



     o    The completion of the merger in accordance with this proxy statement
          and prospectus.

     o    At all times relevant to the merger, including periods following the
          merger to the extent relevant, each of Acacia Research, CombiMatrix
          Corporation and Combi Acquisition Corp. (i) is duly formed and in good
          standing under all applicable laws and regulations and (ii) will be
          treated as a corporation for United States federal income tax purposes
          under relevant IRS regulations.

     o    All items described as debt or stock in connection with the merger
          have been, or will be, properly classified as debt or stock,
          respectively, for United States federal income tax purposes.

     o    Except as otherwise discussed in this proxy statement and prospectus,
          the stock of any entity described as "voting" stock will have the
          right to vote for all corporate directors, on a per share basis which
          is proportionate with all other shares of the entity's voting stock.

     o    Under applicable Delaware corporate law, the AR-CombiMatrix stock will
          qualify as voting stock of Acacia Research.

     o    Under applicable Delaware corporate law, Acacia Research will be the
          sole stockholder of Combi Acquisition Corp., successor to CombiMatrix
          Corporation, upon completion of the merger. As of that same time,
          Acacia Research will be the sole stockholder (directly or indirectly)
          of the following corporations: (i) CombiMatrix Corporation, which
          along with Advanced Material Sciences, Inc., a majority-owned
          subsidiary of CombiMatrix, will be the sole entities comprising the
          CombiMatrix group, and (ii) Soundview Technologies, Inc. and Acacia
          Media Technologies Corporation, which will collectively principally
          comprise the Acacia Technologies group.

     o    The merger will qualify as a statutory merger under applicable
          Delaware corporate law.

     o    The merger (i) will be duly documented, (ii) will be effected in a
          manner that complies with all applicable legal and regulatory
          requirements, and (iii) will satisfy the arm's-length standard of
          section 482 of the Code and the IRS regulations issued thereunder
          because the terms of the merger are assumed to be comparable to the
          terms of similar transactions between arm's-length parties. In
          addition, in the case of any transfer of stock in exchange for cash or
          stock of the transferee entity, the value of the consideration
          received will be approximately equal to the value of the shares
          surrendered.

     o    With respect to each transfer of a transferred asset, the respective
          transferee will become the legal and beneficial owner of the asset for
          purposes of all applicable laws and regulations at such time as title
          to the transferred asset vests with the transferee pursuant to the
          merger.

     If any of the background information or any of these assumptions, factual
representations or covenants are inaccurate, the conclusions contained in the
opinion could be affected.

     The Acacia Research stockholders will not exchange any stock of Acacia
Research in the merger. Therefore, no gain or loss will be recognized by the
Acacia Research stockholders in the merger with respect to their shares of
Acacia Research common stock. However, pursuant to the terms of the
recapitalization, the Acacia Research stockholders will exchange their Acacia
Research common stock for shares of AR-CombiMatrix stock and AR-Acacia
Technologies stock. The material United States federal income tax consequences
of the recapitalization are described above under the caption "Material United
States Federal Income Tax Consequences of the Recapitalization."

     The material federal income tax consequences of the merger, as set forth in
the opinion filed as an exhibit to this proxy statement and prospectus are as
follows:

     o    The AR-CombiMatrix stock will be treated as stock of Acacia Research
          for federal income tax purposes.


                                      -98-



     o    The transfer by operation of law pursuant to the merger of
          substantially all of the assets of CombiMatrix Corporation to Combi
          Acquisition Corp. in exchange for AR-CombiMatrix stock and the
          assumption by Combi Acquisition Corp. of the liabilities of
          CombiMatrix Corporation by operation of law pursuant to the merger
          plus the liabilities to which the CombiMatrix Corporation assets may
          be subject, will qualify as a reorganization within the meaning of
          Sections 368(a)(1)(A) an 368(a)(2)(D) of the Code (which set forth
          certain requirements for certain types of tax-free reorganizations).
          For purposes of this paragraph, "substantially all" means at least 90
          percent of the fair market value of the net assets and at least 70
          percent of the fair market value of the gross assets of CombiMatrix
          Corporation. Acacia Research, Combi Acquisition Corp., and CombiMatrix
          Corporation will each be "a party to a reorganization" within the
          meaning of section 368(b) of the Code.

     o    No gain or loss will be recognized to CombiMatrix Corporation on the
          transfer of substantially all of its assets to Combi Acquisition Corp.
          by operation of law pursuant to the merger in exchange for
          AR-CombiMatrix stock, cash to pay dissenters, if any, and the
          assumption by Combi Acquisition Corp. of the liabilities of
          CombiMatrix Corporation by operation of law pursuant to the merger,
          since the cash will be distributed to the dissenting stockholders of
          CombiMatrix Corporation pursuant to the plan of reorganization.

     o    No gain or loss will be recognized by us or Combi Acquisition Corp. on
          the transfer by operation of law pursuant to the merger of
          substantially all of CombiMatrix Corporation's assets to Combi
          Acquisition Corp. in exchange for AR-CombiMatrix stock, cash, if any,
          and the assumption of the liabilities of CombiMatrix Corporation by
          operation of law pursuant to the merger.

     o    Combi Acquisition Corp. will not recognize gain or loss when it
          exchanges AR-CombiMatrix stock for substantially all the assets of
          CombiMatrix Corporation by operation of law pursuant to the merger.

     o    The CombiMatrix Corporation stockholders will not recognize gain or
          loss when they exchange their CombiMatrix Corporation common stock
          solely for AR-CombiMatrix stock by operation of law pursuant to the
          merger (including any fractional share interests to which they may be
          entitled).

     o    The payment of cash to CombiMatrix Corporation stockholders in lieu of
          fractional share interests of AR-CombiMatrix stock will be treated as
          if the fractional shares were distributed as part of the exchange to
          the exchange agent and then were purchased by the exchange agent.
          These cash payments will be treated as full payment for the stock as
          provided in Section 1001(a) of the Code. Accordingly, each CombiMatrix
          Corporation stockholder will recognize taxable gain on the receipt of
          these cash payments in an amount equal to the lesser of: (i) the
          amount of the cash payment received by the stockholder, or (ii) the
          excess of (A) the sum of the aggregate fair market value of the shares
          of AR-CombiMatrix stock received by the stockholder in the merger,
          plus the amount of the cash payment received, over (B) the
          stockholder's basis in all of the stockholder's shares of CombiMatrix
          Corporation common stock surrendered in the merger.

     o    The CombiMatrix Corporation stockholders' (other than Acacia) basis in
          the AR-CombiMatrix stock (including any fractional share interests to
          which they may be entitled) received pursuant to the merger will be
          equal to the basis they had in their CombiMatrix Corporation common
          stock.

     o    The holding period of the AR-CombiMatrix stock to be received by the
          CombiMatrix Corporation stockholders pursuant to the merger (including
          any fractional share interests to which they may be entitled) will
          include the holding period of the CombiMatrix Corporation common stock
          to be surrendered pursuant to the merger in exchange therefor,
          provided the CombiMatrix Corporation common stock is held as a capital
          asset in the hands of the CombiMatrix Corporation stockholders on the
          date of the exchange.

     o    Combi Acquisition Corp.'s tax basis in the assets transferred to it by
          operation of law pursuant to the merger will equal CombiMatrix
          Corporation's basis in those assets. Combi Acquisition Corp.'s holding
          period in the assets it receives pursuant to the merger will include
          CombiMatrix Corporation's holding period in such assets.


                                      -99-



     o    Our basis in the Combi Acquisition Corp. stock will be adjusted as if:

          o    we received the assets of CombiMatrix Corporation which were
               transferred by operation of law to Combi Acquisition Corp. in the
               merger (and we assumed any liabilities which Combi Acquisition
               Corp. assumed or to which the CombiMatrix Corporation assets
               received were subject) directly from CombiMatrix Corporation in a
               transaction in which our basis in the assets of CombiMatrix
               Corporation was determined under Section 362(b) of the Code
               (which governs the determination of a corporation's tax basis in
               property received in certain types of tax-free transactions); and

          o    we then transferred the CombiMatrix Corporation assets (and
               liabilities which Combi Acquisition Corp. assumed by operation of
               law in the merger or to which the CombiMatrix Corporation assets
               acquired by Combi Acquisition Corp. were subject) to Combi
               Acquisition Corp. in a transaction in which our basis in Combi
               Acquisition Corp. stock was determined under Section 358 of the
               Code (which governs the determination of a stockholder's tax
               basis in stock received in certain types of tax-free
               transactions). The purpose of this basis adjustment, which is
               required under IRS regulations, is to reflect the basis of
               CombiMatrix Corporation's assets in the basis of Acacia
               Research's stock in Combi Acquisition Corp. immediately upon the
               completion of the merger.

     o    NO IRS RULING

     We have not sought any ruling from the IRS in connection with the proposed
merger. The IRS has announced that it will not issue advance rulings on the
classification of an instrument similar to the AR-CombiMatrix stock that has
certain voting and liquidation rights in an issuing corporation but whose
dividend rights are determined by reference to the earnings of a segregated
portion of the issuing corporation's assets, including assets held by a
subsidiary of the issuing corporation. In addition, there are no court decisions
or other authorities that bear directly on the tax effects of the issuance and
classification of stock with the features of the AR-CombiMatrix stock. Further,
the tax opinion described above is not binding on the IRS or the courts. Thus,
it is possible that the IRS could successfully take the position that:

     o    the AR-CombiMatrix stock is stock of a separate corporation, not stock
          of Acacia Research;

     o    we recognized a significant taxable gain by reason of the merger or
          the issuance of AR-CombiMatrix stock; and/or

     o    CombiMatrix Corporation is not includable in our consolidated United
          States federal income tax return, and, among other things, any
          dividends paid or deemed paid to us by CombiMatrix Corporation could
          be taxable to us, subject to any applicable dividends received
          deduction.

     The preceding summary of the tax opinion and related matters does not
purport to be a complete analysis or discussion of all potential tax effects
relevant to the merger. Thus, you are urged to consult your own tax advisors as
to the specific tax consequences to you of the merger, including tax return
reporting requirements, the applicability and effect of federal, state, local,
foreign and other tax laws and the effect of any proposed changes in the tax
laws.

     OTHER TAX MATTERS

     It is a condition to our obligation to consummate the merger that we
receive an opinion of PricewaterhouseCoopers LLP, based upon reasonably
requested representation letters and dated as of the closing date, to the effect
that the merger will be treated as a reorganization described in Section 368(a)
of the Code under the law in effect as of the closing date of the merger, and we
will not recognize gain or loss by reason of the issuance of AR-CombiMatrix
stock, under the law in effect as of the closing date of the merger. In
addition, it is a condition to the obligation of CombiMatrix Corporation to
consummate the merger that CombiMatrix Corporation receive an opinion of
PricewaterhouseCoopers LLP, based upon reasonably requested representation
letters and dated as of the closing date, to the effect that the merger will be
treated as a reorganization described in Section 368(a) of the Code under the
law in effect as of the closing date of the merger. Neither we nor CombiMatrix
Corporation currently intend to waive the condition that we and CombiMatrix
Corporation receive the respective tax opinions described


                                     -100-



above. In the unlikely event that the parties do decide to waive the condition,
however, we will recirculate this document to disclose the waiver of the
condition and all related material disclosures, including the risks to our
stockholders, if any, resulting from the waiver, and will resolicit proxies from
our stockholders.

     APPRAISAL RIGHTS

     Our stockholders will not have any dissenters' or appraisal rights under
Delaware law in connection with the merger. CombiMatrix Corporation
stockholders, however, who object to the merger will have dissenters' appraisal
rights.

     RESTRICTIONS ON RESALE OF AR-COMBIMATRIX COMMON STOCK BY AFFILIATES OF
     ACACIA RESEARCH AND COMBIMATRIX CORPORATION

     The shares of AR-CombiMatrix stock to be received by the stockholders of
CombiMatrix Corporation in connection with the merger have been registered under
the Securities Act and, except as set forth in this paragraph, may be traded
without restriction. The shares of AR-CombiMatrix stock to be issued in
connection with the merger and received by persons who may be deemed to be
"affiliates" (as that term is defined in Rule 144 under the Securities Act) of
Acacia Research or CombiMatrix Corporation prior to the merger may be resold by
them only in transactions permitted by the resale provisions of Rule 145 under
the Securities Act or as otherwise permitted under the Securities Act.

   FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTION AGREEMENTS

     This document does not cover any resales of the shares of AR-CombiMatrix
stock to be received by CombiMatrix Corporation's stockholders in the merger,
and no person is authorized to make any use of this document in connection with
any such resale.

     All shares of AR-CombiMatrix stock that CombiMatrix Corporation
stockholders receive in the merger will be freely transferable, with the
exception of (a) the shares of AR-CombiMatrix stock received by persons who are
deemed to be "affiliates" of CombiMatrix under the Securities Act and the rules
and regulations promulgated under that Act, at the time of the CombiMatrix
Corporation special meeting, and (b) shares subject to any "market standoff
agreement" as described below. Persons who are deemed "affiliates" may re-sell
their shares of AR-CombiMatrix stock only in transactions permitted by Rule 145
under the Securities Act or as otherwise permitted under that Act. Persons who
may be deemed to be affiliates of CombiMatrix Corporation for such purposes
generally include individuals or entities that control, are controlled by or are
under common control with CombiMatrix Corporation and may include some officers,
directors and principal stockholders of CombiMatrix Corporation. The merger
agreement provides that, subject to applicable law, CombiMatrix Corporation
share certificates surrendered for exchange pursuant to the merger agreement by
any person constituting an "affiliate" of CombiMatrix Corporation will not be
exchanged until Acacia Research receives an executed letter agreement to the
effect that those persons will not offer or sell or otherwise dispose of any
shares of AR-CombiMatrix stock issued to them in the merger in violation of the
Securities Act.

     One of the conditions to our obligation to consummate the merger is that
each director, officer and employee of CombiMatrix Corporation who is also a
stockholder of CombiMatrix Corporation shall have executed a "market standoff
agreement" pursuant to which each such person shall have agreed not to sell any
shares of AR-CombiMatrix stock received in the merger for a period of six (6)
months after the effective time of the merger. Accordingly, all such directors,
officers and employees who enter into such market standoff agreements will not
be permitted to sell any of the shares of AR-CombiMatrix stock that they receive
in the merger during the six (6) month period following the merger.


                                     -101-



                  PRINCIPAL PROVISIONS OF THE MERGER AGREEMENT

     The following is a summary of significant provisions of the merger
agreement. For a more complete understanding of the merger agreement, you should
read the agreement. The merger agreement is attached as ANNEX A and is
incorporated into this proxy statement/prospectus by reference.

                        GENERAL DESCRIPTION OF THE MERGER

     In the proposed merger, CombiMatrix Corporation will merge into a
specially-formed, wholly-owned subsidiary of Acacia Research. The merger
subsidiary will be the surviving corporation and will be renamed "CombiMatrix
Corporation."

     Immediately prior to the consummation of the merger, we will file our
restated certificate of incorporation with the Delaware Secretary of State.
Among other things, our restated certificate of incorporation will authorize the
AR-CombiMatrix stock and the AR-Acacia Technologies stock and will split our
outstanding common stock into shares of these two classes of common stock.

     As a result of the merger, each outstanding share of CombiMatrix
Corporation common stock, other than those shares held by Acacia Research, will
be automatically converted into the right to receive one share of AR-CombiMatrix
stock. Shares of CombiMatrix Corporation common stock held by Acacia Research or
held by CombiMatrix Corporation as treasury stock will be canceled and will not
be converted into AR-CombiMatrix stock.

                                 EFFECTIVE TIME

     We expect to close the merger shortly after the special meeting of
stockholders. The merger will be effective upon the filing of appropriate
documents with the Delaware Secretary of State, or at such later time as we may
specify in those documents. We plan to file those documents soon after the
special stockholders meeting.

       CONVERSION OF SHARES AND CONSIDERATION TO BE RECEIVED IN THE MERGER

     At the effective time of the merger:

     o    each issued and outstanding share of CombiMatrix Corporation common
          stock, other than shares owned by Acacia Research and our affiliates,
          will be converted into the right to receive one share of
          AR-CombiMatrix stock; and

     o    each share of CombiMatrix Corporation common stock owned by us and our
          affiliates will be canceled.

             EXCHANGE OF COMBIMATRIX CORPORATION STOCK CERTIFICATES

     Promptly after the effective time of the merger, we or the exchange agent
will mail the following materials to each person who holds shares of CombiMatrix
Corporation common stock as of the effective time:

     o    a letter of transmittal to be used by the holder to surrender its
          shares and send them to the exchange agent to be exchanged for the
          merger consideration; and

     o    instructions explaining to the holder what to do to effect the
          exchange of its shares of CombiMatrix Corporation common stock for the
          merger consideration.

     We will honor a request from a person surrendering a CombiMatrix
Corporation common stock certificate that the AR-CombiMatrix stock being given
in exchange be issued to a person other than the registered holder named on the
exchange agent's books so long as the requesting person (which is approximately
the same percentage interest as Acacia Research's current stock ownership
interest in CombiMatrix Corporation):


                                     -102-



     o    submits all documents necessary to evidence and effect the transfer to
          the new holder; and

     o    pays any transfer or other taxes resulting from issuing shares of
          AR-CombiMatrix stock to a person other than the registered holder of
          the certificate, unless the requesting person satisfactorily
          establishes to Acacia Research that any tax has been paid or is
          inapplicable.

     Holders of CombiMatrix Corporation common stock exchanged for
AR-CombiMatrix stock in the merger will be entitled to receive dividends and
other distributions on AR-CombiMatrix stock (without interest) that are declared
or made with a record date after the effective time. However, dividends or other
distributions will not be paid to any former holder of CombiMatrix Corporation
common stock until that holder surrenders its shares of CombiMatrix Corporation
common stock to the exchange agent.

               TREATMENT OF COMBIMATRIX CORPORATION STOCK OPTIONS

     At the effective time of the merger, each outstanding option to purchase
shares of CombiMatrix Corporation common stock under CombiMatrix Corporation's
1995 Stock Option Plan, 1998 Stock Option Plan and 2000 Stock Awards Plan,
whether or not exercisable, will be assumed by us. Each assumed option will
continue to be governed by the same terms and conditions that governed it under
the applicable CombiMatrix Corporation plan immediately before the effective
time of the merger except that the option will be exercisable for shares of
AR-CombiMatrix stock rather than CombiMatrix Corporation common stock. The
number of shares of AR-CombiMatrix stock issuable upon exercise of the assumed
option, as well as the exercise price, will be the same as the number of shares
of CombiMatrix Corporation common stock issuable and exercise price prior to the
merger.

     We have agreed to file a registration statement on Form S-8 to register the
shares of AR-CombiMatrix stock subject to AR-CombiMatrix stock options. We
expect that the registration statement will be effective shortly after the
effective time of the merger.

     On November 1, 2002, options to purchase 3,717,660 shares of CombiMatrix
Corporation common stock were outstanding and the weighted average exercise
price of those options was $9.45 per share.

                  TREATMENT OF COMBIMATRIX CORPORATION WARRANTS

     At the effective time of the merger, each outstanding warrant to purchase
shares of CombiMatrix Corporation common stock will be assumed by us. Each
assumed warrant will continue to be governed by the same terms and conditions
that governed it immediately before the effective time of the merger except that
the warrant will be exercisable for shares of AR-CombiMatrix stock rather than
CombiMatrix Corporation common stock. The number of shares of AR-CombiMatrix
stock issuable upon exercise of the assumed warrant, as well as the exercise
price, will be the same as the number of shares of CombiMatrix Corporation
common stock issuable and exercise price prior to the merger.

    TREATMENT OF COMBIMATRIX CORPORATION BENEFITS AND OTHER EMPLOYEE MATTERS

     Except as described above with respect to the existing stock option plans
and the proposed new stock incentive plans, there will not be any change in
employee benefit programs or employee benefits as a result of the merger.
Immediately after the merger employees will have the same credit, under employee
benefit programs for time served in terms of eligibility, vesting, benefit
accrual and determination of the level of benefits.

                         REPRESENTATIONS AND WARRANTIES

     The merger agreement contains representations and warranties by us, Combi
Acquisition Corp., our wholly-owned subsidiary which CombiMatrix Corporation
will be merged with and into in the merger, and CombiMatrix Corporation which we
believe are usual and customary in transactions such as the merger.


                                     -103-



                               PRINCIPAL COVENANTS

     COMBIMATRIX CORPORATION'S CONDUCT OF BUSINESS PENDING THE MERGER

     Pursuant to the merger agreement, CombiMatrix Corporation has agreed that,
until the effective time of the merger, CombiMatrix Corporation will carry on
its business in substantially the same manner as conducted prior to the date of
the merger agreement.

     COVENANTS OF ACACIA RESEARCH

     Pursuant to the merger agreement, we have agreed that, after the effective
time of the merger, we will:

     o    assume the CombiMatrix Corporation common stock options, and file a
          registration statement on Form S-8 with the Securities and Exchange
          Commission to register the shares issuable under those assumed
          options; and

     o    indemnify each officer and director of CombiMatrix Corporation as of
          the effective date and obtain a policy of directors' and officers'
          liability insurance for a three year period after the effective date.

     There are exceptions to these obligations in the merger agreement.
CombiMatrix Corporation may also agree to further exceptions in writing.

     OTHER COVENANTS

     The merger agreement contains additional covenants which we believe are
usual and customary in transactions such as the merger, including a general
covenant requiring each party to use its reasonable best efforts to effect the
consummation of the merger.

                  CONDITIONS TO THE CONSUMMATION OF THE MERGER

     CONDITIONS TO EACH PARTY'S OBLIGATIONS

     Each party's obligation to consummate the merger is subject to the
satisfaction of the following conditions:

     o    No court or other governmental entity of competent jurisdiction shall
          have entered, enacted, issued or enforced any judgment, order,
          statute, law or regulation that would prevent the completion of the
          merger, nor shall any suit, action or proceeding be pending that would
          prevent completion of the merger;

     o    Each party's stockholders shall have approved and adopted the merger
          agreement, and our stockholders shall have approved the
          recapitalization proposal;

     o    The registration statement on Form S-4 filed with the Securities and
          Exchange Commission has been declared effective, and no stop order has
          been issued;

     o    The shares of AR-CombiMatrix stock to be issued in the merger to the
          stockholders of CombiMatrix Corporation shall have been approved for
          listing on the NASDAQ National Market; and

     o    Each party shall have received the opinion of PricewaterhouseCoopers
          LLP, to the effect that the merger will be treated for federal income
          tax purposes as a reorganization described in Section 368(a) of the
          federal income tax code, and neither we nor Combi Acquisition Corp.
          will recognize gain or loss by reason of the issuance of the
          AR-CombiMatrix stock.


                                     -104-



     ADDITIONAL CONDITIONS TO OUR OBLIGATIONS

     Our obligation to consummate the merger is subject to the satisfaction of
the following additional conditions, which may be waived in writing exclusively
by Acacia Research:

     o    The representations and warranties of CombiMatrix Corporation in the
          merger agreement shall be true and correct in all respects on and as
          of the effective time of the merger, and CombiMatrix Corporation shall
          have performed and complied in all material respects with all of its
          covenants and obligations under the merger agreement;

     o    No material adverse effect with respect to CombiMatrix Corporation
          shall have occurred since the date of the merger agreement, and no
          events or circumstances shall have occurred since then that would have
          a material adverse effect on CombiMatrix Corporation;

     o    Any and all consents, waivers, assignments and approvals of
          CombiMatrix Corporation shall have been obtained;

     o    We shall have been provided  with a certificate  executed on behalf of
          CombiMatrix  Corporation by its president and chief executive officer,
          its chief  operating  officer  or its chief  financial  officer to the
          effect  that,  as  of  the  effective  time  of  the  merger,  certain
          conditions have been met;

     o    There shall be no more than one percent of the outstanding shares of
          CombiMatrix Corporation common stock dissenting to the merger
          agreement and seeking appraisal rights;

     o    There shall not have been a "change of law" that, in our good faith
          judgment after consultation with its external advisors, could, if
          adopted, be reasonably likely to have a material adverse tax
          consequence to CombiMatrix Corporation, its stockholders, us or our
          stockholders arising from the transactions contemplated by the merger
          agreement;

     o    Each director, officer and employee of CombiMatrix Corporation who is
          also a stockholder of CombiMatrix Corporation common stock shall have
          executed a "market standoff agreement" pursuant to which such person
          shall agree not to sell any AR-CombiMatrix stock which they receive in
          the merger for a period of six (6) months after the effective time;
          and

     o    We shall be satisfied, in our reasonable discretion, that the merger
          will not be deemed a "change of control" under the CombiMatrix
          Corporation Executive Severance Plan.

     ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMBIMATRIX CORPORATION

     The obligation of  CombiMatrix  Corporation to effect the merger is subject
to the satisfaction of each of the following additional conditions, any of which
may be waived in writing exclusively by CombiMatrix Corporation:

     o    Our representations and warranties in the merger agreement shall be
          true and correct in all respects on and as of the effective time of
          the merger, and we shall have performed and complied in all material
          respects with all of our covenants and obligations under the merger
          agreement;

     o    No material adverse effect with respect to our existing business shall
          have occurred since the date of the merger agreement and no events or
          circumstances shall have occurred since such date that would have a
          material adverse effect on our existing business;

     o    There shall not have been a "change of law" that, in the good faith
          judgment of CombiMatrix Corporation after consultation with its
          external advisors, could, if adopted, be reasonably likely to have a
          material adverse tax consequence to CombiMatrix Corporation, its
          stockholders, us or our stockholders, arising from the transactions
          contemplated by the merger agreement;


                                     -105-



     o    Any and all consents, waivers, assignments and approvals shall have
          been obtained;

     o    CombiMatrix Corporation shall have been provided with a certificate
          executed on behalf of Acacia Research by officers with titles of
          senior vice president or above to the effect that, as of the effective
          time of the merger, certain conditions have been met;

     o    CombiMatrix Corporation shall have received the opinion of Allen
          Matkins Leck Gamble & Mallory LLP, legal counsel to Acacia Research,
          as to the due and valid authorization and issuance of the
          AR-CombiMatrix stock;

     o    CombiMatrix Corporation shall have received the opinion of an
          investment banker of national reputation as to the fairness of the
          merger from a financial point of view; and

     o    A special committee of disinterested directors of the CombiMatrix
          Corporation board of directors shall have recommended approval of the
          merger.

                                   TERMINATION

     The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger as follows:

     o    by mutual consent; and

     o    by either us or CombiMatrix Corporation, if:

               (1) the merger has not been consummated by December 31, 2002;
provided, however, that this right to terminate will not be available to any
party whose action or failure to act has been a principal cause of or resulted
in the failure of the merger to occur on or before that date;

               (2) there is a final nonappealable order of a federal or state
court in effect preventing consummation of the merger;

               (3) consummation of the merger is illegal due to applicable
statute, rule, regulation, injunction, order or decree;

               (4) at the CombiMatrix Corporation special meeting the requisite
vote of the CombiMatrix Corporation stockholders in favor of the merger and the
merger agreement is not obtained, unless the failure to obtain the requisite
vote was caused by the action or failure to act of the party seeking to
terminate the merger agreement;

               (5) at our special meeting the requisite vote of our stockholders
is not obtained in favor of the merger agreement and the recapitalization
proposal unless the failure to obtain the requisite vote was caused by the party
seeking to terminate the merger agreement;

               (6) any governmental action is taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
merger by any governmental body, which would (a) prohibit our ownership or
operation of the business of CombiMatrix Corporation or our existing business or
(b) compel us or CombiMatrix Corporation to dispose of or hold separate all or a
material portion of the business assets of CombiMatrix Corporation or our
existing business as a result of the merger;

               (7) by CombiMatrix Corporation if it is not in material breach of
its obligations under the merger agreement and we have breached any
representation, warranty or covenant in the merger agreement, or if any
representation or warranty of ours has become untrue, provided that we shall
have thirty (30) days to cure such breach or untruthfulness (unless by its
nature the breach or untruthfulness cannot be cured); or


                                     -106-



               (8) by us if we are not in material breach of our obligations
under the merger agreement and CombiMatrix Corporation has breached any
representation, warranty or covenant in the merger agreement, or if any
representation or warranty of CombiMatrix Corporation has become untrue,
provided that CombiMatrix Corporation shall have thirty (30) days to cure such
breach or untruthfulness (unless by its nature the breach or untruthfulness
cannot be cured).

                              EFFECT OF TERMINATION

     In the event of termination of the merger agreement, the merger agreement
shall become void and there shall be no liability or obligation on our part or
on the part of Combi Acquisition Corp. or CombiMatrix Corporation, or their
respective officers, directors or stockholders, except that each party will
remain liable for any willful breaches of such party's covenants or intentional
or willful breaches of such party's representations and warranties prior to
termination.

                             AMENDMENTS AND WAIVERS

     Generally, we and CombiMatrix Corporation may amend or waive any provision
of the merger agreement before the effective time of the merger. However, if a
material condition is waived, we must amend the registration statement of which
this prospectus and proxy statement forms a part, and CombiMatrix Corporation
must resolicit proxies for the adoption of the merger agreement. Moreover, after
CombiMatrix Corporation stockholders have approved the merger, their further
approval would be required to modify the amount or type of consideration that
they will receive in the merger or to otherwise alter the merger agreement in a
manner materially adverse to them.

                   NO RELIEF FROM LIABILITY FOR WILLFUL BREACH

     No termination of the merger agreement will relieve either party of its
liability for willful breach of the agreement.


                                     -107-



                           ACACIA RESEARCH CORPORATION

                                    BUSINESS

     Acacia Research Corporation develops, acquires and licenses enabling
technologies for the life sciences and media technology sectors, which comprise
the two business groups of Acacia Research.

     Our life sciences business, referred to as the "CombiMatrix group," is
comprised principally of CombiMatrix Corporation. Our core technology
opportunity in the life sciences sector has been developed through our
subsidiary, CombiMatrix Corporation. CombiMatrix Corporation is a life science
technology company with a proprietary system for rapid, cost competitive
creation of DNA and other compounds on a programmable semiconductor chip. This
proprietary technology has significant applications relating to genomic and
proteomic research.

     Our media technologies business, collectively referred to as "Acacia
Technologies group," owns technology commonly known as the V-chip. The V-chip
was adopted by the manufacturers of televisions sold in the U.S. to provide
blocking of certain programming based upon its content rating code, in
compliance with the Telecommunications Act of 1996. The V-chip technology is
protected by U.S. Patent No. 4,544,584. In addition, Acacia Technologies owns a
digital media transmission ("DMT") technology enabling the digitization,
encryption, storage, transmission, receipt and playback of digital content. The
DMT technology is protected by five U.S. and seventeen international patents.
The DMT technology is utilized by a variety of companies, including cable
companies, satellite companies, telephone companies, digital radio stations,
content delivery networks, Internet service providers, hardware manufacturers
and software manufactures, and covers many types of digitized content including
movies, music, games, live events, instructional classes and photographs.


                                     -108-



     Following is a summary of the principal companies that constitute our two
business groups:

           GROUP NAME                           DESCRIPTION OF BUSINESS
           ----------                           -----------------------
COMBIMATRIX GROUP:

CombiMatrix Corporation                 A life science technology company with a
                                        proprietary system for rapid, cost
                                        competitive creation of DNA and other
                                        compounds on a programmable
                                        semiconductor chip. This proprietary
                                        technology has significant applications
                                        relating to genomic and proteomic
                                        research.

                                        CombiMatrix Corporation recently
                                        purchased Acacia Research's interest in
                                        Advanced Material Sciences, Inc., a
                                        development stage company that holds the
                                        exclusive license for CombiMatrix
                                        Corporation's biological array processor
                                        technology in certain fields of material
                                        science. CombiMatrix Corporation issued
                                        180,982 shares of its common stock in
                                        exchange for Acacia Research's 58%
                                        interest in Advanced Material Sciences,
                                        Inc. CombiMatrix Corporation currently
                                        owns 87% of Advanced Material Sciences
                                        and the remaining interests are owned by
                                        unaffiliated entities.

ACACIA TECHNOLOGIES GROUP:

Soundview Technologies Incorporated     A media technology company that owns
                                        intellectual property related to the
                                        telecommunications field, including a
                                        television blanking system, also known
                                        as "V-chip," which licenses to
                                        television manufacturers.

Acacia Media Technologies Corporation   A media technology company that owns a
                                        digital media transmission technology
                                        used to digitize, encrypt, store,
                                        transmit, receive and playback digitized
                                        content sent via pathways such as cable,
                                        satellite and the Internet, and covering
                                        a variety of services such as those
                                        commonly known as video-on-demand,
                                        audio-on-demand and streaming media.

     Following the recapitalization and merger, if approved, our stock will be
divided into two classes reflecting the two business groups described above.

     For information regarding market and technology background, products and
services, solutions, strategies, marketing and distribution, joint ventures,
regulatory matters related to the specific business units, competition in the
two sectors, research, development and engineering, management, employees,
patents, licenses and franchises and other business matters, please see the
relevant sections in "CombiMatrix Group - Business" and "Acacia Technologies
Group - Business".


                                     -109-



                                   MANAGEMENT

     BOARD OF DIRECTORS

     Our board of directors is fixed at six members and is divided into three
classes, with each class being as nearly equal in number of directors as
possible. The term of a class expires, and their successors are elected for a
term of three years, at each annual meeting of our stockholders.

     Following the recapitalization and merger, if approved, our board of
directors will continue to be divided into three classes and will consist of the
same persons that currently serve as members of the board. For information
regarding the proposed management of the respective groups, please see the
relevant sections in "CombiMatrix Group - Business" and "Acacia Technologies
Group - Business."

     The following table sets forth information as to the persons who serve as
our directors.

NAME                      AGE   DIRECTOR SINCE   POSITIONS WITH THE COMPANY
-----------------------   ---   --------------   ----------------------------
Paul R. Ryan               57        1995        Chairman and Chief Executive
                                                 Officer

Robert L. Harris, II       44        2000        President and Director

Thomas B. Akin*            50        1998        Director

Fred A. de Boom*           66        1995        Director

Edward W. Frykman*         66        1996        Director

G. Louis Graziadio, III    53        2002        Director

----------
* MEMBER OF THE AUDIT COMMITTEE AND THE COMPENSATION COMMITTEE

     Biographical information regarding and each of our directors is set forth
below.

                     CLASS I DIRECTORS (TERMS EXPIRING 2004)

     ROBERT L. HARRIS, II has served as a director since April 2000 and as
President since July 2000. Mr. Harris was previously the President and Director
of Entertainment Properties Trust from 1997 to July 2000. Mr. Harris founded
Entertainment Properties Trust, which is a publicly-traded company that
purchases real estate from major entertainment companies. Mr. Harris led the
International Division and served as Senior Vice President of AMC Entertainment
from 1993 to 1997, and served as President of Carlton Browne and Company, Inc.,
a holding company and trust with assets in real estate, insurance and financial
services, from 1984 to 1992. He also serves on the Board of Directors of the
George L. Graziadio School of Business and Management at Pepperdine University.

     FRED A. DE BOOM has served as a director since February 1995. Mr. de Boom
has been a principal in Sonfad Associates since June 1993. Sonfad Associates is
a Los Angeles-based investment banking firm that is involved in mergers and
acquisitions, private debt and equity placements, strategic and financial
business planning, leveraged buy-outs and ESOP funding, bank debt refinance,
asset based and lease financing, and equity for debt restructuring. Previously,
he was employed as a Vice President of Tokai Bank for five years and as a Vice
President of Union Bank for eight years. Mr. de Boom received his B.A. degree
from Michigan State University and his M.B.A. degree from the University of
Southern California.

                    CLASS II DIRECTORS (TERMS EXPIRING 2005)

     THOMAS B. AKIN has served as a director since May 1998. Mr. Akin has been
the Managing General Partner of four private investment funds (Talkot Partners
I, Talkot Partners II, LLC, Talkot Crossover Fund, L.P., and Talkot Capital)
since 1996. Mr. Akin previously served in a variety of capacities for Merrill
Lynch and Co., including Managing Director of Western Regional Sales from 1986
to 1994. Mr. Akin holds a B.A. from the


                                     -110-



University of California at Santa Cruz and attended the University of California
at Los Angeles Graduate School of Business.

     EDWARD W. FRYKMAN has served as a director since April 1996. Mr. Frykman
has been an Account Executive with Crowell, Weedon & Co. since 1992. Previously,
Mr. Frykman served as Senior Vice President of L.H. Friend & Co. Both Crowell,
Weedon & Co. and L.H. Friend & Co. are investment brokerage firms located in
Southern California. In addition, Mr. Frykman was a Senior Account Executive
with Shearson Lehman Hutton where he served as the Manager of the Los Angeles
Regional Retail Office.

                    CLASS III DIRECTOR (TERMS EXPIRING 2003)

     PAUL R. RYAN has served as a director since August 1995, as Chief Executive
Officer since January 1997 and as Chairman since April 2000. He also served as
President of the Company from January 1997 until July 2000. Prior to being named
Chief Executive Officer, he was Executive Vice President and Chief Investment
Officer of Acacia Research from 1996 through 1997 and Vice President, Capital
Management, of Acacia Research from 1995 through 1996. He was formerly
co-founder and general partner of the American Health Care Fund, L.P., held
positions with Young & Rubicam, Ogilvy & Mather, and Merrill Lynch and was a
private venture capital investor. Mr. Ryan holds a B.S. from Cornell University
and attended the New York University Graduate School of Business.

     G. LOUIS GRAZIADIO, III has been a director since February 2002. Since
1990, Mr. Graziadio has held the positions of Chairman and Chief Executive
Officer of Second Southern Corp., the managing partner of Ginarra Partners,
L.L.C., a California company engaged in a wide range of investment activities
and business ventures. He also serves as a director of Graziadio Development
Company, California Rice Bran Co., Inc., Beachcliff Real Estate, Inc., Boss
Holdings, Inc. and Boss Manufacturing, Co.

     EXECUTIVE OFFICERS

     Following the recapitalization and merger, if approved, we anticipate that
our executive officers will remain the same. Certain of our executive officers
also serve as officers of the subsidiaries that constitute our respective
business groups. For information regarding the proposed management of the
respective groups, please see the relevant sections in "CombiMatrix Group -
Business" and "Acacia Technologies Group - Business."

     Set forth below is certain information concerning our executive officers as
of the date hereof.



NAME                   AGE   POSITIONS WITH THE COMPANY
--------------------   ---   ---------------------------------------------------------------------
                       
Paul R. Ryan            57   Chairman and Chief Executive Officer

Robert L. Harris, II    44   President

Clayton J. Haynes       33   Chief Financial Officer, Treasurer and Senior Vice President, Finance

Amit Kumar, Ph.D        38   Chief Executive Officer and President of CombiMatrix Corporation


     The following is biographical information and a brief description of the
capacities in which each of the executive officers has served during the past
five years. Biographical information on Messrs. Ryan and Harris is set forth
above under "Board of Directors."

     CLAYTON J. HAYNES joined us in April 2001 as Treasurer and Senior Vice
President, Finance. In November 2001, Mr. Haynes was appointed Chief Financial
Officer of Acacia Research. From 1992 to March 2001, Mr. Haynes was employed by
PricewaterhouseCoopers LLP, ultimately serving as a Manager in the Business
Advisory Services practice. Mr. Haynes received a B.A. from the University of
California at Los Angeles, is a Certified Public Accountant and is a member of
the American Institute of Certified Public Accountants.

     AMIT KUMAR, PH.D. joined us in July 2000 as Senior Vice President of Life
Sciences. Dr. Kumar was elected to the position board of directors of
CombiMatrix Corporation in September 2000. Dr. Kumar was appointed to the
position of Chief Executive Officer and President of CombiMatrix Corporation in
September 2001.


                                     -111-



From 1999 to 2000, Dr. Kumar was CEO and President of Signature Bioscience, a
genomic and proteomic tool company. From 1998 to 1999, he was an Entrepreneur in
Residence at Oak Investment Partners, specializing in emerging life science and
biotechnology companies. Dr. Kumar held the position of Senior Manager at IDEXX
Laboratories, and was Head of Research and Development at Idetek Corporation
from 1995 to 1998. Dr. Kumar attended Stanford University, received his Ph.D.
from the California Institute of Technology and was a Post Doctorate Fellow at
Harvard University.

EMPLOYEES

     As of November 1, 2002, Acacia Research and its CombiMatrix subsidiary had
117 full-time employees. We are not a party to any collective bargaining
agreement. We consider our employee relations to be good.

     For more information regarding employees, please see the relevant sections
in "CombiMatrix Group - Business" and "Acacia Technologies Group - Business."

PROPERTIES

     We lease approximately 7,143 square feet of office space in Newport Beach,
California, under a lease agreement that expires in February 2007. We also lease
approximately 7,019 square feet of office space in Pasadena, California, under a
lease agreement that expires in November 2003, which is subleased through the
remaining term of the lease agreement. Our consolidated subsidiary, CombiMatrix
Corporation, leases office and laboratory space totaling approximately 90,111
square feet located north of Seattle, Washington, under a lease agreement that
expires in December 2008.

     We are a guarantor under a lease agreement for office space in Hollywood,
California that expires in August 2005. That lease agreement was entered into by
Soundbreak.com, which ceased operations in February 2001. A portion of those
leased premises is subleased through the remaining term of that lease agreement.
Acacia Research continues to pursue opportunities to sublease the remaining
space.

     For more information regarding properties, please see the relevant sections
in "CombiMatrix Group - Business" and "Acacia Technologies Group - Business."

LEGAL PROCEEDINGS

     In the ordinary course of our business, we are regularly the subject of, or
party to, various pending or threatened legal actions. We believe that any
liability arising from these actions will not have a material adverse effect on
our financial position, results of operations or cash flows.

     For information regarding legal proceedings, please see the relevant
sections in "CombiMatrix Group - Business" and "Acacia Technologies Group -
Business."

THE INVESTMENT COMPANY ACT OF 1940

     The regulatory scope of the Investment Company Act of 1940 ("Investment
Company Act"), which was enacted principally for the purpose of regulating
vehicles for pooled investments in securities, extends generally to companies
engaged primarily in the business of investing, reinvesting, owning, holding or
trading in securities. We believe that our anticipated principal activities will
not subject us to regulation under the Investment Company Act. However, the
Investment Company Act may also apply to a company which does not intend to be
characterized as an investment company but which, nevertheless, engages in
activities which may be deemed to be within the scope of certain provisions of
the Investment Company Act. In such an event, we may become subject to certain
restrictions relating to our activities, including restrictions on the nature of
our investments and the issuance of securities. In addition, the Investment
Company Act imposes certain requirements on companies deemed to be within its
regulatory scope, including registration as an investment company, adoption of a
specific form of corporate structure and compliance with certain burdensome
reporting, record-keeping, voting, proxy, disclosure and other rules and
regulations, all of which could cause significant registration and compliance
costs. Accordingly,


                                     -112-



we will continue to review our activities from time to time with a view toward
reducing the likelihood that we could be classified as an "investment company"
within scope of the Investment Company Act.


                                     -113-



                                COMBIMATRIX GROUP
          (A DEVELOPMENT STAGE DIVISION OF ACACIA RESEARCH CORPORATION)

                                    BUSINESS

     The CombiMatrix group is comprised of CombiMatrix Corporation, a subsidiary
of Acacia Research, and Advanced Material Sciences, a subsidiary of CombiMatrix
Corporation, and includes corporate assets, liabilities and transactions of
Acacia Research that relate to its life sciences business. CombiMatrix
Corporation is a development stage company engaged in the development of a
proprietary universal biochip with applications in the genomics, proteomics and
combinatorial chemistry markets.

     The CombiMatrix group is developing a technology to allow it, its customers
and any entities with which the CombiMatrix group has joint development efforts,
to rapidly produce customizable biological array processors, which are
semiconductor-based tools for use in identifying and determining the roles of
genes, gene mutations and proteins. The CombiMatrix group is designing its
products principally to be responsive to the needs of pharmaceutical and
biotechnology researchers to analyze raw genomic data in the discovery and
development of pharmaceutical products. Its biological array processor is a
semiconductor coated with a three-dimensional layer of porous material in which
DNA, RNA, proteins, peptides or small molecules can be synthesized or
immobilized within discrete test sites. The CombiMatrix group integrates a
micro-fabricated semiconductor chip, proprietary software, chemistry, and
hardware into a system that it believes will enable it, its customers and any
entities with which the CombiMatrix group has joint development efforts, to
design, customize and fabricate biological array processors made to user's
specifications, typically in less than a day. The CombiMatrix group's system
should enable researchers to conduct rapid, iterative experiments to analyze the
large amounts of genomic information generated by the Human Genome Project and
other genomic research efforts. The CombiMatrix group believes that its
customizable biological array processors will enable users to reduce the time
and costs associated with the discovery and development of pharmaceutical
products.

                    MARKET OVERVIEW AND TECHNOLOGY BACKGROUND

     GENERAL OVERVIEW

     The pharmaceutical and biotechnology industries are faced with increasing
costs and substantial risks of failure in the drug discovery, development and
commercialization process. The time required to successfully commercialize a new
proprietary drug now averages 15 years, and the direct and indirect costs of the
process average almost $800 million per drug. Less than 1% of all new chemical
compounds that are developed by pharmaceutical companies result in
pharmaceutical products that are approved for patient use. The pharmaceutical
and biotechnology industries are attempting to reduce their costs and risks of
failure by turning to new technologies to help identify deficiencies in drug
candidates as early as possible in the process so that drug discovery and
development become more efficient and cost-effective. Additionally, with vast
amounts of genomic data becoming available for use in the development of
therapeutics and diagnostic tests, they are searching for ways to expedite their
analysis of available genomic data so that they can be the first to bring new
therapeutics and diagnostic tests to market.

     DRUG DISCOVERY AND DEVELOPMENT

     The discovery and development of new drugs for a particular disease
typically involve several steps. First, researchers identify a target for
therapeutic intervention, such as a protein, that is either directly involved in
the disease or lies in a biochemical pathway leading to the disease. The next
step is to identify chemical compounds that interact with the target and
modulate the target's activity in a manner that might help reverse, inhibit or
prevent the disease. The most promising compounds to emerge from this process
advance to the next stage, where synthetic derivatives of the compounds are
generated and tested to determine a lead compound. The interactions of these
lead compounds with the target and their activity in animal or cellular models
of the disease are then tested to determine which compounds might be developed
successfully into new drugs. The best new drug candidates then begin clinical
trials in humans.


                                     -114-



     Recent advances have led to the use of genomics in choosing targets for
drug development. This process begins with the discovery and identification of
genes within the genome and the functions of these genes in regulating
biological processes and disease. This information is used to assess the value
of a particular gene or its protein product as a target for drug discovery. Once
a target is chosen, high throughput chemistry and other drug discovery methods
are used to identify chemical compounds that interact with the target and might
help reverse, inhibit or prevent the disease. These compounds are then tested in
pre-clinical and clinical development programs.

     According to industry statistics, pharmaceutical and biotechnology
companies world-wide spent approximately $55 billion on drug research and
development during 1999. Of this amount, approximately $14.7 billion was spent
on drug discovery, $7.6 billion on toxicology, $17.8 billion on pre-clinical
testing and clinical trials and $14.9 billion on post-marketing evaluations and
other matters.

     The CombiMatrix group believes that biological array processors, whether
they contain DNA, peptides, or proteins have potential applications in all major
phases of drug discovery and development. In the discovery phase, the
CombiMatrix group believes biological array processors can facilitate the
process of identifying and validating targets and lead compounds. In the
development phase, the CombiMatrix group believes biological array processors
can enhance the speed and accuracy of the toxicology, pre-clinical and clinical
development process. The CombiMatrix group believes that biological array
processors can also play a role in monitoring the therapeutic effectiveness of
drugs that have been approved for use.

     GENES AND PROTEINS

     The human body is composed of billions of cells each containing DNA that
encodes the basic instructions for cellular function. The complete set of an
individual's DNA is called the genome, and is organized into 23 pairs of
chromosomes, which are further divided into smaller regions called genes. Each
gene is composed of a strand of four types of nucleotide bases, referred to as
A, C, G and T. The bases of one DNA strand bind to the bases of the other strand
in a specific fashion to form base pairs: the base A always binds with the base
T and the base G always binds with the base C.

     The human genome has approximately 3 billion nucleotides and their precise
order is known as the DNA sequence. When a gene is turned on, or expressed, the
genetic information encoded in the DNA is copied to a specific type of RNA,
called messenger RNA, or mRNA. The mRNA provides instructions for the synthesis
of proteins. Proteins direct cellular function, the development of individual
traits and are involved in many diseases. Variations in any part of the sequence
of DNA, called polymorphisms, can interfere with the normal function of proteins
and may result in a change in cell function leading to disease, a predisposition
to disease, an adverse response to drugs or other unwanted effects.

     GENE EXPRESSION PROFILING

     Gene expression profiling is the process of determining which genes are
active in a specific cell or group of cells and is accomplished by measuring
mRNA, the intermediary between genes and proteins. By comparing gene expression
patterns between cells from normal tissue and cells from diseased tissue,
researchers may identify specific genes or groups of genes that play a role in
the presence of disease. Studies of this type, used in drug discovery, require
monitoring thousands, and preferably tens of thousands, of mRNAs in large
numbers of samples. As the correlation between gene expression patterns and
specific diseases is determined, the CombiMatrix group believes that gene
expression profiling will have an increasingly important role as a diagnostic
tool. Diagnostic use of expression profiling tools is anticipated to grow
rapidly with the combination of the sequencing of various genomes and the
availability of more cost-effective technologies.

     GENETIC VARIATION AND FUNCTION

     Genetic variation is mostly due to polymorphisms in genomes, although
functional variations may also arise from differences in the way genes are
expressed in a given cell, as well as the timing and levels of their expression.
Although most cells contain an individual's full set of genes, each cell
expresses only a small fraction of this set in different quantities and at
different times.


                                     -115-



     The most common form of genetic variation occurs as a result of a
difference in a single nucleotide in the DNA sequence, commonly referred to as a
single nucleotide polymorphism, or SNP. The human genome is estimated to contain
between three and six million SNPs. By screening for polymorphisms, researchers
seek to correlate variability in the sequence of genes with a specific disease.
SNPs are believed to be associated with a large number of human diseases,
although most SNPs are believed to be benign and not to be associated with
disease. Determining which SNPs may be related to a disease is a complex process
requiring investigation of a vast number of SNPs. An SNP association study might
require testing for 300,000 possible SNPs in 1,000 patients. Although only a few
hundred of these SNPs might be clinically relevant, 300 million genotyping
tests, or assays, might be required to complete a study. Using available
technologies, this scale of SNP genotyping is both impractical and prohibitively
expensive.

     While in some cases one SNP will be responsible for medically important
effects, it is now believed that the genetic component of most major diseases is
associated with a combination of SNPs. As a result, the scientific community has
recognized the importance of investigating combinations of many SNPs in an
attempt to discover medically valuable information. In order to understand how
genetic variation causes disease, researchers must compare gene sequence
polymorphisms, or conduct SNP genotyping, from healthy and diseased individuals.
Researchers may also compare gene expression patterns, or perform gene
expression profiling, from healthy and diseased tissues.

     SNP GENOTYPING

     SNP genotyping is the process of comparing individuals' gene sequences to
identify variations in these sequences and determine the significance of these
variances. The CombiMatrix group believes that large-scale SNP genotyping, when
commercially feasible, has the potential to be used for a variety of
applications including:

     o    genomics-based drug development;

     o    clinical trial design and analysis;

     o    testing for predisposition to, and diagnosis of, disease;

     o    predicting the effectiveness of therapeutics; and

     o    applications outside healthcare.

     PROTEOMICS

     Proteomics is the process of determining which proteins are present in
cells, how they interact with one another, and how they are correlated with
genomic variation. This process is useful in drug discovery and diagnostics
because most drugs target proteins that play a role in the existence or
development of a disease. Although the potential market for proteomic products
is uncertain, the CombiMatrix group believes that proteomics may have
application in:

     o    discovery of new drug targets and new biochemical pathways;

     o    measurement of protein expression and modification; and

     o    correlation of protein variation and function with genomic variation
          and function.

     CURRENT TECHNOLOGIES

     There are currently a variety of traditional technologies available for
analyzing genetic variation and function. Traditional technologies generally
perform assays individually, or serially, and often require relatively large
sample volumes, adding significantly to the costs of assays. Traditional
technologies can be improved by using microfluidics, a process that miniaturizes
the scale of experimentation for traditional methods. In addition,


                                     -116-



most traditional technologies have limited flexibility to perform different
applications. Arrays were developed to overcome the limitations of traditional
technologies.

     An array is a collection of miniaturized test sites arranged on a surface
that permits many tests to be performed simultaneously, or in parallel, in order
to achieve higher throughput. The average size of test sites in an array and the
spacing between them defines the array's density. Higher density increases
parallel processing throughput. In addition to increasing the throughput, higher
density reduces the required volume for the sample being tested, and thereby
lowers costs. Currently, the principal commercially available ways to produce
arrays include mechanical deposition, bead immobilization, inkjet printing and
photolithography.

     While current array technologies have advantages over traditional
technologies, the CombiMatrix group believes the full market potential for
testing devices to study genetic variation and function has not been realized.
This is true for a number of reasons, including the following:

     o    HIGH COST. Many currently available array technologies require
          relatively expensive capital equipment for manufacturing and
          customizing arrays and reading test results.

     o    LOW THROUGHPUT. Some array technologies produce a relatively low
          density of test sites, which results in low throughput.

     o    LIMITED APPLICATION. Many array technologies have limited application
          outside of SNP genotyping and gene expression profiling, for example
          in proteomics.

     o    INCONVENIENCE. Many array manufacturers do not offer researchers all
          elements required to design arrays and to complete and analyze their
          tests, such as test devices, software, instrumentation and reagents.

     o    INABILITY TO FABRICATE IN HOUSE. Most array manufacturers will ship
          pre-fabricated arrays to customers, even though large customers have a
          tremendous desire to fabricate their own arrays in house.

                            THE COMBIMATRIX SOLUTION

     The CombiMatrix group believes that its integrated system has advantages
over other existing technologies because it will be a cost-effective, fast,
flexible, customizable alternative to existing analytical tools designed for
similar purposes. Researchers using the CombiMatrix group's system should be
able to design and order custom biological array processors or fabricate them
in-house, conduct their tests, analyze the results in the relatively inexpensive
hybridizer-reader supplied by the CombiMatrix group or any entities with which
the CombiMatrix group has joint development efforts, and reorder additional
custom biological array processors incorporating modified test parameters, all
within a few days. In addition, customers who wish to fabricate arrays
themselves will be able to utilize the CombiMatrix group's synthesizers and
blank chips to produce their own arrays.

     The CombiMatrix group believes that its biological array processor system
will offer several advantages over competing products that are commercially
available. The principal scientific advantages of its system are derived from
the following three features:

     o    the CombiMatrix group's proprietary software, which directs the
          individually controlled electrodes at the test sites on the surface of
          its semiconductors and allows the CombiMatrix group to synthesize or
          immobilize different sequences of DNA or RNA, peptides or small
          molecules;

     o    its virtual flask technology, which uses the chemistry of carefully
          engineered liquid solutions instead of physical walls around each
          electrode and avoids the problem of chemical contamination between
          test sites; and


                                     -117-



     o    its porous reaction layer, which coats one surface of the
          semiconductor and functions as a three-dimensional environment for the
          synthesis or immobilization of relatively large quantities of DNA,
          RNA, peptides or small molecules so that a stronger test signal is
          generated at each test site.

     As a result of these scientific features, the CombiMatrix group believes
that the system it is designing will have the following characteristics:

     o    RAPIDLY CUSTOMIZABLE. The CombiMatrix group believes its proprietary
          software, chemistry and semiconductor system will allow it or its
          partners to design, customize and ship biological array processors for
          SNP genotyping and gene expression profiling that are tailored to meet
          a customer's specifications in a relatively short time, typically as
          little as a day. The CombiMatrix group's customization time should be
          short because it intends to rely on proprietary software and chemical
          processes, rather than costly and often imprecise mechanical methods,
          to produce its biological array processors. The CombiMatrix group
          believes researchers will be able to compress the time required to
          complete an iterative series of genomic tests because of the short
          turnaround time that should be required for the delivery of its
          customized biological array processors.

     o    VERSATILE. The CombiMatrix group system can design and create
          sequences of DNA, RNA, peptides or small molecules in the test sites
          on its biological array processors, although its first product will be
          limited to DNA sequences.

     o    HIGH THROUGHPUT. The CombiMatrix group's synthesizers will enable its
          customers to fabricate from six to forty custom designed biological
          array processors per day with a total of up to several thousand test
          sites per processor.

     o    ACCURATE AND COST-EFFECTIVE. Relatively large amounts of DNA, RNA,
          peptides or small molecules that can be synthesized or immobilized in
          the porous reaction layer at each test site generate strong assay
          signals that facilitate accurate interpretation of test data. These
          strong assay signals will enable the CombiMatrix group's customers to
          analyze the results of their tests without investing in the relatively
          expensive capital equipment needed to detect weak signals.

     o    CONVENIENT AND INTEGRATED. The CombiMatrix group plans to offer its
          customers a complete system including the software, biological array
          processors, instrumentation and reagents necessary to design and
          perform their assays and obtain an analysis of the results using the
          Internet if they so choose. Typically, tests using the CombiMatrix
          group's biological array processors should be able to be completed and
          analyzed within hours by using the equipment, reagents and software
          supplied by the CombiMatrix group.

     o    MANUFACTURING SCALABILITY. The CombiMatrix group believes it will be
          able to increase production to respond to increased demand because its
          semiconductors are manufactured by others using conventional
          semiconductor fabrication methods and its customization equipment can
          be rapidly assembled by the CombiMatrix group or any entities with
          which the CombiMatrix group has joint development efforts.

                              PRODUCTS AND SERVICES

     The CombiMatrix group's technology potentially represents a significant
advance over existing biochip technologies and other platforms for combinatorial
chemistry. The first application of the technology that the CombiMatrix group is
pursuing is in the field of genomics, where it is developing a biochip for the
analysis of DNA. The CombiMatrix group believes that this technology may be
applied to the fields of genetic analysis and disease management. The
CombiMatrix group is also developing the chip in the emerging field of
proteomics, where analysis of DNA is correlated to the levels of proteins in
patient samples. Many researchers believe that the analysis of proteomic
information will lead to the development of new drugs and better disease
management. Once the CombiMatrix group demonstrates the feasibility of its
approach in each market, it intends to enter into strategic alliances with major
participants to speed commercialization in multiple applications.


                                     -118-



                        THE COMBIMATRIX GROUP'S STRATEGY

     The CombiMatrix group's goal is to provide biotechnology, pharmaceutical
companies and academic researchers with the industry standard solution for rapid
evaluation of genetic function/variation, proteomic research, and bioinformatic
tools.

     FOCUSING ON HIGH-GROWTH MARKETS

     The CombiMatrix group is initially focusing on the gene expression
profiling, SNP genotyping, proteomic, and bioinformatics markets. Initial
product sales will be derived from of its DNA synthesizers, DNA microarrays,
hybridization-reader system, and bioinformatic tools. The CombiMatrix group
believes the market for its rapid customization microarrays and in-house
synthesizers has the potential for high growth due to increasing demand for
therapeutics and diagnostics based on newly available genomic information. To
date, the lack of high-throughput, cost- effective, and the slow turnaround of
current technologies has limited the growth of this market.

     PARTNERING WITH MULTIPLE COMPANIES TO EXPAND MARKET OPPORTUNITY

     The CombiMatrix group plans to pursue multiple relationships to facilitate
the expansion of its semiconductor based microarray technologies and to exploit
large and diverse markets. The CombiMatrix group expects to enter into
relationships and collaborations to gain access to complementary technologies,
distribution channels, manufacturing infrastructure, and information content.
The CombiMatrix group intends to structure relationships that maximize its
research and development efforts with the strong distribution and manufacturing
capabilities of its customers and any entities with which the CombiMatrix group
has joint development efforts, enabling industry standard solutions for
pharmaceutical and biotechnology researchers. Such a strategy will enable the
CombiMatrix group to focus on its strength which is research and development,
and leverage the strengths of any entities with which it has entered into
agreements to commercialize its products.

     COMMERCIALIZING AND MANUFACTURING DESKTOP SYNTHESIZERS AND MICROARRAY
     TECHNOLOGY FOR GENE EXPRESSION PROFILING AND MOLECULAR DIAGNOSTICS

     The CombiMatrix group intends to rapidly commercialize its microarray
technology for gene expression profiling through agreements to jointly develop
technology. The CombiMatrix group has an agreement with Roche to jointly develop
technology. Roche contributes extensive expertise in instrument and reagent
development, as well as offers a large and experienced worldwide sales and
marketing team. The CombiMatrix group believes that the combination of its
microarray technology with Roche's leadership position in the genetic analysis
and diagnostic markets will enable it to capture a significant portion of the
gene expression profiling and molecular diagnostic markets.

     In addition to Roche, the CombiMatrix group plans on establishing other
relationships for its DNA microarray technology. The CombiMatrix group also
intends on establishing alliances for its proteomic and bioinformatic products.

     EXPANDING TECHNOLOGIES INTO MULTIPLE PRODUCT LINES

     The CombiMatrix group intends to utilize the flexibility of its
semiconductor based microarray technologies to develop multiple product lines.
In addition to providing new sources of revenue, it believes these product lines
will further its goal of establishing its microarray technology as the industry
standard for array-based analysis.

     STRENGTHENING TECHNOLOGICAL LEADERSHIP

     The CombiMatrix group plans to continue advancing its proprietary
technologies through its internal research efforts, collaborations with industry
leaders and strategic licensing. The CombiMatrix group may also pursue
acquisitions of complementary technologies and leverage its technologies into
other value-added businesses. Its efforts to strengthen their technology include
the following:


                                     -119-



     o    RAPIDLY COMMERCIALIZING ITS SNP GENOTYPING AND GENE EXPRESSION
          PROFILING PRODUCTS. The CombiMatrix group is initially focusing on the
          SNP genotyping and gene expression profiling markets because it
          believes that there is substantial demand for tools that help analyze
          newly available genomic information and thereby assist pharmaceutical
          and biotechnology companies in developing new drugs and diagnostic
          tools. Typically, sales of products in these markets do not require
          advance clearance by the Food and Drug Administration and, as a
          result, can be achieved more quickly and with less cost than sales of
          regulated devices.

     o    DEVELOPING PRODUCT APPLICATIONS IN PROTEOMICS. Proteomic research has
          not developed as rapidly as SNP genotyping and gene expression
          profiling because of the absence of effective technology and tools for
          conducting research. The CombiMatrix group believes that its
          biological array processor system can be developed to facilitate
          proteomic research. The CombiMatrix group has developed chemical
          processes for the rapid immobilization of proteins and small molecules
          within the test sites on its biological array processors. The
          CombiMatrix group believes its system may be particularly effective in
          proteomic research because the proprietary materials that can be used
          to form the three-dimensional porous reaction layer on its biological
          array processors are a hospitable environment for the immobilization
          and study of proteins. The CombiMatrix group has produced customized
          test devices with peptides and small molecules for possible use in
          proteomic research. The CombiMatrix group is currently developing its
          technology for proteomic applications.

     o    EXPANDING OUR PROPOSED PRODUCT OFFERINGS. The CombiMatrix group is
          engaged in several research and development initiatives to expand its
          product offerings by increasing the density of its biological array
          processors and by developing additional applications of its technology
          for drug discovery and development. The CombiMatrix group believes
          that the flexible, parallel processing capabilities of its biological
          array processor system may have potential applications related to:

          o    gene discovery and function characterization;

          o    specific targeting of drug discovery efforts;

          o    the development of customized drugs;

          o    high-throughput screening for pharmaceutical candidates;

          o    the development of diagnostic methods for identifying,
               classifying and staging diseases;

          o    the prediction of successful drug therapy for a particular
               patient population;

          o    the identification of an individual patient's tolerance for a
               particular drug so that previously abandoned drugs can be
               selectively prescribed;

          o    early recognition of potential adverse response to drug therapy;
               and

          o    identification of predisposition to disease in order to prescribe
               preventative therapies.

     However, the CombiMatrix group has not yet produced products to address or
access the potential of its technology in these areas.

     o    PROTECTING AND STRENGTHENING ITS INTELLECTUAL PROPERTY POSITION.
          Through the CombiMatrix group's two issued patents in the United
          States and one in Europe, its more than 42 patent applications pending
          in the United States, Europe and elsewhere and its trade secrets, the
          CombiMatrix group believes it has suitable intellectual property
          protection for its proprietary technologies. The CombiMatrix group
          plans to build its intellectual property portfolio through internal
          research efforts, collaborations with industry leaders, strategic
          licensing and possible acquisitions of complementary technologies. The
          CombiMatrix group also plans to pursue patent protection for
          downstream products created using its proprietary products.


                                     -120-



                   THE COMBIMATRIX GROUP SYSTEM AND TECHNOLOGY

     The CombiMatrix group anticipates that a customer wishing to use its
bioarray product will use its proprietary software to provide the CombiMatrix
group, or an entity with which the CombiMatrix group has joint development
efforts, with information relating to the sequences that the customer wishes to
evaluate. Array design software will design an initial array of DNA segments and
then instruct a synthesizer unit to customize one or more biological array
processors containing these selected DNA segments. This process will be entirely
automated. The completed biological array processor will be shipped to the
customer along with kits including specific instructions and reagents needed to
conduct these evaluations. The CombiMatrix group expects that the time interval
between receipt of the customer's order and shipment of the biological array
processors and reagent kits will typically be less than a day. Alternatively for
a customer with an in-house synthesizer, the process will be competed typically
overnight. To use the processor, the customer will prepare a sample and
introduce to the processor. The processor will then be inserted into a
hybridizer-reader unit that the CombiMatrix group, or an entity with which the
CombiMatrix group has joint development efforts, will have supplied to the
customer. Proprietary software will enable the customer to image the processor,
format the data and perform analysis.

     In practical operation, the CombiMatrix group expects that a customer will
typically analyze the results of an initial experiment and choose to change the
composition of its biological array processors to further optimize its
performance. For example, a customer may choose to change the sequences of some
array elements, eliminate some sequences altogether, or incorporate additional
sequences. The CombiMatrix group's biological array processor system will allow
a researcher to order or fabricate successive arrays with the desired changes.

     THE COMBIMATRIX GROUP PROCESS

     Each of the CombiMatrix group's biological array processors is made up of a
semiconductor chip on which the CombiMatrix group has installed electrical
conduits and applied a layer of porous material. It will have up to
approximately 10,000 test sites, one for each electrode site on the
semiconductor. The CombiMatrix group can synthesize or immobilize DNA, RNA,
peptides or small molecules within the porous reaction layer at each test site
on the surface of its semiconductor, although it has not synthesized or
immobilized any combination of DNA, RNA, peptides and small molecules on a
single biological array processor. The CombiMatrix group confines the chemical
synthesis within each test site using chemistry of carefully engineered liquid
solutions. This avoids the problem of chemical contamination between different
test sites. Because confinement is accomplished without physical walls, the
CombiMatrix group refers to this enabling technology as a virtual flask. This
virtual flask technology enables the CombiMatrix group to use semiconductor
devices that are fabricated by contractors using conventional semiconductor
processes.

     In the case of the CombiMatrix group's DNA arrays, each test site, or
virtual flask, will contain a particular DNA segment, or capture probe, that is
made by putting nucleotide bases, A, G, C, or T, together one at a time. These
DNA probes typically contain between 16 and 60 nucleotide bases. The CombiMatrix
group's software selectively activates each electrode where a new nucleotide
base is to be added. Once activated, the electrode causes an electrochemical
reaction to occur that produces chemicals that react with the existing chains of
DNA at that site to activate them for bonding with the next nucleotide base.
These electrochemically-generated chemicals are confined by the CombiMatrix
group's virtual flask technology to the region of the porous reaction layer that
surrounds the electrode where they are produced. A fluidics delivery unit then
floods the semiconductor with a solution containing a nucleotide base, which
binds only to the capture probe at activated sites. This cycle is repeated over
and over to produce different DNA segments at each test site. Quality assurance
tests are performed following completion of the synthesis process. The
CombiMatrix group's laboratory tests have confirmed that other substances, such
as peptides, immobilized proteins and antibodies, small organic molecules and
enzymes, among others, can also be chemically isolated in the virtual flasks.

     SEMICONDUCTOR COMPONENT

     The CombiMatrix group's semiconductors are manufactured by others using
conventional semiconductor fabrication processes. The CombiMatrix group believes
that the total number of test sites on a semiconductor is limited only by the
degree of miniaturization of the semiconductor fabrication process. The
CombiMatrix group believes that its semiconductor architecture is scalable and,
as a result, that it can benefit directly from the


                                     -121-



substantial investments that have been made by the semiconductor industry in
miniaturizing chip fabrication processes. At the present time, the CombiMatrix
group is using devices made with a 3.0 micron process size that yield 1,024
potential test sites within less than a square centimeter. Each of the
individual sites is 100 microns in diameter, about the diameter of a human hair.
The CombiMatrix group believes that by using a standard 0.25 micron
semiconductor fabrication process, it can produce a biological array processor
with over 1,000,000 sites per square centimeter, although it has not yet made or
tested a biological array processor with more than 18,000 potential test sites.

     POROUS REACTION LAYER

     The CombiMatrix group's proprietary porous reaction layer is a
three-dimensional medium within which sequences of DNA, RNA, peptides or small
molecules can be synthesized and immobilized. The CombiMatrix group's porous
reaction layer materials can be attached to the active side of its
semiconductor. The three-dimensional and porous nature of the reaction layer
enables the CombiMatrix group to produce significantly more biomolecules within
each virtual flask site than is possible when the molecules are produced on a
flat two-dimensional surface, as is typical for other array technologies. As a
consequence, the CombiMatrix group can achieve a significant improvement in the
test signals and is able to use less costly devices to determine test results
than devices required for some competing technologies. These features improve
the overall performance of its biological array processor system and reduce the
cost to prospective customers.

     HYBRIDIZER-READER

     Hybridization is the binding of DNA sequences in a test sample with the DNA
material that has been created at specific test sites on its biological array
processors. In the case of DNA, segments bind together when the DNA segments in
a sample and the DNA segments on its test sites are complementary. The
CombiMatrix group is developing a combination hybridization chamber and
biological array processor reader that it calls the hybridizer-reader. The
hybridization chamber is being designed to help researchers standardize their
experimental conditions, such as temperature, so that consistent results may be
obtained from experiment to experiment. In the hybridization chamber, a solution
that the researcher wants to analyze will be washed over one or more of the
CombiMatrix group's biological array processors. DNA in the sample that is
complementary with the DNA on the capture probes of the CombiMatrix group's
biological array processors will bond. The hybridizer-reader will measure and
identify the presence or absence and relative strength of bonding in the test
sites on the biological array processors using conventional equipment. Because
the optical signals resulting from the tests are stronger than those obtained
from chips that contain a single molecular layer of test material, at its
current chip density the CombiMatrix group will be able to read test results
with a standard video camera system that should be substantially less expensive
than the typical optical reader system needed to read other chips on the market.
If the CombiMatrix group is able to increase substantially the density of its
biological array processor, researchers may be required to use more expensive
equipment to analyze the smaller volume of material bonded at each test site.

     IN-HOUSE SYNTHESIZERS

     The process of fabricating bioarray processors is performed using an
electrochemical technique, which takes advantage of the virtual flask
technology. This capability enables us to build synthesizers (desk top versions
as well as high-throughput industrial versions) that can be operated at the site
of use. Therefore, customers who choose to fabricate their own arrays can do so
by purchasing, leasing, or licensing one of our synthesizers for operation in
their own facilities. This capability will enable customers to utilize array
processors quickly by eliminating the time necessary for shipping from a central
manufacturing facility. In addition, these customers will never be required to
disclose to any party, including the CombiMatrix group, the sequences or genes
in which they are investigating.

     SOFTWARE

     The CombiMatrix group has designed and is testing integrated, modular
software that will direct the design and customization of its biological array
processors for use in DNA applications. The software required to enable
proteomic research is in the early stages of development.


                                     -122-



     The CombiMatrix group's current software is being designed to:

     o    permit customers to access public databases for gene sequence
          information;

     o    permit customers to transmit their research objectives to the
          CombiMatrix group or partners over the Internet, or to their own
          in-house synthesis lab behind their IT firewall;

     o    enable the CombiMatrix group to rapidly screen potential DNA segments
          against large numbers of DNA targets during its design process;

     o    enable the CombiMatrix group to direct its manufacturing equipment to
          synthesize DNA segments designed by it on the surface of its
          biological array processors; and

     o    permit the CombiMatrix group to quality check the finished product.

                               REGULATORY MATTERS

     The CombiMatrix group intends to sell products to the pharmaceutical,
biotechnology and academic communities for research applications. Therefore, its
initial products will not require approval from, or be regulated by, the United
States Food and Drug Administration ("FDA") as a manufacturer nor will they be
subject to the FDA's current good manufacturing practice ("cGMP") regulations.
Additionally, the CombiMatrix group's initial products will not be subject to
certain reagent regulations promulgated by the FDA. However, the manufacture,
marketing and sale of certain products and services for any clinical or
diagnostic applications will be subject to extensive government regulation as
medical devices in the United States by the FDA and in other countries by
corresponding foreign regulatory authorities.

     The FDA requires that a manufacturer seeking to market a new or modified
medical device, or an existing medical device for a new indication, obtain
either a pre-market notification clearance under the Federal Food, Drug and
Cosmetic Act or a showing of substantial equivalence in function to an existing
regulated device. The CombiMatrix group anticipates that its products will
become subject to medical device regulations in the United States only when they
are marketed for clinical uses for any clinical or diagnostic purpose, excluding
pure research or product discovery research purposes. Material changes to
existing medical devices are also subject to FDA review and clearance or
approval prior to commercialization in the United States.

     Should the CombiMatrix group market products for any clinical or diagnostic
purpose or act as a manufacturer or supplier of products for a third-party
customer to market for any clinical or diagnostic purpose, it will be required
to register as a medical device manufacturer with the FDA. As a registered
manufacturer, the CombiMatrix group would be subject to routine inspection by
the FDA for compliance with cGMP regulations and other applicable regulations.
In addition, the CombiMatrix group must currently comply with a variety of other
federal, state and local laws and regulations relating to safe work conditions
and manufacturing practices. The extent of government regulation that might
result from any future legislation or administration cannot be predicted.
Moreover, there can be no assurance that the CombiMatrix group or its
third-party customers will be able to obtain appropriate FDA regulatory
approvals on a timely basis, or at all, or that the CombiMatrix group will be
able to comply with cGMP regulations.

     Sales of the CombiMatrix group's products outside the United States will be
subject to foreign regulatory requirements that vary from country to country.
Additional approvals from foreign regulatory authorities may be required, and
there can be no assurance that the CombiMatrix group will be able to obtain
foreign marketing approvals on a timely basis, or at all, or that it will not be
required to incur significant costs in obtaining or maintaining foreign
regulatory approvals. For example, if the CombiMatrix group products are
marketed for clinical or diagnostic purposes in the European Union, the
CombiMatrix group will have to obtain the certificates required for the "CE"
mark to be affixed to the CombiMatrix group products for sales in European Union
member countries. The "CE" mark is a European Union symbol of adherence to
quality assurance standards and compliance with applicable European Union
directives and regulations.


                                     -123-



                                 JOINT VENTURES

     In October 2001, CombiMatrix Corporation formed a joint venture with
Marubeni Japan, one of Japan's leading trading companies. The joint venture,
based in Tokyo, will focus on development and licensing opportunities for
CombiMatrix Corporation's biochip technology with pharmaceutical and
biotechnology companies in the Japanese market. Marubeni made an investment to
acquire a ten percent minority interest in the joint venture.

     Prior to April 25, 2002, CombiMatrix Corporation owned 28.6% of Advanced
Material Sciences ("AMS") which in turn held an exclusive license for
CombiMatrix Corporation's microarray synthesis technology for the development
and discovery of advanced electronic materials for such purposes as fuel cell
catalysts. In consideration for this exclusive license, CombiMatrix Corporation
would share in the revenues earned by AMS for commercialization of these
discoveries based on CombiMatrix Corporation's microarray technology. The term
of this arrangement was 20 years. As the technology was being developed at AMS,
management realized that it was inefficient to build redundant infrastructure to
perform this research. Rather than build and buy new equipment and facilities to
conduct materials discovery, it was decided to utilize the existing
infrastructure at CombiMatrix Corporation to more efficiently and quickly
perform materials discovery research. On April 25, 2002, CombiMatrix Corporation
acquired Acacia's majority interest in AMS in consideration of 180,982 shares of
CombiMatrix Corporation's common stock. AMS is now being operated as a research
and development division within CombiMatrix Corporation.

                           MARKETING AND DISTRIBUTION

     In July 2001, CombiMatrix Corporation entered into non-exclusive worldwide
license, supply, research and development agreements with Roche Diagnostics GmbH
("Roche"). These agreements were amended and restated in September 2002,
primarily to grant Roche manufacturing rights with respect to the products under
development in return for additional cash consideration under the agreements.
The revised agreements also make minor modifications to terms of the agreements
involving matters such as milestones, payments and technical specifications,
none of which we consider to be material. Such minor modifications are a
standard part of the research and development process and are routinely made in
development agreements. During the course of our relationship with Roche, since
the date of the original agreements, we have engaged in a continuous process of
monitoring and reevaluating the terms of our agreements, and have amended the
agreements in several respects to establish more meaningful goals, milestones
and timelines. The agreements are non-exclusive with respect to CombiMatrix
Corporation's core technology, meaning that CombiMatrix Corporation remains free
to license its core technology to third parties for applications in the
genomics, proteomics and other fields. The agreements contain exclusivity or
co-exclusivity provisions only with respect to the specific products being
co-developed for, and partially funded by, Roche pursuant to the agreements.

     Under the terms of the revised agreements, it is contemplated that Roche
will co-develop, use, manufacture, market and distribute CombiMatrix
Corporation's biochips (microarrays) and related technology for rapid production
of customizable biochips. Additionally, CombiMatrix Corporation and Roche will
develop a platform technology, providing a range of standardized biochips for
use in important research applications. Roche has made and will continue to make
payments for the deliverables stipulated and for expanded license and
manufacturing rights.

     The agreements provide for minimum payments by Roche to CombiMatrix
Corporation over the first three years, including milestone achievements,
payments for products, royalties and research and development projects.
Nevertheless, because our agreements with Roche contain provisions that would
allow Roche to terminate the agreements, the future payments by Roche to
CombiMatrix Corporation might never be realized. Since July 2001, CombiMatrix
Corporation has completed several milestones in its strategic alliance with
Roche including demonstration of several key performance metrics of its custom
in-situ microarray system.

     In August 2001, CombiMatrix Corporation entered into a two-year license and
supply agreement with the National Aeronautics and Space Administration
("NASA"). The agreement has a two-year term and provides for the license,
purchase and use by the NASA Ames Research Center of CombiMatrix Corporation's
active biochips (microarrays) and related technology to conduct biological
research in terrestrial laboratories and in space. CombiMatrix Corporation does
not expect to derive significant revenue in the future from this agreement.


                                     -124-



                         MANUFACTURING AND CUSTOMIZATION

     The CombiMatrix group is developing automated, computer-directed
manufacturing processes for the synthesis of sequences of DNA, RNA, peptides or
small molecules in the virtual flasks on its biological array processors.

     The CombiMatrix group's biological array processor manufacturing process
will involve:

     o    processing wafers of semiconductors manufactured by others into
          individual devices and installing electrical contacts on the
          semiconductor devices; and

     o    applying the porous reaction layer to the semiconductor devices.

     The CombiMatrix group, or any entities with which the CombiMatrix group has
joint development efforts, will then customize its biological array processors
in response to customer orders by:

     o    synthesizing test materials in the virtual flasks on the biological
          array processors using its synthesis module; and

     o    checking the quality of the customized biological array processors.

     Initially, the CombiMatrix group plans to rely upon third-party
manufacturers to produce the semiconductors, chemical reagents and accessories
for its products. The CombiMatrix group intends to continue the outsourcing of
portions of its manufacturing process to subcontractors where the CombiMatrix
group determines it is in its best commercial interest.

     Substantially all of the components and raw materials used in the
manufacture of the CombiMatrix group's products, including semiconductors and
reagents, are currently provided from a limited number of sources or in some
cases from a single source. Although the CombiMatrix group believes that
alternative sources for those components and raw materials are available, any
supply interruption in a sole-sourced component or raw material might result in
up to a several-month production delay and materially harm the CombiMatrix
group's ability to manufacture products until a new source of supply, if any,
could be located and qualified. In addition, an uncorrected impurity or
supplier's variation in a raw material, either unknown to the CombiMatrix group
or incompatible with its manufacturing process, could have a material adverse
effect on its ability to manufacture products. The CombiMatrix group may be
unable to find a sufficient alternative supply channel in a reasonable time
period, or on commercially reasonable terms, if at all. The CombiMatrix group
utilizes semiconductors made with a 3.0 micron fabrication process that is no
longer in wide use due to increased miniaturization of semiconductors. If the
CombiMatrix group is unable to achieve higher densities of test sites, it may
become difficult or more expensive for the CombiMatrix group to obtain
sufficient quantities of semiconductors as manufacturers phase out 3.0 micron
production capacity.

                        PATENTS, LICENSES AND FRANCHISES

     The CombiMatrix group's primary patent strategy is to protect all aspects
of its biological array processor system, including the porous reaction layer,
the virtual flask technology, processes for designing capture probes, unique
properties of a protein-based biological array processor and business methods
for automating ordering, creating and manufacturing custom made biological array
processors. The CombiMatrix group's patent applications are divided by subject
matter into areas of: its core biological array processor technology; other
hardware for detection and manufacturing; software for designing, for example,
capture probes; and chemical compositions and processes.

     CombiMatrix Corporation has 42 patent applications pending in the United
States and Europe. The CombiMatrix group's policy is to file patent applications
and to protect technology, inventions and improvements to inventions that are
commercially important to the development of its business.


                                     -125-



     In July 2000, CombiMatrix Corporation was granted U.S. Patent No.
6,093,302, which expires in July 2017, for its biochip microarray processor
system. This system enables quick and economical turnaround of custom-designed
microarrays for use in biological research. A microarray consists of a chemical
"virtual flask" located on the surface of a semiconductor chip containing
thousands of microarrays, which are separated from each other using special
solutions instead of physical barriers. Each microarray has electronic circuitry
that may be directed by a computer to construct a specified compound. The patent
covers CombiMatrix Corporation's core technology, which is a method for
producing microarrays by synthesizing biological materials on a
three-dimensional, active surface.

     The CombiMatrix group seeks to protect its corporate identity with
trademarks and service marks. In addition its trademark strategy includes
protecting the identity and goodwill associated with its biological array
processor products. The CombiMatrix group purchases chemical reagents from
suppliers who are licensed under appropriate patent rights. It is its policy to
obtain licenses from patent holders if needed to practice its chemical
processes.

     The CombiMatrix group's success will depend, in part, upon its ability to
obtain patents and maintain adequate protection of its intellectual property in
the United States and other countries. If it does not protect its intellectual
property adequately, competitors may be able to use its technologies and thereby
erode any competitive advantage that the CombiMatrix group may have. The laws of
some foreign countries do not protect proprietary rights to the same extent as
the laws of the United States, and many companies have encountered significant
problems in protecting their proprietary rights abroad. These problems can be
caused by the absence of rules and methods for defending intellectual property
rights.

     The patent positions of companies developing tools for the biotechnology
and pharmaceutical industries, including the CombiMatrix group's patent
position, generally are uncertain and involve complex legal and factual
questions. The CombiMatrix group will be able to protect its proprietary rights
from unauthorized use by third parties only to the extent that its proprietary
technologies are covered by valid and enforceable patents or are effectively
maintained as trade secrets. The CombiMatrix group's existing patent and any
future patents it obtains may not be sufficiently broad to prevent others from
practicing its technologies or from developing competing products. There also is
risk that others may independently develop similar or alternative technologies
or design around its patented technologies. In addition, others may challenge or
invalidate the CombiMatrix group's patents, or its patents may fail to provide
it with any competitive advantage. Enforcing its intellectual property rights
may be difficult, costly and time consuming, and ultimately may not be
successful.

     The CombiMatrix group also relies upon trade secret protection for its
confidential and proprietary information. It seeks to protect its proprietary
information by entering into confidentiality and invention disclosure and
transfer agreements with employees, collaborators and consultants. These
measures, however, may not provide adequate protection for the CombiMatrix
group's trade secrets or other proprietary information. Employees, collaborators
or consultants may still disclose its proprietary information, and the
CombiMatrix group may not be able to meaningfully protect its trade secrets. In
addition, others may independently develop substantially equivalent proprietary
information or techniques or otherwise gain access to its trade secrets.

     The CombiMatrix group cannot assure you that any of its patent applications
will result in the issuance of any additional patents, that its patent
applications will have priority of invention or filing date over similar rights
of others, or that, if issued, any of its patents will offer protection against
its competitors. Additionally, the CombiMatrix group cannot assure you that any
patent issued to it will not be challenged, invalidated or circumvented in the
future or that the intellectual property rights it has created will provide a
competitive advantage. Litigation may be necessary to enforce its intellectual
property rights or to determine the enforceability, scope of protection, or
validity of the intellectual property rights of others.

                                   COMPETITION

     The CombiMatrix group expects to encounter competition in the area of
business opportunities from other entities having similar business objectives.
Many of these potential competitors possess financial, technical, human and
other resources greater than those of the CombiMatrix group. The CombiMatrix
group anticipates that it will face increased competition in the future as new
companies enter the market and advanced technologies become


                                     -126-



available. In the life sciences industry, many competitors have more experience
in research and development than the CombiMatrix group. Technological advances
or entirely different approaches developed by one or more of its competitors
could render the CombiMatrix group's processes obsolete or uneconomical. The
existing approaches of competitors or new approaches or technology developed by
competitors may be more effective than those developed by the CombiMatrix group.

     The CombiMatrix group is aware of other companies or companies with
divisions that have, or are developing, technologies for the SNP genotyping,
gene expression profiling and proteomic markets. The CombiMatrix group believes
that its primary competitors will be Abbott Laboratories, Affymetrix, Inc.,
Agilent Technologies, Inc., Bayer AG, Becton, Dickinson and Company, Ciphergen
Biosystems, Inc., Gene Logic Inc., Genometrix Incorporated, Hyseq Inc.,
Illumina, Inc., Incyte Genomics, Inc., Johnson & Johnson, Motorola, Inc.,
Nanogen, Inc., Orchid Biosciences, Inc., PE Biosystems, Protogene, Inc., Roche
Diagnostics GmbH, and Sequenom, Inc. However, the CombiMatrix group's market is
rapidly changing, and the CombiMatrix group expects to face additional
competition from new market entrants, new product developments and consolidation
of its existing competitors. Many of the CombiMatrix group's competitors have
existing strategic relationships with major pharmaceutical and biotechnology
companies, greater commercial experience and substantially greater financial and
personnel resources than it does. The CombiMatrix group expects new competitors
to emerge and the intensity of competition to increase in the future.

     The CombiMatrix group believes that the principal competitive factors in
selling its products will be:

     o    the time required to engineer, produce and ship products;

     o    the speed and accuracy with which test results can be read and
          interpreted;

     o    the density of testing devices;

     o    the cost and pricing of the installed base of competing products; and

     o    access to proprietary genetic databases.

     The CombiMatrix group believes that it will be able to compete favorably
with regard to these factors even though it has competitors who currently
produce testing devices with higher densities than its proposed initial
products, and, initially, it will not offer its customers access to proprietary
genetic information.

                      RESEARCH, DEVELOPMENT AND ENGINEERING

     The CombiMatrix group's research and development expenses excluding
non-cash stock compensation charges, were $5.0 million and $7.7 million and $2.7
million and $5.8 million for the three and six months ended June 30, 2002 and
2001, respectively, and $11.7 million, $8.8 million and $2.4 million in 2001,
2000 and 1999, respectively. None of these amounts includes the amortization of
deferred stock compensation expenses related to research and development. The
CombiMatrix group intends to invest aggressively in its proprietary technologies
through internal development and, to the extent available, licensing of
third-party technologies to increase and improve other characteristics of its
products. The CombiMatrix group also plans to continue to invest in improving
the cost-effectiveness of its products through further automation and improved
information technologies. The CombiMatrix group's future research and
development efforts may involve research conducted by the CombiMatrix group,
collaborations with other researchers and the acquisition of chemistries and
other technologies developed by universities and other academic institutions.

     The CombiMatrix group is developing a variety of life sciences related
products and services. These industries are characterized by rapid technological
development. The CombiMatrix group believes that its future success will depend
in large part on its ability to continue to enhance its existing products and
services and to develop other products and services, which complement existing
ones. In order to respond to rapidly changing competitive and technological
conditions, the CombiMatrix group expects to continue to incur significant
research


                                     -127-



and development expenses during the initial development phase of new products
and services, as well as on an ongoing basis.

     There are four major development hurdles to our core technology platform,
three of which have been overcome, as described below:

     o    DESIGN AND FABRICATION OF SEMICONDUCTOR ARRAYS. The CombiMatrix group
          has utilized common tools well known to the semiconductor industry
          such as EDA software (electronic design automation), lithography
          fabrication techniques, and other semiconductor processing methods to
          fabricate a number of array designs that are utilized as the base
          electronic component of its products. The CombiMatrix group continues
          to utilize these tools to advance their designs in a manner similar to
          semiconductor companies. The core functional needs of the devices have
          been achieved in designing and building semiconductor arrays.

     o    DESIGN AND FABRICATION OF INSTRUMENTATION FOR SYNTHESIS OF DNA ON
          ARRAYS AND THE ACTUAL SYNTHESIS OF DNA ON SUCH ARRAYS. In order to
          produce bioarrays with in-situ synthesized DNA, the CombiMatrix group
          designed and built unique instrumentation. Such instrumentation
          incorporates standard electronic, mechanical and fluidic components,
          as well as customized firmware and user interface software. These
          prototype systems operate in a manner that allows the synthesis of DNA
          on multiple arrays.

     o    DESIGN AND FABRICATION OF INSTRUMENTATION TO PERFORM ASSAYS ON ARRAYS
          AS WELL AS TO MEASURE SUCH PERFORMANCE. Instruments commonly known as
          Reader-Hybridizers have been designed and prototypes have been built
          to automate the process of performing an assay on our bioarrays as
          well as to measure the performance of the assay. These instruments
          incorporate standard, electronic, mechanical, robotic, and fluidic
          components as well as firmware and software to function.

     o    DEVELOPMENT OF A COST-EFFECTIVE, COMMERCIALLY VIABLE APPROACH TO
          MANUFACTURE ARRAYS. As the CombiMatrix group moves forward to broad
          commercialization of its technology platform, advanced manufacturing
          techniques are being developed to provide the most reliable and
          cost-effective approach to manufacture bioarrays, as well as to
          develop products that are commercially viable. These methods will
          utilize certain protocols (many of which are well known in the
          manufacturing sector) including robotic automation as well as some
          internally developed protocols. These processes are currently in
          development.

                         GOVERNMENT GRANTS AND CONTRACTS

     Government grants and contracts have allowed the CombiMatrix group to fund
certain internal scientific programs and exploratory research. The CombiMatrix
group retains ownership of all intellectual property and commercial rights
generated during these projects. The United States government, however, retains
a non-exclusive, non-transferable, paid-up license to practice the inventions
made with federal funds pursuant to applicable statutes and regulations. The
CombiMatrix group does not believe that the retained license will have any
impact on its ability to market its products. The CombiMatrix group does not
need government approval to enter into collaborations or other relationships
with third parties.

     The CombiMatrix Corporation has been awarded two grants and two contracts
from the federal government in connection with its biological array processor
technology. In July 1999, the CombiMatrix Corporation was awarded a $60,000
Phase I Small Business Innovative Research ("SBIR") contract from the Department
of Defense to develop nanode array sensor microchips to enable simultaneous
detection of numerous chemical and biological warfare agents. Also in July 1999,
the CombiMatrix Corporation was awarded a $100,000 Phase I SBIR Department of
Energy grant to use the CombiMatrix Corporation's proprietary biochip technology
to develop microarrays of affinity probes for the analysis of gene products. In
January 2000, the CombiMatrix Corporation was awarded a $730,000 Phase II SBIR
Department of Defense contract for the use of its biochip technology to further
develop nanode array sensor microchips. The term of the Phase II SBIR Department
of Defense contract ends in July 2002. CombiMatrix Corporation expects to
recognize $91,000 in contract revenues in the third quarter of 2002. Upon
delivery of a prototype electrochemical biological detection system to the DOD
in the third quarter of 2002,


                                     -128-



CombiMatrix Corporation will have completed its obligations under the Phase II
SBIR Department of Defense contract and as a result, expects to receive the
final payment under the contract in the third quarter of 2002. As such,
CombiMatrix Corporation will no longer receive grant revenues under the Phase II
SBIR Department of Defense contract after the third quarter of 2002. In February
2002, the CombiMatrix Corporation was awarded a six-month $100,000 Phase I
National Institutes of Health grant for the development of its protein biochip
technology, entitled "Self-Assembling Protein Microchips."

     The CombiMatrix group will continue to pursue grants and contracts that
complement its research and development efforts.

                                   MANAGEMENT

     The management of the CombiMatrix group will consist of the following
individuals, each of whom is an officer of CombiMatrix Corporation:



NAME                          AGE   POSITIONS WITH THE COMBIMATRIX GROUP
---------------------------   ---   ----------------------------------------------------------------------------
                              
Amit Kumar, Ph.D.             38    President and Chief Executive Officer

Donald D. Montgomery, Ph.D.   44    Senior Vice President and Chief Technology Officer

Warren G. Hargis              50    Senior Vice President and Chief Operating Officer

Scott R. Burell, CPA          37    Vice President of Finance and Treasurer

Jeffrey B. Oster, Ph.D.       49    Senior Vice President of Intellectual Property and Associate General Counsel

Edward M. Eadeh               51    Senior Vice President of Business Development

Brooke P. Anderson, Ph.D.     39    Vice President of Software Development

Brett L. Undem                33    Vice President of Investor Relations

Peter G. Edelman, Ph.D.       46    Vice President of Development


     The following is biographical information and a brief description of the
capacities in which each of the above persons has served during the past five
years. Biographical information for Dr. Amit Kumar is set forth above under the
heading "Acacia Research Corporation - Business."

     DONALD D. MONTGOMERY, PH.D. has been a Director since April 1996, the
CombiMatrix Corporation's Senior Vice President and Chief Technology Officer
since April 2000 and a member of the CombiMatrix Corporation's Scientific
Advisory Board since September 2000. From April 1996 to April 2000, Dr.
Montgomery was the CombiMatrix Corporation's Vice President of Research and
Development. From September 1995 to April 1996, Dr. Montgomery was an
entrepreneur engaged in private scientific research. Dr. Montgomery received an
A.B. from Grinnell College and a Ph.D. in chemistry from the California
Institute of Technology. Dr. Montgomery also performed post-doctoral work at the
Joint Institute for Laboratory Astrophysics in Boulder, Colorado.

     WARREN G. HARGIS has been CombiMatrix Corporation's Chief Operating Officer
since February 2002. Mr. Hargis joined CombiMatrix Corporation in March 2000 as
Vice President of Human Resources. From March 1996 to March 2000, Mr. Hargis
served as the Director of Human Resources, International Operations and Global
Compensation for Sterling Diagnostic Imaging. From November 1979 to March 1996,
Mr. Hargis was employed by DuPont EI De Nemours & Co., serving in various
positions in the polymer products, petrochemicals, textile fabrics and imaging
systems departments, completing his career at DuPont as Manager of Human
Resources in the Medical Products Division. Mr. Hargis attended Lamar
University.

     SCOTT R. BURELL, CPA, was promoted to Vice President of Finance of
CombiMatrix Corporation in November 2001. Prior to this, Mr. Burell had served
as Controller from the time he joined CombiMatrix Corporation in February 2001.
From May 1999 to February 2001, Mr. Burell was the controller for Network
Commerce, Inc., a publicly traded technology and information infrastructure
company located in Seattle. Prior to


                                     -129-



this, Mr. Burell spent 9 years with Arthur Andersen's Audit and Business
Advisory practice in Seattle. Mr. Burell is a certified public accountant and
holds bachelor of science degrees in Accounting and Business Finance from
Central Washington University.

     JEFFREY B. OSTER, PH.D. has been CombiMatrix Corporation's Senior Vice
President of Intellectual Property and Associate General Counsel since November
2000. From January 1998 to November 2000, Dr. Oster was a partner in the
Seattle-based law firm of Davis Wright Tremaine LLP, practicing intellectual
property law. From September 1996 to January 1998, Dr. Oster was the General
Counsel of Cytotine Networks, Inc., a pharmaceutical development company. From
October 1992 to September 1996, Dr. Oster was the General Counsel of Cell
Therapeutics Inc., a pharmaceutical development company. Dr. Oster received a
B.A. from Johns Hopkins University, a Ph.D. from the University of Pennsylvania,
and a J.D. from Rutgers Law School.

     EDWARD M. EADEH has been CombiMatrix Corporation's Vice President of
International Business Development since May 2000. From August 1997 to September
1999, Mr. Eadeh was Vice President of Asia Pacific Sales for Sterling. From
February 1995 to August 1997, Mr. Eadeh was the Vice President of Asia Pacific
Sales for Polaroid Medical Imaging. Mr. Eadeh attended Wayne State University.

     BROOKE P. ANDERSON, PH.D. has been CombiMatrix Corporation's Vice President
of Software Development since April 2000 and a member of the CombiMatrix
Corporation's Scientific Advisory Board since September 2000. From August 1997
to April 2000, Dr. Anderson served as the CombiMatrix Corporation's Director of
Engineering and, from its formation in October 1995 to September 2000, served as
a member of the CombiMatrix Corporation's board of directors. From October 1995
to January 1997, Dr. Anderson also served as its President. Prior to that time,
Dr. Anderson co-founded Acacia Research, and from January 1993 to August 1997,
Dr. Anderson served as Vice President, Research and Development of Acacia
Research. Dr. Anderson received a B.S.E. in nuclear engineering from the
University of Michigan and an M.S. in applied physics, and a Ph.D. in
computation and neural systems from the California Institute of Technology.

     BRETT L. UNDEM joined Acacia Research as Vice President of Investor
Relations/Corporation Finance in June of 2000. He then transferred to
CombiMatrix Corporation in January 2001 and currently holds the title of Vice
President of Investor Relations. Mr. Undem was previously Vice President of
Canterbury Consulting, an institutional investment advisory firm, from 1998 to
2000. From 1993 to 1998, Mr. Undem was a Senior Consultant at Wurts &
Associates, a Los Angeles-based institutional investment-consulting firm. Mr.
Undem received a B.S. in finance from the University of Arizona and earned the
designation Certified Investment Management Analyst from the Wharton School of
Business.

     PETER G. EDELMAN, PH.D. joined CombiMatrix Corporation in January 2002 as
Director, Process Development, and was promoted to Vice President of Development
in March 2002. Dr. Edelman previously served as Principal Scientist for
Confluent Surgical, Inc., an implantable medical device start-up company, from
1998 to 2002. From 1988 to 1998, Dr. Edelman worked in research and development
for Chiron Diagnostics (now Bayer Diagnostics) in Medfield, Massachusetts. Dr.
Edelman received a B.S. in chemistry from Bates College and a Ph.D. in polymer
chemistry from the University of Connecticut.

     It is intended that the above named individuals will continue serving in
their existing CombiMatrix Corporation roles for the CombiMatrix group.

                                    EMPLOYEES

     As of November 1, 2002, the CombiMatrix group had 105 full-time employees,
19 of whom hold Ph.D. degrees and 77 of whom are engaged in full-time research
and development activities. The CombiMatrix group plans to expand its research
and development programs as well as corporate collaborations, and will hire
additional staff as these initiatives are implemented. The CombiMatrix group is
not a party to any collective bargaining agreement. It considers its employee
relations to be good.

     The CombiMatrix group also makes selective use of paid consultants to
assist in solving specialized problems or providing particular services.
Consultants are used when the CombiMatrix group determines that it is


                                     -130-



more economical than hiring an employee or where the best available services are
only available on a consulting basis. In addition to consultants, the
CombiMatrix group intends to utilize the services of university employees to
perform basic research that is useful to it. The CombiMatrix group believes that
this offers a cost-effective means of obtaining valuable information not
directly related to its core technology.

     As the CombiMatrix group's business grows, it anticipates that it will be
required to selectively hire a certain number of chemists, biologists, engineers
and lab technicians as well as additional managerial, financial and clerical
employees. The market for scientists and engineers is competitive and there can
be no assurance that the CombiMatrix group will be able to hire all of the
skilled employees it needs or that it will be able to reach its desired staffing
levels within a reasonable period of time.

                                   PROPERTIES

     CombiMatrix Corporation leases office and laboratory space totaling
approximately 90,111 square feet located north of Seattle, Washington, under a
lease agreement that expires in December 2008. Presently, the CombiMatrix group
is not seeking any additional facilities.

     The CombiMatrix group believes that its facility meets its office,
laboratory and manufacturing requirements for the foreseeable future.

                              ENVIRONMENTAL MATTERS

     The operations of the CombiMatrix group involve the use, transportation,
storage and disposal of hazardous substances, and as a result, these
subsidiaries are subject to environmental and health and safety laws and
regulations. Although the CombiMatrix group currently use fairly small
quantities of hazardous substances, as it expands its operations, its use of
hazardous substances will likely increase and lead to additional and more
stringent requirements. The cost of complying with these and any future
environmental regulations could be substantial. In addition, if the CombiMatrix
group fails to comply with environmental laws and regulations, or releases any
hazardous substance into the environment, the CombiMatrix group could be exposed
to substantial liability in the form of fines, penalties, remediation costs and
other damages, or could suffer a curtailment or shut down of its operations.

                                    INTERNET

     Because the CombiMatrix group or its partners plan to utilize the Internet
for product ordering as well as transmission of test data, it will be subject to
government regulation concerning Internet usage and electronic commerce. The
CombiMatrix group expects that state, federal and foreign agencies will adopt
and modify regulations covering issues such as user and data privacy, taxation
of products provided over the Internet, the use and export of cryptographic
technology and content and quality of products. For example, the European Union
has adopted a privacy directive that regulates the collection and use of
information. The globalization of Internet commerce may be harmed by these and
similar regulations since the European Union privacy directive prohibits
transmission of certain information outside the European Union unless the
receiving country has enacted individual privacy protection laws at least as
strong as those enacted by the European Union privacy directive. In July 2000
the European Union issued a formal opinion permitting United States entities to
transfer data to and from its countries if the United States entity adheres to
safe harbor and privacy principles.

     The taxation of commerce activities in connection with the Internet has not
been established, may change in the future and may vary from jurisdiction to
jurisdiction. For example, a number of proposals have been made at the local,
state, national and international levels that would impose additional taxes on
the sale of products over the Internet. These proposals, if adopted, could
substantially impair the growth of electronic commerce and could subject the
CombiMatrix group's business activities to taxation unless it persuades
customers to use their own intranet computer capabilities. Moreover, if any
state or country were to assert successfully that the CombiMatrix group should
collect sales or other taxes on the exchange of products over the Internet, its
customers may refuse to use its services through the Internet.


                                     -131-



                                LEGAL PROCEEDINGS

     On September 30, 2002, CombiMatrix Corporation and Dr. Montgomery entered
into a settlement agreement with Nanogen to settle all pending litigation
between the parties. Pursuant to the terms of the settlement agreement, Nanogen
dismissed with prejudice its lawsuit against CombiMatrix Corporation and Dr.
Montgomery. In return, CombiMatrix Corporation agreed to pay Nanogen $500,000
within 30 days of the settlement and an additional $500,000 within one year of
the settlement. CombiMatrix Corporation also agreed to make quarterly payments
to Nanogen equal to 12.5% of total sales of products developed by CombiMatrix
Corporation and its affiliates and based on the patents that had been in dispute
in the litigation, up to an annual maximum of $1,500,000. The minimum quarterly
payments under the settlement agreement will be $37,500 per quarter for the
period from October 1, 2003 through October 1, 2004, and $25,000 per quarter
thereafter until the patents expire. Also pursuant to the settlement agreement,
CombiMatrix Corporation agreed to issue to Nanogen 4,016,346 shares, or 17.5% of
its outstanding shares post-issuance, subject to antidilution provisions under
specified circumstances, including the exercise of outstanding options and
warrants and issuances of additional capital stock of CombiMatrix Corporation,
for a period of up to three years.


                                     -132-



                            ACACIA TECHNOLOGIES GROUP
                   (A DIVISION OF ACACIA RESEARCH CORPORATION)

                                    BUSINESS

     The Acacia Technologies group is principally comprised of Soundview
Technologies Incorporated ("Soundview Technologies"), Acacia Media Technologies
Corporation ("Acacia Media Technologies"), formerly Greenwich Information
Technologies LLC, and includes all corporate assets and liabilities and related
transactions of Acacia Research that relate to its media technology businesses.
Both Soundview Technologies and Acacia Media Technologies are wholly-owned
subsidiaries of Acacia Research.

     Soundview Technologies was incorporated in March 1996 under the laws of the
State of Delaware. Soundview Technologies has acquired and is developing
intellectual property in the telecommunications field, including audio and video
blanking systems, also known as V-chip technology, which it licenses to
television manufacturers. In March 1998, the Federal Communications Commission
("FCC") approved the television guidelines rating system, as well as the V-chip
technical standards. Soundview Technologies owns the exclusive right and title
to U.S. Patent No. 4,554,584, which describes a method for implementing the
V-chip system in parallel with the existing closed-captioning circuits already
in place in televisions. This patent expires in July 2003.

     Acacia Media Technologies was formed as a limited liability company under
the laws of the State of Delaware in 1996 and converted to become a Delaware
corporation in 2001. Acacia Media Technologies owns a worldwide portfolio of
pioneering patents relating to audio and video transmission and receiving
systems, commonly known as audio-on-demand and video-on-demand, used for
distributing content via various methods including computer networks, cable
television systems and direct broadcasting satellite systems. Audio-on-demand
offers similar functionality with music or other audio content. Video-on-demand
allows television viewers to order movies or other programs from a remote file
server and to view them at home with full VCR functionality, including pause,
fast-forward and reverse. Information-on-demand is one of the primary
applications of interactive entertainment.

     The Acacia Technologies group is responsible for the development, licensing
and protection of its intellectual property and proprietary technologies and
continues to pursue both licensing and strategic business alliances with leading
companies in the rapidly growing media technologies industry.

MARKET OVERVIEW

     SOUNDVIEW TECHNOLOGIES' MARKETS

     The 1996 Telecommunications Act requires all television manufacturers to
include V-chip technology in all new television sets with screens 13 inches or
larger sold in the United States. Approximately 26.0 million new televisions are
sold each year in the United States. The Acacia Technologies group's V-chip
technology is a cost-effective method for V-chip implementation that is
compatible with components currently in use in televisions. The Acacia
Technologies group's V-chip technology uses a television's receiver circuitry to
decode content rating information sent as part of the broadcast signal. By
utilizing the broadcast signal that carries closed-caption data, the Acacia
Technologies group's technology is relatively inexpensive to implement. The
industry and its trade association adopted this method as the technical standard
for new television sets sold in the United States that are required to have
V-chip technology. There may be other patents that pertain to the V-chip
technology.

     ACACIA MEDIA TECHNOLOGIES' MARKETS

     The market for audio and video transmission and receiving systems, such as
audio-on-demand and video-on-demand, continues to grow inside the United States
and abroad. The technology underlying the infrastructure required to deliver
digitized signals to consumers continues to rapidly improve, making the
expansion of the infrastructure more economical, and increasing the
opportunities for the commercialization of the Acacia Technologies group's audio
and video-on-demand patent portfolio. It is estimated that there are currently
17 million digital satellite customers in the United States and 9 million
outside the United States. There are an estimated 13


                                     -133-



million digital cable subscribers in the United States, and this number is
anticipated to increase to over 40 million by 2005. It is also estimated that
there are currently 11 million broadband Internet customers in the United
States, and this number is anticipated to increase significantly by 2005.
Interactive services such as video-on-demand are being rolled out to these
digital customers, and it is anticipated that revenues for the video-on-demand
industry will reach $3 billion by 2005. The Acacia Technologies group will
continue to pursue both licensing and strategic business alliances with leading
companies in the rapidly growing media technologies industry.

MARKETING AND DISTRIBUTION

     V-CHIP TECHNOLOGY

     The Acacia Technologies group's strategy has been to license television
manufacturers that are utilizing the V-chip technology. Its strategy has been to
license to major manufacturers with the largest potential licensing fees first,
and then to focus on smaller or less well-known manufacturers. By successfully
licensing to the largest manufacturers first, Acacia Technologies believes that
it has established strong precedent with respect to its intellectual property
rights. This precedent has enabled the Acacia Technologies group to deal
effectively with additional manufacturers and to avoid, in some circumstances,
costly negotiations or litigation.

     During the past year, the Acacia Technologies group has licensed 12 major
television manufactures including Philips, Hitachi, Pioneer, Samsung, Sanyo,
Funai, LG Electronics, Thomson, JVC, Daewoo, Orion, and Matsushita. Litigation
for patent infringement and anti-trust violations is pending against Sony,
Mitsubishi, Sharp and Toshiba. These 12 licensees and 4 litigants manufacture
most of the television sets sold in the United States. These license agreements
contain provisions in some cases for lump sum payments, in other cases
provisions for ongoing royalty payments or a combination of both.

     The Acacia Technologies group has identified several additional companies
that also manufacture televisions for sale in the U.S. and it intends to
continue to attempt to enter into licenses with these companies. The Acacia
Technologies group expects to enter into licenses with these companies, but may
initiate additional litigation against these companies if they use Acacia
Technologies' V-Chip technology without a license. The Acacia Technologies
group's success in entering into licenses or litigation with these companies
may, however, be impacted by developments in its existing litigation. In pending
litigation against Sony, Mitsubishi, Sharp and Toshiba, the court in September
2002 ruled that the defendants had not infringed the V-chip patent. While the
Acacia Technologies group is currently exploring strategies in connection with
this ruling and intends to appeal, litigation is inherently uncertain and there
can be no assurance that the Acacia Technologies group will be successful in any
such appeal. As a result of this ruling, in October 2002 Soundview Technologies
voluntarily filed to dismiss, without prejudice, its pending action for
infringement of the V-chip patent against seventeen television manufacturers. By
voluntarily dismissing this lawsuit at this time, Soundview Technologies will be
able to refile the action in the event that a favorable final decision is
reached with respect to the issue of infringement in the lawsuit against Sony,
Mitsubishi, Sharp and Toshiba. Acacia Technologies' V-chip patent expires in
July 2003.

     DIGITAL MEDIA TRANSMISSION TECHNOLOGY

     Streaming and audio/video on demand refers to technology that permits
viewers or listeners to experience on-demand digital audio and video. In order
for streaming and audio/video on demand content to be transmitted, it must be
digitized, compressed and encrypted using software. The digitized content is
then stored by the originator or a content aggregator on a digital server. Upon
request by the end user, the digitized content is sent via cable, satellite, the
Internet, or radio transmission to a receiver. The receiver is usually a
computer, set top box, radio, or other portable hand held device which plays,
pauses, rewinds, and fast forwards the content at the discretion of the user.

     Digital Media Transmission ("DMT") technology is a broad technology
covering the process of digitizing, encrypting, compressing, storing,
transmitting, receiving and playing back audio and/or video content. The
technology is supported by five issued U.S. Patents consisting of 137 claims,
and seventeen international patents. The DMT technology is developed and can be
used in services commonly referred to as video-on-demand, audio-on-demand, and
streaming media. As these types of services continue to be introduced to the
marketplace, DMT is


                                     -134-



expected to be utilized with increasing frequency. There may be other patents
held by third parties that pertain to the DMT technology.

     Acacia Technologies group's DMT technology has the potential to be utilized
by companies worldwide engaged in the digitization, encryption, storage,
transmission, receipt, and playback of digital content. Digital satellite
television has been perhaps the fastest growing medium for transmission of
digitized content. Cable companies are seeking to convert their existing
customers to digital formats to compete with satellite. Broadband Internet
service is expanding throughout the United States for the delivery of digital
entertainment services to the computer.

     Acacia Technologies group has identified entities whose operations it
believes may infringe upon its DMT technology and other potential licensees that
may use its DMT technology involved in this process including cable companies,
satellite companies, DSL providers, fiber network providers, server
manufacturers, content delivery networks, consumer electronics companies,
corporate webcasters, interactive gaming companies, encoder application vendors,
software manufacturers, adult entertainment companies, and computer
manufacturers, all on a worldwide basis.

     Acacia Technologies group intends to engage in a worldwide licensing
program based upon the adoption rates and uses of its DMT technology. Acacia
Technologies group believes that current non-licensed users of its DMT
technology infringe upon its patented DMT technology. Since Acacia Technologies
group's acquisition in 2001 of the remaining ownership interests in Acacia Media
Technologies Corporation, the entity that owns the DMT technology, it has worked
to identify entities that may infringe on the DMT technology. Acacia
Technologies group intends to pursue licensing arrangements with such entities,
but may initiate litigation in the event that users of its DMT technology refuse
to obtain a license with respect to its patented technology. Acacia Technologies
group has not entered into licensing agreements with respect to the DMT
technology to date. Acacia Technologies group's digital media transmission
patent portfolio expires in 2011 in the U.S. and in 2012 in international
markets.

PATENTS, LICENSES AND FRANCHISES

     The Acacia Technologies group's patent that describes a method for
implementing the V-chip system in parallel with the existing closed-captioning
circuits already in place in televisions, was issued in November 1985 and
expires in July 2003. In April 1998, the U.S. Patent and Trademark Office issued
a reexamination certificate confirming the approval of all existing and newly
added claims of its issued patent. The reexamination was requested by Soundview
Technologies in August 1996 to confirm the strength of its patent in light of
other existing patents. Over 30 new prior art references were introduced and
examined during the process, which took more than eighteen months for the Patent
Office to complete. As a result, patentability of all original claims as issued
was confirmed and 17 new claims more specific to the V-chip implementation were
granted.

     The Acacia Technologies group owns five issued U.S. patents relating to
audio and video transmission and receiving systems, commonly known as
audio-on-demand and video-on-demand, used for distributing content via various
methods as follows: U.S. Patent No. 5,132,992, U.S. Patent No. 5,253,275, U.S.
Patent No. 5,550,863, U.S. Patent No. 6,002,720 and U.S. Patent No. 6,144,702.
In addition, the Acacia Technologies group owns seventeen foreign patents also
relating to audio and video transmission and receiving systems technology.
Foreign rights include a patent granted in Mexico, a patent granted by the
European Patent Office covering Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Italy, Luxembourg, Monaco, the Netherlands, Spain, Sweden,
Switzerland and the United Kingdom, and a patent application pending in Japan.
Those patents that have already been issued and granted were issued or granted
during the past nine years, the earliest of which will expire in 2011. The
Acacia Technologies group is pursuing business opportunities with possible
providers of information-on-demand systems and others involved in supplying
related information-on-demand services.

REGULATORY MATTERS

     The Acacia Technologies group markets and licenses technologies relating to
audio-on-demand and video-on-demand. These technologies can be used to transmit
content by several means including satellite, cable and telecommunications
systems. The satellite, cable and telecommunications industries are subject to
federal regulation, including Federal Communications Commission ("FCC")
licensing and other requirements. These


                                     -135-



industries are also often subject to extensive regulation by local and state
authorities. While most satellite, cable and telecommunication industry
regulations do not apply directly to the Acacia Technologies group, they affect
programming distributors, one of the large potential customers for the
technologies covered by the Acacia Technologies group patent portfolio. The
Acacia Technologies group monitors pending legislation and administrative
proceedings to ascertain relevance, analyze impact and develop strategies
regarding regulatory trends and developments within these industries.

     Federal law requires cable operators to reserve up to one-third of a
system's channel capacity for local commercial television stations that have
elected must-carry status. In addition, a cable system is generally required to
carry local non-commercial television stations. The FCC has also implemented
comparable rules for satellite carriers requiring that if a satellite system
carries one local broadcast station in a local market pursuant to a royalty-free
license granted under the Satellite Home Viewer Improvement Act of 1999, then it
must carry all local broadcast stations in that market. To meet these
requirements, some cable and satellite systems must decide which programming
services to keep and which to remove in order to make space available for local
television stations. These must-carry requirements may impact the Acacia
Technologies group's information-on-demand and streaming media business by
causing cable and satellite systems operators to reduce the number of channels
on their systems that would have used technologies covered by Acacia
Technologies group's patent portfolio.

     On January 18, 2001, the FCC issued a Notice of Inquiry ("NOI") concerning
interactive television. The NOI raises a series of questions that suggest that
cable systems might be regarded as essential, open platforms of spectrum for
non-discriminatory third-party use, rather than facilities-based providers
competing in a wider market. Interactive television is a service so new that the
FCC has difficulty defining it, but the FCC states that it considers interactive
television to embrace at least electronic program guides, interactive video
content, and supplementary signals that wrap around video and provide additional
content or services. The NOI seeks comments on the nature of interactive
television (e.g., what is it, who will provide it, how will it be provided, what
are the business models for its provision), and whether cable systems will be a
"superior platform" for the provision of interactive television. Although the
NOI cannot lead directly to rules, it asks very detailed questions all arising
from a common regulatory premise: that cable operations who are affiliated with
interactive television providers should not be permitted to "discriminate" in
favor of their own interactive television services with respect to spectrum
usage; and that interactive television providers affiliated with cable operators
may need to be subjected to equivalent rules of non-discrimination so that they
may not obtain leverage from any exclusive arrangement they would otherwise
negotiate with popular programmers. The outcome of the NOI will largely
determine whether there will be subsequent FCC regulations for the interactive
television industry. As of March 19, 2002, the FCC had not yet proposed any new
regulations as a result of the NOI. Any regulation of this industry could impact
the Acacia Technologies group's information-on-demand and streaming media
business by limiting the growth of the market for these technologies or
regulating their licensing, but at this time, it is too speculative to determine
what those rules or their impact may be.

COMPETITION

     The Acacia Technologies group expects to encounter competition in the area
of business opportunities from other entities having similar business
objectives. Many of these potential competitors possess financial, technical,
human and other resources greater than those of the Acacia Technologies group.
The Acacia Technologies group anticipates that it will face increased
competition in the future as new companies enter the market and advanced
technologies become available.

     Other companies may develop competing technologies that offer better or
less expensive alternatives to the V-chip technology and/or the Acacia
Technologies group's audio-on-demand and video-on-demand technology. Many
potential competitors, including television manufacturers and other media
technology companies, have significantly greater resources. Technological
advances or entirely different approaches developed by one or more of its
competitors could render Acacia Technologies group's technologies obsolete or
uneconomical.


                                     -136-



                                   MANAGEMENT

     The Acacia Technologies group's senior management will consist of the
following individuals:



NAME                  AGE   POSITIONS WITH THE ACACIA TECHNOLOGIES GROUP
-------------------   ---   ---------------------------------------------------------------------------------------------------
                      
Paul R. Ryan          57    Chairman and Chief Executive Officer - Acacia Media Technologies Corporation and Chairman Soundview
                            Technologies Incorporated

Robert L. Harris II   44    President - Acacia Media Technologies Corporation and Chief Executive Officer Soundview
                            Technologies Incorporated

Robert A. Berman      39    Senior Vice President, Business Development - Acacia Media Technologies Corporation and President
                            Soundview Technologies Incorporated

Clayton J. Haynes     33    Chief Financial Officer - Acacia Media Technologies Corporation and Soundview Technologies
                            Incorporated

Robert B. Stewart     36    Senior Vice President, Corporate Finance - Acacia Media Technologies Corporation

Roy J. Mankovitz      61    Senior Vice President, Intellectual Property - Acacia Media Technologies Corporation

Andrew H. Duncan      37    Vice President, Business Development - Acacia Media Technologies Corporation

John H. Roop          52    Vice President, Engineering - Acacia Media Technologies Corporation

Alejandro Magana      47    Vice President, International Licensing - Acacia Media Technologies Corporation


     The following is biographical information and a brief description of the
capacities in which each of the above persons has served during the past five
years. Biographical information on Messrs. Ryan, Harris and Haynes is set forth
on pages 110 and 111 under "Acacia Research Corporation--Business."

     ROBERT A. BERMAN joined Acacia Research in 2000 and was named Senior Vice
President and General Counsel in February 2001. He is also the President of
Soundview Technologies. Mr. Berman has extensive licensing and business
development experience with media technology companies, and held senior
positions at National Media Corporation from 1997 to 1999 and at QVC from 1993
to 1997. He practiced law at the Philadelphia law firm of Blank, Rome, Comisky
and McCauley from 1989 to 1993. Mr. Berman received a B.S. from the University
of Pennsylvania's Wharton School in 1985, and a J.D. from Northwestern Law
School in 1989.

     ROBERT B. STEWART joined Acacia Research in 1997 and is responsible for
corporate finance and investor relations. He also leads the company's initiative
to raise external capital for Acacia's affiliate companies. From 1995 to 1997,
Mr. Stewart was President of Macallan, Dunhill & Associates, a registered
investment advisor and general partner of a private investment fund. Mr. Stewart
has a Bachelors degree in Economics from the University of Colorado/Boulder.

     ROY J. MANKOVITZ has been Senior Vice President, Intellectual Property of
the Acacia Media Technologies Corporation since December 2001. Mr. Mankovitz is
best known for his former position as a Director, and Corporate Counsel,
Intellectual Property of Gemstar - TV Guide International ("Gemstar"). Mr.
Mankovitz was with Gemstar from 1991 to 1998, where he was responsible for the
worldwide patent, trademark and copyright program, including technology
licensing, litigation, strategic alliances and the establishment, acquisition
and protection of intellectual property rights. He was also a member of the
research and development group for new product development and a named inventor
of more than two-dozen United States and foreign patents assigned to Gemstar.
Prior to Gemstar, Mr. Mankovitz was a member of the law firm Christie, Parker
and Hale, LLP where he was responsible for intellectual property prosecution,
litigation support, infringement and validity studies, and client counseling for
electronics companies, including Gemstar, Samsung and Fujitsu. Mr. holds a B.S.
in Electrical Engineering from Columbia University and a J.D. from the
University at La Verne, Los Angeles College of Law.

     ANDREW H. DUNCAN has been Vice President, Business Development of the
Acacia Media Technologies Corporation since February 2002. Mr. Duncan was
formerly Vice President, Consumer Electronics of Gemstar - TV Guide
International with direct reporting responsibility to the CEO. Mr. Duncan was
with Gemstar from 1994 to


                                     -137-



2001, where he was responsible for licensing and marketing of the highly
successful VCR Plus+ and Electronic Program Guide. At Gemstar, he developed and
controlled licensing and marketing policy with all major consumer electronic
manufacturers worldwide, including Sony, Philips and RCA. Prior to Gemstar, Mr.
Duncan was European Marketing and Product Manager for Thomson Multimedia
(formerly RCA/GE in the United States) where he was responsible for that
company's consumer electronics multi-brand business across Europe. Mr. Duncan
holds and honors degree in chemistry from Nottingham University and diplomas in
marketing and direct marketing from London University (Kings College).

     JOHN ROOP has been Vice President, Engineering of Acacia Media Technologies
since March 2002. Since 1995, Mr. Roop has acted as a non-testifying expert
witness as a technology consultant in a number of high value, media technology
intellectual property litigations. Mr. Roop was with StarSight Telecast, Inc.
from 1992 to 1995 where he held the positions of Senior Vice President,
Technology and Development, and Vice President, Engineering. He has also
previously held the positions of Director of Engineering of InSight Telecast,
Inc., Vice President of Engineering of VSAT Systems, Inc., and Director of Data
Communications of Telcom General Corp. Mr. Roop holds a B.S. in Electrical
Engineering from the University of California, Berkeley.

     ALEJANDRO MAGANA has been Vice President, International Licensing since
June 2002. Most recently, Mr. Magana was a consultant for international and
domestic companies, including Gemstar-TV Guide, where he negotiated and
finalized contracts with media companies and cable operators in Mexico and Latin
America. Mr. Magana was Vice President of Business Development with Grupo
Televisa from 1987 to 1997, where he was responsible for joint ventures and
strategic alliances worldwide. Mr. Magana also served as a member of the Board
of Directors for several companies owned by Grupo Televisa and initiated the
Consumer Products Division of Grupo Televisa.

EMPLOYEES

     As of November 1, 2002, the Acacia Technologies group had 12 full-time
employees. None of the companies included in the Acacia Technologies group is a
party to any collective bargaining agreement. The Acacia Technologies group
considers its employee relations to be good.

PROPERTIES

     The Acacia Technologies group operates out of facilities leased by Acacia
Research, consisting of approximately 7,143 square feet of office space in
Newport Beach, California, under a lease agreement that expires in February
2007. Presently, the Acacia Technologies group is not seeking any additional
facilities.

LEGAL PROCEEDINGS

     In 2000, Soundview Technologies filed a federal patent infringement and
antitrust lawsuit against certain television manufacturers, the Consumer
Electronics Manufacturers Association and the Electronics Industries Alliance
d/b/a/ Consumer Electronics Association. In its lawsuit now pending before the
United States District Court for the District of Connecticut, Soundview
Technologies alleges that television sets fitted with V-chips and sold in the
United States infringe Soundview Technologies' patent. Additionally, Soundview
Technologies alleges that the Consumer Electronics Manufacturers Association has
induced infringement of Soundview Technologies' patent and that the defendants
have violated the federal Clayton and Sherman Antitrust Acts by engaging in
collusive attempts to prevent others in the electronics and television
broadcasting industries from entering into licensing agreements with Soundview
Technologies. Soundview Technologies is seeking monetary damages, an injunction
preventing unlicensed use of its patented technology and other remedies. In
September 2002, the court granted a motion for summary judgment filed by the
defendants, ruling that the defendants have not infringed on Soundview
Technologies' patent. While we are currently exploring strategies in response to
this ruling and intend to appeal it, litigation is inherently uncertain and we
can give no assurance that we will be successful in any such appeal.

     In August 2002, Soundview Technologies filed a federal patent infringement
lawsuit against seventeen television manufacturers in the United States District
Court for the District of Nevada. In this lawsuit, Soundview


                                     -138-



alleges that television sets fitted with V-chips and sold in the United States
infringe Soundview Technologies' patent. As a result of the summary judgment
ruling in the case before the United States District Court for the District of
Connecticut, in October 2002, Soundview Technologies voluntarily filed to
dismiss, without prejudice, the Nevada infringement lawsuit. By voluntarily
dismissing this lawsuit at this time, Soundview Technologies will be able to
refile the action in the event that a favorable final decision is reached with
respect to the issue of infringement in the Connecticut lawsuit.

     During 2001, Soundview Technologies executed separate settlement and/or
license agreements with Samsung Electronics, Hitachi America, Ltd., LG
Electronics, Inc., Funai Electric Co., Ltd., Daewoo Electronics Corporation of
America, Sanyo Manufacturing Corporation, Thomson Multimedia, Inc., JVC Americas
Corporation, MatsushitElectric Industrial Co., Ltd. and Orion Electric Co., Ltd.
In addition, Soundview Technologies settled its lawsuits with Pioneer
Electronics (USA) Incorporated, an affiliate of Pioneer Corporation, and
received payments from Philips Electronics North America Corporation pursuant to
a settlement and license agreement signed in December 2000. Certain of these
license agreements constitute settlements of patent infringement litigation
brought by Soundview Technologies.

     As of December 31, 2001, the Acacia Technologies group received license fee
payments from television manufacturers totaling $25.6 million and granted
non-exclusive licenses of Soundview Technologies' U.S. Patent No. 4,554,584 to
the respective television manufacturers. Certain of the settlement and license
agreements provide for future royalty payments to Soundview Technologies. The
Acacia Technologies group received and recognized as revenue $2.4 million of the
license fee payments in the first quarter of 2001, $10.0 million of the license
fee payments in the second quarter of 2001, $10.7 million of the license fee
payments in the third quarter of 2001 and $1.0 million of the license fee
payments in the fourth quarter of 2001. License fee payments received during
2001 totaling $1.5 million are included in deferred revenues at December 31,
2001 pursuant to the terms of the respective agreements.


                                     -139-



        ACACIA RESEARCH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

     Acacia Research develops, licenses and provides products for the media
technology and life science sectors. Acacia Research's media technologies and
life sciences businesses are referred to as the "Acacia Technologies group" and
the "CombiMatrix group," respectively. Acacia Research licenses its V-chip
technology to television manufacturers and owns pioneering technology for
digital streaming and audio and video-on-demand. We will continue to pursue both
licensing and strategic business alliances with leading companies in the rapidly
growing media technologies industry. Acacia Research's core technology
opportunity in the life science sector has been developed through our
majority-owned subsidiary, CombiMatrix Corporation, which is developing a
proprietary system for rapid, cost competitive creation of DNA and other
compounds on a programmable semiconductor chip.

     In the first and second quarters of 2002, our financial condition and
results of operations were highlighted by our majority owned subsidiary,
CombiMatrix Corporation, receiving $413,000 in grant and contract revenues,
including $182,000 in grant revenue resulting from continuing performance under
its Phase II Small Business Innovative Research Department of Defense contract,
$141,000 in one-time contract research and development revenues and $90,000 in
revenue related to performance under its Phase I National Institutes of Health
grant. In addition, during the six months ended June 30, 2002, our media
technologies group operating activities were highlighted by the continued
building of its executive management team, including the hiring of key media
technology and intellectual property industry experts that will be responsible
for the development, licensing and protection of the Acacia Technologies group's
intellectual property and proprietary technologies, as well as the pursuit of
both licensing and strategic business alliances with leading companies in the
growing media technologies industry.

     In 2001, our financial condition and results of operations were highlighted
by the receipt of $25.6 million in payments from the licensing of our television
V-chip technology, and $6.4 million received by CombiMatrix Corporation pursuant
to separate license, supply and research and development agreements with Roche
Diagnostics GmbH ("Roche") and the National Aeronautics and Space Administration
("NASA") and continued performance under its Phase II SBIR contract with the
U.S. Department of Defense. In addition, CombiMatrix Corporation continued its
expansion of research and development activities in 2001. In 2000, our financial
condition and results of operations were highlighted primarily by the continued
expansion of research and development and the building of the management team at
CombiMatrix Corporation. In 1999, our financial condition and results of
operations were highlighted primarily by the investment in our subsidiary,
Soundbreak.com, and the expansion associated with CombiMatrix Corporation's
research and development. In the following discussion and analysis, the
period-to-period comparisons must be viewed in light of the impact that the
acquisition and disposition of securities of various business interests has had
on our financial condition and results of operations.

     During 2001, we began to receive significant payments from the licensing of
our television V-chip technology to television manufacturers. In addition,
CombiMatrix Corporation began to receive significant payments from its strategic
partners and licensees. However, to date, our subsidiary companies have relied
primarily upon selling equity securities, including sales to and loans from us,
to generate the funds needed to finance the implementation of their plans of
operation. Our subsidiary companies may be required to obtain additional
financing through bank borrowings, debt or equity financings or otherwise, which
would require us to make additional investments or face a dilution of our equity
interests.

     We cannot assure you that we will not encounter unforeseen difficulties
that may deplete our capital resources more rapidly than anticipated. Any
efforts to seek additional funds could be made through equity, debt or other
external financings; however, we cannot guarantee that additional funding will
be available on favorable terms, if at all. If we fail to obtain additional
funding when needed for us and our subsidiary companies, we may not be able to
execute our business plans and our business may suffer.


                                     -140-



ACQUISITION AND OPERATING ACTIVITIES

     During 2001, we continued to significantly increase financing, acquisition
and operating activities while receiving significant payments from our media
technologies licensing arrangements and from our life science strategic partners
and licensees. We intend to continue to pursue both licensing and strategic
business alliances with leading companies in the rapidly growing media
technologies industry. Additionally, we intend to continue to invest in growing
our life science businesses by identifying and developing opportunities in the
life science sector that will be created by commercializing the new biochip
technology of CombiMatrix Corporation and other related investments in that
sector. Financing activities are listed in the "Liquidity and Capital Resources"
section that follows. Highlights of the acquisition and operating activities for
the six months ended June 30, 2002 and the year ended December 31, 2001 include:

SECOND QUARTER 2002:

     In April 2002, CombiMatrix Corporation's Japanese subsidiary entered into a
technology access and purchase agreement in Japan with the Computational Biology
Research Center ("CBRC"), a division of the Japanese National Institute of
Advanced Industrial Science and Technology. CBRC has purchased and installed a
CombiMatrix Corporation gene chip synthesizer and entered into a multi-year
agreement to purchase blank chips that will be used to synthesize custom gene
chips. The agreement also gives CBRC access to CombiMatrix Corporation's set of
informatics tools to help in its efforts to expand biotechnology related
businesses in Japan.

     On April 25, 2002, CombiMatrix Corporation purchased our interest in
Advanced Material Sciences, a development stage company that holds the exclusive
license for CombiMatrix Corporation's biological array processor technology in
certain fields of material science. CombiMatrix Corporation issued 180,982
shares of its common stock to us in exchange for our 58% interest in Advanced
Material Sciences. As a result of the sale of our interest in Advanced Material
Sciences, CombiMatrix Corporation currently owns 87% of Advanced Material
Sciences and the remaining interests are owned by unaffiliated entities.

     In May 2002, CombiMatrix Corporation's Japanese subsidiary entered into a
technology access collaboration and purchasing agreement with the Genome Science
Laboratory at the Research Center for Advanced Science and Technology ("RCAST")
of the University of Tokyo. Under the terms of the agreement, RCAST has
installed a CombiMatrix Corporation gene chip synthesizer and entered into a
multi-year agreement to purchase blank chips that will be used in the
development of diagnostic microarray applications, drug lead development and
target gene identification for the drug discovery industry. The agreement
includes a memorandum of understanding that in the event of the discovery or
development of novel and valuable content, candidates or products, the parties
will establish an agreement for the commercialization of those discoveries. Such
an agreement enables both CombiMatrix Corporation and RCAST to benefit from any
discoveries made using this platform.

FIRST QUARTER 2002:

     In February 2002, CombiMatrix Corporation was awarded a six month $100,000
Phase I National Institutes of Health grant for the development of its protein
biochip technology. The title of the grant is "Self-Assembling Protein
Microchips." This grant is in addition to a two-year Phase II SBIR grant from
the U.S. Department of Defense for the development of multiplexed chip based
assays for chemical and biological warfare agent detection.

     On March 20, 2002, we announced that our board of directors approved a plan
to divide our common stock into two new classes of common stock: new
"CombiMatrix" common stock, that would reflect the performance of our
CombiMatrix subsidiary and all corporate assets, liabilities and related
transactions of Acacia Research attributed to the CombiMatrix business, and new
"Acacia Technologies" common stock, that would reflect the performance of our
media technology businesses, including Soundview Technologies, Acacia Media
Technologies and all corporate assets, liabilities, and related transactions of
Acacia Research attributed to the media technology businesses. The plan is
subject to several conditions including stockholder approval. If the
recapitalization proposal were approved and the other conditions were satisfied,
our stockholders would receive shares of both of the new classes of stock in
exchange for existing Acacia Research Corporation shares. The new share classes
are intended to be separately listed on the NASDAQ National Market System under
the symbols "CBMX" and "ACTG," respectively.


                                     -141-



     We also announced that our board of directors and CombiMatrix Corporation's
board of directors have approved an agreement for us to acquire the minority
stockholder interests in CombiMatrix Corporation. The proposed acquisition would
be accomplished through a merger in which the minority stockholders of
CombiMatrix Corporation would receive shares of the new Acacia Research
Corporation "CombiMatrix" common stock in exchange for their existing shares.
The proposed transaction will be submitted to our stockholders and the
stockholders of CombiMatrix Corporation for approval.

     On May 7, 2002, we filed a registration statement with the Securities and
Exchange Commission related to the proposed recapitalization and merger
transactions discussed above.

FIRST QUARTER 2001:

     In the first quarter of 2001, Soundview Technologies executed separate
settlement and/or license agreements with Samsung Electronics, Hitachi America,
Ltd., LG Electronics, Inc., Funai Electric Company, Ltd., Daewoo Electronics
Corporation of America and Sanyo Manufacturing Corporation. In addition,
Soundview Technologies settled its lawsuits with Pioneer Electronics (USA)
Incorporated. Certain of these license agreements constitute settlements of
patent infringement litigation brought by Soundview Technologies. The settlement
and license agreements provide for licensing payments to Soundview Technologies,
and grant non-exclusive licenses of Soundview Technologies' U.S. Patent No.
4,554,584 (the "V-chip patent") to the respective television manufacturers.
Certain of these settlement and license agreements provide for future royalty
payments to Soundview Technologies. We received, and recognized as revenue, $2.4
million in one-time license fee payments, in exchange for the grant of V-chip
patent licenses, during the first quarter of 2001. In addition, we received a
payment of $1.0 million pursuant to a settlement and license agreement executed
in December 2000, which is included in deferred revenues at December 31, 2001.

     In February 2001, the board of directors of Soundbreak.com, a
majority-owned subsidiary of Acacia Research, resolved to cease operations as of
February 15, 2001 and liquidate its remaining assets and liabilities of the
company. Accordingly, we reported the results of operations and the estimated
loss on disposal of Soundbreak.com as results of discontinued operations in the
consolidated statements of operations and comprehensive loss as of and for the
year ended December 31, 2000.

SECOND QUARTER 2001:

     In June 2001, our ownership interest in Soundview Technologies increased
from 67% to 100%, following Soundview Technologies' completion of a stock
repurchase transaction with its former minority stockholders. Soundview
Technologies repurchased the stock of its former minority stockholders in
exchange for a cash payment and the grant to such stockholders of the right to
receive 26% of future net revenues generated by Soundview Technologies' current
patent portfolio, which includes its V-chip patent.

     During the second quarter of 2001, Soundview Technologies executed separate
settlement and license agreements with Thomson Multimedia, Inc. and JVC Americas
Corporation. Certain of these settlement and license agreements provide for
future royalty payments to Soundview Technologies. We received, and recognized
as revenue, one-time license fee payments totaling $10.0 million in exchange for
the grant of V-chip patent licenses during the second quarter of 2001.

THIRD QUARTER 2001:

     In the third quarter of 2001, Soundview Technologies executed separate
settlement and/or license agreements with Matsushita Electric Industrial Co.,
Ltd. and Orion Electric Co., Ltd. We received, and recognized as revenue,
one-time license fee payments totaling $10.7 million in exchange for the grant
of V-chip patent licenses during the third quarter of 2001. In addition, we
received a payment of $0.5 million pursuant to a license agreement executed in
December 2000, which is included in deferred revenues at December 31, 2001.

     In July 2001, CombiMatrix Corporation entered into non-exclusive worldwide
license, supply, and research and development agreements with Roche. These
agreements were amended and restated in September 2002. Under


                                     -142-



the terms of the revised agreements, it is contemplated that Roche will
co-develop, use, manufature, market and distribute CombiMatrix Corporation's
biochips (microarrays) and related technology for rapid production of
customizable biochips. Additionally, CombiMatrix Corporation and Roche will
develop a platform technology, providing a range of standardized biochips for
use in important research applications. Roche has made will continue to make
payments for the deliverables stipulated and for expanded license and
manufacturing rights.

     The agreements provide for minimum payments by Roche to CombiMatrix
Corporation over the first three years, including milestone achievements,
payments for products, royalties and research and development projects. In the
third quarter of 2001, CombiMatrix Corporation received an up-front payment
under the Roche agreement, which is included in deferred revenues at December
31, 2001.

     In August 2001, CombiMatrix Corporation entered into a license and supply
agreement with NASA. The agreement provides for the license, purchase and use by
the NASA Ames Research Center of CombiMatrix Corporation's active biochips
(microarrays) and related technology to conduct biological research in
terrestrial laboratories and in space.

FOURTH QUARTER 2001:

     On October 22, 2001, our board of directors declared a ten percent (10%)
stock dividend. The stock dividend, totaling 1,777,710 shares, was distributed
on December 5, 2001 for stockholders of record as of November 21, 2001. All
share and per share information presented herein is adjusted for the stock
dividend.

     In October 2001, CombiMatrix Corporation formed a joint venture with
Marubeni Japan, one of Japan's leading trading companies. The joint venture,
based in Tokyo, will focus on development and licensing opportunities for
CombiMatrix Corporation's biochip technology with pharmaceutical and
biotechnology companies in the Japanese market. Marubeni made an investment to
acquire a ten percent (10%) minority interest in the joint venture.

     In November 2001, we increased our ownership interest in Acacia Media
Technologies, formerly Greenwich Information Technologies LLC, from 33% to 100%
through the purchase of the ownership interest of the former limited liability
company's other member. In December 2001, we converted the company from a
limited liability company to a corporation and changed the name of the company
to Acacia Media Technologies Corporation. Acacia Media Technologies owns a
worldwide portfolio of pioneering patents relating to audio and video
transmission and receiving systems, commonly known as audio-on-demand and
video-on-demand, used for distributing content via various methods including
computer networks, cable television systems and direct broadcasting satellite
systems.

     In December 2001, CombiMatrix Corporation completed a major milestone in
its strategic alliance with Roche. CombiMatrix Corporation demonstrated several
key performance metrics of its custom in-situ microarray system. In the fourth
quarter of 2001, CombiMatrix Corporation received certain milestone payments
under the Roche agreement, which are included in deferred revenues at December
31, 2001.

     In the fourth quarter of 2001, we received, and recognized as revenue, a
one-time license fee payment totaling $1.0 million in exchange for the grant of
a V-chip patent license. In addition, CombiMatrix Corporation received payments
under its license and supply agreement with NASA, which are included in deferred
revenues at December 31, 2001.

     As of September 30, 2001, CombiMatrix Corporation capitalized costs
incurred in connection with the filing of a registration statement with the
Securities and Exchange Commission in November 2000, totaling $1.4 million.
Approximately $0.9 million of these costs were included in current assets in our
December 31, 2000 consolidated balance sheet. In the fourth quarter of 2001, all
of these deferred costs were charged to operations due to uncertainty regarding
the future recoverability of such costs stemming from unfavorable market
conditions in late 2001 and early 2002.


                                     -143-



EFFECT OF VARIOUS ACCOUNTING METHODS ON OUR RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

     We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:

     o    revenue recognition;

     o    research and development expenses;

     o    litigation, claims and assessments;

     o    stock-based compensation;

     o    accounting for income taxes; and

     o    valuation of long-lived and intangible assets and goodwill.

     REVENUE RECOGNITION. We derive our revenues from three primary sources: (i)
fees from the licensing of our television V-chip technology to television
manufacturers, (ii) revenues under multiple-element arrangements with strategic
partners and licensees and (iii) government grant revenues.

     As described below, significant management judgments must be made and used
in connection with the revenue recognized in any accounting period. Material
differences may result in the amount and timing of our revenue for any period if
our management made different judgments.

     Television V-chip License Fees: Our television V-chip technology settlement
and/or license agreements provide for the payment of contractually determined
license fees to us in consideration for the grant to certain television
manufacturers of a non-exclusive, retroactive and future license to manufacture
and/or sell products covered by the V-chip patent. While payments recognized to
date have been one-time payments for the grant of V-chip patent licenses,
certain of the agreements also provide for future royalties or additional
required payments based on future television sales or the outcome of future
litigation and settlement activities. The agreements executed with the various
television manufacturers include certain release provisions with respect to
Soundview Technologies' ongoing patent infringement and anti-trust enforcement
efforts. Amounts received under the settlement and license agreements are
recorded as license fee income in our consolidated statement of operations and
comprehensive loss.

     License fee income is recognized as revenue when (i) persuasive evidence of
an arrangement exists, (ii) all obligations have been performed pursuant to the
terms of the license agreement, (iii) amounts are fixed or determinable and (iv)
collectibility of amounts is reasonably assured. Pursuant to the terms of the
agreements, we have no further obligation with respect to the sale of the
non-exclusive retroactive and future license, including no express or implied
obligation on our part to maintain or upgrade the technology or license, or
provide future support or services. Generally, the agreements provide for the
grant of the license upon receipt by Soundview Technologies of payment of the
contractual license fee. As such, the earnings process is generally complete
upon the receipt of payment from the television manufacturer, and revenue is
recognized when all of the criteria above are met.

     License fee payments received by us that do not meet the revenue
recognition criteria above are recorded as deferred revenues until the criteria
are met. In the event that license fee amounts due from television manufacturers
have been accrued, we assess collection based on a number of factors, including
past transaction history and credit-worthiness. If we determine that collection
of an accrued license fee is not reasonably assured, we defer the fee and
recognize revenue upon receipt of cash.

     Revenues Under Multiple-Element Arrangements with Strategic Partners and
Licensees: CombiMatrix Corporation entered into a non-exclusive worldwide
license, supply, research and development agreement with Roche in July 2001.
Under the terms of the agreement, Roche will purchase, use and resell
CombiMatrix Corporation's microarray and related technologies for rapid
production of customizable biochips. Additionally, CombiMatrix Corporation and
Roche will develop a platform technology, providing a range of standardized
biochips for use in research applications. The agreement has a 15-year term and
provides for minimum payments by


                                     -144-



Roche to CombiMatrix Corporation over the first three years, including milestone
achievements, payments for products, royalties and research and development
projects.

     Revenues from the sale of products and services under multiple-element
arrangements are recognized when (i) persuasive evidence of an arrangement
exists, (ii) delivery has occurred or services have been rendered, (iii) the
fees are fixed and determinable and (iv) collectibility is reasonably assured.

     Pursuant to Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB No. 101"), an arrangement with multiple deliverables
should be segmented into individual units of accounting based on the separate
deliverables only if there is objective and reliable evidence of fair value to
allocate the consideration to the deliverables. Accordingly, revenues from
multiple-element arrangements involving license fees, up-front payments and
milestone payments, which are received or billable in connection with other
rights and services that represent continuing obligations of CombiMatrix
Corporation, are deferred until all of the elements have been delivered or until
objective and verifiable evidence of the fair value of the undelivered elements
has been established.

     Upon establishing verifiable evidence of the fair value of the elements in
multiple-element arrangements, the fair value is allocated to each element of
the arrangement, such as licensing or research and development deliverables,
based on the relative fair values of the elements. We determine the fair value
of each element in multiple-element arrangements based on objective and
verifiable evidence of the price charged when the same element is sold
separately. If evidence of fair value of all undelivered elements exists but
evidence does not exist for one or more delivered elements, then revenue is
recognized using the residual method. Under the residual method, the fair value
of the undelivered elements is deferred and the remaining portion of the
arrangement fee is recognized as revenue.

     For the year ended December 31, 2001, CombiMatrix Corporation received
payments totaling $5.3 million from Roche, including up-front payments and
milestone payments, which are classified as deferred revenues in the
accompanying December 31, 2001 consolidated balance sheet because objective and
reliable evidence of fair value of the various elements of the Roche Agreement
does not currently exist and all elements of the contract have not been
delivered. Pursuant to SAB No. 101, the elements associated with the amounts
received to date and additional payments will be treated as one accounting unit.
The up-front fees and cash payments received upon the accomplishment of the
contractual milestones will be deferred. Revenue will be recognized when all of
the related elements, for which objective and reliable evidence does not exist,
have been delivered and there is objective and reliable evidence to support the
fair value for all of the undelivered elements. Under our existing agreement and
timelines, CombiMatrix expects to have completed and delivered all of the
remaining milestones under the license and supply agreement by the fourth
quarter of 2002. When verifiable, objective evidence of fair value for the
remaining undelivered elements has been obtained, deferred revenues associated
with payments received to date for the completed elements will become
recognizable as revenue. We intend to obtain verifiable, objective evidence of
fair value for the remaining undelivered elements by reviewing the public record
for similar arms-length, multiple-element agreements between unrelated
third-party companies in comparable industries. The review and establishment of
verifiable, objective evidence of fair value for the remaining undelivered
elements is expected to be completed in the fourth quarter of 2002. Future
deliverables include refinement to Roche's specifications of certain hardware
elements of the microarray technology platform.

     Government Grants: Revenues from government grants and contracts are
recognized when the related services are performed and approved by the grantor
and when collectibility is reasonably assured. Amounts recognized are limited to
amounts due from customers based upon the contract or grant terms.

     RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses to
date have been incurred primarily by our subsidiary, CombiMatrix Corporation.
CombiMatrix Corporation is engaged in several research and development
initiatives to expand its product offerings by increasing the number of test
sites on their active biochips from 1,024 sites per square centimeter currently
to over 10,000 sites per square centimeter and by developing additional
applications of its technology for drug discovery and development.

     Research and development expenses have been CombiMatrix Corporation's
largest expense to date. Research and development expenses primarily relate to
costs of developing its semiconductor-based, active biochip


                                     -145-



system, including salaries and benefits, recruiting and relocation expenses
related to the expansion of its research and development staff, costs associated
with increased usage of laboratory materials and supplies and increased
facilities costs. CombiMatrix Corporation expects to continue to incur
significant expenses for research and development, for developing and expanding
its manufacturing capabilities and for other efforts to commercialize its
products. As a result, we expect that our research and development expenses will
continue to increase in the foreseeable future.

     In July 2001, CombiMatrix Corporation signed a non-exclusive license and
supply agreement and a research and development agreement with Roche in the
genomics and related diagnostic fields, which provide for payments to
CombiMatrix Corporation upon development of proposed products incorporating its
technology. In 2001, research and development expenses incurred were primarily
driven by CombiMatrix Corporation's obligations under the research and
development agreement with Roche. These projects include continued development
of production microarray synthesis techniques, as well as higher density
microarrays. These projects are expected to continue into 2002 and 2003 as
determined by the timelines outlined in CombiMatrix Corporation's agreements
with Roche.

     We account for research and development expenses pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 2, "Accounting for Research and
Development Costs" ("SFAS No. 2"). SFAS No. 2 requires that all research and
development costs, as defined therein, be charged to expense as incurred.
Research and development expenses incurred to date consist of costs incurred for
direct and overhead-related research expenses and are expensed as incurred.
Costs to acquire technologies which are utilized in research and development and
which have no alternative future use are expensed when incurred. Costs related
to filing and pursuing patent applications are expensed as incurred, as
recoverability of such expenditures is uncertain. Under SFAS No. 2, research and
development refers to a plan or design for a new product or process or for a
significant improvement to an existing product or process whether intended for
sale or use. Significant management estimates are required with respect to the
determination of which costs relate to plans or designs for a new product or
process or for a significant improvement to an existing product. Had management
determined that certain costs incurred were not related to research and
development activities, different accounting treatment for such costs may have
been required.

     The costs of software developed for use in CombiMatrix Corporation's
products are expensed as incurred until technological feasibility for the
software has been established. Software development costs incurred to date have
been classified as research and development expenses. Significant management
estimates are required with respect to the determination of when technological
feasibility for the software has been established. Technological feasibility is
established upon completion of a detail program design or, in its absence,
completion of a working model. Thereafter, all software production costs are
required to be capitalized and subsequently reported at the lower of unamortized
cost or net realizable value. Had management made differing judgments regarding
technological feasibility, different accounting treatment of costs of software
developed for use in CombiMatrix Corporation's products may have been required.

     LITIGATION, CLAIMS AND ASSESSMENTS. The preparation of financial statements
in conformity with generally accepted accounting principles 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.
Specifically, our management must make estimates of whether (i) it is probable
that an asset has been impaired or a liability has been incurred at the date of
the consolidated financial statements and (ii) whether the amount of loss can be
reasonably estimated. In the event that in management's estimation it is
probable that an asset has been impaired or a liability has been incurred at the
date of the consolidated financial statements and amounts of loss can be
reasonably estimated, the estimated contingent loss from the loss contingency is
accrued by a charge to income.

     Because of the uncertainties related to both probabilities of outcome and
amounts and ranges of potential loss associated with outstanding claims and
pending litigation at December 31, 2001, management is unable to make a
reasonable estimate of the likelihood of outcome or the liability that could
result from an unfavorable outcome. As such, we have not accrued for any loss
contingencies as of December 31, 2001. As additional information becomes
available, we will assess the potential liability related to our pending
litigation and revise our estimates. Such


                                     -146-



revisions in our estimates of the potential liability could materially impact
our results of operation and financial position.

     STOCK-BASED COMPENSATION. Acacia Research's stock option policies provide
for the granting of stock options to employees, generally, at exercise prices
equal to the fair value of the underlying stock on the date of grant. The fair
values of Acacia Research stock option grants are determined by reference to the
quoted market prices of our stock as listed on the NASDAQ National Market on the
grant date. The fair values of stock options granted by our non-public
subsidiaries are determined by the board of directors of the respective
companies.

     Non-cash stock compensation cost related to stock options issued to
employees is accounted for in accordance with Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No.
25"), and related interpretations. Compensation cost attributable to such
options is recognized based on the difference, if any, between the closing
market price of the stock on the date of grant and the exercise price of the
option. Compensation cost is deferred and amortized on an accelerated basis over
the vesting period of the individual option awards using the amortization method
prescribed in Financial Accounting Standards Board ("FASB") Interpretation No.
28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans" ("FIN No. 28"). Non-cash compensation cost of stock options and
warrants issued to non-employee service providers, which has not been
significant, is accounted for under the fair value method required by SFAS No.
123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."

     During the year ended December 31, 2000, CombiMatrix Corporation recorded
deferred non-cash stock compensation charges aggregating approximately $53.8
million in connection with the granting of stock options. Pursuant to Acacia
Research's policy, the stock options were originally granted by CombiMatrix
Corporation at exercise prices equal to the fair value of the underlying
CombiMatrix Corporation common stock on the date of grant as determined by its
board of directors. However, such exercise prices were subsequently determined
to have been granted at exercise prices below fair value due to a substantial
step-up in the fair value of CombiMatrix Corporation common stock pursuant to a
valuation provided by an investment banker in contemplation of a potential
CombiMatrix Corporation initial public offering in 2000. In connection with the
proposed CombiMatrix Corporation initial public offering and pursuant to
Securities and Exchange Commission rules and guidelines, we were required to
reassess the value of stock options issued during the one-year period preceding
the potential initial public offering and utilize the stepped-up fair value
provided by the investment banker for purposes of determining whether such stock
option issuances were compensatory, resulting in the calculation of the $53.8
million in deferred non-cash stock compensation charges in 2000. Deferred
non-cash stock compensation charges are being amortized over the respective
option grant vesting periods, which range from one to four years. Non-cash stock
compensation charged to income during 2001 totaled $20.8 million and related
primarily to the continued amortization of CombiMatrix Corporation's deferred
stock compensation amounts during 2001. Pursuant to the vesting terms of
CombiMatrix Corporation's stock options outstanding at December 31, 2001, we
will incur non-cash stock compensation amortization expenses of $8.1 million in
2002, $3.6 million in 2003 and $1.1 million in 2004.

     During the third and fourth quarters of 2001, certain CombiMatrix
Corporation unvested stock options were forfeited. Pursuant to the provisions of
APB No. 25 and related interpretations, the reversal of previously recognized
non-cash stock compensation expense on forfeited unvested stock options, in the
amount of $4.7 million, has been reflected in the 2001 consolidated statement of
operations and comprehensive loss as a reduction in 2001 non-cash stock
compensation expense. In addition, the forfeiture of certain unvested options
during 2001 resulted in a reduction of the remaining deferred non-cash stock
compensation expense scheduled to be amortized in future periods.

     Amounts to be amortized in future periods reflected above may be impacted
by certain subsequent stock option transactions including modification of terms,
cancellations, forfeitures and other activity.

     ACCOUNTING FOR INCOME TAXES. As part of the process of preparing our
consolidated financial statements, we are required to estimate our income taxes
in each of the jurisdictions in which we operate. This process involves the
estimating of our actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as deferred
revenue, amortization of intangibles and asset depreciation for tax and
accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within our


                                     -147-



consolidated balance sheet. We must then assess the likelihood that our deferred
tax assets will be recovered from future taxable income and to the extent we
believe that recovery is not likely, we must establish a valuation allowance. To
the extent we establish a valuation allowance or increase this allowance in a
period, we must include an expense within the tax provision in the consolidated
statement of operations and comprehensive loss.

     Significant management judgment is required in determining our provision
for income taxes, our deferred tax assets and liabilities and our valuation
allowance. We have recorded a full valuation allowance against our net deferred
tax assets of $49.9 million as of December 31, 2001, due to uncertainties
related to our ability to utilize our deferred tax assets, primarily consisting
of certain net operating losses carried forward, before they expire. In
assessing the need for a valuation allowance, we have considered our estimates
of future taxable income, the period over which our deferred tax assets may be
recoverable, our history of losses and our assessment of the probability of
continuing losses in the foreseeable future. In management's estimate, any
positive indicators, including forecasts of potential future profitability of
our businesses, are outweighed by the uncertainties surrounding our estimates
and judgments of potential future taxable income. In the event that actual
results differ from these estimates or we adjust these estimates should we
believe we would be a to realize these deferred tax assets in the future, an
adjustment to the valuation allowance would increase income in the period such
determination was made. Any changes in the valuation allowance could materially
impact our financial position and results of operations.

     VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL. We assess the
impairment of identifiable intangibles, long-lived assets and related goodwill
and enterprise level goodwill whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider
important which could trigger an impairment review include the following:

     o    significant underperformance relative to expected historical or
          projected future operating results;

     o    significant changes in the manner of our use of the acquired assets or
          the strategy for our overall business;

     o    significant negative industry or economic trends; and

     o    significant decline in our stock price for a sustained period.

     When we determine that the carrying value of intangibles, long-lived assets
and related goodwill and enterprise level goodwill may not be recoverable based
upon the existence of one or more of the above indicators of impairment, we
measure any impairment based on a projected discounted cash flow method using a
discount rate determined by our management to be commensurate with the risk
inherent in our current business model. Net intangible assets, long-lived assets
and goodwill amounted to $21.4 million as of December 31, 2001.

     In 2002, SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"), became effective and as a result, we will cease to amortize approximately
$4.7 million of goodwill effective January 1, 2002. We recorded approximately
$1.1 million of amortization on these amounts during 2001. In lieu of
amortization, we are required to perform an initial impairment review of our
goodwill in 2002 and an annual impairment review thereafter. We expect to
complete our initial review during the first quarter of 2002. We currently do
not expect to record an impairment charge upon completion of the initial
impairment review. However there can be no assurance that at the time the review
is completed, a material impairment charge will not be recorded.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which addresses
financial accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of. SFAS No. 144 requires long-lived assets
to be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. In conjunction with
such tests, it may be necessary to review depreciation estimates and methods as
required by APB Opinion No. 20, "Accounting Changes," or the amortization period
as required by SFAS No. 142.


                                     -148-



ACCOUNTING FOR INVESTMENTS

     The various interests that we acquire in our investees are accounted for
under two broad accounting methods: (i) the consolidation method and (ii) the
equity method. The applicable accounting method is generally determined based on
our voting interest in an investee.

     Consolidation. Investees in which we directly or indirectly own more than
50% of the outstanding voting securities are generally accounted for under the
consolidation method of accounting. Under this method, the investee's accounts
are reflected within our consolidated statements of operations and comprehensive
loss. Participation of other stockholders in the earnings or losses of a
consolidated investee is reflected in the caption "minority interests" in our
consolidated statements of operations and comprehensive loss. Minority interests
adjust our consolidated net results of operations to reflect only our share of
the earnings or losses of consolidated, non-wholly-owned investees. In the case
in which losses applicable to the minority interests in an investee exceed the
minority interests in the equity capital of the investee, such excess and any
further losses applicable to the minority interests are charged against the
majority interest. However, if future earnings materialize, the majority
interest will be credited to the extent of such losses previously absorbed.

     Equity Method. Investees, over whom we exercise significant influence,
whose results we do not consolidate, are generally accounted for under the
equity method of accounting. Whether or not we exercise significant influence
with respect to an investee depends on an evaluation of several factors
including, among others, representation on the investee's board of directors and
ownership level, which is generally 20% to 50% interest in the voting securities
of the investee, including voting rights associated with our holdings in common,
preferred and other convertible instruments in the investee. Under the equity
method of accounting, an investee's accounts are not reflected within our
consolidated statements of operations and comprehensive loss; however, our share
of the earnings or losses of the investee is reflected in the caption "equity
income (losses) of affiliates" in the consolidated statements of operations and
comprehensive loss.

     At December 31, 2001, we have consolidated all of our investees over whom
we exercise significant control. On November 1, 2001, we increased our ownership
interest in Acacia Media Technologies from 33% to 100% through the purchase of
the ownership interest of the former limited liability company's other member.
The results of operations have been included in the consolidated statements of
operations and comprehensive loss from November 1, 2001.

     In most cases, we have representation on the boards of directors of our
investees. In addition to our investments in voting equity securities, we also
periodically make advances to our subsidiaries in the form of promissory notes.


                                     -149-



                              RESULTS OF OPERATIONS
                                 (IN THOUSANDS)



                                                      FOR THE YEARS ENDED DECEMBER 31,
                                                      --------------------------------
                                                        2001        2000        1999
                                                      --------    --------    -------
                                                                     
Revenues                                              $ 24,636    $     57    $   266
Research and development expenses                      (18,839)    (11,864)    (1,806)
Marketing, general and administrative expenses         (46,300)    (22,089)    (4,418)
Amortization of patents and goodwill                    (2,695)     (2,251)    (1,622)
Loss on disposal of consolidated subsidiaries               --      (1,016)        --
Other income (expense), net                              4,166      (1,235)    (1,042)
Minority interests                                      17,540       9,166      1,221
Loss from discontinued operations of Soundbreak.com         --      (7,443)      (776)
Loss from disposal of Soundbreak.com                        --      (2,111)        --
(Provision) benefit for income taxes                      (780)         73        (20)
Cumulative effect of change in accounting principle         --        (246)        --
                                                      --------    --------    -------
Net loss                                              $(22,272)   $(38,959)   $(8,197)
                                                      ========    ========    =======




                                                       THREE MONTHS ENDED     SIX MONTHS ENDED
                                                      -------------------   -------------------
                                                      JUNE 30,   JUNE 30,   JUNE 30,   JUNE 30,
                                                        2002       2001       2002       2001
                                                      --------   --------   --------   --------
                                                          (UNAUDITED)          (UNAUDITED)
                                                                           
Net revenues                                          $   438    $10,091    $    687   $ 12,714
Cost of sales                                            (253)        --        (253)        --
Research and development expenses                      (5,026)    (2,651)     (7,694)    (5,802)
Non-cash stock compensation expense - research and
   development                                           (692)    (2,013)     (1,113)    (4,411)
Marketing, general and administrative expenses         (5,516)    (9,550)     (9,587)   (15,771)
Non-cash stock compensation expense - marketing,
   general and administrative                          (1,451)    (5,176)     (2,453)   (11,197)
Amortization of patents and goodwill                     (564)      (638)     (1,128)    (1,271)
Other (expense) income, net                              (816)     1,031      (1,269)     2,175
Benefit (provision) for income taxes                       75       (228)        144       (241)
Minority interests                                      4,104      4,362       6,539      9,553
                                                      --------   -------    --------   --------
Net loss                                              $(9,701)   $(4,772)   $(16,127)  $(14,251)
                                                      =======    =======    ========   ========


COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 TO THE THREE AND SIX
MONTHS ENDED JUNE 30, 2001

     LICENSE FEE INCOME. During the three months ended June 30, 2002, license
fee income was $0 as compared to $10.0 million in license fee income during the
three months ended June 30, 2001. During the six months ended June 30, 2002,
license fee income was $0 as compared to $12.4 million in license fee income
during the six months ended June 30, 2001. The license fee income for the three
and six months ended June 30, 2001 includes license fees received from
television manufacturers with whom we executed separate settlement and/or
license agreements during the first and second quarter of 2001 and December
2000. Pursuant to the terms of the respective settlement and/or license
agreements with each of the television manufacturers, Soundview Technologies
granted to such manufacturers, non-exclusive licenses for its patented V-chip
technology. Soundview Technologies did not record any license fee income during
the first and second quarters of 2002. The Acacia Media Technologies Group
continues to pursue both licensing and strategic business alliances with other
television manufacturers and leading companies in the media technologies
industry.

     Acacia Media Technologies Group's patent on the V-chip technology expires
in July 2003. The Acacia Media Technologies Group may continue to collect
license fees on televisions sold in the United States during the patent term,
subsequent to the July 2003 patent expiration date. The Acacia Media
Technologies Group is beginning to market its digital media transmission
technology and is looking to acquire other technologies. The eventual licensing
and sale of these technologies is intended to replace the revenue generated by
licensing the V-chip


                                     -150-



technology. If we do not succeed in acquiring such technologies or are unable to
commercially license our existing and future technologies, our financial
condition may be adversely impacted.

     PRODUCT REVENUE AND COST OF SALES. During the three and six months ended
June 30, 2002, product revenue was $274,000 as compared to $0 in product revenue
during the three and six months ended June 30, 2001. During the three and six
months ended June 30, 2002, cost of sales was $253,000 as compared to $0 in cost
of sales during the three and six months ended June 30, 2001. Product revenue
and cost of sales relates to the sale of a gene chip synthesizer and a gene-chip
reader to a Japanese government institution by CombiMatrix's Japanese
subsidiary.

     GRANT REVENUE. During the three months ended June 30, 2002, grant revenue
was $164,000 as compared to $91,000 in grant revenue during the three months
ended June 30, 2001. During the six months ended June 30, 2002, grant revenue
was $413,000 as compared to $274,000 in grant revenue during the six months
ended June 30, 2001. Grant revenue during the six months ended June 30, 2002
includes $182,000 ($91,000 in the first and second quarters of 2002) in grant
revenue from CombiMatrix Corporation's continuing performance under its Phase II
Small Business Innovative Research Department of Defense ("SBIR") contract,
$141,000 (recognized in the first quarter of 2002) in one-time contract research
and development revenues and $90,000 ($17,000 and $73,000 in the first and
second quarter of 2002, respectively) in revenue related to performance under
its Phase I National Institutes of Health grant. Grant revenue for the three and
six months ended June 30, 2001 related to CombiMatrix's continued performance
under its Phase II SBIR contract.

     CombiMatrix Corporation was awarded the two-year $0.7 million Phase II SBIR
contract in January 2000, which expires in July 2002. We expect to recognize a
final grant revenue amount of $91,000 in the third quarter of 2002 related to
the Phase II SBIR contract. In February 2002, CombiMatrix Corporation was
awarded a six -month $100,000 Phase I National Institutes of Health grant for
the development of its protein biochip technology, of which $90,000 has been
recognized as revenue in the first two quarters of 2002, and we expect to
recognize the remaining portion of the grant in the third quarter of 2002.

     RESEARCH AND DEVELOPMENT EXPENSES. During the three months ended June 30,
2002, research and development expense was 5.0 million, as compared to 2.7
million in the three months ended June 30, 2001. During the six months ended
June 30, 2002, research and development expense was $7.7 million, as compared to
$5.8 million in the six months ended June 30, 2001. Research and development
expenses for both periods relate to CombiMatrix. The increase in research and
development expense for 2002 as compared to the same period in 2001 was
primarily due to an increase in activities related to CombiMatrix's continuing
performance under the product commercialization phase of its license, supply,
research and development agreements with Roche Diagnostics GmbH ("Roche"),
including increases in labor, supplies and materials, development of prototype
microarrays and instruments, and the use of outside consultants for certain
engineering and manufacturing efforts.

     CombiMatrix Corporation's research and development activities during the
third and fourth quarters of 2001 and the first two quarters of 2002 were
focused on efforts to further develop and enhance its microarray technologies as
well as to commercialize these technologies. The majority of these efforts were
driven by CombiMatrix Corporation's obligations under its license, supply,
research and development agreements with Roche, which were executed in July
2001. These projects include development of production microarray synthesis
techniques, higher density microarrays and the overall commercialization efforts
of the technologies that Roche is licensing from CombiMatrix Corporation.

     MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. We incurred marketing,
general and administrative expenses of $5.5 million ($2.5 million related to
CombiMatrix) during the three months ended June 30, 2002, as compared to $9.6
million ($3.3 million related to CombiMatrix) in the three months ended June 30,
2001. Marketing, general and administrative expenses were $9.6 million ($4.5
million related to CombiMatrix) during the six months ended June 30, 2002, as
compared to $15.8 million ($6.4 million related to CombiMatrix) in the six
months ended June 30, 2001.

     The decrease in marketing, general and administrative expenses for 2002 as
compared to the same period in 2001 was due to: a decrease in salaries and
benefits costs related to a decrease in headcount at Acacia corporate resulting
from the closure and/or write-off of several of our early stage investments at
the end of 2000; a decrease in CombiMatrix Corporation's sales and marketing
head count and related expenses, recruitment and relocation


                                     -151-



expenses, administrative head count and legal costs; and a decrease in legal
fees incurred related to Soundview Technologies' patent licensing and related
infringement settlements. Legal fees related to the license fee agreements
executed with television manufacturers are generally incurred on a contingency
basis, based on license fee payments received. Marketing, general and
administrative expenses for the six months ended June 30, 2002 include $692,000
in professional fees incurred in connection with the preparation and filing of
our registration statement on Form S-4 related to the proposed recapitalization
transaction discussed elsewhere herein.

     NON-CASH STOCK COMPENSATION EXPENSE.

          Research and Development. During the three and six months ended June
30, 2002, research and development related non-cash stock compensation charges,
all of which relate to CombiMatrix Corporation, were $0.7 million and $1.1
million, respectively, as compared to $2.0 million and $4.4 million,
respectively, during the comparable periods in 2001.

          Marketing, General and Administrative Expenses. During the three and
six months ended June 30, 2002, marketing, general and administrative non-cash
stock compensation charges were $1.5 million ($1.4 million related to
CombiMatrix Corporation) and $2.5 million ($2.4 million related to CombiMatrix
Corporation), respectively, as compared to $5.2 million (approximately $5.2
million related to CombiMatrix Corporation) and $11.2 million ($10.4 million
related to CombiMatrix Corporation), respectively, in the comparable period in
2001.

     The decrease in non-cash stock compensation charges related to research and
development and marketing, general and administrative expenses is primarily due
to the forfeiture and cancellation of certain options in the third and fourth
quarters of 2001 and a reduction in scheduled stock compensation amortization
related to the accelerated method of amortization utilized by us pursuant to
FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans" ("FIN No. 28"), which results in higher
amounts of amortization in the early vesting periods, and lower amounts of
amortization in subsequent vesting periods. CombiMatrix non-cash stock
compensation amortization expense for the six months ended June 30, 2002 are net
of $748,000 in stock compensation expense reversal related to the forfeiture of
certain unvested stock options in the first and second quarters of 2002.

     AMORTIZATION OF PATENTS AND GOODWILL. During the three months ended June
30, 2002 and 2001, amortization expense relating to patents and goodwill was
$0.6 million. During the six months ended June 30, 2002, amortization expense
was $1.1 million as compared to $1.3 million in amortization expense during the
six months ended June 30, 2001. Amortization expense relating to patents and
goodwill for the three and six months ended June 30, 2002 excludes $0.2 million
and $0.5 million, respectively, of amortization expense pursuant to SFAS No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), which requires
goodwill to be tested for impairment under certain circumstances and written off
when determined to be impaired, rather than being amortized as previous
standards required. The reduction in goodwill amortization in the three and six
months ended June 30, 2002 was offset by an increase in patent amortization
related to the increase in our ownership interest in Acacia Media Technologies
Corporation (formerly Greenwich Information Technologies, a limited liability
company) from 33% to 100% through the purchase of the ownership interest of
Acacia Media Technologies Corporation's other member in November 2001.

     As a result of the purchase, we will be recording additional patent
amortization of $0.2 million on a quarterly basis over the related patents'
economic useful lives (approximately 10 years) related to the intangibles
identified in connection with the application of the purchase method of
accounting.

          OTHER (EXPENSE) INCOME, NET. During the three months ended June 30,
2002, other expense, net (primarily comprised of interest income, realized and
unrealized gains and losses on trading securities, equity in losses of affiliate
and other) was $0.8 million as compared to $1.0 million in net other income in
2001. During the six months ended June 30, 2002, other expense, net (primarily
comprised of interest income, realized and unrealized gains and losses on
trading securities, equity in losses of affiliate and other) was $1.3 million as
compared to $2.2 million in net other income in 2001.


                                     -152-



          INTEREST INCOME. During the three months ended June 30, 2002, interest
income was $0.3 million as compared to $1.0 million in the three months ended
June 30, 2001. During the six months ended June 30, 2002, interest income was
$0.7 million as compared to $2.2 million in the six months ended June 30, 2001.
The decrease in interest income during 2002 was primarily due to the impact of a
decrease in interest rates on our short-term investments related to sharp
interest rate cuts by the Federal Open Market Committee and other external
economic factors negatively impacting rates of return on short-term investments
occurring during the third and fourth quarters of 2001.

          REALIZED LOSSES ON SHORT-TERM INVESTMENTS. During the three months
ended June 30, 2002, net realized losses on short-term investments was $0.9
million as compared to no realized losses on short-term investments in the three
months ended June 30, 2001. During the six months ended June 30, 2002, net
realized losses on short-term investments was $1.5 million as compared to no
realized losses on short-term investments in the six months ended June 30, 2001.
The increase in realized losses on short-term investments during 2002 was due to
realized losses recorded on certain trading securities during the three and six
months ended June 30, 2002. We did not hold any trading securities during the
three or six months ended June 30, 2001.

          UNREALIZED LOSSES ON SHORT-TERM INVESTMENTS. During the three months
ended June 30, 2002, net unrealized losses were $0.2 million as compared to no
unrealized losses in the same period in 2001. During the six months ended June
30, 2002, net unrealized loses were $0.5 million as compared to no unrealized
losses in the same period in 2001. The increase is due to the results of certain
trading securities held during the respective periods. We did not hold any
trading securities during the three or six months ended June 30, 2001.

          EQUITY IN LOSSES OF AFFILIATE. During the three months ended June 30,
2002, equity in losses of affiliate was $0 as compared to $55,000 in the three
months ended June 30, 2001. During the six months ended June 30, 2002, equity in
losses of affiliate was $0 as compared to $110,000 in the six months ended June
30, 2001. Equity in losses of affiliate during the three and six months ended
June 30, 2001 was comprised of losses recorded for our equity investment in
Acacia Media Technologies Corporation. As of December 31, 2001, we no longer
account for any of our investments under the equity method as we directly own
more that 50% of the outstanding voting securities of our subsidiaries and, as a
result, account for our investments under the consolidation method of
accounting.

     MINORITY INTERESTS. Minority interests in the losses of consolidated
subsidiaries was $4.1 million during the three months ended June 30, 2002 as
compared to $4.4 million in the same period in 2001. Minority interests in the
losses of consolidated subsidiaries was $6.5 million during the six months ended
June 30, 2002 as compared to $9.6 million in the same period in 2001. Minority
interests in the losses of consolidated subsidiaries for the three and six
months ended June 30, 2002 were primarily comprised of minority interests in the
net losses of CombiMatrix totaling $4.0 million and $6.3 million, respectively.
Minority interests in the losses of consolidated subsidiaries for the three and
six months ended June 30, 2001 were comprised primarily of minority interests in
the net losses of CombiMatrix totaling $5.3 million and $10.8 million,
respectively. Minority interests in the losses of consolidated subsidiaries for
the three and six months ended June 30, 2001 were partially offset by minority
interests in the net income of Soundview Technologies totaling $1.0 million and
$1.3 million, respectively. The decrease in minority interests in the losses of
consolidated subsidiaries is primarily due to a reduction in CombiMatrix's net
losses for the three and six months ended June 30, 2002 as compared to the same
periods in 2001.

2001 COMPARED TO 2000

     LICENSE FEE INCOME. In 2001, license fee income was $24.2 million as
compared to no license fee income during 2000. The increase in license fee
income for 2001 resulted primarily from the settlement of patent infringement
litigation brought by Soundview Technologies and includes license fee amounts
received from eleven of the twelve television manufacturers with whom we have
executed separate settlement and/or license agreements during 2001 and 2000.
Pursuant to the terms of the respective settlement and license agreements with
each of the television manufacturers, Soundview Technologies granted to such
manufacturers, non-exclusive licenses for its U.S. Patent No. 4,554,584.


                                     -153-



     GRANT REVENUE. In 2001, grant revenue was $0.5 million as compared to $0.02
million in grant revenue in 2000. The increase in grant revenue during 2001
resulted from CombiMatrix Corporation's continuing performance under its Phase
II Small Business Innovative Research Department of Defense contract.

     RESEARCH AND DEVELOPMENT EXPENSES. In 2001, research and development
expense was $18.8 million, all of which related to CombiMatrix Corporation, as
compared to $11.9 million in 2000, of which $9.3 million related to CombiMatrix
Corporation. The increase in research and development expense for 2001 as
compared to the same period in 2000 was primarily due to a general expansion of
CombiMatrix Corporation's research and development activities, including an
increase in personnel and amounts of supplies and materials used, an increase in
CombiMatrix Corporation's non-cash stock compensation charges included in
research and development expense, increased costs related to efforts to further
develop and enhance its microarray technology and increased costs related to
significant engineering efforts undertaken to commercialize its technology. Most
of these efforts were driven by CombiMatrix Corporation's obligations under the
license and supply agreement with Roche, executed in July 2001. These projects
include development of production microarray synthesis techniques, as well as
higher density microarrays. Given the contractual requirements under our
existing R&D agreements coupled with our efforts to enhance current technologies
as well as to develop new technologies, we expect that future R&D cash spending
will increase from current spending levels.

     In 2001, research and development expense included non-cash stock
compensation charges, all of which related to CombiMatrix Corporation, totaling
$7.2 million. Non-cash stock compensation charges for 2001 are net of $0.8
million of non-cash stock compensation expense reversal related to the
forfeiture of certain unvested stock options during the third and fourth
quarters of 2001. In 2000, research and development expense for non-cash stock
compensation was $3.4 million.

     MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. We incurred marketing,
general and administrative expenses of $46.3 million ($27.7 million related to
CombiMatrix Corporation) in 2001, compared to $22.1 million ($11.2 million
related to CombiMatrix Corporation) in 2000. The increase in marketing, general
and administrative expenses for 2001 as compared to the same period in 2000 was
primarily due to an increase in non-cash stock compensation charges, the
continued expansion of CombiMatrix Corporation's operations including an
increase in salaries and benefits due to an increase in the number of
CombiMatrix Corporation personnel, an increase in personnel recruitment and
relocation expenses, an increase in rent and utilities expenses relating to
CombiMatrix Corporation's move to larger office facilities during the first
quarter of 2001, the write-off of $1.4 million of deferred initial public
offering costs in the fourth quarter of 2001 by CombiMatrix Corporation and an
increase in legal fees related to Soundview Technologies' patent licensing and
related infringement settlements.

     Marketing, general and administrative expenses included $13.6 million
($12.8 million related to CombiMatrix Corporation) and $7.3 million ($6.5
million related to CombiMatrix Corporation) of non-cash stock compensation
charges for 2001 and 2000, respectively. Marketing, general and administrative
non-cash stock compensation charges for 2001 are net of $3.9 million of non-cash
stock compensation expense reversal related to the forfeiture of certain
unvested stock options during the third and fourth quarters of 2001.

     AMORTIZATION OF PATENTS AND GOODWILL. In 2001, amortization expense
relating to patents and goodwill was $2.7 million as compared to $2.3 million in
2000. As a result of the increase in our ownership interest in Acacia Media
Technologies from 33% to 100% through the purchase of the ownership interest of
Acacia Media Technologies' other member in November 2001, and the purchase of
additional equity interests in CombiMatrix Corporation in July 2000, we incurred
additional amortization expense in 2001 as compared to 2000 relating to the
intangible assets acquired. See "Recent Accounting Pronouncements" for summary
of pronouncements affecting amortization of goodwill in future periods.

     LOSS ON DISPOSAL OF CONSOLIDATED SUBSIDIARIES. In 2001, loss on disposal of
consolidated subsidiaries was zero as compared to $1.0 million in 2000. In the
fourth quarter of 2000, we recorded $1.0 million in write-offs of early stage
investments.

     OTHER INCOME (EXPENSE), NET. In 2001, other income, net (primarily
comprised of interest income, realized and unrealized gains and losses on
trading securities, equity in losses of affiliates and other) was $4.2 million
as compared to $1.2 million in net other expense in 2000.


                                     -154-



          INTEREST INCOME. In 2001, interest income was $3.8 million as compared
to $3.1 million in 2000. The increase in interest income during 2001 was due to
higher cash balances during 2001 as compared to 2000, resulting from various
private equity financings and the receipt of significant license fee payments by
Soundview Technologies during the year. The increase in interest income for 2001
was partially offset by the impact of a decrease in interest rates on our
short-term investments related to sharp interest rate cuts by the Federal Open
Market Committee and other external economic factors negatively impacting rates
of return on short-term investments occurring during the third and fourth
quarters of 2001.

          REALIZED GAINS ON SHORT-TERM INVESTMENTS. In 2001, net realized gains
on short-term investments was $0.4 million as compared to no realized gains on
short-term investments in 2000. The increase in realized gains on short-term
investments during 2001 was due to realized gains recorded on our short-term
investments classified as trading securities during 2001.

          UNREALIZED GAINS ON SHORT-TERM INVESTMENTS. In 2001, net unrealized
gains were $0.2 million as compared to no unrealized gains in 2000. The increase
is due to our investment in equity securities during 2001 classified as trading
securities under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). Pursuant to SFAS No. 115, unrealized gains
and losses on trading securities are recorded in the consolidated statement of
operations. In 2000, all of our short-term investments were classified as
available-for-sale, and pursuant to SFAS No. 115, unrealized gains and losses
were recorded as a separate component of comprehensive income (loss) in
stockholders' equity until realized.

          EQUITY IN LOSSES OF AFFILIATES. In 2001, equity in losses of
affiliates was $0.2 million as compared to $1.7 million in 2000. Losses during
2001 were comprised of a loss of $0.2 million for our investment in Acacia Media
Technologies, as determined by the equity method of accounting through November
1, 2001. We increased our ownership percentage in Acacia Media Technologies to
100% on November 1, 2001. Losses during 2000 were comprised of a loss of $0.3
million for our investment in Signature-mail.com, a loss of $0.2 million for our
investment in Acacia Media Technologies, a loss of $0.1 million for our
investment in Whitewing Labs and a loss of $1.1 for our investment in
Mediaconnex, as determined by the equity method of accounting. We wrote-off our
equity investments in Signature-mail.com, Whitewing Labs and Mediaconnex, as of
December 31, 2000.

     MINORITY INTERESTS. Minority interests in the losses of consolidated
subsidiaries increased to $17.5 million in 2001 as compared to $9.2 million in
2000. The increase in minority interests in 2001 was primarily due to the
increase in losses incurred by CombiMatrix Corporation as a result of increased
non-cash stock compensation amortization charges, its continued expansion of
research and development efforts and increased marketing, general and
administrative expenses. The increase in 2001 minority interests resulting from
CombiMatrix Corporation's increased losses was partially offset by minority
interests in the income of Soundview Technologies from January through June
2001. We increased our ownership percentage in Soundview Technologies to 100% in
June 2001.

     (PROVISION) BENEFIT FOR INCOME TAXES. In 2001, the provision for income
taxes was $0.8 million as compared to a benefit of $0.07 million in 2000. The
increase in the provision for income taxes in 2001 was primarily due to a
significant increase in taxable income generated by Soundview Technologies
related to its patent infringement settlement and patent licensing activities as
compared to the 2000 period.

     DISCONTINUED OPERATIONS. On February 13, 2001, the board of directors of
Soundbreak.com resolved to cease operations as of February 15, 2001 and
liquidate the remaining assets and liabilities of the company. Accordingly, we
reported the results of operations and the estimated loss on disposal of
Soundbreak.com as results of discontinued operations in our 2000 consolidated
statements of operations and comprehensive loss. Discontinued operations of
Soundbreak.com included $7.4 million of loss from discontinued operations in
2000 and $2.1 million of accrued expenses in connection with its cessation of
operations.

2000 COMPARED TO 1999

     NET REVENUE. In 2000, net revenue was $0.06 million as compared to $0.3
million in 1999. The decrease in net revenues was primarily due to an increase
of $0.04 million in advertising revenues, offset by a decrease of $0.1 million
in CombiMatrix Corporation revenue from federal grants, and a decrease of $0.1
million in capital management fees due to the closure in 1999 of Acacia Research
Capital Management division, which was the


                                     -155-



general partner in two domestic private investment partnerships and an
investment advisor to two offshore private investment corporations. During 2000,
grant revenue was $0.02 million as compared to $0.1 million in grant revenue
during 1999. The grant revenue resulted from CombiMatrix Corporation's award of
two grants in July 1999 for Phase I SBIR from the Department of Energy and the
Department of Defense and a Phase II SBIR Department of Defense contract for the
use of its biochip technology to develop nanode array sensor microchips in
January 2000. No capital management fee income, which includes performance fee
income, was earned during 2000 compared to $0.1 million during 1999 due to the
closure of the Acacia Research Capital Management division on December 31, 1999.
Costs associated with exiting this business were not material.

     RESEARCH AND DEVELOPMENT EXPENSES. We incurred research and development
expenses of $11.9 million in 2000 as compared to $1.8 million in 1999. Research
and development expenses for 2000 are comprised of costs primarily incurred by
CombiMatrix Corporation, which increased to $9.3 million from $2.4 million in
1999. This increase was due to an increase in the number of CombiMatrix
Corporation personnel and larger laboratory facilities to accommodate the
expansion of its research and development efforts focused on developing and
improving microarray synthesis techniques. In addition, $2.5 million of acquired
in-process research and development expense was charged to income related to our
acquisition of an additional ownership position from existing CombiMatrix
Corporation stockholders in July 2000.

     In 2000, research and development expenses for non-cash stock compensation
(including warrants), all of which related to CombiMatrix Corporation, totaled
$3.4 million. In 1999, research and development expenses for non-cash stock
compensation were not material.

     MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. We incurred marketing,
general and administrative expenses of $22.1 million in 2000, compared to
expenses of $4.4 million in 1999. The increase in marketing, general and
administrative expenses in 2000 was primarily due to general expansion of our
operations, including an increase in business development expenses as we
explored new business opportunities, the extensive use of consultants to assist
in solving specialized issues or providing specific services, an increase in
facilities costs due to the expansion of our office facilities and increased
personnel and payroll expenses. In 2000, CombiMatrix Corporation relocated from
Burlingame, California to Mukilteo, Washington. This relocation was completed
during the third quarter, and related costs of $0.8 million were incurred in
2000 in connection with the relocation.

     Marketing, general and administration expenses included $7.3 million ($6.5
million related to CombiMatrix Corporation) and $0.2 million of non-cash stock
compensation charges for 2000 and 1999, respectively.

     AMORTIZATION OF PATENTS AND GOODWILL. In 2000, amortization expenses
relating to patents and goodwill were $2.3 million as compared to $1.6 million
in 1999. As a result of our purchase of additional equity interests in Soundview
Technologies in July 1997 and January 1998, in MerkWerks in January 1998 and
June 1999 and in CombiMatrix Corporation in July 2000, we are incurring
increased amortization expenses each quarter for periods ranging from three to
five years relating to the intangible assets acquired.

     LOSS ON DISPOSAL OF CONSOLIDATED SUBSIDIARIES. In 2000, loss on disposal of
consolidated subsidiaries was $1.0 million as compared to zero in 1999. In the
fourth quarter of 2000, we recorded $1.0 million in write-offs of early stage
investments.

     OTHER EXPENSE, NET. In 2000, other expense, net (primarily comprised of
interest income, write-off of equity investments, equity in losses of affiliates
and other) totaled $1.2 million as compared to other expense, net of $1.0
million in 1999. The increase in other expense, net in 2000 was primarily due to
$2.6 million of write-offs of equity investments in Signature-mail.com,
Whitewing Labs and Mediaconnex, and an increase in equity in losses of
affiliates, partially offset by an increase in interest income in 2000.

          INTEREST INCOME. In 2000, interest income was $3.1 million as compared
$0.3 million in 1999. The increase was due to higher cash balances in 2000 as
compared to 1999. We received $64.5 million in cash from outside investors in
connection with our warrant call and private equity financings for Acacia
Research and CombiMatrix Corporation in 2000.


                                     -156-



          INTEREST EXPENSE. In 2000, we reported no interest expense as compared
to $0.3 million in 1999. The expense incurred in 1999 was primarily attributable
to CombiMatrix Corporation and relates to three-year 6% unsecured subordinated
promissory notes issued by CombiMatrix Corporation in a private offering
completed in March 1998. Warrants to purchase CombiMatrix Corporation common
stock were also issued in this private placement. During the fourth quarter of
1999, CombiMatrix Corporation offered holders of the unsecured subordinated
notes the opportunity to convert their outstanding principal balance into
CombiMatrix Corporation common stock and all noteholders had converted as of
December 1999.

          EQUITY IN LOSSES OF AFFILIATES. In 2000, equity in losses of
affiliates was $1.7 million as compared to $1.1 million in 1999. In 2000, losses
were primarily attributable to a loss of $1.1 million for our investment in
Mediaconnex. This amount was offset by a decrease in the recognized losses for
Whitewing Labs, Acacia Media Technologies and Signature-mail.com totaling $0.6
million in 2000 as compared to $1.1 million in 1999.

     MINORITY INTERESTS. In 2000, minority interests in the losses of
consolidated subsidiaries was $9.2 million as compared to $1.2 million in 1999.
The increase in minority interests in 2000 was primarily due to the increase in
losses incurred by CombiMatrix Corporation as a result of its continued
expansion of research and development efforts, an increase in non-cash stock
compensation charges and increased marketing, general and administrative
expenses.

     DISCONTINUED OPERATIONS. On February 13, 2001, the board of directors of
Soundbreak.com resolved to cease operations as of February 15, 2001 and
liquidate the remaining assets and liabilities of the company. Accordingly, we
reported the results of operations and the estimated loss on disposal of
Soundbreak.com as results of discontinued operations in the consolidated
statements of operations and comprehensive loss in 2000. Discontinued operations
of Soundbreak.com included $7.4 million of loss from discontinued operations in
2000 and $2.1 million of accrued expenses to be incurred in connection with its
cessation of operations. Operating results in 1999 were restated to present
Soundbreak.com as discontinued operations resulting in a loss from discontinued
operations of $0.8 million in 1999.

INFLATION

     Inflation has not had a significant impact on Acacia Research.

LIQUIDITY AND CAPITAL RESOURCES

     At June 30, 2002, we had cash and short-term investments of $66.4 million
on a consolidated basis, including discontinued operations, of which Acacia
Research, on a stand-alone basis excluding its subsidiaries, had $37.2 million.
At December 31, 2001, we had cash and short-term investments of $84.6 million on
a consolidated basis, including discontinued operations, of which Acacia
Research, on a stand-alone basis excluding its subsidiaries, had $44.2 million.
Consolidated working capital was $53.6 million and $72.4 million at June 30,
2002 and December 31, 2001, respectively. Highlights of the financing and
commitment activities for the six months ended June 30, 2002 and the year ended
December 31, 2001 include the following:

FIRST AND SECOND QUARTER 2002

     o    In February 2002, in conjunction with the relocation of our corporate
          headquarters, we entered into a non-cancelable lease agreement to
          lease approximately 7,143 square feet of office space in Newport
          Beach, California through February 2007. Minimum annual rental
          commitments under this operating lease are $255,000 in 2002; $286,000
          in 2003; $295,000 in 2004; $303,000 in 2005; $312,000 in 2006; and
          $39,000 in 2007.

YEAR ENDED DECEMBER 31, 2001

     o    In January 2001, we completed an institutional private equity
          financing raising gross proceeds of $19.0 million through the issuance
          of 1,107,274 units. Each unit consists of one share of our common
          stock and one three-year callable common stock purchase warrant. Each
          common stock purchase warrant


                                     -157-



          entitles the holder to purchase 1.10 shares of our common stock at a
          price of $19.09 per share and is callable by us once the closing bid
          price of our common stock averages $23.86 or above for 20 or more
          consecutive trading days on the NASDAQ National Market. We issued an
          additional 20,000 units in lieu of cash payments for finders' fees in
          conjunction with the private placement.

     o    In May 2001, Advanced Material Sciences completed a private equity
          financing raising gross proceeds of $2.0 million through the issuance
          of 2,000,000 shares of common stock. Advanced Material Sciences issued
          an additional 29,750 shares of common stock, in lieu of cash payments,
          and warrants to purchase approximately 54,000 shares of common stock,
          for finders' fees in connection with the private placement. Each
          common stock purchase warrant entitles the holder to purchase shares
          of Advanced Material Sciences common stock at a price of $1.10 per
          share.

     o    In September 2001, CombiMatrix Corporation entered into a sale and
          leaseback arrangement with a bank, providing up to $7.0 million in
          financing for equipment and other capital purchases. Pursuant to the
          terms of the agreement, certain equipment and leasehold improvements,
          totaling $2.6 million in net book value, were sold to the bank at a
          purchase price of $3.0 million resulting in a deferred gain on the
          sale of assets of $0.4 million. In addition, CombiMatrix Corporation
          entered into a capital lease arrangement to lease the fixed assets
          from the bank. The capital lease agreement provides CombiMatrix
          Corporation with the option to purchase the equipment for a nominal
          amount at the end of the lease term, which expires in September 2004.

     o    In October 2001, CombiMatrix Corporation formed a joint venture with
          Marubeni Japan, one of Japan's leading trading companies. The joint
          venture, based in Tokyo, will focus on development and licensing
          opportunities for CombiMatrix Corporation's biochip technology with
          pharmaceutical and biotechnology companies in the Japanese market.
          Marubeni made an investment of $1.0 million to acquire a ten percent
          minority interest in the joint venture.

     Net cash used in continuing operating activities was $13.2 million for the
six months ended June 30, 2002. Net cash used in continuing operations was
primarily due to a loss from continuing operations of $15.1 million, net sales
of trading securities totaling $3.1 million and net cash outflows related to
working capital totaling $1.2 million. At June 30, 2002, we had an additional
$0.4 million of net cash used in operating activities of discontinued
operations.

     Net cash used in continuing operating activities was $10.4 million in 2001.
Cash used for continuing operations is primarily due to a loss from continuing
operations of $22.3 million, increased by minority interests of $17.5 million
and the purchase of trading securities of $4.1 million, partially offset by
non-cash expenses including depreciation, amortization and compensation expense
relating to stock options and warrants in the amount of $24.7 million, and
license fee, up-front and milestone payments received and recorded as deferred
revenues at December 31, 2001 totaling $7.5 million. In 2001, we had an
additional $2.2 million of net cash used in operating activities of discontinued
operations.

     Net cash provided by investing activities was $4.2 million during the six
months ended June 30, 2002 primarily related to the sale of certain short-term
securities to fund CombiMatrix Corporation's continuing operations. Net cash
provided by investing activities of continuing operations was $13.0 million in
2001. Significant investing activities include a net sale of short-term
investments classified as available-for-sale of $19.6 million, net of purchases
of common stock from minority stockholders of subsidiaries totaling $2.6 million
and purchases of additional equity in consolidated subsidiaries totaling $3.3
million. We had an additional $0.2 million used in investing activities of
discontinued operations.

     We did not conduct any significant financing activities during the six
months ended June 30, 2002. Our net cash provided by financing activities was
$23.2 million in 2001. Cash provided by financing activities in 2001 was
primarily due to $18.3 million of net proceeds from an institutional private
equity financing in January 2001, capital contributions from minority
stockholders of subsidiaries totaling $3.3 million and proceeds from the
exercise of stock options and warrants totaling $1.8 million.


                                     -158-



     Warrants issued by us in connection with our private placement completed in
January 2001 contain call and redemption provisions should the closing bid price
of our common stock exceed $23.86 per share for 20 or more consecutive trading
days. The exercise price per share for the common stock underlying the warrants
is $19.09. In the event the requirements to call the warrants are satisfied, we
may call such warrants and we expect most, if not all, of the holders to
exercise such warrants in response. There can be no assurance that the closing
bid price of our common stock will exceed all such thresholds or that, if it
does, we will decide to call the warrants.

     We have sustained losses since our inception contributing to an accumulated
deficit of $116.1 million at June 30, 2002 on a consolidated basis, which
includes operating losses of $21.5 million, $43.2 million and $37.2 million for
the six months ended June 30, 2002 and the years ended December 31, 2001 and
2000, respectively. The consolidated accumulated deficit of $116.1 million also
includes an increase related to a reclassification of accumulated deficit in the
amount of $21.7 million to permanent capital representing the fair value of the
ten percent stock dividend distributed to stockholders in 2001. There can be no
assurance that we will become profitable. If we do, we may never be able to
sustain profitability. We expect to incur significant losses for the foreseeable
future. We are making efforts to reduce expenses and may take steps to raise
additional capital.

     Generally, our subsidiary companies have relied primarily upon selling
equity securities, including sales to and loans from us, to generate the funds
needed to finance implementation of their plans of operations. In 2001, we began
to receive significant payments from our media technology licensing arrangements
and from our life sciences strategic partners and licensees. However, we may be
required to obtain additional financing through bank borrowings, debt or equity
financings or otherwise, which would require us to make additional investments
or face a dilution of our equity interests.

     We have no significant commitments for capital expenditures in 2001. Our
minimum rental commitments on operating leases related to continuing operations
total $13.4 million through February 2007. We have no committed lines of credit
or other significant committed funding. However, we anticipate that existing
working capital reserves will provide sufficient funds for our operating
expenses for at least the next twelve months in the absence of making any major
new investments. We intend to seek additional financing to fund new or existing
businesses.

     There can be no assurances that we will not encounter unforeseen
difficulties that may deplete our capital resources more rapidly than
anticipated. 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. Such
financing transactions may be dilutive to existing investors. If we fail to
obtain additional funding when needed, we may not be able to execute our
business plans and our business may suffer.

RECENT ACCOUNTING PRONOUNCEMENTS

     Refer to Note 16 to the Acacia Research Corporation financial statements
included elsewhere herein.

CHANGE IN ACCOUNTING POLICY

     Effective January 1, 2001, we changed our accounting policy for balance
sheet classification of employee stock-based compensation resulting from awards
in consolidated subsidiaries. Historically, the consolidated financial
statements have accounted for cumulative earned employee stock-based
compensation related to subsidiaries as a liability, under the caption "accrued
stock compensation." Management believes a change to reflect these cumulative
charges as minority interests is preferable as it better reflects the underlying
economics of the stock-based compensation transaction. As a result of the
change, effective January 1, 2001, minority interests has been increased by
$10.4 million, and accrued stock compensation of $10.4 million has been
decreased. The change in accounting policy does not affect previously reported
consolidated net income.


                                     -159-



             COMBIMATRIX GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
          (A DEVELOPMENT STAGE DIVISION OF ACACIA RESEARCH CORPORATION)

     You should read this discussion in conjunction with the CombiMatrix group,
a development stage division of Acacia Research, financial statements and
related notes and the Acacia Research consolidated financial statements and
related notes, both included elsewhere herein. Historical results and percentage
relationships are not necessarily indicative of operating results for any future
periods.

GENERAL

     The CombiMatrix group is intended to reflect the performance of CombiMatrix
Corporation and Advanced Material Sciences, entities that are in the development
stage, and include all corporate assets, liabilities and transactions related to
Acacia Research's life sciences businesses. The CombiMatrix group core
technology opportunity in the life sciences sector has been primarily developed
through CombiMatrix Corporation, which was formed in October 1995. CombiMatrix
Corporation is a life science technology company with a proprietary system for
rapid, cost competitive creation of DNA and other compounds on a programmable
semiconductor chip. This proprietary technology has significant applications
relating to genomic and proteomic research. Advanced Material Sciences, which
was formed in November 2000, holds the exclusive license for CombiMatrix
Corporation's biological array processor technology in certain fields of
material sciences. Advanced Material Sciences has no operating history, and is a
majority owned subsidiary of Acacia Research.

     CombiMatrix stock is intended to reflect the separate performance of the
respective division of Acacia Research, rather than the performance of Acacia
Research as a whole. The CombiMatrix group is not a separate legal entity.
Holders of AR-CombiMatrix stock will be stockholders of Acacia Research. As a
result, they will continue to be subject to all of the risks of an investment in
Acacia Research and all of its businesses, assets and liabilities. The assets
Acacia Research attribute to the CombiMatrix group could be subject to the
liabilities of the Acacia Technologies group.

     The CombiMatrix group is developing technology that integrates a
semiconductor, proprietary materials, proprietary software, chemistry, and the
Internet into a system for use by pharmaceutical and biotechnology companies and
academic researchers in identifying and determining the roles of genes, gene
mutations and proteins. CombiMatrix Corporation's active biochip is a
semiconductor coated with a three-dimensional layer of porous material in which
DNA, RNA, peptides or small molecules can be synthesized or immobilized in
discrete test sites. Since inception, CombiMatrix Corporation's operating
activities have been devoted primarily to research and development of
technologies for its active biochip system, including the development of its
system, acquiring assets, recruiting personnel, business development and raising
capital.

     During the first six months of 2002, the CombiMatrix group's financial
condition and results of operations were highlighted by the receipt of a
$100,000 Phase I National Institutes of Health grant for the development of its
protein biochip technology. In addition, the CombiMatrix group received and
recorded as revenue $413,000 in grant and project revenues, including $182,000
in grant revenue resulting from continuing performance under its Phase II Small
Business Innovative Research Department of Defense contract, $141,000 in
one-time contract research and development revenues and $90,000 in revenues
related to performance under its Phase I National Institutes of Health grant.
The CombiMatrix group also recognized $274,000 from the sale of a genomics
microarray synthesizer system to a government institution in Japan.

     In 2001, the CombiMatrix group's financial condition and cash flows were
highlighted by the receipt of $6.4 million pursuant to separate license, supply
and research and development agreements with Roche Diagnostics GmbH ("Roche")
and the National Aeronautics and Space Administration ("NASA") and continued
performance under CombiMatrix Corporation's Phase II SBIR grant with the U.S.
Department of Defense. Both the Roche and NASA agreements were executed during
the third quarter of 2001. During the second quarter of 2001, CombiMatrix
Corporation created a wholly-owned subsidiary, CombiMatrix K.K. ("CombiMatrix
KK"), which became a majority-owned subsidiary during the fourth quarter of 2001
after selling 10% of its common stock for $1.0 million as part of a joint
venture agreement with Marubeni Japan, one of Japan's leading trading companies.
In addition, in the third quarter of 2001 CombiMatrix Corporation raised $3.0
million through the execution of a sale and leaseback transaction with a major
financial institution. CombiMatrix Corporation also continued the expansion


                                     -160-



of its research and development activities throughout 2001, including the
relocation to its new research facilities and corporate headquarters in January
2001 located in Mukilteo, Washington. In addition, in May 2001, Advanced
Material Services completed a private equity financing raising gross proceeds of
$2.0 million through the issuance of 2,000,000 shares of common stock.

     In 2000, the CombiMatrix group's financial condition and cash flows were
highlighted primarily by the continued expansion of research and development
activities, financing activities and the building of its core management and
scientific teams, as well as its relocation from California to a temporary
research facilities and corporate headquarters in Snoqualmie, Washington. In
July 2000, CombiMatrix Corporation was granted U.S. Patent No. 6,093,302, which
expires in July 2017, for its biochip microarray processor system. In November
2000, Advanced Material Science was formed, raising initial equity financing of
$3.0 million. In 1999, the CombiMatrix group's financial condition and cash
flows were highlighted primarily by research and development and financing
activities. In the following discussion and analyses, the period-to-period
comparisons must be viewed in light of the impact that the operating and
financing activities have had on the CombiMatrix group's financial condition and
results of operations.

     Since inception, the CombiMatrix group has recognized revenues primarily
from activities anciallary to its core technologies, and has incurred
significant net losses. During the six months ended June 30, 2002 and the years
ended December 31, 2001, 2000 and 1999, the CombiMatrix group incurred net
losses of approximately $9.5 million, $28.0 million, $14.8 million and $1.6
million, respectively. At June 30, 2002 and December 31, 2001, the CombiMatrix
group's accumulated deficit was approximately $57.2 million and $47.8 million,
respectively. The losses have resulted principally from costs incurred in
research and development and from marketing, general and administrative costs
associated with the CombiMatrix group's operations. Operating expenses including
non-cash stock-based compensation expense increased to $49.5 million for the
year ended December 31, 2001, from $24.6 million for 2000 and $2.8 million for
1999. The CombiMatrix group expects to continue to incur net losses and negative
cash flow from operations for the foreseeable future due to significant
increases in research and development and marketing, general and administrative
expenses that will be necessary to further develop CombiMatrix group's
technologies towards commercialization. To date, the CombiMatrix group has
relied primarily upon selling equity securities to generate the funds needed to
finance the implementation of the CombiMatrix group's business strategies. The
CombiMatrix group cannot assure that it will not encounter unforeseen
difficulties that may deplete capital resources more rapidly than anticipated.
Any efforts to seek additional funds could be made through equity, debt or other
external financings; however, the CombiMatrix group cannot assure that
additional funding will be available on favorable terms, if at all. If the
CombiMatrix group fails to obtain additional funding when needed, the
CombiMatrix group may not be able to execute its business strategies and its
business may suffer.

     On September 30, 2002, CombiMatrix Corporation and Dr. Donald Montgomery,
an officer and stockholder of CombiMatrix Corporation, entered into a settlement
agreement with Nanogen, Inc. to settle all pending litigation between the
parties. Pursuant to the terms of the settlement agreement, CombiMatrix
Corporation agreed to pay Nanogen $500,000 within 30 days of the settlement and
an additional $500,000 within one year of the settlement. CombiMatrix
Corporation also agreed to make quarterly payments to Nanogen equal to 12.5% of
total sales of products developed by CombiMatrix Corporation and its affiliates
and based on the patents that had been in dispute in the litigation, up to an
annual maximum of $1,500,000. The minimum quarterly payments under the
settlement agreement will be $37,500 per quarter for the period from October 1,
2003 through October 1, 2004, and $25,000 per quarter thereafter until the
patents expire. Also pursuant to the settlement agreement, CombiMatrix
Corporation agreed to issue 4,016,346 shares, or 17.5% of its outstanding shares
post-issuance, to Nanogen, subject to antidilution provisions under specified
circumstances, including the exercise of outstanding options and warrants and
issuances of additional capital stock of CombiMatrix Corporation, for a period
of up to three years.

STRATEGIC PARTNERSHIPS AND FINANCIAL HIGHLIGHTS

     During 2001, CombiMatrix Corporation received significant payments from its
strategic partners and licensees. By continuing the CombiMatrix Corporation's
efforts with these partners and by identifying new strategic relationships, the
CombiMatrix group intends to maximize the opportunities in the life sciences
sector that will be created by commercializing its biochip system. Financing and
investing activities are listed in the "Liquidity and Capital Resources" section
that follows. Highlights of activities with the CombiMatrix group's strategic
partners


                                     -161-



and other operating activities for the six months ended June 30, 2002 and the
year ended December 31, 2001 include:

     o    ROCHE

          In July 2001, CombiMatrix Corporation entered into non-exclusive
     worldwide license, supply, research and development agreements with Roche,
     pursuant to which CombiMatrix Corporation and Roche will develop a platform
     technology, providing a range of standardized biochips for use in important
     research applications. These agreements were amended and restated September
     2002. Under the agreements, Roche has made and will continue to make
     payments for the deliverables stipulated and for expanded license and
     manufacturing rights. Under the terms of the revised agreements, it is
     contemplated that Roche will co-develop, use, manufacture, market and
     distribute CombiMatrix Corporation's active biochip system for rapid
     production of both catalog and customizable biochips. CombiMatrix
     Corporation's goal is to develop a platform technology, providing a range
     of standardized biochips for use in important research applications. Roche
     has made and will continue to make payments for the deliverables
     contemplated and for expanded license rights. The agreements provide for
     minimum payments by Roche to CombiMatrix Corporation over the first three
     years, including milestone achievement payments, payments for products,
     royalties and payments for research and development projects. All payments
     received under this agreement to date have been recorded as deferred
     revenue at December 31, 2001. In December 2001, CombiMatrix Corporation
     completed a major milestone in its strategic alliance with Roche, by
     demonstrating several key performance metrics of its custom in-situ
     microarray system. In February and May 2002, CombiMatrix Corporation
     completed two additional milestones by delivering certain prototype
     components of its microarray platform and by demonstrating certain
     performance characteristics of the platform to Roche.

     o    NASA

          In August 2001, CombiMatrix Corporation entered into a two-year
     license and supply agreement with NASA. The agreement provides for the
     license, purchase and use by the NASA Ames Research Center of CombiMatrix
     Corporation's active biochip system to conduct biological research in both
     terrestrial and extraterrestrial laboratories. All payments received under
     this agreement have been recorded as deferred revenue at December 31, 2001.
     As of December 31, 2001, CombiMatrix Corporation has received
     non-refundable cash payments from NASA for their purchase of a microarray
     synthesizer system as well as a license to use the technology for a 2-year
     period. The existing agreement also provides for the sale of microarrays to
     NASA in future periods. The NASA agreement contains customary contract
     provisions regarding termination, including termination by either party in
     the event of a breach of contract terms.

     o    CONTRACT RESEARCH AND DEVELOPMENT WITH THE U.S. GOVERNMENT

          In February 2002, CombiMatrix Corporation was awarded a Phase I
     National Institutes of Health grant for the development of its protein
     biochip technology. The title of the grant is "Self-Assembling Protein
     Microchips." This grant is in addition to a two-year Phase II SBIR grant
     from the U.S. Department of Defense for the development of multiplexed chip
     based assays for chemical and biological warfare agent detection.

          During the first six months of 2002 and all of 2001, CombiMatrix
     Corporation has recognized $638,000 of grant revenues from its SBIR Phase
     II grant with the U.S. Department of Defense ("DOD"). CombiMatrix
     Corporation's business relationship with the DOD began in July 1999 when
     CombiMatrix Corporation was awarded an SBIR Phase I grant to use its active
     biochip technology in connection with the development of detection devices
     for chemical and biological warfare agents. This grant was completed and
     $60,000 of revenues were recognized during 1999. CombiMatrix Corporation
     was also awarded a $100,000 Department of Energy ("DOE") grant in July
     1999, which was completed in March 2000. CombiMatrix Corporation recognized
     $84,000 in the fourth quarter of 1999 and $17,000 in the first quarter of
     2000 under this grant. In July 2000, CombiMatrix Corporation was awarded a
     two-year $730,000 SBIR


                                     -162-



     Phase II grant to continue its research for the DOD. The CombiMatrix group
     expects to recognize the final $91,000 in government grant revenue related
     to the SBIR Phase II grant during the third quarter of 2002.

     o    JOINT VENTURE

          In May 2001, CombiMatrix Corporation formed CombiMatrix KK, a Japanese
     corporation located in Tokyo. In October 2001, the KK entered into a joint
     venture agreement with Marubeni Japan, the purpose of which is to focus on
     development and licensing opportunities for CombiMatrix Corporation's
     active biochip system with pharmaceutical and biotechnology companies in
     the Asian market. Marubeni Japan made a $1.0 million investment to acquire
     a 10% minority interest in the joint venture. During the second quarter of
     2002, the KK executed technology access and purchase agreements with two
     government institutions in Japan, which included the sale of its first
     genomic microarray synthesizer system for $274,000 to one of these
     institutions.

EFFECT OF VARIOUS ACCOUNTING METHODS ON RESULTS OF OPERATIONS

     The CombiMatrix group believes the following critical accounting policies
affect the group's more significant judgments and estimates used in the
preparation of the CombiMatrix group financial statements:

     o    basis of presentation;

     o    policies relating to AR-Acacia Technologies stock and AR-CombiMatrix
          stock;

     o    revenue recognition;

     o    research and development expenses;

     o    litigation, claims and assessments;

     o    stock-based compensation;

     o    accounting for income taxes; and

     o    valuation of long-lived and intangible assets and goodwill.

     BASIS OF PRESENTATION. The CombiMatrix group financial statements have been
prepared in accordance with generally accepted accounting principles and, taken
together with the Acacia Technologies' group financial statements, comprise all
the accounts included in the corresponding consolidated financial statements of
Acacia Research. The financial statements of each group reflect the financial
condition, results of operations and cash flows of the businesses included
therein. The financial statements of the CombiMatrix group include the accounts
or assets of Acacia Research specifically attributed to the CombiMatrix group
and give effect to the accounting policies that will be applicable upon
implementation of the recapitalization proposal. The CombiMatrix group financial
statements have been prepared on a basis that management believes to be
reasonable and appropriate and reflect the financial position, results of
operations and cash flows of businesses that comprise the CombiMatrix group and
all other corporate assets, liabilities and related transactions of Acacia
Research attributed to the CombiMatrix group, including allocated portions of
Acacia Research's general and administrative costs. Intergroup transactions
between the CombiMatrix group and the Acacia Technologies group have not been
eliminated in the separate group's financial statements.

     The preparation of the divisional financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates. If the
recapitalization proposal is implemented, significant management estimates and
judgments will be required related to the implementation of the management and
allocation policies applicable to the preparation of the divisional financial
statements of the CombiMatrix group. Individual group results may be
significantly impacted based on management's estimates and judgments.

     POLICIES RELATING TO AR-ACACIA TECHNOLOGIES STOCK AND AR-COMBIMATRIX STOCK.
The management and allocation policies applicable to the preparation of the
divisional financial statements of the CombiMatrix group and the Acacia
Technologies group (collectively, "the groups") may be modified or rescinded, or
additional policies may be adopted, at the sole discretion of the Board at any
time without approval of the stockholders. The CombiMatrix


                                     -163-



group's divisional financial statements reflect the application of the
management and allocation policies adopted by the Board to various corporate
activities, as described below. The CombiMatrix group's divisional financial
statements should be read in conjunction with Acacia Research's consolidated
financial statements and related notes.

TREASURY AND CASH MANAGEMENT POLICIES

     Acacia Research will manage most treasury and cash management activities on
a de-centralized basis, with each separate group separately managing its own
treasury activities. Pursuant to treasury and cash management policies adopted
by the Board, after the date on which AR-CombiMatrix stock and AR-Acacia
Technologies stock is first issued, the following will apply:

     o    Acacia Research will attribute each future issuance of AR-Acacia
          Technologies stock (and the proceeds thereof) to the Acacia
          Technologies group and will attribute each future issuance of
          AR-CombiMatrix stock (and the proceeds thereof) to the CombiMatrix
          group;

     o    Acacia Research will attribute each future incurrence or issuance of
          external debt or preferred stock (and the proceeds thereof) between
          the Acacia Technologies group and the CombiMatrix group or entirely to
          one group as determined by the Board, based on the extent to which
          Acacia Research incurs or issues the debt or preferred stock for the
          benefit of the CombiMatrix group and the Acacia Technologies group;

     o    Dividends on AR-Acacia Technologies stock will be charged against the
          Acacia Technologies group, and dividends on AR-CombiMatrix stock will
          be charged against the CombiMatrix group;

     o    Repurchases of AR-Acacia Technologies stock will be charged against
          the Acacia Technologies group and repurchases of AR-CombiMatrix stock
          will be charged against the CombiMatrix group;

     o    As of immediately prior to the first issuance of AR-CombiMatrix stock
          and AR-Acacia Technologies stock, the CombiMatrix group and the Acacia
          Technologies group shall be deemed to be allocated the cash and cash
          equivalents held by the respective groups as of that date;

     o    Acacia Research will account for any cash transfers from Acacia
          Research to or for the account of a group, from a group to or for the
          account of Acacia Research, or from one group to or for the account of
          the other group (other than transfers in return for assets or services
          rendered) as short-term loans unless (A) the Board determines that a
          given transfer (or type of transfer) should be accounted for as a
          long-term loan, (B) the Board determines that a given transfer (or
          type of transfer) should be accounted for as a capital contribution,
          or (C) the Board determines that a given transfer (or type of
          transfer) should be accounted for as a return of capital. There are no
          specific criteria to determine when Acacia Research will account for a
          cash transfer as a long-term loan, a capital contribution or a return
          of capital rather than an inter-group revolving credit advance;
          provided, however, that cash advances from Acacia Research to the
          Acacia Technologies group or to the CombiMatrix group up to $25
          million on a cumulative basis shall be accounted for as short-term or
          long-term loans at interest rates at which Acacia Research could
          borrow such funds and shall not be accounted for as a capital
          contribution. The Board will make such a determination in the exercise
          of its business judgment at the time of such transfer based upon all
          relevant circumstances. Factors the Board may consider include,
          without limitation: the current and projected capital structure of
          each group; the financing needs and objectives of the recipient group;
          the availability, cost and time associated with alternative financing
          sources; and prevailing interest rates and general economic
          conditions; and

     o    Any cash transfers accounted for as short-term loans will bear
          interest at the rate at which Acacia Research could borrow such funds.
          In addition, any cash transfers accounted for as a long-term loan will
          have interest rates, amortization, maturity, redemption and other
          terms that reflect the then-prevailing terms on which Acacia Research
          could borrow such funds.


                                     -164-



CORPORATE GENERAL AND ADMINISTRATIVE SERVICES AND FACILITIES

     Acacia Research will allocate the cost of corporate general and
administrative services and facilities between the groups generally based upon
utilization. Where determinations based on utilization alone are impracticable,
Acacia Research will use other methods and criteria that management believes to
be equitable and to provide a reasonable estimate of the cost attributable to
each group. Except as otherwise determined by management, the allocated costs of
providing such services and facilities will include, without limitation, all
costs and expenses of personnel employed in connection with such services and
facilities, including, without limitation, all direct costs of such personnel,
such as payroll, payroll taxes and fringe benefit costs (calculated at the
appropriate annual composite rate therefor) and all overhead costs and expenses
directly related to such personnel and the services or facilities provided by
them. In addition, allocated costs will include all materials used in connection
with such services or facilities, billed at their net cost to the provider of
the services or facilities plus all overhead costs and expenses related to such
materials.

     Except as may otherwise be specifically provided pursuant to the terms of
any agreements among Acacia Research and the groups or any resolutions of the
Board, the corporate general and administrative services and facilities to be
allocated between the groups will include, without limitation, legal services,
accounting services (tax and financial), insurance and deductibles payable in
connection therewith, employee benefit plans and administration thereof,
investor relations, stockholder services, and services relating to the board of
directors.

ALLOCATION OF FEDERAL AND STATE INCOME TAXES

     Acacia Research will determine its federal income taxes and the federal
income taxes of its subsidiaries that own assets allocated between the groups on
a consolidated basis. Acacia Research will allocate consolidated federal income
tax provisions and related tax payments or refunds between the groups based
principally on the taxable income and tax credits directly attributable to each
group. Such allocations will reflect each groups' contribution, whether positive
or negative, to Acacia Research, consolidated federal taxable income and
consolidated federal tax liability and tax credit position. Acacia Research will
credit tax benefits that cannot be used by the group generating those benefits
but can be used on a consolidated basis to the group that generated such
benefits. Inter-group transactions will be treated as taxed on a separate return
basis.

     Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis between
the groups based on their respective contribution to such consolidated or
combined state taxable incomes. State and local income tax provisions and
related tax payments or refunds which are determined on a separate corporation
basis will be allocated between the groups in a manner designed to reflect the
respective contributions of the groups to Acacia Research, separate or local
taxable income.

     REVENUE RECOGNITION. The CombiMatrix group derives revenues and deferred
revenues primarily from two sources: (i) government grant revenues and (ii)
multiple-element arrangements with strategic partners and licensees. As
described below, significant management judgments must be made and used in
connection with the revenue recognized or deferred in any accounting period.
Material differences may result in the amount and timing of revenues recognized
for any period if the CombiMatrix group makes different judgments.

     Government Grants: Revenues from government grants and contracts are
recognized as the related services are performed, when the services have been
accepted by the grantor and collectibility is reasonably assured. Amounts
recognized are limited to amounts due from the grantor based upon the contract
or grant terms.

     Revenues Under Multiple-Element Arrangements with Strategic Partners and
Licensees: Pursuant to Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements" ("SAB No. 101"), an arrangement with multiple elements
or deliverables should be segmented into individual units of accounting based on
the separate deliverables only if there is objective and reliable evidence of
fair value to allocate the consideration received to the deliverables.
Accordingly, revenues from multiple-element arrangements involving license fees,
up-front payments and milestone payments, which are received or billable in
connection with other rights and services that represent continuing obligations
of the CombiMatrix group, are deferred until all of the multiple elements have
been delivered or until objective and verifiable evidence of the fair value of
the undelivered elements has been established. Upon establishing verifiable
evidence of the fair value of the elements in multiple-element arrangements, the
fair value is


                                     -165-



allocated to each element of the arrangement, such as license fees or research
and development projects, based on the relative fair values of the elements. The
CombiMatrix group determines the fair value of each element in multiple-element
arrangements based on objective and reliable evidence of fair value, which is
determined for each element based on the price charged when the same element is
sold separately to a third party. If evidence of fair value of all undelivered
elements exists but evidence does not exist for one or more delivered elements,
then revenue is recognized using the residual method. Under the residual method,
the fair value of the undelivered elements is deferred and the remaining portion
of the arrangement fee is recognized as revenue.

     For the period ended June 30, 2002 and for the year ended December 31,
2001, the CombiMatrix group received cash consideration from Roche for achieving
certain milestones, which have been classified as deferred revenue in the
CombiMatrix group's June 30, 2002 and December 31, 2001 consolidated balance
sheets due to the determination that the payments received related to elements
for which objective and reliable evidence of fair value does not currently
exist. Pursuant to SAB No. 101, the elements associated with the amounts
received to date and additional milestone payments will be treated as one
accounting unit. The up-front fees and cash payments received upon the
accomplishment of the contractual milestones will be deferred. Revenue will be
recognized when all of the related elements, for which objective and reliable
evidence does not exist, have been delivered and there is objective and reliable
evidence to support the fair value for all of the undelivered elements.

     In general, revenues from the sale of products and/or services either are
recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery
has occurred or services have been rendered, (iii) the fees are fixed and
determinable and (iv) collectibility is reasonably assured.

     RESEARCH AND DEVELOPMENT EXPENSES. The CombiMatrix group has been and
continues to be engaged in a number of research and development initiatives to
improve and expand the active biochip system, including increasing the number of
test sites on active biochips from currently 1,024 sites per square centimeter
to over 10,000 sites per square centimeter and by developing additional
applications of CombiMatrix group's technology for drug discovery.

     Except for the amortization of non-cash deferred stock compensation
discussed below, research and development expenses have been the CombiMatrix
group's largest expense category to date and consist of costs to develop a
semiconductor-based, active biochip system. These costs include salaries,
benefits, recruiting and relocation expenses attributed to CombiMatrix group's
research and development personnel, costs incurred in the development of
prototype products, contract engineering and development with third parties, the
consumption of laboratory materials and supplies and facilities costs. The
CombiMatrix group expects to continue to incur significant expenses for research
and development in order to commercialize an active biochip system. As a result,
the CombiMatrix group expects that the group's research and development expenses
will continue to increase in the near term.

     In addition to the amended license agreement with Roche, CombiMatrix
Corporation also entered into a 5-year research and development agreement with
Roche, which is subdivided into separate projects. As a result, a portion of the
research and development expenses incurred during 2001 were driven by
obligations under these projects, which include continued development of
production microarray synthesis techniques, as well as higher density
microarrays. Research and development expenses required to complete these
projects are expected to continue into 2002 and 2003, pursuant to the timelines
outlined in the related agreements.

     The CombiMatrix group accounts for research and development expenses
pursuant to SFAS No. 2, "Accounting for Research and Development Costs" ("SFAS
No. 2"). SFAS No. 2 requires that all research and development costs be charged
to expense as incurred. These would include the costs described above as well as
costs incurred to acquire technologies, which are utilized in research and
development and which have no alternative future use. Also, costs related to
filing and pursuing patent applications are expensed as incurred, as
recoverability of such expenditures is uncertain. Under SFAS No. 2, research and
development refers to a plan or design for a new product or process or for a
significant improvement to an existing product or process whether intended for
sale or use. Significant management estimates are required with respect to the
determination of which costs relate to plans or designs for a new product or
process or for a significant improvement to an existing product. Had the
CombiMatrix group determined that certain costs incurred were not related to
research and development activities, different accounting treatment for such
costs may have been required.


                                     -166-



     The costs of software developed or obtained for internal use is expensed as
incurred until certain capitalization criteria have been met, at which time such
costs are capitalized and reported as a component of property and equipment. To
date, these costs have been classified as research and development expenses.
Significant management estimates are required with respect to the determination
of when certain capitalization criteria have been met. Typically this occurs
upon completion of a prototype and design phase and a functioning model exists.
Thereafter, all software program costs are required to be capitalized and
amortized over the remaining estimated useful life of the software. Had
management made differing judgments regarding the capitalization criteria,
different accounting treatment of costs of software developed for internal use
may have been required.

     In connection with the proposed purchase of the remaining minority
interests in CombiMatrix Corporation, Acacia Research expects approximately
$10.3 million of the purchase price to be allocated to in-process research and
development ("IPR&D"). Acacia Research management assumes responsibility for
determining the IPR&D valuation. The valuation is currently in process and is
expected to be completed prior to the mailing of proxy materials to Acacia
Research stockholders. The income approach to value is the method currently
being used by management to determine the fair market value of CombiMatrix
Corporation. Amounts included herein are based on preliminary determinations of
fair value.

     The fair value assigned to purchased IPR&D was estimated by discounting to
present value the cash flows expected to result from each project once it has
reached technological feasibility. A discount rate consistent with the risks of
each project was used to estimate the present value of future cash flows. In
estimating future cash flows, management considered the contribution of its core
technology (for which a United States patent was obtained in July 2000) that
would be required for successful exploitation of purchased in-process
technology, in order to value the core and in-process technologies discretely.
As a result, future cash flows relating to each purchased IPR&D project were
reduced in order to reflect the contribution of core technology to each IPR&D
project. The cash flows from these projects attributable to core technology were
then separately valued to determine the intangible asset value of purchased core
technology. In determining the contribution of core technology to in-process
projects, management of CombiMatrix Corporation analyzed their historical
research and development efforts applicable to obtaining their patent from the
United States government vs. their efforts to commercially develop the
technology in various IPR&D projects. The ratio of core technology research and
development spending to IPR&D spending at the time of the merger was applied to
each IPR&D project cash flows to determine cash flows relating to core
technology.

     The nature of the efforts to develop the purchased IPR&D into commercially
viable products principally relates to the completion and/or acceleration of
existing development programs. These efforts include testing current and
alternative materials used in microarray design, testing of existing and
alternative methods for microarray synthesis, developing prototype machinery
(including operating software) to synthesize, hybridize and read individual
microarrays, and to perform numerous experiments, or assays, with actual target
samples in order to determine customer protocols and procedures for using the
CombiMatrix group's microarray system. The costs of these efforts have been
included in the CombiMatrix group's projections to successfully launch the
purchased IPR&D projects. The resulting net cash flows from such projects are
based on Acacia Research management's estimates of revenues, cost of sales,
research and development expenses, sales and marketing expenses, general and
administrative expenses, the anticipated effect of income taxes, and required
returns on working capital, fixed assets and other assets necessary to support
the generation of these cash flows.

     The discounting of net cash flows relating to core technology back to their
present value is based on CombiMatrix Corporation's weighted average cost of
capital ("WACC"). The WACC calculation produces the average required rate of
return of an investment in an operating enterprise, based on various required
rates of return from investments in various areas of that enterprise. The WACC
for CombiMatrix Corporation was approximately 20% at the time of the merger and
is the rate used in discounting the net cash flows attributable to purchased
core technology. Higher discount rates were used to value the purchased IPR&D
projects, however, due to the additional inherent risks associated with these
projects, including if and when the technologies will ultimately become
commercially viable, market acceptance, and threats from competing technologies.
The discount rates used for each project are described below.

     The forecast data employed in the valuation analyses was based upon product
level forecast information obtained by Acacia Research from numerous internal
and external resources. These resources included publicly


                                     -167-



available databases, external market research consultants, company-sponsored
focus CombiMatrix Corporation data and internal market experts. Acacia Research
senior management reviewed and challenged the forecast data and related
assumptions and utilized the information in analyzing IPR&D. The forecast data
and assumptions are inherently uncertain and unpredictable. However, based upon
the information available at this time, Acacia Research management believes the
forecast data and assumptions to be reasonable. These assumptions may be
incomplete or inaccurate, and no assurance can be given that unanticipated
events and circumstances will not occur. Accordingly, actual results may vary
from the forecasted results. Any such variance may result in a material adverse
effect on Acacia Research's financial condition and results of operations.

     In the allocation of purchase price to the IPR&D, the concept of
alternative future use was specifically considered for each of the programs
under development. The acquired IPR&D consists of CombiMatrix Corporation's work
to complete each of the identified programs. The programs are very specific to
research market for which they are intended. There are no alternative uses for
the in-process programs in the event that the programs fail in their continued
development or are otherwise not feasible. The development effort for the
acquired IPR&D does not possess an alternative future use for Acacia Research as
defined by generally accepted accounting principles.

     Below is a brief description of each IPR&D project including an estimation
of when management believes Acacia Research may realize revenues from the sale
of these products.

     Genomics Biological Array System: As described elsewhere in this document,
CombiMatrix Corporation's genomics biological array processor system is being
developed to discretely immobilize sequences of DNA or RNA within individual
test sites on a modified semiconductor chip coated with a three-dimensional
layer of porous material. The system also includes proprietary hardware units
and related software applications to be able to synthesize materials onto the
chips, apply target samples of genetic materials and interpret the results. The
purpose of this system will be in gene expression profiling and SNP genotyping,
which could lead to the better understanding of gene function and ultimately
therapeutic discovery to fight disease. CombiMatrix Corporation's projected cash
flow models from commercializing this system include servicing CombiMatrix
Corporation's existing relationship with Roche as well as other strategic
partners, pharmaceutical, biotech and academic institutions. Although current
research and development efforts in commercializing this system have been
positive, there can be no assurance that the system will be successfully
launched and broadly accepted by the pharmaceutical, biotech and academic
research fields.

     Proteomics Biological Array System: CombiMatrix Corporation's proteomics
biological array processor system is being developed to discretely immobilize
proteins and other small molecules within individual test sites on a modified
semiconductor chip in a similar fashion as described above for the genomics
biological array system. However, the chemistry used in synthesizing proteins,
the porous reaction layer coating used in synthesis and the software used to
design probes for protein synthesis are significantly different from what is
currently being developed for the genomics application, largely due to the
inherent biological differences between DNA molecules and protein molecules and
how they react with CombiMatrix Corporation's proprietary synthesis processes.
The proteomics biological array system will be used in determining protein
expression, variation and function within living cells, which could lead to the
better understanding of protein function and ultimately therapeutic discovery to
fight disease. Although current research and development efforts in
commercializing this system have been positive, there can be no assurance that
the system will be successfully launched and broadly accepted by the
pharmaceutical, biotech and academic research fields.

     LITIGATION, CLAIMS AND ASSESSMENTS. The preparation of financial statements
in conformity with generally accepted accounting principles 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 financial statements and the reported amounts
of revenues and expenses during the reporting period. Specifically, management
must make estimates of whether (i) it is probable that an asset has been
impaired or a liability has been incurred at the date of the financial
statements and (ii) whether the amount of loss can be reasonably estimated. In
the event that, in management's estimation it is probable that an asset has been
impaired or a liability has been incurred at the date of the combined financial
statements and amounts of loss can be reasonably estimated, the estimated
contingent loss is accrued by a charge to income.


                                     -168-



     Because of the uncertainties related to both probabilities of outcome and
amounts and ranges of potential loss associated with outstanding claims and
pending litigation at December 31, 2001, management is unable to make a
reasonable estimate of the likelihood of outcome or the liability that could
result from an unfavorable outcome. As such, the CombiMatrix group has not
accrued for any loss contingencies as of December 31, 2001. As additional
information becomes available, the CombiMatrix group will assess the potential
liability related to CombiMatrix group's pending litigation and revise
management's estimates. Such revisions in estimates of the potential liability
could materially impact our results of operation and financial position.

     STOCK-BASED COMPENSATION. Stock option policies provide for the granting of
stock options to employees at exercise prices equal to the fair value of the
underlying stock on the date of grant, the fair values of which are determined
by the board of directors.

     Non-cash stock compensation cost related to stock options issued to
employees is accounted for in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB No. 25") and related interpretations.
Compensation cost attributable to such options is recognized based on the
difference, if any, between the closing market price of the stock on the date of
grant and the exercise price of the option. Compensation cost is deferred and
amortized on an accelerated basis over the vesting period of the individual
option awards using the amortization method prescribed in FASB Interpretation
No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock
Option or Award Plans" ("FIN No. 28"). Non-cash compensation cost of stock
options and warrants issued to non-employee service providers, which has not
been significant, is accounted for under the fair value method required by SFAS
No. 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."

     During the year ended December 31, 2000, the CombiMatrix group recorded
deferred non-cash stock compensation charges aggregating approximately $53.8
million in connection with the granting of stock options during 2000. Pursuant
to policy, these stock options were originally granted at exercise prices equal
to the fair value of CombiMatrix Corporation's underlying stock on the date of
grant as determined by the board of directors. However, such exercise prices
were subsequently determined to be granted at exercise prices below fair value
due to a substantial step-up in the fair value of stock pursuant to a valuation
provided by an investment banker in contemplation of CombiMatrix Corporation's
potential initial public offering in 2000. In connection with the proposed
initial public offering and pursuant to SEC rules and guidelines, the
CombiMatrix group was required to reassess the value of stock options issued
during the one-year period preceding the potential initial public offering and
utilize the stepped-up fair value provided by the investment banker for purposes
of determining whether such stock option issuances were compensatory, which
resulted in the CombiMatrix group recognizing $53.8 million in deferred non-cash
stock compensation charges in 2000 and $729,000 in 2001. These non-cash deferred
stock compensation charges are being amortized using the amortization method
prescribed in FIN No. 28 over their respective option vesting periods, which
range from one to four years. Non-cash stock compensation charges during the
first six months of 2002 and for the year ended December 31, 2001 totaled $3.5
million and $20.0 million, respectively. These charges related primarily to the
continued amortization of our deferred stock compensation. Pursuant to the
vesting terms of the outstanding options, the CombiMatrix group will incur
non-cash stock compensation amortization expenses of approximately $3.2 million
for the remaining six months of 2002, $3.3 million in 2003 and $1.1 million in
2004.

     During the third and fourth quarters of 2001, certain unvested stock
options were forfeited. Pursuant to the provisions of APB Opinion No. 25 and
related interpretations, the reversal of previously recognized non-cash stock
compensation expense on forfeited unvested stock options had the effect of
reducing overall stock compensation expense by approximately $4.7 million during
2001. In addition, the forfeiture of certain unvested options during 2001
resulted in a $13.2 million reduction of remaining deferred non-cash stock
compensation expense scheduled to be amortized in future periods.

     In connection with the proposed acquisition of the remaining minority
interest of CombiMatrix Corporation, the exchange of CombiMatrix Corporation
Common Stock options for AR-CombiMatrix options will result in a new measurement
date for those awards. Accordingly, deferred stock-based compensation expense of
approximately $3.1 million will arise and will be amortized in conformity with
FIN 28.


                                     -169-



     Amounts to be amortized in future periods reflected above may be impacted
by certain subsequent stock option transactions including modification of terms,
cancellations, forfeitures and other activity.

     ACCOUNTING FOR INCOME TAXES. In conjunction with the preparation of the
CombiMatrix group's financial statements, Acacia Research is required to
estimate income taxes in each of the jurisdictions in which Acacia Research
operates. This process involves Acacia Research estimating actual current tax
exposure together with assessing temporary differences resulting from differing
treatment of items, such as deferred revenue and asset depreciation for tax and
accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within our balance sheet. Acacia Research must
then assess the likelihood that its deferred tax assets will be recovered from
future taxable income and to the extent Acacia Research believes that recovery
is not likely, Acacia Research must establish a valuation allowance. To the
extent Acacia Research establishes a valuation allowance or increases this
allowance in a period, Acacia Research must include an expense within the tax
provision in the group statements of operations.

     Significant management judgment is required in determining the provision
for income taxes, deferred tax assets and liabilities and valuation allowance.
Acacia Research has recorded a full valuation allowance against net deferred tax
assets of $20.5 million as of December 31, 2001, due to uncertainties related to
the ability to utilize deferred tax assets, primarily consisting of certain net
operating losses carried forward, before they expire. In assessing the need for
a valuation allowance, Acacia Research has considered estimates of future
taxable income, the period over which deferred tax assets may be recoverable,
history of losses and assessment of the probability of continuing losses in the
foreseeable future. In management's estimate, any positive indicators, including
forecasts of potential future profitability of businesses, are outweighed by the
uncertainties surrounding estimates and judgments of potential future taxable
income. In the event that actual results differ from these estimates or Acacia
Research adjusts these estimates should Acacia Research believe it would be able
to realize all or a portion of these deferred tax assets in the future, an
adjustment to the valuation allowance would increase income in the period such
determination was made. Any changes in the valuation allowance could materially
impact the financial position and results of operations.

     If the recapitalization proposal is approved, Acacia Research will
determine its federal income taxes and the federal income taxes of its
subsidiaries that own assets allocated between the groups on a consolidated
basis. Consolidated federal income tax provisions and related tax payments or
refunds will be allocated between the groups based principally on the taxable
income and tax credits directly attributable to each group. Such allocations
will reflect each group's contribution, whether positive or negative, to Acacia
Research's consolidated federal taxable income and consolidated federal tax
liability and tax credit position. Acacia Research will credit tax benefits that
cannot be used by the group generating those benefits but can be used on a
consolidated basis to the group that generated such benefits.

     VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL. The CombiMatrix
group assesses the impairment of identifiable intangibles, long-lived assets and
related goodwill whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors the CombiMatrix group considers
important, which could trigger an impairment review include the following:

     o    significant underperformance relative to expected historical or
          projected future operating results;

     o    significant changes in the manner of use of the acquired assets or the
          strategy for our overall business;

     o    significant negative industry or economic trends; and

     o    significant decline in the AR-CombiMatrix stock price for a sustained
          period.

     When the CombiMatrix group determines that the carrying value of
intangibles, long-lived assets and related goodwill may not be recoverable based
upon the existence of one or more of the above indicators of impairment, the
CombiMatrix group measures any impairment based on a projected discounted cash
flow method using a discount rate determined by management to be commensurate
with the risk inherent in our current business model. Net intangible assets,
long-lived assets and goodwill amounted to $13.7 million as of December 31,
2001.

     In 2002, SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"), became effective and as a result, the CombiMatrix group will cease to
amortize approximately $2.9 million of goodwill effective January 1, 2002. The
CombiMatrix group recorded approximately $0.9 million of amortization of
goodwill during 2001. In


                                     -170-



lieu of amortization an initial impairment review of goodwill will be performed
in 2002 and an annual impairment review thereafter. In connection with the
adoption of SFAS No. 142, the CombiMatrix group performed a transitional
goodwill impairment assessment and determined that there was no impairment of
goodwill. However, there can be no assurance that a material impairment charge
will not be recorded in future periods.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which addresses
financial accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of. SFAS No. 144 requires long-lived assets
to be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. In conjunction with
such tests, it may be necessary to review depreciation estimates and methods as
required by APB Opinion No. 20, "Accounting Changes," or the amortization period
as required by SFAS No. 142. The adoption of SFAS No. 144 did not have a
material impact on the CombiMatrix group's financial position or operating
results.

COMBIMATRIX GROUP



                                                                                    FOR THE THREE MONTHS   FOR THE SIX MONTHS
                                                 FOR THE YEARS ENDED DECEMBER 31,      ENDED JUNE 30,        ENDED JUNE 30,
                                                 --------------------------------   --------------------   ------------------
RESULTS OF OPERATIONS (IN THOUSANDS)                 2001       2000       1999        2002      2001        2002      2001
                                                   --------   --------   -------     -------   -------     -------   --------
                                                                                         (UNAUDITED)          (UNAUDITED)
                                                                                                
Grant and contract revenues ...................    $    456   $     17   $   144     $   164   $    91     $   413   $    274
Product revenue ...............................          --         --        --         274        --         274         --
Cost of sales .................................          --         --        --        (253)       --        (253)        --
Research and development expenses .............     (11,656)    (8,415)   (1,806)     (5,026)   (2,651)     (7,694)    (5,802)
Non-cash stock compensation expenses - R&D ....      (7,183)    (3,397)       --        (692)   (2,013)     (1,113)    (4,411)
Marketing, general and administrative
   expenses ...................................     (16,690)    (5,524)     (897)     (2,927)   (3,747)     (5,211)    (7,446)
Non-cash stock compensation expenses - MG&A ...     (12,780)    (6,598)      (36)     (1,443)   (5,166)     (2,434)   (10,364)
Amortization of patents and goodwill ..........      (1,203)      (640)      (30)        (99)     (301)       (198)      (599)
Other income (expense), net ...................       2,055      1,662      (224)         89       558         278      1,291
Benefit (provision) for income taxes ..........         155         79        (2)         39        39          79         75
Minority interests ............................      18,817      8,300     1,248       3,979     5,321       6,377     10,839
Cumulative effect of change in accounting
   principle ..................................          --       (246)       --          --        --          --         --
                                                   --------   --------   -------     -------   -------     -------   --------
Division net loss .............................    $(28,029)) $(14,762)  $(1,603)    $(5,895)  $(7,869)    $(9,482)  $(16,143)
                                                   ========   ========   =======     =======   =======     =======   ========



THREE AND SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 2001

     GRANTS AND CONTRACTS REVENUES. Grant and contract revenues were $164,000
and $91,000 during the three months ended June 30, 2002 and 2001, respectively.
In addition to $91,000 of DOD grant revenues recognized in both periods, the
CombiMatrix group recognized $73,000 of NIH grant revenues during the second
quarter of 2002. During the six months ended June 30, 2002 and 2001, grant and
contract revenues were $413,000 and $274,000, respectively. The increase in
revenues was due primarily to recognition of a one-time contract research and
development fee of $141,000 in addition to the DOD and NIH revenues recognized
during this period, whereas the grant revenues recognized during the six months
ended June 30, 2001 was solely from grant revenues recognized from the DOD
grant. The CombiMatrix group expects to recognize $91,000 and $10,000 under its
DOD and NIH grants in the third quarter of 2002, respectively, which represents
final payments under both of these grants.

     PRODUCT REVENUES AND COST OF SALES. During the three and six months ended
June 30, 2002, product revenues were $274,000 as compared to $0 during the same
periods ended June 30, 2001. During the three and six months ended June 30,
2002, cost of sales was $253,000 as compared to $0 during the same periods ended
June 30, 2001. Product revenues and cost of sales were recognized as a result of
the second quarter 2002 sale of a genomics microarray synthesizer and related
hardware to a Japanese government institution by the CombiMatrix group's
Japanese subsidiary.

     RESEARCH AND DEVELOPMENT. During the three months ended June 30, 2002,
research and development expenses were $5.0 million, as compared to $2.7 million
during the same period ended June 30, 2001. During the six


                                     -171-



months ended June 30, 2002, research and development expenses were $7.7 million,
as compared to $5.8 million during the same period ended June 30, 2001. The
increase in research and development expenses for the periods in 2002 as
compared to the same periods in 2001 was primarily due to an increase in
activities related to the CombiMatrix group's continuing performance obligations
under the product commercialization phase of its license, supply, research and
development agreements with Roche. These activities include increases in labor,
supplies and materials, development of prototype microarrays and instruments,
and the use of outside consultants for certain engineering and manufacturing
efforts. Since July 2001, most of the CombiMatrix group's research and
development efforts have been driven by obligations under its agreements with
Roche. These projects include development of production microarray synthesis
techniques, development of higher density microarrays and related
instrumentation and software. These projects are expected to continue into 2005
as determined by the timelines specified in the agreements.

     MARKETING, GENERAL AND ADMINISTRATIVE. During the three months ended June
30, 2002, marketing, general and administrative expenses were $2.9 million, as
compared to $3.8 million during the same period ended June 30, 2001. During the
six months ended June 30, 2002, marketing, general and administrative expenses
were $5.2 million, as compared to $7.4 million during the same period ended June
30, 2001. The decrease in marketing general and administrative expenses for the
periods in 2002 as compared to the same periods in 2001 was due primarily to
reductions in the CombiMatrix group's sales and marketing staff and related
expenses, decreased recruitment and relocation expenses, and reduced legal fees
incurred during the first and second quarters of 2002 compared to the same
periods in 2001. Included in marketing, general and administrative expenses are
allocated corporate charges of $0.3 million and $0.6 million for the three and
six months ended June 30, 2002, respectively, compared to $0.4 million and $0.6
million for the same periods ended June 30, 2001, respectively.

NON-CASH STOCK COMPENSATION EXPENSE.

     RESEARCH AND DEVELOPMENT. During the three and six months ended June 30,
2002, research and development related non-cash stock compensation charges, were
$0.7 million and $1.1 million, respectively, as compared to $2.0 million and
$4.4 million, respectively, during the comparable periods in 2001.

     MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. During the three and six
months ended June 30, 2002, marketing, general and administrative non-cash stock
compensation charges were $1.4 million and $2.4 million, respectively, as
compared to $5.2 million and $10.4 million, respectively, in the comparable
periods in 2001.

     The decrease in non-cash stock compensation charges related to research and
development and marketing, general and administrative expenses is primarily due
to the forfeiture and cancellation of certain options in the third and fourth
quarters of 2001 and a reduction in scheduled stock compensation amortization
related to the accelerated method of amortization utilized by us pursuant to FIN
No. 28, which results in higher amounts of amortization in the early vesting
periods, and lower amounts of amortization in subsequent vesting periods. The
CombiMatrix group's non-cash stock compensation amortization expense for the six
months ended June 30, 2002 are net of $748,000 in stock compensation expense
reversal related to the forfeiture of certain unvested stock options in the
first and second quarters of 2002.

     INTEREST INCOME. During the three months ended June 30, 2002 and 2001,
interest income was $143,000 and $0.6 million, respectively. During the six
months ended June 30, 2002 and 2001, interest income was $0.4 million and $1.3
million, respectively. The decreases for both comparable periods were due
primarily to lower average cash and cash equivalents balances and short-term
investments in periods ended 2002 as compared to 2001, as well as lower market
interest rates earned on the CombiMatrix group's cash and investments.

     INTEREST EXPENSE. During the three months ended June 30, 2002 and 2001,
interest expense was $54,000 and $0, respectively. During the six months ended
June 30, 2002 and 2001, interest expense was $115,000 and $0, respectively.
Interest expense relates to CombiMatrix Corporation's capital lease obligation
with a commercial bank, which was executed in September 2001.

     MINORITY INTERESTS. During the three months ended June 30, 2002 and 2001,
minority interests in the net losses of the CombiMatrix group were $4.0 million
and $5.3 million, respectively. During the six months ended June 30, 2002 and
2001, minority interests were $6.4 million and $10.8 million, respectively. The
decrease in


                                     -172-



minority interests was primarily due to the decrease in losses incurred by the
CombiMatrix group as a result of a decrease in non-cash stock compensation
amortization charges, and the decreases in research and development and
marketing, general and administrative expenses described above.

2001 COMPARED TO 2000

     REVENUES. Revenues were $0.5 million in 2001 as compared to $0.02 million
in 2000. Revenues recognized in 2001 relate to the SBIR Phase II Department of
Defense grant, which is ongoing. The revenues recognized in 2000 relate to the
completion of CombiMatrix Corporation's Department of Energy grant.

     RESEARCH AND DEVELOPMENT. Research and development expenses were $18.8
million in 2001 as compared to $11.8 million in 2000. The increase in research
and development expense was due primarily to an increase in non-cash stock
compensation charges, and a general expansion of research and development
efforts, which resulted in the growth of research and development personnel as
well as the amount of supplies and materials consumed. The CombiMatrix group's
research and development activities were focused primarily on efforts to further
develop and enhance the active biochip system towards commercialization. Most of
these efforts were driven by CombiMatrix Corporation's obligations under our
agreements with Roche, which were executed in July 2001. These projects include
development of production microarray synthesis techniques, as well as higher
density microarrays.

     In 2001, research and development expense included non-cash stock
compensation charges, totaling $7.2 million. Non-cash stock compensation charges
for 2001 are net of $0.8 million of non-cash stock compensation expense reversal
related to the forfeiture of certain unvested stock options during the third and
fourth quarters of 2001. In 2000, research and development expense for non-cash
stock compensation was $3.4 million.

     MARKETING, GENERAL AND ADMINISTRATIVE. Marketing, general and
administrative expenses were $29.5 million in 2001 as compared to $12.1 million
in 2000. These costs consist primarily of salaries and related expenses for
executive, financial and other administrative personnel, including non-cash
stock compensation charges, recruitment and relocation, professional services,
litigation costs, and marketing activities, facilities costs and other corporate
expenses. The increase was primarily due to an increase in non-cash stock
compensation charges, an increase in marketing, general and administrative
expenses, an increase in executive and administrative personnel, an increase in
personnel recruitment and relocation expenses, and an increase in rent and
utilities expenses as a result of CombiMatrix Corporation's January 2001
relocation to and occupancy of approximately 64,000 square feet of office space
in their new corporate and research facilities located in Mukilteo, Washington.
The CombiMatrix group's legal fees increased significantly in 2001 compared to
2000 as a result of litigation with Nanogen. In addition, marketing, general and
administrative expenses include the write-off of approximately $1.4 million of
deferred initial public offering costs, which were charged to income in the
fourth quarter of 2001 due to uncertainty related to the future recoverability
of these deferred costs, stemming from unfavorable market conditions in late
2001 and early 2002. The CombiMatrix group expects marketing, general and
administrative expenses to increase in the future to support the execution of
our business strategies.

     Amortization of deferred stock compensation included in marketing, general
and administrative expenses was $12.8 million in 2001 as compared to $6.6
million in 2000. Stock compensation cost is deferred and amortized on an
accelerated basis over the vesting period of the individual option awards using
the amortization method prescribed in FIN No. 28. The increase in deferred stock
compensation amortization in 2001 was due to higher amounts of deferred stock
compensation charges scheduled to be amortized in 2001 as compared to 2000
related to $53.8 million of deferred stock compensation originally recorded in
the third and fourth quarters of 2000. Amortization of deferred stock
compensation in 2001 was partially offset by $3.9 million due to forfeitures of
unvested stock options occurring in 2001. The CombiMatrix group is scheduled to
incur deferred stock compensation amortization charges of approximately $8.1
million, $3.6 million and $1.1 million in 2002, 2003 and 2004, respectively.
Included in marketing, general and administrative expenses of the CombiMatrix
group are allocated corporate charges of $1.4 million and $0.9 million in 2001
and 2000, respectively.

     INTEREST INCOME. Interest income was $2.1 million in 2001 as compared to
$1.7 million in 2000. The increase in interest income was due primarily to
higher average balances of cash and cash equivalents and short-term investments
in 2001 as compared to 2000. The overall increase in the average level of cash
and investment balances


                                     -173-



in 2001 was primarily the result of a private equity financing executed in
August 2000 raising gross proceeds of $36.0 million through the sale of 4
million shares of CombiMatrix Corporation common stock at $9 per share.

     INTEREST EXPENSE. Interest expense was $0.07 million in 2001 as compared to
no interest expense in 2000. Interest expense recorded in 2001 related to
CombiMatrix Corporation's capital lease obligation with a commercial bank, which
was entered into in September 2001. The CombiMatrix group had no similar
obligations in 2000.

     MINORITY INTERESTS. Minority interests in the net losses of the CombiMatrix
group were $18.8 million in 2001 as compared to $8.3 million in 2000. The
increase in minority interests in 2001 was primarily due to the increase in
losses incurred by the CombiMatrix group as a result of increased non-cash stock
compensation amortization charges, its continued expansion of research and
development efforts and increased marketing, general and administrative
expenses.

     CUMULATIVE EFFECT OF ACCOUNTING CHANGE. Cumulative effect of accounting
change was zero in 2001 as compared to $0.2 million in 2000. During the fourth
quarter of 2000, Acacia Research Corporation adopted Emerging Issues Task Force
No. 98-15, "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios." As a result, the
beneficial conversion feature of $1.5 million 6% unsecured promissory notes that
was valued at $0.2 million was charged to the December 31, 2000 statement of
operations with a corresponding increase to equity in accordance with Accounting
Principles Bulletin Opinion No. 20, "Accounting Changes."

2000 COMPARED TO 1999

     REVENUES. Revenues were $0.02 million in 2000 as compared to $0.1 million
in 1999. The decrease in revenues was due to the overall decrease in activity
under our Department of Defense and Department of Energy grants in 2000 as
compared to 1999.

     RESEARCH AND DEVELOPMENT. Research and development expenses were $11.8
million in 2000 as compared to $1.8 million in 1999. The increase in research
and development expenses was due primarily to an increase in non-cash stock
compensation and a general expansion of the CombiMatrix group research and
development efforts, which resulted in the growth of research and development
personnel, as well as the amount of supplies and materials consumed. In 2000,
research and development expenses for non-cash stock compensation (including
warrants), totaled $3.4 million. In 1999, research and development expenses for
non-cash stock compensation were not material.

     MARKETING, GENERAL AND ADMINISTRATIVE. Marketing, general and
administrative expenses were $12.1 million in 2000 as compared to $0.9 million
in 1999. The recruiting, hiring and in some cases relocating CombiMatrix
Corporation's executive and administrative staff significantly contributed to
the overall increase in our marketing, general and administrative expenses in
2000 compared to 1999. Marketing, general and administrative expenses included
$7.3 million and $0.2 million of non-cash stock compensation charges for 2000
and 1999, respectively. Included in marketing, general and administrative
expenses of the CombiMatrix group are allocated corporate charges of $0.9
million and $0.4 million, respectively.

     AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred stock
compensation was $10.2 million in 2000 as compared to $0.02 million in 1999. The
increase in deferred stock compensation amortization was due to greater amount
of deferred stock compensation amortized in 2000 compared to 1999 resulting from
the recognition of $53.8 million of deferred stock compensation in the third and
fourth quarters of 2000.

     INTEREST INCOME. Interest income was $1.7 million in 2000 as compared to
$0.04 million in 1999. The increase in interest income was due to higher average
balances of cash and cash equivalents and short-term investments in 2000 as
compared to 1999 resulting from increased financing activities in 2000 compared
to 1999.

     INTEREST EXPENSE. Interest expense was $0 in 2000 as compared to $0.3
million in 1999. The decrease in interest expense was due to a decrease in cash
interest expense from $117,000 in 1999 to $0 for the same period in 2000, a
decrease in amortization of discount on notes from $60,000 in 1999 to $0 in 2000
and a decrease in


                                     -174-



amortization of debt issuance costs on CombiMatrix Corporations notes from
$36,000 in 1999 to $0 in 2000. All of these decreases were the result of the
exchange of the entire $1.5 million principal amount of notes for 725,000 shares
of common stock in December 1999.

     MINORITY INTERESTS. Minority interests in the net losses of the CombiMatrix
group were $8.3 million in 2000 as compared to $1.2 million in 1999. The
increase in minority interests in 2001 was primarily due to the increase in
losses incurred by the CombiMatrix group as a result of increased non-cash stock
compensation amortization charges, its continued expansion of research and
development efforts and increased marketing, general and administrative
expenses.

     CUMULATIVE EFFECT OF ACCOUNTING CHANGE. Cumulative effect of accounting
change was $0.2 million in 2000 as compared to zero in 1999. During the fourth
quarter of 2000, Acacia Research Corporation adopted Emerging Issues Task Force
No. 98-15, "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios." As a result, the
beneficial conversion feature of $1.5 million 6% unsecured promissory notes that
was valued at $0.2 million was charged to the December 31, 2000 statement of
operations with a corresponding increase to equity in accordance with Accounting
Principles Bulletin Opinion No. 20, "Accounting Changes."

INFLATION

     Inflation has not had a significant impact on the CombiMatrix group in the
current or prior periods.

LIQUIDITY AND CAPITAL RESOURCES

     From inception through June 30, 2002, the CombiMatrix group has been funded
primarily with private equity financing totaling $64.2 million. At June 30,
2002, cash and cash equivalents and short-term investments totaled $22.8
million. At December 31, 2001, cash and cash equivalents and short-term
investments totaled $33.3 million, compared to $47.2 million at December 31,
2000. The CombiMatrix group's cash reserves and short-term investments are held
in a variety of investment-grade securities, including government and corporate
bonds, commercial paper and money market accounts.

     Net cash used in operating activities was $10.4 million for the six months
ended June 30, 2002. Net cash used in operations was primarily due to a net loss
from operations of $9.9 million, and net cash out flows related to working
capital totaling $0.5 million.

     Net cash used in operations during the years ended December 31, 2001, 2000
and 1999 was $17.1 million, $8.7 million and $2.7 million, respectively. The
CombiMatrix group division net losses for the years ended 2001, 2000 and 1999,
excluding minority interests were $46.8 million, $22.8 million and $2.9 million,
respectively. In 2001, the CombiMatrix group's negative cash flow from
operations stemmed primarily from the continued expansion of the group's
research and development activities including its efforts under the Roche and
NASA agreements executed in 2001. Cash outflows from operations were partially
offset by the receipt of milestone and advance payments under the Roche and NASA
agreements totaling $6.0 million, which have been recorded as deferred revenues
at December 31, 2001. Included in division net loss for 2001, 2000 and 1999 are
non-cash charges of $22.1 million, $10.9 million and $0.1 million, respectively,
related to amortization of deferred stock compensation, depreciation and
amortization expenses.

     Net cash provided by investing activities was $4.4 million during the six
months ended June 30, 2002 primarily related to the sale of certain short-term
securities to fund operations.

     Net cash provided by (used in) investing activities during the years ended
December 31, 2001, 2000 and 1999 was $18.8 million, $(42.6 million) and
$(88,000), respectively. Net cash inflows from investing activities includes the
net impact of the sale and leaseback transaction executed in September 2001 with
a commercial bank, resulting in gross proceeds of $3.0 million from the
financing of the majority of the CombiMatrix group's property and equipment. The
sale and leaseback transaction is reflected as a cash inflow and outflow from
investing activities in the 2001 CombiMatrix group cash flow statement. The sale
of short-term investments to fund the


                                     -175-



CombiMatrix group research and development operations totaling $50.4 million
resulted in an overall net cash provided by investing activities in 2001 as
compared to net cash used in investing activities in 2000. The increase in cash
used in investing activities in 2000 as compared to 1999 was due primarily to
purchases of short-term investments and capital equipment.

     Net cash attributed to the CombiMatrix group during the years ended
December 31, 2001, 2000 and 1999 was $4.5 million, $56.4 million and $1.1
million, respectively. 2001 cash in flows from financing activities attributed
to the CombiMatrix group include gross proceeds of $1.0 million from the
issuance of 120 shares of common stock by CombiMatrix KK to Marubeni Japan in
October 2001 representing a 10% ownership interest in CombiMatrix KK. In
addition, Advance Material Sciences also completed a private equity financing
raising $2.0 million in May 2001. During 2000, CombiMatrix group completed two
private equity financings raising gross proceeds of $53.6 million through the
sale of 7.5 million shares of CombiMatrix Corporation common stock. In addition,
Advanced Material Science was formed, raising initial equity financing of $3.0
million. Financing activities included the receipt of $3.8 million in net
proceeds from the sale of common stock to investors in 1999.

     CombiMatrix Corporation's rental expenses, including its share of the
common area maintenance and operating expenses are approximately $175,000 per
month (excluding any allocated rent expense) at the new headquarters facility.
That amount increases over time, subject to acceleration based on actual usage
of the premises, to approximately $195,000 per month by mid 2002 through 2008.
CombiMatrix Corporation will pay $91,000 per month through September 2004 to
retire the capital lease obligation. Our future litigation costs with respect to
the Nanogen case are uncertain at this time, though they are expected to be
significant. CombiMatrix Corporation also has entered into a one-year commitment
to purchase $1.1 million worth of semiconductor wafers contingent upon
successfully developing a next-generation microarray.

     The CombiMatrix group's long-term capital requirements and the adequacy of
our available funds will depend upon many factors, including:

     o    the CombiMatrix group's continued progress in research and development
          programs;

     o    the costs involved in filing, prosecuting, enforcing and defending any
          patents claims, should they arise;

     o    the CombiMatrix group's ability to license technology;

     o    competing technological developments;

     o    the creation and formation of strategic partnerships;

     o    the costs associated with leasing and improving our headquarters in
          Mukilteo, Washington;

     o    the costs of commercialization activities; and

     o    other factors that may not be within the CombiMatrix group's control.

RECENT ACCOUNTING PRONOUNCEMENTS

     Refer to Note 13 to the CombiMatrix group financial statements included
elsewhere herein.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The CombiMatrix group's exposure to market risk is limited to interest
income sensitivity, which is affected by changes in the general level of United
States interest rates, particularly because the majority of the group's
investments are in short-term debt securities issued by the U.S. treasury and by
U.S corporations. The primary objective of the group's investment activities is
to preserve principal while at the same time maximizing the income the
CombiMatrix group receives without significantly increasing risk. To minimize
risk, the CombiMatrix group maintains its 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, government
securities and money market funds. Due to the nature of its short-term
investments, the CombiMatrix group believes that it is not subject to any
material market risk exposure.

     At June 30, 2002 and December 31, 2001, the CombiMatrix group had certain
assets and liabilities denominated in Japanese Yen as a result of forming
CombiMatrix KK during 2001. However, due to the relative insignificance of those
amounts, the CombiMatrix group does not believe that it has significant exposure
to foreign


                                     -176-



currency exchange rate risks. The CombiMatrix group currently does not use
derivative financial instruments to mitigate this exposure. The CombiMatrix
group continues to review this and may begin hedging certain foreign exchange
risks through the use of currency forwards or options in 2002.


                                     -177-



         ACACIA TECHNOLOGIES GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
                   (A DIVISION OF ACACIA RESEARCH CORPORATION)

     You should read this discussion in conjunction with the Acacia Technologies
group, a division of Acacia Research, financial statements and related notes and
the Acacia Research consolidated financial statements and related notes, both
included elsewhere herein. Historical results and percentage relationships are
not necessarily indicative of operating results for any future periods.

GENERAL

     The Acacia Technologies group, a division of Acacia Research, is comprised
primarily of Acacia Research's wholly-owned media technology subsidiaries
Soundview Technologies Incorporated ("Soundview Technologies") and Acacia Media
Technologies Corporation, and also includes all other related corporate assets
and liabilities and related transactions of Acacia Research that are attributed
to its media technology businesses.

     The AR-Acacia Technologies stock is intended to reflect the separate
performance of the respective division of Acacia Research, rather than the
performance of Acacia Research as a whole. The Acacia Technologies group is not
a separate legal entity. Holders of the AR-Acacia Technologies stock will be
stockholders of Acacia Research. As a result, they will continue to be subject
to all of the risks of an investment in Acacia Research and all of Acacia
Research's businesses, assets and liabilities. The assets Acacia Research
attributes to the Acacia Technologies group could be subject to the liabilities
of the CombiMatrix group.

     The Acacia Technologies group businesses own intellectual property related
principally to the telecommunications industry, including a television blanking
system, also known as the "V-chip," which it licenses to television
manufacturers and a worldwide portfolio of pioneering patents relating to audio
and video transmission and receiving systems, commonly known as audio-on-demand
and video-on-demand, used for distributing content via various methods including
computer networks, cable television systems and direct broadcasting satellite
systems. The Acacia Technologies group is responsible for the development,
licensing and protection of its intellectual property and proprietary
technologies. The Acacia Technologies group continues to pursue both licensing
and strategic business alliances with leading companies in the rapidly growing
media technology industry.

     During the six months ended June 30, 2002, the Acacia Technologies group's
operating activities were highlighted by the continuation of the building of its
executive management team including the hiring of key media technology and
intellectual property industry experts that will be responsible for the
development, licensing and protection of the Acacia Technologies group's
intellectual property and proprietary technologies, as well as the pursuit of
both licensing and strategic business alliances with leading companies in the
growing media technologies industry.

     In 2001, Acacia Technologies group's financial condition and cash flows
were highlighted by the receipt of $25.6 million in payments from the licensing
of the Acacia Technologies group's television V-chip technology, the completion
of a private equity financing raising gross proceeds of $19.0 million and the
acquisition of the minority interests in Soundview Technologies in June 2001 and
Acacia Media Technologies Corporation in November 2001. In 2000, Acacia
Technologies group's financial condition and cash flows were highlighted
primarily by the completion of a private equity financing raising gross proceeds
of $23.7 million, the receipt of $14.8 million from the redemption of warrants
issued in connection with a December 1999 private equity financing and the
general expansion of operations, including an increase in business development
expenses as the Acacia Technologies group explored new business opportunities.
In 1999, Acacia Technologies group's financial condition and cash flows were
highlighted primarily by the completion of a private equity financing raising
gross proceeds of $21.0 million and the investment in Acacia Research's
subsidiary, Soundbreak.com. In the following discussion and analysis, the
period-to-period comparisons must be viewed in light of the impact that the
acquisition and disposition of securities of various business interests has had
on the Acacia Technologies group's financial condition and results of
operations.

     During 2001, Acacia Technologies group began to receive significant
payments from the licensing of the Acacia Technologies group's television V-chip
technology to television manufacturers. However, to date, Acacia Research
businesses included in the Acacia Technologies group have relied primarily upon
selling equity securities, including sales to and loans from Acacia Research, to
generate the funds needed to finance the implementation of


                                     -178-



their plans of operation. The Acacia Technologies group may be required to
obtain additional financing through bank borrowings, debt or equity financings
or otherwise, which would require Acacia Research to make additional investments
or face a dilution of its equity interests.

ACQUISITION AND OPERATING ACTIVITIES

     During the six months ended June 30, 2002, the Acacia Technologies group's
operating activities primarily consisted of the hiring of key executive
personnel and the continuation of its efforts to market and commercialize its
intellectual property and related patents.

     During 2001, the Acacia Technologies group continued to significantly
increase financing, acquisition and operating activities while receiving
significant payments from its media technologies licensing arrangements. The
Acacia Technologies group will continue to pursue both licensing and strategic
business alliances with leading companies in the rapidly growing media
technologies industry. Financing activities are listed in the Liquidity and
Capital Resources section that follows. Highlights of the acquisition and
operating activities for the year ended December 31, 2001 include:

     In the first quarter of 2001, Soundview Technologies executed separate
settlement and/or license agreements with Samsung Electronics, Hitachi America,
Ltd., LG Electronics, Inc., Funai Electric Company, Ltd., Daewoo Electronics
Corporation of America and Sanyo Manufacturing Corporation. In addition,
Soundview Technologies settled its lawsuits with Pioneer Electronics (USA)
Incorporated. Certain of these license agreements constitute settlements of
patent infringement litigation brought by Soundview Technologies. The settlement
and license agreements provide for licensing payments to Soundview Technologies,
and grant non-exclusive licenses of Soundview Technologies' U.S. Patent No.
4,554,584 to the respective television manufacturers. Certain of these
settlement and license agreements provide for future royalty payments to
Soundview Technologies. The Acacia Technologies group received, and recognized
as revenue, $2.4 million in one-time license fee payments in exchange for the
grant of V-chip patent licenses during the first quarter of 2001. In addition,
the Acacia Technologies group received a payment of $1.0 million pursuant to a
settlement and license agreement executed in December 2000, which is included in
deferred revenues at December 31, 2001.

     In February 2001, the board of directors of Soundbreak.com, a
majority-owned subsidiary of Acacia Research, resolved to cease operations as of
February 15, 2001 and liquidate its remaining assets and liabilities of the
company. Accordingly, the Acacia Technologies group reported the results of
operations and the estimated loss on disposal of Soundbreak.com as results of
discontinued operations in the statements of operations as of and for the year
ended December 31, 2000.

     In June 2001, Acacia Research's ownership interest in Soundview
Technologies increased from 67% to 100%, following Soundview Technologies'
completion of a stock repurchase transaction with its former minority
stockholders. Soundview Technologies repurchased the stock of its former
minority stockholders in exchange for a cash payment and the grant to such
stockholders of the right to receive 26% of future net revenues generated by
Soundview Technologies' current patent portfolio, which includes its V-chip
patent.

     During the second quarter of 2001, Soundview Technologies executed separate
settlement and license agreements with Thomson Multimedia, Inc. and JVC Americas
Corporation. Certain of these settlement and license agreements provide for
future royalty payments to Soundview Technologies. The Acacia Technologies group
received, and recognized as revenue, one-time license fee payments totaling
$10.0 million in exchange for the grant of V-chip patent licenses during the
second quarter of 2001.

     In the third quarter of 2001, Soundview Technologies executed separate
settlement and/or license agreements with Matsushita Electric Industrial Co.,
Ltd. and Orion Electric Co., Ltd. The Acacia Technologies group received, and
recognized as revenue, one-time license fee payments totaling $10.7 million in
exchange for the grant of V-chip patent licenses during the third quarter of
2001. In addition, the Acacia Technologies group received a payment of $0.5
million pursuant to a license agreement executed in December 2000, which is
included in deferred revenues at December 31, 2001.


                                     -179-



     In November 2001, Acacia Research increased its ownership interest in
Acacia Media Technologies Corporation, formerly Greenwich Information
Technologies LLC, from 33% to 100% through the purchase of the ownership
interest of the former limited liability company's other member. In December
2001, Acacia Research converted the Greenwich Information Technologies LLC from
a limited liability company to a corporation and changed the name to Acacia
Media Technologies Corporation. Acacia Media Technologies owns a worldwide
portfolio of pioneering patents relating to audio and video transmission and
receiving systems, commonly known as audio-on-demand and video-on-demand, used
for distributing content via various methods including computer networks, cable
television systems and direct broadcasting satellite systems.

     In the fourth quarter of 2001, the Acacia Technologies group received, and
recognized as revenue, one-time license fee payments totaling $1.0 million in
exchange for the grant of V-chip patent licenses.

EFFECT OF VARIOUS ACCOUNTING METHODS ON RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

     The following critical accounting policies affect the Acacia Technologies
group's more significant judgments and estimates used in the preparation of its
financial statements:

     o    basis of presentation and principles of combination;

     o    policies relating to AR-Acacia Technologies stock and AR-CombiMatrix
          stock;

     o    revenue recognition;

     o    litigation, claims and assessments;

     o    accounting for income taxes; and

     o    valuation of long-lived and intangible assets and goodwill.

     BASIS OF PRESENTATION AND PRINCIPLES OF COMBINATION. The Acacia
Technologies group financial statements have been prepared in accordance with
generally accepted accounting principles and, taken together with the
CombiMatrix group financial statements, comprise all the accounts included in
the corresponding consolidated financial statements of Acacia Research. The
financial statements of each group reflect the financial condition, results of
operations and cash flows of the businesses included therein. The financial
statements of the Acacia Technologies group include the accounts or assets of
Acacia Research specifically attributed to the Acacia Technologies group and
give effect to the accounting policies that will be applicable upon
implementation of the recapitalization proposal. The Acacia Technologies group
financial statements have been prepared on a basis that management believes to
be reasonable and appropriate and reflect the financial position, results of
operations, and cash flows of businesses that comprise the Acacia Technologies
group and all other corporate assets, liabilities and related transactions of
Acacia Research attributed to the Acacia Technologies group, including allocated
portions of Acacia Research's general and administrative costs. Intergroup
transactions between the CombiMatrix group and the Acacia Technologies group
have not been eliminated in the separate group's financial statements.

     The preparation of the divisional financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates. If the
Recapitalization Proposal is implemented, significant management estimates and
judgments will be required related to the implementation of the management and
allocation policies applicable to the preparation of the divisional financial
statements of the Acacia Technologies group. Individual group results may be
significantly impacted based on management's estimates and judgments.

     POLICIES RELATING TO AR-ACACIA TECHNOLOGIES STOCK AND AR-COMBIMATRIX STOCK.
The management and allocation policies applicable to the preparation of the
divisional financial statements of the CombiMatrix group and the Acacia
Technologies group (collectively, "the groups") may be modified or rescinded, or
additional policies may be adopted, at the sole discretion of the Board at any
time without approval of the stockholders. The Acacia Technologies group's
divisional financial statements reflect the application of the management and
allocation policies adopted by the Board to various corporate activities, as
described below. The Acacia Technologies group's


                                     -180-



divisional financial statements should be read in conjunction with Acacia
Research's consolidated financial statements and related notes.

TREASURY AND CASH MANAGEMENT POLICIES

     Acacia Research will manage most treasury and cash management activities on
a de-centralized basis, with each separate group separately managing its own
treasury activities. Pursuant to treasury and cash management policies adopted
by the Board, after the date on which the AR-CombiMatrix stock and the AR-Acacia
Technologies stock is first issued, the following will apply:

     o    Acacia Research will attribute each future issuance of AR-Acacia
          Technologies stock (and the proceeds thereof) to the Acacia
          Technologies group and will attribute each future issuance of
          AR-CombiMatrix stock (and the proceeds thereof) to the CombiMatrix
          group;

     o    Acacia Research will attribute each future incurrence or issuance of
          external debt or preferred stock (and the proceeds thereof) between
          the two groups or entirely to one group as determined by the Board,
          based on the extent to which Acacia Research incurs or issues the debt
          or preferred stock for the benefit of the CombiMatrix group and the
          Acacia Technologies group;

     o    Dividends on AR-Acacia Technologies stock will be charged against the
          Acacia Technologies group, and dividends on AR-CombiMatrix stock will
          be charged against the CombiMatrix group;

     o    Repurchases of AR-Acacia Technologies stock will be charged against
          the Acacia Technologies group and Repurchases of AR-CombiMatrix stock
          will be charged against the CombiMatrix group;

     o    As of immediately prior to the first issuance of AR-CombiMatrix stock
          and AR-Acacia Technologies stock, the CombiMatrix group and the Acacia
          Technologies group shall be deemed to be allocated the cash and cash
          equivalents held by the respective groups as of that date;

     o    Acacia Research will account for any cash transfers from Acacia
          Research to or for the account of a group, from a group to or for the
          account of Acacia Research, or from one group to or for the account of
          the other group (other than transfers in return for assets or services
          rendered) as short-term loans unless (A) the Board determines that a
          given transfer (or type of transfer) should be accounted for as a
          long-term loan, (B) the Board determines that a given transfer (or
          type of transfer) should be accounted for as a capital contribution or
          (iii) the Board determines that a given transfer (or type of transfer)
          should be accounted for as a return of capital. There are no specific
          criteria to determine when Acacia Research will account for a cash
          transfer as a long-term loan, a capital contribution or a return of
          capital rather than an inter-group revolving credit advance; provided,
          however, that cash advances from Acacia Research to the Acacia
          Technologies group or to the CombiMatrix group up to $25 million on a
          cumulative basis shall be accounted for as short-term or long-term
          loans at interest rates at which Acacia Research could borrow such
          funds and shall not be accounted for as a capital contribution. The
          Board will make such a determination in the exercise of its business
          judgment at the time of such transfer based upon all relevant
          circumstances. Factors the Board may consider include, without
          limitation, the current and projected financing needs and objectives
          of the recipient group; the availability, cost and time associated
          with alternative financing sources; and prevailing interest rates and
          general economic conditions; and

     o    Any cash transfers accounted for as short-term loans will bear
          interest at the rate at which Acacia Research could borrow such funds.
          In addition, any cash transfers accounted for as a long-term loan will
          have interest rates, amortization, maturity, redemption and other
          terms that reflect the then-prevailing terms on which Acacia Research
          could borrow such funds.


                                     -181-



CORPORATE GENERAL AND ADMINISTRATIVE SERVICES AND FACILITIES

     Acacia Research will allocate the cost of corporate general and
administrative services and facilities between the Acacia Technologies group and
the CombiMatrix group, generally based upon utilization. Where determinations
based on utilization alone are impracticable, Acacia Research will use other
methods and criteria that management believes to be equitable and to provide a
reasonable estimate of the cost attributable to each group. Except as otherwise
determined by management, the allocated costs of providing such services and
facilities will include, without limitation, all costs and expenses of personnel
employed in connection with such services and facilities, including, without
limitation, all direct costs of such personnel, such as payroll, payroll taxes
and fringe benefit costs (calculated at the appropriate annual composite rate
therefor) and all overhead costs and expenses directly related to such personnel
and the services or facilities provided by them. In addition, allocated costs
will include all materials used in connection with such services or facilities,
billed at their net cost to the provider of the services or facilities plus all
overhead costs and expenses related to such materials.

     Except as may otherwise be specifically provided pursuant to the terms of
any agreements among Acacia Research and the groups or any resolutions of the
Board, the corporate general and administrative services and facilities to be
allocated between the Acacia Technologies group and the CombiMatrix group, will
include, without limitation, legal services, accounting services (tax and
financial), insurance and deductibles payable in connection therewith, employee
benefit plans and administration thereof, investor relations, stockholder
services, and services relating to the board of directors.

ALLOCATION OF FEDERAL AND STATE INCOME TAXES

     Acacia Research will determine its federal income taxes and the federal
income taxes of its subsidiaries that own assets allocated between the Acacia
Research on a consolidated basis. Acacia Research will allocate consolidated
federal income tax provisions and related tax payments or refunds between the
Acacia Research based principally on the taxable income and tax credits directly
attributable to each group. Such allocations will reflect each group's
contribution, whether positive or negative, to Acacia Research's consolidated
federal taxable income and consolidated federal tax liability and tax credit
position. Acacia Research will credit tax benefits that cannot be used by the
group generating those benefits but can be used on a consolidated basis to the
group that generated such benefits. Inter-group transactions will be treated as
taxed on a separate return basis.

     Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis between
the groups based on their respective contribution to such consolidated or
combined state taxable incomes. State and local income tax provisions and
related tax payments or refunds which are determined on a separate corporation
basis will be allocated between the groups in a manner designed to reflect the
respective contributions of the groups to Acacia Research's separate or local
taxable income.

     REVENUE RECOGNITION. To date, the Acacia Technologies group's revenues have
consisted primarily of fees from the licensing of its television V-chip
technology to television manufacturers.

     As described below, significant management judgments must be made and used
in connection with the revenue recognized in any accounting period. Material
differences may result in the amount and timing of revenue recognized for any
period if management made different judgments.

     Television V-chip License Fees: The Acacia Technologies group's television
V-chip technology settlement and/or license agreements provide for the payment
of contractually determined license fees to us in consideration for the grant to
certain television manufacturers of a non-exclusive, retroactive and future
licenses to manufacture and/or sell products covered by Soundview Technologies'
U.S. Patent No. 4,554,584, through July 2003. While payments recognized to date
have been one-time payments for the grant of V-chip patent licenses, certain of
the agreements also provide for future royalties or additional required payments
based on future television sales or the outcome of future litigation and
settlement activities. The agreements executed with the various television
manufacturers include certain release provisions with respect to Soundview
Technologies' ongoing patent infringement and anti-trust enforcement efforts.
Amounts received under the settlement and license agreements are recorded as
license fee income in the Acacia Technologies group's statement of operations.


                                     -182-



     License fee income is recognized as revenue when (i) persuasive evidence of
an arrangement exists, (ii) all obligations have been performed pursuant to the
terms of the license agreement, (iii) amounts are fixed or determinable and (iv)
collectibility of amounts is reasonably assured. Pursuant to the terms of the
agreements, the Acacia Technologies group has no further obligation with respect
to the sale of the non-exclusive retroactive and future license, including no
express or implied obligation on the Acacia Technologies group's part to
maintain or upgrade the technology or license, or provide future support or
services. Generally, the agreements provide for the grant of the license upon
receipt by Soundview Technologies of payment of the contractual license fee. As
such, the earnings process is generally complete upon the receipt of payment
from the television manufacturer, and revenue is recognized when all of the
criteria above are met.

     License fee payments received by the Acacia Technologies group that do not
meet the revenue recognition criteria above are recorded as deferred revenues,
along with any related direct costs, until the criteria are met. In the event
that license fee amounts due from television manufacturers have been accrued,
the Acacia Technologies group assesses collection based on a number of factors,
including past transaction history and credit-worthiness. If it is determined
that collection of an accrued license fee is not reasonably assured, the fee is
deferred and is recognized as revenue upon receipt of cash.

     LITIGATION, CLAIMS AND ASSESSMENTS. The preparation of financial statements
in conformity with generally accepted accounting principles 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 financial statements and the reported amounts
of revenues and expenses during the reporting period. Specifically, management
must make estimates of whether (i) it is probable that an asset has been
impaired or a liability has been incurred at the date of the financial
statements and (ii) whether the amount of loss can be reasonably estimated. In
the event that, in management's estimation it is probable that an asset has been
impaired or a liability has been incurred at the date of the financial
statements and amounts of loss can be reasonably estimated, the estimated
contingent loss is accrued by a charge to income.

     Because of the uncertainties related to both probabilities of outcome and
amounts and ranges of potential loss associated with outstanding claims and
pending litigation at December 31, 2001, management is unable to make a
reasonable estimate of the likelihood of outcome or the liability that could
result from an unfavorable outcome. As such, the Acacia Technologies group has
not accrued for any loss contingencies as of December 31, 2001. As additional
information becomes available, the potential liability related to pending
litigation, claims or assessments will be assessed and the previous estimates
may be revised. Such revisions in the estimates of the potential liability could
materially impact the Acacia Technologies group's results of operation and
financial position.

     ACCOUNTING FOR INCOME TAXES. As part of the process of preparing the Acacia
Technologies group's financial statements, management is required to estimate
Acacia Research's income taxes in each of the jurisdictions in which Acacia
Research operates. This process involves the estimating of actual current tax
exposure together with assessing temporary differences resulting from differing
treatment of items, such as deferred revenue, amortization of intangibles and
asset depreciation for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within the Acacia
Technologies group's balance sheet. Acacia Research must then assess the
likelihood that deferred tax assets will be recovered from future taxable income
and to the extent that management believes that recovery is not likely, a
valuation allowance must be established. To the extent a valuation allowance is
established or increased in a period, an expense must be reflected within the
tax provision in the group statement of operations.

     Significant management judgment is required in determining the Acacia
Technologies group's provision for income taxes, the deferred tax assets and
liabilities and the valuation allowance. A full valuation allowance has been
recorded against net deferred tax assets of $29.5 million as of December 31,
2001, due to uncertainties related to the ability to utilize the deferred tax
assets, primarily consisting of certain net operating losses carried forward,
before they expire. In assessing the need for a valuation allowance,
consideration has been given estimates of future taxable income, the period over
which deferred tax assets may be recoverable, history of losses and the
assessment of the probability of continuing losses in the foreseeable future. In
management's estimate, any positive indicators, including forecasts of potential
future profitability of businesses, are outweighed by the uncertainties
surrounding the estimates and judgments of potential future taxable income. In
the event that actual results differ from these estimates or Acacia Research
adjusts these estimates should it believe it would be able to realize these
deferred tax


                                     -183-



assets in the future, an adjustment to the valuation allowance would increase
income in the period such determination was made. Any changes in the valuation
allowance could materially impact the financial position and results of
operations.

     If the recapitalization proposal is approved, Acacia Research will
determine its federal income taxes and the federal income taxes of its
subsidiaries that own assets allocated between the Acacia Research on a
consolidated basis. Consolidated federal income tax provisions and related tax
payments or refunds will be allocated between the Acacia Research based
principally on the taxable income and tax credits directly attributable to each
group. Such allocations will reflect each group's contribution, whether positive
or negative, to Acacia Research's consolidated federal taxable income and
consolidated federal tax liability and tax credit position. Acacia Research will
credit tax benefits that cannot be used by the group generating those benefits
but can be used on a consolidated basis to the group that generated such
benefits.

     VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL. The Acacia
Technologies group assesses the impairment of identifiable intangibles,
long-lived assets and related goodwill whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
the Acacia Technologies group considers important, which could trigger an
impairment review include the following:

     o    significant underperformance relative to expected historical or
          projected future operating results;

     o    significant changes in the manner of use of the acquired assets or the
          strategy for overall business;

     o    significant negative industry or economic trends; and

     o    significant decline in the Acacia Technologies group's stock price for
          a sustained period.

     When the carrying value of intangibles, long-lived assets and related
goodwill is determined to be unrecoverable based upon the existence of one or
more of the above indicators of impairment, the impairment is measured based on
a projected discounted cash flow method using a discount rate determined by
management to be commensurate with the risk inherent in the Acacia Technologies
group's current business model. Net intangible assets, long-lived assets and
goodwill amounted to $7.7 million as of December 31, 2001.

     In 2002, SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"), became effective and as a result, goodwill totaling approximately $1.8
million will cease to be amortized effective January 1, 2002. The Acacia
Technologies group recorded approximately $0.2 million of amortization of
goodwill during 2001. In lieu of amortization, an initial impairment review of
goodwill will be performed in 2002 and an annual impairment review thereafter.
In connection with the adoption of SFAS No. 142, the Acacia Technologies group
performed a transitional goodwill impairment assessment and determined that
there was no impairment of goodwill. However there can be no assurance that a
material impairment charge will not be recorded in future periods.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which addresses
financial accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of. SFAS No. 144, which was adopted
effective January 1, 2002 requires long-lived assets to be tested for
recoverability whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable. In conjunction with such tests, it may
be necessary to review depreciation estimates and methods as required by APB
Opinion No. 20, "Accounting Changes," or the amortization period as required by
SFAS No. 142. The adoption of SFAS No. 144 did not have a material impact on the
Acacia Technologies group financial position or results of operations.


                                     -184-



ACACIA TECHNOLOGIES GROUP



                                                                                             FOR THE THREE          FOR THE SIX
                                                                                              MONTHS ENDED          MONTHS ENDED
                                                        FOR THE YEARS ENDED DECEMBER 31,        JUNE 30,              JUNE 30,
                                                        --------------------------------   ------------------    ------------------
RESULTS OF OPERATIONS (IN THOUSANDS)                      2001        2000       1999       2002       2001       2002       2001
                                                        --------    --------    -------    -------    -------    -------    -------
                                                                                              (UNAUDITED)           (UNAUDITED)
                                                                                                       
Net revenues ........................................   $ 24,180    $     40    $   122    $    --     10,000    $    --     12,440
Research and development expenses ...................         --         (52)        --         --         --         --         --
Marketing, general and administrative expenses ......     (5,258)     (8,983)    (3,198)    (2,061)    (1,073)    (3,356)    (3,387)
Legal expenses ......................................    (11,572)       (984)      (287)      (536)    (4,740)    (1,039)    (5,771)
Amortization of patents and goodwill ................     (1,492)     (1,611)    (1,592)      (465)      (337)      (930)      (672)
Loss on disposal of subsidiaries ....................         --      (1,016)        --         --         --         --         --
Other (expense) income, net .........................      2,111      (2,897)      (818)      (905)       473     (1,547)       884
Benefit (provision) for income taxes ................       (935)         (6)       (18)        36       (267)        65       (316)
Minority interests ..................................     (1,277)        866        (27)       125       (959)       162     (1,286)
Loss from discontinued operations of Soundbreak.
   com ..............................................         --      (9,554)      (776)        --         --         --         --
                                                        --------    --------    -------    -------    -------    -------    -------
Division net income (loss) ..........................   $  5,757    $(24,197)   $(6,594)   $(3,806)   $ 3,097    $(6,645)   $ 1,892
                                                        ========    ========    =======    =======    =======    =======    =======


THREE AND SIX MONTHS ENDED JUNE 30, 2002 TO THE THREE AND SIX MONTHS ENDED JUNE
30, 2001

     LICENSE FEE INCOME. During the three months ended June 30, 2002, license
fee income was $0 as compared to $10.0 million in license fee income during the
three months ended June 30, 2001. During the six months ended June 30, 2002,
license fee income was $0 as compared to $12.4 million in license fee income
during the six months ended June 30, 2001. The license fee income for the three
and six months ended June 30, 2001 includes license fees received from
television manufacturers with whom Soundview Technologies executed separate
settlement and/or license agreements during the respective periods. Pursuant to
the terms of the respective settlement and/or license agreements with each of
the television manufacturers, Soundview Technologies received one-time license
fee payments in exchange for the grant of non-exclusive licenses for its
patented V-chip technology to each of the respective manufacturers. Soundview
Technologies did not record any license fee income during the first and second
quarters of 2002. The Acacia Media Technologies Group continues to pursue both
licensing and strategic business alliances with other television manufacturers
and leading companies in the media technologies industry.

     Acacia Media Technologies Group's patent on the V-chip technology expires
in July 2003. The Acacia Media Technologies Group may continue to collect
license fees on televisions sold in the United States during the patent term,
subsequent to the July 2003 patent expiration date. The Acacia Media
Technologies Group is beginning to market its digital media transmission
technology and is looking to acquire other technologies. The eventual licensing
and sale of these technologies is intended to replace the revenue generated by
licensing the V-chip technology. If we do not succeed in acquiring such
technologies or are unable to commercially license our existing and future
technologies, our financial condition may be adversely impacted.

     MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses were $2.1 million during the three months ended June 30,
2002, as compared to $1.1 million in the same period in 2001. Marketing, general
and administrative expenses were $3.4 million during the three and six months
ended June 30, 2002 and 2001. The increase during the three months ended June
30, 2002 as compared to the same period in 2001 is primarily due to increased
costs incurred related to Acacia Media Technologies Corporation's ongoing patent
marketing and commercialization efforts, including increased personnel costs
relating to the hiring of several key executives and costs related to outside
intellectual property consulting services.

     Included in marketing, general and administrative expenses are allocated
corporate charges of $1.3 million and $0.8 million for the three months ended
June 30, 2002 and 2001, respectively. Included in marketing, general and
administrative expenses are allocated corporate charges of $2.4 million and $2.6
million for the six months ended June 30, 2002 and 2001, respectively.


                                     -185-



     LEGAL FEES. Legal fees were $0.5 million during the three months ended June
30, 2002 as compared to $4.7 million during the same period in 2001. Legal fees
were $1.0 million during the six months ended June 30, 2002 as compared to $5.8
million during the same period in 2001. The decrease in legal fees expense is
primarily due to a decrease in legal expenses related to Soundview Technologies'
patent licensing and related infringement settlements. Legal fees related to the
license fee agreements executed with television manufacturers are generally
incurred on a contingency basis, based on license fee payments received. The
decrease in legal fees was partially offset by fees incurred in connection with
on going legal work associated with the Acacia Technologies group's V-Chip and
digital media patent portfolio.

     AMORTIZATION OF PATENTS AND GOODWILL. Amortization of patents and goodwill
during the three months ended June 30, 2002 was $0.5 million as compared to $0.3
million in the same period in 2001. Amortization of patents and goodwill during
the six months ended June 30, 2002 was $0.9 million as compared to $0.7 million
in the same period in 2001. Amortization expense relating to patents and
goodwill for the three and six months ended June 30, 2002 excludes $45,000 and
$89,000 of amortization expense pursuant to SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"), which was adopted by the Acacia
Technologies group effective January 1, 2002 and requires goodwill to be tested
for impairment under certain circumstances, and written off when determined to
be impaired, rather than being amortized as previous standards required. The
reduction in goodwill amortization in the three and six months ended June 30,
2002 was partially offset by an increase in patent amortization related to the
increase in Acacia Research Corporation's ownership interest in Acacia Media
Technologies Corporation (formerly, "Greenwich Information Technologies," a
limited liability company) from 33% to 100% in November 2001. As a result of the
acquisition of Acacia Media Technologies Corporation, the Acacia Technologies
group will be recording additional patent amortization of $0.2 million on a
quarterly basis over the related patents economic useful lives (approximately 10
years) related to the intangibles identified in connection with the application
of the purchase method of accounting.

     OTHER INCOME (EXPENSE), NET. During the three months ended June 30, 2002,
other income (expense), net (primarily comprised of interest income, realized
and unrealized gains and losses on trading securities, equity in losses of
affiliate and other) was $0.9 million in net other expenses as compared to $0.5
million in net other income in 2001. During the six months ended June 30, 2002,
other income (expense), net (primarily comprised of interest income, realized
and unrealized gains and losses on trading securities, equity in losses of
affiliate and other) was $1.5 million in net other expense as compared to $0.9
million in net other income in 2001.

     INTEREST INCOME. During the three months ended June 30, 2002, interest
income was $0.1 million as compared to $0.5 million in the same period in 2001.
During the six months ended June 30, 2002, interest income was $0.3 million as
compared to $0.9 million in the same period in 2001. The decrease in interest
income during 2002 was primarily due to the impact of a decrease in interest
rates on the Acacia Technologies group's short-term investments related to sharp
interest rate cuts by the Federal Open Market Committee and other external
economic factors negatively impacting rates of return on short-term investments
occurring during the third and fourth quarters of 2001.

     REALIZED AND UNREALIZED LOSSES ON SHORT-TERM INVESTMENTS. During the three
months ended June 30, 2002, net realized losses on short-term investments was
$0.9 million as compared to no realized losses on short-term investments in the
same period in 2001. During the six months ended June 30, 2002, net realized
losses on short-term investments was $1.5 million as compared to no realized
losses on short-term investments in the same period in 2001. During the three
months ended June 30, 2002, net unrealized losses were $0.2 million as compared
to no unrealized losses in the same period in 2001. During the six months ended
June 30, 2002, net unrealized losses were $0.5 million as compared to no
unrealized losses in the same period in 2001. The increase in realized and
unrealized losses on short-term investments during 2002 was due to realized and
unrealized losses recorded on certain trading securities of the Acacia
Technologies group during the three and six months ended June 30, 2002. The
Acacia Technologies group did not hold any trading securities during the three
and six months ended June 30, 2001.

     The Acacia Technologies group conducted a portion of its investing activity
through a limited partnership, of which a wholly-owned subsidiary of Acacia
Research Corporation is the general partner. As a result of the significant
control that Acacia Research Corporation exercises over the limited partnership,
the assets and liabilities and results of operations have been consolidated by
Acacia Research Corporation at June 30, 2002 and December 31, 2001. The assets,
liabilities and results of operations of the limited partnership, which includes


                                     -186-



certain health sciences securities, have been attributed to the Acacia
Technologies group. The limited partnership ceased operations as of the end of
the second quarter of 2002.

     EQUITY IN LOSSES OF AFFILIATE. During the three months ended June 30, 2002,
equity in losses of affiliate was $0 as compared to $55,000 in the same period
in 2001. During the six months ended June 30, 2002, equity in losses of
affiliate was $0 as compared to $110,000 in the same period in 2001. Equity in
losses of affiliate during the three and six months ended June 30, 2001 was
comprised of a loss of $55,000 and $110,000, respectively, for Acacia Research
Corporation's non-controlling equity investment in Acacia Media Technologies. As
of December 31, 2001, Acacia Research Corporation no longer accounts for any of
its investments under the equity method as it directly or indirectly owns more
that 50% of the outstanding voting securities of all of its subsidiaries and as
a result, consolidates these investments.

     MINORITY INTERESTS. Minority interests in the (income) losses of
consolidated subsidiaries were ($125,000) during the three months ended June 30,
2002 as compared to $1.0 million during the same period in 2001. Minority
interests in the (income) losses of consolidated subsidiaries were ($162,000)
during the six months ended June 30, 2002 as compared to $1.3 million during the
same period in 2001. Minority interests in the losses of consolidated
subsidiaries for the three and six months ended June 30, 2002 were primarily
comprised of minority interests in the net losses of the Acacia Technologies
group's investment limited partnership. Minority interests in the net income of
consolidated subsidiaries for the three and six months ended June 30, 2001 were
comprised primarily of $1.0 million and $1.3 million, respectively, of minority
interests in the net income of Soundview Technologies recorded prior to the
increase in Acacia Research's ownership interest in Soundview Technologies to
100% in June 2001.

2001 COMPARED TO 2000

     LICENSE FEE INCOME. In 2001, license fee income was $24.2 million as
compared to no license fee income during 2000. The increase for 2001 resulted
primarily from the settlement of patent infringement litigation brought by
Soundview Technologies and includes one-time license fees in exchange for the
grant of V-chip patent licenses, received from eleven of the twelve television
manufacturers with whom Soundview Technologies executed separate settlement
and/or license agreements during 2001 and 2000. Pursuant to the terms of the
respective settlement and license agreements with each of the television
manufacturers, Soundview Technologies granted to such manufacturers,
non-exclusive licenses for its U.S. Patent No. 4,554,584.

     The Acacia Technologies group, and Acacia Research as a whole, has
generated substantially all of its revenues from licensing the patented V-chip
technology to television manufacturers. Acacia Technologies group's patent on
the V-chip technology will expire in July 2003, although the Acacia Technologies
group may still collect revenues from the sale of televisions in the U.S. before
that date. The Acacia Technologies group is beginning to market its digital
media transmission technology and is developing other technologies and products.
The eventual licensing and sale of these technologies is intended to replace the
revenue currently being generated by licensing its V-chip technology. If the
Acacia Technologies group does not succeed in developing such technologies or is
unable to commercially license its existing and future technologies, its
financial condition will be adversely impacted.

     MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. The Acacia Technologies
group incurred marketing, general and administrative expenses of $5.3 million in
2001 as compared to $9.0 million in 2000. These costs consist primarily of
salaries and related expenses for executive, financial and other administrative
personnel, travel and meals, recruitment and relocation, professional services,
investor relations, insurance, facilities costs and other corporate expenses.
Management expects marketing, general and administrative expenses to increase in
the future to support the execution of the Acacia Technologies group's business
strategies.

     Marketing, general and administrative expenses included $0.9 million and
$0.7 million of non-cash stock compensation charges for 2001 and 2000,
respectively. Included in the marketing, general and administrative expenses of
the Acacia Technologies group are allocated corporate charges of $4.6 million
and $7.7 million in 2001 and 2000, respectively.

     LEGAL EXPENSES. In 2001, legal expense was $11.6 million as compared to
$1.0 million in 2000. The increase in 2001 was due to approximately $11.0
million of legal costs incurred in connection with the execution of Soundview
Technologies' V-chip license and settlement agreements with twelve television
manufacturers during


                                     -187-



2001. Legal fees incurred in connection with the Acacia Technologies group's
V-Chip licensing arrangements are generally incurred on a contingency basis and
include legal costs incurred in connection with the negotiation of license
agreements, drafting of legal documents, discovery and certain other legal
expenses.

     AMORTIZATION OF PATENTS AND GOODWILL. In 2001, amortization expense
relating to patents and goodwill was $1.5 million as compared to $1.6 million in
2000. As a result of the purchase of additional equity securities in various
subsidiaries, the Acacia Technologies group is incurring amortization expense
for periods ranging from three to five years relating to the intangible assets
acquired.

     As a result of the increase in Acacia Research's ownership interest in
Acacia Media Technologies from 33% to 100% through the purchase of the ownership
interest of Acacia Media Technologies' other member in November 2001, the Acacia
Technologies group will incur additional amortization expense of approximately
$0.5 million per year in future periods relating to the intangible assets
acquired. See "Recent Accounting Pronouncements" for summary of pronouncements
affecting amortization of goodwill in future periods and impairment analysis
required for long-lived assets.

     LOSS ON DISPOSAL OF CONSOLIDATED SUBSIDIARIES. In 2001, loss on disposal of
consolidated subsidiaries was $0 as compared to $1.0 million in 2000. In the
fourth quarter of 2000, the Acacia Technologies group recorded $1.0 million in
write-offs of early stage investments.

     OTHER INCOME (EXPENSE), NET. In 2001, other income, net was $2.1 million
(primarily comprised of interest income, realized and unrealized gains and
losses on trading securities, equity in losses of affiliates and other), as
compared to $2.9 million of net other expense in 2000, as a result of equity
investment write-offs and losses attributable to equity investees.

          INTEREST INCOME. In 2001, interest income was $1.6 million as compared
to $1.4 million in 2000. The increase during 2001 was due to higher cash
balances during 2001 as compared to 2000, resulting from various private equity
financings and the receipt of significant license fee payments by Soundview
Technologies during the year. The increase was partially offset by the impact of
a decrease in interest rates on short-term investments related to sharp interest
rate cuts by the Federal Open Market Committee and other external economic
factors negatively impacting rates of return on short-term investments occurring
during the third and fourth quarters of 2001.

          REALIZED GAINS ON SHORT-TERM INVESTMENTS. In 2001, net realized gains
on short-term investments were $0.4 million as compared to no realized gains on
short-term investments in 2000. The increase during 2001 was due to realized
gains recorded on short-term investments classified as trading securities during
2001. In 2000, the Acacia Technologies group did not classify any investments as
trading securities.

          UNREALIZED GAINS ON SHORT-TERM INVESTMENTS. In 2001, net unrealized
gains were $0.2 million as compared to no unrealized gains in 2000. The increase
is due to the investment in equity securities during 2001 classified as trading
securities under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). Pursuant to SFAS No. 115, unrealized gains
and losses on trading securities are recorded in the statement of operations. In
2000, all of the Acacia Technologies group's short-term investments were
classified as available-for-sale, and pursuant to SFAS No. 115, unrealized gains
and losses were recorded as a separate component of comprehensive income (loss)
in Acacia Technologies group equity until realized.

          EQUITY IN LOSSES OF AFFILIATES. In 2001, equity in losses of
affiliates was $0.2 million as compared to $1.7 million in 2000. Losses during
2001 were comprised of a loss of $0.2 million for Acacia Research's investment
in Acacia Media Technologies, as determined by the equity method of accounting
through November 1, 2001. Acacia Research increased its ownership percentage in
Acacia Media Technologies to 100% on November 1, 2001. Losses during 2000 were
comprised of a loss of $0.3 million, $0.2 million, $0.1 million and $1.1 million
for Acacia Research's investments in Signature-mail.com, Acacia Media
Technologies, Whitewing Labs and Mediaconnex, respectively, as determined by the
equity method of accounting. Acacia Research wrote-off its equity investments in
Signature-mail.com, Whitewing Labs and Mediaconnex, as of December 31, 2000.


                                     -188-



     PROVISION FOR INCOME TAXES. In 2001, the provision for income taxes was
$0.9 million as compared to a provision of $6,000 in 2000. The increase in 2001
was primarily due to a significant increase in taxable income generated by
Soundview Technologies related to its patent infringement settlement and patent
licensing activities as compared to the 2000 period.

     DISCONTINUED OPERATIONS. On February 13, 2001, the board of directors of
Soundbreak.com resolved to cease operations as of February 15, 2001 and
liquidate the remaining assets and liabilities of the company. Accordingly, the
Acacia Technologies group reported the results of operations and the estimated
loss on disposal of Soundbreak.com as results of discontinued operations in its
statement of operations. Discontinued operations of Soundbreak.com included $7.4
million of loss from discontinued operations in 2000 and $2.1 million of accrued
expenses in connection with its cessation of operations.

2000 COMPARED TO 1999

     OTHER INCOME. Other income was $0.04 million in 2000 as compared to $0.1
million in 1999. Other income in 2000 represents advertising income recorded by
or subsidiary. Other income in 1999 relates to capital management fees earned by
Acacia Research Capital Management division, which was the general partner in
two domestic private investment partnerships and an investment advisor to two
offshore private investment corporations. The Acacia Research Capital Management
division was closed in December 1999.

     MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. The Acacia Technologies
group incurred marketing, general and administrative expenses of $9.0 million in
2000, as compared to expenses of $3.2 million in 1999. The increase in 2000 was
primarily due to the general expansion of Acacia Technologies group operations,
including an increase in business development expenses as the Acacia
Technologies group explored new business opportunities, including an increase in
personnel and benefits costs, the extensive use of consultants to assist in
solving specialized issues or providing specific services, and an increase in
general office costs. Included in the marketing, general and administrative
expenses of the Acacia Technologies group are allocated corporate charges of
$7.7 million and $3.1 million in 2000 and 1999, respectively.

     LEGAL EXPENSES. In 2000, legal expense was $1.0 million as compared to $0.3
million in 1999. The increase was primarily due to a general increase in the
amount of third party legal services required by the Acacia Technologies group
in 2000 related to various business transactions and other general legal and
professional services costs.

     AMORTIZATION OF PATENTS AND GOODWILL. Amortization expense relating to
patents and goodwill was $1.6 million in 2000 and 1999, and relates to Acacia
Research's purchase of additional equity interests in Soundview Technologies in
July 1997 and January 1998, and in MerkWerks in January 1998 and June 1999.

     LOSS ON DISPOSAL OF SUBSIDIARIES. In 2000, loss on disposal of subsidiaries
was $1.0 million as compared to zero in 1999. In the fourth quarter of 2000, the
Acacia Technologies group recorded $1.0 million in write-offs of early stage
investments.

     OTHER EXPENSE, NET. In 2000, other expense, net (primarily comprised of
interest income, write-off of equity investments, equity in losses of affiliates
and other) of $2.9 million as compared to other expense, net of $0.8 million in
1999. The increase in 2000 was primarily due to $2.6 million of write-offs of
equity investments in Signature-mail.com, Whitewing Labs and Mediaconnex, and an
increase in equity in losses of affiliates, partially offset by an increase in
interest income in 2000.

          INTEREST INCOME. In 2000, interest income was $1.4 million as compared
to $0.3 million in 1999. The increase was due to higher cash balances in 2000 as
compared to 1999. The Acacia Technologies group received gross proceeds of $38.5
million from outside investors in connection with Acacia Research's warrant call
and private equity financings in 2000.

          EQUITY IN LOSSES OF AFFILIATES. In 2000, equity in losses of
affiliates was $1.7 million as compared to $1.1 million in 1999. In 2000, losses
were primarily attributable to a loss of $1.1 million for Acacia Research's


                                     -189-



investment in Mediaconnex. This amount was offset by a decrease in the
recognized losses for Whitewing Labs, Acacia Media Technologies and
Signature-mail.com totaling $0.6 million in 2000 as compared to $1.1 million in
1999.

     DISCONTINUED OPERATIONS. On February 13, 2001, the board of directors of
Soundbreak.com resolved to cease operations as of February 15, 2001 and
liquidate the remaining assets and liabilities of the company. Accordingly, the
Acacia Technologies group reported the results of operations and the estimated
loss on disposal of Soundbreak.com as results of discontinued operations in the
statements of operations in 2000. Discontinued operations of Soundbreak.com
included $7.4 million of loss from discontinued operations in 2000 and $2.1
million of accrued expenses to be incurred in connection with its cessation of
operations. Operating results in 1999 were restated to present Soundbreak.com as
discontinued operations resulting in a loss from discontinued operations of $0.8
million in 1999.

INFLATION

     Inflation has not had a significant impact on the Acacia Technologies group
in the current or previous periods.

LIQUIDITY AND CAPITAL RESOURCES

     At June 30, 2002 and December 31, 2001, the Acacia Technologies group had
cash and short-term investments of $43.6 million and $51.2 million,
respectively, including discontinued operations. Working capital was $40.5
million and $47.6 million at June 30, 2002 and December 31, 2001, respectively.
The Acacia Technologies group's short-term investments are held primarily in
money market accounts and marketable equity securities.

     Net cash used in continuing operating activities was $2.8 million during
the six months ended June 30, 2002. Net cash used in continuing operating
activities was primarily due to a net loss from continuing operations of $5.3
million, net sales of trading securities of $3.1 million and a decrease in
working capital of $0.7 million. The Acacia Technologies group did not conduct
any significant investing and financing activities during the six months ended
June 30, 2002.

     Net cash provided by continuing operating activities was $6.8 million in
2001. The Acacia Technologies group's net income (loss) from continuing
operating activities was $5.8 million, $(14.6) million and $(5.8) million in
2001, 2000 and 1999. In 2001, Acacia Technologies' positive cash flows provided
by continuing operating activities was primarily due to the receipt of $24.2
million in settlement and license fee payments from several television
manufactures related to Acacia Technologies' V-chip technology, offset by
related legal expenses of $11.5 million associated with the various license
and/or settlement agreements. As discussed above, the V-chip patent expires in
July 2003. In addition, cash flows from continuing operations was increased by
the receipt of $1.5 million in license fee payments that have been recorded as
deferred revenues at December 31, 2001, and reduced by the purchase of $4.1
million in equity securities classified as trading securities. Included in
division net income from continuing operating activities is $2.6 million in
non-cash expenses including depreciation, amortization and stock compensation
charges. In 2001, the Acacia Technologies group had an additional $2.2 million
of net cash used in operating activities of discontinued operations.

     The Acacia Technologies group's net cash used in investing activities of
continuing operations was $5.9 million in 2001. Significant investing activities
allocated to the Acacia Technologies group in 2001 include net purchases of
common stock from minority stockholders by Soundview Technologies totaling $2.6
million and the purchase by Acacia Research Corporation of the minority
interests in Acacia Media Technologies Corporation totaling $3.3 million. The
Acacia Technologies group had an additional $0.1 million used in investing
activities of discontinued operations.

     Net cash attributed to the Acacia Technologies group was $18.7 million,
$21.7 million and $39.8 million in 2001, 2000 and 1999. Cash provided by
financing activities in 2001 was primarily due to $17.8 million of net proceeds
allocated to the Acacia Technologies group related to Acacia Research
Corporation institutional private


                                     -190-



equity financing in January 2001 and allocated proceeds from the exercise of
Acacia Research Corporation stock options and warrants totaling $1.8 million.

     In 2001, the Acacia Technologies group recorded net income of $5.8 million.
Prior to 2001, the Acacia Technologies group has sustained losses since its
inception, contributing to an accumulated net loss of $37.2 million (excluding
impact of $21.7 million related to 10% stock dividend in 2001), which includes
income from continuing operations of $5.8 million in 2001 and losses from
continuing operations of $6.6 million for the six months ended June 30, 2002,
and $(14.6) million and $(5.8) million in 2000 and 1999, respectively. There can
be no assurance that the Acacia Technologies group will continue to be
profitable.

     The Acacia Technologies group has no significant commitments for capital
expenditures in 2001. The Acacia Technologies group's minimum rental commitments
on operating leases related to continuing operations total $0.4 million through
November 2003 (excluding any allocated rent expenses). The Acacia Technologies
group has no committed lines of credit or other significant committed funding.
However, the Acacia Technologies group anticipates that existing working capital
reserves will provide sufficient funds for its operating expenses for at least
the next twelve months in the absence of making any major new investments.

RECENT ACCOUNTING PRONOUNCEMENTS

     Refer to Note 12 to the Acacia Technologies group financial statements
included elsewhere herein.


                                     -191-



              ADOPTION OF 2002 COMBIMATRIX STOCK INCENTIVE PLAN AND
                  2002 ACACIA TECHNOLOGIES STOCK INCENTIVE PLAN

SUMMARY OF THE INCENTIVE PLANS

     INTRODUCTION

     The 2002 Acacia Technologies Stock Incentive Plan and the 2002 CombiMatrix
Stock Incentive Plan, referred to below as the incentive plans, are intended to
serve as successor plans to the Acacia Research 1996 Stock Option Plan. The 2002
CombiMatrix Plan is intended to serve as the successor plan to CombiMatrix
Corporation's existing stock option plans, the 1995 CombiMatrix Corporation
Stock Option Plan, the CombiMatrix Corporation 1998 Stock Option Plan and the
CombiMatrix Corporation 2000 Stock Awards Plan.

     Upon the consummation of the recapitalization, all outstanding options to
purchase Acacia Research common stock under the Acacia Research 1996 Plan will
be converted to replacement options to purchase AR-Acacia Technologies stock and
AR-CombiMatrix stock and transferred to the 2002 Acacia Technologies Plan and
the 2002 CombiMatrix Plan, respectively. Upon the consummation of the merger,
all outstanding options to purchase CombiMatrix Corporation common stock under
the existing CombiMatrix Corporation plans will be converted to replacement
options to purchase AR-CombiMatrix stock and transferred to the 2002 CombiMatrix
Plan.

     The replacement options will continue to be governed by the terms of the
original options unless our compensation committee decides to extend one or more
features of the 2002 Acacia Technologies Plan or the 2002 CombiMatrix Plan to
those options. Neither the Acacia Research 1996 Plan nor the existing
CombiMatrix Corporation plans will be terminated. However, no further option
grants will be made under those plans.

     The terms of each of the incentive plans are identical except that
AR-Acacia Technologies stock may be issued only under the 2002 Acacia
Technologies Plan and AR-CombiMatrix stock may be issued only under the 2002
CombiMatrix Plan.

     AR-ACACIA TECHNOLOGIES STOCK

     The number of shares of AR-Acacia Technologies stock that will be
authorized under the 2002 Acacia Technologies Plan will be equal to 5,700,000
minus the total number of shares of Acacia Research common stock issued upon the
exercise of options granted under the Acacia Research 1996 Plan as of the
effective date of the merger and recapitalization (whether such shares were
issued before, or will be issued after, the date of this proxy statement). As of
November 1, 2002, a total of 492,145 shares of Acacia Research common stock had
been issued upon the exercise of options granted under the Acacia Research 1996
Plan. Also as of that date, options to purchase 3,487,505 shares of Acacia
Research common stock were outstanding under the Acacia Research 1996 Plan.
Assuming no change in these numbers between November 1, 2002 and the effective
date of the merger, the number of shares authorized under the 2002 Acacia
Technologies Plan would be 5,207,855, the number of shares subject to
outstanding options issued would be 3,487,505, and the number of shares
remaining and available for issuance pursuant to new option grants would be
1,720,350.

     The share reserve under the 2002 Acacia Technologies Plan will
automatically increase on the first trading day in January each calendar year,
beginning with calendar year 2003, by an amount equal to three percent of the
total number of shares of AR-Acacia Technologies stock outstanding on the last
trading day of December in the prior calendar year, but in no event will any
such annual increase exceed 500,000 shares and in no event will the total number
of shares of AR-Acacia Technologies stock in the share reserve (as adjusted for
all such annual increases) exceed 20,000,000 shares. No participant in the 2002
Acacia Technologies Plan may be granted stock options, direct stock issuances or
share right awards for more than 500,000 shares of AR-Acacia Technologies stock
in total in any calendar year.


                                     -192-



     AR-COMBIMATRIX STOCK

     The number of shares of AR-CombiMatrix stock that will be authorized under
the 2002 CombiMatrix Plan will be equal to 9,000,000 minus the sum of (i) the
exchange ratio in the merger of Acacia Research common stock for AR-CombiMatrix
stock times the total number of shares of Acacia Research common stock issued
upon the exercise of options granted under the Acacia Research 1996 Plan prior
to the merger and recapitalization (whether such shares were issued before, or
will be issued after, the date of this proxy statement) plus (ii) the total
number of shares of CombiMatrix Corporation common stock issued upon the
exercise of options granted under all of CombiMatrix Corporation's stock option
plans prior to the effective time of the merger and recapitalization.

     As of November 1, 2002, the exchange ratio would have been 0.5582, a total
of 492,145 shares of Acacia Research common stock had been issued upon the
exercise of options granted under the Acacia Research 1996 Plan, and a total of
232,970 shares of CombiMatrix Corporation common stock had been issued upon the
exercise of options granted under all of CombiMatrix Corporation's stock option
plans. Also as of that date, options to purchase 3,487,505 shares of Acacia
Research common stock were outstanding under the Acacia Research 1996 Plan and
options to purchase 3,717,660 shares of CombiMatrix Corporation common stock
were outstanding under all of CombiMatrix Corporation's stock option plans.
Assuming no change in these numbers between November 1, 2002 and the effective
date of the merger, the number of shares authorized under the 2002 CombiMatrix
Plan would be 8,492,315, the number of shares subject to outstanding options
would be 5,664,385, and the number of shares remaining and available for
issuance pursuant to new option grants would be 2,827,930.

     The share reserve under the 2002 CombiMatrix Plan will automatically
increase on the first trading day in January each calendar year, beginning with
calendar year 2003, by an amount equal to three percent of the total number of
shares of AR-CombiMatrix stock outstanding on the last trading day of December
in the prior calendar year, but in no event will any such annual increase exceed
600,000 shares and in no event will the total number of shares of AR-CombiMatrix
stock in the share reserve (as adjusted for all such annual increases) exceed
20,000,000 shares. No participant in the 2002 CombiMatrix Plan may be granted
stock options, direct stock issuances or share right awards for more than
1,000,000 shares of AR-CombiMatrix stock in total in any calendar year.

PROGRAMS

     GENERAL

     Each of the incentive plans has four separate programs:

     o    the discretionary option grant program, under which our compensation
          committee may grant (1) non-statutory options to purchase shares of
          AR-Acacia Technologies stock and AR-CombiMatrix stock, as applicable,
          to eligible individuals in the employ or service of Acacia Research or
          our subsidiaries (including employees, non-employee board members and
          consultants) at an exercise price not less than 85% of the fair market
          value of those shares on the grant date and (2) incentive stock
          options to purchase shares of AR-Acacia Technologies stock and
          AR-CombiMatrix stock, as applicable, to eligible employees at an
          exercise price not less than 100% of the fair market value of those
          shares on the grant date (not less than 110% of fair market value if
          such employee actually or constructively owns more than 10% of our
          voting stock or the voting stock of any of our subsidiaries);

     o    the stock issuance program, under which eligible individuals may be
          issued shares of AR-Acacia Technologies stock and AR-CombiMatrix
          stock, as applicable, directly, upon the attainment of performance
          milestones or the completion of a specified period of service or as a
          bonus for past services;

     o    the automatic option grant program, under which option grants will
          automatically be made at periodic intervals to eligible non-employee
          members of our board of directors to purchase shares of AR-Acacia
          Technologies stock and AR-CombiMatrix stock, as applicable, at an
          exercise price equal to 100% of the fair market value of those shares
          on the grant date; and


                                     -193-



     o    the director fee option grant program, under which non-employee
          members of our board of directors may be given the opportunity to
          apply a portion of any retainer fee otherwise payable to them in cash
          each year to the acquisition of special below-market option grants.

     Eligibility. The individuals eligible to participate in the incentive plans
include officers, employees, board members and consultants of Acacia Research
and our subsidiaries. However, only non-employee members of our board of
directors are eligible to participate in the automatic option grant program and
the director fee option grant program.

     Administration. Our compensation committee will administer the
discretionary option grant and stock issuance programs. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
non-statutory stock option under the federal tax laws, the vesting schedule to
be in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding.

     DISCRETIONARY OPTION GRANT PROGRAM. Under this program, employees, third
party service providers and non-employee board members may be granted incentive
stock options or non-statutory stock options.

     Program Features. The discretionary option grant program will include the
following features:

     o    The exercise price for any option granted under the incentive plans
          may be paid in cash, or in shares of AR-Acacia Technologies stock if
          the options are for the purchase of AR-Acacia Technologies stock or in
          shares of AR-CombiMatrix stock if the options are for the purchase of
          AR-CombiMatrix stock. Any such stock used to pay all or a portion of
          the exercise price must have been held by the optionee for at least
          six months as of the exercise date and shall be valued at fair market
          value on the exercise date. The option may also be exercised through a
          same-day sale program without any cash outlay by the optionee.

     o    The compensation committee will have the authority to cancel
          outstanding options under the discretionary option grant program in
          return for the grant of new options for the same or different number
          of option shares with an exercise price per share based upon the fair
          market value of AR-Acacia Technologies stock or AR-CombiMatrix stock,
          as applicable, on the new grant date.

     o    Stock appreciation rights may be issued under the discretionary option
          grant program. These rights will provide the holders with the election
          to surrender their outstanding options for a payment from us equal to
          the fair market value of the shares subject to the surrendered options
          less the exercise price payable for those shares. We may make the
          payment in cash or in shares of AR-Acacia Technologies stock or
          AR-CombiMatrix stock, as applicable.

     CHANGE IN CONTROL. Unless otherwise set forth in the documents evidencing
an option, in the event that we are acquired by merger, asset sale, or a
successful tender offer for more than fifty percent of outstanding voting stock
or there is a change in the majority of our board through one or more contested
elections, each outstanding option under the discretionary option grant program,
whether or not assumed by the successor corporation, will immediately become
exercisable for all the option shares, and all outstanding unvested shares will
immediately vest. In addition, our repurchase rights with respect to those
shares shall automatically terminate.

     STOCK ISSUANCE PROGRAM. Eligible individuals may be issued shares of
AR-Acacia Technologies stock or AR-CombiMatrix stock, as applicable, through
direct issuances in amounts to be determined by the compensation committee.
Shares of AR-Acacia Technologies stock or AR-CombiMatrix stock, as applicable,
may also be issued pursuant to awards that entitle the recipients to receive
shares upon the attainment of designated performance goals. Under this program,
the purchase price for the shares shall not be less than 100% of the fair market
value of the shares on the date of issuance, and payment may be in the form of
cash or past services rendered. In the event of a change of control, our
repurchase rights for unvested shares under this program will terminate and all
shares of stock subject to those rights shall immediately vest in full, except
to the extent limited by the plan administrator.


                                     -194-



     AUTOMATIC OPTION GRANT PROGRAM. Each individual who first becomes a
non-employee board member at any time after the date of the adoption of the
incentive plans by our board of directors will automatically receive an option
to purchase 20,000 shares of AR-Acacia Technologies stock and 20,000 shares of
AR-CombiMatrix stock on the date the individual joins the board. In addition, on
the first business day in each calendar year following the adoption of the
incentive plans by our board of directors, each non-employee board member then
in office, including each of our current non-employee board members who is then
in office, will automatically be granted an option to purchase 15,000 shares of
AR-Acacia Technologies stock and 15,000 shares of AR-CombiMatrix stock, provided
that the individual has served on the board for at least six months.

     Each automatic grant will have an exercise price per share equal to the
fair market value per share of AR-Acacia Technologies stock or AR-CombiMatrix
stock, as applicable, on the grant date and will have a term of 10 years,
subject to earlier termination following the optionee's cessation of board
service. Each 20,000-share initial grant and each annual 15,000-share option
grant shall become exercisable in a series of four equal quarterly installments
upon the optionee's completion of each three months of service as a board member
over the 12-month period measured from the option grant date.

     Under the Acacia Research 1996 Plan, each non-employee director
automatically receives a nondiscretionary grant of options to purchase 22,000
shares of Acacia Research common stock upon initially joining the board of
directors. In addition, provided that the individual has served on the board for
at least six months, on the first day in each calendar year, each non-employee
director will receive a nondiscretionary grant of options to purchase 13,200
shares of Acacia Research's common stock. All such grants are made at an
exercise price equal to the fair market value of the Acacia Research common
stock on the date of grant.

     In the event of a change in control of our company while the optionee
remains on our board, each outstanding option under this program will
automatically accelerate so that each option shall vest and become exercisable
immediately prior to the change in control.

     DIRECTOR FEE OPTION GRANT PROGRAM. If this program is put into effect in
the future, then each non-employee member of our board may elect to apply all or
a portion of any cash retainer fee for the year to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the year for which the non-employee board member
would otherwise be paid the cash retainer fee in the absence of his or her
election. The option will have an exercise price per share equal to one-third of
the fair market value of the option shares on the grant date, and the number of
shares subject to the option will be determined by dividing the amount of the
retainer fee applied to the program by two-thirds of the fair market value per
share of AR-Acacia Technologies stock or AR-CombiMatrix stock, as applicable, on
the grant date. As a result, the option will be structured so that the fair
market value of the option shares on the grant date less the aggregate exercise
price payable for those shares will be equal to the portion of the retainer fee
applied to that option. The option will become exercisable in a series of twelve
equal monthly installments over the calendar year for which the election is in
effect. However, the option will become immediately exercisable for all the
option shares upon the death or disability of the optionee while serving as a
board member. In the event of a change in control while the optionee remains on
our board, each outstanding option under this program will automatically
accelerate so that each option shall vest and become exercisable immediately
prior to the change in control.

     ADDITIONAL PROGRAM FEATURES. The incentive plans will also have the
following features:

     o    Limited stock appreciation rights will automatically be included as
          part of each grant made under the automatic and director fee option
          grant programs, and these rights may also be granted to one or more of
          our officers as part of their option grants under the discretionary
          option grant program. Options with this feature may be surrendered to
          us upon the successful completion of a hostile tender offer for more
          than 50% of our outstanding voting stock or a change in the majority
          of our board through one or more contested elections. In return for
          the surrendered option, the optionee will be entitled to a cash
          payment from us in an amount per surrendered option share based upon
          the highest price per share of AR-Acacia Technologies stock or
          AR-CombiMatrix stock, as applicable, paid in a tender offer, or the
          fair market value per share of AR-Acacia Technologies stock or
          AR-CombiMatrix stock, as applicable, on the effective date of a change
          in the majority of our board.


                                     -195-



     o    Our board may amend or modify the incentive plans at any time, subject
          to any required stockholder approval. The incentive plans will
          terminate no later than the tenth anniversary of the approval of the
          incentive plans by our stockholders.

NEW PLAN BENEFITS

     The following table sets forth the beneficial ownership of the
AR-CombiMatrix stock and the AR-Acacia Technologies stock, based on share
ownership information known to us as of November 1, 2002 and assuming that the
recapitalization and merger were effective as of such date and asssuming that
each share of Acacia Research common stock would convert into 0.5582 of a share
of AR-CombiMatrix stock and one share of AR-Acacia Technologies stock.

     The following table sets forth pro forma information regarding the option
issuances to be made under the 2002 Acacia Technologies Stock Incentive Plan and
the 2002 CombiMatrix Stock Incentive Plan by the conversion of all options
currently outstanding under the Acacia Research 1996 Stock Option Plan and the
existing stock option plans of CombiMatrix Corporation, based on information
known to us as of November 1, 2002 and assuming that: (i) the recapitalization
and merger were effective as of such date, (ii) the stockholders have approved
each of the proposals to be voted on at the special meeting and (iii) each share
of Acacia Research common stock would convert into 0.5582 of a share of
AR-CombiMatrix stock and one share of AR-Acacia Technologies stock:



                                   NEW PLAN BENEFITS
------------------------------------------------------------------------------------------
                                                           NUMBER OF UNITS
                                           -----------------------------------------------
                                             2002 COMBIMATRIX     2002 ACACIA TECHNOLOGIES
NAME AND POSITION                          STOCK INCENTIVE PLAN    STOCK INCENTIVE PLAN
----------------------------------------   --------------------   ------------------------
                                                                    
Paul R. Ryan,
Chairman and Chief Executive Officer               534,974                  841,963
Robert L. Harris, II,
President                                          478,666                  759,001
Amit Kumar, Ph.D.,
Chief Executive Officer and President of
CombiMatrix Corporation                            571,658                  397,103
Executive Group                                  1,622,139                2,064,067
Non-Executive Director Group                       161,223                  190,300
Non-Executive Officer Employee Group             2,816,026                1,189,899



                                     -196-



EQUITY COMPENSATION PLAN INFORMATION

     Below is a tabular presentation of information regarding the existing stock
option plans of Acacia Research as of the end Acacia Research's last fiscal
year:



                                                                                                   (C) NUMBER OF
                                                                                                SECURITIES REMAINING
                                                                                               AVAILABLE FOR FUTURE
                                         (A) NUMBER OF SECURITIES TO   (B) WEIGHTED-AVERAGE    ISSUANCE UNDER EQUITY
                                          BE ISSUED UPON EXERCISE OF    EXERCISE PRICE OF        COMPENSATION PLANS
                                            OUTSTANDING OPTIONS,       OUTSTANDING OPTIONS,    (EXCLUDING SECURITIES
PLAN CATEGORY                               WARRANTS AND RIGHTS        WARRANTS AND RIGHTS    REFLECTED IN COLUMN (A))
--------------------------------------   ---------------------------   --------------------   ------------------------
                                                                                             
Equity compensation plans
   approved by security holders(1)                3,482,245                   $16.94                  1,481,974

Equity compensation plans
   not approved by security holders(2)               N/A                        N/A                      N/A

--------------------------------------            ---------                   ------                  ---------
TOTAL                                             3,482,245                   $16.94                  1,481,974


----------
(1)  The sole plan under which equity securities of Acacia Research are
     authorized for issuance is its Acacia Research Corporation 1996 Stock
     Option Plan, which has previously been approved by security holders. Acacia
     Research proposes herein to adopt two new plans, the 2002 Acacia
     Technologies Stock Incentive Plan and the 2002 CombiMatrix Stock Incentive
     Plan. For a description of our proposed new stock option plans, please see
     the discussion above.

(2)  Acacia Research has not authorized the issuance of its equity securities
     under any plan not approved by security holders.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

     We believe that, based upon the laws as in effect on the date of this
document, the following are the material United States federal income tax
consequences to participants and us of awards granted under the incentive plans.
State, local and foreign laws are not discussed. The discussion assumes that
participants acquiring stock under the incentive plans will hold such stock as a
capital asset. THIS SUMMARY IS NOT A COMPLETE ANALYSIS OF ALL POTENTIAL TAX
CONSEQUENCES RELEVANT TO US AND PARTICIPANTS UNDER THE INCENTIVE PLANS AND DOES
NOT DESCRIBE TAX CONSEQUENCES BASED ON PARTICULAR CIRCUMSTANCES. FOR THESE
REASONS, PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO ANY SPECIFIC
QUESTIONS REGARDING THE TAX CONSEQUENCES OF AWARDS GRANTED UNDER THE INCENTIVE
PLANS.

     INCENTIVE STOCK OPTIONS

     The grant of an incentive stock option does not give rise to federal income
tax to the option holder. Similarly, the exercise of an incentive stock option
generally does not give rise to federal income tax to the option holder, as long
as the option holder is continuously employed by us or our subsidiaries from the
date the option is granted until three months prior to the date the option is
exercised. This employment requirement is subject to certain limited exceptions.
Under proposed regulations issued by the Internal Revenue Service ("IRS") in
2001, FICA and Medicare tax withholding will be required upon the exercise of an
incentive stock option on or after January 1, 2003. The proposed regulations
will not become effective unless and until they are published as final
regulations. The exercise of an incentive stock option may cause the option
holder to incur alternative minimum tax liability.

     If the option holder holds the option shares acquired upon exercise of an
incentive stock option for more than two years from the date the option is
granted and more than one year from the date of exercise, any gain or loss
recognized on the sale or other disposition of the option shares will be capital
gain or loss, measured by the difference between the sales price and the amount
paid for the shares by the option holder. The capital gain or loss will be
long-term or short-term, depending on the option holder's holding period for the
shares. If the option holder disposes of the option shares before the end of the
required holding period, the option holder will recognize taxable ordinary
income at the time of the disposition equal to the excess, if any, of (i) the
fair market value of the option shares at the time of exercise (or, under
certain circumstances, the selling price, if lower) over (ii) the exercise price


                                     -197-



paid by the option holder. Any additional amount received by the option holder
will be treated as capital gain, which will be long-term or short-term,
depending on the holding period for the shares.

     We are generally not entitled to a tax deduction at any time with respect
to an incentive stock option. If, however, the option holder does not satisfy
the employment or holding period requirements described above, we will be
allowed a deduction in an amount equal to the ordinary income recognized by the
option holder, subject to certain limitations and W-2 reporting requirements.

     NON-STATUTORY STOCK OPTIONS

     The grant of a non-statutory stock option generally does not result in
federal income tax to the option holder. However, the option holder will
recognize taxable ordinary income upon the exercise of a non-statutory option
equal to the excess of the fair market value of the option shares on the
exercise date over the exercise price paid by the option holder. However, if
stock acquired under an option is subject to certain transfer restrictions and
vesting requirements, rules similar to those discussed below under "Stock Grants
Under Stock Issuance Program" will apply with respect to the timing and amount
for ordinary income to be recognized by the option holder and the availability
of an election under Section 83(b) of the Internal Revenue Code (the "Code").

     On the sale of shares acquired under an option, the option holder will
recognize capital gain or loss in an amount equal to the difference between the
sales price and the sum of the exercise price paid by the option holder for the
shares plus any amount recognized as ordinary income upon the exercise of the
option.

     With respect to employees, we are required to withhold income and
employment taxes based on the amount of ordinary income recognized by the option
holder. If the option holder is required to recognize ordinary income under the
above rules, we will be allowed a tax deduction in the amount of such ordinary
income, subject to certain limitations and W-2 or 1099 reporting requirements.

     STOCK GRANTS UNDER STOCK ISSUANCE PROGRAM

     The recipient will generally recognize taxable ordinary income on the
receipt of a direct grant of stock in an amount equal to the fair market value
of the shares on the date of grant. However, to the extent the stock is subject
to certain transfer restrictions and vesting requirements imposed when the stock
is granted, no taxable income will be recognized by the recipient upon the grant
of such stock unless the recipient makes an election under Section 83(b) of the
Code. If the recipient does not file a timely Section 83(b) election with the
IRS with respect to such unvested shares, he or she will recognize ordinary
income at the time his or her interest in the shares becomes vested. The amount
of this ordinary income will be equal to the fair market value of the shares on
the date or dates the shares become vested, less the amount, if any, the
recipient paid for the shares.

     If the recipient files a Section 83(b) election with the IRS on a timely
basis, the recipient will recognize ordinary income equal to the fair market
value of the shares received on the date of grant (rather than the date the
shares become vested), less the amount, if any, paid for the shares by the
recipient.

     If the recipient forfeits shares for which he or she has made a Section
83(b) election because the recipient failed to satisfy the vesting requirements,
he or she will not be entitled to a deduction for the ordinary income previously
recognized as a result of the election. Recipients of stock grants should
consult their tax advisor regarding the possible use of a Section 83(b)
election, which must be made within 30 days following the grant of the shares to
the recipient.

     On the sale of shares acquired under a stock grant, the recipient will
recognize capital gain or loss in an amount equal to the difference between the
sales price and the sum of the purchase price paid by the recipient, if any, for
the shares plus any amount recognized as ordinary income upon the receipt or
vesting of the shares or pursuant to a Section 83(b) election.

     With respect to employees, we are required to withhold income and
employment taxes based on the amount of ordinary income recognized by the
recipient on the receipt or vesting of shares or in connection a Section 83(b)


                                     -198-



election made by the recipient. If the recipient is required to recognize
ordinary income under the above rules, we will be allowed a tax deduction in the
amount of such ordinary income, subject to certain limitations and W-2 or 1099
reporting requirements.

     CAPITAL GAINS AND LOSSES

     Under current law, capital gain or loss on the sale of stock acquired by
participants under the incentive plans will be long-term if the participant's
holding period for the shares is more than one year and short-term if the
participant's holding period for the shares is one year or less. Under current
law, there is a maximum federal tax rate of 20% for long-term capital gains and
short-term capital gains are taxed at the same rates as ordinary income. The
deductibility of capital losses is subject to certain limitations.

     CHANGE IN CONTROL

     In general, if the total payments to an individual that are contingent upon
a "change in control" of Acacia Research (as defined in Section 280G of the
Code), including payments or rights under the incentive plans that vest upon a
"change in control," equal or exceed three times the individual's "base amount"
(generally, such individual's average annual compensation for the five calendar
years preceding the change in control), then, subject to certain exceptions, the
payments may be treated as "parachute payments" under the Code. The excess of
the parachute payments to an individual over the individual's base amount is not
deductible by us and the individual is subject to a 20% excise tax on the
non-deductible portion of the parachute payments.

     CERTAIN LIMITATIONS ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION

     Section 162(m) of the Code generally denies a deduction to publicly held
corporations for compensation paid to certain executive officers in excess of $1
million per executive per taxable year (including any deduction attributable to
stock options or stock grants). Certain kinds of compensation, including
qualified "performance-based compensation," are disregarded for purposes of the
deduction limitation. Compensation attributable to stock options will qualify as
performance-based compensation if the exercise price of the options is no less
than the fair market value of the underlying stock on the date of grant, the
options are granted by a compensation committee comprised solely of "outside
directors" (as defined in the Treasury Regulations issued under Section 162(m))
and certain other requirements are met. Compensation attributable to stock
grants or share right awards may also qualify as performance-based compensation
if the grant or vesting of the stock is based on the attainment of a specific
performance goal and otherwise satisfies the standards for performance-based
compensation.

     The incentive plans are not subject to any provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA") and are not qualified under
Section 401(a) of the Code.

     VOTE REQUIRED

     Approval of each incentive plan proposal requires the favorable vote of a
majority of the shares present or represented and entitled to vote at the
special meeting.

     RECOMMENDATION OF OUR BOARD OF DIRECTORS

     OUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED EACH INCENTIVE PLAN
PROPOSAL AND BELIEVES THAT THESE PROPOSALS ARE IN THE BEST INTERESTS OF ACACIA
RESEARCH AND OUR STOCKHOLDERS. OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE THESE PROPOSALS.


                                     -199-



                                   OTHER ITEMS

PRICE RANGE AND DIVIDENDS ON EXISTING COMMON STOCK

     Our common stock currently is listed on the NASDAQ National Market
("NASDAQ") under the symbol "ACRI". The table below sets forth, for the fiscal
periods indicated, the high and low sale prices per share of our common stock on
the NASDAQ and the cash distributions declared relating to such periods.



                                                SALES PRICE PER SHARE OF
                                                    OUR COMMON STOCK
                                                                        DISTRIBUTION
                                                       HIGH     LOW      DECLARED(1)
                                                     -------   ------   ------------
                                                                   
2002
----
First Quarter ...............................        $13.260   $8.470       $0.00
Second Quarter ..............................        $11.500   $5.900       $0.00
Third Quarter ...............................        $ 7.150   $3.500       $0.00
Fourth Quarter (through November 7, 2002) ...        $ 5.300   $3.650         N/A

2001
----
First Quarter ...............................        $18.977   $5.227       $0.00
Second Quarter ..............................        $16.136   $4.687       $0.00
Third Quarter ...............................        $16.655   $5.827       $0.00
Fourth Quarter ..............................        $13.418   $8.291       $0.00


----------
(1)  A ten percent stock dividend was declared on October 22, 2001.

     The closing sale price of our common stock on the NASDAQ was $9.33 per
share on March 19, 2002, the trading day prior to our announcement of the merger
and recapitalization proposal, and $5.02 per share on November 7, 2002, the
last trading day prior to the date of this proxy statement. As of November 1,
2002, 19,640,808 shares of our common stock were outstanding and we had 199
holders of record.

INFORMATION ABOUT STOCKHOLDER PROPOSALS

     Proposals of stockholders intended to be presented at the 2003 Annual
Meeting must be received by Acacia Research by January 14, 2003 to be considered
for inclusion in Acacia Research's proxy statement relating to that meeting.
Stockholders desiring to present a proposal at the 2003 Annual Meeting but who
do not desire to have the proposal included in the proxy materials distributed
by Acacia Research must deliver written notice of such proposal to Acacia
Research on or after January 14, 2003 and on or before February 13, 2003, or the
persons appointed as proxies in connection with the 2003 Annual Meeting will
have discretionary authority to vote on any such proposal.

EXPENSES OF SOLICITATION

     We will pay the cost of soliciting proxies for the special meeting. In
addition to soliciting by mail, our directors, officers and other employees may
solicit proxies in person, or by telephone, facsimile transmission or other
means of electronic communication. We will also pay brokers, nominees,
fiduciaries and other custodians their reasonable fees and expenses for sending
proxy materials to beneficial owners and obtaining their instructions. We have
retained Georgeson Shareholder to perform various solicitation services. We will
pay Georgeson Shareholder a fee of $6,500, plus phone and other related
expenses, in connection with their solicitation services.


                                     -200-



LEGAL OPINIONS

     Allen Matkins Leck Gamble & Mallory LLP, Los Angeles, California, has
rendered an opinion concerning the validity of the common stock.
PricewaterhouseCoopers LLP has rendered an opinion regarding the tax treatment
of the transactions.

EXPERTS

     The consolidated financial statements of Acacia Research as of December 31,
2000 and 2001 and for each of the three years in the period ended December 31,
2001 included in this proxy statement have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

     The financial statements of CombiMatrix Corporation (a development stage
company) as of December 31, 2000 and 2001 and for each of the three years in the
period ended December 31, 2001 and the period from inception (October 4, 1995)
to December 31, 2001, included in this proxy statement have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.

     The divisional financial statements of the CombiMatrix group (a development
stage division of Acacia Research) as of December 31, 2000 and 2001 and for each
of the three years in the period ended December 31, 2001 and the period from
inception (October 4, 1995) to December 31, 2001, included in this proxy
statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants given on the authority of
said firm as experts in auditing and accounting.

     The divisional financial statements of the Acacia Technologies group (a
division of Acacia Research) as of December 31, 2000 and 2001 and for each of
the three years in the period ended December 31, 2001 included in this proxy
statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

     Representatives of PricewaterhouseCoopers LLP will attend the special
meeting and will have an opportunity to make a statement and to respond to
appropriate questions that you pose.


                                     -201-



                                      INDEX

                              FINANCIAL INFORMATION

     Acacia Research Corporation
        Report of Independent Accountants
        Consolidated Balance Sheets
        Consolidated Statements of Operations and Comprehensive Loss
        Consolidated Statements of Stockholders' Equity
        Consolidated Statements of Cash Flows
        Notes to Consolidated Financial Statements

     CombiMatrix Corporation (a development stage company)
        Report of Independent Accountants
        Consolidated Balance Sheets
        Consolidated Statements of Operations
        Consolidated Statements of Stockholders' Equity and Comprehensive Loss
        Consolidated Statements of Cash Flows
        Notes to Consolidated Financial Statements

     *Acacia Technologies Group (a division of Acacia Research Corporation)
        Report of Independent Accountants
        Balance Sheets
        Statements of Operations
        Statements of Funds Allocated by Acacia Research Corporation and
           Accumulated Net Losses
        Statements of Cash Flows
        Notes to Financial Statements

     *CombiMatrix Group (a development stage division of Acacia Research
        Corporation)
        Report of Independent Accountants
        Balance Sheets
        Statements of Operations
        Statements of Funds Allocated by Acacia Research Corporation and
        Accumulated Net Losses
        Statements of Cash Flows
        Notes to Financial Statements

*NOTE: WE ARE PRESENTING, ALONG WITH OUR FINANCIAL STATEMENTS, THE SEPARATE
FINANCIAL STATEMENTS FOR THE COMBIMATRIX GROUP AND THE ACACIA TECHNOLOGIES
GROUP. THE SEPARATE FINANCIAL STATEMENTS AND ACCOMPANYING NOTES OF THE TWO
GROUPS ARE BEING PROVIDED AS ADDITIONAL DISCLOSURE REGARDING THE HISTORICAL
FINANCIAL PERFORMANCE OF THE TWO DIVISIONS AND TO PROVIDE INVESTORS WITH
INFORMATION REGARDING THE POTENTIAL VALUE AND PROFITABILITY OF THE RESPECTIVE
BUSINESSES, WHICH MAY AFFECT THE RESPECTIVE SHARE VALUES. THE SEPARATE FINANCIAL
STATEMENTS SHOULD BE REVIEWED IN CONJUNCTION WITH ACACIA RESEARCH CORPORATION'S
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES. THE PRESENTATION OF SEPARATE
FINANCIAL STATEMENTS 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. WE, AND NOT THE INDIVIDUAL GROUPS, WILL BE THE ISSUER OF THE
SECURITIES. HOLDERS OF THE TWO SECURITIES WILL CONTINUE TO BE STOCKHOLDERS OF
ACACIA RESEARCH AND WILL NOT HAVE A SEPARATE AND EXCLUSIVE INTEREST IN THE
RESPECTIVE GROUPS.


                                      F-1



                           ACACIA RESEARCH CORPORATION

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Acacia Research Corporation

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity, and of
cash flows present fairly, in all material respects, the financial position of
Acacia Research Corporation ("Acacia" or "we") and its subsidiaries at December
31, 2001 and December 31, 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of Acacia's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

     As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2001, Acacia changed its balance sheet classification for accrued
subsidiary employee stock-based compensation charges, resulting in no cumulative
effect on income.

     As discussed in Note 2 to the consolidated financial statements, effective
October 1, 2000, Acacia adopted Emerging Issues Task Force Consensus on Issue
No. 00-27, "Application of Issue No. 98-5 to Certain Convertible Instruments,"
resulting in a charge of $246,000 in the year ended December 31, 2000 for
cumulative effect of change in accounting principle due to beneficial conversion
feature of debt.

/s/ PricewaterhouseCoopers LLP

Los Angeles, California
February 25, 2002, except as to Note 14,
which is as of March 27, 2002 and except
as to Note 18, which is as of May 2, 2002


                                      F-2



                           ACACIA RESEARCH CORPORATION
                           CONSOLIDATED BALANCE SHEETS
             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)



                                                                        AT DECEMBER 31,     AT JUNE 30,
                                                                     --------------------   -----------
                                                                       2001        2000         2002
                                                                     ---------   --------   -----------
                                                                                            (UNAUDITED)
                                                                                    
                                 ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                         $  59,451   $ 36,163    $  49,712
   Short-term investments                                               25,110     40,600       16,699
   Prepaid expenses, other receivables and other assets                  1,613      1,471        2,682
                                                                     ---------   --------    ---------
          Total current assets                                          86,174     78,234       69,093
   Property and equipment, net of accumulated depreciation               4,906      3,727        4,575
   Investment in affiliate, at equity                                       --        346           --
   Investment in affiliate, at cost                                      3,000      3,000        3,000
   Patents, net of accumulated amortization                             11,855      9,038       10,857
   Goodwill, net of accumulated amortization                             4,627      3,904        4,627
   Other assets                                                            297        267          788
                                                                     ---------   --------    ---------
                                                                     $ 110,859   $ 98,516    $  92,940
                                                                     =========   ========    =========
                  LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable, accrued expenses and other                      $   5,756   $  7,767    $   5,699
   Current portion of deferred revenues                                  7,088         --        8,842
   Current portion of capital lease obligation                             934         --          976
   Accrued stock compensation (Note 2)                                      --     10,392           --
                                                                     ---------   --------    ---------
          Total current liabilities                                     13,778     18,159       15,517
   Deferred income taxes                                                 3,829      2,689        3,679
   Deferred revenues, net of current portion                               372         --          266
   Capital lease obligation, net of current portion                      1,845         --        1,346
                                                                     ---------   --------    ---------
           Total liabilities                                            19,824     20,848       20,808
                                                                     ---------   --------    ---------
COMMITMENTS AND CONTINGENCIES (NOTE 12):

Minority interests                                                      32,303     17,524       29,379
                                                                     ---------   --------    ---------

STOCKHOLDERS' EQUITY:
   Preferred stock, par value $0.001 per share; 20,000,000 shares
      authorized; no shares issued or outstanding                           --         --           --
   Common stock, par value $0.001 per share; 60,000,000 shares
      authorized; 19,592,459 and 16,090,587 (Notes 1 and 7) shares
      issued and outstanding as of December 31, 2001 and 2000,
      respectively, and 19,640,808 at June 30, 2002                         20         16           20
   Additional paid-in capital                                          158,529    116,017      158,672
   Warrants to purchase common stock                                       199         86          199
   Comprehensive (loss) income                                              (4)        77            1
   Accumulated deficit                                                (100,012)   (56,052)    (116,139)
                                                                     ---------   --------    ---------
          Total stockholders' equity                                    58,732     60,144       42,753
                                                                     ---------   --------    ---------
                                                                     $ 110,859   $ 98,516    $  92,940
                                                                     =========   ========    =========


   The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      F-3



                           ACACIA RESEARCH CORPORATION
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)



                                                                             FOR THE YEARS ENDED DECEMBER 31,
                                                                        -----------------------------------------
                                                                           2001           2000           1999
                                                                        -----------    -----------    -----------
                                                                                             
REVENUES:
   License fee income                                                   $    24,180    $        --    $        --
   Grant revenue                                                                456             17            144
   Other income                                                                  --             40            122
                                                                        -----------    -----------    -----------
      Total revenues                                                         24,636             57            266
                                                                        -----------    -----------    -----------
OPERATING EXPENSES:
   Research and development expenses                                         11,656          8,467          1,806
   Non-cash stock compensation expense - research and development             7,183          3,397             --
   Marketing, general and administrative expenses                            32,664         14,782          4,272
   Non-cash stock compensation expense - marketing, general and
      administrative                                                         13,636          7,307            146
   Amortization of patents and goodwill                                       2,695          2,251          1,622
   Loss on disposal of consolidated subsidiaries                                 --          1,016             --
                                                                        -----------    -----------    -----------
      Total operating expenses                                               67,834         37,220          7,846
                                                                        -----------    -----------    -----------
Operating loss                                                              (43,198)       (37,163)        (7,580)
                                                                        -----------    -----------    -----------
OTHER INCOME (EXPENSE):
   Write-off of equity investments                                               --         (2,603)            --
   Interest income                                                            3,762          3,086            333
   Realized gains (losses) on short-term investments                            350             --             --
   Unrealized gains (losses) on short-term investments                          237             --             --
   Interest expense                                                             (65)            --           (254)
   Equity in losses of affiliates                                              (195)        (1,746)        (1,121)
   Other income                                                                  77             28             --
                                                                        -----------    -----------    -----------
      Total other income (expense)                                            4,166         (1,235)        (1,042)
                                                                        -----------    -----------    -----------
Loss from continuing operations before income taxes and minority
   interests                                                                (39,032)       (38,398)        (8,622)
(Provision) benefit for income taxes                                           (780)            73            (20)
                                                                        -----------    -----------    -----------
Loss from continuing operations before minority interests                   (39,812)       (38,325)        (8,642)
Minority interests                                                           17,540          9,166          1,221
                                                                        -----------    -----------    -----------
Loss from continuing operations                                             (22,272)       (29,159)        (7,421)
Discontinued operations
   Loss from discontinued operations of Soundbreak.com                           --         (7,443)          (776)
   Estimated loss on disposal of Soundbreak.com                                  --         (2,111)            --
                                                                        -----------    -----------    -----------
Loss before cumulative effect of change in accounting principle             (22,272)       (38,713)        (8,197)
Cumulative effect of change in accounting principle due to beneficial
  conversion feature of debt                                                     --           (246)            --
                                                                        -----------    -----------    -----------
Net loss                                                                    (22,272)       (38,959)        (8,197)
   Unrealized (loss) gain on short-term investments                              (9)            77             --
   Unrealized loss on foreign currency translation                              (72)            --             --
                                                                        -----------    -----------    -----------
Comprehensive loss                                                      $   (22,353)   $   (38,882)   $    (8,197)
                                                                        ===========    ===========    ===========
Loss per common share:
Basic
   Loss from continuing operations                                      $     (1.16)   $     (1.78)   $     (0.59)
   Loss from discontinued operations                                             --          (0.58)         (0.06)
   Cumulative effect of change in accounting principle                           --          (0.02)            --
                                                                        -----------    -----------    -----------
Net loss                                                                $     (1.16)   $     (2.38)   $     (0.65)
                                                                        ===========    ===========    ===========
Diluted
   Loss from continuing operations                                      $     (1.16)   $     (1.78)   $     (0.59)
   Loss from discontinued operations                                             --          (0.58)         (0.06)
   Cumulative effect of change in accounting principle                           --          (0.02)            --
                                                                        -----------    -----------    -----------
Net loss                                                                $     (1.16)   $     (2.38)   $     (0.65)
                                                                        ===========    ===========    ===========
Weighted average number of common and potential common shares
  outstanding used in computation of loss per share:
   Basic                                                                 19,259,256     16,346,099     12,649,133
   Diluted                                                               19,259,256     16,346,099     12,649,133


   The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      F-4



                           ACACIA RESEARCH CORPORATION
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
                                   (UNAUDITED)



                                                                         THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                     --------------------------    --------------------------
                                                                       JUNE 30,      JUNE 30,        JUNE 30,      JUNE 30,
                                                                         2002          2001            2002          2001
                                                                     -----------    -----------    -----------    -----------
                                                                                                      
Revenues:
   License fee income                                                $        --    $    10,000    $        --    $    12,440
   Product revenue                                                           274             --            274             --
   Grant revenue                                                             164             91            413            274
                                                                     -----------    -----------    -----------    -----------
      Total revenues                                                         438         10,091            687         12,714
                                                                     -----------    -----------    -----------    -----------

Operating expenses:
   Cost of sales                                                             253             --            253             --
   Research and development expenses                                       5,026          2,651          7,694          5,802
   Non-cash stock compensation expense - research and development            692          2,013          1,113          4,411
   Marketing, general and administrative expenses                          5,516          9,550          9,587         15,771
   Non-cash stock compensation expense - marketing, general and
      administrative                                                       1,451          5,176          2,453         11,197
   Amortization of patents and goodwill                                      564            638          1,128          1,271
                                                                     -----------    -----------    -----------    -----------
      Total operating expenses                                            13,502         20,028         22,228         38,452
                                                                     -----------    -----------    -----------    -----------
   Operating loss                                                        (13,064)        (9,937)       (21,541)       (25,738)
                                                                     -----------    -----------    -----------    -----------

Other (expense) income:
   Interest income                                                           293          1,029            700          2,224
   Realized losses on short-term investments                                (930)            --         (1,483)            --
   Unrealized losses on short-term investments                              (156)            --           (477)            --
   Interest expense                                                          (57)            --           (121)            --
   Equity in losses of affiliate                                              --            (55)            --           (110)
   Other income                                                               34             57            112             61
                                                                     -----------    -----------    -----------    -----------
      Total other (expense) income                                          (816)         1,031         (1,269)         2,175
                                                                     -----------    -----------    -----------    -----------
Loss from operations before income taxes and minority interests          (13,880)        (8,906)       (22,810)       (23,563)
Benefit (provision) for income taxes                                          75           (228)           144           (241)
                                                                     -----------    -----------    -----------    -----------
Loss from operations before minority interests                           (13,805)        (9,134)       (22,666)       (23,804)
Minority interests                                                         4,104          4,362          6,539          9,553
                                                                     -----------    -----------    -----------    -----------
Net loss                                                                  (9,701)        (4,772)       (16,127)       (14,251)
Unrealized gains (losses) on short-term investments                           47             --            (48)            39
Unrealized gains on foreign currency translation                              62             --             53             --
                                                                     -----------    -----------    -----------    -----------
Comprehensive loss                                                   $    (9,592)   $    (4,772)   $   (16,122)   $   (14,212)
                                                                     ===========    ===========    ===========    ===========
Loss per common share:
   Basic                                                             $     (0.49)   $     (0.25)   $     (0.82)   $     (0.74)
                                                                     ===========    ===========    ===========    ===========
   Diluted                                                           $     (0.49)   $     (0.25)   $     (0.82)   $     (0.74)
                                                                     ===========    ===========    ===========    ===========
Weighted average number of common and potential common shares
   outstanding used in computation of loss per share:
   Basicanddiluted                                                    19,634,549     19,503,645     19,622,363     19,260,094
                                                                     ===========    ===========    ===========    ===========


   The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      F-5



                           ACACIA RESEARCH CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)



                                                                              WARRANTS TO
                                                                 ADDITIONAL    PURCHASE
                                            COMMON     COMMON     PAID-IN       COMMON      ACCUMULATED   COMPREHENSIVE
                                            SHARES     STOCK      CAPITAL        STOCK        DEFICIT     INCOME (LOSS)    TOTAL
                                          ----------   ------   -----------   -----------   -----------   -------------   --------
                                                                                                     
1999
Balance at December 31, 1998 ..........   10,190,815    $10       $ 26,727       $ 100       $  (8,896)       $ --        $ 17,941
Net loss ..............................                                                         (8,197)                     (8,197)
Units issued in private
   placements, net ....................      974,771      1         19,014          58                                      19,073
Shares issued to purchase
   equity investments .................       60,107                   288                                                     288
Stock options exercised ...............      326,450      1            757                                                     758
Warrants exercised ....................    2,055,050      2         14,542        (100)                                     14,444
Increase in capital due to issuance
   of stock by subsidiaries ...........                                928                                                     928
Compensation expense relating to
   stock options and warrants .........                                 27                                                      27
                                          ----------    ---       --------       -----       ---------        ----        --------
Balance at December 31, 1999 ..........   13,607,193     14         62,283          58         (17,093)         --          45,262

2000
Net loss ..............................                                                        (38,959)                    (38,959)
Units issued in private
   placements, net ....................      872,638      1         22,199          86                                      22,286
Stock options exercised ...............      543,961      1          2,131                                                   2,132
Stock issuance related to acquisition
   of additional CombiMatrix shares ...      488,557                11,634                                                  11,634
Warrants exercised ....................      578,238                14,878         (58)                                     14,820
Increase in capital due to issuance
   of stock by subsidiaries ...........                              2,293                                                   2,293
Compensation expense relating
   to stock options and warrants ......                                599                                                     599
Unrealized gain on short-term
   investments ........................                                                                         77              77
                                          ----------    ---       --------       -----       ---------        ----        --------
Balance at December 31, 2000 ..........   16,090,587     16        116,017          86         (56,052)         77          60,144

2001
Net loss ..............................                                                        (22,272)                    (22,272)
Units issued in private
   placement, net .....................    1,127,274      1         18,247         113                                      18,361
Stock options exercised ...............      596,888      1          1,251                                                   1,252
Increase in capital due to issuance
   of stock by subsidiaries ...........                              1,283                                                   1,283
Compensation expense relating to
   stock options and warrants .........                                 47                                                      47
Stock dividend (Note 1 and 7) .........    1,777,710      2         21,684                     (21,688)                         (2)
Unrealized loss on short-term
   investments ........................                                                                         (9)             (9)
Unrealized loss on foreign
   currency translation ...............                                                                        (72)            (72)
                                          ----------    ---       --------       -----       ---------        ----        --------
Balance at December 31, 2001 ..........   19,592,459     20        158,529         199        (100,012)         (4)         58,732

FOR THE SIX MONTHS ENDED JUNE 30, 2002
   (UNAUDITED)
Net loss ..............................                                                        (16,127)                    (16,127)
Stock options exercised ...............       48,349                   136                                                     136
Compensation expense relating to
   stock options and warrants .........                                 19                                                      19
Unrealized loss on short-term
   investments ........................                                                                        (48)            (48)
Unrealized gain on foreign
   currency translation ...............                                                                         53              53
Other .................................                                (12)                                                    (12)
                                          ----------    ---       --------       -----       ---------        ----        --------
Balance at June 30, 2002 (Unaudited) ..   19,640,808    $20       $158,672       $ 199       $(116,139)       $  1        $ 42,753
                                          ==========    ===       ========       =====       =========        ====        ========


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                  STATEMENTS.


                                      F-6



                           ACACIA RESEARCH CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)



                                                                                                             FOR THE SIX MONTHS
                                                                         FOR THE YEARS ENDED DECEMBER 31,       ENDED JUNE 30,
                                                                         --------------------------------   --------------------
                                                                           2001        2000        1999       2002        2001
                                                                         --------    --------    -------    --------    --------
                                                                                                                (UNAUDITED)
                                                                                                         
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations                                          $(22,272)   $(29,159)   $(7,421)   $(16,127)   $(14,251)
Adjustments to reconcile net loss to net cash used in operating
activities:
   Depreciation and amortization                                            3,869       2,657      1,771       1,873       1,740
   Equity in losses of affiliates                                             195       1,746      1,121          --         110
   Minority interests in net loss                                         (17,540)     (9,166)    (1,221)     (6,539)     (9,553)
   Compensation expense relating to stock options and warrants             20,819      10,704        146       3,566      15,608
   Charge for acquired in-process research and development                     --       2,508         --          --          --
   Deferred tax benefit                                                      (182)        (81)        --        (150)        (79)
   Write-off of other assets                                                  918          --         --          --          --
   Write-off of equity investments                                             --       2,603         --          --          --
   Net (purchases) sales of trading securities                             (4,135)         --         --       3,133          --
   Unrealized (gains) losses on short-term investments                       (237)         --         --         477          --
   Other                                                                      354         293        251         113         361

CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECTS OF ACQUISITIONS:
   Prepaid expenses, other receivables and other assets                      (713)     (2,029)       223      (1,564)       (922)
   Accounts payable, accrued expenses and other                             1,085       2,040        415         360       1,364
   Deferred revenues                                                        7,460          --         --       1,648          --
                                                                         --------    --------    -------    --------    --------
Net cash used in operating activities of continuing operations            (10,379)    (17,884)    (4,715)    (13,210)     (5,622)
Net cash used in operating activities of discontinued operations           (2,182)    (16,600)    (1,420)       (415)     (1,698)
                                                                         --------    --------    -------    --------    --------
Net cash used in operating activities                                     (12,561)    (34,484)    (6,135)    (13,625)     (7,320)
                                                                         --------    --------    -------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of equity investments                                              --         (54)    (2,387)         --          --
   Purchase of additional equity in consolidated subsidiaries              (3,304)       (970)        --          --          --
   Deposit on investment                                                       --          --     (3,000)         --          --
   Withdrawals from partnerships                                               --          --      1,710          --          --
   Purchase of property and equipment                                      (3,775)     (2,476)      (241)       (437)     (2,554)
   Proceeds from sale and leaseback arrangement                             3,000          --         --          --          --
   Sale of available-for-sale investments                                  76,275       3,975         --       9,877      11,923
   Purchase of available-for-sale investments                             (56,686)    (43,606)        --      (5,158)    (11,120)
   Purchase of common stock from minority stockholders of subsidiaries     (2,550)         --         --          --        (584)
   Other                                                                       --          --        (84)       (100)         --
                                                                         --------    --------    -------    --------    --------
   Net cash provided by (used in) investing activities of continuing
   operations                                                              12,960     (43,131)    (4,002)      4,182      (2,335)
   Net cash (used in) provided by investing activities of discontinued
   operations                                                                (145)     (1,173)      (649)         (4)        137
                                                                         --------    --------    -------    --------    --------
   Net cash provided by (used in) investing activities                     12,815     (44,304)    (4,651)      4,178      (2,198)
                                                                         --------    --------    -------    --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock options and warrants                     1,774      17,771     15,202         214       1,165
   Capital contributions from minority stockholders of subsidiaries         3,257      37,322      6,634         300       1,749
   Capital  distributions to minority shareholders of subsidiaries             --          --         --        (430)         --
   Proceeds from sale of common stock, net of issuance costs               18,349      22,199     19,073          --      18,361
   Repayment of capital lease obligations                                    (221)         --         --        (456)         --
   Other                                                                                   28         --         (11)         --
                                                                         --------    --------    -------    --------    --------
   Net cash provided by (used in) financing activities                     23,159      77,320     40,909        (383)     21,275
                                                                         --------    --------    -------    --------    --------
   Increase (decrease) in cash and cash equivalents                        23,413      (1,468)    30,123      (9,830)     11,757
   Cash and cash equivalents, beginning                                    36,163      37,631      7,508      59,451      36,163
   Effect of exchange rate on cash                                           (125)         --         --          91          --
                                                                         --------    --------    -------    --------    --------
   Cash and cash equivalents, ending                                     $ 59,451    $ 36,163    $37,631    $ 49,712    $ 47,920
                                                                         ========    ========    =======    ========    ========


   The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      F-7



                           ACACIA RESEARCH CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   DESCRIPTION OF BUSINESS

     Acacia Research Corporation ("Acacia" or "we") develops, licenses and
provides products for the media technology and life science sectors.

     Acacia's media technologies business, collectively referred to as, "Acacia
Media Technologies Group," owns intellectual property related to the
telecommunications field, including a television blanking system, also known as
the "V-chip," which it licenses to television manufacturers. In addition, Acacia
Media Technologies Group owns a worldwide portfolio of pioneering patents
relating to audio and video transmission and receiving systems, commonly known
as audio-on-demand and video-on-demand, used for distributing content via
various methods including computer networks, cable television systems and direct
broadcasting satellite systems. Acacia Media Technologies Group is responsible
for the development, licensing and protection of its intellectual property and
proprietary technologies. Our media technologies group continues to pursue both
licensing and strategic business alliances with leading companies in the rapidly
growing media technologies industry.

     Acacia's life sciences business, collectively referred to as "Acacia Life
Sciences Group" is comprised of CombiMatrix Corporation ("CombiMatrix") and
Advanced Material Sciences, Inc. ("Advanced Material Sciences"). Our core
technology opportunity in the life sciences sector has been developed through
our majority-owned subsidiary, CombiMatrix. CombiMatrix is a life science
technology company with a proprietary system for rapid, cost competitive
creation of DNA and other compounds on a programmable semiconductor chip. This
proprietary technology has significant applications relating to genomic and
proteomic research. Our majority-owned subsidiary, Advanced Material Sciences,
holds the exclusive license for CombiMatrix's biological array processor
technology in certain fields of material sciences.

     We were incorporated on January 25, 1993 under the laws of the State of
California. In December 1999, we changed our state of incorporation from
California to Delaware. Acacia owns and operates emerging corporations with
intellectual property rights, certain of which are involved in developing new or
unproven technologies. There is no assurance that any or all such technologies
will be successful, and even if successful, that the development of such
technologies can be commercialized.

     Below is a summary of our most significant wholly and majority-owned
subsidiaries and our related ownership percentages on an as-converted basis:



                                                                                                                  OWNERSHIP % AS OF
                                                                                                                   3/22/02 ON AN
             COMPANY NAME                                        DESCRIPTION OF BUSINESS                         AS-CONVERTED BASIS
----------------------------------------   -------------------------------------------------------------------   ------------------
                                                                                                                 
ACACIA MEDIA TECHNOLOGIES GROUP:

Soundview Technologies Incorporated ....   A media technology company that owns intellectual property related          100.0%
                                           to the telecommunications field, including a television blanking
                                           system, also known as "V-chip," which it is licensing to television
                                           manufacturers.



                                      F-8





                                                                                                                  OWNERSHIP % AS OF
                                                                                                                   3/22/02 ON AN
             COMPANY NAME                                        DESCRIPTION OF BUSINESS                         AS-CONVERTED BASIS
----------------------------------------   -------------------------------------------------------------------   ------------------
                                                                                                                 
Acacia Media Technologies Corporation      A media technology company that owns a worldwide portfolio of               100.0%
(formerly Greenwich Information            pioneering patents relating to audio and video transmission and
Technologies LLC) ......................   receiving systems, commonly known as audio-on-demand and
                                           video-on-demand, used for distributing content via various methods
                                           including computer networks, cable television systems and direct
                                           broadcasting satellite systems.

ACACIA LIFE SCIENCES GROUP:

CombiMatrix Corporation ................   A life science technology company with a proprietary system for              57.5%(1)
                                           rapid, cost competitive creation of DNA and other compounds on a
                                           programmable semiconductor chip. This proprietary technology has
                                           significant applications relating to genomic and proteomic
                                           research.

Advanced Material Sciences, Inc ........   A development stage company that holds the exclusive license for             58.1%(2)
                                           CombiMatrix's biological array processor technology in certain
                                           fields of material science.


----------
(1)  We are a party to a stockholder agreement with an officer of CombiMatrix,
     which provides for (a) the collective voting of shares (representing 69.5%
     of the voting interests of CombiMatrix) for the election of certain
     directors to CombiMatrix's board of directors and (b) certain restrictions
     on the sale or transfer of the officer's shares of common stock in
     CombiMatrix.

(2)  Advanced Material Sciences is 58.1% owned by us, 28.5% owned by CombiMatrix
     and 13.4% owned by third-parties. We have a 74.5% economic interest in
     Advanced Material Sciences by virtue of our 58.1% direct ownership interest
     in Advanced Material Sciences and our 57.5% interest in CombiMatrix.

ACACIA RESEARCH CORPORATION

     In January 2001, we completed an institutional private equity financing
raising gross proceeds of $19.0 million through the issuance of 1,107,274 units.
Each unit consists of one share of our common stock and one three-year callable
common stock purchase warrant. Each common stock purchase warrant entitles the
holder to purchase 1.10 shares of our common stock at a price of $19.09 per
share and is callable by us once the closing bid price of our common stock
averages $23.86 or above for 20 or more consecutive trading days on the NASDAQ
National Market System. We issued an additional 20,000 units in lieu of cash
payments for finders' fees in conjunction with the private placement.

     In June 2001, our ownership interest in Soundview Technologies Incorporated
("Soundview Technologies") increased from 67% to 100%, following Soundview
Technologies' completion of a stock repurchase transaction with its former
minority stockholders. Soundview Technologies repurchased the stock of its
former minority stockholders in exchange for a cash payment and the grant to
such stockholders of the right to receive 26% of future net revenues generated
by Soundview Technologies' current patent portfolio, which includes its V-chip
patent.

     On October 22, 2001, our board of directors declared a ten percent (10%)
stock dividend. The stock dividend totaling 1,777,710 shares of our common stock
was distributed on December 5, 2001 to stockholders of record as of November 21,
2001. All references to the number of shares (other than common stock issued or
outstanding on the 2000 consolidated balance sheet and 2001, 2000 and 1999
consolidated statements of stockholders' equity), per share amounts and any
other reference to shares in the consolidated financial statements and
accompanying notes to the consolidated financial statements, unless otherwise
noted, have been adjusted to reflect the stock dividend on a retroactive basis.


                                      F-9



     In November 2001, we increased our ownership interest in Acacia Media
Technologies Corporation ("Acacia Media Technologies"), formerly Greenwich
Information Technologies LLC, from 33% to 100% through the purchase of the
ownership interest of the former limited liability company's other member. In
December 2001, we converted the company from a limited liability company to a
corporation and changed the name of the company to Acacia Media Technologies.

     In the third quarter of 2000, we completed a private offering of 861,638
units at $27.50 per unit for gross proceeds of approximately $23.7 million. Each
unit consists of one share of common stock and one common stock purchase warrant
entitling the holder to purchase 1.10 shares of common stock at an exercise
price $30.00 per share, subject to adjustment, expiring in three years. The
warrants are callable by Acacia once the closing bid price of Acacia's common
stock averages $36.00 or above for 20 consecutive trading days on the NASDAQ
National Market System. We issued an additional 11,000 units in lieu of cash
payments for finders' fees in conjunction with the private placement.

     In the fourth quarter of 1999, we completed a private placement consisting
of the sale of units, each composed of one share of Acacia's common stock and
one-half of a common stock purchase warrant. We issued 974,771 units at an
offering price of $21.50 per unit. Approximately $21.0 million was raised from
this financing. During the first quarter of 2000, we issued a 30-day redemption
notice for these warrants. As a result, all of these warrants were exercised
prior to the redemption date with Acacia receiving proceeds of approximately
$14.8 million.

ACACIA MEDIA TECHNOLOGIES GROUP

     SOUNDVIEW TECHNOLOGIES

     In June 2001, Soundview Technologies repurchased the stock of the former
minority stockholders of Soundview Technologies in exchange for a cash payment
and the grant to the former stockholders of the right to receive 26% of future
net revenues generated by Soundview Technologies' current patent portfolio,
which includes its V-chip patent. As of December 31, 2001, total consideration
paid combined with amounts accrued pursuant to the stock repurchase agreements
totaled $2,767,000 ($2,550,000 paid in cash and $217,000 accrued as of December
31, 2001). Acacia Research Corporation accounts for contingent purchase
consideration as an additional cost of the acquired enterprise. As a result of
the stock repurchase transaction our ownership interest in Soundview
Technologies increased from 67% to 100%.

     During 2001, Soundview Technologies executed separate settlement and/or
license agreements with Samsung Electronics, Hitachi America, Ltd., LG
Electronics, Inc., Funai Electric Co. Ltd., Daewoo Electronics Corporation of
America, Sanyo Manufacturing Corporation, Thomson Multimedia, Inc., JVC Americas
Corporation, Matsushita Electric Industrial Co., Ltd. and Orion Electric Co.,
Ltd. In addition, Soundview Technologies settled its lawsuits with Pioneer
Electronics (USA) Incorporated, an affiliate of Pioneer Corporation, and
received payments from Philips Electronics pursuant to a settlement and license
agreement signed in December 2000. Certain of these license agreements
constitute settlements of patent infringement litigation brought by Soundview
Technologies. As of December 31, 2001, we received license fee payments totaling
$25,630,000 from the settlement and license agreements and have granted
non-exclusive, retroactive and future licenses of Soundview Technologies' U.S.
Patent No. 4,554,584 to the respective television manufacturers. Certain of the
settlement and license agreements provide for future royalty payments to
Soundview Technologies. We received and recognized as revenue $2,390,000,
$10,000,000, $10,740,000 and $1,000,000 of the license fee payments during the
first, second, third and fourth quarters of 2001, respectively. License fee
payments received during 2001 totaling $1,500,000 are included in deferred
revenues pursuant to the terms of the respective agreements.

     In the second quarter of 2000, Soundview Technologies announced that it
filed a federal patent infringement and antitrust lawsuit against Sony
Corporation of America, Philips Electronics North America Corporation, the
Consumer Electronics Manufacturers Association and the Electronics Industries
Alliance d/b/a Consumer Electronics Association. In its lawsuit, Soundview
Technologies alleged that Sony and Philips Television sets fitted with "V-chips"
infringe Soundview Technologies' patent and that the Consumer Electronics
Manufacturers Association had induced infringement of the patent.


                                      F-10



     ACACIA MEDIA TECHNOLOGIES

     Acacia Media Technologies, formally Greenwich Information Technologies LLC,
owns a worldwide portfolio of pioneering patents relating to audio and video
transmission and receiving systems, commonly known as audio-on-demand and
video-on-demand, used for distributing content via various methods including
computer networks, cable television systems and direct broadcasting satellite
systems.

     In November 2001, we increased our ownership interest in Acacia Media
Technologies from 33% to 100% through the purchase of the ownership interest of
the former limited liability company's other member. In December 2001, we
converted the company from a limited liability company to a corporation, and
changed the name of the company to Acacia Media Technologies Corporation.

ACACIA LIFE SCIENCES GROUP

     COMBIMATRIX

     In July 2001, CombiMatrix entered into a non-exclusive worldwide license,
supply, research and development agreement with Roche Diagnostics GmbH
("Roche"). Under the terms of the agreement, Roche will purchase, use and resell
CombiMatrix's microarray and related technologies for rapid production of
customizable biochips. Additionally, CombiMatrix and Roche will develop a
platform technology, providing a range of standardized biochips for use in
research applications. The agreement has a 15-year term and provides for minimum
payments by Roche to CombiMatrix over the first three years, including milestone
achievements, payments for products, royalties and research and development
projects. In the third and fourth quarters of 2001, CombiMatrix received
up-front and milestone payments totaling $5.3 million from Roche, which are
included in deferred revenues in the accompanying December 31, 2001 consolidated
balance sheet.

     In August 2001, CombiMatrix entered into a license and supply agreement
with the National Aeronautics and Space Administration ("NASA"). The agreement
has a two-year term and provides for the license, purchase and use by the NASA
Ames Research Center of CombiMatrix's active biochips (microarrays) and related
technology to conduct biological research in terrestrial laboratories and in
space. As of December 31, 2001, CombiMatrix Corporation has received
non-refundable cash payments from NASA for their purchase of a microarray
synthesizer system as well as a license to use the technology for a 2-year
period. The existing agreement also provides for the sale of microarrays to NASA
in future periods. The NASA agreement contains customary contract provisions
regarding termination, including termination by either party in the event of a
breach of contract terms.

     In October 2001, CombiMatrix formed a joint venture with Marubeni Japan,
one of Japan's leading trading companies. The joint venture, based in Tokyo,
will focus on development and licensing opportunities for CombiMatrix's biochip
technology with pharmaceutical and biotechnology companies in the Japanese
market. Marubeni made an investment of $1.0 million to acquire a ten percent
(10%) minority interest in the joint venture.

     In the first quarter of 2000, CombiMatrix Corporation completed a private
equity financing raising gross proceeds of $17.5 million through the sale of
3,500,000 shares of CombiMatrix Corporation common stock. Acacia invested $10.0
million in this private placement to acquire 2,000,000 shares of CombiMatrix
Corporation common stock. The transaction was accounted for as a step
acquisition using the purchase method of accounting. The total purchase price
was allocated to the fair value of assets acquired and liabilities assumed. As a
result of the transaction, we increased our consolidated ownership interest in
CombiMatrix Corporation from 50.01% to 51.8%.

     In the third quarter of 2000, Acacia Research increased its consolidated
ownership interest in CombiMatrix Corporation from 51.8% to 61.4% by acquiring
from existing stockholders of CombiMatrix Corporation 1,163,850 shares of
CombiMatrix Corporation common stock in exchange for 488,557 shares of Acacia
Research's common stock. The transaction was accounted for as a step acquisition
using the purchase method of accounting. The fair value of the Acacia Research
shares issued in the transaction was based on the quoted market price of Acacia
Research's stock averaged over a five-day period (including two days before and
after the June 28, 2000 announcement date). The total purchase price of $11.6
million was allocated to the fair value of assets acquired and


                                      F-11



liabilities assumed, including acquired in-process research and development. The
amount attributable to goodwill was $2.9 million, which is amortized using the
straight-line method over the estimated remaining useful life of five years.
(See Note 2) The amount attributable to in-process research and development of
$2.5 million was charged to expense and is included in the consolidated
statement of operations and comprehensive loss for the year ended December 31,
2000.

     In the third quarter of 2000, CombiMatrix Corporation completed a private
equity financing raising gross proceeds of $36.0 million through the sale of
4,000,000 shares of CombiMatrix Corporation common stock. Acacia invested $17.5
million in this private placement to acquire 1,944,445 shares. The transaction
was accounted for as a step acquisition using the purchase method of accounting.
As a result of the transaction, our consolidated interest in CombiMatrix
Corporation decreased from 61.4% to 58.4%, and we recognized a gain which has
been reflected in stockholder's equity as a direct increase to capital in excess
of par.

     ADVANCED MATERIAL SCIENCES

     In May 2001, Advanced Material Sciences completed a private equity
financing raising gross proceeds of $2.0 million through the issuance of
2,000,000 shares of common stock. Acacia invested $155,000 in this private
placement to acquire 155,000 shares. As a result of the transaction, our equity
ownership in Advanced Material Sciences decreased from 66.7% to 58.1%. We
accounted for the purchase of 155,000 shares of Advanced Material Sciences as a
step acquisition using the purchase method of accounting. The total purchase
price was allocated to the fair value of assets acquired and liabilities
assumed. As a result of the decrease in our ownership interest due to our
disproportionate purchase of additional shares in Advanced Material Sciences, we
recorded a gain reflected in the statement of stockholders' equity as a direct
increase to capital in excess of par. Advanced Material Sciences issued an
additional 29,750 shares of common stock, in lieu of cash payments, and warrants
to purchase approximately 54,000 shares of common stock, for finders' fees in
connection with the private placement. Each common stock purchase warrant
entitles the holder to purchase shares of Advanced Material Sciences common
stock at a price of $1.10 per share.

     Advanced Material Sciences was formed in November 2000 and holds an
exclusive license to CombiMatrix's biological processor technology within the
field of material science. Initial investments in Advanced Material Sciences
consisted of $2.0 million from Acacia Research Corporation for the purchase of
6,000,000 shares and $1.0 million from CombiMatrix for the purchase of 4,000,000
shares.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     ACCOUNTING PRINCIPLES AND FISCAL YEAR END. The consolidated financial
statements and accompanying notes are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles in the
United States of America. We have a December 31 year end.

     PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of Acacia and its wholly-owned and
majority-owned subsidiaries. Material intercompany transactions and balances
have been eliminated in consolidation. Investments in companies in which we
maintain an ownership interest of 20% to 50% or exercise significant influence
over operating and financial policies are accounted for under the equity method.
The cost method is used where we maintain ownership interests of less than 20%
and do not exercise significant influence over the investee.

     REVENUE RECOGNITION. We recognize revenue in accordance with Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"). License fee income is recognized as revenue when (i) persuasive
evidence of an arrangement exists, (ii) all obligations have been performed
pursuant to the terms of the license agreement, (iii) amounts are fixed or
determinable and (iv) collectibility of amounts is reasonably assured. Revenue
from government grant and contract activities is accounted for in the period the
services are performed on a percentage-of-completion method of accounting
(determined by comparing actual costs incurred to total estimated costs) when
the services have been approved by the grantor and collectibility is reasonably
assured. Each arrangement for government grant or contract activities is
accounted for separately. Typically these contracts and arrangements involve
single accounting elements. For the Department of Defense ("DOD") grant that is
currently in progress, payment milestones are achieved when interim progress
reports are prepared and delivered to


                                      F-12



the DOD. Amounts recognized under the percentage-of-completion method are
limited to amounts due from customers based on contract or grant terms. Revenues
recognized under the percentage of completion method of accounting for
government grants and contracts were $456,000, $17,000 and $144,000 for the
years ending December 31, 2001, 2000 and 1999, respectively.

     Revenue from the sale of products and services is recognized when (i)
persuasive evidence of an arrangement exists, (ii) delivery has occurred or
services have been rendered, (iii) the fees are fixed and determinable and (iv)
collectibility is reasonably assured.

     Revenues from multiple-element arrangements involving license fees,
up-front payments and milestone payments, which are received or billable by us
in connection with other rights and services that represent continuing
obligations of ours, are deferred until all of the elements have been delivered
or until we have established objective and verifiable evidence of the fair value
of the undelivered elements.

     Deferred revenue arises from payments received in advance of the
culmination of the earnings process. Deferred revenue expected to be recognized
within the next twelve months is classified as a current liability. At December
31, 2001, we recorded $7.5 million as deferred revenues related to payments
received under multiple-element arrangements and other advances, which will be
recognized as revenue in future periods when the applicable revenue recognition
criteria as describe above are met. Approximately $5.3 million of this amount
was from payments received from Roche by CombiMatrix for milestones achieved as
of December 31, 2001. At that time, certain elements remained undelivered.
Management expects the remaining milestones will be completed and that objective
reliable evidence of fair value for the remaining undelivered elements will
exist by the end of 2002.

     CASH AND CASH EQUIVALENTS. We consider all highly liquid, short-term
investments with original maturities of three months or less when purchased to
be cash equivalents.

     SHORT-TERM INVESTMENTS. Our short-term investments are held in a variety of
interest bearing instruments including high-grade corporate bonds, commercial
paper, money market accounts and other marketable securities. Investments in
securities with maturities of greater than three months and less than one year
are classified as short-term investments. Investments are classified into
categories in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). Certain of our investments are
classified as available-for-sale, which are reported at fair value with related
unrealized gains and losses in the value of such securities recorded as a
separate component of comprehensive income (loss) in stockholders' equity until
realized. Certain of our investments are classified as trading securities, which
are reported at fair value. Realized and unrealized gains and losses in the
value of trading securities are included in net income (loss) in the
consolidated statements of operations and comprehensive loss.

     The fair value of our investments is primarily determined by quoted market
prices. Realized and unrealized gains and losses are recorded based on the
specific identification method. For investments classified as
available-for-sale, unrealized losses that are other than temporary are
recognized in net income.

     CONCENTRATION OF CREDIT RISKS. Cash and cash equivalents are invested in
deposits with certain financial institutions and may, at times, exceed federally
insured limits. We have not experienced any losses on our deposits of cash and
cash equivalents.

     PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost. Major
additions and improvements are capitalized. When these assets are sold or
otherwise disposed of, the asset and related depreciation are relieved, and any
gain or loss is included in income for the period of sale or disposal.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets, ranging from three to ten years.

     Certain equipment held under capital lease is included in property, plant
and equipment and amortized using the straight line method over the lease term.
The related capital lease obligation is recorded as a liability in the
consolidated balance sheet. Capital lease amortization is included in
depreciation expense in the consolidated statement of operations and
comprehensive loss.


                                      F-13



     PREPAID PUBLIC OFFERING COSTS. As of September 30, 2001, CombiMatrix
capitalized $1,353,000 of costs incurred in connection with the filing of a
registration statement with the Securities and Exchange Commission ("SEC") in
November 2000. Deferred costs totaling $918,000 are included in current assets
in our December 31, 2000 consolidated balance sheet. In the fourth quarter of
2001, all of these deferred costs were charged to operations.

     ORGANIZATION COSTS. Costs of start-up activities, including organization
costs, are expensed as incurred.

     MANAGEMENT FEES. Capital management fees in 1999 include asset-based and
performance-based fees earned from two domestic private investment partnerships
in which we were a general partner and two offshore investment corporations for
which we served as an investment advisor. These capital management fees were
recognized when earned in accordance with the respective partnership and
management agreements. Management fees also include income from other consulting
and management services provided by Acacia to other parties. These fees are
recognized when the related services are provided. On December 31, 1999, we
closed the Acacia Capital Management division.

     PATENTS AND GOODWILL. Patents, once issued, and goodwill are amortized on
the straight-line method over their estimated remaining useful lives, ranging
from three to twenty years. Amortization charged to operations relating to
goodwill amounted to $1,078,000, $921,000 and $465,000 at December 31, 2001,
2000 and 1999, respectively. Accumulated amortization of goodwill amounted to
$3,651,000 and $1,894,000 at December 31, 2001 and 2000, respectively.
Amortization charged to operations relating to patents amounted to $1,617,000,
$1,330,000 and $1,157,000 at December 31, 2001, 2000 and 1999, respectively.
Accumulated amortization of patents amounted to $5,655,000 and $4,038,000 at
December 31, 2001 and 2000, respectively.

     POTENTIAL IMPAIRMENT OF LONG-LIVED ASSETS. We review long-lived assets and
intangible assets for potential impairment when events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
In the event the sum of the expected undiscounted future cash flows resulting
from the use of the asset is less than the carrying amount of the asset, an
impairment loss equal to the excess of the asset's carrying value over its fair
value is recorded. If an asset is determined to be impaired, the loss is
measured based on quoted market prices in active markets, if available. If
quoted market prices are not available, the estimate of fair value is based on
various valuation techniques, including a discounted value of estimated future
cash flows.

     FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of cash and cash
equivalents, other receivables, accounts payable and accrued expenses
approximate fair value due to their short-term maturity. The carrying value of
our capital lease obligation approximates its fair value based on the current
interest rate for similar type instruments. The fair values of our investments
are primarily determined by quoted market prices.

     FOREIGN CURRENCY TRANSLATION. The functional currency of our foreign entity
is the local currency. Foreign currency translation is reported pursuant to SFAS
No. 52, "Foreign Currency Translation" ("SFAS No. 52"). Assets and liabilities
recorded in foreign currencies are translated at the exchange rate on the
balance sheet date. Translation adjustments resulting from this process are
charged or credited to other comprehensive income. Revenue and expenses are
translated at average rates of exchange prevailing during the year.

     STOCK-BASED COMPENSATION. Compensation cost of stock options issued to
employees is accounted for in accordance with Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No.
25") and related interpretations. Compensation cost attributable to such options
is recognized based on the difference, if any, between the closing market price
of the stock on the date of grant and the exercise price of the option.
Compensation cost is deferred and amortized on an accelerated basis over the
vesting period of the individual option awards using the amortization method
prescribed in Financial Accounting Standards Board ("FASB") Interpretation No.
28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans" ("FIN No. 28"). We have adopted the disclosure only requirements of
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") with
respect to options issued to employees. Compensation cost of stock options and
warrants issued to non-employee service providers is accounted for under the
fair value method required by SFAS No. 123 and Emerging Issues Task Force Issue
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."


                                      F-14



     See "ACCOUNTING CHANGES" for change in accounting policy for accrued
subsidiary employee stock-based compensation charges.

     RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist of costs incurred for direct and overhead-related research expenses and
are expensed as incurred. Costs to acquire technologies which are utilized in
research and development and which have no alternative future use are expensed
when incurred. Costs related to filing and pursuing patent applications are
expensed as incurred, as recoverability of such expenditures is uncertain.
Software developed for use in our products is expensed as incurred until both
(i) technological feasibility for the software has been established and (ii) all
research and development activities for the other components of the system have
been completed. We believe these criteria are met after we have received
evaluations from third-party test sites and completed any resulting
modifications to the products. Expenditures to date have been classified as
research and development expense.

     INCOME TAXES. Income taxes are accounted for using an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
Acacia's financial statements or tax returns. A valuation allowance is
established to reduce deferred tax assets if all, or some portion, of such
assets will more than likely not be realized.

     ACCOUNTING FOR SALES OF STOCK BY A SUBSIDIARY. Gains resulting from a
subsidiary's sale of stock to third-parties at a price per share in excess of
Acacia's average carrying amount per share are generally reflected in
stockholders' equity as a direct increase to capital in excess of par or stated
value. See Note 7 for description of current year gains reflected in
stockholders' equity as a result of our subsidiaries sales of stock to
third-parties.

     COMPREHENSIVE (LOSS) INCOME. Comprehensive income is the change in equity
from transactions and other events and circumstances other than those resulting
from investments by owners and distributions to owners.

     SEGMENT REPORTING. We use the management approach, which designates the
internal organization that is used by management for making operating decisions
and assessing performance as the basis of Acacia's reportable segments. At
December 31, 2001, our reporting segments were modified to include Soundview
Technologies and Acacia Media Technologies in our Acacia Media Technologies
Group segment. In addition, CombiMatrix and Advanced Material Sciences comprise
our Acacia Life Sciences Group segment. Segment information has been adjusted
for all periods presented.

     USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles 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.

     LOSS PER SHARE. Loss per share is presented on both a basic and diluted
basis. A reconciliation of the denominator of the basic EPS computation to the
denominator of the diluted EPS computation is as follows:



                                                                      2001         2000         1999
                                                                   ----------   ----------   ----------
                                                                                    
Weighted Average Number of Common Shares Outstanding Used
   in Computation of Basic EPS .................................   19,259,256   16,346,099   12,649,133
Dilutive Effect of Outstanding Stock Options and Warrants (a) ..           --           --           --
                                                                   ----------   ----------   ----------
Weighted Average Number of Common and Potential Common Shares
   Outstanding Used in Computation of Diluted EPS ..............   19,259,256   16,346,099   12,649,133
                                                                   ==========   ==========   ==========


----------
(a)  Potential common shares of 719,471, 1,046,072 and 940,002 at December 31,
     2001, 2000 and 1999, respectively, have been excluded from the per share
     calculation because the effect of their inclusion would be anti-dilutive.

     RECLASSIFICATIONS. Certain immaterial reclassifications of prior year
amounts have been made to conform to the 2001 presentation.


                                      F-15



     ACCOUNTING CHANGES. Effective January 1, 2001, we changed our accounting
policy for balance sheet classification of employee stock-based compensation
resulting from awards in consolidated subsidiaries. Historically, the
consolidated financial statements have accounted for cumulative earned employee
stock-based compensation related to subsidiaries as a liability, under the
caption "accrued stock compensation." Management believes a change to reflect
these cumulative charges as minority interests is preferable as it better
reflects the underlying economics of the stock-based compensation transaction.
As a result of the change, effective January 1, 2001, minority interests has
been increased by $10.4 million, and accrued stock compensation of $10.4 million
has been decreased. The change in accounting policy does not affect previously
reported consolidated net income.

     During March 1998, CombiMatrix issued $1,450,000 principal amount of 6%
unsecured subordinated convertible promissory notes due in 2001. The notes had a
contingent beneficial conversion feature with intrinsic value of $246,000. We
adopted Emerging Issues Task Force Consensus of Issues No. 00-27, "Application
of Issue No. 98-5 to Certain Convertible Instruments" ("EITF 00-27"), in the
fourth quarter of 2000. The adoption of EITF 00-27 resulted in a charge of
$246,000 in the year ended December 31, 2000 for the cumulative effect of a
change in accounting principle in accordance with APB Opinion No. 20,
"Accounting Changes."

     RECENT ACCOUNTING PRONOUNCEMENTS. In June 2001, the FASB issued SFAS No.
141, "Business Combinations" ("SFAS No. 141"), and SFAS No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 addresses financial
accounting and reporting for business combinations and supersedes APB Opinion
No. 16, "Business Combinations." Changes made by SFAS No. 141 include (1)
requiring the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and (2) established specific criteria
for the recognition of intangible assets separately from goodwill. These
provisions are effective for business combinations for which the date of
acquisition is subsequent to June 30, 2001.

     SFAS No. 142 addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. This standard provides that goodwill is not subject to amortization.
Instead, it is subject to a periodic review that must occur at least annually at
a reporting unit level for possible impairment. This review is known as the
"two-step" impairment test and provides that the initial "first-step" reviews of
each reporting unit must be completed within six months of the adoption of the
standard. The "first step" of the goodwill impairment test, used to identify
potential impairment, compares the fair value of a reporting unit with its
carrying amount, including goodwill. The fair value of our two reporting units
will be estimated using the expected present value of future cash flows, based
on the characteristics of the reporting units including discount rates and
growth rates based on management's estimates. If upon completion of these
initial reviews an impairment of goodwill is indicated, the "second step" will
be performed which will compare the implied fair value of each reporting unit
goodwill with the carrying amount of goodwill. While we have yet to complete the
initial review, we expect to do so during the second quarter of 2002. The
"second step" of the valuation of the impairment, if necessary, is to occur as
soon as possible, but no later than the end of our current fiscal year. Any
impairment resulting from the "second step" would be reported as a change in
accounting principle and would require retroactive recognition to the beginning
of this fiscal year. We currently do not expect to record an impairment charge
upon completion of the impairment review; however, there can be no assurance
that at the time the review is completed a material impairment charge will not
be recorded. We have $4,627,000 of goodwill at December 31, 2001 (net of
$3,569,000 of accumulated amortization) and recorded approximately $1.1 million
of goodwill amortization expense during 2001. The only identifiable intangible
assets we have are patents of $11,855,000 at December 31, 2001 (net of
$5,655,000 of accumulated amortization), which we do not expect to be impacted
by the adoption of this standard.

     We adopted SFAS No. 142 effective January 1, 2002 and ceased amortizing
goodwill on that date. (See also Note 16.) Our net income and earnings per
share, adjusted to exclude goodwill amortization expense, for the twelve months
ended December 31, 2001, 2000 and 1999, are as follows (in thousands, except for
earnings per share amounts):


                                      F-16



                                                FOR THE YEAR ENDED DECEMBER 31,
                                                -------------------------------
                                                  2001        2000        1999
                                                --------    --------    -------
Reported net loss                               $(22,272)   $(38,959)   $(8,197)
Add back: Goodwill amortization                    1,078         921        465
                                                --------    --------    -------
Adjusted net loss                               $(21,194)   $(38,038)   $(7,732)
                                                ========    ========    =======

BASIC EARNINGS PER SHARE:
Reported net loss                               $  (1.16)   $  (2.38)   $ (0.65)
Goodwill amortization                           $   0.06    $   0.06    $  0.04
                                                --------    --------    -------
Adjusted net loss                               $  (1.10)   $  (2.32)   $ (0.61)
                                                ========    ========    =======

DILUTED EARNINGS PER SHARE:
Reported net loss                               $  (1.16)   $  (2.38)   $ (0.65)
Goodwill amortization                           $   0.06    $   0.06    $  0.04
                                                --------    --------    -------
Adjusted net loss                               $  (1.10)   $  (2.32)   $ (0.61)
                                                ========    ========    =======

     The gross carrying amounts and accumulated amortization related to acquired
intangible assets, all related to patents, as of December 31, 2001 and 2000, are
as follows (in thousands):

                                                               AT DECEMBER 31,
                                                             ------------------
                                                               2001       2000
                                                             -------    -------
Gross carrying amount - patents                              $17,510    $13,076
Accumulated amortization                                      (5,655)    (4,038)
                                                             -------    -------
Patents, net                                                 $11,855    $ 9,038
                                                             =======    =======

     The estimated aggregate amortization expense for each of the five
succeeding years is as follows (in thousands):

                            ESTIMATED
                          AMORTIZATION
YEAR ENDED DECEMBER 31,      EXPENSE
-----------------------   ------------
         2002                1,862
         2003                  841
         2004                  841
         2005                  841
         2006                  841

     At December 31, 2001, all of Acacia Research's acquired intangible assets
were subject to amortization.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which addresses
financial accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of. SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." SFAS No. 144 also supersedes the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for segments of a
business to be disposed of. SFAS No. 144 also amends ARB No. 51, "Consolidated
Financial Statements," to eliminate the exception to consolidation for a
temporarily controlled subsidiary. SFAS No. 144 requires long-lived assets to be
tested for recoverability whenever events or changes in circumstances indicate
that its carrying amount may not be recoverable. In conjunction with such tests,
it may be necessary to review depreciation estimates and methods as required by
APB Opinion No. 20, "Accounting Changes," or the amortization period as required
by SFAS No. 142. We will adopt SFAS No. 144 effective January


                                      F-17



1, 2002. We are currently assessing the impact of SFAS No. 144 on our operating
results and financial condition upon adoption.

3.   SHORT-TERM INVESTMENTS

     Short-term investments consists of the following at December 31, 2001 and
2000 (in thousands):

                                                            AMORTIZED     FAIR
2001                                                          COST        VALUE
                                                            ---------   --------
Trading securities ......................................    $   --      $ 4,372

Available-for-sale-securities:
     Corporate bonds and notes ..........................     14,427      14,869
     U.S. government securities .........................      5,643       5,869
                                                             -------     -------
                                                             $20,070     $25,110
                                                             =======     =======

                                                            AMORTIZED     FAIR
2000                                                          COST        VALUE
                                                            ---------   --------
Available-for-sale-securities:
     Corporate bonds and notes ..........................    $37,689     $38,622
     U.S. government securities .........................      1,971       1,978
                                                             -------     -------
                                                             $39,660     $40,600
                                                             =======     =======

     Gross unrealized gains and losses related to available-for-sale securities
were not material for 2001 and 2000.

     Contractual maturities for investments in debt securities classified as
available-for-sale as of December 31, 2001 are as follows (in thousands):

                                                                         FAIR
                                                               COST      VALUE
                                                             -------    -------
Due within one year .....................................    $ 5,103    $ 5,669
Due after one year through two years ....................     14,967     15,069
                                                             -------    -------
                                                             $20,070    $20,738
                                                             =======    =======

4.   PROPERTY AND EQUIPMENT

     Property and equipment consists of the following at December 31, 2001 and
2000 (in thousands):

                                                               2001      2000
                                                             -------    ------
Machine shop and laboratory equipment ...................    $   844    $1,250
Furniture and fixtures ..................................        445       550
Computer hardware and software ..........................      1,203     1,085
Leasehold improvements ..................................        565       228
Facilities and equipment held under capital lease              3,000        --
Construction in progress ................................         84     1,346
                                                             -------    ------
                                                               6,141     4,459
Less:  accumulated depreciation and amortization ........     (1,235)     (732)
                                                             -------    ------
                                                             $ 4,906    $3,727
                                                             =======    ======


                                      F-18



     Depreciation expense was $1,174,000, $471,000 and $248,000 for the years
ended December 31, 2001, 2000 and 1999, respectively. Amortization of assets
held under capital lease was $161,000 for the year ended December 31, 2001.

5.   BALANCE SHEET COMPONENTS

     Accounts payable, accrued expenses and other consists of the following at
December 31, 2001 and December 31, 2000 (in thousands):

                                                               2001      2000
                                                              ------    ------
Accounts payable .........................................    $  837    $2,285
Payroll, vacation and other employee benefits ............     1,740       711
Accrued liabilities of discontinued operations ...........     1,342     3,599
Taxes payable ............................................       356        --
Accrued subsidiary stockholder redemption payments .......       217        --
Other accrued liabilities ................................     1,264     1,172
                                                              ------    ------
                                                              $5,756    $7,767
                                                              ======    ======

     Deferred revenues consist of the following at December 31, 2001 (in
thousands):

                                                               2001
                                                              -------
Milestone and up-front payments ..........................    $ 5,960
License fee payments .....................................      1,500
                                                              -------
                                                                7,460
Less:  current portion ...................................     (7,088)
                                                              -------
                                                              $   372
                                                              =======

6.   INVESTMENTS

     At December 31, 2000, we carried our 33% ownership interest in Acacia Media
Technologies, formerly Greenwich Information Technologies LLC, under the equity
method at a carrying value of $346,000. In November 2001, we increased our
ownership interest in Acacia Media Technologies from 33% to 100% through the
purchase of the ownership interest of the former limited liability company's
other member. In December 2001, Acacia Media Technologies was incorporated under
the laws of the State of Delaware and we changed the name from Greenwich
Information Technologies LLC to Acacia Media Technologies Corporation. The
ownership interest purchase has been accounted for as a purchase transaction in
accordance with SFAS No. 141. The excess purchase price was allocated to Acacia
Media Technologies' patent portfolio and is being amortized over the remaining
life of the respective patents, which is approximately 10 years. The results of
operations have been included in the consolidated statement of operations and
comprehensive loss from the date of acquisition. Pro forma results of operations
have not been presented because the effects of these acquisitions were not
material on either an individual or aggregate basis.

     In the first quarter of 2000, Acacia acquired a 7.6% interest in Advanced
Data Exchange for $3.0 million out of a $17.3 million private placement of
"non-voting" Series B preferred stock. Advanced Data Exchange is a corporation
engaged in business-to-business Internet exchange transactions that allow
mid-sized companies to exchange its purchase orders, purchase order
acknowledgments, advance ship notices, invoices and other business documents
over the Internet with supply chain partners and emerging digital marketplaces.
Subsequent to an additional $30 million equity financing completed in the second
quarter of 2000, we currently own a 4.9% interest in Advanced Data Exchange and
have no board of directors representation. Additional rounds of financing may
further dilute our interest. We do not have the ability to control decision
making at Advanced Data Exchange.


                                      F-19



     In the fourth quarter of 2000, in connection with a review of the carrying
value of our investment portfolio, we determined that certain of our early stage
investments accounted for under the equity method and certain consolidated
subsidiaries had experienced significant losses in value that were determined to
be other than temporary. The decline in value of these investments, which were
primarily start up phase businesses, was attributed to the existence of
continuing operating losses, management's determination that the associated
business models were no longer viable and in some cases the cessation of
operations of the respective entities, and management's assessment that such
investments were not recoverable. We recorded $1,016,000 in write-offs of early
stage investments and $2,603,000 in write-offs of certain equity investments.
The investments written-off were not individually material.

7.   STOCKHOLDERS' EQUITY

     The authorized capital stock of Acacia consists of 60,000,000 shares of
common stock, $0.001 par value, of which 19,592,459 and 17,699,646 (as adjusted
for ten percent (10%) stock dividend distributed on December 5, 2001) shares
were issued and outstanding as of December 31, 2001 and 2000, respectively, and
20,000,000 shares of preferred stock, $0.001 par value, no shares of which are
issued or outstanding. Under the terms of Acacia's Certificate of Incorporation,
the board of directors may determine the rights, preferences and terms of our
authorized but unissued shares of preferred stock. Holders of common stock are
entitled to one vote per share on all matters to be voted on by the
stockholders, and to receive ratably such dividends, if any, as may be declared
by the board of directors out of funds legally available therefore. Upon the
liquidation, dissolution or winding up of Acacia, the holders of common stock
are entitled to share ratably in all assets of Acacia which are legally
available for distribution, after payment of all debts and other liabilities.
Holders of common stock have no preemptive, subscription, redemption or
conversion rights.

     On October 22, 2001, our board of directors declared a ten percent (10%)
stock dividend. The stock dividend totaling 1,777,710 shares of our common stock
was distributed on December 5, 2001 to stockholders of record as of November 21,
2001. The fair value of the stock dividend paid, based on the market value of
our common stock on the date of declaration as adjusted for the dilutive effect
of the stock dividend declared, is reflected as a reclassification of
accumulated deficit in the amount of $21,688,000, to permanent capital,
represented by our common stock and additional paid-in capital accounts. All
references to the number of shares (other than common stock issued or
outstanding on the 2000 consolidated balance sheet and 2001, 2000 and 1999
consolidated statements of stockholders' equity), per share amounts and any
other reference to shares in the consolidated financial statements and
accompanying notes to the consolidated financial statements, unless otherwise
noted, have been adjusted to reflect the stock dividend on a retroactive basis.

     In May 2001, Advanced Material Sciences completed a private equity
financing raising gross proceeds of $2.0 million through the issuance of
2,000,000 shares of common stock. Acacia invested $155,000 in this private
placement to acquire 155,000 shares. As a result of the transaction, our equity
ownership in Advanced Material Sciences decreased from 66.7% to 58.1%.
Additionally, in October 2001, a subsidiary of CombiMatrix sold 10% of its
voting common stock to a joint venture partner in Japan. The gain, totaling
$1,283,000, resulting from our subsidiaries sale of stock to third-parties at a
price per share in excess of our carrying amount per share has been reflected as
a direct increase to additional paid-in capital in consolidated stockholders'
equity.


                                      F-20



8.   PROVISIONS FOR INCOME TAXES

     Provision (benefit) for income taxes consists of the following (in
thousands):

                                                          2001    2000   1999
                                                          -----   ----   ----
Current:
   U.S. Federal tax ...................................   $ 776   $  2    $12
   State taxes ........................................     186      4      8
                                                          -----   ----    ---
                                                            962      6     20
                                                          -----   ----    ---
Deferred:
   U.S. Federal tax ...................................    (182)   (79)    --
   State taxes ........................................      --     --     --
                                                          -----   ----    ---
                                                           (182)   (79)    --
                                                          -----   ----    ---
                                                          $ 780   $(73)   $20
                                                          =====   ====    ===

     The tax effects of temporary differences and carry forwards that give rise
to significant portions of deferred assets and liabilities consist of the
following at December 31, 2001 and 2000 (in thousands):

                                                            2001       2000
                                                          --------   --------
Basis of investments in affiliates ....................   $ 16,789   $  9,362
Intangibles ...........................................     (3,829)    (2,689)
Depreciation and amortization .........................         (4)      (118)
Stock compensation ....................................      6,993      2,737
Accrued liabilities ...................................      1,061        740
Net operating loss carry forwards and credits .........     25,084     27,257
                                                          --------   --------
                                                            46,094     37,289
Less: valuation allowance .............................    (49,923)   (39,978)
                                                          --------   --------
                                                          $ (3,829)  $ (2,689)
                                                          ========   ========

     A reconciliation of the federal statutory income tax rate and the effective
income tax rate is as follows:

                                                          2001    2000    1999
                                                          ----    ----    ----
Statutory federal tax rate ............................    (34%)   (34%)   (34%)
State income taxes, net of federal benefit ............     (3%)    (3%)    (3%)
Amortization of intangible assets .....................      2%      1%      5%
Stock compensation ....................................      7%      3%      0%
Valuation allowance ...................................     30%     33%     32%
                                                          ----    ----    ----
                                                             2%      0%      0%
                                                          ====    ====    ====

     At December 31, 2001, we had U.S. Federal and California state income tax
net operating loss carry forwards ("NOLs") of approximately $29,680,000 and
$16,531,000, expiring between 2002 and 2021, excluding NOLs at CombiMatrix and
other subsidiaries. In addition, we had tax credit carryforwards of
approximately $102,000.

     The aggregate tax NOLs at CombiMatrix and other subsidiaries are
approximately $40,225,000 and $8,999,000 for federal and state income tax
purposes, respectively, expiring between 2002 and 2021. CombiMatrix and other
subsidiaries also have tax credit carryforwards of approximately $840,000, which
begin expiring in 2011. However, the use of these NOLs and tax credits are
limited to the separate earnings of the respective subsidiaries. In addition,
ownership changes may also restrict the use of NOLs and tax credits.

     As of December 31, 2001, approximately $9,507,000 of the valuation
allowance related to the tax benefits of stock option deductions included in
Acacia's NOLs. At such time as the valuation allowance is released, the benefit
will be credited to additional paid-in capital.


                                      F-21



9.   DISCONTINUED OPERATIONS

     On February 13, 2001, the board of directors of Soundbreak.com Incorporated
("Soundbreak.com"), a majority-owned subsidiary of Acacia, resolved to cease
operations as of February 15, 2001 and liquidate the remaining assets and
liabilities of the subsidiary. Accordingly, we reported the results of
operations and the estimated loss on disposal of Soundbreak.com as results of
discontinued operations in the 2000 consolidated statements of operations and
comprehensive loss.

     Following is summary financial information for the discontinued operations
(in thousands):

                                                           2001      2000
                                                          -------   -------
Net sales .............................................   $     4   $    --
                                                          =======   =======

Loss from discontinued operations:
   Before minority interests ..........................   $16,437   $ 1,784
   Minority interests .................................    (8,994)   (1,008)
                                                          -------   -------
   Net ................................................   $ 7,443   $   776
                                                          =======   =======

Estimated loss on disposal:
   Before minority interests ..........................   $ 5,066   $    --
   Minority interests .................................    (2,955)       --
                                                          -------   -------
   Net ................................................   $ 2,111   $    --
                                                          =======   =======

     Discontinued operations did not have an impact on the December 31, 2001
consolidated statement of operations and comprehensive loss.

     The assets and liabilities of the discontinued operations at December 31,
2001 consist primarily of $4,014,000 of cash and cash equivalents and $1,342,000
of accounts payable and accrued expenses.

     The assets and liabilities of the discontinued operations at December 31,
2000 primarily consist of $6,620,000 of cash and cash equivalents, $10,000 of
management fees and other receivables, $74,000 of prepaid expenses, $164,000 of
other assets, $207,000 in property and equipment and $3,599,000 of accounts
payable and accrued expenses.

10.  STOCK OPTIONS AND WARRANTS

     We have three stock option plans currently in effect: the 1993 Stock Option
Plan (the "1993 Plan"), the 1996 Executive Stock Bonus Plan (the "Bonus Plan")
and the 1996 Stock Option Plan (the "1996 Plan").

     Options under the 1993 plan authorize the granting of both options intended
to qualify as "incentive stock options" under Section 422A of the Internal
Revenue Code ("Incentive Stock Options") and stock options that are not intended
to so qualify ("Nonqualified Stock Options") to officers, directors, employees,
consultants and others expected to provide significant services to Acacia or its
subsidiaries. The 1993 Plan covers an aggregate of 2,000,000 shares of common
stock. We have reserved 2,000,000 shares of common stock in connection with the
1993 Plan. Under the terms of the 1993 Plan, options may be exercised upon terms
approved by Acacia's board of directors and expire at a maximum of ten years
from the date of grant. Incentive Stock Options are granted at prices equal to
or greater than fair market value at the date of grant. Nonqualified Stock
Options are generally granted at prices equal to or greater than 85% of the fair
market value at the date of grant. All of the shares under the 1993 Plan have
been awarded.

     The Bonus Plan provided for a one-time grant of options to purchase an
aggregate of 720,000 shares of our common stock to directors, officers and other
key employees performing services for our affiliates and us. Under each option
agreement of the Bonus Plan, 25% of the options become exercisable on each of
the first four anniversaries of the grant date. The options granted under the
Bonus Plan expire in March 2001. All of the shares under the Bonus Plan have
been awarded.


                                      F-22



     In April 1996, the board of directors adopted the 1996 Plan, which was
approved by the stockholders in May 1996. The 1996 Plan provides for the grant
of Nonqualified Stock Options and Incentive Stock Options to key employees,
including officers of Acacia and its subsidiaries and certain other individuals.
The 1996 Plan also provides for the automatic grant of 20,000 shares of
Nonqualified Stock Options to non-employee directors upon initial election to
the board of directors and 2,000 shares thereafter on an annual basis under the
Non-Employee Director Program. These options are generally exercisable six
months to one year after grant and expire five years after grant for directors
or up to ten years after grant for key employees. In May 1998, stockholders
approved amendments to the 1996 Stock Option Plan, which increased the
authorized number of shares of common stock subject to the amended plan by
500,000 shares. In May 1999, stockholders approved amendments to the 1996 Stock
Option Plan, which increased the authorized number of shares of common stock
subject to the amended plan by 2,000,000 shares. In May 2000, stockholders
approved amendments to the 1996 Stock Option Plan, which increased the
authorized number of shares of common stock subject to the amended plan by
1,000,000 shares. At the years ended December 31, 2001 and 2000, 1,482,000 and
1,129,000 shares were available for grant, respectively.

     The following is a summary of common stock option activities:



                                                                         WEIGHTED
                                       SHARES     EXERCISE PRICES     AVERAGE PRICE
                                      ---------   ----------------   --------------
                                                                
Balance at December 31, 1998 ......   1,829,000   $ 0.91 -- $ 7.85       $ 2.95
Options Granted ...................     799,000   $ 3.89 -- $21.59       $12.22
Options Exercised .................    (359,000)  $ 0.91 -- $ 4.24       $ 2.11
Options Cancelled .................     (51,000)  $ 3.28 -- $ 7.16       $ 4.72
                                      ---------
Balance at December 31, 1999 ......   2,218,000   $ 0.91 -- $21.59       $ 6.38
Options Granted ...................   2,709,000   $14.55 -- $50.28       $27.90
Options Exercised .................    (585,000)  $ 2.39 -- $14.55       $ 3.41
Options Cancelled .................    (717,000)  $ 1.82 -- $46.79       $19.48
                                      ---------
Balance at December 31, 2000 ......   3,625,000   $ 2.77 -- $50.28       $20.51
Options Granted ...................   1,390,000   $ 5.65 -- $16.08       $ 7.14
Options Exercised .................    (790,000)  $ 2.77 -- $14.55       $ 3.48
Options Cancelled .................    (743,000)  $ 3.18 -- $48.69       $30.48
                                      ---------
Balance at December 31, 2001 ......   3,482,000   $ 3.47 -- $50.28       $16.94
                                      =========
Exercisable at December 31, 2000 ..   1,181,000   $ 2.77 -- $46.79       $ 7.48
Exercisable at December 31, 2001 ..   1,315,000   $ 3.47 -- $50.28       $18.47


     Options outstanding at year ended December 31, 2001 are summarized as
follows:



                            NUMBER OF    WEIGHTED AVERAGE      OUTSTANDING                     EXERCISABLE
                           OUTSTANDING      REMAINING       WEIGHTED AVERAGE     NUMBER      WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES     OPTIONS     CONTRACTUAL LIFE    EXERCISE PRICE    EXERCISABLE    EXERCISE PRICE
------------------------   -----------   ----------------   ----------------   -----------   ----------------
                                                                                   
$ 0.00 - $ 5.00 ........      103,000          0.5               $ 3.54           103,000         $ 3.54
$ 5.01 - $10.00 ........    1,354,000          8.6               $ 6.29           373,000         $ 6.13
$10.01 - $15.00 ........      135,000          5.2               $12.72            27,000         $13.93
$15.01 - $20.00 ........      179,000          8.8               $17.04           103,000         $17.28
$20.01 - $25.00 ........      761,000          7.6               $22.07           260,000         $21.97
$25.01 - $30.00 ........      615,000          7.5               $27.55           251,000         $27.61
$30.01 - $35.00 ........      212,000          6.8               $30.17           126,000         $30.17
$35.01 - $40.00 ........           --           --               $   --                --         $   --
$40.01 - $45.00 ........      116,000          8.2               $41.96            68,000         $41.97
$45.01 - $52.00 ........        7,000          8.2               $50.28             4,000         $50.28
                            ---------                                           ---------
                            3,482,000                                           1,315,000
                            =========                                           =========


     At year ended December 31, 2001, the total number of warrants outstanding
represent rights to purchase 960,000 and 1,240,000 shares of Acacia's common
stock at a per share exercise price of $30.00 and $19.09, respectively. At
December 31, 2000, the total number of warrants outstanding represent rights to
purchase 960,000 shares of Acacia's common stock at a per share exercise price
of $30.00.

     We have adopted the disclosure only requirements of SFAS No. 123 with
respect to options issued to employees. The weighted average fair value of
options granted during 2001, 2000 and 1999 for which the exercise price equals
the fair market price on the grant date was $4.19, $20.17 and $13.33,
respectively. The weighted


                                      F-23



average fair value of options granted during 1999 for which the exercise price
is less than fair market value on grant date was $16.70. There were no options
granted during 2001 or 2000 with exercise price less than the market value.

     As of December 31, 2001, CombiMatrix had a total of 3,534,000 shares of
options and warrants outstanding, of which, 1,798,000 shares are exercisable. As
of December 31, 2000, CombiMatrix had a total of 4,539,000 shares of options and
warrants outstanding, of which 1,062,000 shares are exercisable. As of December
31, 1999, CombiMatrix had a total of 798,000 shares of options and warrants
outstanding, of which 444,000 shares are exercisable.

     Had we accounted for stock compensation expense related to stock options
issued to employees in accordance with SFAS No. 123, our pro forma loss from
continuing operations and loss per share would have been as follows:



                                                                       2001           2000          1999
                                                                   ------------   ------------   -----------
                                                                                        
Loss from continuing operations as reported ....................   $(22,272,000)  $(29,159,000)  $(7,421,000)
Loss from continuing operations, pro forma .....................   $(30,806,000)  $(37,671,000)  $(8,505,000)
Basic loss per share from continuing operations as reported ....   $      (1.16)  $      (1.78)  $     (0.59)
Basic loss per share from continuing operations, pro forma .....   $      (1.60)  $      (2.31)  $     (0.67)
Diluted loss per share from continuing operations as reported ..   $      (1.16)  $      (1.78)  $     (0.59)
Diluted loss per share from continuing operations, pro forma ...   $      (1.60)  $      (2.31)  $     (0.67)


     The fair value of the options was determined using the Black-Scholes
option-pricing model, assuming weighted average risk free annual interest of
4.52%, 6.31% and 5.79% in 2001, 2000 and 1999, respectively, volatility of
approximately 75%, with expected lives of approximately four years and no
expected dividends.

11.  DEFERRED NON-CASH STOCK COMPENSATION CHARGES

     During the year ended December 31, 2000, our majority-owned subsidiary,
CombiMatrix, recorded deferred non-cash stock compensation charges aggregating
approximately $53.8 million in connection with the granting of stock options.
Pursuant to Acacia's policy, the stock options were granted at exercise prices
equal to the fair value of the underlying CombiMatrix stock on the date of grant
as determined by Acacia. However, such exercise prices were subsequently
determined to be below fair value due to a substantial step-up in the fair value
of CombiMatrix pursuant to a valuation provided by an investment banker in
contemplation of a potential CombiMatrix initial public offering in 2000. In
connection with the proposed CombiMatrix initial public offering and pursuant to
SEC rules and guidelines, we were required to reassess the value of stock
options issued during the one-year period preceding the potential initial public
offering and utilize the stepped-up fair value provided by the investment banker
for purposes of determining whether such stock option issuances were
compensatory, resulting in the calculation of the $53.8 million in deferred
non-cash stock compensation charges in 2000. Deferred non-cash stock
compensation charges are being amortized by CombiMatrix over the respective
option grant vesting periods, which range from one to four years. The table
below reflects the gross deferred non-cash stock compensation charges recorded
by CombiMatrix related to stock option grants, the amortization of deferred
non-cash stock compensation for 2001 and 2000, and the impact of certain other
CombiMatrix stock option transactions during 2001, as follows (in thousands):


                                                                                             
Gross CombiMatrix deferred non-cash stock compensation charges ..............................   $ 53,773
Less amounts amortized to date and other items:
Amortization through December 31, 2000 ......................................................     (9,709)
Deferred non-cash stock compensation charges related to 2001 stock option grants ............        729
Amortization for the year ended December 31, 2001 (net of $4,698,000 of amortization reversal
   related to forfeitures of certain unvested options and other) ............................    (18,807)
Forfeitures of certain unvested options (results in a net reduction in deferred stock
   compensation to be amortized in future periods) ..........................................    (13,220)
                                                                                                --------
Remaining CombiMatrix deferred non-cash stock compensation as of December 31, 2001 to be
   amortized in subsequent periods ..........................................................   $ 12,766
                                                                                                ========


     During the third and fourth quarters of 2001, certain CombiMatrix unvested
stock options were forfeited. Pursuant to the provisions of APB No. 25 and
related interpretations, the reversal of previously recognized non-cash stock
compensation expense on forfeited unvested stock options, in the amount of
$4,698,000, has been reflected in


                                      F-24



the consolidated statements of operations and comprehensive loss as a reduction
in 2001 non-cash stock compensation expense. In addition, the forfeiture of
certain unvested options during 2001 results in a reduction of the remaining
deferred non-cash stock compensation expense scheduled to be amortized in future
periods.

     The remaining deferred non-cash stock compensation balance as of December
31, 2001 related to stock options issued by CombiMatrix represents the future
non-cash deferred stock compensation expense that will be reflected in our
consolidated statements of operations and comprehensive loss as non-cash stock
compensation charges over the next twelve quarters from January 1, 2002 through
December 31, 2004 as follows (in thousands):



    YEAR       FIRST QUARTER   SECOND QUARTER   THIRD QUARTER   FOURTH QUARTER    TOTAL
------------   -------------   --------------   -------------   --------------   -------
                                                                  
2002 .......      $2,273           $2,311          $2,212           $1,276       $ 8,072
2003 .......       1,036            1,041             997              510         3,584
2004 .......         366              360             329               55         1,110
                                                                                 -------
                                                                                 $12,766
                                                                                 =======


     Non-cash deferred stock compensation expense scheduled to be recognized in
future periods reflected above may be impacted by certain subsequent stock
option transactions including modification of terms, cancellations, forfeitures
and other activity.

12.  COMMITMENTS AND CONTINGENCIES

SALE AND LEASEBACK ARRANGEMENT

     In September 2001, CombiMatrix entered into a sale and leaseback
arrangement with a bank, providing up to $7,000,000 in financing for equipment
and other capital purchases. Pursuant to the terms of the agreement, certain
equipment and leasehold improvements, totaling $2,557,000 in net book value were
sold to the bank at a purchase price of $3,000,000, resulting in a deferred gain
on the sale of assets of $443,000. The deferred gain is being amortized over 4
years, the term of the related lease arrangement. In addition, CombiMatrix
entered into a capital lease arrangement to lease the fixed assets from the
bank. The capital lease agreement provides CombiMatrix with the option to
purchase the equipment for a nominal amount at the end of the lease term, which
expires in September 2004.

     Future minimum lease payments under scheduled capital leases that have
initial or remaining non-cancelable terms in excess of one year are as follows
(in thousands):

YEAR
----
2002 .................................................................   $1,141
2003 .................................................................    1,141
2004 .................................................................      855
                                                                         ------
Total minimum payments ...............................................    3,137
Less: amount representing interest ...................................     (358)
                                                                         ------
Obligations under capital lease ......................................    2,779
Less: current portion ................................................     (934)
                                                                         ------
                                                                         $1,845
                                                                         ======


                                      F-25



OPERATING LEASES

     We lease certain office furniture and equipment and laboratory and office
space under various operating lease agreements expiring over the next 7 years.
Minimum annual rental commitments on operating leases of continuing operations
having initial or remaining non-cancelable lease terms in excess of one year are
as follows (in thousands):

YEAR
----
2002 ..............................................   $ 1,642
2003 ..............................................     1,894
2004 ..............................................     1,650
2005 ..............................................     1,721
2006 ..............................................     1,735
Thereafter.........................................     3,312
                                                      -------
Total minimum lease payments.......................   $11,954
                                                      =======

     Rent expenses of continuing operations at year ended December 31, 2001,
2000 and 1999 approximated $1,979,289, $1,032,000 and $431,000, respectively.

LITIGATION

     On November 28, 2000, Nanogen, Inc. ("Nanogen") filed suit against
CombiMatrix and one of its principal stockholders, who is also a member of
CombiMatrix's board of directors. Nanogen alleged breach of contract, trade
secret misappropriation and that United States Patent No. 6,093,302 and other
proprietary information belonging to CombiMatrix are instead the property of
Nanogen. The litigation is in early stages, and CombiMatrix cannot predict its
outcome. While CombiMatrix believes it has strong defenses to Nanogen's claims,
if Nanogen were to prevail in its suit against CombiMatrix and obtain the
injunction and monetary relief that is being sought, CombiMatrix could incur
significant financial liabilities that would materially affect our consolidated
financial condition and results of operations.

     Acacia is subject to other claims 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.

13.  SEGMENT INFORMATION

     Acacia has two reportable segments as follows:

     ACACIA MEDIA TECHNOLOGIES GROUP - Acacia Media Technologies Group owns
intellectual property related to the telecommunications field, including a
television blanking system, also known as the "V-chip," which it licenses to
television manufacturers. In addition, our media technologies group owns a
worldwide portfolio of pioneering patents relating to audio and video
transmission and receiving systems, commonly known as audio-on-demand and
video-on-demand, used for distributing content via various methods including
computer networks, cable television systems and direct broadcasting satellite
systems.

     ACACIA LIFE SCIENCES GROUP - CombiMatrix is developing a proprietary
biochip array processor system that integrates semiconductor technology with new
developments in biotechnology and chemistry. Our majority-owned subsidiary,
Advanced Material Sciences, holds the exclusive license for CombiMatrix's
biological array processor technology in certain fields of material sciences.

     We evaluate segment performances based on revenue earned and cost versus
earnings potential of future completed products or services. Material
intercompany transactions and transfers have been eliminated in consolidation.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Corporate and other includes
corporate costs, certain assets and liabilities and other


                                      F-26



investment activities, which are included in our consolidated financial
statements but are not allocated to the reportable segments.

     The table below presents information about our reportable segments in
continuing operations for the years ended December 31, 2001, 2000 and 1999 (in
thousands):



                                                        ACACIA MEDIA       ACACIA LIFE     CORPORATE AND
2001                                                 TECHNOLOGIES GROUP   SCIENCES GROUP       OTHER        TOTAL
                                                     ------------------   --------------   -------------   --------
                                                                                               
Revenue ..........................................       $ 24,130            $   456          $    50      $ 24,636
Amortization of patents and goodwill .............             49                 --            2,646         2,695
Other income .....................................             --                 --               77            77
Interest income ..................................            137              2,120            1,505         3,762
Interest expense .................................             --                 65               --            65
Realized gains on investments ....................             --                 --              350           350
Unrealized gains on investments ..................             --                 --              237           237
Equity in losses of affiliate ....................             --                 --              195           195
Loss (income) from continuing operations before
   operations before minority interests and taxes         (12,311)            44,416            6,927        39,032
Non-cash stock compensation charges ..............             --             19,963              856        20,819
Segment assets ...................................         10,339             40,161           56,168       106,668
Investments in affiliate, at cost ................             --                 --            3,000         3,000
Purchase of property and equipment                              7              3,756               12         3,775




                                                        ACACIA MEDIA       ACACIA LIFE     CORPORATE AND
2000                                                 TECHNOLOGIES GROUP   SCIENCES GROUP       OTHER         TOTAL
                                                     ------------------   --------------   -------------   --------
                                                                                               
Revenue ..........................................         $ --              $    17          $    40      $    57
Amortization of patents and goodwill .............           15                   --            2,236        2,251
Other income .....................................           --                   --               28           28
Interest income ..................................           --                1,661            1,425        3,086
Equity in losses of affiliates ...................           --                   --            1,746        1,746
Loss from continuing operations before minority
   interests and taxes ..........................           335               19,045           19,018       38,398
Non-cash stock compensation charges ..............           --               10,205              499       10,704
Segment assets ...................................          146               52,173           39,121       91,440
Investments in affiliate, at equity ..............           --                   --              346          346
Investments in affiliate, at cost ................           --                   --            3,000        3,000
Purchase of property and equipment                           13                2,921              459        3,393




                                                        ACACIA MEDIA       ACACIA LIFE     CORPORATE AND
1999                                                 TECHNOLOGIES GROUP   SCIENCES GROUP       OTHER         TOTAL
                                                     ------------------   --------------   -------------   --------
                                                                                               
Revenue ..........................................         $ --               $  144          $   122      $   266
Amortization of patents and goodwill .............           14                   --            1,608        1,622
Interest income ..................................           --                   40              293          333
Interest income ..................................           --                  253                1          254
Equity in losses of affiliates ...................           --                   --            1,121        1,121
Loss from continuing operations before minority
   interests and taxes ..........................           240                2,507            5,875        8,622
Non-cash stock compensation charges ..............           --                   19              127          146
Segment assets ...................................          150                1,908           43,396       45,454
Investments in affiliate, at equity ..............           --                   --            4,636        4,636
Purchase of property and equipment                           --                   85              156          241


     Segment information has been restated to exclude Soundbreak.com for the
years ended December 31, 2001, 2000 and 1999. See Note 9 to consolidated
financial statements.


                                      F-27



14.  SUBSEQUENT EVENTS

     In February 2002, CombiMatrix, a majority-owned subsidiary, was awarded a
Phase I National Institutes of Health grant for the development of its protein
biochip technology. The title of the grant is "Self-Assembling Protein
Microchips." This grant is in addition to a three-year Phase I and a Phase II
SBIR Grant from the U.S. Department of Defense for the development of
multiplexed chip based assays for chemical and biological warfare agent
detection.

     In February 2002, in conjunction with the relocation of our corporate
headquarters, we entered into a non-cancelable lease agreement to lease
approximately 7,143 square feet of office space in Newport Beach, California
through February 2007. Minimum annual rental commitments under this operating
lease are $255,000 in 2002; $286,000 in 2003; $295,000 in 2004; $303,000 in
2005; $312,000 in 2006; and $39,000, thereafter.

     In February 2002, we executed a sublease agreement, expiring in November
2003, to sublet the Pasadena, California office space. In 2002 and 2003, rent
expense will be offset by $142,399 and $154,418 respectively, related to rental
payments due pursuant to the terms of the sublease agreement.

     On March 20, 2002, we announced that our board of directors approved a plan
to divide our common stock into two new classes - new "CombiMatrix" common
stock, that would reflect the performance of our CombiMatrix subsidiary, and new
"Acacia Technologies" common stock, that would reflect the performance of our
media technology businesses, including Soundview Technologies and Acacia Media
Technologies. The plan will be submitted to our stockholders for approval. If
the recapitalization proposal were approved, our stockholders would receive
shares of both of the new classes of stock in exchange for existing Acacia
shares. The new share classes are intended to be separately listed on the NASDAQ
National Market System.

     We also announced that our board of directors and CombiMatrix's board of
directors have approved an agreement for Acacia to acquire the minority
stockholder interests in CombiMatrix. The proposed acquisition would be
accomplished through a merger in which the minority stockholders of CombiMatrix
would receive shares of the new "CombiMatrix" common stock, in exchange for
their existing shares. The proposed transaction will be submitted to the
stockholders of Acacia and CombiMatrix for approval.

     The proposed recapitalization and merger are subject to several important
conditions, including receipt of stockholder approval, receipt of satisfactory
tax and accounting opinions, approval of the proposed merger by a special
committee of the CombiMatrix board of directors, receipt of a fairness opinion,
approval for listing of both of the new shares on the NASDAQ National Market and
other customary conditions. We expect to present these proposals to our
stockholders for approval at a special meeting.

15.  SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS)



                                                                            FOR THE YEARS ENDED DECEMBER 31,
                                                                            --------------------------------
                                                                                 2001      2000     1999
                                                                               -------   -------   ------
                                                                                          
Supplemental disclosures of cash flow information:

Cash paid for interest ..................................................      $    42   $    79   $   78
Cash paid for income taxes ..............................................          597        --        7

Supplemental schedule of non-cash investing and financing activities:

Issuance of common stock for additional equity in consolidated
   subsidiary and affiliates ............................................           --    11,634      288
Liabilities assumed in acquisition of minority ownership interest in
   subsidiary ...........................................................          200        --       --
Increase in minority interests due to conversion of subsidiary notes
   payable ..............................................................           --        --    1,400
Fixed assets purchased with accounts payable ............................           --       917       --
Purchase of equipment under capital lease agreement .....................       (3,000)       --       --
Capital lease obligation incurred .......................................        3,000        --       --
Accrued payments for purchase of common stock from former minority
   stockholders of subsidiary ...........................................          217        --       --



                                      F-28



16.  INTERIM FINANCIAL INFORMATION (UNAUDITED)

UNAUDITED INTERIM INFORMATION

     The unaudited Acacia Research Corporation condensed consolidated financial
statements as of June 30, 2002, and for the three and six month periods ended
June 30, 2002 and 2001, 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 are not included herein. These interim condensed
consolidated financial statements should be read in conjunction with the Acacia
Research Corporation consolidated financial statements and notes thereto for the
year ended December 31, 2001.

     The unaudited interim Acacia Research Corporation condensed consolidated
financial statements include all adjustments of a normal recurring nature which,
in the opinion of management, are necessary for a fair presentation of our
financial position as of June 30, 2002, the results of our operations for the
three and six months ended June 30, 2002 and 2001, our cash flows for the six
months ended June 30, 2002 and 2001 and our stockholders' equity for the six
months ended June 30, 2002. The results of operations for the three and six
months ended June 30, 2002 are not necessarily indicative of the results to be
expected for the entire year.

LOSS PER SHARE

     Loss per share is presented on both a basic and diluted basis. A
reconciliation of the denominator of the basic loss per share computation to the
denominator of the diluted loss per share computation is as follows:



                                                         THREE MONTHS ENDED              SIX MONTHS ENDED
                                                   -----------------------------   -----------------------------
                                                   JUNE 30, 2002   JUNE 30, 2001   JUNE 30, 2002   JUNE 30, 2001
                                                   -------------   -------------   -------------   -------------
                                                                                        
Weighted Average Number of Common Shares
   Used in Computation of Basic EPS                 19,634,549      19,503,645      19,622,363      19,260,094
Dilutive Effect of Outstanding Stock Options and
   Warrants (a)                                             --              --              --              --
                                                    ----------      ----------      ----------      ----------
Weighted Average Number of Common and
   Potential Shares Outstanding Used in
   Computation of Diluted EPS                       19,634,549      19,503,645      19,622,363      19,260,094
                                                    ==========      ==========      ==========      ==========


----------
(a)  Potential common shares of 444,875 and 163,882 during the three months
     ended June 30, 2002 and 2001, respectively, have been excluded from the per
     share calculation because the effect of their inclusion would be
     anti-dilutive. Potential common shares of 536,154 and 671,090 during the
     six months ended June 30, 2002 and 2001, respectively, have been excluded
     from the per share calculation because the effect of their inclusion would
     be anti-dilutive.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" ("SFAS No. 141"), and SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). SFAS No. 141 addresses financial accounting and
reporting for business combinations and supersedes Accounting Principles Board
("APB") Opinion No. 16, "Business Combinations." Changes made by SFAS No. 141
include (1) requiring the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and (2) establishing specific
criteria for the recognition of intangible assets separately from goodwill.
These provisions are effective for business combinations for which the date of
acquisition is subsequent to June 30, 2001.

     We adopted SFAS No. 142 effective January 1, 2002 and ceased amortizing
goodwill on that date. SFAS No. 142 addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. This standard provides that goodwill is not subject to
amortization. Instead, it is subject to a periodic review that must occur at
least annually at a reporting unit level for possible impairment. This review is
known as the "two-step" impairment test and provides that the initial
"first-step" reviews of each reporting unit must be completed within six months
of the adoption of the standard. The "first-step" of the goodwill


                                      F-29



impairment test, used to identify potential impairment, compares the fair value
of each reporting unit with its carrying amount, including goodwill. If upon
completion of these initial reviews an impairment of goodwill is indicated, the
"second-step" is required to be performed, which will compare the implied fair
value of each reporting unit goodwill with the carrying amount of goodwill. In
connection with the adoption of SFAS No. 142, we performed a transitional
goodwill impairment assessment and determined that there was no impairment of
goodwill. The fair value of our two reporting units was estimated using a
discounted cash flow analysis. There can be no assurance that a future goodwill
impairment test will not result in a charge to earnings.

     The Acacia Media Technologies Group had $1,776,000 of goodwill at June 30,
2002 and December 31, 2001 (net of $2,258,000 of accumulated amortization) and
recorded approximately $45,000 and $89,000 of goodwill amortization expense
during the three and six months ended June 30, 2001, respectively. The Acacia
Life Sciences Group had $2,851,000 of goodwill at June 30, 2002 and December 31,
2001 (net of $1,311,000 of accumulated amortization) and recorded approximately
$203,000 and $402,000 of goodwill amortization expense during the three and six
months ended June 30, 2001, respectively.

     Our net loss and loss per share, adjusted to exclude goodwill amortization
expense, for the three and six months ended June 30, 2002 and 2001 are as
follows (in thousands, except earnings per share amounts):

                                       THREE MONTHS ENDED     SIX MONTHS ENDED
                                      -------------------   -------------------
                                      JUNE 30,   JUNE 30,   JUNE 30,   JUNE 30,
                                        2002       2001       2002       2001
                                      --------   --------   --------   --------
Reported net loss                     $(9,701)   $(4,772)   $(16,127)  $(14,251)
Add back: goodwill amortization            --        248          --       491
                                      -------    -------    --------   --------
Adjusted net loss                     $(9,701)   $(4,524)   $(16,127)  $(13,760)
                                      =======    =======    ========   ========

LOSS PER SHARE (BASIC AND DILUTED):
Reported net loss                     $ (0.49)   $ (0.25)   $  (0.82)  $  (0.74)
Goodwill amortization                      --       0.01          --      0.03
                                      -------    -------    --------   --------
Adjusted net loss                     $ (0.49)   $ (0.24)   $  (0.82)  $  (0.71)
                                      =======    =======    ========   ========

     Acacia's only identifiable intangible assets are patents totaling
$10,857,000 and $11,855,000 at June 30, 2002 and December 31, 2001 (net of
$6,753,000 and $5,655,000 of accumulated amortization, respectively). The gross
carrying amounts and accumulated amortization related to acquired intangible
assets, all related to patents, by segment, as of June 30, 2002 and December 31,
2001 are as follows (in thousands):



                                  ACACIA MEDIA TECHNOLOGIES GROUP        LIFE SCIENCES GROUP
                                  -------------------------------   -----------------------------
                                   AT JUNE 30,   AT DECEMBER 31,    AT JUNE 30,   AT DECEMBER 31,
                                      2002            2001             2002            2001
                                   -----------   ---------------    -----------   ---------------
                                                                          
Gross carrying amount - patents      $10,798         $10,698          $6,812          $6,812
Accumulated amortization              (6,072)         (5,144)           (681)           (511)
                                     -------         -------          ------          ------
Patents, net                         $ 4,726         $ 5,554          $6,131          $6,301
                                     =======         =======          ======          ======


     Aggregate patent amortization expense was $564,000 ($465,000 and $99,000
for the Acacia Technologies Group and the Acacia Life Sciences Group,
respectively) and $390,000 ($291,000 and $99,000 for the Acacia Technologies
Group and the Acacia Life Sciences Group, respectively) for the three months
ended June 30, 2002 and 2001, respectively. Aggregate patent amortization
expense was $1,128,000 ($930,000 and $198,000 for the Acacia Technologies Group
and the Acacia Life Sciences Group, respectively) and $780,000 ($582,000 and
$198,000 for the Acacia Technologies Group and the Acacia Life Sciences Group,
respectively) for the six months ended June 30, 2002 and 2001, respectively.


                                      F-30



     The estimated aggregate amortization expense for the years ended December
31, 2002 through 2006 is as follows (in thousands):

                  ESTIMATED
 YEAR ENDED     AMORTIZATION
DECEMBER 31,      EXPENSE
------------    ------------
    2002           1,862
    2003             841
    2004             841
    2005             841
    2006             841

     At June 30, 2002 and December 31, 2001, all of our acquired intangible
assets were subject to amortization.

     On January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS No. 144"), which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." SFAS No. 144 also supersedes the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for segments of a
business to be disposed of. SFAS No. 144 also amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to eliminate the exception
to consolidation for a temporarily controlled subsidiary. SFAS No. 144 requires
long-lived assets to be tested for recoverability whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. In
conjunction with such tests, it may be necessary to review depreciation
estimates and methods as required by APB Opinion No. 20, "Accounting Changes,"
or the amortization period as required by SFAS No. 142. The adoption of SFAS No.
144 did not have a material effect on our consolidated results of operations or
financial position.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," ("SFAS No. 145"), which is effective for transactions occurring
after May 15, 2002. SFAS No. 145 rescinds SFAS No. 4 and SFAS No. 64, which
addressed the accounting for gains and losses from extinguishment of debt. SFAS
No. 44 set forth industry-specific transitional guidance that did not apply to
us. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications
that have economic effects similar to sale-leaseback transactions be accounted
for in the same manner as sale-leaseback transactions. SFAS No. 145 also makes
technical corrections to certain existing pronouncements that are not
substantive in nature. We do not expect the adoption of SFAS No. 145 to have a
significant impact on our financial position or results of operations.

     In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity," under which a liability for an exit cost was recognized at the date
of an entity's commitment to an exit plan. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
at fair value when the liability is incurred. The provisions of this statement
are effective for exit or disposal activities that are initiated after December
31, 2002. We do not expect the adoption of SFAS No. 146 to have a significant
impact on our financial position or results of operations.

INVESTMENTS IN CONSOLIDATED SUBSIDIARIES

     On April 25, 2002, our majority-owned subsidiary, CombiMatrix, purchased
our interest in Advanced Material Sciences. CombiMatrix issued 180,982 shares of
its common stock in exchange for our 58% interest in Advanced Material Sciences.
As a result of the sale of our interest in Advanced Material Sciences,
CombiMatrix currently owns 87% of Advanced Material Sciences and the remaining
interests are owned by unaffiliated entities.


                                      F-31



The purchase was accounted for pursuant to APB Opinion No. 16, "Business
Combinations," and related interpretations and EITF 90-5, "Exchanges of
Ownership Interests between Entities under Common Control." Accordingly, the
transaction was accounted for using Acacia's basis in the net assets of Advanced
Material Sciences and as a result, Acacia's consolidated financial statements
continue to reflect the assets and liabilities of Advanced Material Sciences at
historical cost.

SEGMENT INFORMATION

     Acacia has two reportable segments as follows:

     Acacia Media Technologies Group - Acacia Media Technologies Group owns
intellectual property related to the telecommunications field, including a
television blanking system, also known as the "V-chip," which it licenses to
television manufacturers. In addition, our media technologies group owns a
worldwide portfolio of pioneering patents relating to audio and video
transmission and receiving systems, commonly known as audio-on-demand and
video-on-demand, used for distributing content via various methods including
computer networks, cable television systems and direct broadcasting satellite
systems.

     Acacia Life Sciences Group - Acacia Life Science Group includes our
majority-owned subsidiary, CombiMatrix, which is developing a proprietary
biochip array processor system that integrates semiconductor technology with new
developments in biotechnology and chemistry. CombiMatrix's majority-owned
subsidiary, Advanced Material Sciences, holds the exclusive license for
CombiMatrix's biological array processor technology in certain fields of
material sciences (see Note 4).

     We evaluate segment performances based on revenue earned and cost versus
earnings potential of future completed products or services. Material
intercompany transactions and transfers have been eliminated in consolidation.

     The accounting policies of the segments are the same as those described in
our Annual Report on Form 10-K. Corporate and other includes corporate costs,
certain assets and liabilities and other investment activities (including
certain intangibles recorded in connection with the acquisition of various
ownership interests in our subsidiaries), which are included in our consolidated
financial statements but are not allocated to the reportable segments.

     We use the management approach, which designates the internal organization
that is used by management for making operating decisions and assessing
performance as the basis of our reportable segments. At December 31, 2001, our
reporting segments were adjusted to include our wholly owned subsidiaries
Soundview Technologies Incorporated ("Soundview Technologies") and Acacia Media
Technologies Corporation, in our Acacia Media Technologies Group segment. In
addition, CombiMatrix and its subsidiaries comprise our Acacia Life Sciences
Group segment. Segment information has been adjusted for all periods presented.

     The table below presents information about our reportable segments in
continuing operations for the three months ended June 30, 2002 and 2001:



                                                                  ACACIA MEDIA   ACACIA LIFE
                                                                  TECHNOLOGIES     SCIENCES     CORPORATE
THREE MONTHS ENDED JUNE 30, 2002                                      GROUP         GROUP       AND OTHER       TOTAL
---------------------------------------------------------------   ------------   -----------   -----------   -----------
                                                                                                 
Revenue                                                            $        --   $   438,000   $        --   $   438,000
Amortization of patents                                                 19,000            --       545,000       564,000
Other income                                                             5,000            --        29,000        34,000
Interest income                                                          6,000       143,000       144,000       293,000
Interest expense                                                            --        56,000         1,000        57,000
Realized losses on investments                                              --            --       930,000       930,000
Unrealized losses on investments                                            --            --       156,000       156,000
Loss from operations before income taxes and minority interests        583,000     9,432,000     3,865,000    13,880,000
Non-cash stock compensation charges                                         --     2,135,000         8,000     2,143,000
Segment assets                                                      10,146,000    28,721,000    50,293,000    89,160,000
Investment in affiliate, at cost                                            --            --     3,000,000     3,000,000
Purchase of property and equipment                                          --       289,000        19,000       308,000



                                      F-32





                                                                             ACACIA         ACACIA
                                                                              MEDIA          LIFE
                                                                           TECHNOLOGIES    SCIENCES      CORPORATE
THREE MONTHS ENDED JUNE 30, 2001                                              GROUP          GROUP       AND OTHER       TOTAL
------------------------------------------------------------------------   ------------   -----------   -----------   ------------
                                                                                                          
Revenue                                                                     $10,000,000   $    91,000   $        --   $ 10,091,000
Amortization of patents and goodwill                                              5,000            --       633,000        638,000
Other income                                                                         --            --        57,000         57,000
Interest income                                                                  32,000       559,000       438,000      1,029,000
Equity in losses of affiliate                                                        --            --        55,000         55,000
(Income) loss from operations before income taxes and minority interests     (5,055,000)   12,589,000     1,372,000      8,906,000
Non-cash stock compensation charges                                                  --     7,177,000        12,000      7,189,000
Segment assets                                                                6,326,000    44,000,000    54,977,000    105,303,000
Investment in affiliate, at equity                                                   --            --       235,000        235,000
Investment in affiliate, at cost                                                     --            --     3,000,000      3,000,000
Purchase of property and equipment                                                2,000     1,083,000            --      1,085,000


     The table below presents information about our reportable segments in
continuing operations for the six months ended June 30, 2002 and 2001:



                                                                             ACACIA         ACACIA
                                                                              MEDIA          LIFE
                                                                           TECHNOLOGIES    SCIENCES      CORPORATE
SIX MONTHS ENDED JUNE 30, 2002                                                GROUP          GROUP       AND OTHER       TOTAL
------------------------------------------------------------------------   ------------   -----------   -----------   -----------
                                                                                                          
Revenue                                                                     $        --   $   687,000   $        --   $   687,000
Amortization of patents                                                          39,000            --     1,089,000     1,128,000
Other income                                                                      5,000            --       107,000       112,000
Interest income                                                                  14,000       393,000       293,000       700,000
Interest expense                                                                     --       115,000         6,000       121,000
Realized losses on investments                                                       --            --     1,483,000     1,483,000
Unrealized losses on investments                                                     --            --       477,000       477,000
Loss from operations before income taxes and minority interests                 956,000    15,083,000     6,771,000    22,810,000
Non-cash stock compensation charges                                                  --     3,547,000        19,000     3,566,000
Segment assets                                                               10,146,000    28,721,000    50,293,000    89,160,000
Investment in affiliate, at cost                                                     --            --     3,000,000     3,000,000
Purchase of property and equipment                                                   --       467,000        73,000       540,000




                                                                             ACACIA         ACACIA
                                                                              MEDIA          LIFE
                                                                           TECHNOLOGIES    SCIENCES      CORPORATE
SIX MONTHS ENDED JUNE 30, 2002                                                GROUP          GROUP       AND OTHER       TOTAL
------------------------------------------------------------------------   ------------   -----------   -----------   ------------
                                                                                                          
Revenue                                                                     $12,390,000   $   274,000   $    50,000   $ 12,714,000
Amortization of patents and goodwill                                             10,000            --     1,261,000      1,271,000
Other income                                                                         --            --        61,000         61,000
Interest income                                                                  35,000     1,292,000       897,000      2,224,000
Equity in losses of affiliate                                                        --            --       110,000        110,000
(Income) loss from operations before income taxes and minority interests     (6,121,000)   25,586,000     4,098,000     23,563,000
Non-cash stock compensation charges                                                  --    14,775,000       833,000     15,608,000
Segment assets                                                                6,326,000    44,000,000    54,977,000    105,303,000
Investment in affiliate, at equity                                                   --            --       235,000        235,000
Investment in affiliate, at cost                                                     --            --     3,000,000      3,000,000
Purchase of property and equipment                                                6,000     2,559,000        37,000      2,602,000


     Segment information excludes discontinued operations related to
Soundbreak.com as of and for the three and six months ended June