0000934549 false --12-31 2020 Q2
0000934549 2020-01-01 2020-06-30 0000934549 2020-08-03 0000934549
2020-06-30 0000934549 2019-12-31 0000934549
us-gaap:RedeemablePreferredStockMember 2020-06-30 0000934549
us-gaap:RedeemablePreferredStockMember 2019-12-31 0000934549
2020-04-01 2020-06-30 0000934549 2019-04-01 2019-06-30 0000934549
2019-01-01 2019-06-30 0000934549
us-gaap:GeneralAndAdministrativeExpenseMember 2020-04-01 2020-06-30
0000934549 us-gaap:GeneralAndAdministrativeExpenseMember 2019-04-01
2019-06-30 0000934549 us-gaap:GeneralAndAdministrativeExpenseMember
2020-01-01 2020-06-30 0000934549
us-gaap:GeneralAndAdministrativeExpenseMember 2019-01-01 2019-06-30
0000934549 ACTG:NonCashStockCompensationExpenseMember 2020-04-01
2020-06-30 0000934549 ACTG:NonCashStockCompensationExpenseMember
2019-04-01 2019-06-30 0000934549
ACTG:NonCashStockCompensationExpenseMember 2020-01-01 2020-06-30
0000934549 ACTG:NonCashStockCompensationExpenseMember 2019-01-01
2019-06-30 0000934549
ACTG:SeriesARedeemableConvertiblePreferredStockMember 2020-03-31
0000934549 us-gaap:CommonStockMember 2020-03-31 0000934549
us-gaap:TreasuryStockMember 2020-03-31 0000934549
us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0000934549
us-gaap:RetainedEarningsMember 2020-03-31 0000934549
us-gaap:NoncontrollingInterestMember 2020-03-31 0000934549
2020-03-31 0000934549
ACTG:SeriesARedeemableConvertiblePreferredStockMember 2020-04-01
2020-06-30 0000934549 us-gaap:CommonStockMember 2020-04-01
2020-06-30 0000934549 us-gaap:TreasuryStockMember 2020-04-01
2020-06-30 0000934549 us-gaap:AdditionalPaidInCapitalMember
2020-04-01 2020-06-30 0000934549 us-gaap:RetainedEarningsMember
2020-04-01 2020-06-30 0000934549
us-gaap:NoncontrollingInterestMember 2020-04-01 2020-06-30
0000934549 ACTG:SeriesARedeemableConvertiblePreferredStockMember
2020-06-30 0000934549 us-gaap:CommonStockMember 2020-06-30
0000934549 us-gaap:TreasuryStockMember 2020-06-30 0000934549
us-gaap:AdditionalPaidInCapitalMember 2020-06-30 0000934549
us-gaap:RetainedEarningsMember 2020-06-30 0000934549
us-gaap:NoncontrollingInterestMember 2020-06-30 0000934549
ACTG:SeriesARedeemableConvertiblePreferredStockMember 2019-03-31
0000934549 us-gaap:CommonStockMember 2019-03-31 0000934549
us-gaap:TreasuryStockMember 2019-03-31 0000934549
us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0000934549
us-gaap:RetainedEarningsMember 2019-03-31 0000934549
us-gaap:NoncontrollingInterestMember 2019-03-31 0000934549
2019-03-31 0000934549
ACTG:SeriesARedeemableConvertiblePreferredStockMember 2019-04-01
2019-06-30 0000934549 us-gaap:CommonStockMember 2019-04-01
2019-06-30 0000934549 us-gaap:TreasuryStockMember 2019-04-01
2019-06-30 0000934549 us-gaap:AdditionalPaidInCapitalMember
2019-04-01 2019-06-30 0000934549 us-gaap:RetainedEarningsMember
2019-04-01 2019-06-30 0000934549
us-gaap:NoncontrollingInterestMember 2019-04-01 2019-06-30
0000934549 ACTG:SeriesARedeemableConvertiblePreferredStockMember
2019-06-30 0000934549 us-gaap:CommonStockMember 2019-06-30
0000934549 us-gaap:TreasuryStockMember 2019-06-30 0000934549
us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0000934549
us-gaap:RetainedEarningsMember 2019-06-30 0000934549
us-gaap:NoncontrollingInterestMember 2019-06-30 0000934549
2019-06-30 0000934549
ACTG:SeriesARedeemableConvertiblePreferredStockMember 2019-12-31
0000934549 us-gaap:CommonStockMember 2019-12-31 0000934549
us-gaap:TreasuryStockMember 2019-12-31 0000934549
us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0000934549
us-gaap:RetainedEarningsMember 2019-12-31 0000934549
us-gaap:NoncontrollingInterestMember 2019-12-31 0000934549
ACTG:SeriesARedeemableConvertiblePreferredStockMember 2020-01-01
2020-06-30 0000934549 us-gaap:CommonStockMember 2020-01-01
2020-06-30 0000934549 us-gaap:TreasuryStockMember 2020-01-01
2020-06-30 0000934549 us-gaap:AdditionalPaidInCapitalMember
2020-01-01 2020-06-30 0000934549 us-gaap:RetainedEarningsMember
2020-01-01 2020-06-30 0000934549
us-gaap:NoncontrollingInterestMember 2020-01-01 2020-06-30
0000934549 ACTG:SeriesARedeemableConvertiblePreferredStockMember
2018-12-31 0000934549 us-gaap:CommonStockMember 2018-12-31
0000934549 us-gaap:TreasuryStockMember 2018-12-31 0000934549
us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000934549
us-gaap:RetainedEarningsMember 2018-12-31 0000934549
us-gaap:NoncontrollingInterestMember 2018-12-31 0000934549
2018-12-31 0000934549
ACTG:SeriesARedeemableConvertiblePreferredStockMember 2019-01-01
2019-06-30 0000934549 us-gaap:CommonStockMember 2019-01-01
2019-06-30 0000934549 us-gaap:TreasuryStockMember 2019-01-01
2019-06-30 0000934549 us-gaap:AdditionalPaidInCapitalMember
2019-01-01 2019-06-30 0000934549 us-gaap:RetainedEarningsMember
2019-01-01 2019-06-30 0000934549
us-gaap:NoncontrollingInterestMember 2019-01-01 2019-06-30
0000934549 2019-01-01 2019-12-31 0000934549
ACTG:PaidUpRevenueAgreementsMember 2020-04-01 2020-06-30 0000934549
ACTG:PaidUpRevenueAgreementsMember 2019-04-01 2019-06-30 0000934549
ACTG:PaidUpRevenueAgreementsMember 2020-01-01 2020-06-30 0000934549
ACTG:PaidUpRevenueAgreementsMember 2019-01-01 2019-06-30 0000934549
ACTG:RecurringRevenueAgreementsMember 2020-04-01 2020-06-30
0000934549 ACTG:RecurringRevenueAgreementsMember 2019-04-01
2019-06-30 0000934549 ACTG:RecurringRevenueAgreementsMember
2020-01-01 2020-06-30 0000934549
ACTG:RecurringRevenueAgreementsMember 2019-01-01 2019-06-30
0000934549 us-gaap:SalesRevenueNetMember ACTG:OneLicenseeMember
2020-04-01 2020-06-30 0000934549 us-gaap:SalesRevenueNetMember
ACTG:OneLicensee2Member 2020-04-01 2020-06-30 0000934549
us-gaap:SalesRevenueNetMember ACTG:OneLicensee3Member 2020-04-01
2020-06-30 0000934549 us-gaap:SalesRevenueNetMember
ACTG:OneLicenseeMember 2020-01-01 2020-06-30 0000934549
us-gaap:SalesRevenueNetMember ACTG:OneLicensee2Member 2020-01-01
2020-06-30 0000934549 us-gaap:SalesRevenueNetMember
ACTG:OneLicensee3Member 2020-01-01 2020-06-30 0000934549
us-gaap:SalesRevenueNetMember ACTG:OneLicensee4Member 2020-01-01
2020-06-30 0000934549 us-gaap:SalesRevenueNetMember
ACTG:OneLicenseeMember 2019-04-01 2019-06-30 0000934549
us-gaap:SalesRevenueNetMember ACTG:OneLicenseeMember 2019-01-01
2019-06-30 0000934549 us-gaap:SalesRevenueNetMember
ACTG:OneLicensee2Member 2019-01-01 2019-06-30 0000934549
us-gaap:SalesRevenueNetMember ACTG:ForeignLicenseeMember 2020-04-01
2020-06-30 0000934549 us-gaap:SalesRevenueNetMember
ACTG:ForeignLicenseeMember 2020-01-01 2020-06-30 0000934549
us-gaap:SalesRevenueNetMember ACTG:ForeignLicenseeMember 2019-04-01
2019-06-30 0000934549 us-gaap:SalesRevenueNetMember
ACTG:ForeignLicenseeMember 2019-01-01 2019-06-30 0000934549
us-gaap:AccountsReceivableMember ACTG:OneLicenseeMember 2020-01-01
2020-06-30 0000934549 us-gaap:AccountsReceivableMember
ACTG:OneLicensee2Member 2020-01-01 2020-06-30 0000934549
us-gaap:AccountsReceivableMember ACTG:OneLicensee3Member 2020-01-01
2020-06-30 0000934549 us-gaap:AccountsReceivableMember
ACTG:OneLicenseeMember 2019-01-01 2019-12-31 0000934549
us-gaap:AccountsReceivableMember ACTG:OneLicensee2Member 2019-01-01
2019-12-31 0000934549 ACTG:TradingSecuritesOtherEquityMember
2020-06-30 0000934549 ACTG:TradingSecuritesOtherEquityMember
2020-01-01 2020-06-30 0000934549 ACTG:TradingSecuritesDebtMember
2019-12-31 0000934549 ACTG:TradingSecuritesDebtMember 2019-01-01
2019-12-31 0000934549 ACTG:TradingSecuritesEquityMember 2019-12-31
0000934549 ACTG:TradingSecuritesEquityMember 2019-01-01 2019-12-31
0000934549 us-gaap:AssetsMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:TradingSecuritiesEquityMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:TradingSecuritiesEquityMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:TradingSecuritiesEquityMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:EquitySecuritiesForwardContractMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:EquitySecuritiesForwardContractMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:EquitySecuritiesForwardContractMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:WarrantInvestmentMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:WarrantInvestmentMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:WarrantInvestmentMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember 2020-06-30 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:TradingSecuritiesDebtMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:TradingSecuritiesDebtMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:TradingSecuritiesDebtMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:TradingSecuritiesEquityMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:TradingSecuritiesEquityMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:TradingSecuritiesEquityMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:WarrantInvestmentMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:WarrantInvestmentMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:WarrantInvestmentMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:CommonStockInvestmentMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:CommonStockInvestmentMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:CommonStockInvestmentMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000934549
us-gaap:AssetsMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesAWarrantsMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesAWarrantsMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesAWarrantsMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesBWarrantsMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesBWarrantsMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesBWarrantsMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:EmbeddedDerivativeLiabilityMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:EmbeddedDerivativeLiabilityMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:EmbeddedDerivativeLiabilityMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesAWarrantsMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesAWarrantsMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesAWarrantsMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:EmbeddedDerivativeLiabilityMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:EmbeddedDerivativeLiabilityMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:EmbeddedDerivativeLiabilityMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel1Member
us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel2Member
us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesAEmbeddedDerivativeLiabilityMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesBWarrantsLiabilityMember 2019-12-31 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesAEmbeddedDerivativeLiabilityMember 2020-01-01 2020-06-30
0000934549 us-gaap:LiabilityMember
us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesBWarrantsLiabilityMember 2020-01-01 2020-06-30
0000934549 us-gaap:LiabilityMember
us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesAEmbeddedDerivativeLiabilityMember 2020-06-30 0000934549
us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member
us-gaap:FairValueMeasurementsRecurringMember
ACTG:SeriesBWarrantsLiabilityMember 2020-06-30 0000934549
ACTG:VeritoneMember 2020-06-30 0000934549
us-gaap:MeasurementInputPriceVolatilityMember
ACTG:BlackScholesModelMember ACTG:SeriesAWarrantsMember 2020-01-01
2020-06-30 0000934549
us-gaap:MeasurementInputRiskFreeInterestRateMember
ACTG:BlackScholesModelMember ACTG:SeriesAWarrantsMember 2020-01-01
2020-06-30 0000934549 us-gaap:MeasurementInputExpectedTermMember
ACTG:BlackScholesModelMember ACTG:SeriesAWarrantsMember 2020-01-01
2020-06-30 0000934549
us-gaap:MeasurementInputExpectedDividendRateMember
ACTG:BlackScholesModelMember ACTG:SeriesAWarrantsMember 2020-01-01
2020-06-30 0000934549 us-gaap:MeasurementInputPriceVolatilityMember
ACTG:MonteCarloMethodMember ACTG:SeriesBWarrantsMember
ACTG:WarrantPrice525Member 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputRiskFreeInterestRateMember
ACTG:MonteCarloMethodMember ACTG:SeriesBWarrantsMember
ACTG:WarrantPrice525Member 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputExpectedTermMember
ACTG:MonteCarloMethodMember ACTG:SeriesBWarrantsMember
ACTG:WarrantPrice525Member 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputExpectedDividendRateMember
ACTG:MonteCarloMethodMember ACTG:SeriesBWarrantsMember
ACTG:WarrantPrice525Member 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputDiscountRateMember
ACTG:MonteCarloMethodMember ACTG:SeriesBWarrantsMember
ACTG:WarrantPrice525Member 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputPriceVolatilityMember
ACTG:MonteCarloMethodMember ACTG:SeriesBWarrantsMember
ACTG:WarrantPrice365Member 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputRiskFreeInterestRateMember
ACTG:MonteCarloMethodMember ACTG:SeriesBWarrantsMember
ACTG:WarrantPrice365Member 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputExpectedTermMember
ACTG:MonteCarloMethodMember ACTG:SeriesBWarrantsMember
ACTG:WarrantPrice365Member 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputExpectedDividendRateMember
ACTG:MonteCarloMethodMember ACTG:SeriesBWarrantsMember
ACTG:WarrantPrice365Member 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputDiscountRateMember
ACTG:MonteCarloMethodMember ACTG:SeriesBWarrantsMember
ACTG:WarrantPrice365Member 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputPriceVolatilityMember
ACTG:EmbeddedDerivativeMember 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputRiskFreeInterestRateMember
ACTG:EmbeddedDerivativeMember 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputCreditSpreadMember
ACTG:EmbeddedDerivativeMember 2020-01-01 2020-06-30 0000934549
us-gaap:MeasurementInputExpectedDividendRateMember
ACTG:EmbeddedDerivativeMember 2020-01-01 2020-06-30 0000934549
ACTG:EquityBasedIncentiveAwardsMember 2020-04-01 2020-06-30
0000934549 ACTG:EquityBasedIncentiveAwardsMember 2019-04-01
2019-06-30 0000934549 ACTG:EquityBasedIncentiveAwardsMember
2020-01-01 2020-06-30 0000934549
ACTG:EquityBasedIncentiveAwardsMember 2019-01-01 2019-06-30
0000934549 ACTG:SeriesAWarrantsMember 2020-04-01 2020-06-30
0000934549 ACTG:SeriesAWarrantsMember 2019-04-01 2019-06-30
0000934549 ACTG:SeriesAWarrantsMember 2020-01-01 2020-06-30
0000934549 ACTG:SeriesAWarrantsMember 2019-01-01 2019-06-30
0000934549 ACTG:SeriesBWarrantsMember 2020-04-01 2020-06-30
0000934549 ACTG:SeriesBWarrantsMember 2019-04-01 2019-06-30
0000934549 ACTG:SeriesBWarrantsMember 2020-01-01 2020-06-30
0000934549 ACTG:SeriesBWarrantsMember 2019-01-01 2019-06-30
0000934549 ACTG:VeritoneMember 2018-01-01 2018-12-31 0000934549
ACTG:VeritoneMember 2019-01-01 2019-12-31 0000934549
ACTG:VeritoneMember 2020-01-01 2020-03-31 0000934549
ACTG:VeritoneMember ACTG:WarrantInvestmentMember 2020-04-01
2020-06-30 0000934549 ACTG:VeritoneMember
ACTG:WarrantInvestmentMember 2020-06-30 0000934549
ACTG:WarrantInvestmentMember 2020-04-01 2020-06-30 0000934549
ACTG:WarrantInvestmentMember 2019-04-01 2019-06-30 0000934549
ACTG:WarrantInvestmentMember 2020-01-01 2020-06-30 0000934549
ACTG:WarrantInvestmentMember 2019-01-01 2019-06-30 0000934549
ACTG:CommonStockInvestmentMember 2020-04-01 2020-06-30 0000934549
ACTG:CommonStockInvestmentMember 2019-04-01 2019-06-30 0000934549
ACTG:CommonStockInvestmentMember 2020-01-01 2020-06-30 0000934549
ACTG:CommonStockInvestmentMember 2019-01-01 2019-06-30 0000934549
ACTG:StockRepurchaseProgramMember 2019-08-05 0000934549
us-gaap:CommonStockMember 2020-03-20 2020-03-31 0000934549
us-gaap:CommonStockMember 2020-04-01 2020-04-23 0000934549
us-gaap:CommonStockMember 2020-01-01 2020-06-30 0000934549
ACTG:SecuritiesPurchaseAgreementMember ACTG:StarboardValueMember
2019-01-01 2019-11-18 0000934549
ACTG:SecuritiesPurchaseAgreementMember ACTG:StarboardValueMember
ACTG:SeriesAWarrantsMember 2019-01-01 2019-11-18 0000934549
ACTG:SecuritiesPurchaseAgreementMember ACTG:StarboardValueMember
ACTG:SeriesAWarrantsMember 2019-11-18 0000934549
ACTG:SeriesARedeemableConvertibleStockMember 2020-06-30 0000934549
ACTG:SeriesARedeemableConvertibleStockMember 2020-04-01 2020-06-30
0000934549 ACTG:SeriesARedeemableConvertibleStockMember 2020-01-01
2020-06-30 0000934549 ACTG:SecuritiesPurchaseAgreementMember
ACTG:StarboardValueMember ACTG:SeriesAWarrantsMember 2020-01-01
2020-06-30 0000934549 ACTG:SecuritiesPurchaseAgreementMember
ACTG:StarboardValueMember ACTG:SeriesAWarrantsMember 2019-12-31
0000934549 ACTG:SecuritiesPurchaseAgreementMember
ACTG:StarboardValueMember ACTG:SeriesAWarrantsMember 2020-06-30
0000934549 ACTG:SeriesBWarrantsMember 2020-01-01 2020-02-25
0000934549 ACTG:SeriesBWarrantsMember 2020-02-25 0000934549
ACTG:SeniorSecuredNotesMember 2020-01-01 2020-06-04 0000934549
ACTG:SeriesBWarrantsMember 2020-01-01 2020-06-30 0000934549
ACTG:SeriesBWarrantsMember 2020-06-30 0000934549
ACTG:SecuritiesPurchaseAgreementMember
ACTG:SeniorSecuredNotesMember 2020-01-01 2020-06-04 0000934549
ACTG:SecuritiesPurchaseAgreementMember
ACTG:SeniorSecuredNotesMember 2020-01-01 2020-09-30 0000934549
ACTG:SecuritiesPurchaseAgreementMember
ACTG:SeniorSecuredNotesMember 2020-01-01 2020-12-31 0000934549
ACTG:ExchangeAgreementMember ACTG:MertonMember
ACTG:SeniorSecuredNotesMember 2020-06-30 0000934549
ACTG:MertonMember ACTG:SeniorSecuredNotesMember 2020-01-01
2020-06-30 0000934549 ACTG:ExchangeAgreementMember
ACTG:MertonMember ACTG:SeniorSecuredNotesMember 2020-01-01
2020-09-30 0000934549 ACTG:MertonMember
ACTG:SeniorSecuredNotesMember 2020-06-30 0000934549
ACTG:MertonMember ACTG:SeniorSecuredNotesMember
ACTG:SeriesBWarrantsMember 2020-06-30 0000934549
ACTG:OptionAgreementMember ACTG:PortfolioCompaniesMember 2020-01-01
2020-04-03 0000934549
ACTG:TradingSecuritesLfFundPublicSecuritiesMember 2020-04-01
2020-06-30 0000934549
ACTG:TradingSecuritesLfFundPublicSecuritiesMember 2019-04-01
2019-06-30 0000934549
ACTG:TradingSecuritesLfFundPublicSecuritiesMember 2020-01-01
2020-06-30 0000934549
ACTG:TradingSecuritesLfFundPublicSecuritiesMember 2019-01-01
2019-06-30 0000934549
ACTG:EquitySecuritiesForwardContractPublicMember 2020-04-01
2020-06-30 0000934549
ACTG:EquitySecuritiesForwardContractPublicMember 2019-04-01
2019-06-30 0000934549
ACTG:EquitySecuritiesForwardContractPublicMember 2020-01-01
2020-06-30 0000934549
ACTG:EquitySecuritiesForwardContractPublicMember 2019-01-01
2019-06-30 0000934549
ACTG:EquitySecuritiesForwardContractPrivateMember 2020-04-01
2020-06-30 0000934549
ACTG:EquitySecuritiesForwardContractPrivateMember 2019-04-01
2019-06-30 0000934549
ACTG:EquitySecuritiesForwardContractPrivateMember 2020-01-01
2020-06-30 0000934549
ACTG:EquitySecuritiesForwardContractPrivateMember 2019-01-01
2019-06-30 0000934549 ACTG:TradingSecuritesLfFundSecuritiesMember
2020-04-01 2020-06-30 0000934549
ACTG:TradingSecuritesLfFundSecuritiesMember 2019-04-01 2019-06-30
0000934549 ACTG:TradingSecuritesLfFundSecuritiesMember 2020-01-01
2020-06-30 0000934549 ACTG:TradingSecuritesLfFundSecuritiesMember
2019-01-01 2019-06-30 iso4217:USD xbrli:shares iso4217:USD
xbrli:shares xbrli:pure ACTG:Integer
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM
10-Q
________________________________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
Commission File Number:
1-37721
________________________________________
Acacia Research Corporation
(Exact name of registrant as specified in its charter)
________________________________________
|
delaware |
|
95-4405754 |
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
4 Park Plaza,
Suite 550,
Irvine,
California
92614
(Address of principal executive offices, Zip Code)
(949)
480-8300
(Registrant’s telephone number, including area code)
________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each
class |
Trading
Symbol(s) |
Name of each exchange on
which registered |
Common Stock |
ACTG |
The
Nasdaq Stock Market, LLC |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. ☒
Yes ☐ No
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). ☒
Yes ☐ No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act:
Large accelerated Filer
☐ |
|
Accelerated Filer ☒ |
|
Non-accelerated Filer
☐ |
|
Smaller
reporting company
☒ |
|
|
|
Emerging
growth company
☐ |
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
As of August 3, 2020,
49,279,453 shares of the registrant’s common stock, $0.001
par value, were issued and outstanding.
ACACIA RESEARCH CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
June 30, 2020
INDEX
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the three months ended June
30, 2020, or this Report, contains forward-looking statements
within the meaning of the federal securities laws, which statements
are subject to substantial risks and uncertainties. These
forward-looking statements are intended to qualify for the safe
harbor from liability established by the Private Securities
Litigation Reform Act of 1995. All statements other than statements
of historical fact included in this Report, or incorporated by
reference into this Report, are forward-looking statements.
Throughout this Report, we have attempted to identify
forward-looking statements by using words such as “may,” “believe,”
“will,” “could,” “project,” “anticipate,” “expect,” “estimate,”
“should,” “continue,” “potential,” “plan,” “forecasts,” “goal,”
“seek,” “intend,” “predict,” other forms of these words or similar
words or expressions or the negative thereof, although not all
forward-looking statements contain these terms. Such statements
address future events and conditions concerning, among other
things, intellectual property, or IP, acquisition and development,
licensing and enforcement activities, other related business
activities, the impact of the COVID-19 pandemic, capital
expenditures, earnings, litigation, regulatory matters, markets for
our services, liquidity and capital resources and accounting
matters. Actual results in each case could differ materially from
those anticipated in such statements by reason of factors such as
our ability to invest in new technologies and patents, future
global economic conditions, changes in demand for our services,
legislative, regulatory and competitive developments in markets in
which we and our subsidiaries operate, results of litigation and
other circumstances affecting anticipated revenues and costs.
We have based our forward-looking statements on management’s
current expectations and projections about trends affecting our
business and industry and other future events. Although we do not
make forward-looking statements unless we believe we have a
reasonable basis for doing so, we cannot guarantee their accuracy.
Forward-looking statements are subject to substantial risks and
uncertainties that could cause our future business, financial
condition, results of operations or performance to differ
materially from our historical results or those expressed or
implied in any forward-looking statement contained in this Report.
Some of the risks and uncertainties that may cause actual results
to differ from those expressed or implied in the forward-looking
statements are described in “Risk Factors” included in Part II,
Item1A of this Report on Form 10-Q, and in “Risk Factors” included
in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2019, filed with the Securities and
Exchange Commission, or the SEC, on March 16, 2020, or our Annual
Report, as well as in our other public filings with the SEC. In
addition, actual results may differ as a result of additional risks
and uncertainties of which we are currently unaware or which we do
not currently view as material to our business.
The information contained in this Quarterly Report on Form 10-Q is
not a complete description of our business or the risks associated
with an investment in our common stock. We urge you to carefully
review and consider the various disclosures made by us in this
report and in our other reports filed with the SEC. You should read
this Report in its entirety, together with the documents that we
file as exhibits to this Report and the documents that we
incorporate by reference into this Report, with the understanding
that our future results may be materially different from what we
currently expect. The forward-looking statements we make speak only
as of the date on which they are made. We expressly disclaim any
intent or obligation to update any forward-looking statements after
the date hereof to conform such statements to actual results or to
changes in our opinions or expectations, except as required by
applicable law or the rules of The NASDAQ Stock Market, LLC. If we
do update or correct any forward-looking statements, investors
should not conclude that we will make additional updates or
corrections.
We qualify all of our forward-looking statements by these
cautionary statements.
PART I--FINANCIAL
INFORMATION
Item 1. Financial
Statements
ACACIA RESEARCH CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
June 30, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
164,280 |
|
|
$ |
57,359 |
|
Trading securities
- debt |
|
|
– |
|
|
|
93,843 |
|
Trading securities
- equity |
|
|
19,697 |
|
|
|
17,140 |
|
Equity securities
derivative |
|
|
7,369 |
|
|
|
– |
|
Equity securities
forward contract |
|
|
75,534 |
|
|
|
– |
|
Prepaid
investment |
|
|
93,956 |
|
|
|
– |
|
Accounts
receivable |
|
|
1,393 |
|
|
|
511 |
|
Prepaid
expenses and other current assets |
|
|
1,894 |
|
|
|
2,912 |
|
Total current
assets |
|
|
364,123 |
|
|
|
171,765 |
|
|
|
|
|
|
|
|
|
|
Long-term
restricted cash |
|
|
– |
|
|
|
35,000 |
|
Investment at fair
value (Note 5) |
|
|
4,063 |
|
|
|
1,500 |
|
Patents, net of
accumulated amortization |
|
|
19,245 |
|
|
|
7,814 |
|
Leased
right-of-use assets |
|
|
1,249 |
|
|
|
1,264 |
|
Other non-current
assets |
|
|
5,466 |
|
|
|
818 |
|
Total
assets |
|
$ |
394,146 |
|
|
$ |
218,161 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
3,235 |
|
|
$ |
1,765 |
|
Accrued expenses
and other current liabilities |
|
|
2,716 |
|
|
|
7,265 |
|
Accrued
compensation |
|
|
1,998 |
|
|
|
507 |
|
Royalties and
contingent legal fees payable |
|
|
2,143 |
|
|
|
2,178 |
|
Senior
Secured Notes Payable - short term |
|
|
113,401 |
|
|
|
– |
|
Total current
liabilities |
|
|
123,493 |
|
|
|
11,715 |
|
|
|
|
|
|
|
|
|
|
Series A warrant liabilities |
|
|
6,952 |
|
|
|
3,568 |
|
Series A embedded derivative
liabilities |
|
|
29,513 |
|
|
|
17,974 |
|
Series B warrant liabilities |
|
|
58,290 |
|
|
|
– |
|
Long-term lease liabilities |
|
|
1,249 |
|
|
|
1,264 |
|
Other long-term
liabilities |
|
|
593 |
|
|
|
593 |
|
Total
liabilities |
|
|
220,090 |
|
|
|
35,114 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note
6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
redeemable convertible preferred stock, par value $0.001
per share; stated value $100
per share;
350,000 shares
authorized, issued and outstanding as of June 30, 2020 and December
31, 2019, respectively; aggregate liquidation preference of
$35,000
as of June 30, 2020 and December 31, 2019, respectively |
|
|
9,400 |
|
|
|
8,089 |
|
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Preferred stock, par value $0.001 per share;
10,000,000
shares authorized; no
shares issued or outstanding |
|
|
– |
|
|
|
– |
|
Common
stock, par value $0.001 per share;
300,000,000
shares authorized; 49,306,137
and
50,370,987 shares issued and outstanding as of June
30, 2020 and December 31, 2019, respectively |
|
|
49 |
|
|
|
50 |
|
Treasury
stock, at cost, 4,604,365 and
2,919,828 shares as of June 30, 2020 and December 31, 2019,
respectively |
|
|
(43,270 |
) |
|
|
(39,272 |
) |
Additional paid-in
capital |
|
|
650,843 |
|
|
|
652,003 |
|
Accumulated deficit |
|
|
(444,799 |
) |
|
|
(439,656 |
) |
Total Acacia
Research Corporation stockholders' equity |
|
|
162,823 |
|
|
|
173,125 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
|
|
1,833 |
|
|
|
1,833 |
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity |
|
|
164,656 |
|
|
|
174,958 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities, redeemable convertible preferred stock, and
stockholders' equity |
|
$ |
394,146 |
|
|
$ |
218,161 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
ACACIA RESEARCH CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
2,118 |
|
|
$ |
5,460 |
|
|
$ |
5,933 |
|
|
$ |
8,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventor
royalties |
|
|
645 |
|
|
|
2,623 |
|
|
|
1,071 |
|
|
|
3,976 |
|
Contingent legal
fees |
|
|
12 |
|
|
|
375 |
|
|
|
246 |
|
|
|
552 |
|
Litigation and
licensing expenses - patents |
|
|
1,459 |
|
|
|
1,855 |
|
|
|
2,496 |
|
|
|
5,656 |
|
Amortization of
patents |
|
|
1,305 |
|
|
|
818 |
|
|
|
2,348 |
|
|
|
1,474 |
|
Other
portfolio expenses (income) |
|
|
(74 |
) |
|
|
– |
|
|
|
(308 |
) |
|
|
650 |
|
Total
portfolio operations |
|
|
3,347 |
|
|
|
5,671 |
|
|
|
5,853 |
|
|
|
12,308 |
|
Net portfolio
income (loss) |
|
|
(1,229 |
) |
|
|
(211 |
) |
|
|
80 |
|
|
|
(3,461 |
) |
General and administrative expenses(1) |
|
|
5,519 |
|
|
|
3,763 |
|
|
|
10,397 |
|
|
|
7,418 |
|
Operating
loss |
|
|
(6,748 |
) |
|
|
(3,974 |
) |
|
|
(10,317 |
) |
|
|
(10,879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair
value of investment, net (Note 5) |
|
|
2,677 |
|
|
|
6,980 |
|
|
|
6,785 |
|
|
|
13,888 |
|
Gain (loss) on
sale of investment (Note 5) |
|
|
554 |
|
|
|
(1,642 |
) |
|
|
(2,762 |
) |
|
|
(7,232 |
) |
Impairment of
other investment |
|
|
– |
|
|
|
(8,195 |
) |
|
|
– |
|
|
|
(8,195 |
) |
Change in
fair value of the Series A and B warrants and embedded
derivatives |
|
|
(62,902 |
) |
|
|
– |
|
|
|
(67,284 |
) |
|
|
– |
|
Change in
fair value of equity securities derivative and forward
contract |
|
|
81,553 |
|
|
|
– |
|
|
|
81,553 |
|
|
|
– |
|
Change in fair
value of trading securities |
|
|
3,525 |
|
|
|
(61 |
) |
|
|
(2,592 |
) |
|
|
614 |
|
Gain (loss) on
sale of trading securities |
|
|
(7,121 |
) |
|
|
31 |
|
|
|
(7,009 |
) |
|
|
(12 |
) |
Loss on foreign
currency exchange |
|
|
(4,890 |
) |
|
|
– |
|
|
|
(4,890 |
) |
|
|
– |
|
Interest expense
on Senior Secured Notes |
|
|
(768 |
) |
|
|
– |
|
|
|
(768 |
) |
|
|
– |
|
Interest income and other |
|
|
266 |
|
|
|
1,113 |
|
|
|
801 |
|
|
|
1,984 |
|
Total
other income (expense) |
|
|
12,894 |
|
|
|
(1,774 |
) |
|
|
3,834 |
|
|
|
1,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
benefit (expense) |
|
|
2 |
|
|
|
(9 |
) |
|
|
1,340 |
|
|
|
(323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) including noncontrolling interests in
subsidiaries |
|
|
6,148 |
|
|
|
(5,757 |
) |
|
|
(5,143 |
) |
|
|
(10,155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to noncontrolling interests in subsidiaries |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Acacia Research Corporation |
|
$ |
6,148 |
|
|
$ |
(5,757 |
) |
|
$ |
(5,143 |
) |
|
$ |
(10,141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders - basic and
diluted |
|
$ |
4,201 |
|
|
$ |
(5,757 |
) |
|
$ |
(7,105 |
) |
|
$ |
(10,141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share |
|
$ |
0.09 |
|
|
$ |
(0.12 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.20 |
) |
Weighted average number of shares outstanding - basic |
|
|
48,457,620 |
|
|
|
49,696,016 |
|
|
|
49,166,508 |
|
|
|
49,676,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share |
|
$ |
0.09 |
|
|
$ |
(0.12 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.20 |
) |
Weighted average number of shares outstanding - diluted |
|
|
49,033,824 |
|
|
|
49,696,016 |
|
|
|
49,166,508 |
|
|
|
49,676,059 |
|
_____________________________________________________________
(1) General and administrative expenses were comprised of the
following:
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
General and administrative
expenses |
|
$ |
5,096 |
|
|
$ |
3,302 |
|
|
$ |
9,642 |
|
|
$ |
6,965 |
|
Non-cash stock
compensation expense - G&A |
|
|
423 |
|
|
|
461 |
|
|
|
755 |
|
|
|
453 |
|
Total
general and administrative expenses |
|
$ |
5,519 |
|
|
$ |
3,763 |
|
|
$ |
10,397 |
|
|
$ |
7,418 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements
ACACIA RESEARCH CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF SERIES A REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended June 30, 2020 |
|
|
|
|
Series A
Redeemable Convertible Preferred Stock |
|
|
|
Common
Stock |
|
|
|
Treasury |
|
|
|
Additional
Paid-in
|
|
|
|
Accumulated |
|
|
|
Noncontrolling
Interests in
Operating
|
|
|
|
Total
Stockholders' |
|
|
|
|
Shares |
|
|
|
Amount |
|
|
|
Shares |
|
|
|
Amount |
|
|
|
Stock |
|
|
|
Capital |
|
|
|
Deficit |
|
|
|
Subsidiaries |
|
|
|
Equity |
|
Balance at March 31,
2020 |
|
|
350,000 |
|
|
$ |
8,720 |
|
|
|
49,813,443 |
|
|
$ |
50 |
|
|
$ |
(40,586 |
) |
|
$ |
651,441 |
|
|
$ |
(450,947 |
) |
|
$ |
1,833 |
|
|
$ |
161,791 |
|
Net loss
attributable to Acacia Research Corporation |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
6,148 |
|
|
|
– |
|
|
|
6,148 |
|
Accretion of
Series A Redeemable Convertible Preferred Stock to redemption
value |
|
|
– |
|
|
|
680 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(680 |
) |
|
|
– |
|
|
|
– |
|
|
|
(680 |
) |
Dividend on
Series A Redeemable Convertible Preferred Stock |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(389 |
) |
|
|
– |
|
|
|
– |
|
|
|
(389 |
) |
Stock options
exercised |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
48 |
|
|
|
– |
|
|
|
– |
|
|
|
48 |
|
Compensation
expense for share-based awards, net of forfeitures |
|
|
– |
|
|
|
– |
|
|
|
600,333 |
|
|
|
– |
|
|
|
– |
|
|
|
423 |
|
|
|
– |
|
|
|
– |
|
|
|
423 |
|
Repurchase of
common stock |
|
|
– |
|
|
|
– |
|
|
|
(1,107,639 |
) |
|
|
(1 |
) |
|
|
(2,684 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(2,685 |
) |
Balance at June 30,
2020 |
|
|
350,000 |
|
|
$ |
9,400 |
|
|
|
49,306,137 |
|
|
$ |
49 |
|
|
$ |
(43,270 |
) |
|
$ |
650,843 |
|
|
$ |
(444,799 |
) |
|
$ |
1,833 |
|
|
$ |
164,656 |
|
|
|
For the Three
Months Ended June 30, 2019 |
|
|
|
|
Series A
Redeemable Convertible Preferred Stock |
|
|
|
Common
Stock |
|
|
|
Treasury |
|
|
|
Additional
Paid-in
|
|
|
|
Accumulated |
|
|
|
Noncontrolling
Interests in
Operating
|
|
|
|
Total
Stockholders' |
|
|
|
|
Shares |
|
|
|
Amount |
|
|
|
Shares |
|
|
|
Amount |
|
|
|
Stock |
|
|
|
Capital |
|
|
|
Deficit |
|
|
|
Subsidiaries |
|
|
|
Equity |
|
Balance at March 31,
2019 |
|
|
– |
|
|
$ |
– |
|
|
|
49,656,067 |
|
|
$ |
50 |
|
|
$ |
(39,272 |
) |
|
$ |
651,148 |
|
|
$ |
(426,925 |
) |
|
$ |
1,833 |
|
|
$ |
186,834 |
|
Net loss
attributable to Acacia Research Corporation |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(5,757 |
) |
|
|
– |
|
|
|
(5,757 |
) |
Stock options
exercised |
|
|
|
|
|
|
|
|
|
|
25,136 |
|
|
|
– |
|
|
|
– |
|
|
|
79 |
|
|
|
– |
|
|
|
– |
|
|
|
79 |
|
Compensation
expense for share-based awards, net of forfeitures |
|
|
|
|
|
|
|
|
|
|
451,668 |
|
|
|
– |
|
|
|
– |
|
|
|
461 |
|
|
|
– |
|
|
|
– |
|
|
|
461 |
|
Balance at June 30,
2019 |
|
|
– |
|
|
$ |
– |
|
|
|
50,132,871 |
|
|
$ |
50 |
|
|
$ |
(39,272 |
) |
|
$ |
651,688 |
|
|
$ |
(432,682 |
) |
|
$ |
1,833 |
|
|
$ |
181,617 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
ACACIA RESEARCH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SERIES A
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY
(In thousands, except share data)
|
|
For the Six Months Ended June 30,
2020 |
|
|
|
|
Series A Redeemable Convertible
Preferred Stock |
|
|
|
Common Stock |
|
|
|
Treasury |
|
|
|
Additional
Paid-in
|
|
|
|
Accumulated |
|
|
|
Noncontrolling
Interests in
Operating
|
|
|
|
Total
Stockholders' |
|
|
|
|
Shares |
|
|
|
Amount |
|
|
|
Shares |
|
|
|
Amount |
|
|
|
Stock |
|
|
|
Capital |
|
|
|
Deficit |
|
|
|
Subsidiaries |
|
|
|
Equity |
|
Balance at December 31, 2019 |
|
|
350,000 |
|
|
$ |
8,089 |
|
|
|
50,370,987 |
|
|
$ |
50 |
|
|
$ |
(39,272 |
) |
|
$ |
652,003 |
|
|
$ |
(439,656 |
) |
|
$ |
1,833 |
|
|
$ |
174,958 |
|
Net loss attributable to Acacia
Research Corporation |
|
|
|
|
|
|
|
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(5,143 |
) |
|
|
– |
|
|
|
(5,143 |
) |
Accretion of Series A Redeemable
Convertible Preferred Stock to redemption value |
|
|
|
|
|
|
1,311 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1,311 |
) |
|
|
– |
|
|
|
– |
|
|
|
(1,311 |
) |
Dividend on Series A Redeemable
Convertible Preferred Stock |
|
|
|
|
|
|
|
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(652 |
) |
|
|
– |
|
|
|
– |
|
|
|
(652 |
) |
Stock options exercised |
|
|
|
|
|
|
|
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
48 |
|
|
|
– |
|
|
|
– |
|
|
|
48 |
|
Compensation expense for share-based
awards, net of forfeitures |
|
|
|
|
|
|
|
|
|
|
619,687 |
|
|
|
– |
|
|
|
– |
|
|
|
755 |
|
|
|
– |
|
|
|
– |
|
|
|
755 |
|
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
(1,684,537 |
) |
|
|
(1 |
) |
|
|
(3,998 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(3,999 |
) |
Balance at June 30, 2020 |
|
|
350,000 |
|
|
$ |
9,400 |
|
|
|
49,306,137 |
|
|
$ |
49 |
|
|
$ |
(43,270 |
) |
|
$ |
650,843 |
|
|
$ |
(444,799 |
) |
|
$ |
1,833 |
|
|
$ |
164,656 |
|
|
|
For the Six Months Ended June 30,
2019 |
|
|
|
|
Series A Redeemable Convertible
Preferred Stock |
|
|
|
Common Stock |
|
|
|
Treasury |
|
|
|
Additional
Paid-in
|
|
|
|
Accumulated |
|
|
|
Noncontrolling
Interests in
Operating
|
|
|
|
Total
Stockholders' |
|
|
|
|
Shares |
|
|
|
Amount |
|
|
|
Shares |
|
|
|
Amount |
|
|
|
Stock |
|
|
|
Capital |
|
|
|
Deficit |
|
|
|
Subsidiaries |
|
|
|
Equity |
|
Balance at December 31, 2018 |
|
|
– |
|
|
$ |
– |
|
|
|
49,639,319 |
|
|
$ |
50 |
|
|
$ |
(39,272 |
) |
|
$ |
651,156 |
|
|
$ |
(422,541 |
) |
|
$ |
1,847 |
|
|
$ |
191,240 |
|
Net loss attributable to Acacia
Research Corporation |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(10,141 |
) |
|
|
– |
|
|
|
(10,141 |
) |
Stock options exercised |
|
|
|
|
|
|
|
|
|
|
25,136 |
|
|
|
– |
|
|
|
– |
|
|
|
79 |
|
|
|
– |
|
|
|
– |
|
|
|
79 |
|
Compensation expense for share-based
awards, net of forfeitures |
|
|
|
|
|
|
|
|
|
|
468,416 |
|
|
|
– |
|
|
|
– |
|
|
|
453 |
|
|
|
– |
|
|
|
– |
|
|
|
453 |
|
Net income attributable to
noncontrolling interests in subsidiaries |
|
|
|
|
|
|
|
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(14 |
) |
|
|
(14 |
) |
Balance at June 30, 2019 |
|
|
– |
|
|
$ |
– |
|
|
|
50,132,871 |
|
|
$ |
50 |
|
|
$ |
(39,272 |
) |
|
$ |
651,688 |
|
|
$ |
(432,682 |
) |
|
$ |
1,833 |
|
|
$ |
181,617 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
ACACIA RESEARCH CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020 |
|
|
2019 |
|
Cash flows from
operating activities: |
|
|
|
|
|
|
|
|
Net loss including
noncontrolling interests in subsidiaries |
|
$ |
(5,143 |
) |
|
$ |
(10,155 |
) |
Adjustments to reconcile net loss including noncontrolling
interests in subsidiaries to net cash provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
Change in fair
value of investment, net (Note 5) |
|
|
(6,785 |
) |
|
|
(13,888 |
) |
Loss on sale of
investment (Note 5) |
|
|
2,762 |
|
|
|
7,232 |
|
Impairment of
other investment |
|
|
– |
|
|
|
8,195 |
|
Depreciation and
amortization |
|
|
2,404 |
|
|
|
1,482 |
|
Amortization of
debt discount and issuance costs |
|
|
270 |
|
|
|
– |
|
Loss on foreign
currency exchange |
|
|
4,890 |
|
|
|
– |
|
Change
in fair value of Series A redeemable convertible preferred stock
embedded derivative |
|
|
11,539 |
|
|
|
– |
|
Change in fair
value of Series A warrants |
|
|
3,384 |
|
|
|
– |
|
Change in fair
value of Series B warrants |
|
|
52,361 |
|
|
|
– |
|
Non-cash stock
compensation |
|
|
755 |
|
|
|
453 |
|
Change in fair
value of trading securities |
|
|
2,592 |
|
|
|
(1,004 |
) |
Loss on sale of
trading securities |
|
|
7,009 |
|
|
|
– |
|
Change in fair
value of equity securities derivative and forward contract |
|
|
(81,553 |
) |
|
|
– |
|
|
|
|
|
|
|
|
|
|
Changes in assets
and liabilities: |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(882 |
) |
|
|
17,576 |
|
Prepaid expenses
and other assets |
|
|
877 |
|
|
|
(1,595 |
) |
Accounts payable
and accrued expenses |
|
|
(1,588 |
) |
|
|
1,606 |
|
Royalties and contingent legal fees payable |
|
|
(35 |
) |
|
|
(12,170 |
) |
Net
cash used in operating activities |
|
|
(7,143 |
) |
|
|
(2,268 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
|
Patent acquisition
costs |
|
|
(13,780 |
) |
|
|
(4,420 |
) |
Sale of investment
at fair value (Note 5) |
|
|
1,460 |
|
|
|
5,045 |
|
Purchases of
trading securities |
|
|
(31,317 |
) |
|
|
(75,154 |
) |
Maturities and
sales of trading securities |
|
|
299,227 |
|
|
|
11,396 |
|
Purchases of
prepaid investment |
|
|
(282,327 |
) |
|
|
– |
|
Equity securities
derivative and forward contract acquisition cost |
|
|
(3,989 |
) |
|
|
– |
|
Purchases of property and equipment |
|
|
(148 |
) |
|
|
– |
|
Net
cash used in investing activities |
|
|
(30,874 |
) |
|
|
(63,133 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
|
|
|
Repurchase of
common stock |
|
|
(3,998 |
) |
|
|
– |
|
Issuance of Senior
Secured Notes, net of lender fee |
|
|
110,437 |
|
|
|
– |
|
Senior Secured
Notes issuance costs paid to other parties |
|
|
(496 |
) |
|
|
– |
|
Dividend on Series
A Redeemable Convertible Preferred Stock |
|
|
(653 |
) |
|
|
– |
|
Issuance of Series
B warrants |
|
|
4,600 |
|
|
|
– |
|
Proceeds from exercise of stock options |
|
|
48 |
|
|
|
79 |
|
Net
cash provided by financing activities |
|
|
109,938 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents and restricted cash |
|
|
71,921 |
|
|
|
(65,322 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents and restricted cash, beginning |
|
|
92,359 |
|
|
|
128,809 |
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents and restricted cash, ending |
|
$ |
164,280 |
|
|
$ |
63,487 |
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of noncash
investing activities: |
|
|
|
|
|
|
|
|
Acquisition of prepaid investment securities |
|
$ |
183,587 |
|
|
$ |
– |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
ACACIA RESEARCH CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of
Business
As used herein, “we,” “us,” “our,” “Acacia” and the “Company” refer
to Acacia Research Corporation and/or its wholly and majority-owned
and controlled operating subsidiaries, and/or where applicable, its
management.
Acacia was incorporated on January 25, 1993 under the laws of the
State of California. In December 1999, Acacia changed its state of
incorporation from California to Delaware.
Acacia’s operating subsidiaries invest in, license and enforce
patented technologies. Acacia’s operating subsidiaries partner with
inventors and patent owners, applying their legal and technology
expertise to patent assets to unlock the financial value in their
patented inventions. In recent years, Acacia has also invested in
technology companies. Acacia leverages its experience, expertise,
data and relationships developed as a leader in the intellectual
property (“IP”) industry to pursue these opportunities. In some
cases, these opportunities will complement, and/or supplement
Acacia’s primary licensing and enforcement business.
Acacia’s operating subsidiaries generate revenues and related cash
flows from the granting of IP rights (hereinafter “IP Rights”) for
the use of patented technologies that its operating subsidiaries
control or own. Acacia’s operating subsidiaries assist patent
owners with the prosecution and development of their patent
portfolios, the protection of their patented inventions from
unauthorized use, the generation of licensing revenue from users of
their patented technologies and, where necessary, with the
enforcement against unauthorized users of their patented
technologies through the filing of patent infringement
litigation.
Acacia’s operating subsidiaries are principals in the licensing and
enforcement effort, obtaining control of the rights in the patent
portfolio, or control of the patent portfolio outright. Acacia’s
operating subsidiaries own or control the rights to multiple patent
portfolios, which include U.S. patents and certain foreign
counterparts, covering technologies used in a wide variety of
industries.
Neither Acacia nor its operating subsidiaries invent new
technologies or products; rather, Acacia depends upon the
identification and investment in new patents, inventions and
companies that own IP through its relationships with inventors,
universities, research institutions, technology companies and
others. If Acacia’s operating subsidiaries are unable to maintain
those relationships and identify and grow new relationships, then
they may not be able to identify new technology-based opportunities
for sustainable revenue and/or revenue growth.
During the six months ended June 30, 2020, Acacia obtained control
of four new
patent portfolios. During fiscal year 2019, Acacia obtained control
of five new
patent portfolios.
Basis of
Presentation
The accompanying unaudited condensed consolidated financial
statements include the accounts of Acacia and its wholly and
majority-owned and controlled subsidiaries. Material intercompany
transactions and balances have been eliminated in
consolidation.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) 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 U.S.
GAAP in annual financial statements have been omitted or condensed
in accordance with quarterly reporting requirements of the
Securities and Exchange Commission (“SEC”). These interim unaudited
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2019, as reported by Acacia
in its Annual Report on Form 10-K filed with the SEC on March 16,
2020, as well as in our other public filings with the SEC. The
condensed consolidated interim financial statements of Acacia
include all adjustments of a normal recurring nature which, in the
opinion of management, are necessary for a fair statement of
Acacia’s consolidated financial position as of June 30, 2020, and
results of its operations and its cash flows for the interim
periods presented. The consolidated results of operations for the
three and six months ended June 30, 2020 are not necessarily
indicative of the results to be expected for the entire fiscal
year.
Use of
Estimates
The preparation of financial statements in conformity with U.S.
GAAP 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. Acacia believes that, of the
significant accounting policies described herein, the accounting
policies associated with revenue recognition, the valuation of the
equity instruments, the valuation of Series A redeemable
convertible preferred stock (the “Series A Redeemable Convertible
Preferred Stock”) embedded derivatives, Series A warrants (the
“Series A Warrants”), Series B warrants (the “Series B Warrants”),
equity securities derivative and forward contract, stock-based
compensation expense, impairment of patent related intangible
assets, the determination of the economic useful life of
amortizable intangible assets, income taxes and valuation
allowances against net deferred tax assets, require its most
difficult, subjective or complex judgments.
Reclassifications
Certain reclassifications have been made to the prior fiscal year
financial information to conform with the current fiscal year
presentation. Such reclassifications had no impact on net income or
cash flows.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
Revenue is recognized upon transfer of control of promised bundled
IP Rights and other contractual performance obligations to
licensees in an amount that reflects the consideration we expect to
receive in exchange for those IP Rights. Revenue contracts that
provide promises to grant the right to use IP Rights as they exist
at the point in time at which the IP Rights are granted, are
accounted for as performance obligations satisfied at a point in
time and revenue is recognized at the point in time that the
applicable performance obligations are satisfied and all other
revenue recognition criteria have been met.
For the periods presented, revenue contracts executed by the
Company primarily provided for the payment of contractually
determined, one-time, paid-up license fees in consideration for the
grant of certain IP Rights for patented technologies owned or
controlled by Acacia. Revenues also included license fees from
sales-based revenue contracts, the majority of which were
originally executed in prior periods, that provide for the payment
of quarterly license fees based on quarterly sales of applicable
product units by licensees (“Recurring Revenue Agreements”).
Revenues may also include court ordered settlements or awards
related to our patent portfolio. IP Rights granted included the
following, as applicable: (i) the grant of a non-exclusive,
retroactive and future license to manufacture and/or sell products
covered by patented technologies, (ii) a covenant-not-to-sue, (iii)
the release of the licensee from certain claims, and (iv) the
dismissal of any pending litigation. The IP Rights granted were
perpetual in nature, extending until the legal expiration date of
the related patents. The individual IP Rights are not accounted for
as separate performance obligations, as (i) the nature of the
promise, within the context of the contract, is to transfer
combined items to which the promised IP Rights are inputs and (ii)
the Company's promise to transfer each individual IP right
described above to the customer is not separately identifiable from
other promises to transfer IP Rights in the contract.
Since the promised IP Rights are not individually distinct, the
Company combines each individual IP Right in the contract into a
bundle of IP rights that is distinct and accounts for all of the IP
Rights promised in the contract as a single performance obligation.
The IP Rights granted generally are “functional IP rights” that
have significant standalone functionality. Acacia's subsequent
activities do not substantively change that functionality and do
not significantly affect the utility of the IP to which the
licensee has rights. Acacia’s operating subsidiaries have no
further obligation with respect to the grant of IP Rights,
including no express or implied obligation to maintain or upgrade
the technology, or provide future support or services. The
contracts provide for the grant (i.e., transfer of control) of the
licenses, covenants-not-to-sue, releases, and other significant
deliverables upon execution of the contract. Licensees legally
obtain control of the IP Rights upon execution of the contract. As
such, the earnings process is complete and revenue is recognized
upon the execution of the contract, when collectability is probable
and all other revenue recognition criteria have been met. Revenue
contracts generally provide for payment of contractual amounts
within 30-90 days of execution of the contract, or the end of the
quarter in which the sale or usage occurs for Recurring Revenue
Agreements. Contractual payments made by licensees are generally
non-refundable.
For sales-based royalties, the Company includes in the transaction
price some or all of an amount of estimated variable consideration
to the extent that it is probable that a significant reversal in
the amount of cumulative revenue recognized will not occur when the
uncertainty associated with the variable consideration is
subsequently resolved. Notwithstanding, revenue is recognized for a
sales-based royalty promised in exchange for a license of IP Rights
when the later of (i) the subsequent sale or usage occurs, or (ii)
the performance obligation to which some or all of the sales-based
royalty has been allocated has been satisfied. Estimates are
generally based on historical levels of activity, if available.
Revenues from contracts with significant financing components
(either explicit or implicit) are recognized at an amount that
reflects the price that a licensee would have paid if the licensee
had paid cash for the IP Rights when they transfer to the licensee.
In determining the transaction price, the Company adjusts the
promised amount of consideration for the effects of the time value
of money. As a practical expedient, the Company does not adjust the
promised amount of consideration for the effects of a significant
financing component if the Company expects, at contract inception,
that the period between when the entity transfers promised IP
Rights to a customer and when the customer pays for the IP Rights
will be one year or less.
In general, the Company is required to make certain judgments and
estimates in connection with the accounting for revenue contracts
with customers. Such areas may include identifying performance
obligations in the contract, estimating the timing of satisfaction
of performance obligations, determining whether a promise to grant
a license is distinct from other promised goods or services,
evaluating whether a license transfers to a customer at a point in
time or over time, allocating the transaction price to separate
performance obligations, determining whether contracts contain a
significant financing component, and estimating revenues recognized
at a point in time for sales-based royalties.
Revenues were composed of the following for the periods
presented:
Disaggregation of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
Six
Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
(In
thousands) |
|
Paid-up Revenue
Agreements |
|
$ |
1,792 |
|
|
$ |
4,864 |
|
|
$ |
5,092 |
|
|
$ |
4,864 |
|
Recurring Revenue
Agreements |
|
|
326 |
|
|
|
596 |
|
|
|
841 |
|
|
|
3,983 |
|
Total
Revenue |
|
$ |
2,118 |
|
|
$ |
5,460 |
|
|
$ |
5,933 |
|
|
$ |
8,847 |
|
Refer to “Inventor Royalties and Contingent Legal Expenses”
below for information on related direct costs of revenues.
Portfolio
Operations
Cost of revenues include the costs and expenses incurred in
connection with Acacia’s patent licensing and enforcement
activities, including inventor royalties paid to patent owners,
contingent legal fees paid to external patent counsel, other
patent-related legal expenses paid to external patent counsel,
licensing and enforcement related research, consulting and other
expenses paid to third-parties and the amortization of
patent-related investment costs. These costs are included under the
caption “Portfolio operations” in the accompanying condensed
consolidated statements of operations.
Inventor Royalties and Contingent Legal Expenses
Inventor royalties are expensed in the condensed consolidated
statements of operations in the period that the related revenues
are recognized. In certain instances, pursuant to the terms of the
underlying inventor agreements, upfront advances paid to patent
owners by Acacia’s operating subsidiaries are recoverable from
future net revenues. Patent costs that are recoverable from future
net revenues are amortized over the estimated economic useful life
of the related patents, or as the prepaid royalties are earned by
the inventor, as appropriate, and the related expense is included
in amortization expense in the condensed consolidated statements of
operations. Any unamortized upfront advances recovered from net
revenues are expensed in the period recovered and included in
amortization expense in the condensed consolidated statements of
operations.
Contingent legal fees are expensed in the condensed consolidated
statements of operations in the period that the related revenues
are recognized. In instances where there are no recoveries from
potential infringers, no contingent legal fees are paid; however,
Acacia’s operating subsidiaries may be liable for certain out of
pocket legal costs incurred pursuant to the underlying legal
services agreement.
Inventor royalty and contingent legal agreements typically provide
for payment by the Company of contractual amounts 30 days
subsequent to the fiscal quarter end during which related license
fee payments are received from licensees by the Company.
Concentration of credit risks
Financial instruments that potentially subject Acacia to
concentrations of credit risk are cash equivalents, trading
securities and accounts receivable. Acacia places its cash
equivalents and trading securities primarily in highly rated money
market funds and investment grade marketable securities. Cash and
cash equivalents are also invested in deposits with certain
financial institutions and may, at times, exceed federally insured
limits. Acacia has not experienced any significant losses on its
deposits of cash and cash equivalents.
Three licensees accounted for 46%, 38% and 12% of revenues
recognized during the three months ended June 30, 2020, and four
licensees accounted for 35%, 34%, 17% and 10% of revenues
recognized during the six months ended June 30, 2020. One licensee
individually accounted for 89% of revenues
recognized during the three months ended June 30, 2019, and two
licensees accounted for 55% and 27% of revenues
recognized during the six months ended June 30, 2019.
The Company does not have any material foreign operations. Based on
the jurisdiction of the entity obligated to satisfy payment
obligations pursuant to the applicable revenue arrangement, for the
three and six months ended June 30, 2020, 49% and 21%, respectively, of
revenues were attributable to licensees domiciled in foreign
jurisdictions. For the three and six months ended June 30, 2019,
3% and 32%, respectively, of
revenues were attributable to licensees domiciled in foreign
jurisdictions. Three licensees individually represented
approximately 70%, 22%, and 5% of accounts
receivable at June 30, 2020. Two licensees individually represented
approximately 70% and 17% of accounts
receivable at December 31, 2019.
Patents
Patents include the cost of patents or patent rights (hereinafter,
collectively “patents”) acquired from third-parties or obtained in
connection with business combinations. Patent costs are amortized
utilizing the straight-line method over their remaining economic
useful lives. Refer to Note 4 for additional information regarding
our patents.
Impairment of
Long-lived Assets
Acacia reviews long-lived assets and intangible assets for
potential impairment annually (quarterly for patents) and when
events or changes in circumstances indicate the carrying amount of
an asset may not be recoverable. In the event 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
is recorded in an amount equal to the excess of the asset’s
carrying value over its fair value. 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. In the event that management decides to no longer allocate
resources to a patent portfolio, an impairment loss equal to the
remaining carrying value of the asset is recorded. Refer to Note 4
for additional information.
Fair value is generally estimated using the “Income Approach,”
focusing on the estimated future net income-producing capability of
the patent portfolios over their estimated remaining economic
useful life. Estimates of future after-tax cash flows are converted
to present value through “discounting,” including an estimated rate
of return that accounts for both the time value of money and
investment risk factors. Estimated cash inflows are typically based
on estimates of reasonable royalty rates for the applicable
technology, applied to estimated market data. Estimated cash
outflows are based on existing contractual obligations, such as
contingent legal fee and inventor royalty obligations, applied to
estimated license fee revenues, in addition to other estimates of
out-of-pocket expenses associated with a specific patent
portfolio’s licensing and enforcement program. The analysis also
contemplates consideration of current information about the patent
portfolio including, status and stage of litigation, periodic
results of the litigation process, strength of the patent
portfolio, technology coverage and other pertinent information that
could impact future net cash flows.
Cash and
Cash Equivalents
Acacia considers all highly liquid, trading securities with
original maturities of three months or less when purchased to be
cash equivalents. For the periods presented, Acacia’s cash
equivalents are comprised of investments in AAA rated money market
funds that invest in first-tier only securities, which primarily
includes: domestic commercial paper, securities issued or
guaranteed by the U.S. government or its agencies, U.S. bank
obligations, and fully collateralized repurchase agreements.
Acacia’s cash equivalents are measured at fair value using quoted
prices that represent Level 1 inputs.
Long Term Restricted
Cash
Long-term restricted cash relates to the proceeds received from the
issuance of Series A Redeemable Convertible Preferred Stock which
are held in an escrow account. The amounts are to be released to
the Company upon, among other things, (i) the consummation of a
suitable investment or acquisition by the Company or (ii) the
conversion of Series A Redeemable Convertible Preferred Stock into
common stock.
Prepaid
Investment
Prepaid investment relates to the cash transferred to an escrow
account in connection with a Transaction Agreement with LF Equity
Income Fund (“Seller”), pursuant to which the Company will purchase
from Seller certain equity securities. Refer to Note 14 for
additional information on the Transaction Agreement. The amounts
are to be released to the Seller upon transfer of the specified
equity securities at set prices at various future dates following
various terms and conditions per the Transaction Agreement.
Equity Securities
Derivative and Forward Contract
The equity security forward contract includes both private and
public equity securities not yet transferred, as of June 30, 2020,
under the Company’s Transaction Agreement with Seller. Refer to
Note 14 for additional information on the agreement. The public
company equity security forward contracts are accounted for as
derivatives and are carried at fair market value with changes in
fair market value recorded in the condensed consolidated statements
of operations in other income (expense). The private company equity
security forward contracts do not meet the definition of a
derivative as the underlying equity securities are not readily
convertible to cash. Therefore, as the forward contracts do not
have readily determinable fair value, these forward contracts are
reported at cost minus impairment, if any, plus or minus changes
resulting from observable price changes in orderly transactions
involving securities similar to those underlying the forward
contract. Changes in fair market value are reported in the
condensed consolidated statements of operations in other income
(expense).
Trading Securities- Debt
Investments in debt securities are reported at fair value on a
recurring basis, with related realized and unrealized gains and
losses recorded in the condensed consolidated statements of
operations in other income (expense). Realized and unrealized gains
and losses are recorded based on the specific identification
method. Interest is included in the condensed consolidated
statements of operations in other income (expense). Accrued
interest is included in the trading securities balance on the
condensed consolidated balance sheets.
Trading
Securities - Equity
Investments in equity securities are reported at fair value on a
recurring basis, with related realized and unrealized gains and
losses in the value of such securities recorded in the condensed
consolidated statements of operations in other income (expense).
Dividend income is included in the condensed consolidated
statements of operations in other income (expense).
Trading securities for the periods presented were comprised of the
following:
Gain (loss) on trading securities |
|
Cost |
|
|
Gross
Unrealized
Gain |
|
|
Gross
Unrealized
Loss |
|
|
Fair Value |
|
|
|
(In
thousands) |
|
Security Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
securities - equity |
|
|
22,539 |
|
|
|
1,914 |
|
|
|
(4,756 |
) |
|
|
19,697 |
|
|
|
$ |
22,539 |
|
|
$ |
1,914 |
|
|
$ |
(4,756 |
) |
|
$ |
19,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities - debt |
|
$ |
93,712 |
|
|
$ |
143 |
|
|
$ |
(12 |
) |
|
$ |
93,843 |
|
Trading
securities - equity |
|
|
17,674 |
|
|
|
211 |
|
|
|
(745 |
) |
|
|
17,140 |
|
|
|
$ |
111,386 |
|
|
$ |
354 |
|
|
$ |
(757 |
) |
|
$ |
110,983 |
|
Fair
Value Measurements
U.S. GAAP defines fair value as the price that would be received
for an asset or the exit price that would be paid to transfer a
liability in the principal or most advantageous market in an
orderly transaction between market participants on the measurement
date, and also establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs, where available.
The three-level hierarchy of valuation techniques established to
measure fair value is defined as follows:
(i) Level 1 – Observable Inputs: Quoted prices in
active markets for identical investments;
(ii) Level 2 – Pricing Models with Significant
Observable Inputs: Other significant observable inputs,
including quoted prices for similar investments, interest rates,
credit risk, etc.; and
(iii) Level 3 – Unobservable Inputs:
Significant unobservable inputs, including the entity’s own
assumptions in determining the fair value of investments.
Whenever possible, the Company is required to use observable market
inputs (Level 1 – quoted market prices) when measuring fair value.
In such cases, the level at which the fair value measurement falls
is determined based on the lowest level input that is significant
to the fair value measurement. The assessment of the significance
of a particular input requires judgment and considers factors
specific to the asset or liability being measured. In certain
cases, inputs used to measure fair value fall into different levels
of the fair value hierarchy. Financial assets and liabilities
measured at fair value on a recurring basis were as follows:
Schedule of fair value of financial assets and
liabilities on a recurring basis |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
(In
thousands) |
|
Assets as of June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities -
equity |
|
$ |
19,697 |
|
|
$ |
– |
|
|
$ |
– |
|
Equity securities derivative |
|
|
7,369 |
|
|
|
– |
|
|
|
– |
|
Investment at
fair value - warrants (Note 5) |
|
|
– |
|
|
|
4,063 |
|
|
|
– |
|
Total recurring fair value
measurements as of June 30, 2020 |
|
$ |
27,066 |
|
|
$ |
4,063 |
|
|
$ |
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets as of December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities - debt |
|
$ |
– |
|
|
$ |
93,843 |
|
|
$ |
– |
|
Trading securities - equity |
|
|
17,140 |
|
|
|
– |
|
|
|
– |
|
Investment at fair value - warrants
(Note 5) |
|
|
– |
|
|
|
757 |
|
|
|
– |
|
Investment at
fair value - common stock (Note 5) |
|
|
743 |
|
|
|
– |
|
|
|
– |
|
Total recurring fair value
measurements as of December 31, 2019 |
|
$ |
17,883 |
|
|
$ |
94,600 |
|
|
$ |
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities as of June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
Series A warrants |
|
$ |
– |
|
|
$ |
6,952 |
|
|
$ |
– |
|
Series B warrants |
|
|
– |
|
|
|
– |
|
|
|
58,290 |
|
Embedded
derivative liability |
|
|
– |
|
|
|
– |
|
|
|
29,513 |
|
Total liabilities as of June 30,
2020 |
|
$ |
– |
|
|
$ |
6,952 |
|
|
$ |
87,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities as of December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
Series A warrants |
|
$ |
– |
|
|
$ |
3,568 |
|
|
$ |
– |
|
Embedded
derivative liability |
|
|
– |
|
|
|
– |
|
|
|
17,974 |
|
Total liabilities as of December
31, 2019 |
|
$ |
– |
|
|
$ |
3,568 |
|
|
$ |
17,974 |
|
The following table sets forth a summary of the changes in the
estimated fair value of the Company’s Level 3 liabilities, which
are measured at fair value as a on a recurring basis:
Summary of changes in financial liability Level
3 |
|
Series A Preferred Stock Embedded Derivative Liability |
|
|
Series B Warrants Liability |
|
|
|
(In
thousands) |
|
Opening balance as of December 31, 2019 |
|
$ |
17,974 |
|
|
$ |
– |
|
Issuance of Series B warrants |
|
|
– |
|
|
|
4,600 |
|
Remeasurement to
fair value |
|
|
11,539 |
|
|
|
53,690 |
|
Balance as of June 30, 2020 |
|
$ |
29,513 |
|
|
$ |
58,290 |
|
Investments at Fair
Value
On an individual investment basis, Acacia may elect to account for
investments in companies where the Company has the ability to
exercise significant influence over operating and financial
policies of the investee, at fair value. If the fair value method
is applied to an investment that would otherwise be accounted for
under the equity method of accounting, it is applied to all of the
financial interests in the same entity that are eligible items
(i.e., common stock and warrants). We elected the fair value method
for our investment in Veritone. As of June 30, 2020, our investment
in Veritone warrants totaled $4.1 4100000
million.
Other
Investments
Equity investments in common stock and in-substance common stock
without readily determinable fair values in companies over which
the Company has the ability to exercise significant influence, are
accounted for using the equity method of accounting. Acacia
includes its proportionate share of earnings and/or losses of its
equity method investees in equity in earnings (losses) of investees
in the condensed consolidated statements of operations.
Investments in preferred stock with substantive liquidation
preferences are accounted for at cost (subject to impairment
considerations, as described below, if any), as adjusted for the
impact of changes resulting from observable price changes in
orderly transactions for identical or similar investments of the
same issuer. In-substance common stock is an investment in an
entity that has risk and reward characteristics that are
substantially similar to that entity's common stock. An investment
in preferred stock with substantive liquidation preferences over
common stock, is not substantially similar to common stock, and
therefore is not considered in-substance common stock. A
liquidation preference is substantive if the investment has a
stated liquidation preference that is significant, from a fair
value perspective, in relation to the purchase price of the
investment. A liquidation preference in an investee that has
sufficient subordinated equity from a fair value perspective is
substantive because, in the event of liquidation, the investor will
not participate in substantially all of the investee's losses, if
any.
The initial determination of whether an investment is substantially
similar to common stock is made on the initial date of investment
if the Company has the ability to exercise significant influence
over the operating and financial policies of the investee. That
determination is reconsidered if:
|
(i) |
contractual terms of the
investment are changed, |
|
(ii) |
there is a significant
change in the capital structure of the investee, including the
investee's receipt of additional subordinated financing,
or |
|
(iii) |
the Company obtains an
additional interest in an investment, resulting in the method of
accounting for the cumulative interest being based on the
characteristics of the investment at the date at which the Company
obtains the additional interest. |
Refer to Note 5 for additional information.
Stock-Based
Compensation
The compensation cost for all stock-based awards is measured at the
grant date, based on the fair value of the award, and is recognized
as an expense on a straight-line basis over the employee’s
requisite service period (generally the vesting period of the
equity award) which is generally two to four years. The fair value
of restricted stock and restricted stock unit awards is determined
by the product of the number of shares or units granted and the
grant date market price of the underlying common stock. The fair
value of each option award is estimated on the date of grant using
a Black-Scholes option-pricing model. Forfeitures are accounted for
as they occur.
Restricted stock units granted in September 2019 with market-based
vesting conditions vest based upon the Company achieving specified
stock price targets over a three-year period. The effect of a
market condition is reflected in the estimate of the grant-date
fair value of the options utilizing a Monte Carlo valuation
technique. Compensation cost is recognized with a market-based
vesting condition provided that the requisite service is rendered,
regardless of when, if ever, the market condition is satisfied.
Assumptions utilized in connection with the Monte Carlo valuation
technique included: estimated risk-free interest rate of 1.38
percent; term of 3.00 years; expected volatility of 38 percent; and
expected dividend yield of 0 percent. The risk-free interest rate
was determined based on the yields available on U.S. Treasury
zero-coupon issues. The expected stock price volatility was
determined using historical volatility. The expected dividend yield
was based on expectations regarding dividend payments.
Profits Interest Units (“Units”) were accounted for in
accordance with Accounting Standards Codification (“ASC”) 718-10,
“Compensation - Stock Compensation.” The vesting conditions did not
meet the definition of service, market or performance conditions,
as defined in ASC 718. As such, the Units were classified as
liability awards. Compensation expense was adjusted for changes in
fair value prorated for the portion of the requisite service period
rendered. Initially, compensation expense was recognized on a
straight-line basis over the employee’s requisite service period
(generally the vesting period of the equity award) which was five
years. Upon full vesting of the award, which occurred during the
three months ended September 30, 2017, previously unrecognized
compensation expense was immediately recognized in the
period. The Company has a purchase option to purchase the
vested Units that are not otherwise forfeited after termination of
continuous service. The exercise price of the purchase option is
the fair market value of the Units on the date of termination of
continuous service. As of June 30, 2020, the Units totaled
$591,000, which was their fair value as of December 31, 2018 after
termination of service.
Series A
Warrants
The fair value of the Series A Warrants is estimated using a
Black-Scholes option-pricing model. The fair value of the Series A
Warrants as of June 30, 2020 was estimated based on the following
assumptions: volatility of 27 percent,
risk-free rate of 0.51 percent, term
of 7.29 years and a
dividend yield of 0 percent. Refer to
Notes 10 and 11 for additional information.
Series B
Warrants
The fair value of the Series B Warrants is estimated using Monte
Carlo valuation technique. The fair value of the Series B Warrants
as of June 30, 2020 was estimated based on event probabilities of
future exercise scenarios and the following weighted-average
assumptions: (1) volatility of
47 percent, risk-free rate of
0.51 percent, term of
2.15 years, dividend yield of
0 percent, and a discount for lack of marketability of
10 percent, and (2) volatility of
27 percent, risk-free rate of
0.51 percent, term of
7.38 years and a dividend yield of
0 percent, and a discount for lack of marketability of
10 percent. Refer to Notes 10 and 12 for additional
information.
Embedded
derivatives
Embedded derivatives that are required to be bifurcated from their
host contract are valued separately from host instrument. A
binomial lattice framework is used to estimate the fair value of
the embedded derivative in the Series A Redeemable Convertible
Preferred Stock. The binomial model utilizes the Tsiveriotis and
Fernandes implementation in which a convertible instrument is split
into two separate components: a cash-only component which is
subject to the selected risk-adjusted discount rate and an equity
component which is subject only to the risk-free rate. The model
considers the (i) implied volatility of the value of our common
stock, (ii) appropriate risk-free interest rate, (iii) credit
spread, (iv) dividend yield, (v) dividend accrual (and a step-up in
rates), and (vi) event probabilities of the various conversion and
redemption scenarios.
The implied volatility of the Company’s common stock is estimated
based on a haircut applied to the historical volatility. A
volatility haircut is a concept used to describe a commonly
observed occurrence in which the volatility implied by market
prices involving options, warrants, and convertible debt is lower
than historical actual realized volatility. The assumed base case
term used in the valuation model is the period remaining until
November 15, 2027, the maturity date. The risk-free interest rate
is based on the yield on the U.S. Treasury with a remaining term
equal to the expected term of the conversion and early redemption
options. The significant assumptions utilized in the Company’s
valuation of the embedded derivative at June 30, 2020 are as
follows: volatility of 27 percent,
risk-free rate of 0.51 percent, a
credit spread of 25 percent and a
dividend yield of 0 percent. The fair
value measurement of the embedded derivative is sensitive to these
assumptions and changes in these assumptions could result in a
materially different fair value measurement. Refer to Note 10 for
additional information.
Treasury
Stock
Repurchases of the Company’s outstanding common stock are accounted
for using the cost method. The applicable par value is deducted
from the appropriate capital stock account on the formal or
constructive retirement of treasury stock. Any excess of the cost
of treasury stock over its par value is charged to additional
paid-in capital, and reflected as treasury stock on the condensed
consolidated balance sheets.
Impairment of
Investments
Acacia reviews its investments quarterly for indicators of
other-than-temporary impairment. This determination requires
significant judgment. In making this judgment, Acacia considers
available quantitative and qualitative evidence in evaluating
potential impairment of its investments. If the cost of an
investment exceeds its fair value, Acacia evaluates, among other
factors, general market conditions and the duration and extent to
which the fair value is less than cost. Acacia also considers
specific adverse conditions related to the financial health of and
business outlook for the investee, including industry and sector
performance, changes in technology, and operational and financing
cash flow factors. Once a decline in fair value is determined to be
other-than-temporary, an impairment charge is recorded in the
condensed consolidated statements of operations and a new cost
basis in the investment is established.
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 condensed consolidated financial
statements or consolidated income 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,
or if it is determined that there is uncertainty regarding future
realization of such assets.
The provision for income taxes for interim periods is determined
using an estimate of Acacia’s annual effective tax rate, adjusted
for discrete items, if any, that are taken into account in the
relevant period. Each quarter, Acacia updates the estimate of the
annual effective tax rate, and if the estimated tax rate changes, a
cumulative adjustment is recorded.
The Company’s effective tax rates were 0% and 21% for the three and six months
ended June 30, 2020, respectively and 0% and
(3%) for the three and six months ended June 30, 2019,
respectively. Tax benefit (expense) for the periods presented
primarily reflects the impact of state taxes and foreign taxes
withholding or refund incurred on revenue agreements executed with
third-party licensees domiciled in foreign jurisdictions. The
Company has recorded full valuation allowance against our net
deferred tax assets as of June 30, 2020 and 2019. These assets
primarily consist of foreign tax credits, capital loss
carryforwards and net operating loss carryforwards.
3. INCOME
(LOSS) PER SHARE
The following table presents the shares of common stock outstanding
used in the calculation of basic and diluted net income (loss) per
share:
Calculation of basic and diluted net loss per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
(In thousands, except share and per share
information) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Acacia Research
Corporation |
|
$ |
6,148 |
|
|
$ |
(5,757 |
) |
|
$ |
(5,143 |
) |
|
$ |
(10,141 |
) |
Dividend
on Series A redeemable convertible preferred stock |
|
|
(388 |
) |
|
|
– |
|
|
|
(651 |
) |
|
|
– |
|
Accretion
of Series A redeemable convertible preferred stock |
|
|
(680 |
) |
|
|
– |
|
|
|
(1,311 |
) |
|
|
– |
|
Undistributed earnings allocated to participating
securities |
|
|
(879 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Net income (loss) attributable to
common stockholders - basic and diluted |
|
|
4,201 |
|
|
|
(5,757 |
) |
|
|
(7,105 |
) |
|
|
(10,141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in
computing net income (loss) per share attributable to common
stockholders - basic |
|
|
48,457,620 |
|
|
|
49,696,016 |
|
|
|
49,166,508 |
|
|
|
49,676,059 |
|
Potentially dilutive common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units |
|
|
576,204 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Weighted-average shares used in
computing net income (loss) per share attributable to common
stockholders - diluted |
|
|
49,033,824 |
|
|
|
49,696,016 |
|
|
|
49,166,508 |
|
|
|
49,676,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common
share |
|
$ |
0.09 |
|
|
$ |
(0.12 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.20 |
) |
Diluted net income (loss) per common
share |
|
$ |
0.09 |
|
|
$ |
(0.12 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive potential common
shares excluded from the computation of diluted net income (loss)
per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based incentive awards |
|
|
476,583 |
|
|
|
1,766,191 |
|
|
|
2,321,016 |
|
|
|
1,766,191 |
|
Series A warrants |
|
|
5,000,000 |
|
|
|
– |
|
|
|
5,000,000 |
|
|
|
– |
|
Series B warrants |
|
|
100,000,000 |
|
|
|
– |
|
|
|
100,000,000 |
|
|
|
– |
|
Total |
|
|
105,476,583 |
|
|
|
1,766,191 |
|
|
|
107,321,016 |
|
|
|
1,766,191 |
|
4.
PATENTS
Acacia’s only identifiable intangible assets at June 30, 2020 and
December 31, 2019 are patents and patent rights. Patent-related
accumulated amortization totaled $325,122,000 and $322,774,000 as of June 30,
2020 and December 31, 2019, respectively. Acacia’s patents have
remaining estimated economic useful lives ranging from one to
fifty-eight months. The weighted-average remaining estimated
economic useful life of Acacia’s patents is approximately four
years.
The following table presents the scheduled annual aggregate
amortization expense as of June 30, 2020:
Schedule of intangible assets |
|
|
|
|
|
For the years ending December 31, |
|
|
|
|
(In
thousands) |
|
|
|
|
|
Remainder of 2020 |
|
|
$ |
2,332 |
|
2021 |
|
|
|
4,451 |
|
2022 |
|
|
|
4,451 |
|
2023 |
|
|
|
4,376 |
|
2024 |
|
|
|
3,005 |
|
Thereafter |
|
|
|
630 |
|
Patents, net |
|
|
$ |
19,245 |
|
5.
INVESTMENTS
Investment at Fair Value
During 2016 and 2017, Acacia made certain investments in Veritone,
Inc. (“Veritone”). As a result of these transactions, Acacia
received an aggregate total of 4,119,521 shares of Veritone common
stock and warrants to purchase a total of 1,120,432 shares of
Veritone common stock at an exercise price of $13.61 per share
expiring between 2020 and 2027. During the year ended December 31,
2018, Acacia sold 2,700,000 shares Veritone
common stock and recorded a realized loss of $19.1 million. During
the year ended December 31, 2019, Acacia sold 1,121,071 shares Veritone
common stock and recorded a realized loss of $9.2 million. During the
three months ended March 31, 2020, Acacia sold all remaining
298,450 shares Veritone
common stock and recorded a realized loss of $3.3 million.
During the three months ended June 30, 2020, Acacia exercised
154,312 warrants of the total
1,120,432 Veritone common stock
purchase warrants at a price of $13.61 per warrant, and then sold the
154,312 shares of Veritone
stock received at $17.23 per share, and recorded a realized
gain of $554,000. At June 30, 2020, the fair
value of the 966,120 remaining warrants held
by Acacia totaled $4,063,000.
Changes in the fair value of Acacia’s investment in Veritone are
recorded as unrealized gains or losses in the consolidated
statements of operations. For the three and six months ended June
30, 2020 and 2019, the accompanying condensed consolidated
statements of operations reflected the following:
Schedule of gain (loss) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
Six
Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
(In thousands) |
|
Change in fair value of
investment, warrants |
|
$ |
2,677 |
|
|
$ |
3,091 |
|
|
$ |
3,306 |
|
|
$ |
2,394 |
|
Change in fair value of investment,
common stock |
|
|
– |
|
|
|
3,889 |
|
|
|
3,479 |
|
|
|
11,494 |
|
Gain on sale of investment,
warrants |
|
|
554 |
|
|
|
– |
|
|
|
554 |
|
|
|
– |
|
Loss on sale of
investment, common stock |
|
|
– |
|
|
|
(1,642 |
) |
|
|
(3,316 |
) |
|
|
(7,232 |
) |
Net realized and unrealized gain (loss) on investment at fair
value |
|
$ |
3,231 |
|
|
$ |
5,338 |
|
|
$ |
4,023 |
|
|
$ |
6,656 |
|
6.
COMMITMENTS AND CONTINGENCIES
Patent Enforcement
Certain of Acacia’s operating subsidiaries are often required to
engage in litigation to enforce their patents and patent rights. In
connection with any of Acacia’s operating subsidiaries’ patent
enforcement actions, it is possible that a defendant may request
and/or a court may rule that an operating subsidiary has violated
statutory authority, regulatory authority, federal rules, local
court rules, or governing standards relating to the substantive or
procedural aspects of such enforcement actions. In such event, a
court may issue monetary sanctions against Acacia or its operating
subsidiaries or award attorney’s fees and/or expenses to a
defendant(s), which could be material.
Facility Leases
The Company primarily leases office facilities under operating
lease arrangements that will end in various years through July
2024.
On June 7, 2019, we entered into a building lease agreement (the
“New Lease”) with Jamboree Center 4 LLC (the “Landlord”). Pursuant
to the New Lease, we have leased approximately 8,293 square feet of
office space for our corporate headquarters in Irvine, California.
The New Lease commenced on August 1, 2019. The term of the New
Lease is 60 months from the commencement date, provides for annual
rent increases, and does not provide us the right to early
terminate or extend our lease terms.
The Company subleased a facility under another operating lease
agreement (the “Old Lease”) that we ceased using in December 2018,
and the sublease went through the remaining term of the Old Lease,
which ended on January 31, 2020.
On January 7, 2020, we entered into a building lease agreement (the
“New York Office Lease”) with Sage Realty Corporation (the “New
York Office Landlord”). Pursuant to the New York Office Lease, we
have leased approximately 4,000 square feet of office space in New
York, New York. The New York Office Lease commenced on February 1,
2020. The term of the New York Office Lease is 24 months from the
commencement date, provides for annual rent increases, and does not
provide us the right to early terminate or extend our lease
terms.
Operating lease costs, net of sublease income, were $164,000 and
$114,000 for
the three months ended June 30, 2020 and 2019, respectively.
Operating lease costs, net of sublease income, were $285,000 and
$205,000 for
the six months ended June 30, 2020 and 2019, respectively.
The table below presents aggregate future minimum payments due
under the New Lease and the New York Office Lease discussed above,
reconciled to lease liabilities included in the consolidated
balance sheet as of June 30, 2020:
Schedule of future minimum operating lease
payments |
|
|
|
|
|
|
|
|
Operating Leases |
|
|
|
|
(In thousands) |
|
2020 |
|
|
$ |
287 |
|
2021 |
|
|
|
589 |
|
2022 |
|
|
|
370 |
|
2023 |
|
|
|
364 |
|
2024 |
|
|
|
218 |
|
Total minimum payments |
|
|
$ |
1,828 |
|
Less: short-term
lease liabilities |
|
|
|
(579 |
) |
Long-term lease
liabilities |
|
|
$ |
1,249 |
|
Other Matters
Acacia is subject to claims, counterclaims and legal actions that
arise in the ordinary course of business. Management believes that
the ultimate liability with respect to these claims and legal
actions, if any, will not have a material effect on Acacia’s
condensed consolidated financial position, results of operations or
cash flows.
On September 6, 2019, Slingshot Technologies, LLC (“Slingshot”)
filed suit in Delaware Chancery Court against the Company, Acacia
Research Group, LLC, and Monarch Networking Solutions LLC
(collectively, the “Acacia Entities”), Acacia board member
Katharine Wolanyk, and Transpacific IP Group, Ltd.
(“Transpacific”). Slingshot alleges that the Acacia Entities
misappropriated its confidential and proprietary information,
purportedly furnished to the Acacia Entities by Ms. Wolanyk, in
acquiring a patent portfolio from Transpacific after Slingshot’s
exclusive option to purchase the same patent portfolio from
Transpacific had already expired. Slingshot seeks monetary damages,
as well as equitable and injunctive relief related to its alleged
right to own the portfolio. The Acacia Entities maintain that
Slingshot’s allegations are baseless, that Ms. Wolanyk had no
involvement in the acquisition, that the Acacia Entities neither
had access to nor used Slingshot’s information in acquiring the
portfolio, that the Acacia Entities acquired the portfolio as a
result of the independent efforts of its IP licensing group, and
that Slingshot suffered no damages given its exclusive option to
purchase the portfolio had already ended and it has proven itself
incapable of closing on the portfolio purchase.
On December 6, 2017, the Federal Court of Canada allowed a
counterclaim for invalidity of a patent asserted by Rapid
Completions LLC and awarded costs payable by Rapid Completions LLC
in an amount to be determined.
During the six months ended June 30, 2020, operating expenses
included a net income for settlement offset by contingency accruals
totaling $308,000, net of prior
accruals. During the six months ended June 30, 2019, operating
expenses included expenses for settlement and contingency accruals
totaling $650,000. At June 30, 2020,
our contingency accruals totaled $1.4 million.
7.
STOCKHOLDERS’ EQUITY
Repurchases of Common Stock
On August 5, 2019, Acacia’s Board of Directors approved a stock
repurchase program, which authorized the purchase of up to
$10.0
million of the Company's common stock through open market
purchases, through block trades, through 10b5-1 plans, or by means
of private purchases, from time to time, through July 31, 2020.
Stock repurchases for the periods presented, all of which were
purchased as part of a publicly announced plan or program, were as
follows:
Schedule of repurchased shares |
|
Total Number
of Shares
Purchased |
|
|
Average
Price
paid per
Share |
|
|
Approximate Dollar
Value of Shares that
May Yet be Purchased
under the Program |
|
|
Plan Expiration Date |
|
|
|
|
|
|
|
|
|
|
|
|
March 20, 2020 - March
31, 2020 |
|
|
576,898 |
|
|
$ |
2.28 |
|
|
$ |
8,686,000 |
|
|
July 31, 2020 |
April 1, 2020 -
April 23, 2020 |
|
|
1,107,639 |
|
|
$ |
2.42 |
|
|
$ |
6,001,000 |
|
|
July 31, 2020 |
Totals for
2020 |
|
|
1,684,537 |
|
|
$ |
2.37 |
|
|
|
|
|
|
|
In determining whether or not to repurchase any shares of Acacia’s
common stock, Acacia’s Board of Directors consider such factors as
the impact of the repurchase on Acacia’s cash position, as well as
Acacia’s capital needs and whether there is a better alternative
use of Acacia’s capital. Acacia has no obligation to repurchase any
amount of its common stock under the Stock Repurchase Program.
Repurchases to date were made in the open market in compliance with
applicable SEC rules. The authorization to repurchase shares
presented an opportunity to reduce the outstanding share count and
enhance stockholder value.
Tax Benefits Preservation Plan
On March 12, 2019, Acacia’s Board of Directors announced that it
had unanimously approved the adoption of a Tax Benefits
Preservation Plan (the “Plan”). Our stockholders ratified the
adoption of the Plan in July 2019. The purpose of the Plan is to
protect the Company’s ability to utilize potential tax assets, such
as net operating loss carryforwards and tax credits to offset
potential future taxable income.
The Plan is designed to reduce the likelihood that the Company will
experience an ownership change by discouraging (i) any person or
group from acquiring beneficial ownership of 4.9% or more of the
Company’s outstanding common stock and (ii) any existing
stockholders who, as of the time of the first public announcement
of the adoption of the Plan, beneficially own more than 4.9% of the
Company’s then-outstanding shares of the Company’s common stock
from acquiring additional shares of the Company’s common stock
(subject to certain exceptions). There is no guarantee, however,
that the Plan will prevent the Company from experiencing an
ownership change.
In connection with the adoption of the Plan, Acacia’s Board of
Directors authorized and declared a dividend distribution of one
right for each outstanding share of the Company’s common stock to
stockholders of record at the close of business on March 16, 2019.
On or after the distribution date, each right would initially
entitle the holder to purchase one one-thousandth of a share of the
Company’s Series B Junior Participating Preferred Stock, $0.001 par
value for a purchase price of $12.00.
The Company also has a provision in its Amended and Restated
Certificate of Incorporation, as amended (the “Charter Provision”)
which generally prohibits transfers of its common stock that could
result in an ownership change. Like the Plan, the purpose of the
Charter Provision is to protect the Company’s ability to utilize
potential tax assets, such as net operating loss carryforwards and
tax credits to offset potential future taxable income. The Charter
Provision was approved by the Company’s stockholders on July 15,
2019.
8. RECENT
ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements - Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”)
issued ASU No. 2019-12 Income Taxes (Topic 740) — Simplifying the
Accounting for Income Taxes, to remove certain exceptions and
improve consistency of application, including, among other things,
requiring that an entity reflect the effect of an enacted change in
tax laws or rates in the annual effective tax rate computation in
the interim period that includes the enactment date. The amendments
in this update will be effective for the Company beginning with
fiscal year 2021, with early adoption permitted. Most amendments
within the standard are required to be applied on a prospective
basis, while certain amendments must be applied on a retrospective
or modified retrospective basis. Management is currently evaluating
the impact that the amendments in this update will have on the
Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments, to replace the incurred loss methodology
with an expected credit loss model that requires consideration of a
broader range of information to estimate credit losses over the
lifetime of the asset, including current conditions and reasonable
and supportable forecasts in addition to historical loss
information, to determine expected credit losses. Pooling of assets
with similar risk characteristics and the use of a loss model are
also required. Also, in April 2019, the FASB issued ASU No.
2019-04, Codification Improvements to Topic 326, Financial
Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and
Topic 825, Financial Instruments, to clarify the inclusion of
recoveries of trade receivables previously written off when
estimating an allowance for credit losses. The amendments in this
update will be effective for the Company in fiscal year 2023, with
early adoption permitted. Management is currently evaluating the
impact that the amendments in this update will have on the
Company’s consolidated financial statements.
9. FAIR
VALUE DISCLOSURES
Acacia holds the following types of financial instruments at June
30, 2020 and December 31, 2019.
Trading securities - debt. Debt securities include corporate
bonds with fair value that is determined by third party quotations
from outside pricing services and/or computerized pricing models,
which may be based on transactions, bids or estimates. Acacia
classifies the fair value of corporate bonds within Level 2 of the
valuation hierarchy.
Trading securities - equity. Equity securities include
investments in public companies common stock and are recorded at
fair value based on the quoted market price of each share on the
valuation date. The fair value of these securities are within Level
1 of the valuation hierarchy.
Equity securities derivative. Public company equity
securities derivative are recorded at fair value based on the
quoted market price of the underlying shares on the valuation date
and settlement expectations. The fair value of these equity
securities derivative are within Level 1 of the valuation
hierarchy.
Investments at fair value - common stock. Acacia’s equity
investment in Veritone common stock is recorded at fair value based
on the quoted market price of Veritone’s common stock on the
applicable valuation date (Level 1).
Investments at fair value - warrants. Warrants are recorded
at fair value, as based on the Black-Scholes option-pricing model
(Level 2).
Series A Warrants. Series A Warrants are recorded at fair
value, using Black-Scholes option-pricing model (Level 2).
Series B Warrants. Series B Warrants are recorded at fair
value, using Monte Carlo valuation technique (Level 3).
Embedded derivative liability. Embedded derivatives that are
required to be bifurcated from their host contract are evaluated
and valued separately from the host instrument. A binomial lattice
framework is used to estimate the fair value of the embedded
derivative in the Series A Redeemable Convertible Preferred Stock
issued by the Company in 2019 (Level 3).
10.
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
On November 18, 2019, the Company entered into a Securities
Purchase Agreement (the “Securities Purchase Agreement”) with
Starboard Value LP (“Starboard”) pursuant to which the Company
issued (i) 350,000 shares of Series A Redeemable
Convertible Preferred Stock with a par value of $0.001 per share
and a stated value of $100 per share, and (ii) Series A Warrants to
purchase up to 5,000,000 shares of the Company’s
common stock to Starboard. The Securities Purchase Agreement also
established the terms of certain senior secured notes and Series B
Warrants that may be issued to Starboard on a subsequent date.
Refer to Notes 11 and 12 for additional information regarding the
issuance of the Series A and Series B Warrants.
The Series A Redeemable Convertible Preferred Stock can be
converted into a number of shares of common stock equal to (i) the
stated value thereof plus accrued and unpaid dividends, divided by
(ii) the conversion price of $3.65 (subject to certain
anti-dilution adjustments). Holders may elect to convert the Series
A Redeemable Convertible Preferred Stock into common stock at any
time. The Company may elect to convert the Series A Redeemable
Convertible Preferred Stock into shares of Common Stock any time on
or after November 15, 2025, provided that the closing price of the
Company’s common stock equals or exceeds 190% of the conversion
price for 30 consecutive trading days and assuming certain other
conditions of the common stock have been met.
Holders have the option to redeem all or a portion of the Series A
Redeemable Convertible Preferred Stock during the periods of May
15, 2021 through August 15, 2021 and May 15, 2022 through August
15, 2022, provided that the Company has not issued at least $50.0
million aggregate principal of senior secured notes to Starboard
pursuant to the Securities Purchase Agreement. Holders also have
the option to redeem all or a portion of the Series A Redeemable
Convertible Preferred Stock during the period of November 15, 2024
through February 15, 2025. Additionally, holders have the option to
redeem all or a portion of the Series A Redeemable Convertible
Preferred Stock upon the occurrence of (i) a change of control or
(ii) various other triggering events, such as the suspension from
trading or delisting of the Company’s common stock. If the Series A
Redeemable Convertible Preferred Stock is redeemed at the option of
the holders, the redemption price may include a make-whole amount
or a stated premium, depending on the redemption scenario.
The Company may redeem all, and not less than all, of the Series A
Redeemable Convertible Preferred Stock (i) upon a change of control
or (ii) during the period of May 15, 2022 through August 15, 2022,
provided that the Company has not issued at least $50.0 million
aggregate principal of the senior secured notes, and assuming
certain conditions of the common stock have been met. If the Series
A Redeemable Convertible Preferred Stock is redeemed at the option
of the Company, the redemption price would include a make-whole
amount or a 15% premium depending on the circumstances.
If any Series A Redeemable Convertible Preferred Stock remains
outstanding on November 15, 2027, the Company shall redeem such
Series A Redeemable Convertible Preferred Stock in cash.
In all redemption scenarios, the redemption price for the Series A
Redeemable Convertible Preferred Stock includes the stated value
plus accrued and unpaid dividends. In addition, depending on the
redemption scenario, the redemption price may also include a
make-whole amount or stated premium as described above.
When the Company issues senior secured notes, the Holder may
exchange the Series A Redeemable Convertible Preferred Stock for
(i) senior secured notes and (ii) Series B Warrants to purchase
common stock.
The Series A Redeemable Convertible Preferred Stock accrues
cumulative dividends quarterly at annual rate of 3.0% on the stated
value. Upon consummation of an approved investment (an investment
to be identified and approved by each of the Company and
Starboard), the dividend rate will increase to 8.0% on the stated
value. Upon certain triggering events, the dividend rate will
increase to 7.0% if the triggering event occurs before an approved
investment or 10.0% on the stated value if the triggering event
occurs after an approved investment. The Series A Redeemable
Convertible Preferred Stock also participates on an as-converted
basis in any regular or special dividends paid to common
stockholders. There are no accrued and unpaid
dividends as of June 30, 2020.
Holders of the Series A Redeemable Convertible Preferred Stock have
the right to vote with common stockholders on an as-converted basis
on all matters. Holders of Series A Redeemable Convertible
Preferred Stock will also be entitled to a separate class vote with
respect to amendments to the Company’s organizational documents
that generally have an adverse effect on the Series A Redeemable
Convertible Preferred Stock.
Upon liquidation of the Company, holders of Series A Redeemable
Convertible Preferred Stock have a liquidation preference over
holders of our common stock and will be entitled to receive, prior
to any distribution to holders of our common stock, an amount equal
to the greater of (i) the stated value plus accrued and unpaid
dividends or (ii) the amount that would have been received if the
Series A Redeemable Convertible Preferred Stock had been converted
into common stock immediately prior to the liquidation event at the
then effective conversion price.
The Company determined that certain features of the Series A
Redeemable Convertible Preferred Stock should be bifurcated and
accounted for as a derivative. Each of these features are bundled
together as a single, compound embedded derivative.
Total proceeds received and transaction costs incurred from the
issuance of the Series A Redeemable Convertible Preferred Stock
amounted to $35 million and $1.2 million, respectively. Proceeds
received were allocated based on the fair value of the instrument
without the Series A Warrants and of the Series A Warrants
themselves at the time of issuance. The proceeds allocated to the
Series A Redeemable Convertible Preferred Stock were then further
allocated between the host preferred stock instrument and the
embedded derivative, with the embedded derivative recorded at fair
value and the Series A Redeemable Convertible Preferred Stock
recorded at the residual amount. The portion of the proceeds
allocated to the Series A Warrants, embedded derivative, and Series
A Redeemable Convertible Preferred Stock was $4.8 million, $21.2
million, and $8.9 million, respectively. Transaction costs were
also allocated between the Series A Redeemable Convertible
Preferred Stock and the Series A Warrants on the same basis as the
proceeds. The transaction costs allocated to the Series A
Redeemable Convertible Preferred Stock were treated as a discount
to the Series A Redeemable Convertible Preferred Stock. The
transaction costs allocated to the Series A Warrants were expensed
as incurred.
The Company classifies the Series A Redeemable Convertible
Preferred Stock as mezzanine equity as the instrument will become
redeemable at the option of the holder in various scenarios or
otherwise on November 15, 2027. As it is probable that the Series A
Redeemable Convertible Preferred Stock will become redeemable, the
Company accretes the instrument to its redemption value using the
effective interest method and recognizes any changes against
additional paid in capital in the absence of retained earnings.
Accretion was $0.7 million and $1.3
million, respectively, for the three and six months ended June 30,
2020.
In connection with the issuance of the Series A Redeemable
Convertible Preferred Stock, the Company executed a Registration
Rights Agreement and a Governance Agreement with Starboard. Under
the Registration Rights Agreement, the Company agreed to provide
certain registration rights with respect to the Series A Redeemable
Convertible Preferred Stock and shares of Common Stock issued upon
conversion. In accordance with the Governance Agreement, the
Company agreed to (i) increase the size of the Board of Directors
from six to seven members, (ii) appoint a director of the Company,
(iii) grant Starboard the right to recommend two additional
directors for appointment to the board, (iv) form a Strategic
Committee of the Board tasked with sourcing and performing due
diligence on potential acquisition targets, (v) appoint certain
directors to the Strategic Committee, and (vi) appoint a director
to the Nominating and Corporate Governance Committee.
The following features of the Series A Redeemable Convertible
Preferred Stock are required to be bifurcated from the host
preferred stock and accounted for separately as an embedded
derivative: (i) the right of the holders to redeem the shares (put
option), (ii) the right of the holders to receive common stock upon
conversion of the shares (conversion option), (iii) the right of
the Company to redeem the shares (call option), and (iv) the change
in dividend rate upon consummation of an approved investment or a
triggering event (contingent dividend rate feature).
These features are required to be accounted for separately from the
Series A Redeemable Convertible Preferred Stock because the
features were determined to be not clearly and closely related to
the debt-like host and also did not meet any other scope exceptions
for derivative accounting. Therefore, these features are bundled
together and are accounted for as a single, compound embedded
derivative liability.
Accordingly, we have recorded an embedded derivative liability
representing the combined fair value of each of these features. The
embedded derivative liability is adjusted to reflect fair value at
each period end with changes in fair value recorded in the “Change
in fair value of redeemable preferred stock embedded derivative”
financial statement line item of the accompanying condensed
consolidated statements of operations. As of June 30, 2020, the
fair value of the Series A embedded derivative was $29.5
million.
11.
SERIES A WARRANTS
On November 18, 2019, in connection with the issuance of the Series
A Redeemable Convertible Preferred Stock, the Company issued
detachable Series A Warrants to acquire up to 5,000,000 shares of common
stock at a price of $3.65 per share (subject to certain
antidilution adjustments) at any time during a period of eight
years beginning on the instrument’s issuance date of the Series A
Warrants. As of June 30, 2020, the Series A Warrants have not been exercised.
The Series A Warrants will be recognized at fair value at each
reporting period until exercised, with changes in fair value
recognized in the condensed consolidated statements of operations
in other income (expense) in the accompanying condensed
consolidated statements of operations. As of December 31, 2019, the
fair value of the Series A Warrants was $3.6 million. As of June 30,
2020, the fair value of the Series A Warrants was $7.0 million.
The Series A Warrants are classified as a liability in accordance
with ASC 480, Distinguishing Liabilities from Equity, as the
agreement provides for net cash settlement upon a change in
control, which is outside the control of the Company.
12.
SERIES B WARRANTS
On February 25, 2020, pursuant to the terms of the Securities
Purchase Agreement with Starboard, the Company issued Series B
Warrants to purchase up to 100 million shares of the
Company’s common stock at an exercise price (subject to certain
price-based anti-dilution adjustments) of either (i) $5.25 per share, if exercising by
cash payment, within 30 months from the issuance date (i.e., August
25, 2022); or (ii) $3.65 per share, if exercising by cancellation
of a portion of senior secured notes. The Company issued the Series
B Warrants for an aggregate purchase price of $4.6 million. The
Series B Warrants expire on November 15, 2027.
In connection with the issuance of the Senior Secured Notes on June
4, 2020, the terms of certain of the Series B Warrants were amended
to permit the payment of the lower exercise price of $3.65 through
the payment of cash, rather than only through the cancellation of
Notes outstanding, at any time until the expiration date of
November 15, 2027. Only 31,506,849 of the Series B Warrants
are subject to this adjustment with the remaining balance of
68,493,151 Series B Warrants continuing under their original
terms. Refer to Note 13 for additional information on the
modifications to Series A Redeemable Convertible Preferred Stock
and Series B Warrants.
As of June 30, 2020, the Series B Warrants have not been exercised. The Series B
Warrants will be recognized at fair value at each reporting period
until exercised, with changes in fair value recognized in the
condensed consolidated statements of operations in other income
(expense). As of June 30, 2020, the fair value of the Series B
Warrants was $58.3 million.
The Series B Warrants are classified as a liability in accordance
with ASC 480, Distinguishing Liabilities from Equity, as the
agreement provides for net cash settlement upon a change in
control, which is outside the control of the Company.
13.
SENIOR SECURED NOTES
Pursuant to the Securities Purchase Agreement dated November 18,
2019 with Starboard, on June 4, 2020, the Company issued $115 million in Senior
Secured Notes (the “Notes”) to Starboard. Also on June 4, 2020, in
connection with the issuance of the Notes, the Company entered into
a Supplemental Agreement with Starboard (the “Supplemental
Agreement”), pursuant to which the Company agreed to redeem
$80 million aggregate principal
amount of the Notes by September 30, 2020, and $35
million aggregate principal amount of the Notes by December 31,
2020, resulting in the total principal outstanding being paid by
December 31, 2020. Per the Supplemental Agreement, interest is
payable semiannually at a rate of 6% per annum, and in an event of
default, the interest rate is increased to
10% per annum. The Notes include certain financial
and non-financial covenants. Additionally, all or any portion of
the principal amount outstanding under the Notes may, at the
election of Starboard, be surrendered to the Company for
cancellation in payment of the exercise price upon the exercise of
Series B Warrants.
On June 30, 2020, the Company entered into an Exchange Agreement
(the “Exchange Agreement”) with Merton Acquisition HoldCo LLC, a
Delaware limited liability company and wholly-owned subsidiary of
the Company (“Merton”) and Starboard, on behalf of itself and on
behalf of certain funds and accounts under its management,
including the holders of the Notes. Pursuant to the Exchange
Agreement, the holders of the Notes exchanged the entire
outstanding principal amount for new senior notes (the “New Notes”)
issued by Merton having an aggregate outstanding original principal
amount of $115 million.
The New Notes bear interest at a rate of 6.00% per annum and will mature
December 31, 2020. The New Notes are
fully guaranteed by the Company and are secured by an all-assets
pledge of the Company and Merton and non-recourse equity pledges of
each of the Company’s material subsidiaries. Pursuant to the
Exchange Agreement, the New Notes (i) are deemed to be “Notes” for
purposes of the Securities Purchase Agreement, (ii) are deemed to
be “June 2020 Approved Investment Notes” for purposes of the
Supplemental Agreement, and therefore the Company has agreed to
redeem $80
million principal amount of the New Notes by September 30, 2020 and
(iii) are deemed to be “Notes” for the purposes of the Series B
Warrants, and therefore may be tendered pursuant to a Note
Cancellation under the Series B Warrants on the terms set forth in
the Series B Warrants and the New Notes. Delivery of notes in the
form of the New Notes will satisfy the delivery of Exchange Notes
pursuant to Section 16(i) of the Certificate of Designations of the
Company’s Series A Convertible Preferred Stock, par value
$0.001
per share. The New Notes will not be deemed to be “Notes” for the
purposes of the Registration Rights Agreement, dated as of November
18, 2019, by and between the Company, Starboard and the Buyers.
Because the New Notes will be settled within twelve months pursuant
to their terms, they are classified as current liabilities on the
balance sheet. The Company capitalized $4.6 million in lender fees and
$0.5 million in other issuance
costs associated with the issuance of the Notes. The $4.6 million
of lender fees are recognized as long term deferred debt issuance
cost and will be amortized to interest expense until November 15,
2027, the maturity date of Series A Redeemable Convertible
Preferred Stock. The $0.5 million issuance costs are recognized
as a discount on the Notes and will be amortized to interest
expense over the contractual life of the Notes. There are no accrued and unpaid
interest on the New Note as of June 30, 2020.
Modifications to Series A Redeemable Convertible Preferred Stock
and Series B Warrants
The June 4, 2020 Supplemental Agreement also provided for (i) a
waiver of increased dividends under the original terms of the
Series A Preferred Stock that would have otherwise accrued due to
the Company’s use of the $35 million proceeds received from
Starboard upon the issuance of the Series A Redeemable Convertible
Preferred Stock in November 2019, (ii) the replacement of original
optional redemption rights for the Series A Redeemable Convertible
Preferred Stock provided to both the Company and Starboard that
otherwise would have been nullified through the issuance of the
Notes, and (iii) an amendment to the terms of the previously issued
Series B Warrants to permit the payment of the lower exercise price
of $3.65 through the payment of cash, rather than only through the
cancellation of Notes outstanding, at any time until the expiration
of the Series B Warrants on November 15, 2027. Only 31,506,849 of the Series B Warrants
are subject to this adjustment with the remaining balance of
68,493,151 Series B Warrants continuing under their original
terms.
We analyzed the amendments to the Series A Redeemable Convertible
Preferred Stock and determined that the amendments were not
significant. Therefore, the amendments are accounted for as a
modification on a prospective basis.
The incremental fair value of the Series B Warrants associated with
their modification in connection with the issuance of the Notes is
$1.3
million and is recognized as a discount on the Notes and will be
amortized to interest expense over the contractual life of the
Notes.
14. LF
EQUITY INCOME FUND PORTFOLIO INVESTMENT
On April 3, 2020, the Company entered into an Option Agreement with
Seller, which included general terms through which the Company was
provided the option to purchase life sciences equity securities in
a portfolio of public and private companies (“Portfolio Companies”)
for an aggregate purchase price of £223.9 million, approximately
$277.5 million at the
exchange rate on April 3, 2020. The option term was set to expire
on May 1, 2020, but could be extended by the Company until May 15,
2020 upon demonstrating certain terms and conditions had been met.
By mutual agreement of the parties, the Company further extended
the option agreement from May 15, 2020 until May 22, 2020, at which
time, the Company exercised its option to purchase the portfolio,
pursuant to the terms of the option contract.
On June 4, 2020, the Company executed the Transaction Agreement
between Link Fund Solutions Limited, Seller, and the Company.
Pursuant to the Transaction Agreement, the Company will purchase
from Seller and the Seller will transfer to the Company the
specified equity securities of all Portfolio Companies at set
prices at various future dates. The transfer dates will vary among
the Portfolio Companies as the Transaction Agreement gives the
Company the exclusive right to determine when to call for transfer
of each security, and because each Portfolio Company (or its
existing equity holders) may be required to approve the transfer
due to rights of first refusals and other company-specific terms
and conditions. Thus, the execution of the Transaction Agreement
resulted in forward contracts for the Company to purchase equity
securities in each public and private company at a specified price
on a future date.
In accordance with the Transaction Agreement, the Company
transferred the total purchase price of £223.9 million into an
escrow account. As each of the equity securities in the Portfolio
are transferred to the Company, the associated funds will be
released from the escrow account to the Seller based on the
consideration amount assigned to the equity securities in the
Transaction Agreement.
For accounting purposes, the total purchase price of the portfolio
was allocated to the individual equity securities based on their
individual fair values as of April 3, 2020, in order to establish
an appropriate cost basis for each of the acquired securities. The
fair values of the public company securities were based on their
quoted market price. The fair values of the private company
securities were estimated based on recent financing transactions
and secondary market transactions and factoring in a discount for
the illiquidity of these securities.
Changes in the fair value of Acacia’s investment in the Portfolio
Companies are recorded as unrealized gains or losses in the
condensed consolidated statements of operations. For the three and
six months ended June 30, 2020 and 2019, the accompanying condensed
consolidated statements of operations reflected the following:
Changes in fair value of Acacias
Investment |
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
(In thousands) |
|
Change in fair value of trading
security - LF Fund public securities |
|
$ |
(1,069 |
) |
|
$ |
– |
|
|
$ |
(1,069 |
) |
|
$ |
– |
|
Change in fair value of equity
securities derivative |
|
|
6,891 |
|
|
|
– |
|
|
|
6,891 |
|
|
|
– |
|
Change in fair value of equity
securities forward contract |
|
|
74,662 |
|
|
|
– |
|
|
|
74,662 |
|
|
|
– |
|
Loss on sale of trading security - LF
Fund public securities |
|
|
(6,110 |
) |
|
|
– |
|
|
|
(6,110 |
) |
|
|
– |
|
Net realized and unrealized gain on
investment in LF Fund securities |
|
$ |
74,374 |
|
|
$ |
– |
|
|
$ |
74,374 |
|
|
$ |
– |
|
15.
SUBSEQUENT EVENTS
None.
Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operation
The following discussion and analysis of our financial condition
and results of operations should be read together with our
unaudited condensed consolidated financial statements and the
related notes included in Part I, Item 1 of this Quarterly Report
on Form 10-Q for the three months ended June 30, 2020, or this
Report. This discussion and analysis contains forward-looking
statements that are based on our current expectations and reflect
our plans, estimates and anticipated future financial performance.
See the section of this Report entitled “Cautionary Statement
Regarding Forward-Looking Statements” for additional information.
These statements involve numerous risks and uncertainties. Our
actual results may differ materially from those expressed or
implied by these forward-looking statements as a result of many
factors, including those set forth in “Risk Factors” in Part II,
Item 1A of this Report.
General
As used in this Quarterly Report on Form 10-Q, “we,” “us” “our” and
“Company” refer to Acacia Research Corporation, a Delaware
corporation, and/or its wholly and majority-owned and controlled
operating subsidiaries, and/or where applicable, its management.
All IP acquisition, development, licensing and enforcement
activities are conducted solely by certain of Acacia Research
Corporation’s wholly and majority-owned and controlled operating
subsidiaries.
We invest in IP and related absolute return assets and engage in
the licensing and enforcement of patented technologies. We partner
with inventors and patent owners, applying our legal and technology
expertise to patent assets to unlock the financial value in their
patented inventions. We generate revenues and related cash flows
from the granting of patent rights for the use of patented
technologies that our operating subsidiaries control or own. We
assist patent owners with the prosecution and development of their
patent portfolios, the protection of their patented inventions from
unauthorized use, the generation of licensing revenue from users of
their patented technologies and, where necessary, with the
enforcement against unauthorized users of their patented
technologies through the filing of patent infringement litigation.
We are principals in the licensing and enforcement effort,
obtaining control of the rights in the patent portfolio, or control
of the patent portfolio outright.
We have a proven track record of licensing and enforcement success
with over 1,580 license agreements executed to date, across nearly
200 patent portfolio licensing and enforcement programs. Currently,
on a consolidated basis, our operating subsidiaries own or control
the rights to multiple patent portfolios, which include U.S.
patents and certain foreign counterparts, covering technologies
used in a variety of industries. To date, we have generated gross
licensing revenue of approximately $1.6 billion, and have returned
more than $791 million to our patent partners.
Our team’s expertise in identifying and evaluating complex IP, and
in developing and cultivating long-term business relationships,
provides us a unique window into innovation and technological
advancement. We are increasing our efforts to leverage our
expertise and experience to create new avenues and monetize our
existing IP assets, which we believe will lead to increased
stockholder value. We will leverage our experience, expertise, data
and relationships developed as a leader in the IP industry to
pursue these opportunities.
Executive Summary
Overview
Our operating activities during the periods presented were focused
on the continued operation of our patent licensing and enforcement
business, including the continued pursuit of our ongoing patent
licensing and enforcement programs.
Patent Licensing and Enforcement
|
- |
Patent Litigation
Trial Dates and Related Trials |
As of the date of this report, our operating subsidiaries have one
pending patent infringement case with a scheduled trial date in the
next twelve months. Patent infringement trials are components of
our overall patent licensing process and are one of many factors
that contribute to possible future revenue generating opportunities
for us. Scheduled trial dates, as promulgated by the respective
court, merely provide an indication of when, in future periods, the
trials may occur according to the court’s scheduling calendar at a
specific point in time. A court may change previously scheduled
trial dates. In fact, courts often reschedule trial dates for
various reasons that are unrelated to the underlying patent assets
and typically for reasons that are beyond our control. While
scheduled trial dates provide an indication of the timing of
possible future revenue generating opportunities for us, the trials
themselves and the immediately preceding periods represent the
possible future revenue generating opportunities. These future
opportunities can result in varying outcomes. In fact, it is
difficult to predict the outcome of patent enforcement litigation
at the trial level and outcomes can be unfavorable. It can be
difficult to understand complex patented technologies, and as a
result, this may lead to a higher rate of unfavorable litigation
outcomes. Moreover, in the event of a favorable outcome, there is,
in our experience, a higher rate of successful appeals in patent
enforcement litigation than more standard business litigation. Such
appeals are expensive and time consuming, resulting in increased
costs and a potential for delayed or foregone revenue opportunities
in the event of modification or reversal of favorable outcomes.
Although we diligently pursue enforcement litigation, we cannot
predict with reliability the decisions made by juries and trial
courts. Please refer to Item 1A. “Risk Factors” for additional
information regarding trials, patent litigation and related
risks.
|
- |
Litigation and
Licensing Expense |
We expect patent-related legal expenses to continue to fluctuate
from period to period based on the factors summarized herein, in
connection with future trial dates, international enforcement,
strategic patent portfolio prosecution and our current and future
patent portfolio investment, prosecution, licensing and enforcement
activities. The pursuit of enforcement actions in connection with
our licensing and enforcement programs can involve certain risks
and uncertainties, including the following:
|
· |
Increases in
patent-related legal expenses associated with patent infringement
litigation, including, but not limited to, increases in costs
billed by outside legal counsel for discovery, depositions,
economic analyses, damages assessments, expert witnesses and other
consultants, re-exam and inter partes review costs, case-related
audio/video presentations and other litigation support and
administrative costs, could increase our operating costs and
decrease our profit generating opportunities; |
|
· |
Our
patented technologies and enforcement actions are complex and, as a
result, we may be required to appeal adverse decisions by trial
courts in order to successfully enforce our patents. Moreover, such
appeals may not be successful; |
|
· |
New
legislation, regulations or rules related to enforcement actions,
including any fee or cost shifting provisions, could significantly
increase our operating costs and decrease our profit generating
opportunities. Increased focus on the growing number of
patent-related lawsuits may result in legislative changes which
increase our costs and related risks of asserting patent
enforcement actions; |
|
· |
Courts
may rule that our subsidiaries have violated certain statutory,
regulatory, federal, local or governing rules or standards by
pursuing such enforcement actions, which may expose us and our
operating subsidiaries to material liabilities, which could harm
our operating results and our financial position; |
|
· |
The
complexity of negotiations and potential magnitude of exposure for
potential infringers associated with higher quality patent
portfolios may lead to increased intervals of time between the
filing of litigation and potential revenue events (i.e., markman
dates, trial dates), which may lead to increased legal expenses,
consistent with the higher revenue potential of such portfolios;
and |
|
· |
Fluctuations in overall
patent portfolio related enforcement activities which are impacted
by the portfolio intake challenges discussed above could harm our
operating results and our financial position. |
Investments in Patent Portfolios
With respect to our licensing, enforcement and overall business,
neither we nor our operating subsidiaries invent new technologies
or products; rather, we depend upon the identification and
investment in patents, inventions and companies that own IP through
our relationships with inventors, universities, research
institutions, technology companies and others. If our operating
subsidiaries are unable to maintain those relationships and
identify and grow new relationships, then we may not be able to
identify new technology-based patent opportunities for sustainable
revenue and /or revenue growth.
Our current or future relationships may not provide the volume or
quality of technologies necessary to sustain our licensing,
enforcement and overall business. In some cases, universities and
other technology sources compete against us as they seek to develop
and commercialize technologies. Universities may receive financing
for basic research in exchange for the exclusive right to
commercialize resulting inventions. These and other strategies
employed by potential partners may reduce the number of technology
sources and potential clients to whom we can market our solutions.
If we are unable to maintain current relationships and sources of
technology or to secure new relationships and sources of
technology, such inability may have a material adverse effect on
our revenues, operating results, financial condition and ability to
maintain our licensing and enforcement business.
Patent Portfolio Intake
One of the significant challenges in our industry continues to be
quality patent intake due to the challenges and complexity
associated with the current patent environment.
During the six months ended June 30, 2020, we acquired four new
patent portfolios consisting of (i) flash memory technology, (ii)
voice activation and control technology, (iii) wireless networks,
and (iv) internet search, advertising and cloud computing
technology. The patents and patent rights acquired in 2020 have
estimated economic useful lives of approximately five years. In
fiscal year 2019 we acquired five patent portfolios.
Starboard Securities
In 2019, as part of its strategy to grow, the Company began
evaluating a wide range of strategic opportunities that culminated
in the strategic investment in the Company by certain funds and
accounts affiliated with, or managed by, Starboard Value LP, or
Starboard. On November 18, 2019, the Company entered into a
Securities Purchase Agreement with Starboard, or the Securities
Purchase Agreement, pursuant to which Starboard purchased (i)
350,000 shares of the Company’s newly designated Series A
Convertible Preferred Stock, or Series A Preferred Stock, at an
aggregate purchase price of $35,000,000, and warrants to purchase
up to 5,000,000 shares of the Company’s common stock, or Series A
Warrants. The Securities Purchase Agreements also established the
terms of certain senior secured notes and additional warrants, or
the Series B Warrants, which may be issued to Starboard in the
future. Refer to Notes 2, 10, 11 and 12 to the consolidated
financial statements elsewhere herein for more information related
to the Series A Preferred Stock, Series A Warrants and Series B
Warrants. In connection with Starboard’s investment, Starboard was
granted certain corporate governance rights, including the right to
appoint Jonathan Sagal, Managing Director of Starboard, as a
director of the Company and recommend two additional directors for
appointment to our Board of Directors. The investment by Starboard
is referred to herein as the “Starboard Investment,” and the Series
A Preferred Stock, Series A Warrants and Series B Warrants are
referred to herein as, collectively, the “Starboard
Securities.”
On February 14, 2020, the Company’s stockholders approved, for
purposes of Nasdaq Rules 5635(b) and 5635(d), as applicable, (i)
the voting of the Series A Preferred Stock on an as-converted basis
and (ii) the issuance of the maximum number of shares of common
stock issuable in connection with the potential future (A)
conversion of the Series A Preferred Stock and (B) exercise of the
Series A and Series B Warrants, in each case, without giving effect
to the exchange cap set forth in the Series A Preferred Stock
Certificate of Designations and in the Series A Warrants, issued
pursuant to the Securities Purchase Agreement dated November 18,
2019. Refer to Notes 10 and 11 to the consolidated financial
statements elsewhere herein for additional information. The
Company’s stockholders also approved an amendment to the Company’s
Amended and Restated Certificate of Incorporation to increase the
total number of authorized shares of common stock by 200,000,000
shares, from 100,000,000 shares to 300,000,000 shares.
On February 25, 2020, pursuant to the terms of the Securities
Purchase Agreement with Starboard, the Company issued Series B
Warrants to purchase up to 100 million shares of the Company’s
common stock at an exercise price of either (i) $5.25 per share, if
exercising by cash payment, or (ii) $3.65 per share, if exercising
by cancellation of a portion of senior secured notes. The Company
issued the Series B Warrants for an aggregate purchase price of
$4.6 million. Refer to Note 12 for additional information.
Pursuant to the terms of the Securities Purchase Agreement with
Starboard, On June 4, 2020, the Company issued $115 million in
Senior Secured Notes, or the Notes, to Starboard. Also on June 4,
2020, in connection with the issuance of the Notes, the Company
entered into a Supplemental Agreement with Starboard, or the
Supplemental Agreement, through which, the Company agreed to redeem
$80 million aggregate principal amount of the Notes by September
30, 2020, and $35 million aggregate principal amount of the Notes
by December 31, 2020, resulting in the total principal outstanding
being paid by December 31, 2020. Per the Supplemental Agreement,
interest is payable semiannually at a rate of 6% per annum, and in
an event of default, the interest rate is increased to 10% per
annum. The Notes outlined certain financial and non-financial
covenants. Additionally, all or any portion of the principal amount
outstanding under the Notes may, at the election of Starboard, be
surrendered to the Company for cancellation in payment of the
exercise price upon the exercise of the Series B Warrants.
On June 30, 2020, the Company entered into an Exchange Agreement,
or the Exchange Agreement, with Merton Acquisition HoldCo LLC, a
Delaware limited liability company and wholly-owned subsidiary of
the Company, or Merton and Starboard, on behalf of itself and on
behalf of certain funds and accounts under its management,
including the holders of the Notes. Pursuant to the Exchange
Agreement, the holders of the Notes exchanged the entire
outstanding principal amount for new senior notes, or the Notes,
issued by Merton having an aggregate outstanding original principal
amount of $115 million. The New Notes bear interest at a rate of
6.00% per annum and will mature December 31, 2020. The New Notes
are fully guaranteed by the Company and are secured by an
all-assets pledge of the Company and Merton and non-recourse equity
pledges of each of the Company’s material subsidiaries. Pursuant to
the Exchange Agreement, the New Notes (i) are deemed to be “Notes”
for purposes of the Securities Purchase Agreement, (ii) are deemed
to be “June 2020 Approved Investment Notes” for purposes of the
Supplemental Agreement, and therefore the Company has agreed to
redeem $80 million principal amount of the New Notes by September
30, 2020 and (iii) are deemed to be “Notes” for the purposes of the
Series B Warrants, and therefore may be tendered pursuant to a Note
Cancellation under the Series B Warrants on the terms set forth in
the Series B Warrants and the New Notes. Delivery of notes in the
form of the New Notes will satisfy the delivery of Exchange Notes
pursuant to Section 16(i) of the Certificate of Designations of the
Company’s Series A Convertible Preferred Stock, par value $0.001
per share. The New Notes will not be deemed to be “Notes” for the
purposes of the Registration Rights Agreement, dated as of November
18, 2019, by and between the Company, Starboard and the Buyers.
Refer to Note 13 for additional information.
LF Equity Income Fund Portfolio Investment
On April 3, 2020, the Company entered into an Option Agreement with
LF Equity Income Fund, or Seller, to purchase equity securities in
a portfolio of public and private companies, or Portfolio
Companies, for an aggregate purchase price of £223.9 million,
approximately $277.5 million at the exchange rate on April 3,
2020.
On June 4, 2020, the Company executed the Transaction Agreement
between Link Fund Solutions Limited, or Link, Seller, and the
Company. Pursuant to the Transaction Agreement, the Company will
purchase from Seller and the Seller will transfer to the Company
the specified equity securities of all Portfolio Companies at set
prices at various future dates. In accordance with the Transaction
Agreement, the Company transferred the total purchase price of
£223.9 million into an escrow account. As each of the equity
securities in the Portfolio are transferred to the Company, the
associated funds will be released from the escrow account to the
Seller based on the consideration amount assigned to the equity
securities in the Transaction Agreement.
The Transaction Agreement includes an initial consideration amount
for each of the equity securities as noted above, which represents
the amount of cash that will be withdrawn from the escrow account
upon the transfer of each security to the Company. Refer to Note 14
for additional information.
Operating Activities
Our revenues historically have fluctuated quarterly, and can vary
significantly, based on a number of factors including the
following:
|
· |
the
dollar amount of agreements executed each period, which can be
driven by the nature and characteristics of the technology or
technologies being licensed and the magnitude of infringement
associated with a specific licensee; |
|
· |
the
specific terms and conditions of agreements executed each period
including the nature and characteristics of rights granted, and the
periods of infringement or term of use contemplated by the
respective payments; |
|
· |
fluctuations in the
total number of agreements executed each period; |
|
· |
the
number of, timing, results and uncertainties associated with patent
licensing negotiations, mediations, patent infringement actions,
trial dates and other enforcement proceedings relating to our
patent licensing and enforcement programs; |
|
· |
the
relative maturity of licensing programs during the applicable
periods; |
|
· |
other
external factors, including the periodic status or results of
ongoing negotiations, the status or results of ongoing litigations
and appeals, actual or perceived shifts in the regulatory
environment, impact of unrelated patent related judicial
proceedings and other macroeconomic factors; |
|
· |
the
willingness of prospective licensees to settle significant patent
infringement cases and pay reasonable license fees for the use of
our patented technology, as such infringement cases approached a
court determined trial date; and |
|
· |
fluctuations in overall
patent portfolio related enforcement activities which are impacted
by the portfolio intake challenges discussed above. |
Our management does not attempt to manage for smooth sequential
periodic growth in revenues from period to period, and therefore,
periodic results can be uneven. Unlike most operating businesses
and industries, licensing revenues not generated in a current
period are not necessarily foregone but, depending on whether
negotiations, litigation or both continue into subsequent periods,
and depending on a number of other factors, such potential revenues
may be pushed into subsequent fiscal periods.
Revenues for the six months ended June 30, 2020 and 2019 included
fees from the following technology licensing and enforcement
programs:
• |
Bone Wedge technology(1)(2) |
|
• |
Speech codecs used in wireless and wireline
systems technology(1)(2) |
• |
Internet search, advertising and cloud computing
technology (1) |
• |
Super Resolutions Microscopy technology(1)(2) |
• |
MIPI DSI technology(1) |
|
• |
Video Conferencing technology(1) |
• |
Semiconductor and Memory-Related
technology(1) |
|
|
|
|
__________________________ |
|
|
|
|
(1)
Licensing and
enforcement program generating revenue during the six months ended
June 30, 2020. |
|
(2)
Licensing and
enforcement program generating revenue during the six months ended
June 30, 2019. |
Summary of Consolidated Results of Operations - Overview
For the Three months Ended June 30, 2020 and 2019
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|
% Change |
|
|
|
(In thousands, except percentage change
values) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
2,118 |
|
|
$ |
5,460 |
|
|
$ |
(3,342 |
) |
|
|
(61% |
) |
|
$ |
5,933 |
|
|
$ |
8,847 |
|
|
$ |
(2,914 |
) |
|
|
(33% |
) |
Operating costs and
expenses |
|
|
8,866 |
|
|
|
9,434 |
|
|
|
(568 |
) |
|
|
(6% |
) |
|
|
16,250 |
|
|
|
19,726 |
|
|
|
(3,476 |
) |
|
|
(18% |
) |
Operating
loss |
|
|
(6,748 |
) |
|
|
(3,974 |
) |
|
|
(2,774 |
) |
|
|
70% |
|
|
|
(10,317 |
) |
|
|
(10,879 |
) |
|
|
562 |
|
|
|
5% |
|
Other income (expense),
net |
|
|
12,894 |
|
|
|
(1,774 |
) |
|
|
14,668 |
|
|
|
827% |
|
|
|
3,834 |
|
|
|
1,047 |
|
|
|
2,787 |
|
|
|
266% |
|
Income (loss) before provision for
income taxes |
|
|
6,146 |
|
|
|
(5,748 |
) |
|
|
11,894 |
|
|
|
207% |
|
|
|
(6,483 |
) |
|
|
(9,832 |
) |
|
|
3,349 |
|
|
|
34% |
|
Provision for income taxes |
|
|
2 |
|
|
|
(9 |
) |
|
|
11 |
|
|
|
122% |
|
|
|
1,340 |
|
|
|
(323 |
) |
|
|
1,663 |
|
|
|
515% |
|
Net income (loss) attributable to
Acacia Research Corporation |
|
|
6,148 |
|
|
|
(5,757 |
) |
|
|
11,905 |
|
|
|
207% |
|
|
|
(5,143 |
) |
|
|
(10,141 |
) |
|
|
4,998 |
|
|
|
49% |
|
Results of Operations - Three months ended June 30, 2020
compared with the three months ended June 30, 2019
Revenues decreased $3.3 million to $2.1 million for the three
months ended June 30, 2020, as compared to $5.5 million in the
comparable prior year quarter, primarily due to a decrease in
revenues from the new agreements executed during the quarter. Refer
to “Investments in Patent Portfolios” above for additional
information regarding the impact of portfolio acquisition trends on
current and future licensing and enforcement related revenues.
Income before provision for income taxes was $6.1 million for the
three months ended June 30, 2020, as compared to a loss of $5.7
million for the three months ended June 30, 2019. The net change
was comprised of the change in revenues described above and other
changes in operating expenses and other income and expenses as
follows:
|
· |
Paid-up revenue
decreased $3.1 million due to a decrease in revenue from newly
executed licensing agreements during the quarter, in addition to a
decrease of $270,000 in recurring revenue due to a decrease in the
number of revenue contracts that provides for quarterly sales-based
license fees. Refer to Note 2 to the consolidated financial
statements elsewhere herein for additional information regarding
certain sales-based revenue contracts that provide for the payment
of quarterly license fees based on quarterly sales of applicable
product units by licensees. |
|
· |
Inventor royalties and
contingent legal fees, on a combined basis, decreased $2.3 million,
from $3.0 million to $0.7 million, primarily due to a decrease in
revenues as describe above. |
|
· |
Litigation and
licensing expenses-patents decreased $0.4 million, from $1.9
million to $1.5 million, primarily due to a net decrease in
litigation support and third-party technical consulting expenses
associated with ongoing litigation. |
|
· |
Amortization expense
increased $0.5 million, from $0.8 million to $1.3 million, due to
an increase in scheduled amortization resulting from the new
portfolios acquired in 2019 and 2020. |
|
· |
Other portfolio
expenses decreased $74,000, due to reversal of expenses for
settlement and contingency accruals recorded in the first quarter
of 2020. |
|
· |
General and
administrative expenses, excluding non-cash stock compensation,
increased $1.8 million, from $3.3 million to $5.1 million,
primarily due to higher corporate, general and administrative costs
related to legal and other business development
expenses. |
|
· |
Net non-cash stock
compensation expense decreased $38,000, from $461,000 to $423,000,
primarily due to timing of stock grants issued to employees and
Board of Directors in the quarters ended June 30, 2020 and June 30,
2019. |
|
· |
Unrealized gain or
loss on our equity investment in Veritone, Inc., or Veritone,
decreased from an unrealized gain of $7.0 million for the three
months ended June 30, 2019 to an unrealized gain of $2.7 million
for the three months ended June 30, 2020. Realized gain or loss on
our equity investment in Veritone increased from a loss of $1.6
million for the three months ended June 30, 2019 to a gain of $0.6
million for the three months ended June 30, 2020. Refer to Note 5
to the consolidated financial statements elsewhere herein for
additional information regarding our investment in
Veritone. |
|
· |
Unrealized gain or loss from
trading securities increased from an unrealized loss of $61,000 for
the three months ended June 30, 2019 to an unrealized gain of $3.5
million for the three months ended June 30, 2020. Realized gain or
loss from sale of our trading securities decreased from a gain of
$31,000 for the three months ended June 30, 2019 to a loss of $7.1
million for the three months ended June 30, 2020. Refer to Notes 2
and 14 to the consolidated financial statements elsewhere herein
for additional information regarding our investment in trading
securities. |
|
· |
We incurred an unrealized gain of
$81.6 million from on our investment in equity securities
derivative and forward contract. Refer to Notes 2 and 14 to the
consolidated financial statements elsewhere herein for additional
information. |
|
· |
Interest income and other decreased
$0.8 million, from a net income of $1.1 million for the three
months ended June 30, 2019 to a net income of $0.3 million for the
three months ended June 30, 2020, mainly due to decrease in
interest income from our investment in trading securities. Refer to
Note 2 to the consolidated financial statements elsewhere herein
for additional information regarding our investment in trading
securities. |
|
· |
We incurred interest expense of
$0.8 million during the quarter from the Senior Secured Notes
issued in June 2020. Refer to Note 13 to the consolidated financial
statements elsewhere herein for additional information regarding
the Starboard Securities. |
|
· |
We incurred $4.9 million loss on
foreign currency exchange during the quarter primarily from our
purchase of the LF Income Equity Fund securities for £223.9
million. Refer to Note 14 to the consolidated financial statements
elsewhere herein for additional information. |
|
· |
We incurred an
unrealized net loss of $62.9 million from the fair value
measurements of the Series A and Series B warrants and the embedded
derivative for the three months ended June 30, 2020. Refer to Notes
10, 11 and 12 to the consolidated financial statements elsewhere
herein for additional information regarding the Starboard
Securities. |
Results of Operations - Six months ended June 30, 2020
compared with the six months ended June 30, 2019
Revenues decreased $2.9 million to $5.9 million for the six months
ended June 30, 2020, as compared to $8.8 million in the comparable
prior year quarter, primarily due to a decrease in revenues from
the new agreements executed during the quarter. Refer to
“Investments in Patent Portfolios” above for additional
information regarding the impact of portfolio acquisition trends on
current and future licensing and enforcement related revenues.
Loss before provision for income taxes was $6.5 million for the six
months ended June 30, 2020, as compared to $9.8 million for the six
months ended June 30, 2019. The net change was comprised of the
change in revenues described above and other changes in operating
expenses and other income and expenses as follows:
|
· |
Paid-up revenue
increased $228,000 due to increase in newly executed licensing,
offset by a decrease of $3.1 million in recurring revenue due to a
decrease in the number of revenue contracts that provides for
quarterly sales-based license fees agreements, during the six
months ended June 30, 2020 as compared to the six months ended June
30, 2019. Refer to Note 2 to the consolidated financial statements
elsewhere herein for additional information regarding certain
sales-based revenue contracts that provide for the payment of
quarterly license fees based on quarterly sales of applicable
product units by licensees. |
|
· |
Inventor royalties and
contingent legal fees, on a combined basis, decreased $3.2 million,
from $4.5 million to $1.3 million, primarily due to a decrease in
revenues as describe above. |
|
· |
Litigation and
licensing expenses-patents decreased $3.2 million, from $5.7
million to $2.5 million, due primarily to a net decrease in
litigation support and third-party technical consulting expenses
associated with ongoing litigation. |
|
· |
Amortization expense
increased $0.8 million, from $1.5 million to $2.3 million, due to
an increase in scheduled amortization resulting from the new
portfolios acquired in 2019 and 2020. |
|
· |
Other portfolio
expenses decreased $1.0 million, from $0.7 million to a credit of
$0.3 million, primarily due to reversal of expenses for settlement
and contingency accruals recorded in the third quarter of
2018. |
|
· |
General and
administrative expenses, excluding non-cash stock compensation,
increased $2.6 million, from $7.0 million to $9.6 million,
primarily due to higher corporate, general and administrative costs
related to legal and other business development
expenses. |
|
· |
Net non-cash
stock compensation expense increased $0.3 million, from $0.5
million to $0.8 million, primarily due to stock grants issued to
employees and Board of Directors in 2019 and 2020. |
|
· |
Unrealized gain
or loss on our equity investment in Veritone, decreased from an
unrealized gain of $13.9 million for the six months ended June 30,
2019 to an unrealized gain of $6.8 million for the six months ended
June 30, 2020. Realized loss on our equity investment in Veritone
decreased from a loss of $7.2 million for the six months ended June
30, 2019 to a loss of $2.8 million for the six months ended June
30, 2020. Refer to Note 5 to the consolidated financial statements
elsewhere herein for additional information regarding our
investment in Veritone. |
|
· |
Unrealized gain
or loss from trading securities decreased from an unrealized gain
of $0.6 million for the six months ended June 30, 2019 to an
unrealized loss of $2.6 million for the six months ended June 30,
2020. Realized loss from sale of our trading securities increased
from a loss of $12,000 for the six months ended June 30, 2019 to a
loss of $7.0 million for the six months ended June 30, 2020. Refer
to Notes 2 and 14 to the consolidated financial statements
elsewhere herein for additional information regarding our
investment in trading securities. |
|
· |
We incurred an
unrealized gain of $81.6 million from on our investment in equity
securities derivative and forward contract. Refer to Notes 2 and 14
to the consolidated financial statements elsewhere herein for
additional information. |
|
· |
Interest income
and other decreased $1.2 million, from a net income of $2.0 million
for the six months ended June 30, 2019 to a net income of $0.8
million for the three months ended June 30, 2020, mainly due to
decrease in interest income from our investment in trading
securities. Refer to Note 2 to the consolidated financial
statements elsewhere herein for additional information regarding
our investment in trading securities |
|
· |
We incurred
interest expense of $0.8 million during the quarter from the Senior
Secured Note issued in June 2020. Refer to Note 13 to the
consolidated financial statements elsewhere herein for additional
information regarding the Starboard Securities. |
|
· |
We incurred
$4.9 million loss on foreign currency exchange during the quarter
primarily from our purchase of the LF Income Equity Fund securities
for £223.9 million. Refer to Note 14 to the consolidated financial
statements elsewhere herein for additional information. |
|
· |
We incurred an
unrealized net loss of $67.3 million from the fair value
measurements of the Series A and Series B warrants and the embedded
derivative for the six months ended June 30, 2020. Refer to Notes
10, 11, 12 and 13 to the consolidated financial statements
elsewhere herein for additional information regarding the Starboard
Securities. |
Revenues and Pretax Net Loss
Revenue for the periods presented included the following:
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Change |
|
|
June 30, |
|
|
Change |
|
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (in thousands, except
percentage change values) |
|
$ |
2,118 |
|
|
$ |
5,460 |
|
|
$ |
(3,342 |
) |
|
|
(61% |
) |
|
$ |
5,933 |
|
|
$ |
8,847 |
|
|
$ |
(2,914 |
) |
|
|
(33% |
) |
New agreements executed |
|
|
4 |
|
|
|
1 |
|
|
|
3 |
|
|
|
300% |
|
|
|
8 |
|
|
|
1 |
|
|
|
7 |
|
|
|
700% |
|
Licensing and enforcement programs
generating revenues |
|
|
4 |
|
|
|
3 |
|
|
|
1 |
|
|
|
33% |
|
|
|
7 |
|
|
|
3 |
|
|
|
4 |
|
|
|
133% |
|
Licensing and enforcement programs
with initial revenues |
|
|
1 |
|
|
|
– |
|
|
|
1 |
|
|
|
n/a |
|
|
|
1 |
|
|
|
– |
|
|
|
1 |
|
|
|
n/a |
|
New patent portfolios |
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
100% |
|
|
|
4 |
|
|
|
3 |
|
|
|
1 |
|
|
|
33% |
|
For the periods presented herein, the majority of the revenue
agreements executed provided for the payment of one-time, paid-up
license fees in consideration for the grant of certain IP Rights
for patented technology rights owned by our operating subsidiaries.
These rights were primarily granted on a perpetual basis, extending
until the expiration of the underlying patents.
Refer to Note 2 to the consolidated financial statements elsewhere
herein for additional information regarding our revenue
concentrations for the periods presented herein.
Refer to “Investments in Patent Portfolios” above for
information regarding the impact of portfolio acquisition trends on
current and future licensing and enforcement related revenues.
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Change |
|
|
June 30, |
|
|
Change |
|
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|
% Change |
|
|
|
(In thousands, except percentage change
values) |
|
|
|
|
|
Income (loss) before provision for
income taxes |
|
$ |
6,146 |
|
|
$ |
(5,748 |
) |
|
$ |
11,894 |
|
|
|
207% |
|
|
$ |
(6,483 |
) |
|
$ |
(9,832 |
) |
|
$ |
3,349 |
|
|
|
34% |
|
Cost of Revenues
Inventor Royalties, Contingent Legal Fees Expense and
Other
Inventor royalties and contingent legal fee expenses fluctuate from
period to period based on the amount of revenues recognized each
period, the terms and conditions of agreements executed each period
and the mix of specific patent portfolios, with varying economic
terms and obligations, generating revenues each period.
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Change |
|
|
June 30, |
|
|
Change |
|
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|
% Change |
|
|
|
(In thousands, except percentage change
values) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventor royalties |
|
$ |
645 |
|
|
$ |
2,623 |
|
|
$ |
(1,978 |
) |
|
|
(75% |
) |
|
$ |
1,071 |
|
|
$ |
3,976 |
|
|
$ |
(2,905 |
) |
|
|
(73% |
) |
Contingent legal fees |
|
|
12 |
|
|
|
375 |
|
|
|
(363 |
) |
|
|
(97% |
) |
|
|
246 |
|
|
|
552 |
|
|
|
(306 |
) |
|
|
(55% |
) |
Litigation and Licensing Expenses - Patents
For the three months ended June 30, 2020, litigation and licensing
expenses-patents decreased $0.4 million, or 21%. For the six months
ended June 30, 2020, litigation and licensing expenses-patents
decreased $3.2 million, or 56%. These decreases were due to a net
decrease in litigation support and third-party technical consulting
expenses, as compared to the same periods in the prior year.
Amortization of Patents
For the three months ended June 30, 2020, amortization expense
increased $0.5 million, or 60%, as compared to the three months
ended June 30, 2019. For the six months ended June 30, 2020,
amortization expense increased $0.9 million, or 59%, as compared to
the six months ended June 30, 2019. These increases were due to our
new patents acquired in 2019 and 2020.
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Change |
|
|
June 30, |
|
|
Change |
|
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|
% Change |
|
|
|
(In thousands, except percentage change
values) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation and licensing expenses -
patents |
|
$ |
1,459 |
|
|
$ |
1,855 |
|
|
$ |
(396 |
) |
|
|
(21% |
) |
|
$ |
2,496 |
|
|
$ |
5,656 |
|
|
$ |
(3,160 |
) |
|
|
(56% |
) |
Amortization of
patents |
|
|
1,305 |
|
|
|
818 |
|
|
|
487 |
|
|
|
60% |
|
|
|
2,348 |
|
|
|
1,474 |
|
|
|
874 |
|
|
|
59% |
|
Operating Expenses
General and Administrative Expenses
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Change |
|
|
June 30, |
|
|
Change |
|
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|
% Change |
|
|
|
(In thousands, except percentage change
values) |
|
|
|
|
|
General and administrative
expenses |
|
$ |
5,096 |
|
|
$ |
3,302 |
|
|
$ |
1,794 |
|
|
|
54% |
|
|
$ |
9,642 |
|
|
$ |
6,965 |
|
|
$ |
2,677 |
|
|
|
38% |
|
Non-cash stock compensation expense -
G&A |
|
|
423 |
|
|
|
461 |
|
|
|
(38 |
) |
|
|
(8% |
) |
|
|
755 |
|
|
|
453 |
|
|
|
302 |
|
|
|
67% |
|
Total general and administrative
expenses |
|
$ |
5,519 |
|
|
$ |
3,763 |
|
|
$ |
1,756 |
|
|
|
47% |
|
|
$ |
10,397 |
|
|
$ |
7,418 |
|
|
$ |
2,979 |
|
|
|
40% |
|
A summary of the main drivers of the change in general and
administrative expenses for the periods presented, is as
follows:
|
|
Three
Months
Ended |
|
|
Six
Months
Ended |
|
|
|
June
30, |
|
|
June
30, |
|
|
|
2020 vs. 2019 |
|
|
2020 vs. 2019 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
Personnel costs and board
fees |
|
$ |
(45 |
) |
|
$ |
(127 |
) |
Variable performance-based
compensation costs |
|
|
950 |
|
|
|
1,375 |
|
Corporate, general and administrative
costs |
|
|
954 |
|
|
|
1,559 |
|
Non-cash stock compensation
expense |
|
|
(38 |
) |
|
|
302 |
|
Non-recurring
employee severance costs |
|
|
(65 |
) |
|
|
(130 |
) |
Total change in
general and administrative expenses |
|
$ |
1,756 |
|
|
$ |
2,979 |
|
The increases in corporate, general and administrative costs were
primarily due to higher legal and business development related
expenses. The increase in variance performance-based compensation
costs were primarily due to higher performance-based compensation
accruals. The changes in non-cash stock compensation expense were
primarily due to stock grants issued to employees and Board of
Directors in the quarters ended June 30, 2019, September 30, 2019,
and June 30, 2020.
Other Operating Income (Expense)
Change in Fair Value of Investment, net
Acacia’s investment in Veritone is recorded at fair value, and
marked to market at each balance sheet date, with changes in fair
value, primarily based on changes in Veritone's stock price,
reflected in the statements of operations each period. Results for
the three and six months ended June 30, 2020 included an unrealized
gain totaling $2.7 million and an unrealized gain totaling $6.8
million, respectively, on our investment in Veritone. Results for
the three and six months ended June 30, 2019 included unrealized
gains totaling $7.0 million and $13.9 million, respectively, on our
investment in Veritone. Refer to Note 5 to the consolidated
financial statements elsewhere herein for additional information
regarding our investment in Veritone.
Income Taxes
|
|
Three
Months Ended |
|
|
Six
Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (in
thousands) |
|
$ |
2 |
|
|
$ |
(9 |
) |
|
$ |
1,340 |
|
|
$ |
(323 |
) |
Effective tax rate |
|
|
(0% |
) |
|
|
(0% |
) |
|
|
21% |
|
|
|
(3% |
) |
Tax expense for the periods presented primarily reflects the impact
of state taxes and foreign taxes withholding or refund incurred on
revenue agreements executed with third-party licensees domiciled in
foreign jurisdictions.
Liquidity and Capital Resources
General
Our primary sources of liquidity are cash and cash equivalents on
hand generated from our operating activities. Our management
believes that our cash and cash equivalent balances and anticipated
cash flows from operations will be sufficient to meet our cash
requirements through at least twelve months from the date of this
report and for the foreseeable future. We may, however, encounter
unforeseen difficulties that may deplete our capital resources more
rapidly than anticipated, including those set forth under Part II,
Item 1A, “Risk Factors”. Any efforts to seek additional funding
could be made through issuances of equity or debt, or other
external financing. However, additional funding may not be
available to us on favorable terms, or at all. The capital and
credit markets have experienced extreme volatility and disruption
in recent years, and the volatility and impact of the disruption
may continue. At times during this period, the volatility and
disruption has reached unprecedented levels. In several cases, the
markets have exerted downward pressure on stock prices and credit
capacity for certain issuers, and the commercial paper markets may
not be a reliable source of short-term financing for us. If we fail
to obtain additional financing when needed, we may not be able to
execute our business plans and our business, conducted by our
operating subsidiaries, may suffer.
Certain of our operating subsidiaries are often required to engage
in litigation to enforce their patents and patent rights. In
connection with any of our operating subsidiaries’ patent
enforcement actions, it is possible that a defendant may request
and/or a court may rule that an operating subsidiary has violated
statutory authority, regulatory authority, federal rules, local
court rules, or governing standards relating to the substantive or
procedural aspects of such enforcement actions. In such event, a
court may issue monetary sanctions against us or our operating
subsidiaries or award attorney’s fees and/or expenses to a
defendant(s), which could be material.
Cash, Cash Equivalents and Investments
Our consolidated cash, cash equivalents, trading securities, and
restricted cash totaled $184.0 million at June 30, 2020, compared
to $203.3 million at December 31, 2019.
The net change in cash, cash equivalents and restricted cash for
the periods presented was comprised of the following:
|
|
Six
Months Ended |
|
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
(In thousands) |
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(7,143 |
) |
|
$ |
(2,268 |
) |
Investing activities |
|
|
(30,874 |
) |
|
|
(63,133 |
) |
Financing activities |
|
|
109,938 |
|
|
|
79 |
|
Increase
(decrease) in cash and cash equivalents and restricted cash |
|
$ |
71,921 |
|
|
$ |
(65,322 |
) |
Cash Flows from Operating Activities
Cash receipts from licensees for the six months ended June 30, 2020
decreased $22.1 million to $5.0 million, as compared to $27.1
million in the comparable 2019 period, mainly due to the timing on
cash collected from accounts receivables in prior year.
Cash outflows from operations for the six months ended June 30,
2020 increased to $7.1 million, as compared to $2.3 million in the
comparable 2019 period, primarily due to the decreases in cash
receipts from licensees for the same periods, offset by higher
royalty and contingent legal fees paid in the same period last
year. Refer to “Working Capital” below for additional
information.
Cash Flows from Investing Activities
Cash flows from investing activities and related changes were
comprised of the following for the periods presented:
|
|
Six Months
Ended |
|
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
Patent
acquisition costs |
|
$ |
(13,780 |
) |
|
$ |
(4,420 |
) |
Sale of investment at fair
value(1) |
|
|
1,460 |
|
|
|
5,045 |
|
Net sale (purchase)
of trading securities |
|
|
267,910 |
|
|
|
(63,758 |
) |
Purchase of prepaid
investment |
|
|
(282,327 |
) |
|
|
– |
|
Equity securities
derivative and forward contract acquisition cost |
|
|
(3,989 |
) |
|
|
– |
|
Purchases of property and equipment |
|
|
(148 |
) |
|
|
– |
|
Net cash
used in investing activities |
|
$ |
(30,874 |
) |
|
$ |
(63,133 |
) |
__________________________________________________________
(1)
Refer to Note 5 to the consolidated financial statements elsewhere
herein for additional information
Cash Flows from Financing Activities
Cash flows from financing activities and related changes were
comprised of the following for the periods presented:
|
|
Six
Months Ended |
|
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
Repurchase of common
stock |
|
$ |
(3,998 |
) |
|
$ |
– |
|
Dividend on Series A Redeemable
Convertible Preferred Stock |
|
|
(653 |
) |
|
|
– |
|
Issuance of Senior Secured Notes, net
of lender fee |
|
|
110,437 |
|
|
|
– |
|
Senior Secured Notes issuance costs
paid to other parties |
|
|
(496 |
) |
|
|
|
|
Issuance of Series B warrants |
|
|
4,600 |
|
|
|
– |
|
Proceeds from
exercise of stock options |
|
|
48 |
|
|
|
79 |
|
Net cash
provided by financing activities |
|
$ |
109,938 |
|
|
$ |
79 |
|
Stock Repurchase Program
On August 5, 2019, our Board of Directors approved a stock
repurchase program, which authorized the purchase of up to $10.0
million of the Company's common stock through open market
purchases, through block trades, through 10b5-1 plans, or by means
of private purchases, from time to time, through July 31, 2020. In
determining whether or not to repurchase any shares of Acacia’s
common stock, Acacia’s Board of Directors consider such factors as
the impact of the repurchase on Acacia’s cash position, as well as
Acacia’s capital needs and whether there is a better alternative
use of Acacia’s capital. Acacia has no obligation to repurchase any
amount of its common stock under the Stock Repurchase Program.
During the six months ended June 30, 2020, we repurchased 1,684,537
shares at an average price of $2.37 per share for $3,999,000.
Repurchases to date were made in the open market in compliance with
applicable SEC rules. The authorization to repurchase shares
presented an opportunity to reduce the outstanding share count and
enhance stockholder value. Refer to Note 7 to our notes to
consolidated financial statements elsewhere herein for additional
information regarding our stock repurchases in 2020.
Starboard Investment
On November 18, 2019, the Company entered into the Securities
Purchase Agreement with Starboard pursuant to which Starboard
purchased (i) 350,000 shares of Series A Preferred Stock at an
aggregate purchase price of $35,000,000, and Series A Warrants to
purchase up to 5,000,000 shares of the Company’s common stock.
On February 25, 2020, pursuant to the terms of the Securities
Purchase Agreement with Starboard, the Company issued Series B
Warrants to purchase up to 100 million shares of the Company’s
common stock at an exercise price of either (i) $5.25 per share, if
exercising by cash payment, or (ii) $3.65 per share, if exercising
by cancellation of a portion of senior secured notes. The Company
issued the Series B Warrants for an aggregate purchase price of
$4.6 million.
On June 4, 2020, pursuant to the Securities Purchase Agreement
signed in November 2019, the Company issued $115 million in Notes
to Starboard. Per the Supplemental Agreement, interest is payable
semiannually at a rate of 6% per annum, and in an event of default,
the interest rate is increased to 10% per annum.
On June 30, 2020, the Company entered into the Exchange Agreement
with Merton and Starboard, on behalf of itself and on behalf of
certain funds and accounts under its management, including the
holders of the Notes. Pursuant to the Exchange Agreement, the
holders of the Notes exchanged the entire outstanding principal
amount for New Notes issued by Merton having an aggregate
outstanding original principal amount of $115 million.
Refer to Notes 2, 10, 11, 12 and 13 to our notes to consolidated
financial statements and elsewhere herein for more information
related to the Starboard Securities.
Working Capital
Working capital at June 30, 2020 increased to $240.6 million, as
compared to $160.1 million at December 31, 2019. Consolidated
accounts receivable from licensees increased to $1.4 million at
June 30, 2020, compared to $0.5 million at December 31, 2019.
Accounts payable and accrued expenses and accrued compensation
decreased to $7.9 million at June 30, 2020, from $9.5 million at
December 31, 2019. Consolidated royalties and contingent legal fees
payable decreased to $2.1 million at June 30, 2020, from $2.2
million at December 31, 2019.
The royalties and contingent legal fees payable are generally
scheduled to be paid in the subsequent quarter upon our receipt of
the related fee payments from licensees, in accordance with the
underlying contractual arrangements.
Critical Accounting Estimates
Our unaudited interim condensed consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America. Preparation of
these condensed consolidated statements requires management to make
assumptions, judgments and estimates that can have a significant
impact on amounts reported in these condensed consolidated
financial statements. We base our assumptions, judgments and
estimates on historical experience and various other factors that
we believe to be reasonable under the circumstances. Actual results
could differ materially from these estimates under different
assumptions or conditions. On a regular basis, we evaluate our
assumptions, judgments and estimates and make changes
accordingly.
The SEC has defined a company’s critical accounting policies as the
ones that are most important to the portrayal of a company’s
financial condition and results of operations, and which require a
company to make its most difficult and subjective judgments. A
summary of significant accounting policies and a description of
accounting policies that are considered critical may be found in
the audited consolidated financial statements and notes thereto and
under the caption “Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting
Policies” included in our Annual Report. In addition, as set forth
in Note 2 to the condensed consolidated financial statements
included in this report, certain accounting policies were
identified during the current period, based on activities occurring
during the current period, as critical and requiring significant
judgments and estimates.
Recently Adopted Accounting Pronouncements
Refer to Note 8 to the consolidated financial statements elsewhere
herein for additional information regarding our recently adopted
accounting pronouncements for the periods presented herein.
Off-Balance Sheet Arrangements
As of June 30, 2020, we did not have any relationships with any
unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose
entities, which would have been established to facilitate any
off-balance sheet arrangements or for any other contractually
specified purposes.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
The primary objective of our short-term investment activities is to
preserve principal while concurrently maximizing the income we
receive from our trading securities without significantly
increasing risk. Some of the securities that we invest in may be
subject to interest rate risk and/or market risk. This means that a
change in prevailing interest rates, with respect to interest rate
risk, or a change in the value of the United States equity markets,
with respect to market risk, may cause the principal amount or
market value of the trading securities to fluctuate. For example,
if we hold a security that was issued with a fixed interest rate at
the then-prevailing rate and the prevailing interest rate later
rises, the current value of the principal amount of our investment
may decline. To minimize these risks in the future, we intend to
maintain our portfolio of cash equivalents and trading securities
in a variety of securities, including commercial paper, money
market funds, high-grade corporate bonds, government and
non-government debt securities and certificates of deposit. In
general, money market funds are not subject to market risk because
the interest paid on such funds fluctuates with the prevailing
interest rate. Accordingly, a 100 basis point increase in interest
rates or a 10% decline in the value of the United States equity
markets would not be expected to have a material impact on the
value of such money market funds. Investments in U.S. government
and corporate fixed income securities are subject to interest rate
risk and will decline in value if interest rates increase. However,
due to the relatively short duration of our debt trading securities
portfolio, an immediate 100 basis point increase in interest rates
would have no material impact on our financial condition, results
of operations or cash flows. Declines in interest rates over time
will, however, reduce our interest income.
During the quarter ended June 30, 2020, we sold all our investment
in debt trading securities, comprised of AAA rated money market
funds that invest in first-tier only securities, which primarily
include domestic commercial paper, securities issued or guaranteed
by the U.S. government or its agencies, U.S. bank obligations, and
fully collateralized repurchase agreements (included in cash and
cash equivalents in the accompanying consolidated balance sheets),
and direct investments in short term, highly liquid, investment
grade, U.S. government and corporate securities (included in
“Trading securities – debt” in the accompanying consolidated
balance sheets).
Investment Risk
We are exposed to investment risks related to changes in the
underlying financial condition of certain of our equity investments
in these technology companies. The fair value of these investments
can be significantly impacted by the risk of adverse changes in
securities markets generally, as well as risks related to the
performance of the companies whose securities we have invested in,
risks associated with specific industries, and other factors. These
investments are subject to significant fluctuations in fair value
due to the volatility of the securities markets and of the
underlying businesses.
As of June 30, 2020 and December 31, 2019, the carrying value of
our common stock and warrants, including equity securities
derivative and forward contract, in public and private companies
was $106.7 million and $18.6 million, respectively.
We record our common stock and warrant investments in publicly
traded companies at fair value, which are subject to market price
volatility. As of June 30, 2020, a hypothetical 10% adverse change
in the market price of our investments in publicly traded common
stock would have resulted in a decrease of approximately
$0.9 million in the fair value of our equity warrant
investments in Veritone and a decrease of approximately $2.7
million in our other equity investments. We evaluate our equity and
equity warrant investments in private companies for impairment when
events and circumstances indicate that the decline in fair value of
such assets below the carrying value is other-than temporary.
Item 4. Controls
and Procedures
(i). Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act.
Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of June 30, 2020, our
disclosure controls and procedures were effective to ensure that
the information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure, and that such information
is recorded, processed, summarized and reported within the time
periods prescribed by the SEC.
(ii). Changes in Internal Control Over Financial
Reporting
There were no changes in our internal control over financial
reporting that occurred during our last fiscal quarter (the quarter
ended June 30, 2020) that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
(iii). Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls or
our internal control over financial reporting will prevent or
detect all error and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be
met. The design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must
be considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that misstatements due to
error or fraud will not occur or that all control issues and
instances of fraud, if any, have been detected. The design of any
system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions. Projections of any evaluation of the
effectiveness of controls to future periods are subject to risks.
Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with
policies or procedures.
PART II--OTHER
INFORMATION
Item 1. Legal
Proceedings
On September 6, 2019, Slingshot Technologies, LLC, or Slingshot,
filed suit in Delaware Chancery Court against the Company, Acacia
Research Group, LLC, and Monarch Networking Solutions LLC, or
collectively, the Acacia Entities, Acacia board member Katharine
Wolanyk, and Transpacific IP Group, Ltd., or Transpacific.
Slingshot alleges that the Acacia Entities misappropriated its
confidential and proprietary information, purportedly furnished to
the Acacia Entities by Ms. Wolanyk, in acquiring a patent portfolio
from Transpacific after Slingshot’s exclusive option to purchase
the same patent portfolio from Transpacific had already expired.
Slingshot seeks monetary damages, as well as equitable and
injunctive relief related to its alleged right to own the
portfolio. The Acacia Entities maintain that Slingshot’s
allegations are baseless, that Ms. Wolanyk had no involvement in
the acquisition, that the Acacia Entities neither had access to nor
used Slingshot’s information in acquiring the portfolio, that the
Acacia Entities acquired the portfolio as a result of the
independent efforts of its IP licensing group, and that Slingshot
suffered no damages given its exclusive option to purchase the
portfolio had already ended and it has proven itself incapable of
closing on the portfolio purchase.
Item 1A. Risk
Factors
An investment in our common stock involves risks. Before making an
investment decision, you should carefully consider all of the
information in this Quarterly Report on Form 10-Q, including in the
section entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Part II, Item 1A in this
Quarterly Report on Form 10-Q, as well as our condensed
consolidated financial statements and the accompanying notes
thereto. In addition, you should carefully consider the risks and
uncertainties described below, and in the section entitled “Risk
Factors” in Part I, Item 1A of our Annual Report, as well as in our
other public filings with the SEC. If any of the identified risks
are realized, our business, financial condition, operating results
and prospects could be materially and adversely affected. In that
case, the trading price of our common stock may decline, and you
could lose all or part of your investment. In addition, other risks
of which we are currently unaware, or which we do not currently
view as material, could have a material adverse effect on our
business, financial condition, operating results and prospects.
Risks related to
COVID-19
Public health threats such as COVID-19 could have a material
adverse effect on our operations, the operations of our business
partners, and the global economy as a whole.
Public health threats and other highly communicable diseases,
outbreaks of which have already occurred in various parts of the
world, could adversely impact our operations, as well as the
operations of our licensees and other business partners.
With regard to COVID-19, we
do not expect the current situation to present direct risks to our
business. Our cash is held in major financial institutions in
government instruments and high quality short-term bonds. Our
business is fully able to operate in a socially-distanced and/or
remote capacity and in accordance with applicable laws, policies,
and best practices. Our workforce is provided ample paid sick
leave, and we have in place robust disaster recovery and business
continuity policies that have been revised to account for a
long-term remote work contingency such as this. However, the
ongoing pandemic may present risks that we do not currently
consider material or risks that may evolve quickly that could have
a materially adverse effect on our business, financial condition,
operating results, and/or prospects.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults
Upon Senior Securities
None.
Item 4. Mine
Safety Disclosures
Not applicable.
Item 5. Other
Information
None.
Item 6.
Exhibits
EXHIBIT
NUMBER
|
EXHIBIT |
2.1 |
Transaction Agreement, dated as of
June 4, 2020, between LF Equity Income Fund and Acacia Research
Corporation (incorporated by reference to Acacia Research
Corporation’s Current Report on Form 8-K filed on June 10, 2020
(File No. 001-37721)) |
3.1# |
Second Amended and Restated Bylaws of Acacia
Research Corporation (as updated through July 28, 2020 and
currently in effect) |
4.1 |
Form of Note (incorporated by
reference to Acacia Research Corporation’s Current Report on Form
8-K filed on June 10, 2020 (File No. 001-37721)) |
10.1* |
Employment Agreement, dated June 4,
2020, by and among Acacia Research Group, LLC, Acacia Research
Corporation and Richard Rosenstein (incorporated by reference
to Acacia Research Corporation’s Current Report on Form 8-K filed
on June 4, 2020 (File No. 001-37721)) |
10.2* |
Employment Agreement, dated June 4,
2020, by and among Acacia Research Group, LLC, Acacia Research
Corporation and Meredith Simmons (incorporated by reference to
Acacia Research Corporation’s Current Report on Form 8-K filed on
June 4, 2020 (File No. 001-37721)) |
10.3 |
Supplemental Agreement, dated as of
June 4, 2020, between Starboard Value, L.P. and Acacia Research
Corporation (incorporated by reference to Acacia Research
Corporation’s Current Report on Form 8-K filed on June 10, 2020
(File No. 001-37721)) |
10.4* |
Employment Agreement, dated June 19,
2020, by and between Acacia Research Group, LLC and Marc W.
Booth (incorporated by reference to Acacia Research
Corporation’s Current Report on Form 8-K filed on June 25, 2020
(File No. 001-37721)) |
10.5 |
Exchange Agreement, dated June 30,
2020, among Acacia Research Corporation, Merton Acquisition HoldCo
LLC and Starboard Value LP (incorporated by reference to Acacia
Research Corporation’s Current Report on Form 8-K filed on July 7,
2020 (File No. 001-37721)) |
10.6 |
Form of Senior Secured Note
(incorporated by reference to Acacia Research Corporation’s Current
Report on Form 8-K filed on July 7, 2020 (File No.
001-37721)) |
10.7 |
Stock Pledge Agreement, dated June
30, 2020, entered into by Acacia Research Group LLC, Advanced
Skeletal Innovations LLC and Saint Lawrence Communications LLC in
favor of Starboard Value Intermediate Fund LP, as collateral
agent (incorporated by reference to Acacia Research
Corporation’s Current Report on Form 8-K filed on July 7, 2020
(File No. 001-37721)) |
10.8 |
Guaranty, dated June 30, 2020,
entered into by the Guarantors (as defined therein) in favor of the
Holders (as defined therein) (incorporated by reference to
Acacia Research Corporation’s Current Report on Form 8-K filed on
July 7, 2020 (File No. 001-37721)) |
10.9 |
Release of Security Interests in
Patents, dated June 30, 2020, between the Releasees (as defined
therein) and Starboard Value Intermediate Fund LP, as collateral
agent (incorporated by reference to Acacia Research
Corporation’s Current Report on Form 8-K filed on July 7, 2020
(File No. 001-37721)) |
31.1# |
Certification of Principal Executive Officer
Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934 |
31.2# |
Certification of Principal Financial Officer
Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934 |
32.1**# |
Certification of Principal Executive Officer
Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act
of 1934 and 18 U.S.C. Section 1350 |
32.2**# |
Certification of Principal Financial Officer
Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act
of 1934 and 18 U.S.C. Section 1350 |
101# |
Interactive Data Files
Pursuant to Rule 405 of Regulation S-T |
___________________________
# |
Filed
herewith. |
*
|
If any, indicates management contract or compensatory plan.
|
** |
The
certifications attached as Exhibits 32.1 and 32.2 that accompany
this Quarterly Report pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
shall not be deemed “filed” by the Registrant for purposes of
Section 18 of the Exchange Act and are not to be incorporated by
reference into any of the Registrant’s filings under the Securities
Act or the Exchange Act, irrespective of any general incorporation
language contained in any such filing. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
|
ACACIA RESEARCH
CORPORATION |
|
|
Date:
August 10, 2020 |
/s/ Clifford
Press |
|
By:
Clifford Press |
|
Chief
Executive Officer |
|
(Principal Executive
Officer and Duly Authorized Signatory) |
|
|
Date:
August 10, 2020 |
/s/ Richard
Rosenstein |
|
By:
Richard Rosenstein |
|
Chief
Financial Officer |
|
(Principal Financial
Officer) |