Cover
Cover - shares | 9 Months Ended | |
Sep. 30, 2020 | Nov. 02, 2020 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Sep. 30, 2020 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2020 | |
Current Fiscal Year End Date | --12-31 | |
Entity File Number | 1-37721 | |
Entity Registrant Name | Acacia Research Corporation | |
Entity Central Index Key | 0000934549 | |
Entity Tax Identification Number | 95-4405754 | |
Entity Incorporation, State or Country Code | DE | |
Entity Address, Address Line One | 4 Park Plaza | |
Entity Address, Address Line Two | Suite 550 | |
Entity Address, City or Town | Irvine | |
Entity Address, State or Province | CA | |
Entity Address, Postal Zip Code | 92614 | |
City Area Code | (949) | |
Local Phone Number | 480-8300 | |
Title of 12(b) Security | Common Stock | |
Trading Symbol | ACTG | |
Security Exchange Name | NASDAQ | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 49,279,453 |
UNAUDITED CONDENSED CONSOLIDATE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Current assets: | ||
Cash and cash equivalents | $ 162,564 | $ 57,359 |
Trading securities - debt | 0 | 93,843 |
Trading securities - equity | 24,471 | 17,140 |
Equity securities - private | 116,009 | 0 |
Equity securities derivative | 17,818 | 0 |
Equity securities forward contract | 340 | 0 |
Prepaid investment | 42,900 | 0 |
Accounts receivable | 263 | 511 |
Prepaid expenses and other current assets | 1,685 | 2,912 |
Total current assets | 366,050 | 171,765 |
Long-term restricted cash | 35,000 | 35,000 |
Investment at fair value (Note 5) | 982 | 1,500 |
Patents, net of accumulated amortization | 18,071 | 7,814 |
Leased right-of-use assets | 1,101 | 1,264 |
Other non-current assets | 5,311 | 818 |
Total assets | 426,515 | 218,161 |
Current liabilities: | ||
Accounts payable | 2,707 | 1,765 |
Accrued expenses and other current liabilities | 4,849 | 7,265 |
Accrued compensation | 2,595 | 507 |
Royalties and contingent legal fees payable | 14,230 | 2,178 |
Senior Secured Notes Payable - short-term | 113,933 | 0 |
Total current liabilities | 138,314 | 11,715 |
Series A warrant liabilities | 5,604 | 3,568 |
Series A embedded derivative liabilities | 25,682 | 17,974 |
Series B warrant liabilities | 42,796 | 0 |
Long-term lease liabilities | 1,101 | 1,264 |
Other long-term liabilities | 593 | 593 |
Total liabilities | 214,090 | 35,114 |
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 September 30, 2020 and December 31, 2019, respectively; aggregate liquidation preference of $35,000 as of September 30, 2020 and December 31, 2019, respectively | 10,134 | 8,089 |
Stockholders' equity: | ||
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; no shares issued or outstanding | 0 | 0 |
Common stock, par value $0.001 per share; 300,000,000 shares authorized; 49,279,453 and 50,370,987 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 49 | 50 |
Treasury stock, at cost, 4,604,365 and 2,919,828 shares as of September 30, 2020 and December 31, 2019, respectively | (43,270) | (39,272) |
Additional paid-in capital | 650,130 | 652,003 |
Accumulated deficit | (406,451) | (439,656) |
Total Acacia Research Corporation stockholders' equity | 200,458 | 173,125 |
Noncontrolling interests | 1,833 | 1,833 |
Total stockholders' equity | 202,291 | 174,958 |
Total liabilities, redeemable convertible preferred stock, and stockholders' equity | $ 426,515 | $ 218,161 |
UNAUDITED CONDENSED CONSOLIDA_2
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 300,000,000 | 300,000,000 |
Common stock, shares issued | 49,279,453 | 50,370,987 |
Common stock, shares outstanding | 49,279,453 | 50,370,987 |
Treasury stock, shares | 4,604,365 | 2,919,828 |
Redeemable Preferred Stock [Member] | ||
Series A redeemable convertible preferred stock, par value | $ 0.001 | $ 0.001 |
Series A redeemable convertible preferred stock, value per share | $ 100 | $ 100 |
Series A redeemable convertible preferred stock, shares authorized | 350,000 | 350,000 |
Series A redeemable convertible preferred stock, shares issued | 350,000 | 350,000 |
Series A redeemable convertible preferred stock, shares outstanding | 350,000 | 350,000 |
Series A redeemable convertible preferred stock, liquidation preference | $ 35,000 | $ 35,000 |
UNAUDITED CONDENSED CONSOLIDA_3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Income Statement [Abstract] | ||||
Revenues | $ 19,466 | $ 1,711 | $ 25,399 | $ 10,558 |
Portfolio operations: | ||||
Inventor royalties | 5,772 | 776 | 6,843 | 4,752 |
Contingent legal fees | 6,609 | 35 | 6,855 | 587 |
Litigation and licensing expenses - patents | 1,001 | 987 | 3,497 | 6,643 |
Amortization of patents | 1,174 | 863 | 3,522 | 2,337 |
Other portfolio expenses (income) | 0 | (475) | (308) | 175 |
Total portfolio operations | 14,556 | 2,186 | 20,409 | 14,494 |
Net portfolio income (loss) | 4,910 | (475) | 4,990 | (3,936) |
General and administrative expenses(1) | 7,692 | 4,630 | 18,089 | 12,048 |
Operating loss | (2,782) | (5,105) | (13,099) | (15,984) |
Other income (expense): | ||||
Change in fair value of investment, net (Note 5) | (3,081) | (4,266) | 3,704 | 9,622 |
Loss on sale of investment (Note 5) | 0 | (915) | (2,762) | (8,147) |
Impairment of other investment | 0 | 0 | 0 | (8,195) |
Gain on disposal of other investment | 0 | 2,000 | 0 | 2,000 |
Change in fair value of the Series A and B warrants and embedded derivatives | 20,672 | 0 | (46,612) | 0 |
Change in fair value of equity securities derivative and forward contract | (64,011) | 0 | 17,542 | 0 |
Gain on sale of prepaid investment and derivative | 2,845 | 0 | 2,845 | 0 |
Change in fair value of trading securities and equity securities - private | 84,499 | (482) | 81,907 | 132 |
Gain (loss) on sale of trading securities | 2,737 | 238 | (4,272) | 226 |
Loss on foreign currency exchange | (48) | (106) | (4,938) | (106) |
Interest expense on Senior Secured Notes | (2,410) | 0 | (3,178) | 0 |
Interest income and other | 10 | 1,028 | 811 | 3,012 |
Total other income (expense) | 41,213 | (2,503) | 45,047 | (1,456) |
Income (loss) before income taxes | 38,431 | (7,608) | 31,948 | (17,440) |
Income tax benefit (expense) | (83) | 0 | 1,257 | (323) |
Net income (loss) including noncontrolling interests in subsidiaries | 38,348 | (7,608) | 33,205 | (17,763) |
Net loss attributable to noncontrolling interests in subsidiaries | 0 | 0 | 0 | 14 |
Net income (loss) attributable to Acacia Research Corporation | 38,348 | (7,608) | 33,205 | (17,749) |
Net income (loss) attributable to common stockholders - basic | $ 30,529 | $ (7,608) | $ 24,838 | $ (17,749) |
Basic net income (loss) per common share | $ 0.63 | $ (0.15) | $ 0.51 | $ (0.36) |
Weighted average number of shares outstanding - basic | 48,467,885 | 49,828,361 | 48,949,706 | 49,727,385 |
Net income (loss) attributable to common stockholders - diluted | $ 29,204 | $ (7,608) | $ 21,380 | $ (17,749) |
Diluted net income (loss) per common share | $ 0.32 | $ (0.15) | $ 0.36 | $ (0.36) |
Weighted average number of shares outstanding - diluted | 90,624,702 | 49,828,361 | 60,153,773 | 49,727,385 |
UNAUDITED CONDENSED CONSOLIDA_4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
General and administrative expenses | $ 7,692 | $ 4,630 | $ 18,089 | $ 12,048 |
General and Administrative Expense [Member] | ||||
General and administrative expenses | 7,204 | 4,330 | 16,846 | 11,295 |
Non Cash Stock Compensation Expense [Member] | ||||
Non-cash stock based compensation credit | $ 488 | $ 300 | $ 1,243 | $ 753 |
UNAUDITED CONDENSED CONSOLIDA_5
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY - USD ($) $ in Thousands | Series A Redeemable Convertible Preferred Stock [Member] | Common Stock [Member] | Treasury Stock [Member] | Additional Paid-in Capital [Member] | Retained Earnings [Member] | Noncontrolling Interest [Member] | Total |
Beginning balance, value at Dec. 31, 2018 | $ 50 | $ (39,272) | $ 651,156 | $ (422,541) | $ 1,847 | $ 191,240 | |
Beginning balance, shares at Dec. 31, 2018 | 49,639,319 | ||||||
Net income (loss) attributable to Acacia Research Corporation | (17,749) | (17,749) | |||||
Stock options exercised | 79 | 79 | |||||
Stock options exercised, shares | 25,136 | ||||||
Compensation expense for share-based awards, net of forfeitures | 753 | 753 | |||||
Compensation expense for share-based awards, net of forfeitures, shares | 678,850 | ||||||
Net income attributable to noncontrolling interests in subsidiaries | (14) | (14) | |||||
Ending balance, value at Sep. 30, 2019 | $ 50 | (39,272) | 651,988 | (440,290) | 1,833 | 174,309 | |
Ending balance, shares at Sep. 30, 2019 | 50,343,305 | ||||||
Beginning balance, value at Jun. 30, 2019 | $ 50 | (39,272) | 651,688 | (432,682) | 1,833 | 181,617 | |
Beginning balance, shares at Jun. 30, 2019 | 50,132,871 | ||||||
Net income (loss) attributable to Acacia Research Corporation | (7,608) | (7,608) | |||||
Compensation expense for share-based awards, net of forfeitures | 300 | 300 | |||||
Compensation expense for share-based awards, net of forfeitures, shares | 210,434 | ||||||
Net income attributable to noncontrolling interests in subsidiaries | 0 | ||||||
Ending balance, value at Sep. 30, 2019 | $ 50 | (39,272) | 651,988 | (440,290) | 1,833 | 174,309 | |
Ending balance, shares at Sep. 30, 2019 | 50,343,305 | ||||||
Beginning balance, value at Dec. 31, 2019 | $ 8,089 | $ 50 | (39,272) | 652,003 | (439,656) | 1,833 | 174,958 |
Beginning balance, shares at Dec. 31, 2019 | 350,000 | 50,370,987 | |||||
Net income (loss) attributable to Acacia Research Corporation | 33,205 | 33,205 | |||||
Accretion of Series A Redeemable Convertible Preferred Stock to redemption value | 2,045 | (2,045) | (2,045) | ||||
Stock options exercised | 48 | 48 | |||||
Stock options exercised, shares | |||||||
Dividend on Series A Redeemable Convertible Preferred Stock | (1,119) | (1,119) | |||||
Compensation expense for share-based awards, net of forfeitures | 1,243 | 1,243 | |||||
Compensation expense for share-based awards, net of forfeitures, shares | 593,003 | ||||||
Repurchase of common stock | $ (1) | (3,998) | (3,999) | ||||
Repurchase of common stock, shares | (1,684,537) | ||||||
Net income attributable to noncontrolling interests in subsidiaries | 0 | ||||||
Ending balance, value at Sep. 30, 2020 | $ 10,134 | $ 49 | (43,270) | 650,130 | (406,451) | 1,833 | 202,291 |
Ending balance, shares at Sep. 30, 2020 | 350,000 | 49,279,453 | |||||
Beginning balance, value at Jun. 30, 2020 | $ 9,400 | $ 49 | (43,270) | 650,843 | (444,799) | 1,833 | 164,656 |
Beginning balance, shares at Jun. 30, 2020 | 350,000 | 49,306,137 | |||||
Net income (loss) attributable to Acacia Research Corporation | 38,348 | 38,348 | |||||
Accretion of Series A Redeemable Convertible Preferred Stock to redemption value | 734 | (734) | (734) | ||||
Dividend on Series A Redeemable Convertible Preferred Stock | (467) | (467) | |||||
Compensation expense for share-based awards, net of forfeitures | 488 | 488 | |||||
Compensation expense for share-based awards, net of forfeitures, shares | (26,684) | ||||||
Net income attributable to noncontrolling interests in subsidiaries | 0 | ||||||
Ending balance, value at Sep. 30, 2020 | $ 10,134 | $ 49 | $ (43,270) | $ 650,130 | $ (406,451) | $ 1,833 | $ 202,291 |
Ending balance, shares at Sep. 30, 2020 | 350,000 | 49,279,453 |
UNAUDITED CONDENSED CONSOLIDA_6
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Cash flows from operating activities: | ||
Net income (loss) including noncontrolling interests in subsidiaries | $ 33,205 | $ (17,763) |
Adjustments to reconcile net income (loss) including noncontrolling interests in subsidiaries to net cash provided by (used in) operating activities: | ||
Change in fair value of investment, net (Note 5) | (3,704) | (9,622) |
Loss on sale of investment (Note 5) | 2,762 | 8,147 |
Impairment of other investment | 0 | 8,195 |
Gain on disposal of other investment (Note 5) | 0 | (2,000) |
Depreciation and amortization | 3,609 | 2,344 |
Amortization of debt discount and issuance costs | 955 | 0 |
Change in fair value of Series A redeemable convertible preferred stock embedded derivative | 7,708 | 0 |
Change in fair value of Series A warrants | 2,036 | 0 |
Change in fair value of Series B warrants | 36,867 | 0 |
Non-cash stock compensation | 1,243 | 753 |
Loss on foreign currency exchange | 4,938 | 0 |
Change in fair value of trading securities and equity securities - private | (81,907) | (914) |
Loss on sale of trading securities | 4,272 | 0 |
Change in fair value of equity securities derivative and forward contract | (17,542) | 0 |
Gain on sale of prepaid investment and derivative | (2,845) | 0 |
Changes in assets and liabilities: | ||
Accounts receivable | 248 | 31,085 |
Prepaid expenses and other assets | 1,038 | (983) |
Accounts payable and accrued expenses | 614 | 326 |
Royalties and contingent legal fees payable | 12,052 | (20,414) |
Net cash provided by (used in) operating activities | 5,549 | (846) |
Cash flows from investing activities: | ||
Patent acquisition costs | (13,780) | (4,420) |
Sale of investment at fair value (Note 5) | 1,460 | 6,260 |
(Purchase) Sale of other investments (Note 5) | 0 | 2,000 |
Purchases of trading securities | (33,800) | (103,718) |
Maturities and sales of trading securities | 316,746 | 38,816 |
Purchases of prepaid investment | (276,275) | 0 |
Equity securities derivative and forward contract acquisition cost | (3,989) | 0 |
Purchases of property and equipment | (177) | (119) |
Net cash used in investing activities | (9,815) | (61,181) |
Cash flows from financing activities: | ||
Repurchase of common stock | (3,998) | 0 |
Issuance of Senior Secured Notes, net of lender fee | 110,437 | 0 |
Senior Secured Notes issuance costs paid to other parties | (496) | 0 |
Dividend on Series A Redeemable Convertible Preferred Stock | (1,120) | 0 |
Issuance of Series B warrants | 4,600 | 0 |
Proceeds from exercise of stock options | 48 | 79 |
Net cash provided by financing activities | 109,471 | 79 |
Increase (decrease) in cash and cash equivalents and restricted cash | 105,205 | (61,948) |
Cash and cash equivalents and restricted cash, beginning | 92,359 | 128,809 |
Cash and cash equivalents and restricted cash, ending | 197,564 | 66,861 |
Supplemental schedule of noncash investing activities: | ||
Acquisition of prepaid investment securities | $ 231,480 | $ 0 |
1. DESCRIPTION OF BUSINESS AND
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | 9 Months Ended |
Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | 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 nine months ended September 30, 2020, Acacia obtained control of four 4 5 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 condensed 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 September 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 nine months ended September 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 condensed 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 ACCOU
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands) Paid-up Revenue Agreements $ 19,385 $ 1,203 $ 24,477 $ 6,067 Recurring Revenue Agreements 81 508 922 4,491 Total Revenue $ 19,466 $ 1,711 $ 25,399 $ 10,558 Refer to “ Inventor Royalties and Contingent Legal Expenses 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. Concentrations 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. One licensee accounted for 98 75 9 8 4 52 21 12 46 23 14 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 nine months ended September 30, 2020, 0.1 5 75 38 Four licensees individually represented approximately 57 25 4 3 70 17 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 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 September 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 Gross Fair Value (In thousands) Security Type September 30, 2020: Trading securities - equity $ 23,851 $ 4,218 $ (3,598 ) $ 24,471 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 (ii) Level 2 Pricing Models with Significant Observable Inputs (iii) Level 3 Unobservable Inputs 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 September 30, 2020: Trading securities - equity $ 24,471 $ – $ – Equity securities derivative 17,818 – – Investment at fair value - warrants (Note 5) – 982 – Total recurring fair value measurements as of September 30, 2020 $ 42,289 $ 982 $ – 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 September 30, 2020: Series A warrants $ – $ 5,604 $ – Series B warrants – – 42,796 Embedded derivative liability – – 25,682 Total liabilities as of September 30, 2020 $ – $ 5,604 $ 68,478 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 7,708 38,196 Balance as of September 30, 2020 $ 25,682 $ 42,796 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 September 30, 2020 was estimated based on the following assumptions: volatility of 32 percent 0.47 percent 7.04 years 0 percent 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 September 30, 2020 was estimated based on event probabilities of future exercise scenarios and the following weighted-average assumptions: (1) volatility of 32 percent 0.48 percent 7.12 years 0 percent 10 percent 51 percent 0.13 percent 1.9 years 0 percent 10 percent 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 September 30, 2020 are as follows: volatility of 32 percent 0.47 percent 21 percent 0 percent 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 upon acquisition of the investment. As of September 30, 2020, our investment in Veritone warrants totaled $ 982,000 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 September 30, 2020, the Units totaled $591,000, which was their fair value as of December 31, 2018 after termination of service. 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 (4%) 0 (2%) |
3. INCOME (LOSS) PER SHARE
3. INCOME (LOSS) PER SHARE | 9 Months Ended |
Sep. 30, 2020 | |
Earnings Per Share [Abstract] | |
3. INCOME (LOSS) PER SHARE | 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 Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands, except share and per share information) Numerator: Net income (loss) attributable to Acacia Research Corporation 38,348 (7,608 ) 33,205 (17,749 ) Dividend on Series A redeemable convertible preferred stock (467 ) – (1,118 ) – Accretion of Series A redeemable convertible preferred stock (733 ) – (2,045 ) – Undistributed earnings allocated to participating securities (6,619 ) – (5,204 ) – Net income (loss) attributable to common stockholders - basic 30,529 (7,608 ) 24,838 (17,749 ) Add: Dividend on Series A redeemable convertible preferred stock 467 – – – Add: Accretion of Series A redeemable convertible preferred stock 733 – – – Less: Change in fair value of Series A redeemable convertible preferred stock embedded derivative (3,831 ) – – – Less: Change in fair value of Series A warrants (1,348 ) – (1,348 ) – Less: Change in fair value of dilutive Series B warrants (5,557 ) – (5,557 ) – Add: Interest expense associated with Starboard Notes, net of tax 1,889 – 1,889 – Add: Undistributed earnings allocated to participating securities 6,619 – 5,204 – Reallocation of undistributed earnings to participating securities (296 ) – (3,645 ) – Net income (loss) attributable to common stockholders - diluted 29,204 (7,608 ) 21,380 (17,749 ) Denominator: Weighted-average shares used in computing net income (loss) per share attributable to common stockholders - basic 48,467,885 49,828,361 48,949,706 49,727,385 Potentially dilutive common shares: Series A Preferred Stock 9,589,041 – – – Restricted stock units 728,936 – 598,328 – Employee stock options 21,624 – – – Series A Warrants 310,367 – 103,456 – Series B Warrants 31,506,849 – 10,502,283 – Weighted-average shares used in computing net income (loss) per share attributable to common stockholders - diluted 90,624,702 49,828,361 60,153,773 49,727,385 Basic net income (loss) per common share $ 0.63 $ (0.15 ) $ 0.51 $ (0.36 ) Diluted net income (loss) per common share $ 0.32 $ (0.15 ) $ 0.36 $ (0.36 ) Anti-dilutive potential common shares excluded from the computation of diluted net income (loss) per common share: Equity-based incentive awards 191,312 442,864 310,083 442,864 Series A warrants – – – – Series B warrants 68,493,151 – 68,493,151 – Total 68,684,463 442,864 68,803,234 442,864 |
4. PATENTS
4. PATENTS | 9 Months Ended |
Sep. 30, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
4. PATENTS | 4. PATENTS Acacia’s only identifiable intangible assets at September 30, 2020 and December 31, 2019 are patents and patent rights. Patent-related accumulated amortization totaled $ 326,296,000 322,774,000 The following table presents the scheduled annual aggregate amortization expense as of September 30, 2020: Schedule of intangible assets For the years ending December 31, (In thousands) Remainder of 2020 $ 1,158 2021 4,451 2022 4,451 2023 4,376 2024 3,005 Thereafter 630 Patents, net $ 18,071 |
5. INVESTMENTS
5. INVESTMENTS | 9 Months Ended |
Sep. 30, 2020 | |
Schedule of Investments [Abstract] | |
5. INVESTMENTS | 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 13.61 2,700,000 19.1 1,121,071 9.2 298,450 3.3 During the three months ended June 30, 2020, Acacia exercised 154,312 1,120,432 154,312 17.23 554,000 966,120 982,000 Changes in the fair value of Acacia’s investment in Veritone are recorded as unrealized gains or losses in the condensed consolidated statements of operations. For the three and nine months ended September 30, 2020 and 2019, the accompanying condensed consolidated statements of operations reflected the following: Schedule of gain (loss) on investments Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands) Change in fair value of investment, warrants $ (3,081 ) (3,216 ) $ 225 $ (822 ) Change in fair value of investment, common stock – (1,050 ) 3,479 10,444 Gain on sale of investment, warrants – – 554 – Loss on sale of investment, common stock – (915 ) (3,316 ) (8,147 ) Net realized and unrealized gain (loss) on investment at fair value $ (3,081 ) $ (5,181 ) $ 942 $ 1,475 |
6. COMMITMENTS AND CONTINGENCIE
6. COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
6. COMMITMENTS AND CONTINGENCIES | 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 leased a facility under an operating lease agreement (the “Old Lease”), the term of which ended on January 31, 2020. The Company ceased using the facility in December 2018 and the subleased the facility for the remainder of the Old Lease term. All sublease income under the Old Lease was received and recorded in 2019. No sublease income on the Old Lease was recognized in 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 $ 174,000 96,000 459,000 301,000 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 condensed consolidated balance sheet as of September 30, 2020: Schedule of future minimum operating lease payments Operating Leases (In thousands) 2020 $ 144 2021 589 2022 370 2023 364 2024 218 Total minimum payments $ 1,685 Less: short-term lease liabilities (584 ) Long-term lease liabilities $ 1,101 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 a lawsuit 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. In a separate case, 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 nine months ended September 30, 2020, operating expenses included a net income for settlement offset by contingency accruals totaling $ 308,000 175,000 1.4 |
7. STOCKHOLDERS_ EQUITY
7. STOCKHOLDERS’ EQUITY | 9 Months Ended |
Sep. 30, 2020 | |
Equity [Abstract] | |
7. STOCKHOLDERS’ EQUITY | 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 Schedule of repurchased shares Total Number Average Approximate Dollar 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 PRONOUNCEM
8. RECENT ACCOUNTING PRONOUNCEMENTS | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Changes and Error Corrections [Abstract] | |
8. RECENT ACCOUNTING PRONOUNCEMENTS | 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 condensed 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 condensed consolidated financial statements. |
9. FAIR VALUE DISCLOSURES
9. FAIR VALUE DISCLOSURES | 9 Months Ended |
Sep. 30, 2020 | |
Fair Value Disclosures [Abstract] | |
9. FAIR VALUE DISCLOSURES | 9. FAIR VALUE DISCLOSURES Acacia holds the following types of financial instruments at September 30, 2020 and December 31, 2019. Trading securities - debt. Trading securities - equity. Equity securities derivative. Investments at fair value - common stock Investments at fair value - warrants. Series A Warrants. Series B Warrants. Embedded derivative liability. |
10. SERIES A REDEEMABLE CONVERT
10. SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK | 9 Months Ended |
Sep. 30, 2020 | |
Equity [Abstract] | |
10. SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK | 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”) and the investors set forth in the Securities Purchase Agreement (the “Buyers”) pursuant to which the Company issued (i) 350,000 5,000,000 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 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 Notes to the Buyers 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 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 Notes, the Holder may exchange the Series A Redeemable Convertible Preferred Stock for (i) 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 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 2.0 In connection with the issuance of the Series A Redeemable Convertible Preferred Stock, the Company executed a Registration Rights Agreement with Starboard and the Buyers, and a Governance Agreement with Starboard and certain affiliates of 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 and its affiliates 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 September 30, 2020, the fair value of the Series A embedded derivative was $ 25.7 |
11. SERIES A WARRANTS
11. SERIES A WARRANTS | 9 Months Ended |
Sep. 30, 2020 | |
Series Warrants | |
11. SERIES A WARRANTS | 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 3.65 no 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 5.6 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
12. SERIES B WARRANTS | 9 Months Ended |
Sep. 30, 2020 | |
Series B Warrants | |
12. SERIES B WARRANTS | 12. SERIES B WARRANTS On February 25, 2020, pursuant to the terms of the Securities Purchase Agreement with Starboard and the Buyers, the Company issued Series B Warrants to purchase up to 100 5.25 4.6 November 15, 2027 In connection with the issuance of the 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. no 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 September 30, 2020, the fair value of the Series B Warrants was $ 42.8 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
13. SENIOR SECURED NOTES | 9 Months Ended |
Sep. 30, 2020 | |
Debt Disclosure [Abstract] | |
13. SENIOR SECURED NOTES | 13. SENIOR SECURED NOTES Pursuant to the Securities Purchase Agreement dated November 18, 2019 with Starboard and the Buyers, on June 4, 2020, the Company issued $ 115 80 35 10 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 The New Notes bear interest at a rate of 6.00 December 31, 2020 80 35 0.001 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 0.5 0.5 1.7 The Initial Redemption Date was subsequently extended by the parties to November 9, 2020 and the Final Redemption Date was extended to January 15, 2021. 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 and the Buyers 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 the holders 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 $ 1.3 532,000 697,000 632,000 |
14. LF EQUITY INCOME FUND PORTF
14. LF EQUITY INCOME FUND PORTFOLIO INVESTMENT | 9 Months Ended |
Sep. 30, 2020 | |
Investments, Debt and Equity Securities [Abstract] | |
14. LF EQUITY INCOME FUND PORTFOLIO INVESTMENT | 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 £ 223.9 277.5 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 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 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. During the three months ended September 30, 2020, Seller returned a total of £ 4.5 33,000 2.8 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 nine months ended September 30, 2020 and 2019, the accompanying condensed consolidated statements of operations reflected the following: Changes in fair value of Acacias Investment Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands) Change in fair value of trading securities - LF Fund public securities $ 3,403 $ – $ 2,334 $ – Change in fair value of equity securities derivative 10,651 – 17,542 – Change in fair value of equity securities - LF Fund private securities 80,896 – 80,896 – Change in fair value of equity securities forward contract (74,662 ) – – – Gain (loss) on sale of trading securities - LF Fund public securities 1,908 – (4,202 ) – Gain on sale of prepaid investment and derivative 2,845 – 2,845 – Net realized and unrealized gain on investment in LF Fund securities $ 25,041 $ – $ 99,415 $ – |
15. SUBSEQUENT EVENTS
15. SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2020 | |
Subsequent Events [Abstract] | |
15. SUBSEQUENT EVENTS | 15. SUBSEQUENT EVENTS None. |
1. DESCRIPTION OF BUSINESS AN_2
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (Policies) | 9 Months Ended |
Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Description of Business | 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 nine months ended September 30, 2020, Acacia obtained control of four 4 5 |
Basis of Presentation | 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 condensed 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 September 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 nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the entire fiscal year. |
Use of Estimates | 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 condensed 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 | 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 ACC_2
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
Revenue Recognition | 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 Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands) Paid-up Revenue Agreements $ 19,385 $ 1,203 $ 24,477 $ 6,067 Recurring Revenue Agreements 81 508 922 4,491 Total Revenue $ 19,466 $ 1,711 $ 25,399 $ 10,558 Refer to “ Inventor Royalties and Contingent Legal Expenses |
Portfolio Operations | 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. Concentrations 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. One licensee accounted for 98 75 9 8 4 52 21 12 46 23 14 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 nine months ended September 30, 2020, 0.1 5 75 38 Four licensees individually represented approximately 57 25 4 3 70 17 |
Patents | 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 | 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 | 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 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 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 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 | Equity Securities Derivative and Forward Contract The equity security forward contract includes both private and public equity securities not yet transferred, as of September 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 | 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 | 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 Gross Fair Value (In thousands) Security Type September 30, 2020: Trading securities - equity $ 23,851 $ 4,218 $ (3,598 ) $ 24,471 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 | 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 (ii) Level 2 Pricing Models with Significant Observable Inputs (iii) Level 3 Unobservable Inputs 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 September 30, 2020: Trading securities - equity $ 24,471 $ – $ – Equity securities derivative 17,818 – – Investment at fair value - warrants (Note 5) – 982 – Total recurring fair value measurements as of September 30, 2020 $ 42,289 $ 982 $ – 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 September 30, 2020: Series A warrants $ – $ 5,604 $ – Series B warrants – – 42,796 Embedded derivative liability – – 25,682 Total liabilities as of September 30, 2020 $ – $ 5,604 $ 68,478 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 7,708 38,196 Balance as of September 30, 2020 $ 25,682 $ 42,796 |
Series A Warrants | 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 September 30, 2020 was estimated based on the following assumptions: volatility of 32 percent 0.47 percent 7.04 years 0 percent |
Series B Warrants | 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 September 30, 2020 was estimated based on event probabilities of future exercise scenarios and the following weighted-average assumptions: (1) volatility of 32 percent 0.48 percent 7.12 years 0 percent 10 percent 51 percent 0.13 percent 1.9 years 0 percent 10 percent |
Embedded derivatives | 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 September 30, 2020 are as follows: volatility of 32 percent 0.47 percent 21 percent 0 percent |
Investments at Fair Value | 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 upon acquisition of the investment. As of September 30, 2020, our investment in Veritone warrants totaled $ 982,000 |
Other Investments | 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 | 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 September 30, 2020, the Units totaled $591,000, which was their fair value as of December 31, 2018 after termination of service. |
Treasury Stock | 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 | 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 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 (4%) 0 (2%) |
2. SUMMARY OF SIGNIFICANT ACC_3
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
Disaggregation of revenue | Disaggregation of revenue Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands) Paid-up Revenue Agreements $ 19,385 $ 1,203 $ 24,477 $ 6,067 Recurring Revenue Agreements 81 508 922 4,491 Total Revenue $ 19,466 $ 1,711 $ 25,399 $ 10,558 |
Gain (loss) on trading securities | Gain (loss) on trading securities Cost Gross Gross Fair Value (In thousands) Security Type September 30, 2020: Trading securities - equity $ 23,851 $ 4,218 $ (3,598 ) $ 24,471 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 |
Schedule of fair value of financial assets and liabilities on a recurring basis | Schedule of fair value of financial assets and liabilities on a recurring basis Level 1 Level 2 Level 3 (In thousands) Assets as of September 30, 2020: Trading securities - equity $ 24,471 $ – $ – Equity securities derivative 17,818 – – Investment at fair value - warrants (Note 5) – 982 – Total recurring fair value measurements as of September 30, 2020 $ 42,289 $ 982 $ – 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 September 30, 2020: Series A warrants $ – $ 5,604 $ – Series B warrants – – 42,796 Embedded derivative liability – – 25,682 Total liabilities as of September 30, 2020 $ – $ 5,604 $ 68,478 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 |
Summary of changes in financial liability Level 3 | 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 7,708 38,196 Balance as of September 30, 2020 $ 25,682 $ 42,796 |
3. INCOME (LOSS) PER SHARE (Tab
3. INCOME (LOSS) PER SHARE (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Earnings Per Share [Abstract] | |
Calculation of basic and diluted net loss per share | Calculation of basic and diluted net loss per share Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands, except share and per share information) Numerator: Net income (loss) attributable to Acacia Research Corporation 38,348 (7,608 ) 33,205 (17,749 ) Dividend on Series A redeemable convertible preferred stock (467 ) – (1,118 ) – Accretion of Series A redeemable convertible preferred stock (733 ) – (2,045 ) – Undistributed earnings allocated to participating securities (6,619 ) – (5,204 ) – Net income (loss) attributable to common stockholders - basic 30,529 (7,608 ) 24,838 (17,749 ) Add: Dividend on Series A redeemable convertible preferred stock 467 – – – Add: Accretion of Series A redeemable convertible preferred stock 733 – – – Less: Change in fair value of Series A redeemable convertible preferred stock embedded derivative (3,831 ) – – – Less: Change in fair value of Series A warrants (1,348 ) – (1,348 ) – Less: Change in fair value of dilutive Series B warrants (5,557 ) – (5,557 ) – Add: Interest expense associated with Starboard Notes, net of tax 1,889 – 1,889 – Add: Undistributed earnings allocated to participating securities 6,619 – 5,204 – Reallocation of undistributed earnings to participating securities (296 ) – (3,645 ) – Net income (loss) attributable to common stockholders - diluted 29,204 (7,608 ) 21,380 (17,749 ) Denominator: Weighted-average shares used in computing net income (loss) per share attributable to common stockholders - basic 48,467,885 49,828,361 48,949,706 49,727,385 Potentially dilutive common shares: Series A Preferred Stock 9,589,041 – – – Restricted stock units 728,936 – 598,328 – Employee stock options 21,624 – – – Series A Warrants 310,367 – 103,456 – Series B Warrants 31,506,849 – 10,502,283 – Weighted-average shares used in computing net income (loss) per share attributable to common stockholders - diluted 90,624,702 49,828,361 60,153,773 49,727,385 Basic net income (loss) per common share $ 0.63 $ (0.15 ) $ 0.51 $ (0.36 ) Diluted net income (loss) per common share $ 0.32 $ (0.15 ) $ 0.36 $ (0.36 ) Anti-dilutive potential common shares excluded from the computation of diluted net income (loss) per common share: Equity-based incentive awards 191,312 442,864 310,083 442,864 Series A warrants – – – – Series B warrants 68,493,151 – 68,493,151 – Total 68,684,463 442,864 68,803,234 442,864 |
4. PATENTS (Tables)
4. PATENTS (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of intangible assets | Schedule of intangible assets For the years ending December 31, (In thousands) Remainder of 2020 $ 1,158 2021 4,451 2022 4,451 2023 4,376 2024 3,005 Thereafter 630 Patents, net $ 18,071 |
5. INVESTMENTS (Tables)
5. INVESTMENTS (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Schedule of Investments [Abstract] | |
Schedule of gain (loss) on investments | Schedule of gain (loss) on investments Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands) Change in fair value of investment, warrants $ (3,081 ) (3,216 ) $ 225 $ (822 ) Change in fair value of investment, common stock – (1,050 ) 3,479 10,444 Gain on sale of investment, warrants – – 554 – Loss on sale of investment, common stock – (915 ) (3,316 ) (8,147 ) Net realized and unrealized gain (loss) on investment at fair value $ (3,081 ) $ (5,181 ) $ 942 $ 1,475 |
6. COMMITMENTS AND CONTINGENC_2
6. COMMITMENTS AND CONTINGENCIES (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of future minimum operating lease payments | Schedule of future minimum operating lease payments Operating Leases (In thousands) 2020 $ 144 2021 589 2022 370 2023 364 2024 218 Total minimum payments $ 1,685 Less: short-term lease liabilities (584 ) Long-term lease liabilities $ 1,101 |
7. STOCKHOLDERS_ EQUITY (Tables
7. STOCKHOLDERS’ EQUITY (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Equity [Abstract] | |
Schedule of repurchased shares | Schedule of repurchased shares Total Number Average Approximate Dollar 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 |
14. LF EQUITY INCOME FUND POR_2
14. LF EQUITY INCOME FUND PORTFOLIO INVESTMENT (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Investments, Debt and Equity Securities [Abstract] | |
Changes in fair value of Acacias Investment | Changes in fair value of Acacias Investment Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (In thousands) Change in fair value of trading securities - LF Fund public securities $ 3,403 $ – $ 2,334 $ – Change in fair value of equity securities derivative 10,651 – 17,542 – Change in fair value of equity securities - LF Fund private securities 80,896 – 80,896 – Change in fair value of equity securities forward contract (74,662 ) – – – Gain (loss) on sale of trading securities - LF Fund public securities 1,908 – (4,202 ) – Gain on sale of prepaid investment and derivative 2,845 – 2,845 – Net realized and unrealized gain on investment in LF Fund securities $ 25,041 $ – $ 99,415 $ – |
1. DESCRIPTION OF BUSINESS AN_3
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (Details Narrative) - Integer | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020 | Dec. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Number of new patent portfolios acquired | 4 | 5 |
2. SUMMARY OF SIGNIFICANT ACC_4
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : Disaggregation of Revenue (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Product Information [Line Items] | ||||
Revenues | $ 19,466 | $ 1,711 | $ 25,399 | $ 10,558 |
Paid Up Revenue Agreements [Member] | ||||
Product Information [Line Items] | ||||
Revenues | 19,385 | 1,203 | 24,477 | 6,067 |
Recurring Revenue Agreements [Member] | ||||
Product Information [Line Items] | ||||
Revenues | $ 81 | $ 508 | $ 922 | $ 4,491 |
2. SUMMARY OF SIGNIFICANT ACC_5
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : Trading Securities (Details) - USD ($) $ in Thousands | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020 | Dec. 31, 2019 | |
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items] | ||
Short-term Investments | $ 111,386 | |
Available-for-sale Securities, Gross Unrealized Gain | 354 | |
Available-for-sale Securities, Gross Unrealized Loss | (757) | |
Investment Owned, at Fair Value | 110,983 | |
Trading Securitesr Equity [Member] | ||
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items] | ||
Short-term Investments | $ 23,851 | |
Trading Securites Equity [Member] | ||
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items] | ||
Short-term Investments | 17,674 | |
Available-for-sale Securities, Gross Unrealized Gain | 4,218 | 211 |
Available-for-sale Securities, Gross Unrealized Loss | (3,598) | (745) |
Investment Owned, at Fair Value | $ 24,471 | 17,140 |
Trading Securites Debt [Member] | ||
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items] | ||
Short-term Investments | 93,712 | |
Available-for-sale Securities, Gross Unrealized Gain | 143 | |
Available-for-sale Securities, Gross Unrealized Loss | (12) | |
Investment Owned, at Fair Value | $ 93,843 |
2. SUMMARY OF SIGNIFICANT ACC_6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : Fair Value on a Recurring Basis (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Assets [Member] | Fair Value, Inputs, Level 1 [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | $ 42,289 | $ 17,883 |
Assets [Member] | Fair Value, Inputs, Level 1 [Member] | Trading Securities Equity [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 24,471 | 17,140 |
Assets [Member] | Fair Value, Inputs, Level 1 [Member] | Equity Securities Derivativet [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 17,818 | |
Assets [Member] | Fair Value, Inputs, Level 1 [Member] | Warrant Investment [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 0 | 0 |
Assets [Member] | Fair Value, Inputs, Level 1 [Member] | Trading Securities Debt [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 0 | |
Assets [Member] | Fair Value, Inputs, Level 1 [Member] | Common Stock Investment [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 743 | |
Assets [Member] | Fair Value, Inputs, Level 2 [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 982 | 94,600 |
Assets [Member] | Fair Value, Inputs, Level 2 [Member] | Trading Securities Equity [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 0 | 0 |
Assets [Member] | Fair Value, Inputs, Level 2 [Member] | Equity Securities Derivative [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 0 | |
Assets [Member] | Fair Value, Inputs, Level 2 [Member] | Warrant Investment [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 982 | 757 |
Assets [Member] | Fair Value, Inputs, Level 2 [Member] | Trading Securities Debt [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 93,843 | |
Assets [Member] | Fair Value, Inputs, Level 2 [Member] | Common Stock Investment [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 0 | |
Assets [Member] | Fair Value, Inputs, Level 3 [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 0 | 0 |
Assets [Member] | Fair Value, Inputs, Level 3 [Member] | Trading Securities Equity [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 0 | 0 |
Assets [Member] | Fair Value, Inputs, Level 3 [Member] | Equity Securities Derivative [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 0 | |
Assets [Member] | Fair Value, Inputs, Level 3 [Member] | Warrant Investment [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 0 | 0 |
Assets [Member] | Fair Value, Inputs, Level 3 [Member] | Trading Securities Debt [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 0 | |
Assets [Member] | Fair Value, Inputs, Level 3 [Member] | Common Stock Investment [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Assets | 0 | |
Liability [Member] | Fair Value, Inputs, Level 1 [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | 0 | 0 |
Liability [Member] | Fair Value, Inputs, Level 1 [Member] | Series A Warrants [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | 0 | 0 |
Liability [Member] | Fair Value, Inputs, Level 1 [Member] | Series B Warrants [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | 0 | |
Liability [Member] | Fair Value, Inputs, Level 1 [Member] | Embedded Derivative Liability [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | 0 | 0 |
Liability [Member] | Fair Value, Inputs, Level 2 [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | 5,604 | 3,568 |
Liability [Member] | Fair Value, Inputs, Level 2 [Member] | Series A Warrants [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | 5,604 | 3,568 |
Liability [Member] | Fair Value, Inputs, Level 2 [Member] | Series B Warrants [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | 0 | |
Liability [Member] | Fair Value, Inputs, Level 2 [Member] | Embedded Derivative Liability [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | 0 | 0 |
Liability [Member] | Fair Value, Inputs, Level 3 [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | 68,478 | 17,974 |
Liability [Member] | Fair Value, Inputs, Level 3 [Member] | Series A Warrants [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | 0 | 0 |
Liability [Member] | Fair Value, Inputs, Level 3 [Member] | Series B Warrants [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | 42,796 | |
Liability [Member] | Fair Value, Inputs, Level 3 [Member] | Embedded Derivative Liability [Member] | ||
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | ||
Liabilities | $ 25,682 | $ 17,974 |
2. SUMMARY OF SIGNIFICANT ACC_7
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : Changes to fair value measurement Level 3 (Details) - Liability [Member] - Fair Value, Inputs, Level 3 [Member] - Fair Value, Recurring [Member] $ in Thousands | 9 Months Ended |
Sep. 30, 2020USD ($) | |
Series A Embedded Derivative Liability [Member] | |
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | |
Fair value ending balance | $ 17,974 |
Issuance of Series B warrants | 0 |
Remeasurement to fair value | 7,708 |
Fair value ending balance | 25,682 |
Series B Warrants Liability [Member] | |
Customer Securities for which Entity has Right to Sell or Repledge (Including Securities Sold or Repledged) [Line Items] | |
Fair value ending balance | 0 |
Issuance of Series B warrants | 4,600 |
Remeasurement to fair value | 38,196 |
Fair value ending balance | $ 42,796 |
2. SUMMARY OF SIGNIFICANT ACC_8
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Product Information [Line Items] | |||||
Effective tax rate | 0.00% | 0.00% | (4.00%) | (2.00%) | |
Veritone [Member] | |||||
Product Information [Line Items] | |||||
Investment in Veritone | $ 982 | $ 982 | |||
Measurement Input, Price Volatility [Member] | Embedded Derivative [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 32 percent | ||||
Measurement Input, Price Volatility [Member] | Black Scholes Model [Member] | Series A Warrants [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 32 percent | ||||
Measurement Input, Price Volatility [Member] | Monte Carlo Method [Member] | Series B Warrants [Member] | Warrant Price 525 [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 32 percent | ||||
Measurement Input, Price Volatility [Member] | Monte Carlo Method [Member] | Series B Warrants [Member] | Warrant Price 365 [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 51 percent | ||||
Measurement Input, Risk Free Interest Rate [Member] | Embedded Derivative [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 0.47 percent | ||||
Measurement Input, Risk Free Interest Rate [Member] | Black Scholes Model [Member] | Series A Warrants [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 0.47 percent | ||||
Measurement Input, Risk Free Interest Rate [Member] | Monte Carlo Method [Member] | Series B Warrants [Member] | Warrant Price 525 [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 0.48 percent | ||||
Measurement Input, Risk Free Interest Rate [Member] | Monte Carlo Method [Member] | Series B Warrants [Member] | Warrant Price 365 [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 0.13 percent | ||||
Measurement Input, Expected Term [Member] | Black Scholes Model [Member] | Series A Warrants [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 7.04 years | ||||
Measurement Input, Expected Term [Member] | Monte Carlo Method [Member] | Series B Warrants [Member] | Warrant Price 525 [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 7.12 years | ||||
Measurement Input, Expected Term [Member] | Monte Carlo Method [Member] | Series B Warrants [Member] | Warrant Price 365 [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 1.9 years | ||||
Measurement Input, Expected Dividend Rate [Member] | Embedded Derivative [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 0 percent | ||||
Measurement Input, Expected Dividend Rate [Member] | Black Scholes Model [Member] | Series A Warrants [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 0 percent | ||||
Measurement Input, Expected Dividend Rate [Member] | Monte Carlo Method [Member] | Series B Warrants [Member] | Warrant Price 525 [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 0 percent | ||||
Measurement Input, Expected Dividend Rate [Member] | Monte Carlo Method [Member] | Series B Warrants [Member] | Warrant Price 365 [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 0 percent | ||||
Measurement Input, Discount Rate [Member] | Monte Carlo Method [Member] | Series B Warrants [Member] | Warrant Price 525 [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 10 percent | ||||
Measurement Input, Discount Rate [Member] | Monte Carlo Method [Member] | Series B Warrants [Member] | Warrant Price 365 [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 10 percent | ||||
Measurement Input, Credit Spread [Member] | Embedded Derivative [Member] | |||||
Product Information [Line Items] | |||||
Assumptions used for derivatives | 21 percent | ||||
Revenue Benchmark [Member] | One Licensee [Member] | |||||
Product Information [Line Items] | |||||
Concentration risk percentage | 98.00% | 52.00% | 75.00% | 46.00% | |
Revenue Benchmark [Member] | One Licensee 2 [Member] | |||||
Product Information [Line Items] | |||||
Concentration risk percentage | 21.00% | 9.00% | 23.00% | ||
Revenue Benchmark [Member] | One Licensee 3 [Member] | |||||
Product Information [Line Items] | |||||
Concentration risk percentage | 12.00% | 8.00% | 14.00% | ||
Revenue Benchmark [Member] | One Licensee 4 [Member] | |||||
Product Information [Line Items] | |||||
Concentration risk percentage | 4.00% | ||||
Revenue Benchmark [Member] | Foreign Licensee [Member] | |||||
Product Information [Line Items] | |||||
Concentration risk percentage | 0.10% | 75.00% | 5.00% | 38.00% | |
Accounts Receivable [Member] | One Licensee [Member] | |||||
Product Information [Line Items] | |||||
Concentration risk percentage | 57.00% | 70.00% | |||
Accounts Receivable [Member] | One Licensee 2 [Member] | |||||
Product Information [Line Items] | |||||
Concentration risk percentage | 25.00% | 17.00% | |||
Accounts Receivable [Member] | One Licensee 3 [Member] | |||||
Product Information [Line Items] | |||||
Concentration risk percentage | 4.00% | ||||
Accounts Receivable [Member] | One Licensee 4 [Member] | |||||
Product Information [Line Items] | |||||
Concentration risk percentage | 3.00% |
3. INCOME (LOSS) PER SHARE (Det
3. INCOME (LOSS) PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Numerator: | ||||
Net income (loss) attributable to Acacia Research Corporation | $ 38,348 | $ (7,608) | $ 33,205 | $ (17,749) |
Dividend on Series A redeemable convertible preferred stock | (467) | 0 | (1,118) | 0 |
Accretion of Series A redeemable convertible preferred stock | (733) | 0 | (2,045) | 0 |
Undistributed earnings allocated to participating securities | (6,619) | 0 | (5,204) | 0 |
Net income (loss) attributable to common stockholders - basic | 30,529 | (7,608) | 24,838 | (17,749) |
Add: Dividend on Series A redeemable convertible preferred stock | 467 | 0 | 0 | 0 |
Add: Accretion of Series A redeemable convertible preferred stock | 733 | 0 | 0 | 0 |
Less: Change in fair value of Series A redeemable convertible preferred stock embedded derivative | (3,831) | 0 | 0 | 0 |
Less: Change in fair value of Series A warrants | (1,348) | 0 | (1,348) | 0 |
Less: Change in fair value of dilutive Series B warrants | (5,557) | 0 | (5,557) | 0 |
Add: Interest expense associated with Starboard Notes, net of tax | 1,889 | 0 | 1,889 | 0 |
Add: Undistributed earnings allocated to participating securities | 6,619 | 0 | 5,204 | 0 |
Reallocation of undistributed earnings to participating securities | (296) | 0 | (3,645) | 0 |
Net income (loss) attributable to common stockholders - diluted | $ 29,204 | $ (7,608) | $ 21,380 | $ (17,749) |
Denominator: | ||||
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders - basic | 48,467,885 | 49,828,361 | 48,949,706 | 49,727,385 |
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders - diluted | 90,624,702 | 49,828,361 | 60,153,773 | 49,727,385 |
Basic net income (loss) per common share | $ 0.63 | $ (0.15) | $ 0.51 | $ (0.36) |
Diluted net income (loss) per common share | $ 0.32 | $ (0.15) | $ 0.36 | $ (0.36) |
Antidilutive shares | 68,684,463 | 442,864 | 68,803,234 | 442,864 |
Equity Based Incentive Awards [Member] | ||||
Denominator: | ||||
Antidilutive shares | 191,312 | 442,864 | 310,083 | 442,864 |
Series A Warrants [Member] | ||||
Denominator: | ||||
Antidilutive shares | 0 | 0 | 0 | 0 |
Series B Warrants [Member] | ||||
Denominator: | ||||
Antidilutive shares | 68,493,151 | 0 | 68,493,151 | 0 |
Series A Preferred Stock [Member] | ||||
Denominator: | ||||
Potentially dilutive common shares | 9,589,041 | 0 | 0 | 0 |
Restricted Stock Units [Member] | ||||
Denominator: | ||||
Potentially dilutive common shares | 728,936 | 0 | 598,328 | 0 |
Employee Stock Options [Member] | ||||
Denominator: | ||||
Potentially dilutive common shares | 21,624 | 0 | 0 | 0 |
Series A Warrants [Member] | ||||
Denominator: | ||||
Potentially dilutive common shares | 310,367 | 0 | 103,456 | 0 |
Series B Warrants [Member] | ||||
Denominator: | ||||
Potentially dilutive common shares | 31,506,849 | 0 | 10,502,283 | 0 |
4. PATENTS (Details)
4. PATENTS (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Remainder of 2020 | $ 1,158 | |
2021 | 4,451 | |
2022 | 4,451 | |
2023 | 4,376 | |
2024 | 3,005 | |
Thereafter | 630 | |
Patents, net | $ 18,071 | $ 7,814 |
4. PATENTS (Details Narrative)
4. PATENTS (Details Narrative) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Accumulated amortization | $ 326,296 | $ 322,774 |
5. INVESTMENTS (Details)
5. INVESTMENTS (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Investment Holdings [Line Items] | ||||
Change in fair value of investment | $ (3,081) | $ (4,266) | $ 3,704 | $ 9,622 |
Loss on sale of investment | (2,762) | (8,147) | ||
Net realized and unrealized gain (loss) on investment | (3,081) | (5,181) | 942 | 1,475 |
Warrant Investment [Member] | ||||
Investment Holdings [Line Items] | ||||
Change in fair value of investment | (3,081) | (3,216) | 225 | (822) |
Gain on sale of investment | 0 | 0 | 554 | 0 |
Common Stock Investment [Member] | ||||
Investment Holdings [Line Items] | ||||
Change in fair value of investment | 0 | (1,050) | 3,479 | 10,444 |
Loss on sale of investment | $ 0 | $ (915) | $ (3,316) | $ (8,147) |
5. INVESTMENTS (Details Narrati
5. INVESTMENTS (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Sep. 30, 2020 | Mar. 31, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Repurchase Agreement Counterparty [Line Items] | |||||||
Loss from sale of investment | $ 2,762 | $ 8,147 | |||||
Warrants exercised | 154,312 | 154,312 | |||||
Realized gain | $ 0 | $ (915) | $ (2,762) | $ (8,147) | |||
Veritone [Member] | |||||||
Repurchase Agreement Counterparty [Line Items] | |||||||
Investment shares sold | 298,450 | 1,121,071 | 2,700,000 | ||||
Loss from sale of investment | $ 3,300 | $ 9,200 | $ 19,100 | ||||
Veritone [Member] | Warrant Investment [Member] | |||||||
Repurchase Agreement Counterparty [Line Items] | |||||||
Number of warrants | 1,120,432 | ||||||
Warrants price | $ 13.61 | $ 13.61 | |||||
Number of stock sold | 154,312 | ||||||
Share Price | $ 17.23 | $ 17.23 | |||||
Realized gain | $ 554 | ||||||
Investment warrants | 966,120 | 966,120 | |||||
Fair value of investment | $ 982 | $ 982 |
6. COMMITMENTS AND CONTINGENC_3
6. COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Commitments and Contingencies Disclosure [Abstract] | ||
2020 | $ 144 | |
2021 | 589 | |
2022 | 370 | |
2023 | 364 | |
2024 | 218 | |
Total minimum payments | 1,685 | |
Less: short-term lease liabilities | (584) | |
Long-term lease liabilities | $ 1,101 | $ 1,264 |
6. COMMITMENTS AND CONTINGENC_4
6. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Operating lease costs, net of sublease income | $ 174 | $ 96 | $ 459 | $ 301 |
Income from settlement | 308 | $ 175 | ||
Contingency accruals | $ 1,400 | $ 1,400 |
7. STOCKHOLDERS' EQUITY (Detail
7. STOCKHOLDERS' EQUITY (Details) - Common Stock [Member] - USD ($) $ / shares in Units, $ in Thousands | Mar. 31, 2020 | Apr. 23, 2020 | Sep. 30, 2020 |
Class of Stock [Line Items] | |||
Number of shares repurchased | 576,898 | 1,107,639 | 1,684,537 |
Average price paid per share | $ 2.28 | $ 2.42 | $ 2.37 |
Approximate value of shares that may yet be purchased | $ 8,686,000 | $ 6,001,000 | |
Plan expiration date | Jul. 31, 2020 | Jul. 31, 2020 |
7. STOCKHOLDERS_ EQUITY (Detail
7. STOCKHOLDERS’ EQUITY (Details Narrative) $ in Thousands | Aug. 05, 2019USD ($) |
Stock Repurchase Program [Member] | |
Equity, Class of Treasury Stock [Line Items] | |
Value of shares authorized for repurchase | $ 10,000 |
10. SERIES A REDEEMABLE CONVE_2
10. SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | 11 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2020 | Nov. 18, 2019 | Dec. 31, 2019 | |
Securities Financing Transaction [Line Items] | ||||
Fair value of Series A embedded derivative | $ 25,682 | $ 25,682 | $ 17,974 | |
Securities Purchase Agreement [Member] | Starboard Value [Member] | ||||
Securities Financing Transaction [Line Items] | ||||
Stock issued | 350,000 | |||
Securities Purchase Agreement [Member] | Starboard Value [Member] | Series A Warrants [Member] | ||||
Securities Financing Transaction [Line Items] | ||||
Warrants issued | 5,000,000 | |||
Conversion price | $ 3.65 | |||
Series A Redeemable Convertible Stock [Member] | ||||
Securities Financing Transaction [Line Items] | ||||
Accrued and unpaid dividends | 0 | 0 | ||
Accretion | 700 | 2,000 | ||
Fair value of Series A embedded derivative | $ 25,700 | $ 25,700 |
11. SERIES A WARRANTS (Details
11. SERIES A WARRANTS (Details Narrative) - Securities Purchase Agreement [Member] - Starboard Value [Member] - Series A Warrants [Member] - USD ($) $ / shares in Units, $ in Thousands | 9 Months Ended | 11 Months Ended | |
Sep. 30, 2020 | Nov. 18, 2019 | Dec. 31, 2019 | |
Securities Financing Transaction [Line Items] | |||
Warrants issued, shares | 5,000,000 | ||
Conversion price | $ 3.65 | ||
Warrants exercised | 0 | ||
Fair value of warrants | $ 5,600 | $ 3,600 |
12. SERIES B WARRANTS (Details
12. SERIES B WARRANTS (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | 2 Months Ended | 9 Months Ended | |
Feb. 25, 2020 | Sep. 30, 2020 | Sep. 30, 2019 | |
Schedule of Capitalization, Equity [Line Items] | |||
Proceeds from issuance of warrants | $ 4,600 | $ 0 | |
Series B Warrants [Member] | |||
Schedule of Capitalization, Equity [Line Items] | |||
Warrants issued, shares | 100,000,000 | ||
Conversion price | $ 5.25 | ||
Proceeds from issuance of warrants | $ 4,600 | ||
Warrant expiration date | Nov. 15, 2027 | ||
Warrants exercised | 0 | ||
Fair value of warrants | $ 42,800 |
13. SENIOR SECURED NOTES (Detai
13. SENIOR SECURED NOTES (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 5 Months Ended | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2020 | Jun. 04, 2020 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2020 | |
Offsetting Liabilities [Line Items] | |||||
Repayment of debt | $ 496 | $ 0 | |||
Series B Warrants [Member] | |||||
Offsetting Liabilities [Line Items] | |||||
Unamortized Discount | $ 532 | 697 | |||
Series A Redeemable Convertible Stock [Member] | |||||
Offsetting Liabilities [Line Items] | |||||
Accrued and unpaid dividends | $ 0 | $ 0 | |||
Senior Secured Notes [Member] | Merton [Member] | |||||
Offsetting Liabilities [Line Items] | |||||
Interest Rate | 6.00% | ||||
Maturity Date | Dec. 31, 2020 | ||||
Series A redeemable convertible preferred stock, par value | $ 0.001 | $ 0.001 | |||
Discount | $ 500 | $ 500 | |||
Senior Secured Notes [Member] | Merton [Member] | Series B Warrants [Member] | |||||
Offsetting Liabilities [Line Items] | |||||
Original Issue Discount | 1,300 | 1,300 | |||
Remaining discount | 632 | 632 | |||
Senior Secured Notes [Member] | Merton [Member] | Series A Redeemable Convertible Stock [Member] | |||||
Offsetting Liabilities [Line Items] | |||||
Accrued and unpaid dividends | 1,700 | 1,700 | |||
Securities Purchase Agreement [Member] | Senior Secured Notes [Member] | |||||
Offsetting Liabilities [Line Items] | |||||
Proceeds from issuance of debt | $ 115,000 | ||||
Repayment of debt | 80,000 | $ 35,000 | |||
Interest Rate | 10.00% | ||||
Exchange Agreement [Member] | Senior Secured Notes [Member] | Merton [Member] | |||||
Offsetting Liabilities [Line Items] | |||||
Repayment of debt | 80,000 | ||||
Principal amount | $ 115,000 | 115,000 | |||
Payment of lenders fees | 4,600 | ||||
Payment of other issuance costs | 500 | ||||
Exchange Agreement [Member] | Senior Secured Notes 1 [Member] | Merton [Member] | |||||
Offsetting Liabilities [Line Items] | |||||
Repayment of debt | $ 35,000 |
14. LF EQUITY INCOME FUND POR_3
14. LF EQUITY INCOME FUND PORTFOLIO INVESTMENT (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items] | ||||
Change in fair value of investment | $ (3,081) | $ (4,266) | $ 3,704 | $ 9,622 |
Gain on sale of prepaid investment and derivative | 2,845 | 0 | 2,845 | 0 |
Net realized and unrealized gain (loss) on investment | (3,081) | (5,181) | 942 | 1,475 |
Trading Securites Lf Fund Public Securities [Member] | ||||
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items] | ||||
Change in fair value of investment | 3,403 | 0 | 2,334 | 0 |
Equity Securities Derivative [Member] | ||||
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items] | ||||
Change in fair value of investment | 10,651 | 0 | 17,542 | 0 |
Equity Securities L F Fund Private Securities [Member] | ||||
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items] | ||||
Change in fair value of investment | 80,896 | 0 | 80,896 | 0 |
Equity Securities Forward Contract [Member] | ||||
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items] | ||||
Change in fair value of investment | (74,662) | 0 | 0 | 0 |
Trading Securities L F Fund Public Securities [Member] | ||||
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items] | ||||
Gain (loss) on sale of trading securities | 1,908 | 0 | (4,202) | 0 |
Trading Securites Lf Fund Securities [Member] | ||||
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items] | ||||
Net realized and unrealized gain (loss) on investment | $ 25,041 | $ 0 | $ 99,415 | $ 0 |
14. LF EQUITY INCOME FUND POR_4
14. LF EQUITY INCOME FUND PORTFOLIO INVESTMENT (Details Narrative) - Option Agreement [Member] - Portfolio Companies [Member] - USD ($) $ in Thousands | 3 Months Ended | 5 Months Ended | |
Sep. 30, 2020 | Apr. 03, 2020 | Jun. 04, 2020 | |
Offsetting Liabilities [Line Items] | |||
Payment to acquire equity securities | $ 277,500 | ||
Gain on sale of deriviative | $ 2,800 | ||
United Kingdom, Pounds | |||
Offsetting Liabilities [Line Items] | |||
Payment to acquire equity securities | $ 223,900 | ||
Return on prepayment | 4,500 | ||
Proceeds from sale of securities | $ 33,000 |