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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________ 

______________________
FORM 10-K

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBERDecember 31, 2017

2022
OR

oTRANSACTIONTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO           .

___________TO ___________.
Commission File Number 0-26068001-37721
__________________________________________
actg-20221231_g1.jpg
(Exact name of registrant as specified in its charter)
DELAWAREDelaware95-4405754
(State or other jurisdiction of(I.R.S. Employer
incorporation organization)Identification No.)
767 Third Avenue,
520 NEWPORT CENTER DRIVE, 12TH FLOOR 6th Floor
NEWPORT BEACH, CANew York,92660
NY10017
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (949) 480-8300

(332) 236-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common Stock $0.001 par valueACTGThe NASDAQNasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None
__________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes £ oNo Rx
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £o No Rx

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes Rx No £o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R xNo £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  R

o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filero
o
Accelerated filer xo
Non-accelerated filer o (Do not check if a smaller reporting company)
x
Smaller reporting company  ox
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes £o No Rx

The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant on June 30, 2017,2022, the last business day of the registrant’s most recently completed second fiscal quarter, computed by reference to the last sale price of the registrant’s common stock as reported by The Nasdaq Global Select Market on such date, was approximately $202,307,000.$200,589,000. This computation assumes that all executive officers and directors are affiliates of the registrant. Such assumption should not be deemed conclusive for any other purpose.
As of March 1, 2018, 50,637,88213, 2023, 58,569,131 shares of common stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
In accordance with General Instruction G(3) to Form 10-K, portionsPortions of the registrant’s Definitive Proxy Statement on Schedule 14A for its 2023 Annual Meeting of Stockholders to be filed with the Commission within 120 days after the close of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into Part III of this Annual Report on Form 10-K. Such Definitive Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. Only those portions of the proxy statement that are specifically incorporated by reference herein shall constitute a part of this Annual Report on Form 10-K.


Table of Contents




ACACIA RESEARCH CORPORATION
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 20172022
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PART I
Business
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Properties
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PART II
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Selected Financial Data
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PART IV
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PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

As usedThis Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. To the extent that statements in this Annual Report on Form 10-K “we,” “us” and “our” refer to Acacia Research Corporation and/or its wholly and majority-owned operating subsidiaries.  All patent portfolio investments, development, licensing and enforcement activities are conducted solely by certainnot recitations of our wholly owned operating subsidiaries.

This Annual Report on Form 10-K, or the annual report, containshistorical fact, such statements constitute forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which, include, without limitation, statements about our future business operations and results, our strategies and competition, and other forward-looking statements included in this annual report. Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms or the negative of such terms. Such statements are based on management’s current expectations and are subject to a number ofdefinition, involve risks and uncertainties whichthat could cause actual results to differ materially from those described inexpressed or implied by such statements. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Throughout this Annual Report on Form 10-K, we have attempted to identify forward-looking statements. Such statements address future eventsby using words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecasts,” “goal,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” or other forms of these words or similar words or expressions or the negative thereof, although not all forward-looking statements contain these terms. Forward-looking statements include statements regarding, among other things, our business, operating, development, investment and conditions concerning earnings,finance strategies, our relationship with Starboard Value LP, the Recapitalization (as defined below), acquisition and development activities, financial results of our acquired businesses, intellectual property, licensing and enforcement activities, other related business activities, capital expenditures, earnings, litigation, competition, regulatory matters, stock price volatility,markets for our services, liquidity and capital resources and accounting mattersmatters. Forward-looking statements are subject to substantial risks and investments. Actualuncertainties that could cause our future business, financial condition, results of operations or performance to differ materially from our historical results or those expressed or implied in each case couldany forward-looking statement contained herein. All of our forward-looking statements include assumptions underlying or relating to such statements and are subject to numerous factors that present considerable risks and uncertainties, including, without limitation:
•Costs related to acquiring additional operating businesses and intellectual property;
•Any inability to retain employees and management teams of our operating businesses;
•Any inability to successfully run our platform and integrate our operating businesses;
•Facts that are not revealed in the due diligence process in connection with new acquisitions;
•Any determination that we may be deemed to be an investment company under the Investment Company Act of 1940, as amended;
•Disruptions or uncertainty caused by changes to the Company’s management team and board of directors;
•Disruptions, delays caused by outsourcing services to third-party service providers;
•Changes in legislation, regulations, and rules associated with patent and tax law;
•Cybersecurity incidents, including cyberattacks, breaches of security and unauthorized access to or disclosure of confidential information;
•Delays in, or any failure to complete, the Recapitalization;
•Fluctuations in patent-related legal expenses;
•Findings by any relevant patent office that our patents are invalid or unenforceable;
•Our ability to retain legal counsel in connection with enforcement of our intellectual property;
•Delays in successful prosecution, enforcement, and licensing of our patent portfolio;
•Any inability of our operating businesses to protect their intellectual property;
•Any inability of our operating businesses to develop new products and enhance existing products;
•The loss of any Printronix major customers that generates a large portion of its revenue;
•Any supply chain interruption or inability to manage inventory levels of our operating businesses;
•Printronix’s inability to perform satisfactorily under service contracts; and
•Events that are outside of our control, such as political conditions and unrest in international markets, terrorist attacks, malicious human acts, hurricanes and other natural disasters, pandemics, including the COVID-19 pandemic, and other similar events.
We have based our forward-looking statements on management’s current expectations and projections about trends affecting our business and industry and other future events. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. For additional information related to the risks and uncertainties that may cause actual results to differ materially from those anticipatedexpressed or implied in suchthe forward-looking statements, by reasonrefer to “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of factors such
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Financial Condition and Results of Operations” herein. In addition, actual results may differ as future economic conditions, legislative, regulatorya result of additional risks and competitive developments in markets inuncertainties of which we are currently unaware or which we do not currently view as material to our business.
The forward-looking statements included herein and our subsidiaries operate,the above described risks, uncertainties and other circumstances affecting anticipated revenues and costs,factors speak only as more fully disclosed in our discussion of “Risk Factors” in Item 1A of Part Ithe date of this annual report. WeAnnual Report on Form 10-K, and we expressly disclaim any obligation or undertaking to release publiclydisseminate any updates or revisions to any forward-looking statementsstatement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based. Additional factorsReaders are cautioned not to place undue reliance on any forward-looking statement.
ITEM 1. BUSINESS
General
Acacia Research Corporation (the “Company,” “we,” “us,” or "our") is an opportunistic capital platform that could cause such resultspurchases businesses based on the differentials between public and private market valuations. We use a wide range of transactional and operational capabilities to differ materially from those describedrealize the intrinsic value in the forward-looking statementsbusinesses that we acquire. Our ideal transactions include the acquisition of public or private companies, the acquisition of divisions of other companies, or structured transactions that can result in the recapitalization or restructuring of the ownership of a business to enhance value.
We are set forthparticularly attracted to complex situations, where value is not fully recognized in the public markets, where values of certain operations are masked by a diversified business mix, or where private ownership has not invested capital necessary to drive long-term value. We aim to operate a transactional platform through which we can initiate a strategic block position in public companies as a path to complete whole company acquisitions or strategic transactions that unlock value. We believe this business model is differentiated from private equity funds, which do not typically own public securities prior to acquiring companies, hedge funds, which do not typically acquire entire businesses, and other acquisition vehicles such Special Purpose Acquisition Companies, which are narrowly focused on completing one singular, defining acquisition.
Our focus is companies with market values in the sub-$2 billion range and particularly on businesses valued at $1 billion or less. We are, however, opportunistic, and may pursue acquisitions that are larger under the right circumstance.
We believe the Company has the potential to develop advantaged opportunities due to its:
•disciplined focus on identifying opportunities where the Company can be an advantaged buyer, initiate a transaction opportunity spontaneously, avoid a traditional sale process and complete the purchase of a business, division or other asset at an attractive price;
•willingness to invest across industries and in off-the-run, often misunderstood assets that suffer from a complexity discount;
•relationships and partnership abilities across functions and sectors; and
•strong expertise in corporate governance and operational transformation.
Our long-term focus positions our businesses to navigate difficult cycles and allows sellers and other counterparties to have confidence that a transaction is not dependent on achieving the types of performance hurdles demanded by private equity sponsors. We consider opportunities based on the attractiveness of the underlying cash flows, without regard to a specific fund life or investment horizon. Further, as a publicly traded company, we can offer sellers or employees straightforward equity participation in the ongoing business.
Currently, we are a principal in the licensing and enforcement of patent portfolios, with our operating subsidiaries obtaining the rights in the patent portfolio or purchasing the patent portfolio outright through our Patent Licensing, Enforcement and Technologies Business. We own and operate a leading manufacturer and distributor of industrial impact printers, also known as line matrix printers, and related consumables and services through our Industrial Operations Business, and we continue to monetize assets from our Life Sciences Portfolio (as defined below).
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People, Process and Performance
Our investment platform is built on the principles of People, Process and Performance. We have built a management team with demonstrated expertise in Research, Transactions and Execution, and Operations and Management of our targeted acquisitions. We believe our priorities and skills underpin a compelling value proposition for operating businesses, partners and future acquisition targets, including:
•the flexibility to consummate transactions using financing structures suited to the opportunity and involving third-party transaction structuring as needed;
•the ability to deliver ongoing financial and strategic support; and
•the financial capacity to maintain a long-term outlook and remain committed to a multi-year business plan.
Relationship with Starboard Value, LP
Our strategic relationship with Starboard Value, LP (“Starboard”) provides us access to industry expertise, and operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of such businesses once acquired. Starboard has provided, and we expect will continue to provide, ready access to its extensive network of industry executives and, as part of our relationship, Starboard has assisted, and we expect will continue to assist, with sourcing and evaluating appropriate acquisition opportunities.
Recapitalization
On October 30, 2022, the Company entered into a Recapitalization Agreement (the “Recapitalization Agreement”) with Starboard and certain funds and accounts affiliated with, or managed by, Starboard (collectively, the “Investors”), pursuant to which, among other things, the Company and Starboard agreed to enter into a series of transactions (the “Recapitalization”) to restructure Starboard’s existing investments in the Company in order to simplify the Company’s capital structure. Under the Recapitalization Agreement, the Company and Starboard agreed to take certain actions in connection with the forward-looking statements.Recapitalization. For a detailed description of the Recapitalization and the actions taken and contemplated to be taken in connection therewith, see Note 8 to the consolidated financial statements and to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information.

Core Corporate Development and Investment Approach

Going forward, we plan to continue focusing on creating transactions where we are able to acquire operating businesses and strategic assets that we believe are undervalued. Our expertise in, and experience with, complex situations enables us to discover and structure opportunities that are attractive for our shareholders and the leadership of the businesses we purchase. We utilize our capabilities across Research, Transactions and Execution, and Operations and Management to drive the discovery, investment, acquisition and integration of such target opportunities.
Research
ITEM 1.  BUSINESS

General

Through our Research platform we identify companies, both public and private, at an appreciable discount to intrinsic value. We have a broad mandate, with a particular interest in businesses operating in mature technology, industrial, healthcare and certain financial services sectors.
We partnerbelieve attractive opportunities will continue to present themselves as publicly owned businesses can be misunderstood due to strategic misalignment such as an incompatible business mix or misdirected capital allocation strategy. We also see opportunities as large corporate owners seek to divest non-core operations. Overall, our acquisition pipeline is robust, and is a product of our public market research expertise, as well as our private market sourcing process.
The success of our strategy depends on our ability to properly identify acquisition candidates. Our approach often involves the concept of “applied investment banking”, whereby we can leverage our ability to understand complex situations,
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identify a path to value creation through deal structuring, and invest capital to drive such outcomes. Identifying these situations involves:
•engaging in a substantial amount of detailed fundamental research, both internally and in conjunction with inventorsthird-parties;
•critically evaluating management teams;
•identifying and patent owners, applying our legalassessing financial and technology expertiseoperational strengths and weaknesses absolutely and relative to patent assets to unlock the financial value in their patented inventions. We are an intermediaryindustry competitors;
•researching and evaluating relevant industry information; and
•thoughtfully negotiating acquisition terms and conditions.
Transactions and Execution
Once we identify a favorable opportunity, we may purchase a strategic block of shares in the patent marketplace, bridgingtarget company, if publicly traded. From that point, the gap between inventionprocess of consummating a transaction or acquisition can be time-consuming and application,complex, taking months if not a year or longer to complete.
During that time we will continue to leverage our management team’s experience and facilitating efficiencyexpertise in connection withresearching and valuing prospective target businesses, as well as negotiating the monetizationultimate acquisition of patent assets. such target businesses. We will also leverage the extensive networks of our operating partners, who are essential partners in identifying and executing acquisitions and managing for value creation.
We also identifyregularly review our portfolio for opportunities to partner with high-growth and potentially disruptive technology companies. These partnerships usually involve an equity or debt investment by us, along with entering into intellectual property, or IP, related agreements where we provide IP and other patent related services to these companies. We leverage our experience, expertise, data and relationships developed as a leaderbuild long-term shareholder value, which may result in the IP industrydivestiture of certain businesses over time.
Operations and Management
Our operational strategy involves identifying critical operating management either within the businesses or divisions we acquire or from our extensive executive network. We support the management teams of each of our acquired businesses by, among other things:
•financing internal growth strategies;
•supporting attractive external growth and acquisition opportunities;
•providing resources to pursue these opportunities. assist management in controlling overhead costs and leveraging platform-wide resources;
•implementing operational efficiencies; and
•sharing best practices across our portfolio companies.
Equity Securities Portfolio Investment
As an example of our opportunistic approach and flexibility, in early 2020, our research into the potential acquisition of a life science company led to the discovery of the "Life Sciences Portfolio", a portfolio of life science investments available for purchase at a substantial discount to realizable asset value.We negotiated an exclusive option to acquire the portfolio in April 2020, during a period of substantial uncertainty in the public markets in the early phase of the COVID-19 pandemic.In some cases, these opportunities will complement, and/or supplement our primary licensingJune 2020, we consummated the acquisition of the Link Equity Income Fund, a portfolio of investments in 18 public and enforcement business.

We generate revenuesprivate life sciences companies.That purchase was funded with a combination of available cash and related cash flowscapital from the granting of intellectual property rightsStarboard, for the use of patented technologies that our operating subsidiaries control or own. We assist patent owners with the prosecution and development of their patent portfolios, the protection of their patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and, where necessary, with the enforcement against unauthorized users of their patented technologies through the filing of patent infringement litigation. Currently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios, which include U.S. patents and certain foreign counterparts, covering technologies used in a variety of industries.

We have established a proven track record of licensing and enforcement success with over 1,550 license agreements executed to date, across 193 patent portfolio licensing and enforcement programs. To date, we have generated gross licensing revenuetotal of approximately $1.4 billion,$282.0 million at the time of acquisition.Since the closing, equity markets have recovered, we sold a substantial number of these positions, and have returned more than $731 million to our patent partners.

Corporate Information
We were originally incorporated in California in January 1993 and reincorporated in Delaware in December 1999. Our website address is www.acaciaresearch.com. Reference in this annual report to this website address does not constitute incorporation by referenceimportantly, two of the information contained on or accessed through our website and referencesprivate company holdings completed successful initial public offerings, which enabled us to our website addressrealize gains.Through the end of 2022, we received proceeds of $504.3 million as we monetized the Life Sciences portfolio. We retained an investment in this annual report are inactive textual references only. We make our filings with the Securities and Exchange Commission, or the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form


8-K, other reports filed or furnished pursuantLife Sciences Portfolio valued at $68.4 million at December 31, 2022. Refer to Section 13(a) or 15(d) of the Exchange Act, and amendmentsNote 3 to the foregoing reports, available freeconsolidated financial statements elsewhere
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herein for additional information and to the SEC. In addition, we post the following information on our website:
our corporate code of conduct, our code of conduct for our board of directors and our fraud policy;
our insider trading policy; 
charters for our audit committee, nominating and corporate governance committee, disclosure committee and compensation committee; and
applicable dividend related tax forms.
The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.

Patent Licensing and Enforcement Business

We invest in, license and enforce patented technologies. We partner with inventors and patent owners, applying our legal and technology expertise to patent assets to unlock the financial value in their patented inventions. We are an intermediary in the patent marketplace, bridging the gap between invention and application, and facilitating efficiency in connection with the monetization of patent assets.

We generate revenues and related cash flows from the granting of intellectual property rights for the use of patented technologies that our operating subsidiaries control or own. We assist patent owners with the prosecution and development of their patent portfolios, the protection of their patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and, where necessary, with the enforcement against unauthorized users of their patented technologies through the filing of patent infringement litigation.

Refer to the section entitledItem 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below for a partial summary of patent portfolios owned or controlled by certain of our operating subsidiaries.additional information for the applicable periods presented.

Our Operations
Patents are an important asset class worldwide. Due to legislativeIntellectual Property Operations - Patent Licensing, Enforcement and regulatory changes, licensingTechnologies Business
We invest in intellectual property ("IP") and enforcing patents has become increasingly difficult for patent holders, necessitating an experienced, well-capitalized, licensing partner. We have partnered with patent owners, including individual inventors, universities, and large multi-national corporations in a variety of technology sectors. These patent owners may have possessed limited internal resources and/or expertise to effectively address the unauthorized use of their patented technologies, or may seek to effectively and efficiently monetize their portfolio of patented technologies on an outsourced basis.

Under U.S. law, a patent owner has the right to exclude others from making, selling or using their patented invention. A third-party infringes a patent by making, offering for sale, selling, or using a patented invention without a license from the patent owner. Unfortunately,engage in the majority of cases, infringers are generally unwilling, at least initially, to negotiate or pay reasonable license fees for their unauthorized use of third-party patents and will typically indiscriminately challenge any allegations of patent infringement. Inventors and/or patent holders without sufficient legal, financial and/or expert technical resources to bring and continue the pursuit of costly and complex patent infringement actions are often effectively ignored.

As a result of the common reluctance of patent infringers to negotiate and ultimately take a patent license for the use of patented technologies without at least the threat of legal action, patent licensing and enforcement often begins with the filing of patent infringement litigation. However, most patent infringement litigation settles out of court at amounts that are related to the strength of the patent portfolio and the value of the invention or inventions in the infringer’s products or services. We execute agreements that grant rights in our patents to users of our patented technologies. Our agreements can be negotiated without the filing of patent litigation, or negotiated within the context of ongoing patent litigation, depending on the specific factsThrough our Patent Licensing, Enforcement and circumstances.

WeTechnologies Business we are a principal in the licensing and enforcement effort,of patent portfolios, with our operating subsidiaries obtaining control of the rights in the patent portfolio or control ofpurchasing the patent portfolio outright. Our relationshipWhile we, from time to time, partner with inventors and patent owners, is the cornerstone of our corporate strategy. Wefrom small entities to large corporations, we assume all responsibility for advancing operational expenses while pursuing a patent licensing


and enforcement program, and then, whenprogram. When applicable we share net licensing revenue with our patent partners as that program matures, on a pre-arranged and negotiated basis. We may also provide upfront capital to patent owners as an advance against future licensing revenue.

While that business saw activity slow significantly in 2018 and early 2019, beginning in late 2019, we began to commit modest amounts of capital to acquiring new portfolios, and have since successfully acquired the rights to five noteworthy new patent portfolios for aggregate consideration of approximately $46.9 million from 2019 to 2022.
Patent Licensing Business ModelCurrently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios, which include U.S. patents and Strategy - Overview

certain foreign counterparts, covering technologies used in a variety of industries. We generate revenues and related cash flows from the granting of IP rights for the use of patented technologies that our operating subsidiaries control or own.
We have the flexibility to structure arrangements inestablished a numberproven track record of ways to address the needs and specific sets of circumstances presented by each of our unique patent partners, examples of which include the following:


Generally, we maintain a 100% preferred rate of return until all deployed capital and advanced operational costs are recovered by us. After recovery of these costs, the net profit revenue share with patent partner commences, if applicable.

Key Elements of Business Strategy

Patent licensing and enforcement can be an effective and efficient waysuccess with over 1,600 license agreements executed to maximize the profit potentialdate as of aDecember 31, 2022, across nearly 200 patent or patents, that are being practiced by third-parties without authorization. A patent license agreement grants a third-party user of an invention specific patent rights to the patented invention in exchange for patent license fees. Our patent licensing business provides patent holders with an opportunity to generate income from their patented inventions being practiced by third-parties without authorization and from third-parties that desire to practice their patented inventions with authorization. Our patentportfolio licensing and enforcement business strategy includes three fundamental elements,programs. As of December 31, 2022, we have generated gross licensing revenue of approximately $1.7 billion, and have returned $849.2 million to our patent partners.
Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information concerning our Patent Licensing, Enforcement and Technologies business.
Industrial Operations Business
In October 2021, we consummated our first operating company acquisition of Printronix Holding Corp. (“Printronix”). Printronix is a leading manufacturer and distributor of industrial impact printers, also known as follows:

Patent Discovery - Discover potentially valuable patents or patent portfolios.
Assessmentline matrix printers, and related consumables and services. Printers consist of Economic Value - Work internallyhardware and embedded software and may be sold with external experts to evaluate the usemaintenance service agreements, which are serviced by outside contractors. Printronix’s line matrix printers are used for mission critical applications within these industries, including labeling and inventory management, build sheets, invoicing, manifests and bills of the patented invention(s)lading, and reporting. In China, India and other developing countries in Asia and Africa, our printers are also prevalent in the relevant marketplacebanking and assess a patents government sectors. Printronix has manufacturing, configuration and/or patent portfolios’ expected economic value.

Licensingdistribution sites located in Malaysia, the United States, Singapore, China and Enforcement - License thosethe Netherlands, along with sales and support locations around the world to support its global network of users, wantingchannel partners, and strategic alliances. Consumable products include inked ribbons which are used within Printronix's printers. Printronix’s products are primarily sold through Printronix’s global network of channel partners, such as dealers and distributors, to utilize the patented invention with authorization. For unauthorized users of the patented invention, enter into license negotiations and, if necessary, litigation to monetize the patent based on its assessed value.

Patent Discovery. The patent process breeds, encourages and sustains innovation and invention by granting a limited monopoly to the inventor in exchange for sharing the invention with the public. Certain technologies, become core technologies in the way products and services are manufactured, sold or delivered by companies across a wide array of industries. Patent discovery involves identifying core, patented technologies that have been or are anticipatedend‐users. This acquisition was made at what we believe to be widely adopted by third-partiesan attractive purchase price, and we are now supporting existing management in connection with the manufacture, sale or useits execution of productsstrategic partnerships to generate growth.
Refer to Item 7. “Management’s Discussion and services.Analysis of Financial Condition and Results of Operations” for additional Industrial Operationsinformation.

Assessment of Economic Value. Subsequent to the patent discovery process, our executives work internally and/or with external industry experts in the specific technology field, to evaluate the patented invention and its adoption and implementation in the marketplace. There are a number of factors to consider when analyzing a patent and determining a patent’s value including, (i) infringement, (ii) validity and (iii) enforceability.

To determine infringement, we must first identify third-parties that are practicing the invention(s) covered by the patent without obtaining permission from the patent owner to do so. A key tool in determining whether or not a company is infringing a patent is a claim chart, which demonstrates how the manufacture, sale, or use of an existing product compares against the claims of the patent.



The three main factors analyzed to determine validity are: (1) anticipation, which occurs when the claims of the patent are entirely revealed within a single piece of prior art, (2) obviousness which considers whether the differences between prior art and the patented invention are so slight that they would have been obvious at the time of invention to one who is skilled in the subject matter being patented, and (3) the existence of non-patentable subject matter, which considers whether the subject matter includes naturally occurring things, abstract concepts, or algorithms that perform an ordinary function.

To determine enforceability, a number of factors are analyzed, including whether or not there has been patent misuse, or whether or not there are antitrust violations associated with the patent. Due to the inherently complex nature of patent law, only a court or specific administrative body, such as the International Trade Commission, can make a decision whether a patent is infringed, valid and enforceable; however, we employ our wealth of expertise to make the best assessment possible given a specific fact pattern and set of circumstances.

Competition
We estimateface intense competition in identifying, evaluating and executing strategic acquisitions from other entities having a patent’s economic value bybusiness objective similar to ours, including private equity groups and operating businesses seeking strategic acquisitions. We compete with financial firms, corporate buyers and others investing in strategic opportunities. Many of these competitors may have greater financial and human capital resources than we have. Additionally, our Patent Licensing,
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Enforcement and Technologies Business faces intense competition in identifying, evaluating the expected value of the license revenue stream based on past, present and future revenue of infringing products or services,executing strategic acquisitions from other entities having similar business objectives. We compete with financial firms, corporate buyers and the risk that a court will disagree with our infringement, validity or enforcement assessments of the patent. The processesothers investing in strategic opportunities and procedures employed in connection with the evaluation of a specific patent portfolio for future investment, licensing and enforcement are tailored and unique to each specific situation and can vary widely based on the specific facts and circumstances of a specific patent portfolio, such as the related technology, related industry and other factors.

Neither we nor our operating subsidiaries invent new technologies or products; rather, we depend upon the identification and investment in patents, inventions and companies that own intellectual property through our relationships with inventors, universities, research institutions, technology companies and others. If our operating subsidiaries are unable to maintain those relationships and identify and grow new relationships, then we may not be able to identify new technology-based patent opportunities for sustainable revenue and /or revenue growth.
Our current or future relationships may not provide the volume or quality of technologies necessary to sustain our licensing, enforcement and overall business. In some cases,acquiring IP. Additionally, universities and other technology sources compete against us as they seek to develop and commercialize technologies. Universitiestechnologies and may receive financing for basic research in exchange for the exclusive right to commercialize resulting inventions. These and other strategies employed by potential partners may reduce the number of technology sources and potential clients to whom we can market our solutions. If we are unable to maintain current relationships and sources of technology or to secure new relationships and sources of technology, such inability may have a material adverse effect on our revenues, operating results, financial condition and ability to maintain our licensing and enforcement business.

For example, we obtained control of only one, two and three new patent portfolios during fiscal years 2017, 2016 and 2015, respectively, compared to 6 new patent portfolios and 25 new patent portfolios in fiscal years 2014 and 2013, respectively. This decrease in our patent portfolio intake reflects in part our strategic decision in 2013 to shift the focus of our operating business to serving a smaller number of customers, each having higher quality patent portfolios. As a result, our gross number of patent portfolio acquisitions has decreased significantly. This decrease in our patent portfolio intake also reflects in part industry trends impacting our ability to acquire patent portfolios. For example, legislative and legal changes have increased the complexity of patent enforcement actions and may significantly affect the market availability of suitable patent portfolios for acquisition. As a result of these continuing industry trends, our recent and future patent portfolio intake has been and may continue to be negatively impacted, resulting in further decreases in future revenue generating opportunities, and continued negative adverse impacts on the sustainability of our licensing and enforcement business. We continue to experience significant adverse challenges with respect to our patent intake efforts, and if these adverse challenges continue, our licensing and enforcement revenues will continue to decline and we will be unable to profitably sustain our licensing and enforcement business going forward.

As a result of the foregoing, we continue to evaluate other business opportunities which compliment, or supplement, our primary licensing and enforcement business and leverage our intellectual property expertise, as described below, including our continued efforts to identify and partner with potentially high-growth and disruptive technology companies.

Licensing and Enforcement. The final step in the patent licensing and enforcement process is to seek to monetize the patent portfolio by securing license agreements based on the patents use in the marketplace and estimated value. While we prefer to convince unauthorized users of our patented inventions of the value of the patented invention and secure a license agreement in a non-litigious manner, many infringers refuse to take such licenses even when confronted with substantial and persuasive evidence of infringement, validity, enforceability and significant economic value. As a result, often we must resort to litigation to demonstrate and prove infringement and ultimately induce infringers to take a license from us. We have found it


effective to negotiate licenses concurrently with litigation due to the fact that litigation necessitates and facilitates an information exchange that helps both sides assess the value of a patent and make informed decisions. Also, litigation eventually leads to a court’s judgment. When a court agrees with our assessment of a patent, this judgment stops recalcitrant infringers from utilizing our patented technology indefinitely, without appropriate authorization.

We engage highly competent and experienced patent lawyers to prosecute our patent portfolio litigation. It is imperative for us to be persistent and patient throughout the litigation process as it typically takes 18-36 months from the filing date of a lawsuit to yield a license agreement from a potential licensee. Often, it takes longer to secure a final court judgment.

Patent license negotiations and litigation initiated by our operating subsidiaries usually lead to serious and thoughtful discussions with the unauthorized users of the patented inventions.  The result can be quite favorable with the user being granted rights under the patents for the patented invention in its products and services in exchange for financial remuneration.

Partnership Opportunities

Our team’s expertise in identifying and evaluating complex IP, and in developing and cultivating long-term business relationships, provides us a unique window into innovation and technological advancement. We have increased our efforts to leverage our expertise and experience to create new avenues which we believe will lead to increased shareholder value.

In this regard, we leverage our experience, expertise, data and relationships developed as a leader in the IP industry to pursue opportunities to partner with high-growth companies in potentially disruptive technology areas. Examples of some of these technology areas include Artificial Intelligence, or AI, and machine learning, machine vision, robotics and blockchain technologies. Examples of our initial execution of this strategy are our partnerships with Veritone, Inc., or Veritone (Nasdaq: VERI), and Miso Robotics, Inc., or Miso Robotics.

In June 2017, we partnered with Miso Robotics, an innovative leader in robotics and AI solutions, which included an equity investment totaling $2.25 million, as part of Miso Robotics’ closing of $3.1 million in Series A funding. In addition, in February 2018, we made an additional strategic equity investment totaling $6.0 million in the Series B financing round for Miso Robotics. Miso Robotics will use the capital to expand its suite of collaborative, adaptable robotic kitchen assistants and to broaden applications for Miso AI, the company’s machine learning cloud platform. In addition, we also entered into an IP services agreement with Miso Robotics to help the company drive AI-based solutions for the restaurant industry. Our partnership with Miso Robotics represents our second partnership with companies seeking to transform the marketplace through Artificial Intelligence.

In August 2016, we announced the formation of a partnership with Veritone, a leading cloud-based Artificial Intelligence technology company that is pioneering next generation search and analytics through their proprietary Cognitive Media Platform™. Under the partnership, we have the ability to leverage our intellectual property expertise to assist Veritone with building its patent portfolio and executing upon its overall intellectual property strategy. In order to enhance Veritone’s leadership position in the field of machine learning and AI, we provided a total of $53.3 million in funding to Veritone pursuant to an investment agreement executed in August 2016, as amended. Upon Veritone’s consummation of its initial public offering on May 17, 2017, or IPO, our loans and accrued interest were automatically converted into shares of Veritone common stock, and we were issued an additional warrant to purchase additional shares of Veritone common stock as described elsewhere herein.
Subsequent to the year ended December 31, 2017, in January 2018, we entered into a Joint Venture and Services Agreement, or Joint Venture Agreement, with Bitzumi, a company developing macro opportunities in the cryptocurrency and blockchain industries, including a next generation decentralized exchange. Bitzumi recently filed a Regulation A Offering Statement with the Securities and Exchange Commission and a listing application with NASDAQ. We made an initial $1.0 million equity investment in Bitzumi in January 2018. Under the Joint Venture Agreement, we will provide various patent-related services to Bitzumi and have the option to invest up to an additional $9.0 million to acquire Bitzumi common stock. In connection with our initial investment, we received a short-term warrant to purchase $4.0 million of Bitzumi common shares. Under the Joint Venture Agreement, we have a right to acquire up to an aggregate of $10.0 million of Bitzumi common shares (inclusive of our initial $1.0 million equity investment and exercise of our short-term warrant) at a price, except as paid by us for the initial investment and the exercise price of our short-term warrant, of $2.50 per share. Upon meeting certain conditions set forth in the Joint Venture Agreement, Bitzumi will also issue us a warrant for 30,000,000 shares of Bitzumi’s common stock. Our Joint Venture Agreement with Bitzumi represents our first venture in the cryptocurrency and blockchain marketplaces.




Patented Technologies

Currently, on a consolidated basis, our operating subsidiaries own or control the rights to patent portfolios with future patent expiration dates ranging from 2018 to approximately 2033, covering technologies used in a number of industries, including: transportation and automotive, telecommunications / smartphones, communications, memory, consumer electronics, energy efficiency, wireless and imaging and diagnostics.

Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview” for a summary of patent portfolios generating revenues for the applicable periods presented.

Competition

We encounter competition in the area of patent portfolio investment opportunities and enforcement. This includes an increase in the number of competitors seeking to invest in the same or similar patents and technologies that we may seek to invest in. Existing non-practicing entities compete in acquiring rights to intellectual property assets, and more entities may enter the market in future periods.

We also compete with financial firms, corporate buyers and others acquiring IP and investing in other technology opportunities. Many of these competitors may have moregreater financial and human capital resources than us.we have. We may find more companies entering the market for similar technology opportunities, which may reduce our market share in one or more technology industries that we currently or in the future may rely upon to generate future revenue.
Information Security
CompaniesWe are highly dependent on information technology networks and systems to securely process, transmit and store electronic information. Attacks on information technology systems continue to grow in frequency, complexity and sophistication. Such attacks have become a point of focus for individuals, businesses and governmental entities. These attacks can create system disruptions, shutdowns or other entities may develop competing technologies that offer better or less expensive alternativesunauthorized disclosure of confidential information, including non-public personal information, consumer data and proprietary business information.
We remain focused on making strategic investments in information security to our patented technologies or technology partnerships. Many potential competitors may have significantly greater resources thanprotect the resources that we orclients and information systems of our operating subsidiaries possess. Such technological advances or entirely different approaches developed by one or moreand unconsolidated affiliates. This includes both capital expenditures and operating expenses on hardware, software, personnel and consulting services. As the primary products and services of our competitors could render certainoperating subsidiaries and unconsolidated affiliates evolve, we apply a comprehensive approach to the mitigation of the technologies owned or controlled by us obsolete and/or uneconomical.identified security risks. We have established risk management policies, including those related to information security and cybersecurity, designed to monitor and mitigate information security related risks.

Employees
Human Capital
As of December 31, 2017,2022, on a consolidated basis, we had 13263 full-time employees. Neither we, nor any of our subsidiaries, are a party to any collective bargaining agreement.employees and six contractors. We believe we have good relations with our employees. As of December 31, 2022, our parent company had 14 full-time employees and two contractors, our Intellectual Property Operations business had eight full-time employees and no contractors and our Industrial Operations had 241 full-time employees and four contractors.

Additionally, we have a strategic relationship with Starboard that has provided, and we expect will continue to provide, us access to industry expertise and operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of such businesses once acquired. Starboard has provided, and we expect will continue to provide, ready access to its extensive network of industry executives and, as part of our relationship, Starboard has assisted, and we expect will continue to assist with sourcing and evaluating appropriate acquisition opportunities.

Where You Can Find Additional Information
For further details of the development of our business, refer to our Annual Report on Form 10-K for the year ended December 31, 2022. Our website address is www.acaciaresearch.com. The information on our website is not part of this Annual Report on Form 10-K and is not incorporated herein by reference.
ITEM 1A. RISK FACTORS

AnOur short and long-term success is subject to numerous risks and uncertainties, many of which involve factors that are difficult to predict or beyond our control. As a result, an investment in our common stock involves risks. YouOur stockholders should carefully consider the risks described below, together with all of the other information included in this annual report,Annual Report, as well as in our other filings with the SEC,Securities and Exchange Commission (the “SEC”), in evaluating our business. The risks described below are not the only risks we face. Additional risks that we do not yet know of or that we currently believe are immaterial may also impair our business operations. If any of the followingthese risks actually occur,are realized, our business, financial condition, and results of operations, and prospects could be materially adversely affected, and the trading price of our common stock couldmay decline significantly. Certain statements below mayFurthermore, additional risks and uncertainties of which we are currently unaware, or which we currently consider to be considered forward-looking statements. For additional information, see “Cautionary Note Regarding Forward-Looking Statements.”
Risks Related to Our Business
We have a history of losses and may incur additional losses in the future.
We reported net income of $22.2 million (includes $42.2 million of unrealized equity investment gains), a net loss of $54.1 million (includes $42.3 million of noncash patent impairment charges) and a net loss of $160.0 million (includes $104.9 million of noncash goodwill and patent impairment charges) for the years ended December 31, 2017, 2016 and 2015, respectively, and on a cumulative basis, we have sustained substantial losses since our inception. As of December 31, 2017, our accumulated deficit was $320.0 million. As of December 31, 2017, we had approximately $136.6 million in cash and cash equivalents and short-term investments and working capital of $130.1 million. Although we believe that our current cash and cash equivalents and investments will be sufficient to finance our anticipated capital and operating requirements for at least the next twelve months, we expect to continue incurring significant legal, general and administrative expenses in connection with our operations. As a result, we anticipate that we may incur losses in the future. Additional increases in our expenses without commensurate increases in revenuesimmaterial, could significantly increase our operating losses. Any additional operating losses may have a material adverse effect on our business. Certain statements below constitute “forward-looking statements,” which are subject to numerous risks and uncertainties, including those described in this section. For additional information, refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” within this Annual Report.
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Risks Related to Our Business, Business Strategy, and Platform
We intend to grow our company by acquiring additional operating businesses and intellectual property assets which may not occur, and any acquisitions that we complete will be costly and could negatively affect our results of operations, and dilute our stockholders’ ownership, or cause us to incur significant expense, and we may not realize the expected benefits of our operating businesses because of difficulties related to integration.
We intend to grow our company by acquiring additional operating businesses and intellectual property assets. A significant portion of growth and success will be dependent on identifying and acquiring operating companies and intellectual property at attractive prices to realize their intrinsic value. However, there can be no assurance that we will identify attractive acquisition targets, that acquisition opportunities we identify will be available on acceptable terms or at attractive prices, or that we will be able to obtain necessary financing or regulatory approvals to complete any acquisitions.
Further, the success of any acquisition depends on, among other things, our ability to combine our business with the acquired business in a manner that does not materially disrupt existing relationships and allows us to achieve development and operational synergies.
Acquisitions involve numerous risks and uncertainties, including:
•difficulties in integrating and managing the combined operations, technology platforms, or offerings of any business we acquire, and realizing the anticipated economic, operational and other benefits of the acquisition in a timely manner, which could result in substantial costs and delays;
•failure to execute on the intended strategy and synergies;
•failure of the acquired operating businesses to achieve anticipated revenue, earnings, or cash flow;
•diversion of our management’s attention or other resources from our existing business;
•higher-than-expected earn-out payments, unforeseen transaction-related costs or delays or other circumstances such as disputes with or the loss of key or other personnel from acquired businesses;
•our inability to maintain the key customers, business relationships, suppliers, and brand potential of acquired operating businesses;
•uncertainty of entry into businesses or geographies in which we have limited or no prior experience or in which competitors have stronger positions;
•unanticipated costs associated with pursuing acquisitions or greater than expected costs in integrating the acquired businesses;
•responsibility for the liabilities of acquired businesses, including those that were not disclosed to us or exceed our estimates, such as liabilities arising out of the failure to maintain effective privacy, data protection and cybersecurity controls, and liabilities arising out of the failure to comply with applicable laws and regulations, including tax laws;
•difficulties in or costs associated with assigning or transferring to us the acquired operating business’ intellectual property or its licenses to third-party intellectual property;
•inability to maintain our culture and values, ethical standards, controls, procedures, and policies;
•challenges in integrating the workforce of acquired companies and the potential loss of key employees of the acquired companies;
•challenges in integrating and auditing the financial statements of acquired companies that have not historically prepared financial statements in accordance with Generally Accepted Accounting Principles; and
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•potential accounting charges to the extent goodwill and intangible assets recorded in connection with an acquisition, such as trademarks, customer relationships, or intellectual property, are later determined to be impaired and written down in value.
It is possible that the integration process of our acquired businesses could result in the loss of key employees; the disruption of our ongoing business or the ongoing business of the acquired operating businesses; or inconsistencies in standards, controls, procedures or policies that could adversely affect our ability to maintain relationships with third parties and employees or to achieve the anticipated benefits of the acquisition. Integration efforts between us and the acquired businesses will also require our management’s significant attention from other opportunities that could have been beneficial to our stockholders. An inability to realize the full extent of, or any of, the anticipated benefits of any acquisition, as well as any delays encountered in the integration process, could have an adverse effect on our business and results of operations, which may affect the value of the shares of our common stock after the completion of our acquisitions. If we are unable to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. In particular, our acquisitions may not be accretive to our stock value in the near or long term.
In addition, we may issue shares of our common stock or other equity securities in connection with future acquisitions of businesses and overalltechnologies. Any such issuances of shares of our common stock could result in material dilution to our existing stockholders.
We expect to incur additional costs integrating the operations of any operating business and utilizing any intellectual property assets we acquire, as we incur higher development and regulatory costs, as the case may be, and must hire relevant personnel. If the total costs of the integration or utilization of our businesses or assets exceed the anticipated benefits of the acquisition, our financial results could be adversely affected.
Accordingly, we may not succeed in addressing the risks associated with our acquisition of Printronix or any other operating business we acquire in the future. The inability to integrate successfully, or in a timely fashion, the business, technologies, products, personnel, or operations of any acquired business or utilization of any assets, could have a material adverse effect on our business, results of operations, and financial condition.

Our platform’s success is dependent on our ability to attract and retain employees and management teams of our operating businesses, the loss of any of whom could materially adversely affect our financial condition, business and results of operations.

Our platform’s business model requires qualified and competent professionals and management teams to identify and develop advantaged opportunities and to direct day-to-day activities of our operating businesses, as the case may be. Accordingly, recruiting and retaining qualified personnel is important to our platform and our operating businesses’ operations. Additionally, although our operating businesses have adequate personnel for the current business environment, unpredictable increases in demand for goods and services may exacerbate the risk of not having sufficient numbers of trained or qualified personnel, which could have a negative impact on our results of operations, financial condition and liquidity.

Our operating businesses also need qualified and competent personnel to execute their business plans and serve their customers, suppliers and other stakeholders. In order to compete, we must attract, retain, and motivate both executives and other key employees, and our failure to do so could harm our financial performance. Hiring and retaining qualified executives, engineers, technical staff, sales, marketing and support positions are and will be critical to businesses, and competition for experienced employees in the industries of our operating businesses can be intense.
To help attract, retain, and motivate qualified employees, we must offer a competitive compensation package, including cash, cash-based incentive awards and share-based incentive awards, such as restricted stock units. Because our cash-based and share-based incentive awards are dependent upon the performance conditions relating to our performance and the performance of the price our common stock, the future value of such awards are uncertain. If the anticipated value of such incentive awards does not materialize, or if the total compensation package ceases to be viewed as competitive, our ability to attract, retain, and motivate employees could be weakened, which could harm our results of operations.
Our success will further substantially depend on our ability to attract and retain key members of our management team and officers. If we lose one or more of these key employees, our results of operations, and in turn, the value of our common stock could be materially adversely affected. Although we may enter into employment agreements with our officers, there
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can be no assurance that the entire term of any employment agreement will be served or that any employment agreement will be renewed upon expiration.
The success of our platform and the integration of our operating businesses is dependent on our relationship with Starboard.
Our strategic relationship with Starboard has provided, and we expect will continue to provide, us access to industry expertise, and operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of businesses we acquire. As part of our relationship, Starboard has assisted, and is expected to continue assisting, us with sourcing and evaluating appropriate acquisition opportunities. If we or Starboard were to discontinue this relationship, we may not be able to continue to adequately source acquisition opportunities.
Additionally, the success of our platform depends on the continued availability of, and our access to, Starboard’s industry expertise and operating partners and industry experts. We do not have employment agreements with these individuals who are independent of Starboard and Starboard’s key personnel. If these individuals do not maintain their existing relationships with Starboard and its affiliates, we may not be able to identify appropriate replacements in order to continue to adequately source acquisition opportunities or manage our existing operating businesses.
The due diligence process we undertake in connection with new acquisitions of operating businesses or intellectual property assets may not reveal all material facts.
Before making acquisitions, we conduct due diligence that we deem reasonable and appropriate based on the facts and applicable circumstances. When conducting due diligence, we may be required to evaluate important and complex business, financial, tax, accounting, environmental and legal issues. Outside consultants, legal advisers, accountants and investment banks may be involved in the due diligence process in varying degrees depending on the type of business and transaction. Nevertheless, when conducting due diligence and making an assessment regarding an acquisition, we rely on the resources available to us, including information provided by the target of the transaction and, in some circumstances, third party investigations. The due diligence investigation that we carry out with respect to any opportunity may not reveal or highlight all relevant facts (including fraud) that may be necessary or helpful in evaluating such opportunity. Moreover, such an investigation will not necessarily result in the acquisition being successful. If we do not discover all material facts during due diligence, we may fail to integrate our operating businesses and execute our strategic goals, which may impact our financial performance.
Our acquisition strategy may include acquisitions of privately held companies, which provide more limited information, may be dependent on the talents and efforts of only a few key portfolio company personnel, and have greater vulnerability to economic downturns when compared to public company targets.
From time to time, we acquire, and may acquire, privately held companies. Generally, little public information exists about these companies, and we are required to rely on diligence efforts to obtain adequate information to evaluate the potential returns from investing in these companies. These companies and their financial information are not subject to the Sarbanes-Oxley Act of 2002 and other rules that govern public companies. If we are unable to uncover all material information about these companies, we may not make a fully informed decision, and we may lose money on our acquisition.
If, in the future, we cease to control and operate our operating businesses, we may be deemed to be an investment company under the Investment Company Act of 1940, as amended.
From time to time, we have made, and we may continue to make, investments in businesses that we will not operate or control. If we make significant investments in businesses we do not operate or control, or cease to operate and control our operating businesses, we may be deemed to be an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). If we were deemed to be an investment company, we would have to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC, or modify our investments or organizational structure or our contract rights to fall outside the definition of an investment company.
Registered investment companies are subject to extensive, restrictive and potentially adverse regulations that impose, among other things, (i) limitations on capital structure, including the incurrence of indebtedness or the issuance of senior securities; (ii) restrictions on specified investments; (iii) prohibitions on transactions with affiliates; and (iv) compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our
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operations. Registered investment companies are not permitted to operate their business in the manner in which we currently operate and plan to operate our business in the future.
We plan to monitor the value of our investments and structure our operations and transactions to qualify for exclusions under the Investment Company Act or to remain outside of the definition of an investment company. Accordingly, we may structure transactions in a less advantageous manner than if we did not have Investment Company Act concerns, or we may avoid otherwise economically desirable transactions due to those concerns. In addition, adverse developments with respect to our ownership of our operating subsidiaries, including significant appreciation or depreciation in the market value of certain of our publicly traded holdings, could result in our inadvertently becoming an investment company. If it were established that we were required to register as an investment company and failed to do so, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, in an action brought by the SEC and that we would be prohibited from engaging in our business activities. In addition, any contracts that we entered into during the period in which we were deemed to be operating as an unregistered investment company would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business. Our being deemed to be required to register as an investment company could also be an event of default under the terms of Notes that we have issued or may issue in the future or other material contracts.
Recent changes in the Company’s management team and board of directors, as well as ongoing arbitration related to the Company's former Chief Executive Officer, may be disruptive to, or cause uncertainty in, the Company's business, results of operations and the price of the Company’s common stock.
On September 9, 2021, the Company accepted the resignation of Alfred V. Tobia, Jr., President and Chief Investment Officer and a member of the Board of Directors of the Company (the "Board"). Mr. Tobia resigned from serving as an officer and director of the Board following his disclosure to the Company of trading in the securities of the Company and certain investments of the Company by a member of Mr. Tobia’s family.
On March 10, 2022, Martin D. McNulty Jr. joined the Company as Chief Operating Officer and Head of M&A and Wesley L. Golby was appointed to serve as Chief Investment Officer of Acacia.
In connection with the entry into the Recapitalization Agreement, on October 30, 2022, Gavin Molinelli, Partner and Portfolio Manager at Starboard was appointed as Chair of the Board to serve until the Company’s 2023 annual meeting of stockholders and until his successor is duly elected and qualified.
Effective November 1, 2022, Clifford Press resigned as the Chief Executive Officer and President of the Company, and as a member of the Board. In November 2022, the Board initiated an internal investigation into the potential misconduct of Mr. Press. The investigation, which was conducted by independent legal counsel under the direction of the Audit Committee of the Board (the “Audit Committee”) and has been completed. The investigation confirmed Mr. Press provided inaccurate information regarding certain corporate expenses and misused corporate funds for personal use, including travel and entertainment expenses. The investigation also confirmed that Mr. Press failed to follow the Board’s directive in relation to a material contract and misrepresented to the Board and his fellow Board members that he had complied with the Board’s directive. The Company has filed an arbitration demand against Mr. Press seeking restitution and other remedies for the benefit of the Company’s shareholders.
Effective November 1, 2022, Martin D. McNulty Jr., the Company’s current Chief Operating Officer and Head of M&A, was appointed interim Chief Executive Officer of the Company and will serve as the Principal Executive Officer of the Company. The Board intends to commence a search for a permanent successor.
Under the terms of the Recapitalization Agreement, (i) following the Closing (as defined below and in Note 8 to the accompanying consolidated financial statements) and until May 12, 2026, the maximum size of the Board will be increased to ten members, and (ii) effective as of the later of the Closing and the date on which none of the Notes (as defined in Note 8 to the accompanying consolidated financial statements) remain outstanding, the Governance Agreement (defined below) will be automatically terminated.
Effective November 28, 2022, Mr. Golby mutually agreed with the Company to resign from his position as the Company’s Chief Investment Officer.
On January 3, 2023, Richard Rosenstein tendered his resignation as the Chief Financial Officer, effective as of January 27, 2023 to pursue another professional opportunity.
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Effective January 28, 2023, Kirsten Hoover, the Company’s Corporate Controller, was appointed as interim Chief Financial Officer of the Company. The Board intends to commence a search for a permanent successor.
Past or future changes in the Company’s management team and to the Board, as well as the ongoing arbitration related to Mr. Press, may be disruptive to, or cause uncertainty in, the Company’s business, and any additional changes to the management team or the Board could have a negative impact on the Company’s ability to manage and grow its business effectively. Any such disruption or uncertainty or difficulty in efficiently and effectively filling key roles could have a negative impact on the Company’s results of operations and the price of the Company’s common stock.
Both we and our operating businesses outsource a number of services to third-party service providers, which are subject to disruptions, delays, and decrease in our control, which could adversely impact our results of operations.
Both we and our operating businesses outsource a number of services, including certain hosted software applications for confidential data storage and “cloud computing” technology for such storage to domestic and overseas third-party service providers. While outsourcing arrangements may lower our cost of operations, they also reduce our direct control over the services rendered. It is uncertain what effect such diminished control will have on the quality or quantity of products delivered or services rendered, on our ability to quickly respond to changing market conditions, or on our ability to ensure compliance with all applicable domestic and foreign laws and regulations.
In addition, many of these outsourced service providers, including certain hosted software applications that we use for confidential data storage, employ “cloud computing” technology for such storage. These providers’ cloud computing systems may be susceptible to “cyber incidents,” such as intentional cyber-attacks aimed at theft of sensitive data or inadvertent cyber-security compromises that are outside of our control. If we do not effectively develop and manage our outsourcing strategies, if our third-party service providers do not perform as anticipated or do not adequately protect our data from cyber-related security breaches, or if there are delays or difficulties in enhancing business processes, we may experience operational difficulties (such as limitations on our ability to ship products), increased costs, service interruptions or delays, loss of intellectual property rights or other sensitive data, quality and compliance issues, and challenges in managing our product inventory or recording and reporting financial and management information, any of which could materially and adversely affect our business, financial condition and results of operations.
We may be limited in our ability to use our net operating losses and certain other tax attributes is uncertain and may be limited.

attributes.
Our ability to use our federal and state net operating losses to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the net operating losses, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all or any portion of our net operating losses. In addition, utilization of net operating losses to offset potential future taxable income and related income taxes that would otherwise be due is subject to annual limitations under the “ownership change” provisions of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended or the Code,(the “Code”), and similar state provisions, which may result in the expiration of net operating losses before future utilization. In general, under the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating losses and other pre-change tax attributes (such as research and development credit carryforwards) to offset its post-change taxable income or taxes may be limited. Changes in our stock ownership, some of which may be outside of our control, could in the future result in an ownership change. Although we have adopted a provision in our certificate of incorporation designed to discourage investors from acquiring ownership of our common stock in a manner that could trigger a Code Section 382 ownership change, and we have completed studies to provide reasonable assurance that ana Code Section 382 ownership change limitation wouldhas not apply,occurred, we cannot be certain that a taxing authority would reach the same conclusion. If, after a review or audit, ana Code Section 382 ownership change limitation were deemed to apply,have occurred, utilization of our domestic net operating losses and tax credit carryforwards could be limited in future periods and a portion of the carryforwards could expire before being available to reduce future income tax liabilities.
On December 22, 2017, new tax legislation was signed into law. Among other things, it will reduce
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Data security and integrity are critically important to our business, and cybersecurity incidents, including cyberattacks, breaches of security, unauthorized access to or disclosure of confidential information, business disruption, or the maximum federal corporate income tax rate to 21%perception that confidential information is not secure, could result in future periods. It has also limited or eliminated certain deductions to which the Company has been entitled in past years and has reduced the value of the Company’s deferred tax assets as described elsewhere herein. Given the full valuation allowance provided for net deferred tax assets as of December 31, 2017, we do not expect the change in tax law to have a material impact on our consolidated financial statements provided herein. However, in the absenceloss of guidance on various uncertainties and ambiguities in the application of certain provisions of the new legislation, we will use what we believe are reasonable interpretations and assumptions in applying the new legislation, but it is possible that the IRS could issue subsequent guidance business, regulatory enforcement, substantial legal liability and/or take positions on audit that differ from our prior interpretations and assumptions,significant harm to their reputation, which could have a material adverse effect on our cash tax liabilities,business, financial condition and results of operations.
Improper access to, misappropriation, destruction or disclosure of confidential, personal or proprietary data could result in significant harm to our reputation or the reputation of us or of any of our operating businesses.
The security and protection of our and their data is one of our top priorities. We and our operating businesses have devoted significant resources to maintain and regularly upgrade the wide array of physical, technical and contractual safeguards that we and they employ to provide security around the collection, storage, use, access and delivery of information we and they possess. We and they have implemented various measures to manage their risks related to system and network security and disruptions, but an actual or perceived security breach, a failure to make adequate disclosures to the public or relevant agencies following any such event or a significant and extended disruption in the functioning of its information technology systems could damage our or one of our operating businesses’ reputation and cause us to lose opportunities or them to lose clients, adversely impact our operations, sales and results of operations and financial condition.require us or them to incur significant expense to address and remediate or otherwise resolve such issues.

IfAlthough neither we encounter unforeseen difficulties withnor our business have incurred material losses or operations in the future that require usliabilities to obtain additional working capital, and we cannot obtain additional working capital on favorable terms, or at all, our business may suffer.

Our consolidated cash and cash equivalents and short-term investments totaled $136.6 million and $158.5 million at December 31, 2017 and 2016, respectively. To date we have relied primarily upon net cash flows from our operations and from the public and private sale of equity securities to generate the working capital needed to finance our operations. We may encounter unforeseen difficulties with our business or operations in the future that may deplete our capital resources more rapidly than anticipated. Asas a result we may be requiredof any breaches, unauthorized disclosure, loss or corruption of our or their data or inability of their clients to obtain additional working capitalaccess their systems, such events could result in the future through bank credit facilities, publicintellectual property or private debtother confidential information being lost or equity financings,stolen, including client, employee or otherwise.business data, disrupt their operations, subject us or them to substantial regulatory and legal proceedings and potential liability and fines, result in a material loss of business and/or significantly harm our or their reputation. If we are requiredunable to raise additional working capitalefficiently manage the vulnerability of our systems and effectively maintain and upgrade system safeguards, we and they may incur unexpected costs and certain of our or their systems may become more vulnerable to unauthorized access.
Due to concerns regarding data security and integrity, a growing number of legislative and regulatory bodies have adopted breach notification and other requirements in the future,event that information subject to such financing maylaws is accessed by unauthorized persons and additional regulations regarding the use, access, accuracy and security of such data are possible. Complying with such numerous and complex regulations can be unavailableexpensive and difficult, and failure to comply with these regulations could subject us on favorableto regulatory scrutiny and liability. In many jurisdictions, including North America and the European Union, Printronix is subject to laws and regulations relating to the collection, use, retention, security and transfer of this information including the European Union General Data Protection Regulation (“GDPR”). California also enacted legislation, the California Consumer Privacy Act of 2018 (“CCPA”) and the related California Privacy Rights Act (“CPRA”) that afford California residents expanded privacy protections and a private right of action for security breaches affecting their personal information. These and other similar laws and regulations are frequently changing and are becoming increasingly complex and sometimes conflict among the various jurisdictions and countries in which Printronix provides services both in terms if at all,of substance and in terms of enforceability. This makes compliance challenging and expensive. For example, Printronix’s failure to adhere to or may be dilutivesuccessfully implement processes in response to changing regulatory requirements in this area could result in legal liability or impairment to our existing stockholders. reputation in the marketplace.
If we failor they are unable to obtain additional working capital, asprotect our or their computer systems, software, networks, data and when needed, such failureother technology assets it could have a material adverse impacteffect on our or their business, financial condition and results of operations, and ultimately the value of our businesses.
Public health threats such as COVID-19 or other future pandemics could have a material adverse effect on our operations, the operations of our business partners, and the global economy as a whole.
Public health threats and other highly communicable diseases, outbreaks of which have already occurred in various parts of the world, could adversely impact our operations, as well as the operations of our licensees and other business partners. We have taken precautions in the operation of our own business and maintain an up-to-date disaster recovery and business continuity policy as well as have the systems and support to have our workforce work remotely for an indefinite period of time. However, any further spread of the COVID-19 outbreak, or the occurrence of other similar outbreaks or epidemics, could have a material adverse effect on our business, operations and financial condition.results.
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Risks Related to the Recapitalization
The transactions contemplated by the Recapitalization Agreement may be delayed or not occur at all for a variety of reasons, which could prevent the Company from achieving the desired capital structure and have other adverse consequences.
Pursuant to the Recapitalization Agreement, and subject to the receipt of stockholder approval at the Company’s next annual meeting of stockholders, the Company will cause the Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, dated as of January 7, 2020 (the “Certificate of Designations”) to be amended and restated in the form attached to the Recapitalization Agreement in order to remove the “4.89% blocker” provision and, on or prior to July 14, 2023, Starboard will convert an aggregate amount of 350,000 shares of our Series A Convertible Preferred Stock Preferred Stock (the “Series A Preferred Stock”) into common stock in accordance with the terms of the Certificate of Designations. There is a possibility that our stockholders may not approve the amendment to the Certificate of Designations and therefore the conversion of the Series A Preferred Stock will remain subject to the “4.89% blocker” in accordance with the Certificate of Designations.
The consummation of the Series B Warrant Exercise (as defined in Note 8 to the accompanying consolidated financial statements), pursuant to the Recapitalization Agreement, is subject to certain conditions, which may not be satisfied, including but not limited to: (i) the absence of any law or order prohibiting the consummation of the transaction as contemplated by the Recapitalization Agreement; (ii) the representations and warranties of the Company and Starboard being true and correct, subject to the materiality standards contained in the Recapitalization Agreement; and (iii) the Company and Starboard having complied in all material respects with their respective obligations under the Recapitalization Agreement.
Moreover, both the Company and Starboard have the right to terminate the Recapitalization Agreement under certain circumstances, including if (i) the parties agree to terminate by mutual consent, (ii) a governmental entity issues an order permanently prohibiting the Recapitalization, (iii) there is an uncured breach of the Recapitalization Agreement by the other party that results in a condition to closing not being capable of being satisfied, or (iv) the Closing does not occur on or before July 31, 2023.
Failure to effectively manage our operational changes could strain our managerial, operational and financial resources andcomplete the transactions contemplated by the Recapitalization Agreement could adversely affect our business and operating results.

Our recent operational changesthe market price of our common stock in a number of ways, including: the market price of our common stock may decline to the extent that the current market price reflects an assumption that these transactions will be completed; we have placed,incurred, and are expected towill continue to place, a strain on our managerial, operational and financial resources and systems. Operational changes primarily relate to the reductions in employee headcount across our licensing, business development and engineering functions during the three year period ended December 31, 2017. Reductions in headcount in these functions may impact our ability to effectively and efficiently allocate resources in a timely mannerincur, significant expenses for professional services in connection with these transactions for which we will have received little or no benefit if the licensingtransactions contemplated by the Recapitalization Agreement are not consummated; and enforcementa failure of these transactions to be completed may result in negative publicity and/or give a negative impression of us in the investment community or business community generally.
Upon the completion of the transactions pursuant to the Recapitalization Agreement, Starboard will beneficially own a significant portion of our existing patent portfolios. In addition, weoutstanding common stock, and therefore have increased our focus on opportunities to partner with high-growth and potentially disruptive technology companies. As our businesses evolve, we will be required to continue to manage multiple relationships. Any further change by us, or increases in the number of our strategic relationships, may place additional strain on our managerial, operational and financial resources and systems. If we fail to manage our operational changes effectively or to develop, expand or otherwise modify our managerial, operational and financial resources and systems, our business and financial results will be materially harmed.



Patent portfolio investments may present risks, and we may be unable to achieve the financial or other goals intended at the time of any potential investment.
Our licensing and enforcement business has depended, in part, on our ability to invest in patented technologies, patent portfolios, or companies holding such patented technologies and patent portfolios. Accordingly, historically we have engaged in patent portfolio investments in an effort to expand our patent portfolio assets. Such investments and potential investments are subject to numerous risks, including the following:
our inability to enter into a definitive agreement with respect to any potential patent portfolio investment, or if we are able to enter into such agreement, our inability to consummate the potential investment transaction;

difficulty integrating the operations, technology and personnel of the acquired entity;

our inability to achieve the anticipated financial and other benefits of the specific patent portfolio investment;

our inability to retain key personnel from the acquired company, if necessary;

difficulty in maintaining controls, procedures and policies during the transition and integration process;
diversion of our management’s attention from other business concerns; and

failure of our due diligence process to identify significant issues, including issues with respect to patented technologies and patent portfolios, and other legal and financial contingencies.

If we are unable to manage these risks effectively as part of any patent portfolio investment, our business could be adversely affected.
Our revenues are unpredictable, and this may harm our financial condition.
Due to the nature of our licensing business and uncertainties regarding the amount and timing of the receipt of license and other fees from potential infringers, stemming primarily from uncertainties regardinginfluence over the outcome of enforcement actions, ratesmatters subject to stockholder approval, including a change of adoption of our patented technologies, the growth rates of our existing licensees and certain other factors, our revenues may vary significantly from quarter to quarter and period to period,control, which could make our common stock less attractive to some investors or otherwise harm our stock price.
As a result of the completion of the transactions contemplated by the Recapitalization Agreement, including the issuance of 15,000,000 shares of common stock in the Concurrent Private Rights Offering (as defined herein), 31,506,849 shares of common stock in the Series B Warrants Exercise (as defined herein) and 9,589,042 shares of common stock in the Series A Convertible Preferred Stock conversion, Starboard may hold up to 61.3% of our common stock, representing up to 61.3% of the voting power of our common stock, based on 43,484,867 shares outstanding as of December 31, 2022.
Recognizing Starboard's significant ownership following the conclusion of the transactions contemplated under the Recapitalization Agreement, we agreed to certain governance provisions with Starboard including that for a period from the date of the Recapitalization Agreement until May 12, 2026 (the “Applicable Period”), the Board will include at least two (2) directors that are independent of, and not affiliates (as defined in Rule 144 of the Securities Act as amended) of, Starboard, with current Board members Maureen O’Connell and Isaac T. Kohlberg satisfying this initial condition. We and Starboard also agreed that Katharine Wolanyk will continue to serve as a director of the Company until at least May 12, 2024 (or such earlier date if Ms. Wolanyk is unwilling or unable to serve as a director for any reason or resigns as a director). The Company and Starboard also agreed that, following the closing of the Series B Warrants Exercise (the
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“Closing”) until the end of the Applicable Period, the number of directors serving on the Board will not exceed 10 members.
The Recapitalization Agreement also includes a “fair price” provision requiring, in addition to any other stockholder vote required by the Company’s Certificate of Incorporation or Delaware law, the affirmative vote of the holders of a majority of the outstanding voting stock held by stockholders of the Company other than Starboard and its affiliates, by or with whom or on whose behalf, directly or indirectly, a business difficultcombination is proposed, in order to manage, adversely affectapprove such a business combination; provided, that the additional majority voting requirement would not be applicable if either (x) the business combination is approved by the Board by the affirmative vote of at least a majority of the directors who are unaffiliated with Starboard or (y) (i) the consideration to be received by stockholders other than Starboard and its affiliates meets certain minimum price conditions, and (ii) the consideration to be received by stockholders other than Starboard and its affiliates is of the same form and kind as the consideration paid by Starboard and its affiliates.
Starboard will have significant influence over matters submitted to our stockholders for approval, including the election of directors, the approval of any merger, consolidation or sale of all or substantially all of our assets, other decisions affecting our capital structure; amendments to our certificate of incorporation or our bylaws; and our winding up and dissolution. This concentration of voting power might delay, defer or prevent a change in control or delay or prevent a merger, consolidation, takeover or other business and operating results, cause our quarterly and periodic results to fall below market expectations andcombination involving us on terms that other stockholders may desire, which, in each case, could adversely affect the market price of our common stock.
Starboard may seek to cause us to take courses of action that, in its judgment, could enhance its investment in us, but which might involve risks to our other stockholders or adversely affect us or our other stockholders. As a result, the market price of our common stock could decline or stockholders might not receive a premium over the then-current market price of our common stock upon a change in control. In addition, this concentration of share ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in a company with significant stockholders.
Our operating subsidiaries depend upon relationships with othersUpon the completion of the transactions pursuant to provide technology-based opportunitiesthe Recapitalization Agreement, we may become a "controlled company" within the meaning of the Nasdaq listing standards and, as a result, may qualify for, and may decide to rely on, exemptions from certain corporate governance requirements. If we decide to rely on those exemptions, our stockholders will not have the same protections afforded to stockholders of companies that can develop into profitable royalty-bearing licenses,are subject to such requirements.
Upon the completion of the transactions pursuant to the Recapitalization Agreement, Starboard may control a majority of the voting power of our outstanding common stock. As a result, we may qualify as a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and if they are unablemay avail itself of certain corporate governance exemptions afforded to maintaincontrolled companies, including the requirements that a majority of the Board consist of independent directors, we have a nominating and generate new relationships, then they may not be able to sustain existing levelscorporate governance committee that is composed entirely of revenue or increase revenue.independent directors, and we have a compensation committee that is composed entirely of independent directors.
NeitherIf we nor our operating subsidiaries invent new technologies or products; rather, we dependbecome a controlled company upon the identification and investment in patents, inventions andcompletion of the transactions pursuant to the Recapitalization Agreement, we may decide to rely on some or all of these exemptions. Accordingly, if we decide to rely on those exemptions our stockholders will not have the same protections afforded to stockholders of companies that ownare subject to all of the corporate governance requirements of Nasdaq.
Risks Related to our Intellectual Property Business and Industry
Our intellectual property throughbusiness is reliant on the strength of our relationships with inventors, universities, research institutions, technology companies and others. If our operating subsidiaries are unable to maintain those relationships and identify and grow new relationships, then we may not be able to identify new technology-based patent opportunities for sustainable revenue and /or revenue growth.
Our current or future relationships may not provide the volume or quality of technologies necessary to sustain our licensing, enforcement and overall business. In some cases, universities and other technology sources compete against us as they seek to develop and commercialize technologies. Universities may receive financing for basic research in exchange for the exclusive right to commercialize resulting inventions. These and other strategies employed by potential partners may reduce the number of technology sources and potential clients to whom we can market our solutions. If we are unable to maintain current relationships and sources of technology or to secure new relationships and sources of technology, such inability may have a material adverse effect on our revenues, operating results, financial condition and ability to maintain our licensing and enforcement business.

For example, we obtained control of only one, two and three new patent portfolios during fiscal years 2017, 2016 and 2015, respectively, compared to 6 new patent portfolios and 25 newis subject to evolving legislation, regulations, and rules associated with patent portfolios in fiscal years 2014 and 2013, respectively. This decrease in our patent portfolio intake reflects in part our strategic decision in 2013 to shift the focus of our operating business to serving a smaller number of customers, each having higher quality patent portfolios. As a result, our gross


number of patent portfolio acquisitions has decreased significantly. This decrease in our patent portfolio intake also reflects in part industry trends impacting our ability to acquire patent portfolios. For example, legislative and legal changes have increased the complexity of patent enforcement actions and may significantly affect the market availability of suitable patent portfolios for acquisition. As a result of these continuing industry trends, our recent and future patent portfolio intake has been and may continue to be negatively impacted, resulting in further decreases in future revenue generating opportunities, and continued negative adverse impacts on the sustainability of our licensing and enforcement business. We continue to experience significant adverse challenges with respect to our patent intake efforts, and if these adverse challenges continue, our licensing and enforcement revenues will continue to decline and we will be unable to profitably sustain our licensing and enforcement business going forward.

law.
The success of our operating subsidiaries depends in part upon their ability to retainintellectual property business is heavily dependent obtaining and enforcing patents. Patent acquisition and enforcement is costly, time-consuming and inherently uncertain. Obtaining and enforcing patents across various industries, including the bestlife science industry, involves a high degree of technological and legal counsel to represent them incomplexity. Our patent enforcement litigation in order to achieve favorable outcomes from such litigation. The outcome of such litigation is uncertain.
The success of our licensing business depends upon our operating subsidiaries’ ability to retain the best legal counsel to prosecute patent infringement litigation. As our operations evolve and industry conditions increase in complexity, it will become more difficult to find the best legal counsel to handle all of our cases. This is due in part to many of the best law firms having conflicts of interest that prevents their representation of our subsidiaries.

We spend a significant amount of our financial and management resources to pursue our current litigation matters. We believe that these litigation matters and others that we may in the future determine to pursue could continue for years and continue to consume significant financial and management resources. The counterparties to our litigation are sometimes large, well-financed companies with substantially greater resources than us. We cannot assure you that any of our current or future litigation matters will result in a favorable outcome for us. In addition, in part due to the appeals process and other legal processes, even if we obtain favorable interim rulings or verdicts in particular litigation matters, they may not be predictive of the ultimate resolution of the dispute. Also, we cannot assure you that we will not be exposed to claims or sanctions against us whichrights may be costlyaffected by developments or impossible for us to defend. The inability to retain the best legal counsel to represent our operating subsidiariesuncertainty in infringement actions may result in unfavorableU.S. or adverse outcomes, which may result in losses, exhaustion of financial resources or other adverse effects which could encumber our ability to effectively operate our business or execute our business strategy.

Our operating subsidiaries, in certain circumstances, rely on representations, warranties and opinions made by third-parties that, if determined to be false or inaccurate, may expose us and our operating subsidiaries to certain material liabilities.
From time to time, our operating subsidiaries may rely upon representations and warranties made by third-parties from whom our operating subsidiaries acquired patents or the exclusive rights to license and enforce patents. We also may rely upon the opinions of purported experts. In certain instances, we may not have the opportunity to independently investigate and verify the facts upon which such representations, warranties, and opinions are made. By relying on these representations, warranties and opinions, our operating subsidiaries may be exposed to liabilities in connection with the licensing and enforcement of certain patents andforeign patent rights which could have a material adverse effect on our operating results and financial condition.

In connection withstatutes, patent enforcement actions conducted by certain of our subsidiaries, a court may rule that we or our subsidiaries have violated certain statutory, regulatory, federal, local or governing rules or standards, which may expose us and our operating subsidiaries to certain material liabilities.
In connection with any of our patent enforcement actions, it is possible that a defendant may request and/or a court may rule that we have violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material, and if we or our operating subsidiaries are required to pay such monetary sanctions, attorneys’ fees and/or expenses, such payment could materially harm our operating results and our financial position.

In connection with patent enforcement actions conducted by certain of our subsidiaries, a court may find the patents invalid, not infringed or unenforceable and/or thecase law, U.S. Patent and Trademark Office ("USPTO") rules and regulations and the rules and regulations of foreign patent offices. In addition, the United States may, at any time, enact changes to U.S. patent law and regulations, including by legislation, by regulatory
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rulemaking, or the USPTO, or other relevant patent office, may either invalidate the patents or materially narrowby judicial precedent, that adversely affect the scope of their claims duringpatent protection available and weaken the courserights of a reexamination, opposition patent owners to obtain patents, enforce against patent infringement and obtain injunctions and/or other such proceeding.
Patent litigation is inherently riskydamages. For example, over the past several years, the Court of Appeals for the Federal Circuit and the outcome is uncertain. SomeSupreme Court issued various opinions, and the USPTO modified its guidance for practitioners on multiple occasions, either narrowing the scope of patent protection available in certain circumstances or weakening the partiesrights of patent owners in certain situations. Other countries may likewise enact changes to their patent laws in ways that we believe infringe onadversely diminish the scope of patent protection and weaken the rights of patent owners to obtain patents, enforce against patent infringement, and obtain injunctions and/or damages. In addition to increasing uncertainty with regard to our ability to obtain patents are large and well-financed companiesin the future, this combination of events has created uncertainty with substantially greater resources than ours.respect to the value of patents, once obtained. We believecannot predict the breadth of claims that these parties


would devote a substantial amount of resourcesmay be allowed or enforced in an attempt to avoid or limit a finding that they are liable for infringing on our patents or in the event liability is found, to avoid or limit the amount of associated damages. In addition, there is a risk that these parties may file reexaminationsthird-party patents, and whether Congress or other proceedings with the USPTO or other government agenciesforeign legislative bodies may pass patent reform legislation that is unfavorable to us, which, may in the United States or abroad in an attempt to invalidate, narrow the scope or render unenforceable the patents we own or control. If this were to occur, it may have a material adverse effect on our operations.
In addition, it is difficult to predict the outcome of patent enforcement litigation at any level. In the United States, there is a higher rate of appeals in patent enforcement litigation than standard business litigation. The defendant to any case we bring, may file as many appeals as allowed by right, including to the first, second and/or final courts of appeal (in the United States those courts would be the Federal Circuit and Supreme Court, respectively). Such appeals are expensive and time-consuming, and the outcomes of such appeals are sometimes unpredictable, resulting in increased costs and reduced or delayed revenue which could have a material adverse effect on our operating results and financial condition.
Our licensing cycle is lengthy and costly, and our legal and sales efforts may be unsuccessful.

We expect our operating subsidiaries to incur significant general and administrative and legal expenses prior to entering into license agreements and generating license revenues. We also spend considerable resources educating prospective licensees on the benefits of a license arrangement with us. As such, we may incur significant losses in any particular period before any associated revenue stream begins.

If our efforts to educate prospective licensees on the benefits of a license arrangement are unsuccessful, we may need to pursue litigation or other enforcement action to protect our patent rights. We may also need to litigate to enforce the terms of our existing license agreements, protect our trade secrets, or determine the validity and scope of the proprietary rights of others. Enforcement proceedings are typically protracted and complex. The costs are typically substantial, and the outcomes are unpredictable. Enforcement actions will divert our managerial, technical, legal and financial resources from business operations and there are no assurances that such enforcement actions will result in favorable results for us.

Failure to maintain effective internal control over our financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could cause our financial reports to be inaccurate.

We are required pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, to maintain internal control over financial reporting and to assess and report on the effectiveness of those controls. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

Our management concluded that our internal control over financial reporting was effective as of December 31, 2017. However, there are inherent limitations on effectiveness of controls. Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

If we are not able to maintain effective internal control over financial reporting, our financial statements, including related disclosures, may be inaccurate, which could have a material adverse effect on our business. Refer to Item 9A. “Controls and Procedures” for additional information related to the current period.

Our partnerships are subject to risks and we may experience significant financial losses on our related existing equity investments.

As described herein, in August 2016, we formed a partnership with Veritone pursuant to which we have the ability to leverage our expertise in intellectual property licensing and enforcement to assist Veritone with building its patent portfolio and execute upon its overall intellectual property strategy. As a part of this partnership, we entered into an investment agreement and bridge financing with Veritone, investing approximately $53.3 million in Veritone, comprised of common stock and warrants as of December 31, 2017.



In addition, in June 2017, we partnered with Miso Robotics, an innovative leader in robotics and AI solutions, which included an equity investment totaling $2.25 million, as part of Miso Robotics’ closing of $3.1 million in Series A funding. In addition, in February 2018, we made an additional strategic equity investment totaling $6.0 million in the Series B financing round for Miso Robotics. Miso Robotics will use the new capital to expand its suite of collaborative, adaptable robotic kitchen assistants and to broaden applications for Miso AI, the company’s machine learning cloud platform. In addition, we also entered into an intellectual property services agreement with Miso Robotics to help Miso Robotics drive AI-based solutions for the restaurant industry.

Our current partnerships and related equity investments are subject to a high degree of risk and could diminish our financial condition. Currently, none of our investees are profitable and have limited financial resources. The overall sustained economic uncertainty, as well as financial, operational and other difficulties encountered by certain companies in which we have equity investments increases the risk that the actual amounts realized in the future on our debt and equity investments will differ significantly from the fair values currently assigned to them. In addition, the companies in which we have equity investments or with whom we partner may not be able to compete effectively or there may be insufficient demand for the services and products offered by these companies. These partnerships could also expose us to significant financial losses and may restrict our ability to execute other partnerships or limit alternative uses of our capital resources. If our partnerships suffer losses, our financial condition could be materially adversely affected. In addition, applicable securities law restrictions and other factors may result in an inability to liquidate any equity components of our equity investments. Our Veritone common shares are subject to a lock-up agreement that expired on February 15, 2018, subsequent to which the shares may be sold pursuant to Rule 144, subject to volume limitations and Rule 144 filing requirements, as well as other restrictions under applicable securities laws.

Our initiative to identify partnerships may not be successfully implemented.

We intend to continue to selectively explore opportunities to partner with potentially high-growth and disruptive technology companies that we believe will allow us to leverage our experience, expertise, data and relationships to increase shareholder value. We may allocate significant resources for long-term initiatives that may not have a short or medium-term or any positive impact on our revenue, results of operations, or cash flow.

The successful implementation of our initiative to identify partnerships requires an investment of time, talent and money and is dependent upon a number of factors, some of which are not within our control. Those factors include the ability to effectively execute such initiatives in new and existing markets and market conditions in the various technology industries we pursue. We may allocate significant resources for long-term initiatives that may not have a short or medium-term or any positive impact on our revenue, results of operations, or cash flow. If we fail to properly identify successful companies to partner with and invest in, it may have an adverse effect on our financial condition. There can be no assurance that we will successfully implement this strategic initiative or that, if successfully pursued, this initiative will have the desired effect on our business or results of operations. Additionally, these new partnerships could expose us to significant financial losses and may restrict our ability to enter future partnerships or limit alternative uses of our capital resources. If our partnership related equity investments suffer losses, our financial condition could be materially adversely affected.

Recent U.S. tax legislation may materially adverselyturn, affect our financial condition, results of operations and cash flows.
Recently-enacted U.S. tax legislation has significantly changed the U.S. federal income taxation of U.S. corporations, including the reduction of the U.S. corporate income tax rate, the limiting of interest deductions, adopting elements of a territorial tax system, imposing a one-time transition tax (or “repatriation tax”) on all undistributed earnings and profits of certain U.S.-owned foreign corporations, revising the rules governing net operating losses and the rules governing foreign tax credits, and introducing new anti-base erosion provisions. Many of these changes are effective immediately, without any transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service, or IRS, any of which could lessen or increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities.
While our analysis and interpretation of this legislation is ongoing, based on our current evaluation, we have reflected a write-down of our deferred income tax assets (including the value of our net operating loss carryforwards and our tax credit carryforwards for financial statement purposes) due topatent assets.
Further, the reduction of the U.S. corporate income tax rate. Based on currently available information, we recorded a reduction of approximately $25.3 million in the fourth quarter of 2017 related to the revaluation of our deferred tax assets, which will not result in additional tax expense in the quarter as our deferred tax assets are


fully valued. This amount may be subject to further adjustment in subsequent periods throughout 2018 in accordance with subsequent interpretive guidance issued by the SEC or the IRS. Further, there may be other material adverse effects resulting from the legislation that we have not yet identified.
While some of the changes made by the tax legislation may adversely affect the Company in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis. We continue to work with our tax advisors to determine the full impact that the recent tax legislation as a whole will have on us. We urge our investors to consult with their legal and tax advisors with respect to such legislation.


Risks Related to Our Industry
Our exposure to uncontrollable outside influences, including new legislation, court rulings or actions by the USPTO, could adversely affect our licensing and enforcement business and results of operations.
Our licensing and enforcement business is subject to numerous risks from outside influences, including the following:
New legislation, regulations or rules related to obtaining patents or enforcing patents could significantly increase our operating costs and decrease our revenue.
Our operating subsidiaries invest in patents with enforcement opportunities and spend a significant amount of resources to enforce those patents. If new legislation, regulations or rules are implemented by Congress, the USPTO or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, such changes could negatively affect our business. United States patent laws were amended with the enactment of the Leahy-Smith America Invents Act, or the America Invents Act, which took effect on March 16, 2013. The America Invents Act includes a number of significantand other governments may, at any time, enact changes to U.S. patent law. In general,law and regulation that create new avenues for challenging the legislation attempts to address issues surrounding the enforceabilityvalidity of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation.issued patents. For example, the America Invents Act changes the waycreated new administrative post-grant proceedings, including post-grant review, inter-partes review, and derivation proceedings that allow third parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual allegedly-infringing parties by their respective individual actions or activities. In addition, the America Invents Act enacted a new inter-partes review process, or IPR process, at the USPTO which can be, and often is, used by defendants, and other individuals and entities, to separately challenge the validity of any patent. The IPR processissued patents. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the America Invents Act hasevidentiary standard in many instances increased costsU.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for licensing and litigation and has resultedthe USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. In addition to increasing uncertainty with regard to our ability to obtain patents in the lossfuture, this combination of certain portfolio patents which, in some cases, may have negatively impactedevents has created uncertainty with respect to the value of those portfolios. The America Invents Actpatents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and its implementation has increased the uncertaintiesUSPTO, the laws and costs surrounding the enforcement ofregulations governing patents could change in unpredictable ways that could weaken our patented technologies, which in certain circumstances could have a material adverse effect on our business and financial condition.
The U.S. Department of Justice, or the DOJ, has conducted reviews of the patent system to evaluate the impact of patent assertion entities on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could impact the ability to effectively license andobtain new patents or to enforce standards-essentialour existing patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies. Also, in 2014, the Federal Trade Commission, or FTC, initiated a study under Section 6(b) of the Federal Trade Commission Act to evaluate the patent assertion practice and market impact of Patent Assertion Entities, or PAEs.  The FTC’s initial notice and request for public comment relating to the PAE study appearedpatents that we might obtain in the Federal Register on October 3, 2013.  We received and responded to a request for information as part of this FTC study.  The FTC study entitled, “Patent Assertion Entity Activity” was released in October 2016.future.
Finally,Additionally, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions. In addition, recent federal court decisions have lowered the threshold for obtaining attorneys’ fees in patent infringement cases and increased the level of deference given to a district court’s fee-shifting determination. These decisions may make it easier for district courts to shift a prevailing party’s attorneys’ fees to a non-prevailing party if the district court believes that the case was weak or conducted in an abusive manner. As a result, defendants in patent infringement actions brought by non-practicing entities may elect not to settle because these decisions make it much easier for defendants to get attorneys’ fees.
ChangesFinally, it is difficult to predict the outcome of patent enforcement litigation at the trial level and outcomes can be unfavorable. It can be difficult to understand complex patented technologies, and as a result, this may lead to a higher rate of unfavorable litigation outcomes. Moreover, in the event of a favorable outcome, there is often a higher rate of successful appeals in patent law could adversely impact our business.enforcement litigation than more standard business litigation. Such appeals are expensive and time consuming, resulting in increased costs and a potential for delayed or foregone revenue opportunities in the event of modification or reversal of favorable outcomes. Although we diligently pursue enforcement litigation, we cannot predict with reliability the decisions made by juries and trial courts.
Patent laws mayWe expect patent-related legal expenses to continue to change,fluctuate from period to period.
Our patent-related legal expenses may fluctuate based on the factors summarized herein, in connection with future trial dates, international enforcement, strategic patent portfolio prosecution and our current and future patent portfolio investment, prosecution, licensing and enforcement activities. The pursuit of enforcement actions in connection with our licensing and enforcement programs can involve certain risks and uncertainties, including the following:
•Increases in patent-related legal expenses associated with patent infringement litigation, including, but not limited to, increases in costs billed by outside legal counsel for discovery, depositions, economic analyses, damages assessments, expert witnesses and other consultants, re-exam and inter partes review costs, case-related audio/video presentations and other litigation support and administrative costs could increase our operating costs and decrease our profit generating opportunities;
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•Our patented technologies and enforcement actions are complex and, as a result, we may alter the historically consistent protections affordedbe required to owners of patent rights. Such changesappeal adverse decisions by trial courts in order to successfully enforce our patents. Moreover, such appeals may not be advantageous for ussuccessful;
•New legislation, regulations or rules related to enforcement actions, including any fee or cost shifting provisions, could significantly increase our operating costs and may make it more difficult to obtain adequate patent protection to


enforcedecrease our patents against infringing parties.profit generating opportunities. Increased focus on the growing number of patent-related lawsuits may result in legislative changes which increase our costs and related risks of asserting patent enforcement actions. For instance,actions;
•Courts may rule that our subsidiaries have violated certain statutory, regulatory, federal, local or governing rules or standards by pursuing such enforcement actions, which may expose us and our operating subsidiaries to material liabilities, which could harm our operating results and our financial position;
•The complexity of negotiations and potential magnitude of exposure for potential infringers associated with higher quality patent portfolios may lead to increased intervals of time between the United States Congress has considered a bill that would require, among other things, non-practicing entities that bring patent infringement lawsuits to pay legal costsfiling of the defendants, if the lawsuits are unsuccessful and certain standards are not met.
Trial judges and juries often find it difficult to understand complex patent enforcement litigation and aspotential revenue events (i.e., markman dates, trial dates), which may lead to increased legal expenses, consistent with the higher revenue potential of such portfolios; and
•Fluctuations in overall patent portfolio related enforcement activities, which are impacted by the portfolio intake challenges discussed above that could harm our operating results and our financial position.
Patent litigation is inherently risky because courts may find our patents invalid, not infringed, or unenforceable, and the USPTO, or other relevant patent office, may either invalidate our patents or materially narrow the scope of their claims during the course of a reexamination, opposition or other such proceeding.
Patent litigation is inherently risky and may result in the invalidation of our patents, even if we may need to appeal adverse decisions by lower courtsare the plaintiff in order to successfully enforce our patents.
an underlying action. It is difficult to predict the outcome of patent enforcement litigation at any level.
Although we diligently pursue enforcement litigation, we cannot predict with significant reliability the decisions made by juries and trial courts. At the trial level. Itlevel, it is often difficult for juries and trial judges to understand complex, patented technologies, and as a result, there is a higher rate of successful appeals in patent enforcement litigation than more standard business litigation.
The defendant to any case we bring may file as many appeals as allowed by right, including to District Court, the Federal Circuit and the Supreme Court. Such appeals are expensive and time consuming,time-consuming, and the outcomes of such appeals are sometimes unpredictable, resulting in increased costs and reduced or delayed revenue. Althoughrevenue which could have a material adverse effect on our results of operations and financial condition. These appeals may also result in the invalidation of our patents, which may have an adverse impact on our operations and financial performance.
The enforcement of our intellectual property depends in part upon our ability to retain the best legal counsel in order to achieve favorable outcomes from litigation, and we diligently pursuemay become conflicted out of such representation.
The success of our intellectual property business depends in part upon our ability to retain the best legal counsel to coordinate our patent infringement litigation matters. As our intellectual property business evolves, we expect it will become more difficult to find the best legal counsel to handle all of our patent matters due in part to potential conflicts of interest. This is because, from time to time, the counterparties to our litigation matters have previously engaged world class law firms that are specialized to the industries of the patents at issue in such matters. These previous engagements may have, or may in the future, result in these firms being conflicted out of representing us.
In addition, counterparties in our patent litigation matters may devote a substantial amount of resources to avoid or limit a finding that they are liable for infringing on our patents or, in the event liability is found, to avoid or limit the amount of associated damages. There is a risk these counterparties may file inter-partes reviews, reexaminations or other proceedings with the USPTO or other government agencies in the United States or abroad in an attempt to invalidate, narrow the scope or render unenforceable the patents we own or control. If this were to occur, it may have a significant negative impact on the operations of our intellectual property business.
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The inability to retain the best legal counsel to represent our operating businesses in infringement actions may result in unfavorable or adverse outcomes, which may result in losses, exhaustion of financial resources or other adverse effects which could encumber our ability to effectively operate our business or execute our business strategy. We cannot ensure that any of our current or prospective patent prosecution or litigation matters will result in a favorable outcome for us.
We may experience delays in successful prosecution, enforcement, litigation, we cannot predict with significant reliabilityand licensing of our patent portfolio.
The value of our patent portfolios is dependent upon the decisions made by juries and trial courts.
issuance of patents in a timely manner. More patent applications are filed each year, resulting in longer delays in getting patents issued by the USPTO.
Certain of our operating subsidiaries hold and continue to invest We believe this increase in pending patents. We have identified a trend of increasing patent applications each year, which we believe is resultinghas resulted in longer delays in obtaining approval of pending patent applications. TheIf the USPTO experiences reductions in funding, it could have an adverse impact on the cost of processing pending patent applications and the value of those pending patent applications, negatively impacting the value of our patent portfolio pipeline. Further, reductions in funding from Congress could result in higher patent application filing and maintenance fees charged by the USPTO, causing an increase in our expenses. Application delays could cause delays in recognizing revenue from these patents and could cause us to miss opportunities to license patents before other competing technologies are developed or introduced into the market.
Federal courtsAfter prosecuting our patents, our Intellectual Property business can incur significant general and administrative and legal expense prior to entering into license agreements and generating license revenues. We spend considerable resources educating prospective licensees on the benefits of a license arrangement with us. As such, we may incur significant losses in any particular period before any associated revenue stream begins.
We are becoming more crowded,frequently engaged in litigation to enforce the terms of our existing license agreements, protect our trade secrets, or determine the validity and as a result, patent enforcement litigation is taking longer.
Our patent enforcementscope of the proprietary rights of others. Enforcement proceedings are typically protracted and complex. The costs are typically substantial, and the outcomes are unpredictable. Enforcement actions divert our managerial, technical, legal and financial resources from business operations and there are almost exclusively prosecuted in federal court. Federal trial courtsno assurances that hear our patent enforcement actions also hear criminal cases. Criminal cases always take priority over our actions. As a result, it is difficult to predict the length of time it will take to complete an enforcement action. Moreover, we believe there is a trend in increasing numbers of civil lawsuits and criminal proceedings before federal judges and, as a result, we believe that the risk of delays in our patentsuch enforcement actions will have a greater negative effect on our business in the future unless this trend changes.
Any reductions in the funding of the USPTO could have an adverse impact on the cost of processing pending patent applications and the value of those pending patent applications.
The assets of our operating subsidiaries consist of patent portfolios, including pending patent applications before the USPTO. The value of our patent portfolios is dependent upon the issuance of patents in a timely manner, and any reductions in the funding of the USPTO could negatively impact the value of our assets. Further, reductions in funding from Congress could result in higher patent application filing and maintenance fees charged by the USPTO, causing an increase in our expenses.
Competition is intense in the industries in which our subsidiaries do business and as a result, we may not be able to grow or maintain our market share for our technologies and patents.
We expect to encounter competition in the area of patent portfolio investments and enforcement. This includes competitors seeking to invest in the same or similar patents and technologies that we may seek to invest in. As new technological advances occur, many of our patented technologies may become obsolete before they are completely monetized. If we are unable to replace obsolete technologies with more technologically advanced patented technologies, then this obsolescence could have a negative effect on our ability to generate future revenues.
Our licensing business also competes with venture capital firms and various industry leaders for patent licensing opportunities. Many of these competitors may have more financial and human resources than we do. As we become more successful, we may find more companies entering the market for similar technology opportunities, which may reduce our market share in one or more technology industries that we currently rely upon to generate future revenue.
Our patented technologies face uncertain market value.
Our operating subsidiaries have invested in patents and technologies that may be in the early stages of adoption in the commercial and consumer markets. Demand for some of these technologies is untested and is subject to fluctuation based upon the rate at which our licensees will adopt our patents and technologies in their products and services.


Further, significant judgment is required in connection with estimates of the recoverability of the carrying value of our intangible patent assets, including estimates of market values, estimates of the amount and timing of future cash flows, and estimates of other factors that are used to determine the fair value and recoverability of the respective patent asset values. Developments with respect to ongoing patent litigation, patent challenges and re-exams, legislative and judicial decisions and other factors outside of our control, may unfavorably impact the validity, applicability, and enforceability of our patent assets, and therefore, negatively impact the future value of our patent portfolios. If certain of these unfavorable events occur, our estimates or related projections may change materially in future periods, and future intangible asset impairment tests may result in material charges to earnings.
As patent enforcement litigation becomes more prevalent, it may become more difficult for us to voluntarily license our patents.
We believe that the more prevalent patent enforcement actions become, the more difficult it will be for us to voluntarily license our patents. As a result, we may need to increase the number of our patent enforcement actions to cause infringing companies to license the patent or pay damages for lost royalties. This may increase the risks associated with an investment in our company.
Patent litigation trials and scheduled trial dates are subject to routine delay, and any such delays could adversely impact our business,favorable results of operations and financial condition.
Patent infringement trials are components of our overall patent licensing process and are one of many factors that contribute to the existence of possible future revenue opportunities for us.
Patent litigation schedules in general, and in particular trial dates, are subject to routine adjustment, and in most cases delay, as courts adjust their calendars or respond to requests from one or more parties. Trial dates often are rescheduled by the court for various reasons that are often unrelated to the underlying patent assets and typically for reasons that are beyond our control. As a result, to the extent such events are an indicator of possible future revenue opportunities for us, or other outcome determinative events, they may and often do change which can result in delay of the expected scheduled event. Any such delay could be significant and could affect the corresponding future revenue opportunities, thus adversely impacting our business, results of operations and financial condition.
The markets served byFurther, federal courts are becoming more crowded, and as a result, patent enforcement litigation is taking longer. Our patent enforcement actions are almost exclusively prosecuted in federal court. Federal trial courts that hear our patent enforcement actions also hear criminal cases. Criminal cases tend to take priority over our actions. As a result, it is difficult to predict the length of time it will take to complete an enforcement action. Moreover, we believe there is a trend in increasing numbers of civil lawsuits and criminal proceedings before federal judges and, as a result, we believe that the risk of delays in our patent enforcement actions will have a greater negative effect on our business in the future unless this trend changes.
Risks Related to our Operating Businesses
Certain of our operating subsidiaries are subjectbusinesses rely, or may rely in the future, on their intellectual property and licenses to rapid technological change, and ifuse others’ intellectual property for competitive advantage. If our operating subsidiariesbusinesses are unable to protect their intellectual property or obtain or retain licenses to use other’s intellectual property, or if they infringe upon or are alleged to have infringed upon others’ intellectual property, it could have a material adverse effect on our financial condition, business and results of operations.
Certain of our operating businesses’ success depend in part on their, or licenses to use others’, brand names, proprietary technology and manufacturing techniques. These businesses rely on a combination of patents, trademarks, copyrights, trade secrets, confidentiality procedures and contractual provisions to protect their intellectual property rights. The steps they have taken to protect their intellectual property rights may not prevent third parties from using their intellectual property and other proprietary information without their authorization or independently developing intellectual property and other
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proprietary information that is similar. In addition, the laws of foreign countries may not protect our businesses’ intellectual property rights effectively or to the same extent as the laws of the United States.
Stopping unauthorized use of our operating businesses’ proprietary information and intellectual property and defending claims that they have made unauthorized use of others’ proprietary information or intellectual property, may be difficult, time consuming, and costly. The use of their intellectual property and other proprietary information by others, and the use by others of their intellectual property and proprietary information, could reduce or eliminate any competitive advantage they have developed, cause them to lose sales or otherwise harm their business.
Our operating businesses may become involved in legal proceedings and claims in the future either to protect their intellectual property or to defend allegations that they have infringed upon others’ intellectual property rights. These claims and any resulting litigation could subject them to significant liability for damages and invalidate their property rights. In addition, these lawsuits, regardless of their merits, could be time consuming and expensive to resolve and could divert management’s time and attention. The costs associated with any of these actions could be substantial and could have a material adverse effect on their financial condition, business, and results of operations.
Certain of our operating businesses’ inability to develop new products and invest inenhance existing products to meet customer product requirements on a cost competitive basis may negatively impact our results of operations.
The future results of operations of our operating businesses, including Printronix, may be adversely affected if they are unable to continue to develop, manufacture and market products that are reliable, competitive, and meet customers’ needs. The markets for matrix printers, associated supplies and software are aggressively competitive, especially with respect to pricing and the introduction of new technologies and patents, our ability to generate revenues could be substantially impaired.
The markets served by our operating subsidiaries and their licensees frequently undergo transitions in which products rapidly incorporate newoffering improved features and performance standards on an industry-wide basis. Products for communications applications and high-speed computing applications, as well as other applications covered by our operating subsidiaries’ intellectual property, are based on continually evolving industry standards.functionality. In addition, the communications industry is intenselyintroduction of any significant new and/or disruptive technology or business model by a competitor that substantially changes the markets into which our operating businesses sell their products or demand for the products they sell could severely impact sales of their products and our results of operations. The impact of competitive and has been impacted by price erosion, rapid technological change, short product life cycles, cyclical market patterns and increasing foreign and domestic competition. Our abilityactivities on the sales volumes or our revenue, or our inability to compete in the future will dependeffectively deal with these competitive issues, could have a material adverse effect on our ability to identifyattract and ensure complianceretain customers and maintain or grow market share. The competitive pressure to develop technology and products and to increase our investment in research and development and marketing expenditures also could cause significant changes in the level of our operating expense.
Certain of our operating businesses are dependent on a limited number of customers to derive a large portion of their revenue, and the loss of one of these customers may adversely affect the financial condition, business and results of operations of these businesses.
Printronix derives a significant amount of revenue from a concentrated number of retailers, distributors, and manufacturers. Any negative change involving these retailers, distributors, and manufacturers, including industry consolidation, store closings, reduction in purchasing levels or bankruptcies, could negatively impact the sales of these businesses and may have a material adverse effect on the results of operations, financial condition and cash flows of these businesses.
Certain of our operating businesses have limited suppliers for key product components and services they rely on and any interruption in supply could impair their ability to make and deliver their signature products, adversely affecting our business, financial condition, and results of operations.
Outsourced providers and component suppliers have played, and will continue to play, a key role in Printronix’s manufacturing operations, field installation and support, and many of its transactional and administrative functions, such as information technology, facilities management, and certain elements of our finance organization. These providers and suppliers might suffer financial setbacks, be acquired by third parties, become subject to exclusivity arrangements that preclude further business with evolving industry standards. Thisus or be unable to meet our requirements or expectation due to their independent business decisions, or force majeure events that could interrupt or impair their continued ability to perform as we expect.
Although our operating businesses may attempt to select reputable providers and suppliers and attempt to secure their performance on terms documented in written contracts, it is possible that one or more of these providers or suppliers could fail to perform as we expect, or fail to secure or protect intellectual property rights, and such failure could have an adverse impact on our business. In some cases, the requirements of our business mandate that we obtain certain components and sub-assemblies included in our products from a single supplier or a limited group of suppliers. Where practical, we endeavor to establish alternative sources to mitigate the risk that the failure of any single provider or supplier will requireadversely affect our continued effortsbusiness, but this is not feasible in all circumstances. There is therefore a risk that a prolonged inability to obtain
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certain components or secure key services could impair our ability to manage operations, ship products and successgenerate revenues, which could adversely affect our results of operations and damage our customer relationships.
Failure of certain of our operating businesses to manage inventory levels or production capacity may negatively impact our results of operations.
Printronix’s financial performance depends in acquiring new patent portfolios with licensingpart upon their ability to successfully forecast the timing and enforcement opportunities. Ifextent of customer demand and reseller demand to manage worldwide distribution and inventory levels. Unexpected fluctuations in customer demand or in reseller inventory levels could disrupt ordering patterns and may adversely affect our financial results, inventory levels and cash flows. In addition, the financial failure or loss of a key customer, reseller or supplier could have a material adverse impact on our financial results. We must also address production and supply constraints, including product disruptions caused by quality issues, and delays or disruptions in the supply of key components necessary for production. Such delays, disruptions or shortages may result in lost revenue or in additional costs to meet customer demand. Our future results of operations and ability to effectively grow or maintain market share may be adversely affected if we are unable to invest in new patented technologies and patent portfolios, or to identify and ensure compliance with evolving industry standards, our ability to generate revenues could be substantially impaired and our business and financial condition could be materially harmed.address these issues on a timely basis.
Uncertainty in global economic conditions could negatively affect our business, results of operations and financial condition.
Our revenue-generating opportunities depend on the useCertain of our patented technologies by existing and prospective licensees, the overall demandoperating businesses’ inability to perform satisfactorily under service contracts for the products andmanaged print services of our licensees, and on the overall economic and financial health of our licensees. If economic conditions do not continue to improve, or if they deteriorate, many of our licensees’ customers, which may rely on credit financing, may delay or reduce their purchases of our licensees’ products and services. In addition, the use or adoption of our patented technologies is often based on current and forecasted demand for our licensees’ products and services in the marketplace and may require companies to make significant initial commitments of capital and other resources. If negative conditions in the global credit markets delay or prevent our licensees’ and their customers’ access to credit, overall consumer spending on the products and services of our licensees may decrease and the adoption or use of our patented technologies may slow, respectively. Further, if the markets in which our licensees’ participate do not continue to improve, or deteriorate further, this could negatively impact our licensees’ long-term salesfinancial performance and revenue generation, margins and operating expenses, which could in turn have an adverse effect on our business, results of operationsoperations.
Printronix continuously seeks to develop new services and financial condition.


In addition, we haveproducts that complement or leverage the underlying design or process technology of its traditional product and service offerings. Printronix makes significant patent-related intangible assets recorded on our consolidated balance sheets. We will continue to evaluateinvestments in service and product technologies and anticipate expending significant resources for new software-led services and product development over the recoverability of the carrying amount of our patent-related intangible assets on an ongoing basis, and we may incur substantial impairment charges, which would adversely affect our consolidated financial results.next several years. There can be no assurance that the outcomePrintronix’s service and product development efforts will be successful, it will be able to cost effectively develop or manufacture these new services and products, or will be able to successfully market these services and products or that margins generated from sales of such reviews in the futurethese services and products will not result in substantial impairment charges. Impairment assessment inherently involves judgment asrecover costs of development efforts.
Further, Printronix’s inability to assumptions about expected future cash flowsperform satisfactorily under service contracts for managed print services and the impact of market conditions on those assumptions. Reductions in internal resourcesother customer services may result in decisions to no longer allocate resources tothe loss of customers, loss of reputation and/or financial consequences that may have a material adverse impact our financial results and strategy.
Decreased consumption of supplies could negatively impact the results of operations of certain licensingof our operating businesses.
Printronix expects approximately 48.0% of its revenue for its fiscal year ending March 31, 2023 will be derived from the sale of supplies. Our future results of operations may be adversely affected if the consumption of Printronix’s supplies by end users of its products is lower than expected or declines, if there are declines in pricing, unfavorable mix and/or increased costs. Further, changes of printing behavior driven by adoption of electronic processes and/or use of mobile devices such as tablets and enforcement programs which maysmart phones by businesses could result in significant impairment charges. Future events and changing marketa reduction in printing, which could adversely impact consumption of supplies.
Due to the international nature of certain of our operating businesses, changes in a country’s or region’s political or economic conditions may impact our assumptions as to prices, costs, holding periods or other factors that may result incould negatively impact the results of operations of certain of our operating businesses.
We expect revenue derived from international sales will comprise approximately 53.3% of Printronix’s revenue for its fiscal year ending March 31, 2023. Accordingly, Printronix’s future results could be adversely affected by a variety of factors, including changes in a specific country’s or region’s political or economic conditions; foreign currency exchange rate fluctuations; conflict and war; trade protection measures; local labor regulations; import, export or other licensing requirements; requirements related to making foreign direct investments; and unexpected changes in legal or regulatory requirements. As an example, in addition to indirectly raising transportation costs of the raw materials Printronix uses to manufacture its products, the invasion of Ukraine by Russia in March 2022 required Printronix to adapt its operations and require its customers in the region to pre-pay expenses such that Printronix can avoid accruing accounts receivable. The duration and magnitude of the impacts of Russia’s invasion of Ukraine on Printronix’s business remain uncertain, and we will continue to monitor the situation and adapt our estimatesoperations accordingly.
In addition, changes in tax laws and the ability to repatriate cash accumulated outside the United States in a tax efficient manner may adversely affect Printronix’s financial results, investment flexibility and operations. Moreover, margins on
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international sales tend to be lower than those on domestic sales, and we believe international operations in emerging geographic markets will be less profitable than operations in the assumptions we usedU.S. and European markets, in testingpart, because of the higher investment levels for impairment are reasonable, significant changesmarketing, selling and distribution required to enter these markets.
In many foreign countries, particularly those with developing economies, it is common for local business practices to be prohibited by laws and regulations applicable to Printronix, such as employment laws, fair trade laws or the Foreign Corrupt Practices Act. Although Printronix implements policies and procedures designed to ensure compliance with these laws, our employees, contractors and agents, as well as those business partners to which Printronix outsources certain business operations, may take actions in any oneviolation of these policies. Any such violation, even if prohibited by our assumptionspolicies, could producehave a significantly different result.

material adverse effect on our business and reputation. Because of the challenges in managing a geographically dispersed workforce, there also may be additional opportunities for employees to commit fraud or personally engage in practices which violate our policies and procedures.
Risks Related to Ourour Common Stock
Our quarterly performance may be volatile, which in turn may adversely affect the trading price of our common stock.
The availabilityDue to the nature of shares for saleour intellectual property business and reliance on our operating businesses on intellectual property, legal expenses associated with acquisitions, uncertainties regarding the amount and timing of our receipt of license and other fees from potential infringers, stemming primarily from uncertainties regarding the outcome of enforcement actions, rates of adoption of our patented technologies, the growth rates of our existing licensees, and certain other factors, our revenues may vary significantly from quarter to quarter and period to period, which could make our business difficult to manage, adversely affect our business and results of operations, and cause our quarterly and periodic results to fall below market expectations. As a result of these factors, quarter-to-quarter comparisons of our financial results, especially in the short term, may have limited utility as an indicator of future performance. Significant variation in our quarterly performance, compounded by the thin trading volume of our common stock, could significantly and adversely affect the trading price of our common stock.
Future sales of our common stock could reduce the market price of our common stock.
In the future, we may issue securities to raise cash for operations and patent portfolio investments. We may alsoinvestments, or pay for interests in additional subsidiary companies by using shares of our common stock or a combination of cash and shares of our common stock. We may also issue securities convertible into our common stock. Any of these events may dilute stockholders’ ownership interests in our company and have an adverse impact on the price of our common stock.
In addition, salesSales of a substantial amount of our common stock in the public market, or the perception that these sales may occur, could reduce the market price of our common stock. This could also impair our ability to raise additional capital through the sale of our securities.
Delaware law and our charter documents contain provisions that could discourage or prevent a potential takeover of our company that might otherwise result in our stockholders receiving a premium over the market price of their shares.
Provisions of Delaware law and our certificate of incorporation and bylaws could make the acquisition of our company by means of a tender offer, proxy contest or otherwise, and the removal of incumbent officers and directors, more difficult. These provisions include:
•Section 203 of the Delaware General Corporation Law, which prohibits a merger with a 15%-or-greater stockholder, such as a party that has completed a successful tender offer, until three years after that party became a 15%-or-greater stockholder;
amendment of our bylaws by the stockholders requires a two-thirds approval of the outstanding shares;
•the authorization in our certificate of incorporation of undesignated preferred stock, which could be issued without stockholder approval in a manner designed to prevent or discourage a takeover; and
provisions in our bylaws eliminating stockholders’ rights to call a special meeting of stockholders, which could make it more difficult for stockholders to wage a proxy contest for control of our board of directors or to vote to repeal any of •the anti-takeover provisions containedgeneral restriction in our certificate of incorporation and bylaws; and
the divisionon any direct or indirect transfers of our board of directors into three classes with staggered terms for each class, which could make it more difficult for an outsidercommon stock if the effect would be to gain control(i) increase the direct or indirect ownership of our boardcommon stock by any person or group from less than 4.899% to 4.899% or more of directors.our common stock; or (ii) increase the percentage of our common stock owned directly or indirectly by a person or group owning or deemed to own 4.899% or more of our common stock.
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Together, these provisions may make the removal of management more difficult and may discourage transactions that could otherwise involve payment of a premium over prevailing market prices for our common stock.

We may fail to meet market expectations because of fluctuations in quarterly operating results, which could cause the price of our common stock to decline.
Our reported revenues and operating results have fluctuated in the past and may continue to fluctuate significantly from quarter to quarter in the future. It is possible that in future periods, revenues could fall below the expectations of securities analysts or investors, which could cause the market price of our common stock to decline. The following are among the factors that could cause our operating results to fluctuate significantly from period to period:


the dollar amount of agreements executed in each period, which is primarily driven by the nature and characteristics of the technology being licensed and the magnitude of infringement associated with a specific licensee;
the specific terms and conditions of agreements executed in each period and the periods of infringement contemplated by the respective payments;
fluctuations in the total number of agreements executed;
fluctuations in the sales results or other royalty-per-unit activities of our licensees that impact the calculation of license fees due;   

the timing of the receipt of periodic license fee payments and/or reports from licensees; 
fluctuations in the net number of active licensees period to period; 
costs related to investments, alliances, licenses and other efforts to expand our operations;
the timing of payments under the terms of any customer or license agreements into which our operating subsidiaries may enter;

we may elect to account for equity investments in companies where our investment gives us the ability to exercise significant influence over the operating and financial policies of the investee at fair value, which may result in significant fluctuations in operating results (unrealized gains and losses) each period based on fluctuations in the stock price of our investments and the requirement to mark such investments to market at each balance sheet date;
expenses related to, and the timing and results of, patent filings and other enforcement proceedings relating to intellectual property rights, as more fully described in this section; and

new litigation or developments in current litigation and the unpredictability of litigation results or settlements or appeals.
Technology company stock prices are especially volatile, and this volatility may depress the price of our common stock.
The stock market has experienced significant price and volume fluctuations, and the market prices of technology companies have been highly volatile. We believe that various factors may cause the market price of our common stock to fluctuate, perhaps substantially, including, among others, the following:
announcements of developments in our patent enforcement actions;
developments or disputes concerning our patents;
our or our competitors’ technological innovations;
developments in relationships with licensees;
variations in our quarterly operating results;
our failure to meet or exceed securities analysts’ expectations of our financial results;
a change in financial estimates or securities analysts’ recommendations;
changes in management’s or securities analysts’ estimates of our financial performance;
changes in market valuations of similar companies;

concerns about sovereign debt of the United States and the European Union;


announcements by us or our competitors of significant contracts, investments, partnerships, joint ventures, capital commitments, new technologies, or patents; and
failure to complete significant transactions.

      For example, the NASDAQ-100 Technology Sector Index (NDXT) had a range of $2,873.11 - $4,095.06 during the 52-weeks ended December 31, 2017 and the NASDAQ Composite Index (IXIC) had a range of $5,397.99 - $7,003.89 over the same period. Over the same period, our common stock fluctuated within a range of $2.90 - $7.20.
As noted above, our stock price, like many others, has fluctuated significantly in recent periods and if investors have concerns that our business, operating results and financial condition will be negatively impacted by industry, global economic or other negative conditions, our stock price could continue to fluctuate significantly in future periods.
In addition, we believe that fluctuations in our stock price during applicable periods can also be impacted by court rulings and/or other developments in our patent licensing and enforcement actions. Court rulings in patent enforcement actions are often difficult to understand, even when favorable or neutral to the value of our patents and our overall business, and we believe that investors in the market may overreact, causing fluctuations in our stock prices that may not accurately reflect the impact of court rulings on our business operations and assets.
In the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation. If our common stock was the object of securities class action litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could materially harm our business and financial results.

We do not currently intend to pay dividends on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
On February 23, 2016, our board of directors eliminated our dividend policy that provided for the discretionary payment of a total annual cash dividend of $0.50 per common share, payable in the amount of $0.125 per share per quarter, effective as of February 23, 2016. As a result, weWe do not anticipate paying any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

The issuance of the Starboard Securities (defined below) to Starboard and its permitted transferees dilutes the ownership and relative voting power of holders of our common stock and Starboard's sale of Company securities may adversely affect the market price of our common stock.

Pursuant to a Securities Purchase Agreement with Starboard, dated November 18, 2019, the Company sold to Starboard (i) 350,000 shares of its newly designated Series A Preferred Stock and Series A Warrants to purchase up to 5 million shares of common stock in 2019, and (ii) Series B Warrants to purchase up to 100 million shares of common stock in 2020. The investment by Starboard is referred to herein as the “Starboard Investment,” and the Series A Preferred Stock, Series A Warrants and Series B Warrants are referred to herein as, collectively, the “Starboard Securities.”
The Series A Preferred Stock held by Starboard represents approximately 17.1% of our outstanding common stock on an as-converted basis. Because holders of our Series A Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our common stock on all matters submitted to a vote of the holders of our common stock, the issuance of the Series A Preferred Stock to Starboard effectively reduces the relative voting power of the holders of our common stock.
In addition, the conversion and/or exercise of the Starboard Securities into common stock would dilute the ownership interest of existing holders of our common stock. Furthermore, any sales in the public market of the common stock issuable upon conversion or exercise of the Starboard Securities could adversely affect prevailing market prices of our common stock. On February 14, 2023, we entered into an amended and restated registration rights agreement (the “Registration Rights Agreement”) with Starboard and certain of its affiliates, as contemplated by the Recapitalization Agreement. Pursuant to the Registration Rights Agreement, the Company has agreed to file a registration statement covering the resale of certain shares of our common stock issuable or issued to Starboard and such affiliates pursuant to or in accordance with Section 1.1 of the Recapitalization Agreement, including the shares issued to Starboard in the Concurrent Private Rights Offering (as defined below), within 90 days after a written request made prior to the first anniversary of the Closing Date (as defined in the Registration Rights Agreement). The Registration Rights Agreement also provides Starboard and such affiliates with additional rights to require that the Company file a registration statement in other circumstances. These registrations may facilitate the resale of such securities into the public market, and any such resale would increase the number of shares of our common stock available for public trading. Sales by Starboard of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.
Our Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of, our common stockholders, which could adversely affect our liquidity and financial condition, result in the interests of holders of our Series A Preferred Stock differing from those of our common stockholders and delay or prevent an attempt to take over the Company.
Starboard and the other holders of our Series A Preferred Stock have a liquidation preference entitling them to be paid, before any payment may be made to holders of our common stock in connection with a liquidation event, an amount per share of Series A Preferred Stock equal to the greater of (i) the stated value thereof plus accrued and unpaid dividends, and (ii) the amount that would have been received had such share of Series A Preferred Stock been converted into common stock immediately prior to such liquidation event.
Holders of Series A Preferred Stock are entitled to a preferential cumulative dividend at the rate of 3.0% per annum, payable quarterly in arrears. Upon the consummation of a suitable investment or acquisition by the Company, such investment to be identified and approved by each of the Company and Starboard, the dividend rate will increase to 8.0% per annum.
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The holders of our Series A Preferred Stock also have certain redemption rights, including the right to require us to repurchase all or any portion of the Series A Preferred Stock during certain specified periods and subject to certain conditions set forth in the Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock, or the Certificate of Designations. Holders of the Series A Preferred Stock also have the right, subject to certain exceptions, to require us to repurchase all or any portion of the Series A Preferred Stock upon certain change of control events.
These dividend and share repurchase obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. The preferential rights could also result in divergent interests between Starboard and holders of our common stock. Furthermore, a sale of our Company, as a change of control event, may require us to repurchase Series A Preferred Stock, which could have the effect of making an acquisition of the Company more expensive and potentially deterring proposed transactions that may otherwise be beneficial to our stockholders.
Subject to the receipt of stockholder approval at the Company’s next annual meeting of stockholders, (i) the Company will cause the Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, dated as of January 7, 2020 (the “Certificate of Designations”) to be amended and restated in the form attached to the Recapitalization Agreement in order to remove the “4.89% blocker” provision and (ii) on or prior to July 14, 2023,Starboard will convert an aggregate amount of 350,000 shares of Series A Preferred Stock into Common Stock in accordance with the terms of the Certificate of Designations.
We agreed to certain Governance Provisions with Starboard.
In connection with the Starboard Investment, the Company and Starboard entered into a Governance Agreement, dated as of November 18, 2019 and amended on January 7, 2020, (the "Governance Agreement"), which granted to Starboard certain consent and other governance rights.
Under the Recapitalization Agreement, we agreed with Starboard that for a period from the date of the Recapitalization Agreement until May 12, 2026 (the “Applicable Period”), the Board will include at least two (2) directors that are independent of, and not affiliates (as defined in Rule 144 of the Securities Act as amended) of, Starboard, with current Board members Maureen O’Connell and Isaac T. Kohlberg satisfying this initial condition. We and Starboard also agreed that Katharine Wolanyk will continue to serve as a director of the Company until at least May 12, 2024 (or such earlier date if Ms. Wolanyk is unwilling or unable to serve as a director for any reason or resigns as a director). Additionally, within five (5) business days following the date of the Recapitalization Agreement, the Company appointed Gavin Molinelli as a Board member and as Chair of the Board. The Company and Starboard also agreed that, following the closing of the Series B Warrants Exercise (the “Closing”) until the end of the Applicable Period, the number of directors serving on the Board will not exceed 10 members. Following the Closing, the Governance Agreement shall be automatically terminated and of no further force and effect without any further action by any party thereto.
ITEM 1B. UNRESOLVED STAFF COMMENTS

None.


ITEM 2. PROPERTIES

Corporate
Our principal executive corporate and administrative offices areoffice is located in Newport Beach, California,New York, New York, where we lease approximately 17,7588,600 square feet of office space, under a lease agreement that expires in December 2019, a portion of which is currently subleased. Our primary operating subsidiary, Acacia Research Group, LLC,2025. We also have an office for operational and its subsidiaries, are headquarteredadministrative functions located in Frisco, Texas,Irvine, California, where we lease approximately 8,293 square feet of office space, under a lease agreement that expires in April 2019. Certain of our operating subsidiaries also maintain additional leased office space in Munich, Germany.2024. We believe that our facilities are adequate, suitable and of sufficient capacity to support our immediate needs. Refer to Note 11 to the consolidated financial statements elsewhere herein for additional information.

Intellectual Property Operations

Our intellectual property business and its subsidiaries, are based in Frisco, Texas, where we lease office space under a lease agreement that expires in 2023. One additional subsidiary leases office space in Austin, Texas that also expires in 2023. We believe that our intellectual property business' facilities are adequate, suitable and of sufficient capacity to support its immediate needs.
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Industrial Operations
Printronix conducts its foreign and domestic operations using leased facilities under non-cancelable operating leases that expire at various dates through 2028. Printronix's principal executive office is located in Irvine, California, under a lease agreement that expires in 2026. Printronix has a manufacturing site located in Malaysia and third-party configuration sites located in the United States, Singapore and Holland, along with sales and support locations around the world to support its global network of users, channel partners and strategic alliances. We believe that Printronix's facilities are adequate, suitable and of sufficient capacity to support its immediate needs. Refer to Note 11 to the consolidated financial statements elsewhere herein for additional information.
ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of business, we are the subject of, or party to, various pending or threatened legal actions, including various counterclaims in connection with our patent enforcement activities. We believe that any liability arising from these actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Our operating subsidiaries are often required to engage in litigation to enforce their patents and patent rights. Certain of our operating subsidiaries are parties to ongoing patent enforcement related litigation, alleging infringement by third-parties of certain of the patented technologies owned or controlled by our operating subsidiaries.



In connection with any of our patent enforcement actions, it is possible that a defendant may claim and/or a court may rule that we have violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material, and if required to be paid by us or our operating subsidiaries, could materially harm our operating results and our financial position.

We spend a significant amount of our financial and management resources to pursue our current litigation matters. We believe that these litigation matters and others that we may in the future determine to pursue could continue for years and continue to consume significant financial and management resources. The counterparties to our litigation are sometimes large, well-financed companies with substantially greater resources than us. We cannot assure you that any of our current or future litigation matters will result in a favorable outcome for us. In addition, in part due to the appeals process and other legal processes, even if we obtain favorable interim rulings or verdicts in particular litigation matters, they may not be predictive of the ultimate resolution of the dispute. Also, we cannot assure you that we will not be exposed to claims or sanctions against us which may be costly or impossible for us to defend. Unfavorable or adverse outcomes may result in losses, exhaustion of financial resources or other adverse effects which could encumber our ability to effectively and efficiently monetize our assets. Refer to Note 11 to the consolidated financial statements elsewhere herein for additional information related to current legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

None.
None.
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Table of Contents
PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

General

Market Information
Our common stock trades on The NASDAQNasdaq Global Select Market under the symbol “ACTG.”

Price RangeHolders of Common Stock
The high and low sales prices forOn March 13, 2023, there were 62 owners of record of our common stockstock. The foregoing does not include the number of shareholders whose shares are nominally held by banks, brokerage houses or other institutions, but includes each such institution as reported by The NASDAQ Global Select Market for the periods indicated are shown in the table below. Such prices are inter-dealer prices without retail markups, markdowns or commissions and may not necessarily represent actual transactions.

  2017 2016
  
Fourth
Quarter
 
Third
Quarter
 
Second
Quarter
 
First
Quarter
 
Fourth
Quarter
 
Third
Quarter
 
Second
Quarter
 
First
Quarter
                 
High                                            $4.75 $5.50 $5.75 $7.20 $7.68 $7.25 $5.64 $4.30
Low                                            $3.80 $2.90 $3.70 $5.00 $5.55 $4.20 $3.75 $2.82

one record holder.
Dividend Policy

On April 23, 2013, we announced that our Board of Directors approved the adoption of a cash dividend policy that called for the payment of an expected total annual cash dividend of $0.50 per common share, payable in the amount of $0.125 per share per quarter. Under the policy, we paid quarterly cash dividends totaling $25.4 million during 2015. On February 23, 2016, our Board of Directors terminated the company’s dividend policy. Our Board of Directors terminated the dividend policy due to a number of factors, including our financial performance, our available cash resources, our cash requirements and alternative uses of capital that our Board of Directors concluded would represent an opportunity to generate a greater return on investment for us and our stockholders.

The current policy of our Boardboard of Directorsdirectors is to retain earnings, if any, to provide for our growth. Consequently, we do not expect to pay any cash dividends in the foreseeable future. Further, there can be no assurance that our proposed operations will generate revenues and cash flow needed to declare any future cash dividends or that we will have legally available funds to pay future dividends.

Securities Authorized for Issuance under Equity Compensation Plans
Stock Repurchase Program
In February 2018, our Board of Directors authorized a stock repurchase program, or the Program, to repurchase up to $20 million of our outstanding common stock in open market purchases or private purchases, from time to time, in amounts and at prices to be determinedInformation required by the Board of Directors at its discretion. In determining whether or not to repurchase any shares of our common stock, our Board of Directors will consider such factors as the impact of the repurchase on our cash position, as well as our capital needs and whether therethis item is a better alternative use of our capital. We have no obligation to repurchase any amount of our common stock under the Program. The Program is set to expire on February 28, 2019.

Holders of Common Stock

On March 1, 2018, there were approximately 49 owners of record of our common stock. The majority of the outstanding shares of our common stock are held by a nominee holder on behalf of an indeterminable number of ultimate beneficial owners.

Stock Price Performance Graph
The following stock price performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into anyto our Definitive Proxy Statement for our 2023 Annual Meeting of our filings underStockholders.
Recent Sales of Unregistered Securities
None.
Stock Repurchases
There were no stock repurchases during the Securities Act.



The Stock Performance Graph depicted below compares the yearly change in our cumulative total stockholder return for the last five fiscal years with the cumulative total return of The NASDAQ Stock Market (U.S.) Composite Index and the NASDAQ-100 Technology Sector Index.
  2013 2014 2015 2016 2017
           
Acacia Research Corporation common stock $57 $66 $17 $25 $16
Nasdaq Composite Index (IXIC) $138 $157 $166 $178 $229
NASDAQ-100 Technology Sector Index (NDXT) $137 $170 $166 $206 $281

The graph covers the period from December 31, 2012 to December 31, 2017. Cumulative total returns are calculated assuming that $100 was invested on December 31, 2012, in our common stock, in the NASDAQ Composite Index, and in the NASDAQ-100 Technology Sector Index, and that all dividends, if any, were reinvested. Stockholder returns over the indicated period should not be considered indicative of future stock prices or stockholder returns.


ITEM 6. SELECTED FINANCIAL DATA

The consolidated selected balance sheet data as of December 31, 2017 and 2016 and the consolidated selected statements of operations data for the years ended December 31, 2017, 2016 and 2015 set forth below have been derived from our audited consolidated financial statements included elsewhere herein, and should be read in conjunction with those financial statements (including notes thereto). The consolidated selected balance sheet data as of December 31, 2015, 2014 and 2013 and the consolidated selected statements of operations data for the yearsquarter ended December 31, 2014 and 2013 have been derived from audited consolidated financial statements not included herein, but which were previously filed with the SEC.2022.

Consolidated Statements of Operations Data
(In thousands, except share and per share data)
  For the Years Ended December 31,
  2017 2016 2015 2014 2013
           
Revenues $65,402
 $152,699
 $125,037
 $130,876
 $130,556
Inventor royalties and contingent legal fees expense 21,634
 49,204
 34,631
 44,233
 54,508
Litigation and licensing expenses - patents 18,219
 27,858
 39,373
 37,614
 39,335
Amortization of patents 22,154
 34,208
 53,067
 53,745
 49,039
General and administrative expenses (excluding non-cash stock compensation expense) 17,145
 23,857
 27,128
 30,439
 31,335
Non-cash stock compensation expense (included in G&A in the statements of operations) 8,885
 9,062
 11,048
 18,115
 27,894
Other expenses - business development 1,189
 3,079
 3,391
 3,840
 3,251
Impairment of patent-related intangible assets 2,248
 42,340
 74,731
 3,497
 4,619
Impairment of goodwill —
 —
 30,149
 —
 —
Other 1,200
 500
 4,141
 1,548
 3,506
Operating loss (27,272) (37,409) (152,622) (62,155) (82,931)
Other income (expense) 51,911
 798
 (56) (595) 2,131
Income (loss) before (provision for) benefit from income taxes 24,639
 (36,611) (152,678) (62,750) (80,800)
(Provision for) benefit from income taxes (2,955) (18,188) (4,800) (3,912) 21,958
Net income (loss) including noncontrolling interests in subsidiaries $21,684
 $(54,799) $(157,478) $(66,662) $(58,842)
           
Net income (loss) attributable to Acacia Research Corporation $22,180
 $(54,067) $(160,036) $(66,029) $(56,434)
           
Diluted income (loss) per common share $0.44
 $(1.08) $(3.25) $(1.37) $(1.18)
           
Cash dividends declared per common share $—
 $—
 $0.50
 $0.50
 $0.375

Consolidated Balance Sheet Data (In thousands)
  At December 31,
  2017 2016 2015 2014 2013
           
Cash and cash equivalents, restricted cash and investments $136,604
 $158,495
 $145,948
 $193,024
 $256,702
Investment at fair value 104,754
 —
 —
 —
 —
Patents, net of accumulated amortization 61,917
 86,319
 162,642
 286,636
 288,432
Goodwill —
 —
 —
 30,149
 30,149
Total assets 308,768
 296,003
 347,901
 536,348
 593,393
Total liabilities 13,109
 28,560
 33,746
 47,300
 31,195
Noncontrolling interests in operating subsidiaries 1,358
 1,854
 3,944
 5,491
 6,488
Acacia Research Corporation stockholders’ equity 294,301
 265,589
 310,211
 483,557
 555,710



Factors Affecting Comparability:

Investments at fair value. Our equity investment in Veritone is recorded at fair value at each balance sheet date, with changes in fair value reflected in the statements of operations. Results for the year ended December 31, 2017 included a net unrealized gain (included in other income (expense) in our consolidated statements of operations and in the table above) on our equity investment in Veritone totaling $49.5 million, comprised of an unrealized gain on conversion of our Veritone loans to equity of $2.7 million and an unrealized gain on the exercise of our Primary Warrant of $4.6 million, both as of May 2017, and an unrealized gain related to the change in fair value of our equity investment in Veritone through December 31, 2017 of $42.2 million. Refer to Note 712 to the consolidated financial statements elsewhere herein for additional information regarding the impactrelated to past repurchase programs.
ITEM 6. [Reserved]
Not applicable.
24

Litigation and licensing expenses - patents. Litigation and licensing expenses-patents fluctuate from period to period based on patent enforcement and prosecution activity associated with ongoing licensing and enforcement programs and the timing of the commencement of new licensing and enforcement programs in each period. The trend of declining litigation and licensing expenses-patents reflects an overall decrease in portfolio related enforcement activities over the applicable periods. Refer to “Investments in Patent Portfolios” below for additional information regarding the impact of portfolio acquisition trends on licensing and enforcement activities and current and future licensing and enforcement related revenues.

Non-cash stock compensation expense. In February 2017, AIP Operation LLC, or AIP, an indirect subsidiary of ours, adopted a Profits Interests Plan, or the Profits Interests Plan, that provides for the grant of AIP membership interests to certain members of management and the Board of Directors of Acacia Research Corporation as compensation for services rendered. The membership interests are represented by units, or the Units, reserved for the issuance of awards under the Profits Interests Plan. As of December 31, 2017, AIP holds the Veritone 10% Warrant described at Note 10. The fair value of the Units totaled $3.0 million as of December 31, 2017 and is classified as a liability in our consolidated balance sheet, with the corresponding compensation charge included in non-cash general and administrative expenses in the statement of operations for the year ended December 31, 2017.

Impairment of patent related intangible assets. The impairment charges for the periods presented reflect the impact of reductions in expected estimated future net cash flows for certain portfolios due to adverse legal outcomes, conclusion of the related licensing and enforcement programs and /or certain patent portfolios that management determined it would no longer allocate resources to in future periods. The impairment charges consisted of the excess of the asset’s carrying value over its estimated fair value as of the applicable measurement date.

Goodwill. We conducted an annual goodwill impairment test as of December 31, 2015. Based upon the difference between the implied fair value of goodwill and the historical carrying value of goodwill, due primarily to the sustained decline in the Company’s stock price and adverse litigation outcomes in the fourth quarter of 2015, we recognized a goodwill impairment charge totaling $30.1 million. Refer to “Critical Accounting Policies” below for additional information.



ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements"forward-looking statements" as a result of various factors including the risks we discuss in Item 1A “Risk Factors,” and elsewhere herein. For additional information, refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

General

We are an opportunistic capital platform that purchases businesses based on the differentials between public and private market valuations. We use a wide range of transactional and operational capabilities to realize the intrinsic value in the businesses that we acquire. Our ideal transactions include the acquisition of public or private companies, the acquisition of divisions of other companies, or structured transactions that can result in the recapitalization or restructuring of the ownership of a business to enhance value.
We are particularly attracted to complex situations, where value is not fully recognized in the public markets, where values of certain operations are masked by a diversified business mix, or where private ownership has not invested capital necessary to drive long-term value. We aim to operate a transactional platform through which we can initiate a strategic block position in public companies as a path to complete whole company acquisitions or strategic transactions that unlock value. We believe this business model is differentiated from private equity funds, which do not typically own public securities prior to acquiring companies, hedge funds, which do not typically acquire entire businesses, and other acquisition vehicles such Special Purpose Acquisition Companies, which are narrowly focused on completing one singular, defining acquisition.
We have a strategic relationship with Starboard that has provided, and we expect will continue to provide, us with industry expertise, and operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of such businesses once acquired. Starboard has provided ready access to its extensive network of highly successful industry executives and, as part of our relationship, Starboard assists with sourcing and evaluating appropriate acquisition opportunities.
Our focus is companies with market values in the sub-$2 billion range and particularly on businesses valued at $1 billion or less. We are, however, opportunistic, and may pursue acquisitions that are larger under the right circumstance.
Our business is described more fully in Item 1. "Business," of this annual report.
Intellectual Property Operations
We invest in license and enforce patented technologies. We partner with inventors and patent owners, applying our legal and technology expertise to patent assets to unlock the financial value in their patented inventions. We generate revenuesIP and related cash flows from the granting of patent rights for the use of patented technologies that our operating subsidiaries control or own. We assist patent owners with the prosecutionabsolute return assets and development of their patent portfolios, the protection of their patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and, where necessary, with the enforcement against unauthorized users of their patented technologies through the filing of patent infringement litigation. We are principalsengage in the licensing and enforcement effort,of patented technologies. Through our Patent Licensing, Enforcement and Technologies Business, operated under Acacia Research Group, LLC and its wholly-owned subsidiaries ("ARG"), we are a principal in the licensing and enforcement of patent portfolios, with our operating subsidiaries obtaining control of the rights in the patent portfolio or control ofpurchasing the patent portfolio outright.

We have While we, from time to time, partner with inventors and patent owners, from small entities to large corporations, we assume all responsibility for advancing operational expenses while pursuing a proven track record ofpatent licensing and enforcement successprogram, and when applicable, share net licensing revenue with over 1,550 license agreements executedour patent partners as that program matures, on a pre-arranged and negotiated basis. We may also provide upfront capital to date, across 193 patent portfolioowners as an advance against future licensing and enforcement programs. revenue.
Currently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios, which include U.S. patents and certain foreign counterparts, covering technologies used in a variety of industries. ToWe generate revenues and related cash flows from the granting of IP rights for the use of patented technologies that our operating subsidiaries control or own.
We have established a proven track record of licensing and enforcement success with over 1,600 license agreements executed to date, across nearly 200 patent portfolio licensing and enforcement programs. As of December 31, 2022, we have generated gross licensing revenue of approximately $1.4$1.7 billion, and have returned more than $731$849.2 million to our patent partners.

25
We also identify opportunities to partner with high-growth and potentially disruptive technology companies. We leverage our experience, expertise, data and relationships developed as a leader in the IP industry to pursue these opportunities. In some cases, these opportunities will complement, and/or supplement our primary licensing and enforcement business.

Our business is described more fully in Item 1. “Business,”Table of this annual report.Contents

Executive Overview

For the years ended December 31, 2017, 2016more information related to our Intellectual Property Operations, refer to additional detailed patent business discussion below.
Industrial Operations
In October 2021, we consummated our first operating company acquisition of Printronix. Printronix is a leading manufacturer and 2015 we reported revenuesdistributor of $65.4 million, $152.7 millionindustrial impact printers, also known as line matrix printers, and $125.0 million, respectively. Cashrelated consumables and short-term investments totaled $136.6 million asservices. The Printronix business serves a diverse group of December 31, 2017, as comparedcustomers that operate across healthcare, food and beverage, manufacturing and logistics, and other sectors. This mature technology is known for its ability to $158.5 million as of December 31, 2016. Our operating activities during the periods presented were focused on the continued operation of our patent licensingoperate in hazardous environments. Printronix has a manufacturing site located in Malaysia and enforcement business, including the continued pursuit of our ongoing patent licensing and enforcement programs. During 2017 and 2016, we also focused on cost reduction and optimization efforts, including reductions in headcount, renegotiation of certain existing arrangements, termination of certain patent licensing programs to maximize resource allocation, and reducing facilities costs.

We continue to experience challenges in the existing patent and licensing environment, including challenges in identifying and acquiring new high-quality patent assets as discussed below. Despite these challenges, we will continue to invest in and monetize our existing quality patent assets.

Our team’s expertise in identifying and evaluating complex IP, and in developing and cultivating long-term business relationships, provides us a unique window into innovation and technological advancement. We are increasing our efforts to leverage our expertise and experience to create new avenues which we believe will lead to increased shareholder value. In this regard, and in addition to monetizing our existing IP assets, we will increase our focus on opportunities to partner with high-growth and potentially disruptive technology companies. We will leverage our experience, expertise, data and relationships developed as a leader in the IP industry to pursue these opportunities. Examples of some of these technology areas include Artificial Intelligence, or AI, and machine learning, machine vision, robotics and blockchain technologies. Examples of our initial execution of this strategy are our partnerships with Veritone, Inc., or Veritone (Nasdaq: VERI), and Miso Robotics, Inc., or Miso Robotics, described below.

Enforcement Activities. In March 2017, our subsidiary, Saint Lawrence Communications, LLC, or Saint Lawrence, received a jury verdict in its case against Motorola, Inc.third-party configuration sites located in the United States, District Court forSingapore and Holland, along with sales and support locations around the Eastern Districtworld to support its global network of Texas, or District Court. The jury returned a verdict that five U.S. patents were validusers, channel partners and infringed. The jury found that the infringementstrategic alliances. This acquisition was made at what we believe to be an attractive purchase price, and we are now supporting existing management in its execution of strategic partnerships to generate growth.


was willful and returned a damages award of nearly $9.2 million for past infringement. The District Court is currently considering Saint Lawrence’s post-trial motion for and attorneys’ fees as well as post-trial motions from Motorola. We are awaiting issueacquired all of the final judgment by the District Court in this matter, after which appeals may be filed. In addition, our German subsidiary, Saint Lawrence Communications GmbH, was granted injunctions by the German court in enforcement proceedings against Motorola, Inc., which injunctions have been appealed by Motorola. The Motorola actions have not yet concluded, and hence, no revenues have been recognized in the statementsoutstanding stock of operations related to these specific Motorola actions.

During the second quarterPrintronix, for a cash purchase price of 2017, Saint Lawrence resolved its enforcement actions against ZTE including the U.S. lawsuit. In February 2018, Saint Lawrence and Saint Lawrence Communications GmbH entered into an agreement with Apple Inc. to resolve all outstanding litigation.

As previously reported, in September 2016, our subsidiary Cellular Communications Equipment LLC, or CCE, received a jury verdict of infringement by Apple, Inc. In the third quarter of 2017, CCE entered into an agreement with Apple Inc. to resolve the patent litigation.

Partnerships. We may from time to time evaluate other business opportunities which complement, or supplement, our primary licensing and enforcement business and leverage our intellectual property expertise. For example, in June 2017, we partnered with Miso Robotics, an innovative leader in robotics and AI solutions,approximately $37.0 million, which included an equity investment totaling $2.25initial $33.0 million as part of Miso Robotics’ closing of $3.1cash payment and a $4.0 million in Series A funding. In addition, in February 2018, we made an additional strategic equity investment totaling $6.0 million in the Series B financing round for Miso Robotics. Miso Robotics will use theworking capital to expand its suite of collaborative, adaptable robotic kitchen assistants and to broaden applications for Miso AI, the company’s machine learning cloud platform. In addition, we also entered into an IP services agreement with Miso Robotics to help the company drive AI-based solutions for the entire restaurant industry. Our partnership with Miso Robotics represents our second partnership with companies seeking to transform the marketplaceadjustment. The Company's consolidated financial statements include Printronix's consolidated operations from October 7, 2021 through Artificial Intelligence.

In August 2016, we announced the formation of a partnership with Veritone, a leading cloud-based Artificial Intelligence technology company that is pioneering next generation search and analytics through their proprietary Cognitive Media Platform™. Under the partnership, we have the ability to leverage our intellectual property expertise to assist Veritone with building its patent portfolio and executing upon its overall intellectual property strategy. In order to enhance Veritone’s leadership position in the field of machine learning and AI, we provided a total of $53.3 million in funding to Veritone pursuant to an investment agreement executed in August 2016, as amended.

Upon Veritone’s consummation of its IPO, our loans and accrued interest were automatically converted into 1,969,186 shares of Veritone common stock. In addition, Acacia exercised its Primary Warrant, acquiring 2,150,335 shares of Veritone common stock. Following the automatic exercise of our Primary Warrant, Veritone issued to us an additional warrant, or the 10% Warrant, that provides for the issuance of additional shares of common stock of Veritone at an exercise price per share of $13.6088 per share, with 50% of the shares underlying the 10% Warrant vesting as of the issuance date and the remaining 50% of the shares vesting on the first anniversary of the issuance date. Results for the year ended December 31, 2017 included a net unrealized investment gain on our equity investment in Veritone totaling $49.5 million, primarily related to the increase in Veritone’s stock price since the IPO and our related requirement to mark our Veritone investment to market at each balance sheet date. Our Veritone common shares were subject to a lock-up agreement that expired on February 15, 2018, subsequent to which the shares may be sold pursuant to Rule 144, subject to volume limitations and Rule 144 filing requirements, as well as other restrictions under applicable securities laws.2022. Refer to Note 71 to the consolidated financial statements elsewhere herein for additional information.
For more information regardingrelated to our partnership with Veritone.

We believe these partnerships will be synergistic with our overall business strategies.
Patent Portfolio Intake. One of the significant challenges in our industry continues to be quality patent intake dueIndustrial Operations, refer to the challengessection entitled "Industrial Printing Solutions" below.
Recent Business Developments and complexityTrends
Recapitalization
On October 30, 2022, the Company entered into a Recapitalization Agreement with the Investors, pursuant to which, among other things, the Company and Starboard agreed to enter into a series of the current patent environment. We acquired one portfolio during fiscal year 2017 from our partnership with Renesas Electronics of Japan.
With respecttransactions to our licensing, enforcement and overall business, neither we nor our operating subsidiaries invent new technologies or products; rather, we depend upon the identification and investment in patents, inventions and companies that own intellectual property through our relationships with inventors, universities, research institutions, technology companies and others. If our operating subsidiaries are unable to maintain those relationships and identify and grow new relationships, then we may not be able to identify new technology-based patent opportunities for sustainable revenue and /or revenue growth.


Our current or future relationships may not provide the volume or quality of technologies necessary to sustain our licensing, enforcement and overall business. In some cases, universities and other technology sources compete against us as they seek to develop and commercialize technologies. Universities may receive financing for basic research in exchange for the exclusive right to commercialize resulting inventions. These and other strategies employed by potential partners may reduce the number of technology sources and potential clients to whom we can market our solutions. If we are unable to maintain current relationships and sources of technology or to secure new relationships and sources of technology, such inability may have a material adverse effect on our revenues, operating results, financial condition and ability to maintain our licensing and enforcement business.

For example, we obtained control of only one, two and three new patent portfolios during fiscal years 2017, 2016 and 2015, respectively, compared to 6 new patent portfolios and 25 new patent portfolios in fiscal years 2014 and 2013, respectively. This decrease in our patent portfolio intake reflects in part our strategic decision in 2013 to shift the focus of our operating business to serving a smaller number of customers, each having higher quality patent portfolios. As a result, our gross number of patent portfolio acquisitions has decreased significantly. This decrease in our patent portfolio intake also reflects in part industry trends impacting our ability to acquire patent portfolios. For example, legislative and legal changes have increased the complexity of patent enforcement actions and may significantly affect the market availability of suitable patent portfolios for acquisition. As a result of these continuing industry trends, our recent and future patent portfolio intake has been and may continue to be negatively impacted, resulting in further decreases in future revenue generating opportunities, and continued negative adverse impacts on the sustainability of our licensing and enforcement business. We continue to experience significant adverse challenges with respect to our patent intake efforts, and if these adverse challenges continue, our licensing and enforcement revenues will continue to decline and we will be unable to profitably sustain our licensing and enforcement business going forward.

Operating activities during the periods presented included the following:
 2017 2016 2015
      
Revenues (in thousands)$65,402
 $152,699
 $125,037
New agreements executed20
 39
 63
Licensing and enforcement programs generating revenues - during the respective period13
 28
 30
Licensing and enforcement programs with initial revenues1
 7
 4
New patent portfolios1
 2
 3
Year end cash, cash equivalents and short-term investments*$136,604
 $158,495
 $145,948

* Includes restricted cash (2016 and 2015 balances only)

Our revenues historically have fluctuated period to period, and can vary significantly, based on a number of factors including the following:

the dollar amount of agreements executed each period, which can be driven by the nature and characteristics of the technology or technologies being licensed and the magnitude of infringement associated with a specific licensee;
the specific terms and conditions of agreements executed each period including the nature and characteristics of rights granted, and the periods of infringement or term of use contemplated by the respective payments;
fluctuationsrestructure Starboard’s existing investments in the total number of agreements executed each period;
the number of, timing, results and uncertainties associated with patent licensing negotiations, mediations, patent infringement actions, trial dates and other enforcement proceedings relatingCompany in order to our patent licensing and enforcement programs;
the relative maturity of licensing programs during the applicable periods;
other external factors, including the periodic status or results of ongoing negotiations, the status or results of ongoing litigations and appeals, actual or perceived shifts in the regulatory environment, impact of unrelated patent related judicial proceedings and other macroeconomic factors;
historically, based on the merits and strength of our operating subsidiary’s patent infringement claims and other factors, many prospective licensees have elected to settle significant patent infringement cases and pay reasonable license fees for the use of our patented technology, as those patent infringement cases approached a court determined trial date; and


fluctuations in overall patent portfolio related enforcement activities which are impacted by the portfolio intake challenges discussed above.
Our management does not attempt to manage for smooth sequential periodic growth in revenues period to period, and therefore, periodic results can be uneven. Unlike most operating businesses and industries, licensing revenues not generated in a current period are not necessarily foregone but, depending on whether negotiations, litigation or both continue into subsequent periods, and depending on a number of other factors, such potential revenues may be pushed into subsequent fiscal periods.

Summary of Results of Operations - For Fiscal Years 2017, 2016 and 2015
(In thousands, except percentage change values)
 Fiscal Year % Change
 2017 2016 2015 2017 vs. 2016 2016 vs. 2015
          
Revenues$65,402
 $152,699
 $125,037
 (57)% 22 %
Inventor royalties and contingent legal fees21,634
 49,204
 34,631
 (56)% 42 %
Litigation and licensing expenses - patents18,219
 27,858
 39,373
 (35)% (29)%
Amortization expense22,154
 34,208
 53,067
 (35)% (36)%
Impairment of patent-related intangible assets

2,248
 42,340
 74,731
 (95)% (43)%
Impairment of goodwill

—
 —
 30,149
 — % (100)%
Other operating costs and expenses(1)
28,419
 36,498
 45,708
 (22)% (20)%
Operating loss(27,272) (37,409) (152,622) (27)% (75)%
Total other income (expense)51,911
 798
 (56) *
 *
Provision for income taxes(2,955) (18,188) (4,800) (84)% 279 %
Net (income) loss attributable to noncontrolling interests in subsidiaries496
 732
 (2,558) (32)% (129)%
Net income (loss) attributable to Acacia Research Corporation22,180
 (54,067) (160,036) (141)% (66)%

* Percentage change in excess of 300%
(1) Includes non-cash stock compensation charges of $8.9 million, $9.1 million and $11.0 million in fiscal years 2017, 2016 and 2015, respectively, included in General and administrative expense in the consolidated statements of operations.

Overview - Fiscal Year 2017 compared with Fiscal Year 2016

Revenues decreased $87.3 million, or 57% to $65.4 million, due primarily to a decrease in the number of agreements executed and a decrease in average revenue per agreement. Refer to “Investments in Patent Portfolios” below for additional information regarding the impact of portfolio acquisition trends on current and future licensing and enforcement related revenues.

Income before provision for income taxes was $24.6 million for fiscal year 2017, as compared to a loss before provision for income taxes of $36.6 million for fiscal year 2016. The net change was primarily comprised of the change in revenues described above, a net $49.5 million unrealized gain on our equity investment in Veritone, a $3.0 million non-cash stock compensation charge for our Veritone related profits interest units and a net decrease in operating expenses, as follows:

Inventor royalties and contingent legal fees, on a combined basis, decreased $27.6 million, or 56%, relatively consistent with the 57% decrease in revenues in fiscal year 2017. Contingent legal fees decreased $9.8 million, or 37%, due to an increase in average contingent legal fee rates for the portfolios generating revenues in fiscal year 2017. Inventor royalties decreased $17.8 million, or 78%, primarily due to lower average inventor royalty rates for the portfolios generating revenues during fiscal year 2017.

Litigation and licensing expenses-patents decreased $9.6 million, or 35%, to $18.2 million, due primarily to a net decrease in litigation support and third-party technical consulting expenses associated with ongoing licensing and enforcement programs and an overall decrease in portfolio related enforcement activities. Refer to “Investments in


Patent Portfolios” below for additional information regarding the impact of portfolio acquisition trends on licensing and enforcement activities and current and future licensing and enforcement related revenues.

Amortization expense decreased $12.1 million, or 35%, to $22.2 million, due to a decrease in scheduled amortization resulting from patent portfolio impairment charges previously recorded in the second and fourth quarters of 2016, and no new patent portfolio acquisition costs incurred during fiscal year 2017.

Impairment of patent-related intangible asset charges decreased $40.1 million, or 95%, to $2.2 million. Impairment charges reflect the impact of reductions in expected estimated future net cash flows for certain patent portfolios and/or the impairment of certain portfolios that management determined it would no longer allocate resources to in future periods.

General and administrative expenses decreased $6.9 million, or 21%, to $26.0 million, due primarily to a reduction in personnel costs in connection with headcount reductions in 2016 and 2017, a decrease in variable performance based compensation costs consistent with the decrease in revenues for the periods and a decrease in corporate, general and administrative costs.

Excluding profits interests related non-cash stock compensation, non-cash stock compensation expense decreased $3.2 million, or 36% due primarily to the reduction in head count. Profits interests related non-cash stock compensation expense totaled $3.0 million, reflecting the December 31, 2017 fair value of our Veritone related profits interest units granted in February 2017.

Results for fiscal year 2017 included a net unrealized gain on our investment in Veritone totaling $49.5 million (included in other income (expense)), comprised of an unrealized gain on conversion of our Veritone loans to equity of $2.7 million and an unrealized gain on the exercise of our Primary Warrant of $4.6 million, both as of May 2017, and an unrealized gain related to the change in fair value of our equity investment in Veritone through December 31, 2017 of $42.2 million.

Tax expense for fiscal years 2017 and 2016 primarily reflects the impact of state taxes and foreign withholding taxes incurred on revenue agreements executed with third-party licensees domiciled in foreign jurisdictions. Results for fiscal year 2017 included a significant unrealized gain on our investment in Veritone, which created a related deferred tax liability. The future anticipated reversal of this deferred tax liability provides for a source of taxable income that allows for the realizability of existing deferred tax assets that have been reduced by a valuation allowance for the periods presented. The effective tax rate reflects both the recognition of the deferred tax liability and the reversal of valuation allowance. See below for additional information.

Overview - Fiscal Year 2016 compared with Fiscal Year 2015

Revenues increased $27.7 million, or 22% to $152.7 million for fiscal year 2016, due to an increase in average revenue per agreement, which was partially offset by a decrease in the number of agreements executed.

Inventor royalties and contingent legal fees, on a combined basis, increased $14.6 million, or 42%, due primarily to the 22% increase in revenues in fiscal year 2016, and a 4% increase in average contingent legal fee rates for the portfolios generating revenues in fiscal year 2016, as compared to the portfolios generating revenues in fiscal year 2015.

Litigation and licensing expenses-patents decreased $11.5 million, or 29%, to $27.9 million, due primarily to a net decrease in litigation support and third-party technical consulting expenses associated with patent trials and ongoing licensing and enforcement programs.

Amortization expense decreased $18.9 million, or 36%, to $34.2 million, due to a decrease in scheduled amortization on existing patent portfolios resulting from various patent portfolio impairment charges previously recorded in the fourth quarter of 2015 and second quarter of 2016.

Impairment of patent-related intangible asset charges decreased $32.4 million, or 43%, to $42.3 million. Impairment charges reflect the impact of reductions in expected estimated future net cash flows for certain patent portfolios and certain patent portfolios that management determined it would no longer allocate resources to in future periods. The impairment charges consisted of the excess of the asset’s carrying value over its estimated fair value as of the applicable measurement date.



In the fourth quarter of fiscal 2015, we performed an impairment analysis of goodwill. Based upon the difference between the implied fair value of goodwill and the historical carrying value of goodwill, due primarily to the sustained decline insimplify the Company’s stock pricecapital structure. Under the Recapitalization Agreement, the Company and adverse litigation outcomes occurring in the fourth quarter of 2015, we recognized a goodwill impairment charge totaling $30.1 million in the fourth quarter of 2015.

General and administrative expenses decreased $5.3 million, or 14%,Starboard agreed to $32.9 million, due primarily to a net decrease in personnel coststake certain actions in connection with the net reductionRecapitalization. For a detailed description of the Recapitalization and the actions taken and contemplated to be taken in headcount during 2016connection therewith, see Note 8 to the consolidated financial statements elsewhere herein.
Change of Chief Executive Officer
Since 2021, we have announced various changes to our Board and 2015senior management, including
•Effective November 1, 2022, Clifford Press resigned as the Chief Executive Officer and President of the Company, and as a member of the Board. Mr. Press’ resignation was not due to any disagreement with the Company on any matter relating to its operations, policies, practices or otherwise known to any executive officer of the Company.
•Effective November 1, 2022, Martin D. McNulty Jr., the Company’s current Chief Operating Officer and Head of M&A, was appointed interim Chief Executive Officer of the Company and will serve as the Principal Executive Officer of the Company. The Board intends to commence a search for a permanent successor.
In addition, there have been other changes to the Company’s management and the Board, as discussed in “Item 1A. Risk Factors — Risks Related to Our Business, Business Strategy, and Platform — Recent changes in the Company’s management team and board of directors, as well as ongoing litigation related to the Company’s former Chief Executive Officer, may be disruptive to, or cause uncertainty in, the Company’s business, results of operations and the price of the Company’s common stock.” Changes in leadership and key management positions have inherent risks, and there are no assurances that any of our recent changes will not affect our operations and financial condition.
Acquisitions
In October 2021, we consummated our first operating company in connection with our acquisition of Printronix. We acquired all of the outstanding stock of Printronix, for a cash purchase price of approximately $37.0 million, which included an initial $33.0 million cash payment and a net decrease$4.0 million working capital adjustment. The Company's consolidated financial statements include Printronix's consolidated operations from October 7, 2021 through December 31, 2022. Refer to Note 1 to the consolidated financial statements elsewhere herein for additional information.
26
In June 2020 we acquired the Life Sciences Portfolio. In connection with the purchase of the equity securities in non-cash stock compensation expense.

Fiscal year 2016 and 2015 operating expenses included expenses for court ordered attorney fees totaling $500,000 and $4.1the Life Sciences Portfolio, we issued to the Investors $115.0 million respectively.

Tax expense for the periods presented reflects foreign taxes withheld on revenue agreements with licensees in foreign jurisdictions and other state taxes, and the impact of full valuation allowances recorded for net operating loss (2015 only) and foreign tax credit related tax assets generated during the periods. As such, no tax benefit was recognized for net operating loss and foreign tax credit related tax benefits generated during the applicable periods presented.

Revenues for the periods presented included fees from the following licensing and enforcement programs:
•
360 Degree View Technology(3)
•
Oil and Gas Drilling technology(2)
•
3G & 4G Cellular Air Interface and Infrastructure technology(3)
•
Oil and Gas Production technology(3)
•
4G Wireless technology(2)(3)
•
Online Auction Guarantee technology(1)(2)(3)
•
Audio Communications Fraud Detection technology(2)(3)
•
Optical Networking technology(1)(2)(3)
•
Automotive Safety, Navigation and Diagnostics technology(3)
•
Optimized Microprocessor Operation technology(3)
•
Bone Wedge technology(1)(2)(3)
•
Reflective and Radiant Barrier Insulation technology(2)(3)
•
Broadband Communications technology(2)(3)
•
Semiconductor 3D Die Stacking technology(2)
•
Cardiology and Vascular Device technology(1)(2)(3)
•
Semiconductor Memory Circuit and Manufacturing Processes technology(2)
•
Diamond and Gemstone Grading technology(2)
•
Semiconductor and Memory-Related technology(1)
•
DisplayPort and MIPI DSI technology(1)(2)(3)
•
Semiconductor Testing technology(3)
•
DRAM and Flash Memory technology(2)
•
Shared Memory for Multimedia Processing(1)(2)(3)
•
Electronic Access Control technology(1)(3)
•
Speech codes used in wireless and wireline systems technology(1)(2)(3)
•
Electronic spreadsheet, data analysis and software development technology(2)
•
Spinning and Jousting Toy Game technology(3)
•
Enhanced Mobile Communications technology(3)
•
Super Resolutions Microscopy technology(1)(2)(3)
•
Flash Memory technology(2)
•
Surgical Access technology(3)
•
Gas Modulation Control Systems technology(2)(3)
•
Suture Anchors technology(3)
•
High Speed Circuit Interconnect and Display Control technology(2) (3)
•
Telematics technology(2)(3)
•
Improved Lighting technology(3)
•
Unicondylar Knee Replacement technology(3)
•
Innovative Display technology(1)(3)
•
Variable Data Printing technology(2)
•
Intercarrier SMS technology(3)
•
Video Analytics for Security technology(3)
•
Interstitial and Pop-Up Internet Advertising technology(2)(3)
•
Video Conferencing technology(1)
•
Knee Replacement technology(2)
•
Voice-Over-IP technology(3)
•
Lighting Ballast technology(2)
•
Wireless Data Synchronization & Data Transfer technology(3)
•
Location Based Services technology(3)
•
Wireless Infrastructure and User Equipment technology(1)(2)(3)
•
Messaging technology(3)
•
Wireless Location Based Services technology(3)
•
Microprocessor and Memory technology(2)(3)
•
Wireless Monitoring technology(3)
•
Mobile Computer Synchronization technology(3)

(1)
Licensing and enforcement program generating revenue in 2017.
(2)
Licensing and enforcement program generating revenue in 2016.
(3)
Licensing and enforcement program generating revenue in 2015.

Revenues from one or moreprincipal amount of our patentssenior secured notes, or patent portfolios may be significantNotes. As of December 31, 2020, all of the equity securities in the Life Sciences Portfolio were transferred to the Company. As of December 31, 2022, we have monetized a majority of the portfolio while retaining an interest in a specific reporting period,number of operating businesses, including a controlling interest in one of the companies in the portfolio. Further, some of the businesses in which we continue to hold an interest generate income through the receipt of royalties and milestone payments. Refer to Note 3to the consolidated financial statements elsewhere herein for more information.
Business Strategy
We intend to grow our company by acquiring additional operating businesses and intellectual property assets. However, we may not complete any acquisitions, and any acquisitions that we complete will be costly and could negatively affect our results of operations, and dilute our stockholders’ ownership, or cause us to incur significant to our licensingexpense, and enforcement business as a whole.we may not realize the expected benefits of acquisitions.




Patent Licensing and Enforcement

Patent Litigation Trial Dates and Related Trials. 
As of the date of this report, our operating subsidiaries have approximately sevenfour pending patent infringement cases with a scheduled trial datedates in the next twelve months. Patent infringement trials are components of our overall patent licensing process and are one of many factors that contribute to possible future revenue generating opportunities for us. Scheduled trial dates, as promulgated by the respective court, merely provide an indication of when, in future periods, the trials may occur according to the court’s scheduling calendar at a specific point in time. A court may change previously scheduled trial dates. In fact, courts often reschedule trial dates for various reasons that are unrelated to the underlying patent assets and typically for reasons that are beyond our control. While scheduled trial dates provide an indication of the timing of possible future revenue generating opportunities for us, the trials themselves and the immediately preceding periods represent the possible future revenue generating opportunities. These future opportunities can result in varying outcomes. In fact, it is difficult to predict the outcome of patent enforcement litigation at the trial level and outcomes can be unfavorable. It can be difficult to understand complex patented technologies, and as a result, this may lead to a higher rate of unfavorable litigation outcomes. Moreover, in the event of a favorable outcome, there is a higher rate of successful appeals in patent enforcement litigation than more standard business litigation. Such appeals are expensive and time consuming, resulting in increased costs and a potential for delayed or foregone revenue opportunities in the event of modification or reversal of favorable outcomes. Although we diligently pursue enforcement litigation, we cannot predict with reliability the decisions made by juries and trial courts.  Please referRefer to Item 1A.1A “Risk Factors”Factors— Risks Related to our Intellectual Property Business and Industry” for additional information regarding trials, patent litigation and related risks.

Litigation and Licensing Expense.
We expect patent-related legal expenses to continue to fluctuate from period to period based on the factors summarized herein, in connection with future trial dates, international enforcement, strategic patent portfolio prosecution and our current and future patent portfolio investment, prosecution, licensing and enforcement activities. The pursuit of enforcement actions in connection with our licensing and enforcement programs can involve certain risks and uncertainties, including the following:

Increases in patent-related legal expenses associated with patent infringement litigation, including, but not limitedRefer to increases in costs billed by outside legal counselItem 1A “Risk Factors” for discovery, depositions, economic analyses, damages assessments, expert witnesses and other consultants, re-exam and inter partes review costs, case-related audio/video presentations and other litigation support and administrative costs could increase our operating costs and decrease our profit generating opportunities;

Our patented technologies and enforcement actions are complex and, as a result, we may be required to appeal adverse decisions by trial courts in order to successfully enforce our patents. Moreover, such appeals may not be successful;

New legislation, regulations or rules related to enforcement actions, including any fee or cost shifting provisions, could significantly increase our operating costs and decrease our profit generating opportunities. Increased focus on the growing number of patent-related lawsuits may result in legislative changes which increase our costs and related risks of asserting patent enforcement actions. For instance, the United States House of Representatives passed a bill that would require non-practicing entities that bring patent infringement lawsuits to pay legal costs of the defendants, if the lawsuits are unsuccessful and certain standards are not met;

Courts may rule that our subsidiaries have violated certain statutory, regulatory, federal, local or governing rules or standards by pursuing such enforcement actions, which may expose us and our operating subsidiaries to material liabilities, which could harm our operating results and our financial position;

The complexity of negotiations and potential magnitude of exposure for potential infringers associated with higher quality patent portfolios may lead to increased intervals of time between the filing ofadditional information regarding litigation and potential revenue events (i.e. markman dates, trial dates), which may lead to increased legal expenses, consistent with the higher revenue potential of such portfolios; andlicensing expense risk.

Fluctuations in overall patent portfolio related enforcement activities which are impacted by the portfolio intake challenges discussed above could harm our operating results and our financial position.

Investments in Patent Portfolios

One of the significant challenges in our industry continues to be quality patent intake due to the challenges and complexity associated with the current patent environment. We acquired one portfolio during fiscal year 2017 from our


partnership with Renesas Electronics of Japan, compared to two new patent portfolios and three new patent portfolios in fiscal years 2016 and 2015, respectively. There were no patent portfolio investment costs paid in fiscal year 2017, compared to $1.2 million and $19.5 million in fiscal years 2016 and 2015, respectively.
With respect to our licensing, enforcement and overall business, neither we nor our operating subsidiaries invent new technologies or products; rather, we depend upon the identification and investment in patents, inventions and companies that own intellectual propertyIP through our relationships with inventors, universities, research institutions, technology companies and others. If our operating subsidiaries are unable to maintain those relationships and identify and grow new relationships, then we may not be able to identify new technology-based patent opportunities for sustainable revenue and /or revenue growth.
Our current or future relationships may not provide the volume or quality of technologies necessary to sustain our licensing, enforcement and overall business. In some cases, universities and other technology sources compete against us as they seek to develop and commercialize technologies. Universities may receive financing for basic research in exchange for the exclusive right to commercialize resulting inventions. These and other strategies employed by potential partners may reduce the number of technology sources and potential clients to whom we can market our solutions. If we are unable to maintain current relationships and sources of technology or to secure new relationships and sources of technology, such inability may have a material adverse effect on our revenues, operating results, financial condition and ability to maintain our licensing and enforcement business.

Patent Portfolio Intake
For example,One of the significant challenges in the intellectual property industry continues to be quality patent intake due to the challenges and complexity associated with the current patent environment.
27
During the year ended December 31, 2022, we obtained controldid not acquire any new patent portfolios. During 2021, we acquired one new patent portfolio consisting of only one, two and threeWi-Fi 6 standard essential patents. In 2020, we acquired five new patent portfolios during fiscal years 2017, 2016consisting of (i) flash memory technology, (ii) voice activation and 2015, respectively, comparedcontrol technology, (iii) wireless networks, (iv) internet search, advertising and cloud computing technology and (v) GPS navigation. The patents and patent rights acquired in 2021 and 2020 have estimated economic useful lives of approximately five years.
Industrial Printing Solutions
Our Printronix subsidiary is a worldwide leader in multi‐technology supply‐chain printing solutions for a variety of industries, including manufacturing, transportation and logistics, retail distribution, food and beverage distribution, and pharmaceutical distribution. Printronix’s line matrix printers are used for mission critical applications within these industries, including labeling and inventory management, build sheets, invoicing, manifests and bills of lading, and reporting. In China, India and other developing countries in Asia and Africa, our printers are also prevalent in the banking and government sectors. Printronix has manufacturing, configuration and/or distribution sites located in Malaysia, the United States, Singapore, China and the Netherlands, along with sales and support locations around the world to 6 new patent portfoliossupport its global network of users, channel partners, and 25 new patent portfolios in fiscal years 2014strategic alliances. Printronix designs and 2013, respectively. This decrease in our patent portfolio intake reflects in part our strategic decision in 2013 to shift the focusmanufactures printers and related consumable products for various industrial printing applications. Printers consist of our operating business to serving a smaller number of customers, each having higher quality patent portfolios. As a result, our gross number of patent portfolio acquisitions has decreased significantly. This decrease in our patent portfolio intake also reflects in part industry trends impacting our ability to acquire patent portfolios. For example, legislativehardware and legal changes have increased the complexity of patent enforcement actionsembedded software and may significantly affectbe sold with maintenance service agreements, which are serviced by outside contractors. Consumable products include inked ribbons which are used within Printronix's printers. Printronix’s products are primarily sold through Printronix’s global network of channel partners, such as dealers and distributors, to end‐users.
Recent Business Matters
Recapitalization Agreement
In order to establish a strategic and ongoing relationship between the market availabilityCompany and Starboard, on November 18, 2019, the Company and Starboard entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), which provided the terms of suitable patent portfolios for acquisition.Starboard’s initial capital commitment in the Company (the “2019 Transaction”). As a result of these continuing industry trends, our recentthe 2019 Transaction, which was approved by the Company’s stockholders for purposes of NASDAQ Rules 5635(b) and future patent portfolio intake has been5635(d) at a stockholder meeting held on February 14, 2020, Starboard acquired the following securities and mayownership positions in the Company: (i) 350,000 shares of Series A Preferred Stock, (ii) Series A Warrants to purchase up to 5,000,000 shares of common stock (the “Series A Warrants”) and (iii) Series B Warrants to purchase up to 100,000,000 shares of common stock. The Securities Purchase Agreement also established the terms of certain senior secured notes issued by the Company.
On November 12, 2021, the Board formed a Special Committee comprised of directors not affiliated or associated with Starboard in order to explore the possibility of simplifying the Company’s capital structure. Management of the Company believes that the Company’s capital structure, with multiple different series of securities, makes it difficult for investors to understand and value the Company and is an impediment to new public investment.
Further to this purpose and following ongoing negotiations with Starboard, on October 30, 2022 the Company entered into a Recapitalization Agreement with Starboard, pursuant to which, among other things, the Company and Starboard agreed to enter into a series of transactions to restructure Starboard’s existing investments in the Company in order to simplify the Company’s capital structure.
Under the Recapitalization Agreement, the Company and Starboard agreed, among other things, to take all of the following actions in connection with restructuring Starboard’s existing investments in the Company:
•Series A Warrants. Within five (5) business days following the date of the Recapitalization Agreement, Starboard exercised all of the Series A Warrants for cash, and the Company issued to Starboard 5,000,000 shares of common stock in accordance with the terms of the Series A Warrants and paid to Starboard an aggregate amount of $9,000,000 representing a negotiated settlement of the foregone time value of the Series A Warrants (which amount was paid through a reduction in the exercise price of the Series A Warrants).
•Preferred Stock. Subject to the receipt of stockholder approval at the Company’s next annual meeting of stockholders, (i) the Company will cause the Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, dated as of January 7, 2020 (the “Certificate of Designations”) to be amended and
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restated in the form attached to the Recapitalization Agreement in order to remove the “4.89% blocker” provision and (ii) on or prior to July 14, 2023, Starboard will convert an aggregate amount of 350,000 shares of Series A Preferred Stock into common stock in accordance with the terms of the Certificate of Designations.
•Series B Warrants. On or prior to July 14, 2023, Starboard will irrevocably exercise 31,506,849 of the Series B Warrants (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction relating to the common stock occurring after the date of the Recapitalization Agreement), through a “Note Cancellation” (as defined in the Series B Warrants) or a combination of a “Note Cancellation” and a “Limited Cash Exercise” (as defined in the Series B Warrants) in accordance with the terms of the Series B Warrants, as determined by Starboard (the “Series B Warrants Exercise”). The remaining Series B Warrants will be cancelled immediately following the completion of the Rights Offering.
•Rights Offering. The Company agreed to launch the Rights Offering described in further detail in the section titled “Rights Offering and Concurrent Private Rights Offering” below. In connection with the Rights Offering, the Company agreed to provide Starboard with rights to purchase 28,647,259 shares of common stock and Starboard committed to purchase a minimum of 15,000,000 shares of common stock.
•Recapitalization Payment. At the closing of the Series B Warrants Exercise, the Company will pay to Starboard an aggregate amount of $66,000,000 (the “Recapitalization Payment”) representing a negotiated settlement of the foregone time value of the Series B Warrants and the Series A Preferred Stock (which amount will be paid through a reduction in the exercise price of the Series B Warrants). If stockholder approval for the amendment to the Certificate of Designations to remove the “4.89% blocker provision” is not obtained, the Recapitalization Payment will be reduced by $12,700,000.
•Governance. Under the Recapitalization Agreement, the parties agreed that for a period from the date of the Recapitalization Agreement until May 12, 2026 (the “Applicable Period”), the Board of the Company will include at least two (2) directors that are independent of, and not affiliates (as defined in Rule 144 of the Securities Exchange Act of 1934, as amended) of, Starboard, with current Board members Maureen O’Connell and Isaac T. Kohlberg satisfying this initial condition under the Recapitalization Agreement. The parties also agreed that Katharine Wolanyk would continue to be negatively impacted, resulting in further decreases in future revenue generating opportunities,serve as a director of the Company until at least May 12, 2024 (or such earlier date if Ms. Wolanyk is unwilling or unable to serve as a director for any reason or resigns as a director). Additionally, the Company appointed Gavin Molinelli as a member and continued negative adverse impactsas Chair of the Board. The Company and Starboard also agreed that, following the closing of the Series B Warrants Exercise until the end of the Applicable Period, the number of directors serving on the sustainabilityBoard will not exceed 10 members. Effective as of the later of the Closing and the date on which none of the Notes (as defined in Note 8 to the accompanying consolidated financial statements) remain outstanding, the existing Governance Agreement will be automatically terminated.
Refer to Note 8to the consolidated financial statements elsewhere herein for more information.
Rights Offering and Concurrent Private Rights Offering
On February 14, 2023, the Company commenced the Rights Offering. Under the terms of the Rights Offering, the Company distributed non-transferable subscription rights to record holders (“Eligible Securityholders”) of the Company’s common stock held as of 5 p.m. Eastern time on February 13, 2023, the record date for the Rights Offering. The subscription period for the Rights Offering terminated at 5 p.m. Eastern time on March 1, 2023 (the “Expiration Time”). Pursuant to the Rights Offering, Eligible Securityholders received one non-transferable subscription right (a “Subscription Right”) for every four shares of common stock owned by such Eligible Securityholders. Each Subscription Right entitled an Eligible Securityholder to purchase, at such Eligible Securityholder’s election, one share of common stock at a price of $5.25 per share (the “Subscription Price”).
Starboard received private subscription rights to purchase common stock at the Subscription Price pursuant to a concurrent private rights offering (the “Concurrent Private Rights Offering”) in connection with their ownership of common stock and, on an as-converted basis, the Company’s Series B Warrants and shares of the Series A Preferred Stock. The private subscription rights provided to Starboard pursuant to the Concurrent Private Rights Offering were on substantially the same terms as the Subscription Rights, and were distributed substantially concurrently with the distribution of the Subscription Rights and expired at the Expiration Time. The Company received aggregate gross proceeds of approximately $361,000 from the Rights Offering and aggregate gross proceeds of approximately $78.8 million from the Concurrent Private Rights Offering and issued an aggregate of 15,068,753 shares of common stock.
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Industrial Operations Acquisition
Refer to “Recent Business Developments and Trends – Acquisitions” above for information related to our Printronix acquisition.
Operating Activities
Intellectual Property Operations
Our Intellectual Property Operations revenues historically have fluctuated quarterly, and can vary significantly period to period, based on a number of factors including the following:
•the dollar amount of agreements executed each period, which can be driven by the nature and characteristics of the technology or technologies being licensed and the magnitude of infringement associated with a specific licensee;
•the specific terms and conditions of agreements executed each period including the nature and characteristics of rights granted, and the periods of infringement or term of use contemplated by the respective payments;
•fluctuations in the total number of agreements executed each period;
•the number of, timing, results and uncertainties associated with patent licensing negotiations, mediations, patent infringement actions, trial dates and other enforcement proceedings relating to our patent licensing and enforcement business. Weprograms;
•the relative maturity of licensing programs during the applicable periods;
•other external factors, including the periodic status or results of ongoing negotiations, the status or results of ongoing litigations and appeals, actual or perceived shifts in the regulatory environment, impact of unrelated patent related judicial proceedings and other macroeconomic factors;
•the willingness of prospective licensees to settle significant patent infringement cases and pay reasonable license fees for the use of our patented technology, as such infringement cases approached a court determined trial date; and
•fluctuations in overall patent portfolio related enforcement activities which are impacted by the portfolio intake challenges discussed above.
Our management does not attempt to manage for smooth sequential periodic growth in revenues from period to period, and therefore, periodic results can be uneven. Unlike most operating businesses and industries, licensing revenues not generated in a current period are not necessarily foregone but, depending on whether negotiations, litigation or both continue into subsequent periods, and depending on a number of other factors, such potential revenues may be pushed into subsequent annual periods.
Industrial Operations
Refer to experience significant adverse challenges"Industrial Printing Solutions" above for information related to Printronix's operating activities.
In addition to the following results of operations discussion, more information related to our Intellectual Property Operations and Industrial Operations segment revenues and cost of revenues, may be found in Note 2 to the consolidated financial statements elsewhere herein.
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Results of Operations
The results reflected in this section with respect to Printronix include results for the full year ended December 31, 2022 compared to an approximate three month period ended December 31, 2021 following our patent intake efforts,acquisition of Printronix.
Summary of Results of Operations
Years Ended
December 31,
20222021$ Change% Change
(In thousands, except percentage change values)
Total revenues$59,223 $88,047 $(28,824)(33 %)
Total costs and expenses99,315 73,502 25,813 35 %
Operating (loss) income(40,092)14,545 (54,637)(376 %)
Total other (expense) income(87,058)160,107 (247,165)(154 %)
 (Loss) income before income taxes(127,150)174,652 (301,802)(173 %)
Income tax benefit (expense)16,211 (24,287)40,498 (167 %)
Net (loss) income attributable to Acacia Research Corporation(125,065)149,197 (274,262)(184 %)
Results of Operations - year ended December 31, 2022 compared with the year ended December 31, 2021
Total revenues decreased $28.8 million to $59.2 million for the year ended December 31, 2022, as compared to $88.0 million for the year ended December 31, 2021, due to a decrease in our Intellectual Property Operations revenues. ARG executed 17 new license agreements during 2022, a decrease of six versus the comparable prior period, which contributed to Intellectual Property Operations revenues decreasing by $56.5 million. Refer to “Investments in Patent Portfolios” above for additional information regarding the impact of portfolio acquisition trends on current and if these adverse challenges continue, ourfuture licensing and enforcement related revenues. The decrease was offset by the additional net revenues will continuecontributed from Printronix of $27.7 million. Refer to decline"Revenues" below for further detailed discussion.
Loss before income taxes was $127.2 million for the year ended December 31, 2022, as compared to income of $174.7 million in the prior year. The net decrease was comprised of the change in total revenues described above and other changes in operating expenses and other income or expense as follows:
•Inventor royalties increased $70,000, from $1.1 million to $1.2 million in 2022, primarily due to license agreement activity and related revenues generated with inventor royalty obligations. Refer to "Cost of Revenues – Intellectual Property Operations" below for further discussion.
•Contingent legal fees decreased $9.6 million, from $12.1 million to $2.4 million in 2022, primarily due to the decrease in Intellectual Property Operations revenues described above. Refer to "Cost of Revenues – Intellectual Property Operations" below for further discussion.
•Litigation and licensing expenses decreased $1.5 million, from $5.5 million to $4.0 million in 2022, primarily due to a net decrease in litigation support and third-party technical consulting expenses associated with ongoing litigation. Refer to "Cost of Revenues – Intellectual Property Operations" below for further discussion.
•Amortization of patents expense from our intellectual property operations increased $552,000, from $9.9 million to $10.4 million in 2022, due to an increase in scheduled amortization resulting from the new portfolio acquired in 2021. Refer to "Cost of Revenues – Intellectual Property Operations" below.
•Printronix cost of sales, engineering and development expenses, and sales and marketing expenses for 2022 added a total of $19.5 million to our consolidated operating expenses. Refer to "Cost of Revenues – Industrial Operations" and "Operating Expenses" below for further discussion.
•We recognized other patent portfolio expense of $162,000 in 2021 for settlement and contingency expenses.
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•General and administrative expenses increased $17.0 million, from $35.7 million to $52.7 million in 2022, primarily due to higher parent company and Intellectual Property Operations costs including, parent company consulting and legal fees related to the Recapitalization Agreement and the Life Sciences Portfolio, severance expense, compensation expense for share-based awards, personnel costs and board fees, accounting fees, and $7.2 million from our Industrial Operations general and administrative costs and amortization expense. Refer to "General and Administrative Expenses" below for further detail and discussion.
•Compensation expense for share-based awards, included in general and administrative expenses above, increased $1.8 million, from $2.1 million to $3.8 million in 2022, primarily due to restricted stock and option grants issued to employees and the Board in 2022 and 2021, which includes a partial offset by forfeitures for terminated employees.
•Unrealized loss from the change in fair value of our equity securities was $263.7 million in 2022, as compared to an unrealized gain of $87.5 million in the prior year. The unrealized loss and gain were derived from our Life Sciences Portfolio and trading securities portfolio. The current period unrealized loss primarily relates to the reversal of prior period unrealized gains for Life Sciences Portfolio securities that were sold for a realized gain in 2022. Refer to "Equity Securities Investments" below for further discussion.
•Realized gain from the sale of our equity securities increased $9.2 million, from $116.1 million to $125.3 million in 2022. The realized gains were derived from our Life Sciences Portfolio and trading securities portfolio. The current period realized gain primarily relates to sales activity from two Life Sciences Portfolio securities and one trading security. Refer to "Equity Securities Investments" below for further discussion.
•Earnings on equity investment in joint venture was $42.5 million in 2022, as compared to $3.5 million in the prior year. Refer to "Equity Securities Investments" below for a detailed discussion.
•We recognized an unrealized loss of $2.8 million on the fair value investment and a realized gain on sale of investment of $3.6 million in 2021 related to our former investment in Veritone. Refer to "Equity Securities Investments" below for further discussion.
•Unrealized gain from the Series A and Series B warrants and the embedded derivative fair value measurements was $13.1 million in 2022, as compared to an unrealized loss of $40.4 million in the prior year. We recognized an unrealized gain of $15.1 million from the fair value measurements of the Series A and Series B warrants and the embedded derivative in 2022, partially offset by a loss of $2.0 million upon the exercise of the Series A warrants in November 2022. Refer to Note 8 to the consolidated financial statements elsewhere herein for additional information regarding the Starboard Securities.
•Loss on foreign currency exchange increased $3.2 million, from $89,000 to $3.3 million in 2022. The increase was primarily derived from our foreign cash accounts exposed to fluctuations in foreign currency exchange rates between the U.S. dollar and the British Pound.
•Interest expense on Senior Secured Notes decreased $1.5 million, from $7.9 million to $6.4 million in 2022, due to decreased interest expense related to recent Note activity. Refer to Note 8 to the consolidated financial statements elsewhere herein for additional information regarding the Starboard Senior Secured Notes.
•Interest income and other, net was $5.4 million in 2022, as compared to $501,000 in the comparable prior period, mainly due to an increase in dividend income from our cash equivalents and equity security investments. Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding our cash and cash equivalents and investments in equity securities.
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Revenues
Intellectual Property Operations
ARG's revenue activity for the periods presented included the following:
Years Ended
December 31,
20222021$ Change% Change
(In thousands, except percentage change values and count totals)
Paid-up license revenue agreements$17,788 $73,585 $(55,797)(76 %)
Recurring license revenue agreements1,720 2,458 (738)(30 %)
Total revenues$19,508 $76,043 $(56,535)(74 %)
New license agreements executed17 23 (6)(26 %)
Licensing and enforcement programs
   generating revenues		8 9 (1)(11 %)
Licensing and enforcement programs
   with initial revenues		— 4 (4)(100 %)
New patent portfolios— 1 (1)(100 %)
For the periods presented above, the majority of the revenue agreements executed provided for the payment of one-time, paid-up license fees in consideration for the grant of certain IP Rights for patented technology owned by our operating subsidiaries. These rights were primarily granted on a perpetual basis, extending until the expiration of the underlying patents. Paid-up revenue decreased $55.8 million due to a decrease in the number of agreements executed and a decrease in the average revenue per agreement. Recurring revenue, that provides for quarterly sales-based license fees, decreased $738,000 from various on-going license arrangements.
Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding our revenue arrangements and related concentrations for the periods presented herein.
Refer to “Investments in Patent Portfolios” above for information regarding the impact of portfolio acquisition trends on current and future licensing and enforcement related revenues.
Industrial Operations
Printronix's net revenues for the periods presented included the following:
Year Ended December 31, 2022October 7, 2021 to December 31, 2021$ Change% Change
(In thousands, except percentage change value)
Printers and parts$16,118 $4,961 $11,157 225 %
Consumable products19,314 5,973 13,341 223 %
Services4,283 1,070 3,213 300 %
Total$39,715 $12,004 $27,711 231 %
Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding Printronix's revenue arrangements and related concentrations. Refer to “Industrial Printing Solutions” above for additional information related to Printronix's operating activities.
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Cost of Revenues
Intellectual Property Operations
Years Ended
December 31,
20222021$ Change% Change
(In thousands, except percentage change values)
Inventor royalties$1,212 $1,142 $70 6 %
Contingent legal fees2,444 12,074 (9,630)(80 %)
Litigation and licensing expenses3,970 5,462 (1,492)(27 %)
Amortization of patents10,403 9,851 552 6 %
Other patent portfolio expense— 162 (162)(100 %)
Total$18,029 $28,691 $(10,662)(37 %)
Refer to detailed change explanations above for the year ended December 31, 2022 cost of revenues from our Intellectual Property Operations.
The economic terms of patent portfolio related partnering agreements and contingent legal fee arrangements, if any, including royalty obligations, if any, royalty rates, contingent fee rates and other terms and conditions, vary across the patent portfolios owned or controlled by our operating subsidiaries. In certain instances, we have invested in certain patent portfolios without future patent partner royalty obligations. The costs associated with the forementioned obligations fluctuate period to period, based on the amount of revenues recognized each period, the terms and conditions of revenue agreements executed each period and the mix of specific patent portfolios, with varying economic terms and conditions, generating revenues each period.
Litigation and licensing expenses include patent-related litigation, enforcement and prosecution costs incurred by law firms and external patent attorneys engaged on either an hourly basis or a contingent fee basis. Litigation and licensing expenses also includes third-party patent research, development, patent prosecution and maintenance fees, re-exam and inter partes reviews, consulting and other costs incurred in connection with the licensing and enforcement of patent portfolios. Refer to “Investments in Patent Portfolios” above for additional information regarding the impact of portfolio acquisition trends on current and future licensing and enforcement related revenues.
Industrial Operations
Printronix's cost of sales for the years ended December 31, 2022 and 2021 was $19.4 million and $7.4 million, respectively. Printronix's cost of sales figures include the full year ended December 31, 2022 compared to an approximate three month period ended December 31, 2021 following our acquisition of Printronix. Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding Printronix's cost of sales.
Operating Expenses
Years Ended
December 31,
20222021$ Change% Change
(In thousands, except percentage change values)
Engineering and development expenses - industrial operations$626 $200 $426 213 %
Sales and marketing expenses - industrial operations8,621 1,538 7,083 461 %
General and administrative costs - intellectual property operations5,428 6,177 (749)(12 %)
General and administrative costs - industrial operations9,986 2,797 7,189 257 %
Parent general and administrative expenses37,266 26,692 10,574 40 %
Total general and administrative expenses52,680 35,666 17,014 48 %
Total$61,927 $37,404 $24,523 66 %
The operating expenses table above includes the Company's general and administrative expenses by operation and Printronix's engineering and development expenses and sales and marketing expenses. The periods presented above include Printronix's operating expenses for the full year ended December 31, 2022 compared to an approximate three month period
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ended December 31, 2021 following our acquisition of Printronix. Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding Printronix's operating expenses.
General and Administrative Expenses
A summary of the main drivers of the change in general and administrative expenses is as follows:
Years Ended
December 31,
2022 vs. 2021
(In thousands)
Personnel costs and board fees$1,391 
Variable performance-based compensation costs(848)
Other general and administrative costs4,836 
General and administrative costs - industrial operations5,856 
Amortization of industrial operations intangible assets1,333 
Compensation expense for share-based awards1,767 
Non-recurring employee severance costs2,679 
Total change in general and administrative expenses$17,014 
General and administrative expenses include employee compensation and related personnel costs, including variable performance based compensation and compensation expense for share-based awards, office and facilities costs, legal and accounting professional fees, public relations, stock administration, business development, fixed asset depreciation, amortization of Industrial Operations intangible assets, state taxes based on gross receipts and other corporate costs. The table above includes our Industrial Operations general and administrative expenses for the full year ended December 31, 2022 compared to an approximate three month period ended December 31, 2021 following our acquisition of Printronix.
The increases in personnel cost and board fees for the periods presented were primarily due to an increase in headcount and related costs. The decrease in variable performance-based compensation costs was primarily due to fluctuations in performance-based compensation accruals. The increases in other general and administrative costs, which relates to our parent company and Intellectual Property Operations business, were primarily due to parent company consulting and legal fees related to the Recapitalization Agreement and the Life Sciences Portfolio and higher accounting fees. Compensation expense for share-based awards increased primarily due to restricted stock and option grants issued to employees and the Board in 2022 and 2021. Non-recurring employee severance costs fluctuate based on the severance arrangements of terminated employees. In addition, our Industrial Operations related general and administrative costs and amortization contributed to the increased expenses in 2022. Refer to additional general and administrative change explanations above.
Other Income/Expense
Equity Securities Investments
Years Ended
December 31,
20222021$ Change% Change
(In thousands, except percentage change values)
Change in fair value of equity securities$(263,695)$87,527 $(351,222)(401 %)
Gain on sale of equity securities125,318 116,129 9,189 8 %
Earnings on equity investment in joint venture42,531 3,530 39,001 1,105 %
Net realized and unrealized (loss) gain(95,846)207,186 (303,032)(146 %)
Change in fair value of investment— (2,752)2,752 (100 %)
Gain on sale of investment— 3,591 (3,591)(100 %)
Total net realized and unrealized (loss) gain$(95,846)$208,025 $(303,871)(146 %)
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Our equity securities investments, including the Life Sciences Portfolio and trading securities portfolio, are recorded at fair value at each balance sheet date. Refer to periodic change explanations above. Refer to Notes 2 and 3 to the consolidated financial statements elsewhere herein for additional information regarding our investment in the Life Sciences Portfolio and other equity securities.
Our results included an unrealized loss from the change in fair value of our equity securities as compared to an unrealized gain in the prior period, while realized gains from the sale of our equity securities increased, as compared to the prior period. These changes were derived from our Life Sciences Portfolio and trading securities portfolio. The current period unrealized loss primarily relates to the reversal of prior period unrealized gains for Life Sciences Portfolio securities that were sold for a realized gain in 2022. The current period realized gain primarily relates to sales activity from two Life Sciences Portfolio securities and one trading security.
During 2021, we began to recognize earnings on our equity investment in joint venture, which is part of the Life Sciences Portfolio. In April 2022, such investment received a certain drug approval from the United States Food and Drug Administration. On a consolidated basis, we were due a milestone payment in the amount of $40.0 million, with interest accrued at 8.5% per year. Our portion of that milestone payment in the amount of $27.2 million, which includes accrued interest, was received in November 2022. In June 2022, in connection with the submission to the European Medicines Agency, on a consolidated basis, we were due an additional milestone payment in the amount of $1.8 million. Our portion of that milestone payment was received in July 2022. During 2022, we recorded consolidated earnings on equity investment of $42.5 million, including the two milestones and accrued interest. Refer to Note 3 to the consolidated financial statements elsewhere herein for additional information.
Our prior year results included an unrealized loss on the fair value investment in Veritone, while we recognized a realized gain on sale of the equity investment in Veritone. Acacia no longer has an investment in Veritone common stock and warrants. Refer to additional change explanations above. Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding our former investment in Veritone.
Income Taxes
Years Ended
December 31,
20222021$ Change% Change
(In thousands, except percentage change values)
Income tax benefit (expense)$16,211 $(24,287)$40,498 (167 %)
Effective tax rate(13)%14 %n/a(27)%
Our income tax benefit for the year ended December 31, 2022 primarily reflects the decrease in deferred tax liabilities attributable to the unrealized losses recorded, expiration of foreign tax credits and changes in the valuation allowance. Our income tax expense for the year ended December 31, 2021 is primarily comprised of foreign taxes withheld and refunded on revenue agreements with licensees in foreign jurisdictions, state taxes, and the impact of valuation allowance changes.
Our 2022 effective tax rates were lower than the U.S. federal statutory rate primarily due to expiration of foreign tax credits and changes in valuation allowance. Our 2021 effective tax rates were lower than the U.S. federal statutory rate primarily due to the change in valuation allowance, as well as non-deductible items. The effective tax rate may be subject to fluctuations during the year as new information is obtained which may affect the assumptions used to estimate the effective tax rate, including factors such as expected utilization of net operating loss carryforwards, changes in or the interpretation of tax laws in jurisdictions where the Company conducts business, the Company’s expansion into new states or foreign countries, and the amount of valuation allowances against deferred tax assets.
The Company has recorded a partial valuation allowance against our net deferred tax assets as of December 31, 2022 and 2021. Refer to Notes 2 and 15 to the consolidated financial statements elsewhere herein for additional income tax information.
Inflation
Historically, inflation has not had a significant impact on us or any of our subsidiaries. While insignificant to our consolidated enterprise, during the year ended December 31, 2022, our Printronix subsidiary experienced some inflation from higher freight costs and in the cost of raw materials than in previous years. While Printronix inventory costs have
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been impacted by these inflationary pressures, up to this point Printronix has generally been able to adjust selling prices in response to these higher costs.
Liquidity and Capital Resources
General
Our foreseeable material cash requirements as of December 31, 2022, are recognized as liabilities or generally are otherwise described in Note 11, "Commitments and Contingencies," to the consolidated financial statements included elsewhere herein. Our most significant liabilities as reflected on our balance sheet as of December 31, 2022 include the Senior Secured Notes and, because of certain provisions in the related agreements that provide for net cash settlement upon a change in control, the Series B Warrants. For additional information, see Note 8, "Starboard Investment" to the consolidated financial statements included elsewhere herein. The Senior Secured Notes mature on July 14, 2023. In accordance with the terms of the Recapitalization Agreement, on or prior to July 14, 2023, a portion of the Series B Warrants are expected to be exercised for common stock through the Series B Warrants Exercise. In addition to the foregoing, we will be unablerequired to profitably sustainmake the Recapitalization Payment at the closing of the Series B Warrants Exercise.
Cash requirements are generally derived from our licensingoperating and investing activities including expenditures for working capital (discussed below), human capital, business development, investments in equity securities and intellectual property, and business combinations. Our facilities lease obligations, guarantees and certain contingent obligations are further described in Note 11 to the consolidated financial statements. Historically, we have not entered into off-balance sheet financing arrangements. At December 31, 2022, we had unrecognized tax benefits, as further described in Note 15 to the consolidated financial statements.
Certain of our operating subsidiaries are often required to engage in litigation to enforce their patents and patent rights. In connection with any of our operating subsidiaries’ patent enforcement actions, it is possible that a defendant may request and/or a court may rule that an operating subsidiary has violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material.
Our primary sources of liquidity are cash and cash equivalents on hand generated from our operating activities, and as deemed appropriate by management from our availability of Senior Secured Notes (discussed in Note 8 to the consolidated financial statements elsewhere herein). We expect to satisfy our obligations under the existing Senior Secured Notes that mature on July 14, 2023 and make the Recapitalization Payment with cash on hand.
Furthermore, we intend to grow our company by acquiring additional operating businesses and intellectual property assets. We expect to finance such acquisitions through cash on hand or by engaging in equity or debt financing.
Our management believes that our cash and cash equivalent balances, anticipated cash flows from operations and the transactions taken and contemplated to be taken in connection with the Recapitalization, and our availability of Senior Secured Notes will be sufficient to meet our cash requirements through at least twelve months from the date of this report and for the foreseeable future. We may, however, encounter unforeseen difficulties that may deplete our capital resources more rapidly than anticipated, including those set forth under Item 1A, “Risk Factors”. Any efforts to seek additional funding could be made through issuances of equity or debt, or other external financing. However, additional funding may not be available to us on favorable terms, or at all. The capital and credit markets have experienced extreme volatility and disruption in recent years, and the volatility and impact of the disruption may continue. At times during this period, the volatility and disruption has reached unprecedented levels. In several cases, the markets have exerted downward pressure on stock prices and credit capacity for certain issuers, and the commercial paper markets may not be a reliable source of short-term financing for us. If we fail to obtain additional financing when needed, we may not be able to execute our business going forward.plans and our business, conducted by our operating subsidiaries, may suffer.

Cash, Cash Equivalents and Investments
Our consolidated cash, cash equivalents, equity securities and long-term restricted cash totaled $349.4 million at December 31, 2022, compared to $671.1 million at December 31, 2021.
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Cash Flows Summary
The net change in cash and cash equivalents and restricted cash for the periods presented was comprised of the following:
Years Ended December 31,
20222021
(In thousands)
Net cash (used in) provided by:
Operating activities$(37,336)$13,326 
Investing activities184,464 35,751 
Financing activities(166,137)59,738 
Effect of exchange rates on cash and cash equivalents(2,566)— 
(Decrease) increase in cash and cash equivalents and restricted cash$(21,575)$108,815 
Cash Flows from Operating Activities
Cash receipts from ARG's licensees totaled $16.6 million and $75.8 million for the years ended December 31, 2022 and 2021, respectively. Cash receipts from Printronix's customers totaled $40.5 million and $11.7 million for the year ended December 31, 2022 and the period from October 7, 2021 through December 31, 2021, respectively. The fluctuations in cash receipts for the periods presented primarily reflects the corresponding fluctuations in revenues recognized during the same periods, as described above, and the related timing of payments received from licensees and customers.
Our reported cash used in operations for the year ended December 31, 2022 was $37.3 million, compared to $13.3 million cash provided by operations in the prior year. Our 2022 cash used in operations was due to net outflows from the total changes in assets and liabilities (refer to Working Capital discussion below), most notably from a patent cost related payment of $6.0 million (refer to Note 6 to the consolidated financial statements elsewhere herein for additional information), inventory related purchases and royalties and contingent legal fees related payments, and by the total change in net loss (described above) and related noncash adjustments.
Working Capital
Our working capital related to cash flows from operating activities at December 31, 2022 decreased to $15.1 million, compared to $4.3 million at December 31, 2021, which was comprised of the changes discussed below.
Accounts receivable decreased to $8.2 million at December 31, 2022, compared to $9.5 million at December 31, 2021. Refer to the related cash receipts discussion above. Printronix's inventories increased to $14.2 million at December 31, 2022, compared to $8.9 million at December 31, 2021. Prepaid expenses and other current assets increased to $19.4 million at December 31, 2022, compared to $4.8 million at December 31, 2021, primarily due to certain patent related costs incurred of $15.0 million (refer to Note 6 to the consolidated financial statements elsewhere herein for additional information). Accounts payable, accrued expenses and other current liabilities and accrued compensation increased to $24.8 million at December 31, 2022, compared to $15.4 million at December 31, 2021, primarily due to accrued patent costs of $9.0 million (refer to Note 6 to the consolidated financial statements elsewhere herein for additional information), severance accruals in the fourth quarter of 2022 and higher accounting fees. Royalties and contingent legal fees payable decreased to $699,000 at December 31, 2022, compared to $2.5 million at December 31, 2021 due to the reversal of a previously recorded accrual. Printronix's current deferred revenue increased to $1.2 million at December 31, 2022, compared to $1.1 million at December 31, 2021.
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Cash Flows from Investing Activities
Cash flows from investing activities were comprised of the following for the periods presented:
Years Ended December 31,
20222021
(In thousands)
Acquisition, net of cash acquired$— $(33,250)
Patent acquisition(5,000)(21,000)
Sale of investment at fair value— 3,591 
Purchases of equity securities(112,142)(66,624)
Sales of equity securities273,934 154,784 
Cash distributed for notes receivable— (4,021)
Distributions received from equity investment in joint venture28,404 2,362 
Purchases of property and equipment(732)(91)
Net cash provided by investing activities$184,464 $35,751 
Cash flows from investing activities for the year ended December 31, 2022 increased to $184.5 million, as compared to cash flow of $35.8 million in the prior year, primarily due to net cash inflows from our Life Sciences Portfolio and trading securities portfolio equity securities transactions in 2022. Refer to “Other Income/Expense – Equity Securities Investments” above for additional information.
Cash Flows from Financing Activities
Cash flows from financing activities included the following for the periods presented:
Years Ended December 31,
20222021
(In thousands)
Repurchase of common stock$(50,988)$(4,012)
Issuance of Senior Secured Notes, net of lender fee— 115,000 
Paydown of Senior Secured Notes(120,000)(50,000)
Dividend on Series A Redeemable Convertible Preferred Stock(2,799)(1,452)
Taxes paid related to net share settlement of share-based awards(1,600)— 
Proceeds from exercise of Series A warrants9,250 — 
Proceeds from exercise of stock options— 202 
Net cash (used in) provided by financing activities$(166,137)$59,738 
Cash outflows from financing activities for the year ended December 31, 2022 increased to $166.1 million, as compared to cash flow of $59.7 million in the prior year, primarily due to activity related to our Senior Secured Notes and our common stock repurchases (refer to Note 12). Refer to Note 8 to the consolidated financial statements elsewhere herein for additional information related to the Senior Secured Notes.
On October 30, 2022, the Company entered into a Recapitalization Agreement with Starboard and the Investors. Refer to Note 8 to the consolidated financial statements elsewhere herein for additional information.
Critical Accounting Policies

Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. In preparing these financial statements, we make assumptions, judgments and estimates that caninvolve a significant level of estimation uncertainty and have had or are reasonably likely to have a significantmaterial impact on amounts reported in our consolidated financial statements.condition or results of operations. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from
39
these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly.

We believe that of the significant accounting policies discussed in Note 2 to our notes tothe consolidated financial statements included elsewhere herein, the following accounting policies require our most difficult, subjective or complex judgments:assumptions, judgments and estimates:

•revenue recognition;
stock-based compensation expense, including valuation of profits interests;
•valuation of long-lived assets, goodwill and other intangible assets including goodwill;assets;
•valuation of investments;Series B Warrants;
•valuation of embedded derivatives; and
•accounting for income taxes.

We discuss below the critical accounting assumptions, judgmentsjudgements and estimates associated with these policies. Historically, our assumptions, judgments andcritical accounting estimates relative to our criticalsignificant accounting policies have not differed materially from actual results. For further information on our criticalthe related significant accounting policies, refer to Note 2 to the notes to consolidated financial statements included herein.






statements.
Revenue Recognition

As described below, significant management judgment must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of revenue recognized or deferred for any period, if management made different judgments.

Revenue is recognized when (i) persuasive evidencePrintronix recognizes revenue to depict the transfer of goods or services to a customer at an arrangement exists, (ii) all obligations have been performed pursuantamount that reflects the consideration which it expects to receive for providing those goods or services. To determine the terms of the agreement, (iii) amounts are fixed or determinable and (iv) collectibility of amounts is reasonably assured.

We maketransaction price, Printronix estimates and judgments when determining whether the collectibility of fees receivable from licensees is reasonably assured. We assess the collectibility of fees receivable based on a number of factors, including past transaction history and the credit-worthiness of licensees. If it is determined that collection is not reasonably assured, the fee is recognized when collectibility becomes reasonably assured, assuming all other revenue recognition criteria have been met, which is generally upon receipt of cash for transactions where collectibility may have been an issue. Management’s estimates regarding collectibility impact the actual revenues recognized each period and the timing of the recognition of revenues. Our assumptions and judgments regarding future collectibility could differ from actual events and thus materially impact our financial position and results of operations.

Generally, our agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the minimum upfront payment for term agreement renewals. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectibility is reasonably assured, or upon receipt of the minimum upfront fee for term agreement renewals, and when all other revenue recognition criteria have been met.

Depending on the complexity of the underlying revenue arrangement and related terms and conditions, significant judgments, assumptions and estimates may be required to determine when substantial delivery of contract elements has occurred, whether any significant ongoing obligations exist subsequent to contract execution, whether amounts due are collectible and the appropriate period or periods in which, or during which, the completion of the earnings process occurs. Depending on the magnitude of specific revenue arrangements, if different judgments, assumptions and estimates are made regarding contracts executed in any specific period, our periodic financial results may be materially affected.
Our operating subsidiaries are responsible for the licensing and enforcement of their respective patented technologies and pursue third-parties that are utilizing their intellectual property without a license or who have under-reported the amount of royalties owed under a license agreement. As a result of these activities, from timeconsideration to time, our operating subsidiaries may recognize revenues in a current period that relate to infringements by licensees that occurred in prior periods. These recoveries may cause revenueswhich it expects to be higher thanentitled in exchange for transferring promised goods or services to a customer. Elements of variable consideration are estimated at the time of sale which primarily include product rights of return, rebates, price protection and other incentives that occur under established sales programs. These estimates are developed using the expected duringvalue or the most likely amount method and are reviewed and updated, as necessary, at each reporting period. Revenues, inclusive of variable consideration, are recognized to the extent it is probable that a particular reporting period and maysignificant reversal recognized will not occur in subsequentfuture periods. Differences between amounts initially recognizedThe provision for returns and amounts subsequently audited or reported as an adjustment to those amounts, are recognized in the period such adjustmentsales allowances is determined as a change in accounting estimate.

The economic termsby an analysis of the inventor agreements, operating agreementshistorical rate of returns and contingent legal fee arrangements associated with the patent portfolios owned or controlled by our operating subsidiaries, if any, including royalty rates, contingent fee ratessales allowances over recent quarters, and other terms, vary across the patent portfolios owned or controlled by our operating subsidiaries. Inventor royalties, noncontrolling interests and contingent legal fees expenses fluctuate periodadjusted to period, based on the amount ofreflect management’s future expectations. For additional information regarding Printronix's net revenues, recognized each period, the terms and conditions of revenue agreements executed each period and the mix of specific patent portfolios with varying economic terms and obligations generating revenues each period. Inventor royalties, noncontrolling interests and contingent legal fees expenses will continuerefer to fluctuate and may continue to vary significantly period to period, based primarily on these factors.

For fiscal years 2017, 2016 and 2015, the majority of our revenue agreements provided for the payment to us of one-time, paid-up license fees in consideration for the grant of certain intellectual property rights for patented technology rights owned by our operating subsidiaries. These rights were primarily granted on a perpetual basis, extending until the expiration of the underlying patents. PursuantNote 2 to the terms of these agreements, our operating subsidiaries have no further obligation with respect to the grant of the non-exclusive licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on our operating subsidiaries’ part to maintain or upgrade the technology, or provide future support or services. The agreements provided for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement. As such, the earnings process was determined to be complete and revenue was recognized upon the execution of the agreements, when all other revenue recognition criteria were met. Historically, term


license agreements have not been a material component of our operating revenues, with the majority of license agreements being paid-up, perpetual license agreements.

Stock-based Compensation Expense

Equity Based Awards. Stock-based compensation payments to employees and non-employee directors are recognized as expense in the statements of operations. The compensation cost for all stock-based awards is measured at the grant date, based on the fair value of the award (determined using a Black-Scholes option pricing model for stock options and intrinsic value on the date of grant for nonvested restricted stock), and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). Determining the fair value of stock-based awards at the grant date requires significant estimates and judgments, including estimating the market price volatility of our common stock, future employee stock option exercise behavior and requisite service periods.
The FASB issued a new standard, effective January 1, 2017, that changes the accounting for certain aspects of share-based payments to employees, including allowing an employer to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. Effective January 1, 2017, we elected to account for forfeitures of awards as they occur. The prior standard required us to estimate the number of awards for which the requisite service period is expected to be rendered and base the accruals of compensation cost on the estimated number of awards that will vest. The adoption of this standard did not have a material impact on our consolidated financial statements.

During the year ended December 31, 2016, the Company granted stock options with market-based vesting conditions. The options with market-based vesting conditions vest based upon the Company achieving specified stock price targets over a four-year period. The effect of a market-based vesting 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 for an option with a market-based vesting condition provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. The service period for options with a market-based vesting condition is inferred from the application of the Monte Carlo valuation technique. The derived service period represents the duration of the median of the distribution of share price paths on which the market condition is satisfied. The duration is the period of time from the service inception date to the expected date of satisfaction, as determined from the valuation technique. Assumptions utilized in connection with the Monte Carlo valuation technique included: estimated risk-free interest rate of .92%; expected volatility of 55%; and expected dividend yield of 0%. 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 Interests Units. The fair value of the Units issued under our Veritone related Profits Interests Plan is estimated utilizing a Geometric Brownian Motion model, or GBM, which considers probable vesting dates and values for the applicable instruments (i.e. common stock and warrants related to Acacia’s Veritone investment described at Note 7) underlying or associated with the Units. At the estimated end of the term of the underlying warrant, the model estimates the total proceeds from the hypothetical exercise of the warrant and estimates the value of the Units by allocating the proceeds based on the waterfall described in the terms of the underlying agreement. The value of the Units on a marketable basis is the average allocation across all GBM simulation paths discounted to the applicable valuation date using the risk-free rate. This estimated value is adjusted for an estimate of a discount for lack of marketability, or DLOM, using the Finnerty model, based on a security specific volatility calculated by changing Veritone’s common stock price by 1% and measuring the corresponding change in the value of the Units. For the year ended December 31, 2017, assumptions utilized in the GBM included a term of 4.4 years, stock price of $23.20, volatility of 50%, and risk free interest rates ranging from 1.76% to 2.40% for terms ranging from one to 10 years. The estimated DLOM utilized was 30%, based on assumptions including a term of approximately 4.4 years and a volatility of 85% for Veritone’s common stock. Volatility was estimated based on the historical volatilities of a set of comparable public companies, adjusted for leverage, over a term matching the term of the underlying warrant asset, which was approximately 4.4 years. A hypothetical 5% change in the estimated DLOM would result in a $217,000 change in the estimated fair value of the profits interest liability.
Valuation of Long-lived Assets, Goodwill and Other Intangible Assets Including Goodwill

Patent Portfolio Impairment Testing. We reviewThe Company reviews long-lived assets, patents and other 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.

For the fiscal year ended December 31, 2017, we recorded $2.2 million ofadditional information regarding ARG's patent portfolio impairment charges. Forvaluation estimates, refer to Note 2 to the fiscal year ended December 31, 2016, we recorded $42.3 million ofconsolidated financial statements. The Company did not record any long-lived asset, patent portfolio impairment charges, primarily comprised of the write-off of the remaining carrying value of our Adaptix portfolio. The impairment charges were recorded in the periods due to adverse litigation outcomes, a reduction in expected estimated future net cash flows and certain patent portfolios that management determined it would no longer allocate future resources to in connection with the licensing and enforcement of such portfolios. The impairment charges consisted of the excess of the asset’s carrying value over its estimated fair value as of the applicable measurement date. Estimated fair value was determined based on estimates of future cash flows and estimates of probabilities of realization given adverse litigation outcomes and resource allocation decisions.

We performed an impairment analysis for our patents as of December 31, 2015, utilizing the assistance of a third-party valuation specialist, resulting in $74.7 million of patent portfolioor other intangible asset impairment charges for the following reasons:years ended December 31, 2022 and 2021.

In December 2015, we announced thatGoodwill asset impairment reviews include determining the estimated fair values of our subsidiary Adaptix, Inc. received a jury verdict in its case against Alcatel Lucent USA, Inc., and others. The jury returned a verdict that the asserted claims of the applicable patent at issue were invalid and non-infringed. The Adaptix trial loss resulted in a reduction in estimated cash flowsreporting units. We evaluate Goodwill for the Adaptix portfolio expected to be realized from future licensing and enforcement activities, leading to impairment charges on the portfolioannually in the fourth quarter of 2015.

Management consideredand on an interim basis if the impact of the fourth quarter 2015 adverse trial outcomes on our estimates of futurefacts and circumstances lead us to believe that more-likely-than-not there has been an impairment. The key assumptions and inputs used in such determinations may include forecasting revenues and expenses, cash flows that could be realized from future licensing and enforcement activities forcapital expenditures, as well as an appropriate discount rate and other patent portfolios. Estimates of future cash flows for certain portfolios were reducedinputs. Significant judgment by management is required in part, in connection with our assessment of probabilities of realization given the recent adverse trial outcomes.

Patent impairment charges include the carrying value of other patent portfolios for which, in the fourth quarter of 2015, we experienced adverse litigation or trial outcomes, leading to a reduction in or elimination of expected future cash flows. In addition, headcount reductions and internal staff optimization efforts led to changes with respect to which patent portfolios we intend to allocate licensing and enforcement resources to in future periods. As such, certain portfolio programs were selected for termination due to a decision to no longer pursue or allocate resources, resulting in a write-off of any remaining carrying value in the fourth quarter of 2015.
Goodwill Impairment Testing - December 31, 2015. At December 31, 2015, prior to the completion of the annual goodwill impairment test, the goodwill balance totaled $30.1 million. Goodwill is tested for impairment at our single reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduceestimating the fair value of a reporting unit below itsand in performing impairment reviews. Due to the inherent subjectivity and uncertainty in forecasting future
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cash flows and earnings over long periods of time, actual results may vary materially from the forecasts. If the carrying value. Factors considered important, which could trigger an impairment review, include the following:
significant consistent gradual decline in the our stock price for a sustained period;
significant underperformance relative to expected historical or projected future operating results;
significant changes in the manner of use of assets or the strategy for our overall business;
significant negative industry or economic trends; and
significant adverse changes in legal factors or in the business climate, including adverse regulatory actions or assessments.
We consider our market capitalization and other valuation techniques, as applicable, when estimating fair value for goodwill impairment testing purposes. When conducting annual and interim goodwill impairment assessments, we initially perform a qualitative evaluation (considering factors described above as applicable) of whether it is more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired, we apply a two-step impairment. The two-step impairment test first compares the estimated fair value of our singlea reporting unit to its carrying or book value. Ifexceeds the estimated fair value of the reporting unit, exceeds its carrying value, goodwill is not impaired and there is no requirementthen the excess, limited to perform further testing. If the carrying valueamount of goodwill, will be charged to operations as an impairment loss. The Company's goodwill balance relates to Printronix, which was acquired on October 7, 2021, refer to Note 1 to the reporting unit exceeds its estimated fair value, we are required to perform step-twoconsolidated financial statements for additional information. The Company did not record any goodwill impairment charges for the years ended December 31, 2022 and 2021.
Valuation of the impairment analysis to determine the estimated impliedSeries B Warrants
The fair value of the reporting unit’s goodwill, and ifSeries B Warrants are estimated using a Black-Scholes option-pricing model. Refer to Note 9 to the carrying value of the reporting unit’s goodwill exceeds its estimated impliedconsolidated financial statements for detailed information related to these fair value then an impairment loss equal tomeasurements. Of the difference is recordedassumptions used in the consolidated statements of operations.

In connection with our annual goodwill impairment testing for 2015, we identified several qualitative factors triggering an impairment test at December 31, 2015, as follows;



Adverse legal outcomes andBlack-Scholes option-pricing model, volatility changes in legal factors. In December 2015, we announced that our subsidiary Adaptix, Inc. received a jury verdict in its case against Alcatel Lucent USA, et al., deciding thatwould have the claims ofmost significant impact on the applicable patent in suit were invalid and non-infringed. This adverse legal outcome and others in the fourth quarter of 2015 resulted in changes in estimates of realization related to litigation outcomes in future periods for certain patent portfolios.

Consistent gradual decline in the Company’s stock price: Historically, our stock price has been volatile, and the volatility continued during fiscal 2015, declining from $16.72 as of January 2, 2015, to $4.29 asfair value. As of December 31, 2015,2022, a 74% decline. In addition, subsequent to December 31, 2015, our stock pricehypothetical 10% increase in the volatility has continued, trending downward to $3.16 aswould have resulted in an increased liability balance of February 29, 2016. In the fourth quarter of 2015, given the continued decline in stock price up through December 31, 2015, and the impact of the December 2015 adverse trial outcomes noted above, the gradual consistent declineapproximately $133,000 in our stock price was deemedSeries B Warrants. Refer to Note 8 to the consolidated financial statements for more information.
Valuation of Embedded Derivatives
Embedded derivatives that are required to be sustained, and hence indicative of a reduction inbifurcated from their host contract are valued separately from the estimated fairhost instrument. An as-converted value of our company, as reflected in our lower overall market capitalization.

Changes in Company Management and Resource Allocations. In connection with certain resource allocation changes within the organization due to changes in our management in the fourth quarter of 2015, headcount reductions and internal staff optimization efforts occurred, which led to changes with respect to estimates of which patent portfolios we intend to continue to allocate licensing and enforcement resources to in future periods. As such, certain patent portfolio programs were selected for termination due to our decision to no longer allocate resources to those programs. In addition, we made changes in estimates regarding the best and highest use of certain patent portfolios, resulting in reductions in estimated future cash flows.

At December 31, 2015, we utilized the following methods and assumptions in our annual goodwill impairment testing, which was prepared with the assistance of a third-party valuation specialist:

At December 31, 2015, the initial qualitative assessment included consideration of the factors described above, resulting in a conclusion that as of December 31, 2015, the consistent gradual decline in our stock price was sustained. We also considered the impact of the December 2015 adverse trial outcomes on our stock price and related estimates of fair value for remaining portfolio opportunities. Based on our assessment of these factors, we determined that it was more likely than not that goodwill was impaired, constituting a triggering event requiring a goodwill impairment test as of December 31, 2015.

We conducted the first step of the goodwill impairment test for our single reporting unit as of December 31, 2015. We utilized the market capitalization plus cost synergies approachis currently used to estimate the fair value of the Company. The estimated market capitalization was determined by multiplying our stock price and the common shares outstanding as of December 31, 2015. Management also considered a control premium in its estimate of fair value for our single reporting unit. The cost synergies were estimated based on the cost savings which could be achieved if the Company was acquired by a competitorembedded derivative in the same operating business.

Based on the analysis utilizing the market capitalization plus cost synergies approach, the estimated fair value of the reporting unit of $252 million was below its carrying value of $344.3 million as of December 31, 2015, and therefore, goodwill was determined to be more likely than not, impaired.

The purpose of step 2 of the analysis was to determine the estimated fair value of the assets and liabilities of our reporting unit, in order to determine the implied fair value of goodwill for the reporting unit. The excess, if any, of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. Based upon the analysis performed, the fair value of our reporting unit did not exceed the amounts assigned to our reporting unit assets and liabilities, resulting in a difference between the implied fair value of goodwill of zero and the historical carrying value of goodwill. As a result, we recognized a goodwill impairment charge totaling $30.1 million in the fourth quarter of 2015.

Valuation of Investments

Equity investments without readily determinable fair values, in companies over which we have the ability to exercise significant influence, are accounted for using the equity method of accounting and classified within “Investments - equity method” in the consolidated balance sheet. We include our proportionate share of earnings and/or losses of our equity method investees in “Equity in earnings (losses) of investee” in our consolidated statements of operations.


We may elect to account for equity investments in companies with readily determinable fair values, where our investment gives us the ability to exercise significant influence over the operating and financial policies of the investee, at fair value. If the fair value option 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).Series A Redeemable Convertible Preferred Stock. Refer to Note 7 for information regarding our investment in Veritone.

Determination of whether we possess the ability to exercise significant influence requires significant judgment, including consideration of the extent to which our voting interests, board representation, financial arrangements and other factors provide us with the ability to exercise significant influence with respect to an investee. A change in facts or judgments resulting in the determination that control exists would result in consolidation of the investment and recognition of related revenues and expenses with a corresponding non-controlling interest.

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 includes: Level 1 - Observable Inputs; Level 2 - Pricing Models with Significant Observable Inputs; and Level 3 - Unobservable Inputs. Refer to Note 29 to the consolidated financial statements elsewhere herein for additional information.
Whenever possible, we are requireddetailed information related to use observable market inputs (Level 1 - quoted market prices) when measuringthis fair value measurement. Of the assumptions used in the as-converted model, discount rate changes would have the most significant impact on the fair value. Our Veritone common stock is reported at fair value, based on the applicable NASDAQ Global Select Market stock price asAs of the applicable valuation date, as adjusted for an estimated DLOM associated with the restricted nature of the common shares acquired (Level 3 input). Our Veritone warrants are recorded at fair value, as adjusted for an estimated DLOM, based on the Black-Scholes option-pricing model, utilizing the following assumptions: risk-free interest rates ranging from 1.94% to 2.37%; expected terms ranging from 3 to 9 years; volatilities ranging from 45% to 55%; andDecember 31, 2022, a dividend yield of zero.

The DLOM for our Veritone common stock and warrants was estimated utilizing a Finnerty model with the following results and assumptions:
  Veritone Common Stock Veritone Warrants
  IPO Date December 31, 2017 IPO Date December 31, 2017
Estimated DLOM applied 5.7% 5% 5.7% 10%
Volatility assumptions 35% 37% 35% 72% - 87%
Term assumptions 6 months 2 months 6 months 5 months

A one percenthypothetical 1% increase in the DLOM assumptions utilized at all applicable valuation datesdiscount rate would resulthave resulted in a $1.1million decrease in the fair valuean increased liability balance of our investment in Veritone at December 31, 2017, and a corresponding decrease in the net unrealized investment gain reflected inapproximately $959,000. Refer to Note 8 to the consolidated financial statements of operations for the year ended December 31, 2017.more information.

We review investments quarterly for indicators of other-than-temporary impairment. This determination requires significant judgment. In making this judgment, we consider available quantitative and qualitative evidence in evaluating potential impairment of our investments. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions and the duration and extent to which the fair value is less than cost. We also consider 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 to other income (expense) and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments.

AccountingOperating Expenses
Years Ended
December 31,
20222021$ Change% Change
(In thousands, except percentage change values)
Engineering and development expenses - industrial operations$626 $200 $426 213 %
Sales and marketing expenses - industrial operations8,621 1,538 7,083 461 %
General and administrative costs - intellectual property operations5,428 6,177 (749)(12 %)
General and administrative costs - industrial operations9,986 2,797 7,189 257 %
Parent general and administrative expenses37,266 26,692 10,574 40 %
Total general and administrative expenses52,680 35,666 17,014 48 %
Total$61,927 $37,404 $24,523 66 %
The operating expenses table above includes the Company's general and administrative expenses by operation and Printronix's engineering and development expenses and sales and marketing expenses. The periods presented above include Printronix's operating expenses for Income Taxesthe full year ended December 31, 2022 compared to an approximate three month period

34
Asended December 31, 2021 following our acquisition of Printronix. Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding Printronix's operating expenses.
General and Administrative Expenses
A summary of the main drivers of the change in general and administrative expenses is as follows:
Years Ended
December 31,
2022 vs. 2021
(In thousands)
Personnel costs and board fees$1,391 
Variable performance-based compensation costs(848)
Other general and administrative costs4,836 
General and administrative costs - industrial operations5,856 
Amortization of industrial operations intangible assets1,333 
Compensation expense for share-based awards1,767 
Non-recurring employee severance costs2,679 
Total change in general and administrative expenses$17,014 
General and administrative expenses include employee compensation and related personnel costs, including variable performance based compensation and compensation expense for share-based awards, office and facilities costs, legal and accounting professional fees, public relations, stock administration, business development, fixed asset depreciation, amortization of Industrial Operations intangible assets, state taxes based on gross receipts and other corporate costs. The table above includes our Industrial Operations general and administrative expenses for the full year ended December 31, 2022 compared to an approximate three month period ended December 31, 2021 following our acquisition of Printronix.
The increases in personnel cost and board fees for the periods presented were primarily due to an increase in headcount and related costs. The decrease in variable performance-based compensation costs was primarily due to fluctuations in performance-based compensation accruals. The increases in other general and administrative costs, which relates to our parent company and Intellectual Property Operations business, were primarily due to parent company consulting and legal fees related to the Recapitalization Agreement and the Life Sciences Portfolio and higher accounting fees. Compensation expense for share-based awards increased primarily due to restricted stock and option grants issued to employees and the Board in 2022 and 2021. Non-recurring employee severance costs fluctuate based on the severance arrangements of terminated employees. In addition, our Industrial Operations related general and administrative costs and amortization contributed to the increased expenses in 2022. Refer to additional general and administrative change explanations above.
Other Income/Expense
Equity Securities Investments
Years Ended
December 31,
20222021$ Change% Change
(In thousands, except percentage change values)
Change in fair value of equity securities$(263,695)$87,527 $(351,222)(401 %)
Gain on sale of equity securities125,318 116,129 9,189 8 %
Earnings on equity investment in joint venture42,531 3,530 39,001 1,105 %
Net realized and unrealized (loss) gain(95,846)207,186 (303,032)(146 %)
Change in fair value of investment— (2,752)2,752 (100 %)
Gain on sale of investment— 3,591 (3,591)(100 %)
Total net realized and unrealized (loss) gain$(95,846)$208,025 $(303,871)(146 %)
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Our equity securities investments, including the Life Sciences Portfolio and trading securities portfolio, are recorded at fair value at each balance sheet date. Refer to periodic change explanations above. Refer to Notes 2 and 3 to the consolidated financial statements elsewhere herein for additional information regarding our investment in the Life Sciences Portfolio and other equity securities.
Our results included an unrealized loss from the change in fair value of our equity securities as compared to an unrealized gain in the prior period, while realized gains from the sale of our equity securities increased, as compared to the prior period. These changes were derived from our Life Sciences Portfolio and trading securities portfolio. The current period unrealized loss primarily relates to the reversal of prior period unrealized gains for Life Sciences Portfolio securities that were sold for a realized gain in 2022. The current period realized gain primarily relates to sales activity from two Life Sciences Portfolio securities and one trading security.
During 2021, we began to recognize earnings on our equity investment in joint venture, which is part of the processLife Sciences Portfolio. In April 2022, such investment received a certain drug approval from the United States Food and Drug Administration. On a consolidated basis, we were due a milestone payment in the amount of preparing our$40.0 million, with interest accrued at 8.5% per year. Our portion of that milestone payment in the amount of $27.2 million, which includes accrued interest, was received in November 2022. In June 2022, in connection with the submission to the European Medicines Agency, on a consolidated basis, we were due an additional milestone payment in the amount of $1.8 million. Our portion of that milestone payment was received in July 2022. During 2022, we recorded consolidated earnings on equity investment of $42.5 million, including the two milestones and accrued interest. Refer to Note 3 to the consolidated financial statements elsewhere herein for additional information.
Our prior year results included an unrealized loss on the fair value investment in Veritone, while we are required to estimate our income taxes in eachrecognized a realized gain on sale of the jurisdictionsequity investment in which we operate. This process involvesVeritone. Acacia no longer has an investment in Veritone common stock and warrants. Refer to additional change explanations above. Refer to Note 2 to the estimating ofconsolidated financial statements elsewhere herein for additional information regarding our actual currentformer investment in Veritone.
Income Taxes
Years Ended
December 31,
20222021$ Change% Change
(In thousands, except percentage change values)
Income tax benefit (expense)$16,211 $(24,287)$40,498 (167 %)
Effective tax rate(13)%14 %n/a(27)%
Our income tax exposure together with assessing temporary differences resulting from differing treatment of items. These differences resultbenefit for the year ended December 31, 2022 primarily reflects the decrease in deferred tax assetsliabilities attributable to the unrealized losses recorded, expiration of foreign tax credits and liabilities,changes in the valuation allowance. Our income tax expense for the year ended December 31, 2021 is primarily comprised of foreign taxes withheld and refunded on revenue agreements with licensees in foreign jurisdictions, state taxes, and the impact of valuation allowance changes.
Our 2022 effective tax rates were lower than the U.S. federal statutory rate primarily due to expiration of foreign tax credits and changes in valuation allowance. Our 2021 effective tax rates were lower than the U.S. federal statutory rate primarily due to the change in valuation allowance, as well as non-deductible items. The effective tax rate may be subject to fluctuations during the year as new information is obtained which are included within our consolidated balance sheets. We must then assessmay affect the likelihood that ourassumptions used to estimate the effective tax rate, including factors such as expected utilization of net operating loss carryforwards, changes in or the interpretation of tax laws in jurisdictions where the Company conducts business, the Company’s expansion into new states or foreign countries, and the amount of valuation allowances against deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the consolidated statements of operations.     assets.



Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and our valuation allowance. Due to uncertainties related to our ability to utilize certain deferred tax assets in future periods, we haveThe Company has recorded a fullpartial valuation allowance against our net deferred tax assets as of December 31, 2017, 20162022 and 2015. These assets primarily consist of foreign2021. Refer to Notes 2 and 15 to the consolidated financial statements elsewhere herein for additional income tax credits, capital loss carryforwards and net operating loss carryforwards.information.

In assessing the need forInflation
Historically, inflation has not had a valuation allowance, management has considered both the positive and negative evidence available, including but not limited to, estimates of future taxable income and related probabilities, estimates surrounding the character of future income and the timing of realization, consideration of the period over which our deferred tax assets may be recoverable, our recent history of net income and prior history of losses, projected future outcomes, industry and market trends and the nature of existing deferred tax assets. In management’s estimate,significant impact on us or any positive indicators, including forecasts of potential future profitability of our businesses, are outweighed by the uncertainties surroundingsubsidiaries. While insignificant to our estimates and judgments of potential future taxable income, primarily due to uncertainties surrounding the timing of realization of future taxable income and the character of such income in particular future periods (i.e. foreign or domestic). In the event that actual results differ from these estimates or we adjust these estimates should we believe we would be able to realize these deferred tax assets in the future, an adjustment to the valuation allowance would increase income in the period such determination was made.

In 2017, 2016 and 2015, based on management’s assessment, a full valuation allowance was recorded against the company’s net deferred tax assets generated during the periods and the balances as of the end of each of the periods, due to uncertainty regarding future realization of such tax assets pursuant to guidance set forth in ASC 740, “Income Taxes.” In future periods, if we determine that the company will more likely than not be able to realize certain of these amounts, the applicable portion of the benefit from the release of the valuation allowance will generally be recognized in the statements of operations in the period the determination is recorded.

Any changes in the judgments, assumptions and estimates associated with our analysis of the need for a valuation allowance in any future periods could materially impact our financial position and results of operations in the periods in which those determinations are made.

Consolidated Results of Operations
Comparison of the Results of Operations for Fiscal Years 2017, 2016 and 2015

Revenues
        2017 vs. 2016 2016 vs. 2015
  2017 2016 2015 $ Change % Change $ Change % Change
  (in thousands, except percentage change values and number of agreements)
Revenues $65,402
 $152,699
 $125,037
 $(87,297) (57)% $27,662
 22%
New revenue agreements executed 20
 39
 63
        
Average revenue per agreement $3,270
 $3,915
 $1,985
        

A reconciliation of the change in revenues (based on average revenue per agreement) for the periods presented, in relation to the revenues reported for the comparable prior year period, is as follows:
  2017 vs. 2016 2016 vs. 2015
  (in thousands)
Decrease in number of agreements executed $(74,392) $(47,633)
Increase (decrease) in average revenue per agreement executed (12,905) 75,295
Total $(87,297) $27,662

Three licensees individually accounted for 54%, 21% and 10%, respectively, of revenues recognizedconsolidated enterprise, during the year ended December 31, 2017. Three2022, our Printronix subsidiary experienced some inflation from higher freight costs and in the cost of raw materials than in previous years. While Printronix inventory costs have
36
been impacted by these inflationary pressures, up to this point Printronix has generally been able to adjust selling prices in response to these higher costs.
Liquidity and Capital Resources
General
Our foreseeable material cash requirements as of December 31, 2022, are recognized as liabilities or generally are otherwise described in Note 11, "Commitments and Contingencies," to the consolidated financial statements included elsewhere herein. Our most significant liabilities as reflected on our balance sheet as of December 31, 2022 include the Senior Secured Notes and, because of certain provisions in the related agreements that provide for net cash settlement upon a change in control, the Series B Warrants. For additional information, see Note 8, "Starboard Investment" to the consolidated financial statements included elsewhere herein. The Senior Secured Notes mature on July 14, 2023. In accordance with the terms of the Recapitalization Agreement, on or prior to July 14, 2023, a portion of the Series B Warrants are expected to be exercised for common stock through the Series B Warrants Exercise. In addition to the foregoing, we will be required to make the Recapitalization Payment at the closing of the Series B Warrants Exercise.
Cash requirements are generally derived from our operating and investing activities including expenditures for working capital (discussed below), human capital, business development, investments in equity securities and intellectual property, and business combinations. Our facilities lease obligations, guarantees and certain contingent obligations are further described in Note 11 to the consolidated financial statements. Historically, we have not entered into off-balance sheet financing arrangements. At December 31, 2022, we had unrecognized tax benefits, as further described in Note 15 to the consolidated financial statements.
Certain of our operating subsidiaries are often required to engage in litigation to enforce their patents and patent rights. In connection with any of our operating subsidiaries’ patent enforcement actions, it is possible that a defendant may request and/or a court may rule that an operating subsidiary has violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material.
Our primary sources of liquidity are cash and cash equivalents on hand generated from our operating activities, and as deemed appropriate by management from our availability of Senior Secured Notes (discussed in Note 8 to the consolidated financial statements elsewhere herein). We expect to satisfy our obligations under the existing Senior Secured Notes that mature on July 14, 2023 and make the Recapitalization Payment with cash on hand.
Furthermore, we intend to grow our company by acquiring additional operating businesses and intellectual property assets. We expect to finance such acquisitions through cash on hand or by engaging in equity or debt financing.
Our management believes that our cash and cash equivalent balances, anticipated cash flows from operations and the transactions taken and contemplated to be taken in connection with the Recapitalization, and our availability of Senior Secured Notes will be sufficient to meet our cash requirements through at least twelve months from the date of this report and for the foreseeable future. We may, however, encounter unforeseen difficulties that may deplete our capital resources more rapidly than anticipated, including those set forth under Item 1A, “Risk Factors”. Any efforts to seek additional funding could be made through issuances of equity or debt, or other external financing. However, additional funding may not be available to us on favorable terms, or at all. The capital and credit markets have experienced extreme volatility and disruption in recent years, and the volatility and impact of the disruption may continue. At times during this period, the volatility and disruption has reached unprecedented levels. In several cases, the markets have exerted downward pressure on stock prices and credit capacity for certain issuers, and the commercial paper markets may not be a reliable source of short-term financing for us. If we fail to obtain additional financing when needed, we may not be able to execute our business plans and our business, conducted by our operating subsidiaries, may suffer.
Cash, Cash Equivalents and Investments
Our consolidated cash, cash equivalents, equity securities and long-term restricted cash totaled $349.4 million at December 31, 2022, compared to $671.1 million at December 31, 2021.
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Cash Flows Summary
The net change in cash and cash equivalents and restricted cash for the periods presented was comprised of the following:
Years Ended December 31,
20222021
(In thousands)
Net cash (used in) provided by:
Operating activities$(37,336)$13,326 
Investing activities184,464 35,751 
Financing activities(166,137)59,738 
Effect of exchange rates on cash and cash equivalents(2,566)— 
(Decrease) increase in cash and cash equivalents and restricted cash$(21,575)$108,815 
Cash Flows from Operating Activities
Cash receipts from ARG's licensees individually accountedtotaled $16.6 million and $75.8 million for 26%, 23%the years ended December 31, 2022 and 11%, respectively, of revenues recognized during2021, respectively. Cash receipts from Printronix's customers totaled $40.5 million and $11.7 million for the year ended December 31, 2016. Three licensees individually accounted2022 and the period from October 7, 2021 through December 31, 2021, respectively. The fluctuations in cash receipts for 24%, 20% and 16%, respectively, ofthe periods presented primarily reflects the corresponding fluctuations in revenues recognized during the same periods, as described above, and the related timing of payments received from licensees and customers.
Our reported cash used in operations for the year ended December 31, 2015.



For2022 was $37.3 million, compared to $13.3 million cash provided by operations in the periods presented herein,prior year. Our 2022 cash used in operations was due to net outflows from the majority of the revenue agreements executed provided for thetotal changes in assets and liabilities (refer to Working Capital discussion below), most notably from a patent cost related payment of one-time, paid-up license fees in consideration$6.0 million (refer to Note 6 to the consolidated financial statements elsewhere herein for the grant of certain intellectual property rights for patented technology rights owned by our operating subsidiaries. These rights were primarily granted on a perpetual basis, extending until the expiration of the underlying patents. Refer to “Investments in Patent Portfolios” above for information regarding the impact of portfolio acquisition trends on currentadditional information), inventory related purchases and future licensing and enforcement related revenues. We continue to experience significant adverse challenges with respect to our patent intake efforts, and if these adverse challenges continue, our licensing and enforcement revenues will continue to decline and we will be unable to profitably sustain our licensing and enforcement business going forward.

Net Income (Loss)
        2017 vs. 2016 2016 vs. 2015
  2017 2016 2015 $ Change % Change $ Change % Change
  (in thousands, except percentages)
Net income (loss) attributable to Acacia Research Corporation $22,180
 $(54,067) $(160,036) $76,247
 (141)% $105,969
 (66)%

A reconciliation of the change in net income (loss) for the periods presented is as follows:
 2017 vs. 2016 % 2016 vs. 2015 %
 (in thousands, except percentage values)
Increase (decrease) in revenues$(87,297) (114)% $27,662
 26 %
(Increase) decrease in inventor royalties and contingent legal fees combined27,570
 36 % (14,573) (14)%
Decrease in general and administrative expenses6,889
 9 % 5,257
 5 %
Decrease in litigation and licensing expenses9,639
 13 % 11,515
 11 %
Decrease in patent amortization expenses12,054
 16 % 18,859
 18 %
Decrease in impairment of patent-related intangible assets40,092
 53 % 32,391
 31 %
Decrease in impairment for goodwill—
 — % 30,149
 28 %
Change in provision for income taxes15,233
 20 % (13,388) (13)%
Unrealized gain and change in fair value of investment49,526
 65 % —
 — %
Other2,541
 2 % 8,097
 8 %
Net change in net income (loss)$76,247
 100 % $105,969
 100 %

Cost of Revenues
       2017 vs. 2016 2016 vs. 2015
 2017 2016 2015 $ Change % Change $ Change % Change
 (in thousands, except percentages)
Inventor royalties$4,952
 $22,730
 $18,462
 $(17,778) (78)% $4,268
 23 %
Contingent legal fees16,682
 26,474
 16,169
 (9,792) (37)% 10,305
 64 %
Litigation and licensing expenses - patents18,219
 27,858
 39,373
 (9,639) (35)% (11,515) (29)%
Amortization of patents22,154
 34,208
 53,067
 (12,054) (35)% (18,859) (36)%

Inventor Royalties and Contingent Legal Fees Expense.  The economic terms of patent portfolio related partnering agreements and contingent legal fee arrangements, if any, including royalty obligations, if any, royalty rates, contingent fee rates and other terms and conditions, vary across the patent portfolios owned or controlled by our operating subsidiaries. In certain instances, we have invested in certain patent portfolios without future inventor royalty obligations. These costs fluctuate period to period, based on the amount of revenues recognized each period, the terms and conditions of revenue agreements executed each period and the mix of specific patent portfolios with varying economic terms, conditions and obligations generating revenues each period.



A summary of the main drivers of the change in inventor royalties expense and contingent legal fees expense,related payments, and by the total change in relationnet loss (described above) and related noncash adjustments.
Working Capital
Our working capital related to cash flows from operating activities at December 31, 2022 decreased to $15.1 million, compared to $4.3 million at December 31, 2021, which was comprised of the changes discussed below.
Accounts receivable decreased to $8.2 million at December 31, 2022, compared to $9.5 million at December 31, 2021. Refer to the changerelated cash receipts discussion above. Printronix's inventories increased to $14.2 million at December 31, 2022, compared to $8.9 million at December 31, 2021. Prepaid expenses and other current assets increased to $19.4 million at December 31, 2022, compared to $4.8 million at December 31, 2021, primarily due to certain patent related costs incurred of $15.0 million (refer to Note 6 to the consolidated financial statements elsewhere herein for additional information). Accounts payable, accrued expenses and other current liabilities and accrued compensation increased to $24.8 million at December 31, 2022, compared to $15.4 million at December 31, 2021, primarily due to accrued patent costs of $9.0 million (refer to Note 6 to the consolidated financial statements elsewhere herein for additional information), severance accruals in total revenues,the fourth quarter of 2022 and higher accounting fees. Royalties and contingent legal fees payable decreased to $699,000 at December 31, 2022, compared to $2.5 million at December 31, 2021 due to the reversal of a previously recorded accrual. Printronix's current deferred revenue increased to $1.2 million at December 31, 2022, compared to $1.1 million at December 31, 2021.
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Cash Flows from Investing Activities
Cash flows from investing activities were comprised of the following for the comparable periods presented, ispresented:
Years Ended December 31,
20222021
(In thousands)
Acquisition, net of cash acquired$— $(33,250)
Patent acquisition(5,000)(21,000)
Sale of investment at fair value— 3,591 
Purchases of equity securities(112,142)(66,624)
Sales of equity securities273,934 154,784 
Cash distributed for notes receivable— (4,021)
Distributions received from equity investment in joint venture28,404 2,362 
Purchases of property and equipment(732)(91)
Net cash provided by investing activities$184,464 $35,751 
Cash flows from investing activities for the year ended December 31, 2022 increased to $184.5 million, as follows:compared to cash flow of $35.8 million in the prior year, primarily due to net cash inflows from our Life Sciences Portfolio and trading securities portfolio equity securities transactions in 2022. Refer to “Other Income/Expense – Equity Securities Investments” above for additional information.
Cash Flows from Financing Activities
 2017 vs. 2016 % of Prior Period Balance 2016 vs. 2015 % of Prior Period Balance
Inventor Royalties:(in thousands, except percentage change values)
Increase (decrease) in inventor royalty rates$(4,345) (19)% $11,518
 62 %
Increase (decrease) in total revenues(30,254) (133)% 4,729
 26 %
Decrease (increase) in revenues without inventor royalty obligations16,821
 74 % (11,979) (65)%
Total change - inventor royalties expense$(17,778) (78)% $4,268
 23 %
Cash flows from financing activities included the following for the periods presented:

Years Ended December 31,
20222021
(In thousands)
Repurchase of common stock$(50,988)$(4,012)
Issuance of Senior Secured Notes, net of lender fee— 115,000 
Paydown of Senior Secured Notes(120,000)(50,000)
Dividend on Series A Redeemable Convertible Preferred Stock(2,799)(1,452)
Taxes paid related to net share settlement of share-based awards(1,600)— 
Proceeds from exercise of Series A warrants9,250 — 
Proceeds from exercise of stock options— 202 
Net cash (used in) provided by financing activities$(166,137)$59,738 
Cash outflows from financing activities for the year ended December 31, 2022 increased to $166.1 million, as compared to cash flow of $59.7 million in the prior year, primarily due to activity related to our Senior Secured Notes and our common stock repurchases (refer to Note 12). Refer to Note 8 to the consolidated financial statements elsewhere herein for additional information related to the Senior Secured Notes.
 2017 vs. 2016 % of Prior Period Balance 2016 vs. 2015 % of Prior Period Balance
Contingent Legal Fees:(in thousands, except percentage change values)
Increase in contingent legal fee rates$5,359
 20 % $6,850
 43 %
Increase (decrease) in total revenues(15,832) (60)% 3,719
 23 %
Decrease (increase) in revenues without contingent legal fee obligations681
 3 % (264) (2)%
Total change - contingent legal fees$(9,792) (37)% $10,305
 64 %

Litigation and Licensing Expenses - Patents.  Litigation and licensing expenses-patents include patent-related litigation, enforcement and prosecution costs incurred by external patent attorneys engaged on an hourly basisOn October 30, 2022, the Company entered into a Recapitalization Agreement with Starboard and the out-of-pocket expenses incurred by law firms engagedInvestors. Refer to Note 8 to the consolidated financial statements elsewhere herein for additional information.
Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. In preparing these financial statements, we make assumptions, judgments and estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from
39
these estimates under different assumptions or conditions. On a contingent fee basis. Litigationregular basis, we evaluate our assumptions, judgments and licensing expenses-patents also includes third-party patent research, development, prosecution, re-examestimates and inter partes reviews, consulting,make changes accordingly.
We believe that of the significant accounting policies discussed in Note 2 to the consolidated financial statements included elsewhere herein, the following accounting policies require our most difficult, subjective or complex assumptions, judgments and estimates:
•revenue recognition;
•valuation of long-lived assets, goodwill and other costs incurredintangible assets;
•valuation of Series B Warrants;
•valuation of embedded derivatives; and
•accounting for income taxes.
We discuss below the critical accounting assumptions, judgements and estimates associated with these policies. Historically, our critical accounting estimates relative to our significant accounting policies have not differed materially from actual results. For further information on the related significant accounting policies, refer to Note 2 to the consolidated financial statements.
Revenue Recognition
As described below, significant management judgment must be made and used in connection with the licensingrevenue recognized in any accounting period. Material differences may result in the amount and enforcementtiming of patent portfolios.revenue recognized or deferred for any period, if management made different judgments.

Litigation and licensing expenses-patents decreased forPrintronix recognizes revenue to depict the periods presented duetransfer of goods or services to a net decreasecustomer at an amount that reflects the consideration which it expects to receive for providing those goods or services. To determine the transaction price, Printronix estimates the amount of consideration to which it expects to be entitled in litigation support, patent prosecutionexchange for transferring promised goods or services to a customer. Elements of variable consideration are estimated at the time of sale which primarily include product rights of return, rebates, price protection and litigation expenses associated with ongoing licensingother incentives that occur under established sales programs. These estimates are developed using the expected value or the most likely amount method and enforcement programsare reviewed and updated, as necessary, at each reporting period. Revenues, inclusive of variable consideration, are recognized to the extent it is probable that a significant reversal recognized will not occur in future periods. The provision for returns and sales allowances is determined by an overall decrease in portfolio related enforcement activities. We expect patent-related legal expensesanalysis of the historical rate of returns and sales allowances over recent quarters, and adjusted to continue to decrease based upon the overall decrease in portfolio related enforcement activities as we continue monetizing our existing patent assets. Refer to “Investments in Patent Portfolios” above forreflect management’s future expectations. For additional information regarding the impact of portfolio acquisition trends on licensing and enforcement activities and current and future licensing and enforcement related revenues.

Amortization of Patents.  The change in amortization expense for the comparable periods presented was duePrintronix's net revenues, refer to Note 2 to the following:consolidated financial statements.
Valuation of Long-lived Assets, Goodwill and Other Intangible Assets
 2017 vs. 2016 2016 vs. 2015
 (in thousands)
Scheduled amortization related to patent portfolios owned or controlled as of the end of the prior year$(11,829) $(18,704)
Accelerated amortization related to recovery of upfront advances(225) 225
Patent portfolio dispositions—
 (380)
Total change in patent amortization expense$(12,054) $(18,859)

Impairment Charges
       2017 vs. 2016 2016 vs. 2015
 2017 2016 2015 $ Change % Change $ Change % Change
 (in thousands, except percentages)
Impairment of patent-related intangible assets$2,248
 $42,340
 $74,731
 $(40,092) (95)% $(32,391) (43)%
Impairment of goodwill—
 —
 30,149
 —
 — % (30,149) (100)%


Patent Impairment Charges

Impairment chargesThe Company reviews long-lived assets, patents and other intangible assets for fiscal year 2017 primarily reflect reductionspotential 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 estimatedundiscounted future net cash flows for certain patent portfolios that management determined it would no longer allocate resources to in future periods. Impairment charges for 2016 and 2015 reflectresulting from the impact of reductions in expected estimated future net cash flows for certain portfolios due to adverse litigation outcomes and certain patent portfolios that management determined it would no longer allocate licensing and enforcement resources to in future periods. Impairment charges for 2016 were primarily compriseduse of the write-offasset is less than the carrying amount of the remaining carrying value of our Adaptix portfolio. Impairment charges consisted ofasset, 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. For additional information regarding ARG's patent portfolio valuation estimates, refer to Note 2 to the consolidated financial statements. The Company did not record any long-lived asset, patent or other intangible asset impairment charges for the years ended December 31, 2022 and 2021.
Goodwill asset impairment reviews include determining the estimated fair value asvalues of the applicable measurement date.
Impairment ofour reporting units. We evaluate Goodwill

We conducted an annual goodwill for impairment test as of December 31, 2015. Based upon the difference between the implied fair value of goodwill and the historical carrying value of goodwill, due primarily to the sustained decline in our stock price and adverse litigation outcomesannually in the fourth quarter and on an interim basis if the facts and circumstances lead us to believe that more-likely-than-not there has been an impairment. The key assumptions and inputs used in such determinations may include forecasting revenues and expenses, cash flows and capital expenditures, as well as an appropriate discount rate and other inputs. Significant judgment by management is required in estimating the fair value of 2015, we recognized a reporting unit and in performing impairment reviews. Due to the inherent subjectivity and uncertainty in forecasting future
40
cash flows and earnings over long periods of time, actual results may vary materially from the forecasts. If the carrying value of a reporting unit exceeds the estimated fair value of the reporting unit, then the excess, limited to the carrying amount of goodwill, will be charged to operations as an impairment loss. The Company's goodwill balance relates to Printronix, which was acquired on October 7, 2021, refer to Note 1 to the consolidated financial statements for additional information. The Company did not record any goodwill impairment charge totaling $30.1 millioncharges for the years ended December 31, 2022 and 2021.
Valuation of Series B Warrants
The fair value of the Series B Warrants are estimated using a Black-Scholes option-pricing model. Refer to Note 9 to the consolidated financial statements for detailed information related to these fair value measurements. Of the assumptions used in the fourth quarterBlack-Scholes option-pricing model, volatility changes would have the most significant impact on the fair value. As of 2015.December 31, 2022, a hypothetical 10% increase in the volatility would have resulted in an increased liability balance of approximately $133,000 in our Series B Warrants. Refer to “Critical Accounting Policies” elsewhere hereinNote 8 to the consolidated financial statements for additionalmore information.

Valuation of Embedded Derivatives
Embedded derivatives that are required to be bifurcated from their host contract are valued separately from the host instrument. An as-converted value is currently used to estimate the fair value of the embedded derivative in the Series A Redeemable Convertible Preferred Stock. Refer to Note 9 to the consolidated financial statements for detailed information related to this fair value measurement. Of the assumptions used in the as-converted model, discount rate changes would have the most significant impact on the fair value. As of December 31, 2022, a hypothetical 1% increase in the discount rate would have resulted in an increased liability balance of approximately $959,000. Refer to Note 8 to the consolidated financial statements for more information.
Operating Expenses
Years Ended
December 31,
20222021$ Change% Change
(In thousands, except percentage change values)
Engineering and development expenses - industrial operations$626 $200 $426 213 %
Sales and marketing expenses - industrial operations8,621 1,538 7,083 461 %
General and administrative costs - intellectual property operations5,428 6,177 (749)(12 %)
General and administrative costs - industrial operations9,986 2,797 7,189 257 %
Parent general and administrative expenses37,266 26,692 10,574 40 %
Total general and administrative expenses52,680 35,666 17,014 48 %
Total$61,927 $37,404 $24,523 66 %
The operating expenses table above includes the Company's general and administrative expenses by operation and Printronix's engineering and development expenses and sales and marketing expenses. The periods presented above include Printronix's operating expenses for the full year ended December 31, 2022 compared to an approximate three month period
34
        2017 vs. 2016 2016 vs. 2015
  2017 2016 2015 $ Change % Change $ Change % Change
  (in thousands, except percentages)
General and administrative $17,145
 $23,857
 $27,128
 $(6,712) (28)% $(3,271) (12)%
Non-cash stock compensation expense - G&A 5,844
 9,062
 11,048
 (3,218) (36)% (1,986) (18)%
Non-cash stock compensation expense - Veritone Profits Interests 3,041
 —
 —
 3,041
 100 % —
 — %
Total general and administrative expenses $26,030
 $32,919
 $38,176
 $(6,889) (21)% $(5,257) (14)%
               
Other expenses - business development $1,189
 $3,079
 $3,391
 $(1,890) (61)% $(312) (9)%
ended December 31, 2021 following our acquisition of Printronix. Refer to Note 2 to the consolidated financial statements elsewhere herein for additional information regarding Printronix's operating expenses.
General and Administrative Expenses.  Expenses
A summary of the main drivers of the change in general and administrative expenses is as follows:
Years Ended
December 31,
2022 vs. 2021
(In thousands)
Personnel costs and board fees$1,391 
Variable performance-based compensation costs(848)
Other general and administrative costs4,836 
General and administrative costs - industrial operations5,856 
Amortization of industrial operations intangible assets1,333 
Compensation expense for share-based awards1,767 
Non-recurring employee severance costs2,679 
Total change in general and administrative expenses$17,014 
General and administrative expenses include employee compensation and related personnel costs, including variable performance based compensation and non-cash stock compensation expenses,expense for share-based awards, office and facilities costs, legal and accounting professional fees, public relations, marketing, stock administration, business development, fixed asset depreciation, amortization of Industrial Operations intangible assets, state taxes based on gross receipts and other corporate costs. A summary of the main drivers of the change inThe table above includes our Industrial Operations general and administrative expenses for the full year ended December 31, 2022 compared to an approximate three month period ended December 31, 2021 following our acquisition of Printronix.
The increases in personnel cost and board fees for the periods presented is as follows (in thousands):were primarily due to an increase in headcount and related costs. The decrease in variable performance-based compensation costs was primarily due to fluctuations in performance-based compensation accruals. The increases in other general and administrative costs, which relates to our parent company and Intellectual Property Operations business, were primarily due to parent company consulting and legal fees related to the Recapitalization Agreement and the Life Sciences Portfolio and higher accounting fees. Compensation expense for share-based awards increased primarily due to restricted stock and option grants issued to employees and the Board in 2022 and 2021. Non-recurring employee severance costs fluctuate based on the severance arrangements of terminated employees. In addition, our Industrial Operations related general and administrative costs and amortization contributed to the increased expenses in 2022. Refer to additional general and administrative change explanations above.
Other Income/Expense
Equity Securities Investments
Years Ended
December 31,
20222021$ Change% Change
(In thousands, except percentage change values)
Change in fair value of equity securities$(263,695)$87,527 $(351,222)(401 %)
Gain on sale of equity securities125,318 116,129 9,189 8 %
Earnings on equity investment in joint venture42,531 3,530 39,001 1,105 %
Net realized and unrealized (loss) gain(95,846)207,186 (303,032)(146 %)
Change in fair value of investment— (2,752)2,752 (100 %)
Gain on sale of investment— 3,591 (3,591)(100 %)
Total net realized and unrealized (loss) gain$(95,846)$208,025 $(303,871)(146 %)
35
 2017 vs. 2016 2016 vs. 2015
 (in thousands)
Net change in personnel costs due to reductions in headcount$(3,162) $(5,841)
Variable performance-based compensation costs(2,580) 1,839
Corporate, general and administrative costs(1,821) 1,594
Non-cash stock compensation expense - general and administrative (1)
(3,218) (1,986)
Non-cash stock compensation expense - Veritone related profits interests (1)
3,041
 —
Employee severance costs851
 (863)
Total change in general and administrative expenses$(6,889) $(5,257)
Our equity securities investments, including the Life Sciences Portfolio and trading securities portfolio, are recorded at fair value at each balance sheet date. Refer to periodic change explanations above. Refer to Notes 2 and 3 to the consolidated financial statements elsewhere herein for additional information regarding our investment in the Life Sciences Portfolio and other equity securities.

(1) -Our results included an unrealized loss from the change in fair value of our equity securities as compared to an unrealized gain in the prior period, while realized gains from the sale of our equity securities increased, as compared to the prior period. These changes were derived from our Life Sciences Portfolio and trading securities portfolio. The current period unrealized loss primarily relates to the reversal of prior period unrealized gains for Life Sciences Portfolio securities that were sold for a realized gain in 2022. The current period realized gain primarily relates to sales activity from two Life Sciences Portfolio securities and one trading security.
During 2021, we began to recognize earnings on our equity investment in joint venture, which is part of the Life Sciences Portfolio. In April 2022, such investment received a certain drug approval from the United States Food and Drug Administration. On a consolidated basis, we were due a milestone payment in the amount of $40.0 million, with interest accrued at 8.5% per year. Our portion of that milestone payment in the amount of $27.2 million, which includes accrued interest, was received in November 2022. In June 2022, in connection with the submission to the European Medicines Agency, on a consolidated basis, we were due an additional milestone payment in the amount of $1.8 million. Our portion of that milestone payment was received in July 2022. During 2022, we recorded consolidated earnings on equity investment of $42.5 million, including the two milestones and accrued interest. Refer to Note 10 in the accompany consolidated financial statements

General and administrative non-cash stock compensation expense for fiscal year 2017, excluding profits interests related non-cash compensation, decreased due to reductions in headcount and a reduction in scheduled non-cash stock compensation expense related to options with market-based performance conditions with graded vesting features that resulted in higher non-cash stock compensation expense in 2016, as compared to 2017.



Profits interests are classified as liability awards, which are measured at fair value on the grant date and re-measured each reporting period at fair value until the award is settled. Compensation expense (included in “non-cash stock compensation expense - Veritone related profits interests” above) is adjusted each reporting period for increases or decreases in the estimated fair value, which is primarily impacted by changes in the fair value of the underlying Veritone common stock and warrants related3 to the liability. Upon vesting of the units, which occurred in September 2017, any previously unrecognized compensation expense was immediately recognized for any changes in fair value. The fair value of the Veritone related profits interests Units totaled $3.0 million as of December 31, 2017. Refer to Note 10 in the condensed consolidated financial statements elsewhere herein for additional information.

General and administrative non-cash stock compensation expense for fiscalOur prior year 2016 decreased due primarily to a decrease inresults included an unrealized loss on the average grant date fair value for the shares expensedinvestment in the respective periods. The decrease was partially offset by an increase in fiscal year 2016 for non-cash stock compensation expense related to the grant of options with market-based vesting conditions with graded vesting features, resulting in higher non-cash stock compensation expense during the earlier stagesVeritone, while we recognized a realized gain on sale of the applicable service period.

Research, Consulting and Other Expenses - Business Development.  Research, consulting and other expenses include third-party business development related research, consulting, and other costs incurred in connection with business development activities. These costs fluctuate period to period based on business development related activities in each period.

Other Operating Income (Expense)

Change in Fair Value of Investment, net. Our equity investment in Veritone is recorded at fair value, and therefore, is marked to market at each balance sheet date. Results for fiscal year 2017 included a net unrealized gain on our equityVeritone. Acacia no longer has an investment in Veritone totaling $49.5 million, comprised of an unrealized gain on conversion of our Veritone loanscommon stock and warrants. Refer to equity of $2.7 million and an unrealized gain on the exercise of our Primary Warrant of $4.6 million, both as of May 2017, and an unrealized gain relatedadditional change explanations above. Refer to Note 2 to the change in fair value ofconsolidated financial statements elsewhere herein for additional information regarding our equityformer investment in Veritone through December 31, 2017 of $42.2 million.Veritone.

Other. Fiscal year 2017, 2016 and 2015 operating expenses included expenses for court ordered attorney fees and settlement and contingency accruals totaling $1.2 million, $500,000 and $4.1 million, respectively.

Income Taxes
Years Ended
December 31,
2017 2016 201520222021$ Change% Change
Provision for income taxes (in thousands)$(2,955) $(18,188) $(4,800)
(In thousands, except percentage change values)
Income tax benefit (expense)Income tax benefit (expense)$16,211 $(24,287)$40,498 (167 %)
Effective tax rate(12)% 50% 3%Effective tax rate(13)%14 %n/a(27)%
Our effectiveincome tax ratesbenefit for fiscalthe year 2017, 2016ended December 31, 2022 primarily reflects the decrease in deferred tax liabilities attributable to the unrealized losses recorded, expiration of foreign tax credits and 2015, werechanges in the valuation allowance. Our income tax expense for the year ended December 31, 2021 is primarily comprised of foreign taxes withheld and refunded on revenue agreements with licensees in foreign jurisdictions, state taxes, and the impact of full valuation allowances recorded for net operating loss (2017 and 2015) andallowance changes.
Our 2022 effective tax rates were lower than the U.S. federal statutory rate primarily due to expiration of foreign tax credit relatedcredits and changes in valuation allowance. Our 2021 effective tax assets generated in those periodsrates were lower than the U.S. federal statutory rate primarily due to uncertainty regarding future realization. Foreign taxes withheld related to revenue agreements executed with third-party licensees domiciledthe change in certain foreign jurisdictions for fiscal year 2017, 2016 and 2015 totaled $2.9 million, $17.9 million, and $4.4 million, respectively. Results for fiscal year 2017 included an unrealized gain on our equity investment in Veritone which created a deferred tax liability totaling approximately $10.6 million. The future anticipated reversal of this deferred tax liability provides for a source of taxable income that allows for the realizability of existing deferred tax assets that have been reduced by a valuation allowance, for the periods presented.as well as non-deductible items. The effective tax rate reflects bothmay be subject to fluctuations during the recognitionyear as new information is obtained which may affect the assumptions used to estimate the effective tax rate, including factors such as expected utilization of net operating loss carryforwards, changes in or the interpretation of tax laws in jurisdictions where the Company conducts business, the Company’s expansion into new states or foreign countries, and the amount of valuation allowances against deferred tax liabilityassets.
The Company has recorded a partial valuation allowance against our net deferred tax assets as of December 31, 2022 and 2021. Refer to Notes 2 and 15 to the reversal of valuation allowance.consolidated financial statements elsewhere herein for additional income tax information.

Inflation

InflationHistorically, inflation has not had a significant impact on us or any of our subsidiariessubsidiaries. While insignificant to our consolidated enterprise, during the year ended December 31, 2022, our Printronix subsidiary experienced some inflation from higher freight costs and in the current or prior periods.cost of raw materials than in previous years. While Printronix inventory costs have

36
been impacted by these inflationary pressures, up to this point Printronix has generally been able to adjust selling prices in response to these higher costs.
Liquidity and Capital Resources

General
Our foreseeable material cash requirements as of December 31, 2022, are recognized as liabilities or generally are otherwise described in Note 11, "Commitments and Contingencies," to the consolidated financial statements included elsewhere herein. Our most significant liabilities as reflected on our balance sheet as of December 31, 2022 include the Senior Secured Notes and, because of certain provisions in the related agreements that provide for net cash settlement upon a change in control, the Series B Warrants. For additional information, see Note 8, "Starboard Investment" to the consolidated financial statements included elsewhere herein. The Senior Secured Notes mature on July 14, 2023. In accordance with the terms of the Recapitalization Agreement, on or prior to July 14, 2023, a portion of the Series B Warrants are expected to be exercised for common stock through the Series B Warrants Exercise. In addition to the foregoing, we will be required to make the Recapitalization Payment at the closing of the Series B Warrants Exercise.
Cash requirements are generally derived from our operating and investing activities including expenditures for working capital (discussed below), human capital, business development, investments in equity securities and intellectual property, and business combinations. Our facilities lease obligations, guarantees and certain contingent obligations are further described in Note 11 to the consolidated financial statements. Historically, we have not entered into off-balance sheet financing arrangements. At December 31, 2022, we had unrecognized tax benefits, as further described in Note 15 to the consolidated financial statements.
Certain of our operating subsidiaries are often required to engage in litigation to enforce their patents and patent rights. In connection with any of our operating subsidiaries’ patent enforcement actions, it is possible that a defendant may request and/or a court may rule that an operating subsidiary has violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material.
Our primary sources of liquidity are cash and cash equivalents on hand generated from our operating activities. activities, and as deemed appropriate by management from our availability of Senior Secured Notes (discussed in Note 8 to the consolidated financial statements elsewhere herein). We expect to satisfy our obligations under the existing Senior Secured Notes that mature on July 14, 2023 and make the Recapitalization Payment with cash on hand.
Furthermore, we intend to grow our company by acquiring additional operating businesses and intellectual property assets. We expect to finance such acquisitions through cash on hand or by engaging in equity or debt financing.
Our management believes that our cash and cash equivalent balances, and anticipated cash flows from operations and the transactions taken and contemplated to be taken in connection with the Recapitalization, and our availability of Senior Secured Notes will be sufficient


to meet our cash requirements through at least March 2019twelve months from the date of this report and for the foreseeable future. We may, however, encounter unforeseen difficulties that may deplete our capital resources more rapidly than anticipated, including those set forth under Item 1A, “Risk Factors”, above.. Any efforts to seek additional funding could be made through issuances of equity or debt, or other external financing. However, additional funding may not be available to us on favorable terms, or at all. The capital and credit markets have experienced extreme volatility and disruption in recent years, and the volatility and impact of the disruption may continue. At times during this period, the volatility and disruption has reached unprecedented levels. In several cases, the markets have exerted downward pressure on stock prices and credit capacity for certain issuers, and the commercial paper markets may not be a reliable source of short-term financing for us. If we fail to obtain additional financing when needed, we may not be able to execute our business plans and our business, conducted by our operating subsidiaries, may suffer.

Certain of our operating subsidiaries are often required to engage in litigation to enforce their patents and patent rights. In connection with any of our operating subsidiaries’ patent enforcement actions, it is possible that a defendant may request and/or a court may rule that an operating subsidiary has violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions.  In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material.
Cash, Cash Equivalents and Investments

Our consolidated cash, and cash equivalents, equity securities and short-term investments, excludinglong-term restricted cash balances, if any, totaled $136.6$349.4 million at December 31, 2017,2022, compared to $147.0$671.1 million at December 31, 2016. 2021.
37
Cash Flows Summary
The net change in cash and cash equivalents and restricted cash for the periods presented was comprised of the following (in thousands):following:
Years Ended December 31,
20222021
(In thousands)
Net cash (used in) provided by:
Operating activities$(37,336)$13,326 
Investing activities184,464 35,751 
Financing activities(166,137)59,738 
Effect of exchange rates on cash and cash equivalents(2,566)— 
(Decrease) increase in cash and cash equivalents and restricted cash$(21,575)$108,815 
  2017 2016 2015
       
Net cash provided by (used in):      
Operating activities $24,478
 $34,061
 $(9,949)
Investing activities (16,114) (40,630) 39,307
Financing activities 700
 (1,114) (28,601)
  $9,064
 $(7,683) $757
Cash Flows from Operating Activities.Activities
Cash receipts from ARG's licensees totaled $91.2 million, $160.2$16.6 million and $111.0$75.8 million in fiscalfor the years 2017, 2016ended December 31, 2022 and 2015,2021, respectively. Cash receipts from Printronix's customers totaled $40.5 million and $11.7 million for the year ended December 31, 2022 and the period from October 7, 2021 through December 31, 2021, respectively. The fluctuations in cash receipts for the periods presented primarily reflects the corresponding fluctuations in revenues recognized during the same periods, as described above, and the related timing of payments received from licensees. Cashlicensees and customers.
Our reported cash used in operations for the year ended December 31, 2022 was $37.3 million, compared to $13.3 million cash provided by operations in the prior year. Our 2022 cash used in operations was due to net outflows from operations totaled $66.8the total changes in assets and liabilities (refer to Working Capital discussion below), most notably from a patent cost related payment of $6.0 million (refer to Note 6 to the consolidated financial statements elsewhere herein for additional information), $126.1 millioninventory related purchases and $120.9 million in fiscal years 2017, 2016 and 2015, respectively. The fluctuations in cash outflows for the periods presented reflects the fluctuations in revenue-related inventor royalties and contingent legal fees and other operating costs and expenses during the same periods, as discussed above, and the impact of the timing ofrelated payments, to inventors, attorneys and other vendors.

Restricted Cash. In March 2015, an operating subsidiary of ours entered into a Guarantee with a bank in connection with enforcing a ruling in a German patent court granting an injunction against the defendants in the related patent infringement case. The Guarantee was secured by a cash deposit (classified as restricted cash in the accompanying balances sheets) totaling $11.5 million at December 31, 2016. Upon resolution of all related matters in June 2017, the Guarantee was extinguished resulting in release of the cash collateral (and related restrictions on the cash balance) by the contracting bank. As of December 31, 2017, no amounts of Acacia’s cash and investments are restricted as to use.
Cash Flows from Investing Activities. Cash flows from investing activitiestotal change in net loss (described above) and related changes were comprised of the following for the periods presented (in thousands):
noncash adjustments.
  2017 2016 2015
       
Investment in Investees(1)
 $(31,514) $—
 $—
Advances to Investee(1)
 (4,000) (20,000) —
Purchases of property and equipment (2) (4) (8)
Net sale (purchase) of available-for-sale investments 19,402
 (19,401) 58,819
Patent portfolio investment costs —
 (1,225) (19,504)
Net cash provided by (used in) investing activities $(16,114) $(40,630) $39,307
(1) - Refer to Note 7 in the accompany consolidated financial statements      


Equity Investment in Veritone, Inc. On August 15, 2016, we entered into an Investment Agreement with Veritone, which provided for us to invest up to $50 million in Veritone, consisting of both debt and equity components. Pursuant to the Investment Agreement, on August 15, 2016, we entered into a secured convertible promissory note with Veritone, or the Veritone Loans, which permitted Veritone to borrow up to $20 million through two $10 million advances, each bearing interest at the rate of 6.0% per annum (included in Other Income (Expense) in the consolidated statements of operations). On August 15, 2016, we funded the initial $10 million loan, or the First Loan.   On November 25, 2016, we funded the second $10 million loan, or the Second Loan. The First Loan and the Second Loan were due and payable on November 25, 2017. In conjunction with the First Loan and Second Loan, Veritone issued us a total of three four-year $700,000 warrants to purchase shares of Veritone’s common stock at an exercise price of $13.6088 per share. Veritone’s initial public offering date was May 12, 2017. Upon Veritone’s consummation of its IPO, all outstanding principal and accrued interest under the Veritone Loans, totaling $20.7 million, automatically converted into 1,523,746 shares of Veritone’s common stock based on a conversion price of $13.6088 per share.
In addition, in August 2016, Veritone issued us a five-year Primary Warrant to purchase up to $50 million, less all converted amounts or amounts repaid under the Veritone Loans, worth of shares of Veritone’s common stock at an exercise price of $13.6088 per share. Pursuant to an amendment to the Primary Warrant effective March 15, 2017, the Primary Warrant was exercised automatically upon Veritone’s consummation of its IPO, resulting in the purchase by us of an additional 2,150,335 shares of Veritone common stock, with an aggregate purchase price totaling $29.3 million. Immediately following our exercise of the Primary Warrant in full, Veritone issued us an additional 10% Warrant that provides for the issuance of an additional 809,400 shares of Veritone common stock at an exercise price of $13.6088 per share, with 50% of the shares underlying the 10% Warrant vesting as of the issuance date of the 10% Warrant, and the remaining 50% of shares vesting on the anniversary of the issuance date of the 10% Warrant.
On March 14, 2017, we entered into an additional secured convertible promissory note with Veritone, or the Veritone Bridge Loan, which permitted Veritone to borrow up to an additional $4.0 million, bearing interest at the rate of 8.0% per annum. On March 17, 2017, we funded the initial $1.0 million advance, or the First Bridge Loan. On April 14, 2017, we funded the second $1.0 million advance, or the Second Bridge Loan. All advances and accrued interest under the Veritone Bridge Loan were due and payable on November 25, 2017. In May 2017, pursuant to the terms of the Veritone Bridge Loan, we elected to make an additional advance to Veritone totaling $2.0 million, representing all principal amounts not advanced upon Veritone’s consummation of its IPO. Upon consummation of Veritone’s IPO, the outstanding principal balance and accrued interest under the Veritone Bridge Loan, totaling $4.0 million, automatically converted into 295,440 shares of Veritone’s common stock based on a conversion price of $13.6088 per share.
In conjunction with the Veritone Bridge Loan, Veritone issued us (i) 60,000 shares of Veritone common stock, (ii) 90,000 shares of Veritone common stock and (iii) 10-year warrants to purchase up to 157,000 shares of Veritone common stock, with other terms and conditions similar to the warrants described above.

Our Veritone common shares were subject to a lock-up agreement that expired on February 15, 2018, subsequent to which the shares may be sold pursuant to Rule 144, subject to volume limitations and Rule 144 filing requirements, as well as other restrictions under applicable securities laws. All share amounts above have been adjusted to reflect a 0.6-for-1 reverse stock split of Veritone’s common stock, which was effected by Veritone in April 2017.

Partnership with Miso Robotics, Inc. In June 2017, we partnered with Miso Robotics, an innovative leader in robotics and AI solutions, which included an equity investment totaling $2.25 million, as part of Miso Robotics’ closing of $3.1 million in Series A funding.
Cash Flows from Financing Activities. Cash flows from financing activities and related changes included the following for the periods presented (in thousands):
  2017 2016 2015
       
Dividends paid to stockholders $—
 $—
 $(25,434)
Distributions to noncontrolling interests - Acacia IP Fund —
 (1,358) (4,105)
Proceeds from the exercise of stock options 745
 326
 938
Repurchases of common stock (45) (82) —
Net cash provided by financing activities $700
 $(1,114) $(28,601)

Dividends to Stockholders. In April 2013, our Board of Directors approved the adoption of a cash dividend policy that called for the payment of an expected total annual cash dividend of $0.50 per common share, payable in the amount of $0.125


per share per quarter. On February 23, 2016, we announced that our Board of Directors terminated the dividend policy. Our Board of Directors terminated the dividend policy due to a number of factors, including our financial performance, our available cash resources, our cash requirements and alternative uses of capital that our Board of Directors concluded would represent an opportunity to generate a greater return on investment for us and our stockholders.

Stock Repurchase Program. In February 2018, our Board of Directors authorized the Program to repurchase up to $20 million of our outstanding common stock in open market purchases or private purchases, from time to time, in amounts and at prices to be determined by the Board of Directors at its discretion. In determining whether or not to repurchase any shares of our common stock, our Board of Directors will consider such factors as the impact of the repurchase on our cash position, as well as our capital needs and whether there is a better alternative use of our capital. We have no obligation to repurchase any amount of our common stock under the Program. The Program is set to expire on February 28, 2019.

Working Capital

The primary components ofOur working capital arerelated to cash flows from operating activities at December 31, 2022 decreased to $15.1 million, compared to $4.3 million at December 31, 2021, which was comprised of the changes discussed below.
Accounts receivable decreased to $8.2 million at December 31, 2022, compared to $9.5 million at December 31, 2021. Refer to the related cash receipts discussion above. Printronix's inventories increased to $14.2 million at December 31, 2022, compared to $8.9 million at December 31, 2021. Prepaid expenses and cash equivalents, restricted cash, short-term investments, accounts receivable, prepaid expenses, accountsother current assets increased to $19.4 million at December 31, 2022, compared to $4.8 million at December 31, 2021, primarily due to certain patent related costs incurred of $15.0 million (refer to Note 6 to the consolidated financial statements elsewhere herein for additional information). Accounts payable, accrued expenses and royaltiesother current liabilities and contingent legal fees payable. Working capital at December 31, 2017 was $130.1 million, comparedaccrued compensation increased to $160.3$24.8 million at December 31, 2016.  
Consolidated accounts receivable from licensees decreased to $153,000 at December 31, 2017,2022, compared to $26.8 million at December 31, 2016. Accounts receivable balances fluctuate based on the timing, magnitude and payment terms associated with revenue agreements executed during the year, and the timing of cash receipts on accounts receivable balances recorded in previous periods. One licensee accounted for 100% of accounts receivable at December 31, 2017. Four licensees individually represented approximately 39%, 22%, 16% and 15%, respectively, of accounts receivable at December 31, 2016. 

Accounts payable and accrued expenses decreased to $8.0$15.4 million at December 31, 2017, from $14.32021, primarily due to accrued patent costs of $9.0 million at December 31, 2016, due primarily(refer to a decreaseNote 6 to the consolidated financial statements elsewhere herein for additional information), severance accruals in payrollthe fourth quarter of 2022 and other employee benefits and a decrease in foreign taxes payable.

Consolidated royaltieshigher accounting fees. Royalties and contingent legal fees payable decreased to $1.6 million$699,000 at December 31, 2017,2022, compared to $13.9$2.5 million at December 31, 20162021 due to the reversal of a previously recorded accrual. Printronix's current deferred revenue increased to $1.2 million at December 31, 2022, compared to $1.1 million at December 31, 2021.
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Cash Flows from Investing Activities
Cash flows from investing activities were comprised of the following for the periods presented:
Years Ended December 31,
20222021
(In thousands)
Acquisition, net of cash acquired$— $(33,250)
Patent acquisition(5,000)(21,000)
Sale of investment at fair value— 3,591 
Purchases of equity securities(112,142)(66,624)
Sales of equity securities273,934 154,784 
Cash distributed for notes receivable— (4,021)
Distributions received from equity investment in joint venture28,404 2,362 
Purchases of property and equipment(732)(91)
Net cash provided by investing activities$184,464 $35,751 
Cash flows from investing activities for the year ended December 31, 2022 increased to $184.5 million, as compared to cash flow of $35.8 million in the prior year, primarily due to net cash inflows from our Life Sciences Portfolio and trading securities portfolio equity securities transactions in 2022. Refer to “Other Income/Expense – Equity Securities Investments” above for additional information.
Cash Flows from Financing Activities
Cash flows from financing activities included the following for the periods presented:
Years Ended December 31,
20222021
(In thousands)
Repurchase of common stock$(50,988)$(4,012)
Issuance of Senior Secured Notes, net of lender fee— 115,000 
Paydown of Senior Secured Notes(120,000)(50,000)
Dividend on Series A Redeemable Convertible Preferred Stock(2,799)(1,452)
Taxes paid related to net share settlement of share-based awards(1,600)— 
Proceeds from exercise of Series A warrants9,250 — 
Proceeds from exercise of stock options— 202 
Net cash (used in) provided by financing activities$(166,137)$59,738 
Cash outflows from financing activities for the year ended December 31, 2022 increased to $166.1 million, as compared to cash flow of $59.7 million in the prior year, primarily due to activity related to our Senior Secured Notes and our common stock repurchases (refer to Note 12). RoyaltiesRefer to Note 8 to the consolidated financial statements elsewhere herein for additional information related to the Senior Secured Notes.
On October 30, 2022, the Company entered into a Recapitalization Agreement with Starboard and contingent legal fees payable balances fluctuate basedthe Investors. Refer to Note 8 to the consolidated financial statements elsewhere herein for additional information.
Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. In preparing these financial statements, we make assumptions, judgments and estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from
39
these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly.
We believe that of the significant accounting policies discussed in Note 2 to the consolidated financial statements included elsewhere herein, the following accounting policies require our most difficult, subjective or complex assumptions, judgments and estimates:
•revenue recognition;
•valuation of long-lived assets, goodwill and other intangible assets;
•valuation of Series B Warrants;
•valuation of embedded derivatives; and
•accounting for income taxes.
We discuss below the critical accounting assumptions, judgements and estimates associated with these policies. Historically, our critical accounting estimates relative to our significant accounting policies have not differed materially from actual results. For further information on the magnituderelated significant accounting policies, refer to Note 2 to the consolidated financial statements.
Revenue Recognition
As described below, significant management judgment must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of revenue recognized or deferred for any period, if management made different judgments.
Printronix recognizes revenue to depict the executiontransfer of related license agreements,goods or services to a customer at an amount that reflects the timingconsideration which it expects to receive for providing those goods or services. To determine the transaction price, Printronix estimates the amount of consideration to which it expects to be entitled in exchange for transferring promised goods or services to a customer. Elements of variable consideration are estimated at the time of sale which primarily include product rights of return, rebates, price protection and other incentives that occur under established sales programs. These estimates are developed using the expected value or the most likely amount method and are reviewed and updated, as necessary, at each reporting period. Revenues, inclusive of variable consideration, are recognized to the extent it is probable that a significant reversal recognized will not occur in future periods. The provision for returns and sales allowances is determined by an analysis of the historical rate of returns and sales allowances over recent quarters, and adjusted to reflect management’s future expectations. For additional information regarding Printronix's net revenues, refer to Note 2 to the consolidated financial statements.
Valuation of Long-lived Assets, Goodwill and Other Intangible Assets
The Company reviews long-lived assets, patents and other 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 receiptsflows 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. For additional information regarding ARG's patent portfolio valuation estimates, refer to Note 2 to the consolidated financial statements. The Company did not record any long-lived asset, patent or other intangible asset impairment charges for the years ended December 31, 2022 and 2021.
Goodwill asset impairment reviews include determining the estimated fair values of our reporting units. We evaluate Goodwill for impairment annually in the fourth quarter and on an interim basis if the facts and circumstances lead us to believe that more-likely-than-not there has been an impairment. The key assumptions and inputs used in such determinations may include forecasting revenues and expenses, cash flows and capital expenditures, as well as an appropriate discount rate and other inputs. Significant judgment by management is required in estimating the fair value of a reporting unit and in performing impairment reviews. Due to the inherent subjectivity and uncertainty in forecasting future
40
cash flows and earnings over long periods of time, actual results may vary materially from the forecasts. If the carrying value of a reporting unit exceeds the estimated fair value of the reporting unit, then the excess, limited to the carrying amount of goodwill, will be charged to operations as an impairment loss. The Company's goodwill balance relates to Printronix, which was acquired on October 7, 2021, refer to Note 1 to the consolidated financial statements for additional information. The Company did not record any goodwill impairment charges for the years ended December 31, 2022 and 2021.
Valuation of Series B Warrants
The fair value of the Series B Warrants are estimated using a Black-Scholes option-pricing model. Refer to Note 9 to the consolidated financial statements for detailed information related license agreements,to these fair value measurements. Of the assumptions used in the Black-Scholes option-pricing model, volatility changes would have the most significant impact on the fair value. As of December 31, 2022, a hypothetical 10% increase in the volatility would have resulted in an increased liability balance of approximately $133,000 in our Series B Warrants. Refer to Note 8 to the consolidated financial statements for more information.
Valuation of Embedded Derivatives
Embedded derivatives that are required to be bifurcated from their host contract are valued separately from the host instrument. An as-converted value is currently used to estimate the fair value of the embedded derivative in the Series A Redeemable Convertible Preferred Stock. Refer to Note 9 to the consolidated financial statements for detailed information related to this fair value measurement. Of the assumptions used in the as-converted model, discount rate changes would have the most significant impact on the fair value. As of December 31, 2022, a hypothetical 1% increase in the discount rate would have resulted in an increased liability balance of approximately $959,000. Refer to Note 8 to the consolidated financial statements for more information.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves the estimating of our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the consolidated statements of operations.
Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and our valuation allowance. Due to uncertainties related to our ability to utilize certain deferred tax assets in future periods, we have recorded a partial valuation allowance against our net deferred tax assets as of December 31, 2022 and 2021. These assets primarily consist of foreign tax credits and net operating loss carryforwards. Refer to Note 15 to the consolidated financial statements for additional information.
In assessing the need for a valuation allowance, management has considered both the positive and negative evidence available, including but not limited to, estimates of future taxable income and related probabilities, estimates surrounding the character of future income and the timing of paymentrealization, consideration of currentthe period over which our deferred tax assets may be recoverable, our recent history of net income and prior period royaltieshistory of losses, projected future outcomes, industry and contingent legal fees payablemarket trends and the nature of existing deferred tax assets. In management’s estimate, any positive indicators, including forecasts of potential future profitability of our businesses, are outweighed by the uncertainties surrounding our estimates and judgments of potential future taxable income, primarily due to inventoruncertainties surrounding the timing of realization of future taxable income and outside attorneys, respectively.

Allthe character of accounts receivablesuch income in particular future periods (i.e. foreign or domestic). In the event that actual results differ from licensees at December 31, 2017 were collectedthese estimates or we adjust these estimates should we believe we would be able to realize these deferred tax assets in the first quarter of 2018,future, an adjustment to the valuation allowance would increase income in accordancethe period such determination was made.
Any changes in the judgments, assumptions and estimates associated with the termsour analysis of the related underlying license agreements. The majorityneed for a valuation allowance in any future periods could materially impact our financial position and results of royalties and contingent legal fees payable are scheduled to be paidoperations in the first and second quarterperiods in which those determinations are made.
41

Off-Balance Sheet Arrangements

We have not entered into off-balance sheet financing arrangements, other than operating leases.

Contractual Obligations
We have no significant commitments for capital expenditures in 2018. We have no committed lines of credit or other committed funding or long-term debt. The following table lists our material known future cash commitments as of December 31, 2017, and any material known commitments arising from events subsequent to year end:
 Payments Due by Period (In thousands)
Contractual ObligationsTotal Less than 1 year 1-3 years 3-5 years More than 5 years
          
Operating leases, net of guaranteed sublease income$2,598
 $1,213
 $1,385
 $—
 $—
Total contractual obligations$2,598
 $1,213
 $1,385
 $—
 $—
Uncertain Tax Positions. At December 31, 2017, we had total unrecognized tax benefits of approximately $1.4 million, including a recorded noncurrent liability of $85,000 related to unrecognized tax benefits primarily associated with state


taxes. No interest and penalties have been recorded for the unrecognized tax benefits as of December 31, 2017. If recognized, approximately $1.4 million would impact our effective tax rate. We do not expect that the liability for unrecognized tax benefits will change significantly within the next 12 months.

Recent Accounting Pronouncements

Refer to Note 2 to our notes to consolidated financial statements included elsewhere herein.

42

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our short-term investment activities is to preserve principal while concurrently maximizing the income we receive from our short-term investmentsequity securities without significantly increasing risk. Some of the securities that we invest in may be subject to interest rate risk and/or market risk. This means that a change in prevailing interest rates, with respect to interest rate risk, or a change in the value of the United States equity markets, with respect to market risk, may cause the principal amount or market value of the short-term investmentsequity securities to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the current value of the principal amount of our investment may decline. To minimize these risks in the future, we intend to maintain our portfolio of cash equivalents and short-term investmentsequity securities in a variety of securities, including commercial paper, money market funds, high-grade corporate bonds, government and non-government debtsecurities. Cash equivalents are comprised of investments in U.S. treasury securities and certificates of deposit.

Short-term investment balances were zero at December 31, 2017. At December 31, 2016, our short-term investments were comprised of AAA rated money market funds that invest in first-tier only securities, which primarily include domestic commercial paper and securities issued or guaranteed by the U.S. government or its agencies, U.S. bank obligations, and fully collateralized repurchase agreements (included in cash and cash equivalents in the accompanying consolidated balance sheets), and direct investments in highly liquid, AAA, U.S. government securities (included in short-term investments in the accompanying consolidated balance sheets).

agencies. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate. Accordingly, a 100 basis point increase in interest rates or a 10% decline in the value of the United States equity markets would not be expected to have a material impact on the value of such money market funds. Investments in U.S. government fixed income securities are subject to interest rate risk and will decline in value if interest rates increase. However, due to the relatively short duration of our short-term investment portfolio, an immediate 10% change in interest rates would have no material impact on our financial condition, results of operations or cash flows. Declines in interest rates over time will, however, reduce our interest income.

Investment Risk.
We are exposed to investment risks related to changes in the underlying financial condition of certain of our partnerships with high-growth and potentially disruptive technology companies, and our related equity investments in thesetechnology companies. The fair value of these investments can be significantly impacted by the risk of adverse changes in securities markets generally, as well as risks related to the performance of the companies whose securities we have invested in, risks associated with specific industries, and other factors. These investments are subject to significant fluctuations in fair value due to the volatility of the securities markets and of the underlying businesses.
As of December 31, 2017,2022 and 2021, the carrying value of our common stock and warrantsequity investments in public and private companies was $107.0 million. $98.4 million and $398.5 million, respectively.
We record our common stock and warrantequity investments in publicly traded companies at fair value, which isare subject to market price volatility, and represents $104.8 million of our non-current investments asvolatility. As of December 31, 2017. A2022, a hypothetical 10% adverse change in the market price of Veritone'sour investments in publicly traded common stock would have resulted in a decrease of approximately $11.1$6.2 million in the fair value of oursuch equity and equity warrant investments in Veritone.investments. We evaluate our equity and equity warrant investments in private companies for impairment when events and circumstances indicate that the decline in fair value of such assets below the carrying value is other-than temporary. Our analysis includes
Foreign Currency Exchange Risk
Although we historically have not had material foreign operations, we are also exposed to market risks related to fluctuations in foreign currency exchange rates between the U.S. dollar, and the British Pound and Euro currency exchange rates, primarily related to foreign cash accounts, a reviewnote receivable and certain equity security investments. As of recent operatingDecember 31, 2022, a hypothetical 10% change in exchange rates related to our at risk foreign denominated equity securities would have approximately a $4.3 million effect on our financial position and results and trends, recent sales/acquisitions of the investee securities, and other publicly available data. The current global economic climate provides additional uncertainty. Valuations of private companies are inherently more complex due to the lack of readily available market data. As such, we believe that market sensitivities are not practicable for our private company equity investments.operations.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and related financial information required to be filed hereunder are indexed under Item 15 of this report and are incorporated herein by reference.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


ITEM 9A. CONTROLS AND PROCEDURES


(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of ourWe maintain disclosure controls and procedures as(as defined in Rules 13a-15(e)and 15d-15(e) under the Securities Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concludedAct of 1934, as amended (the “Exchange Act”)) that as of December 31, 2017, our disclosure controls and procedures were effectiveare designed to ensure that the information required to be
43
disclosed by us in theour reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods prescribed byspecified in the SEC. SEC’s rules and forms and that this information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting as definedmay not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in Rules 13a-15(f) and 15d-15(f) underconditions, or that the Exchange Act. Under the supervision anddegree of compliance with the participation of ourpolicies and procedures may deteriorate.
Our management including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluationassessment of the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the 2013 frameworkcriteria set forth in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework,assessment, our management has concluded that our internal control over financial reporting was effective as of December 31, 2017.2022.
Exemption from Attestation Report of Independent Registered Public Accounting Firm
Grant Thornton LLP, theThis Report does not include an attestation report of our independent registered public accounting firm who audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of ourregarding internal control over financial reporting asreporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of December 31, 2017, which is included herein.the SEC that permit us to provide only Management’s Annual Report because we are a non-accelerated filer.
Changes in Internal Controls. over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fourth fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.


ITEM 9B. OTHER INFORMATION

In connection with Lawrence Wesley Golby’s resignation in November 2022, Mr. Golby and ARG entered into a Separation Agreement and General Release of Claims (the “Golby Separation Agreement”), pursuant to which, Mr. Golby became entitled to receive (i) base salary continuation from November 28, 2022 through February 17, 2023, which totaled $512,000 (ii) a lump sum cash payment equal to $410,096.10, and (iii) payment for three months of both the employer and employee portions of monthly COBRA, which totaled $10,000. In exchange, Mr. Golby released ARG and the Company of any and all claims other than those that by law may not be waived or that relate to Mr. Golby’s vested benefits or the terms of the Golby Separation Agreement. Pursuant to the Golby Separation Agreement, Mr. Golby agreed to certain standstill provisions through February 17, 2023. This agreement is filed herewith, refer to Part IV, Item 15, “Exhibits” below.
None 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

44




PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Except as provided below, in accordance with General Instruction G(3) to Form 10-K, certain information required by this Item is incorporated herein by reference to our definitive proxy statement for our 20182023 annual meeting of stockholders to be filed with the SEC no later than April 30, 2018.

within 120 days after the close of our fiscal year.
Code of Conduct.Conduct
We have adopted a Code of Conduct that applies to all employees, including our chiefprincipal executive officer chiefand principal financial and accounting officer president and any persons performing similar functions. Our Code of Conduct is provided on our internet website at www.acaciaresearch.com.


ITEM 11. EXECUTIVE COMPENSATION

In accordance with General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive proxy statement for our 20182023 annual meeting of stockholders to be filed with the SEC no later than April 30, 2018.within 120 days after the close of our fiscal year.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

In accordance with General Instruction G(3) to Form 10-K, certain information required by this Item is incorporated herein by reference to our definitive proxy statement for our 20182023 annual meeting of stockholders to be filed with the SEC no later than April 30, 2018.within 120 days after the close of our fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

In accordance with General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive proxy statement for our 20182023 annual meeting of stockholders to be filed with the SEC no later than April 30, 2018.within 120 days after the close of our fiscal year.


ITEM 14. PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES

In accordance with General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive proxy statement for our 20182023 annual meeting of stockholders to be filed with the SEC no later than April 30, 2018.within 120 days after the close of our fiscal year.

45
PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)The following documents are filed as part of this report.
(1)Financial Statements.
Page
(a)The following documents are filed as part of this report.
(1)  Financial Statements Page
Acacia Research Corporation Consolidated Financial StatementsStatements:
F-F- 1
F-3
F-F- 34
F-F- 45
F- 5
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 20162022 and 20152021
F-F- 6
F-F- 7
F-F- 8
(2)   Financial Statement Schedules
Financial statement schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the Notes thereto.
(3)  Exhibits
Refer to Item 15(b) below.

(2)Financial Statement Schedules.
Financial statement schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the Notes thereto.
(3)Exhibits.
Refer to Item 15(b) below.
(b)Exhibits. The following exhibits are either filed herewith or incorporated herein by reference:
Exhibit
Number		Description
(b) Exhibits.  The following exhibits are either filed herewith or incorporated herein by reference:
Exhibit
Number
2.1**		Description
2.1
3.12.2
3.1
3.2
3.3
4.1

10.1*4.2
10.2*4.3
10.3*
2002 Acacia Technologies Stock Incentive Plan (4)
10.4*
2007 Acacia Technologies Stock Incentive Plan (5)
10.5*
Form of Acacia Technologies Stock Option Agreement under the 2007 Acacia Technologies Stock Incentive Plan (6)
10.6*
Form of Acacia Technologies Stock Issuance Agreement under the 2002 Acacia Technologies Stock Incentive Plan (6)
10.7*
Form of Acacia Technologies Stock Issuance Agreement under the 2007 Acacia Technologies Stock Incentive Plan (6)


46
Table of Contents
10.84.4
10.94.5
4.6
4.7
4.8
4.9
10.1*
10.1010.2*
10.11*
Employment Agreement, dated September 22, 2015, by and between Acacia Research Group LLC and Edward Treska (19)
10.12
Fourth Amendment to Lease dated January 28, 2002 between Acacia Research Corporation and the Irvine Company (10)
10.13
Fifth Amendment to Lease dated January 28, 2002 between Acacia Research Corporation and the Irvine Company (10)
10.15*
Employment Agreement, dated September 22, 2015, by and between Acacia Research Group LLC and Robert L. Harris (19)
10.16*
Employment Agreement, dated September 22, 2015, by and between Acacia Research Group LLC and Clayton J. Haynes (19)
10.17*
Acacia Research Corporation Amended and Restated Executive Severance Policy (12)(incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2008, filed on February 26, 2009)
10.1810.3
10.19
Form of Purchase Agreement (16)(incorporated by reference to the Current Report on Form 8-K filed on February 16, 2012)
10.20*10.4*
10.21*10.5*
10.22*10.6*
10.23*
2016 Acacia Research Corporation Stock Incentive Plan (21)(incorporated by reference to the Quarterly Report on Form 10-Q for the period ended June 30, 2016, filed on August 9, 2016)
10.24*10.7*
10.25*10.8*
10.26*10.9*

10.27*
Employment Agreement, dated September 18, 2017, by and between Acacia Research Group LLC and Robert Stewart (25)
10.28*
Form of Profits Interest Agreement Under AIP Operation LLC Profits Interest Plan (26)(incorporated by reference to the Quarterly Report on Form 10-Q for the period ended March 31, 2017, filed on May 10, 2017)
10.2910.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*#
10.18*#
10.19
10.20
47
Table of Contents
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.3010.33
10.3110.34
10.3210.35
10.3310.36
10.3410.37
21.110.38
16.1
21.1#
23.123.1#
24.123.2#
48
Table of Contents
24.1
31.1†31.1#
31.2†31.2#
32.132.1†
32.232.2†
101Interactive Date Files Pursuant to Rule 405 of Regulation S-T.


 ___________________________
*101#The referenced exhibit is a management contract, compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 15(c) of Form 10-K.
†The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed withfollowing financial statements from the SEC and are not to be incorporated by reference into any filing of Acacia Research Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, regardless of any general incorporation language contained in any filing.
(1)Incorporated by reference to Acacia Research Corporation’s Current Report on Form 8-K filed on June 5, 2008 (File No. 000-26068).
(2)Incorporated by reference to Appendix A to Acacia Research Corporation’s Definitive Proxy Statement on Schedule 14A filed on April 20, 2000 (File No. 000-26068).
(3)Incorporated by reference to Appendix A to Acacia Research Corporation’s Definitive Proxy Statement on Schedule 14A filed on April 26, 1996 (File No. 000-26068).
(4)Incorporated by reference to Annex E to the Proxy Statement/Prospectus which formed part of Acacia Research Corporation’s Registration Statement on Form S-4 (File No. 333-87654) which became effective on November 8, 2002.
(5)Incorporated by reference to Acacia Research Corporation’s Registration Statement on Form S-8 (File No. 333-144754) which became effective on July 20, 2007.
(6)Incorporated by reference to Acacia Research Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2007, filed on November 2, 2007 (File No. 000-26068).
(7)Incorporated by reference to Acacia Research Corporation’s Annual Report on Form 10‑K for the year ended December 31, 2001, filed on March 27, 2002 (File No. 000‑26068).
(8)Incorporated by reference to Acacia Research Corporation’s Quarterly Report on Form 10-Q for the period ended June 30, 2012, filed on July 30, 2012 (File No. 000-26068).
(9)Incorporated by reference to Acacia Research Corporation’s Quarterly Report on Form 10-Q for the period ended March 31, 2006, filed on May 10, 2006 (File No. 000‑26068).
(10)Incorporated by reference to Acacia Research Corporation’sCompany’s Annual Report on Form 10-K for the yearyears ended December 31, 2007, filed on March 14, 2008 (File No. 000-26068).
2022 and 2021, formatted in Inline Extensible Business Reporting Language (iXBRL) include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Series A Redeemable Convertible Preferred Stock and Stockholders' Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
(11)104#Incorporated by reference to Acacia Research Corporation’s Current Report on Form 8-K filed on April 2, 2008 (File No. 000-26068)Cover Page Interactive Data File (formatted in iXBRL and included in Exhibit 101).
(12)Incorporated by reference to Acacia Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on February 26, 2009 (File No. 000-26068).
(13)Incorporated by reference to Acacia Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009, filed on February 26, 2010, as amended on March 1, 2010 (File No. 000-26068).
(14)Incorporated by reference to Acacia Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010, filed on February 28, 2011, as amended on March 24, 2011 (File No. 000-26068).
(15)Incorporated by reference to Acacia Research Corporation’s Current Report on Form 8-K/A filed on January 19, 2012 (File No. 000-26068). Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24-b-2 of the Securities Exchange Act of 1934, as amended. The omitted material has been separately filed with the Securities and Exchange Commission.


____________________
(16)Incorporated by reference to Acacia Research Corporation’s Current Report on Form 8-K filed on February 16, 2012 (File No. 000-26068).
(17)Incorporated by reference to Appendix A to Acacia Research Corporation’s Definitive Proxy Statement on Schedule 14A filed on April 24, 2013 (File No. 000-26068).
(18)Incorporated by reference to Acacia Research Corporation’s Current Report on Form 8-K filed on May 22, 2013 (File No. 000-26068).
(19)Incorporated by reference to Acacia Research Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2015, filed on November 9, 2015 (File No. 000-26068).
(20)Incorporated by reference to Acacia Research Corporation’s Current Report on Form 8-K filed on March 28, 2016 (File No. 001-37721).
(21)Incorporated by reference to Acacia Research Corporation’s Quarterly Report on Form 10-Q for the period ended June 30, 2016, filed on August 9, 2016 (File No. 001-37721).
(22)Incorporated by reference to Acacia Research Corporation’s Current Report on Form 8-K filed on March 4, 2016 (File No. 000-26068).
(23)Incorporated by reference to Acacia Research Corporation’s Current Report on Form 8-K filed on March 21, 2016 (File No. 000-26068).
(24)Incorporated by reference to Acacia Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 10, 2017 (File No. 001-37721).
(25)Incorporated by reference to Acacia Research Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, filed on November 7, 2017 (File No. 001-37721).
(26)Incorporated by reference to Acacia Research Corporation’s Quarterly Report on Form 10-Q for the period ended March 31, 2017, filed on May 10, 2017 (File No. 001-37721).
(27)Incorporated by reference to Acacia Research Corporation’s Current Report on Form 8-K filed on March 16, 2017 (File No. 001-37721).

*The referenced exhibit is a management contract, compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 15(a)(3) of Form 10-K.
**    Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24-b-2 of the Securities Exchange Act of 1934, as amended. The omitted material has been separately filed with the Securities and Exchange Commission.
#    Filed herewith.
†The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with the SEC and are not to be incorporated by reference into any filing of Acacia Research Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, regardless of any general incorporation language contained in any filing.

(c)Other financial statement schedules.
Not applicable.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
49
Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ACACIA RESEARCH CORPORATION
Dated: March 17, 2023March 7, 2018By:By:/s/ Robert StewartMartin D. McNulty Jr.
Robert StewartMartin D. McNulty Jr.
President
 (AuthorizedInterim Chief Executive Officer (Principal Executive Officer and Duly Authorized Signatory)
POWER OF ATTORNEY
We, the undersigned directors and officers of Acacia Research Corporation, do hereby constitute and appoint Robert StewartMartin D. McNulty Jr. and Clayton J. Haynes,Kirsten Hoover, and each of them, as our true and lawful attorneys-in-fact and agents with power of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorney-in-fact and agent may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments hereto; and we do hereby ratify and confirm all that said attorney-in-fact and agent, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and the capacities and on the dates indicated.
Signature
TitleDate
/s/ Martin D. McNulty Jr.Robert StewartInterim Chief Executive OfficerPresidentMarch 7, 201817, 2023
Martin D. McNulty Jr.Robert Stewart(Principal Executive Officer)
/s/ Kirsten HooverClayton J. HaynesInterim Chief Financial Officer and Treasurer March 7, 201817, 2023
Kirsten HooverClayton J. Haynes   (Principal Financial and Accounting Officer)
/s/ Gavin MolinelliFred A. de BoomDirectorDirectorMarch 7, 201817, 2023
Gavin MolinelliFred A. de Boom
/s/ Isaac KohlbergEdward W. FrykmanDirectorDirectorMarch 7, 201817, 2023
Isaac KohlbergEdward W. Frykman
/s/ Maureen O'ConnellG. Louis Graziadio, IIIDirectorExecutive Chairman and DirectorMarch 7, 201817, 2023
Maureen O'ConnellG. Louis Graziadio, III
/s/ Jonathan SagalWilliam S. AndersonDirectorDirectorMarch 7, 201817, 2023
Jonathan SagalWilliam S. Anderson
/s/ Katharine WolanykFrank E. Walsh, IIIDirectorDirectorMarch 7, 201817, 2023
Katharine WolanykFrank E. Walsh, III
/s/James F. SandersDirectorMarch 7, 2018
James F. Sanders

50


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Acacia Research Corporation

New York, NY
Opinion on the financial statements

Consolidated Financial Statements
We have audited the accompanying consolidated balance sheetssheet of Acacia Research Corporation (the “Company”) as of December 31, 2017 and 2016,2021, the related consolidated statements of operations, comprehensive income (loss),series A redeemable convertible preferred stock and stockholders’ equity, and cash flows for each of the three years in the periodyear then ended December 31, 2017,2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as ofat December 31, 2017 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the periodyear then ended December 31, 2017,2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 7, 2018 expressed an unqualified opinion.

Basis for opinion

Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.audit. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits includedaudit includes performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our auditsaudit also includedincludes evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair value measurement of the embedded derivative in the Series A Redeemable Convertible Preferred Stock
As described further in Notes 8 and 9 to the consolidated financial statements, on October 30, 2022, the Company entered into a Recapitalization Agreement with Starboard and the Investors, pursuant to which, among other things, the Company and Starboard agreed to enter into a series of transactions to restructure Starboard's existing investments in the Company in order to simplify the Company's capital structure. In connection with the Recapitalization Agreement, the Company changed its methodology to an as-converted value (Level 3), based on an expected Series A Convertible Preferred Stock conversion date on or prior to July 14, 2023.
We identified the fair value measurement of the embedded derivative in the Series A Redeemable Convertible Preferred Stock as a critical audit matter.
F-1
The principal consideration for our determination that the fair value measurement of the embedded derivative in the Series A Redeemable Convertible Preferred Stock is a critical audit matter are as follows. There is limited observable market data available for the embedded derivative as it is a complex financial instrument and, as such, the fair value measurement requires management to make complex judgments in order to identify and select the significant assumptions, which include the (i) coupon rate, (ii) conversion ratio, (iii) conversion date, and (iv) discount rate. In addition, the fair value measurement of the embedded derivative requires the use of complex financial models. As a result, obtaining sufficient appropriate audit evidence related to the fair value measurement requires significant auditor subjectivity.is management
Our audit procedures related to the fair value measurement of the embedded derivative included the following, among others.
•We obtained an understanding of the design and tested the implementation of relevant controls over estimating the fair value of the embedded derivative.
•With the assistance of our firm valuation specialists, we evaluated the reasonableness of the Company's valuation methodology and assumptions by: (1) comparing selected assumptions against available market data and historical amounts and (2) validating the mathematical accuracy of the model by developing an independent calculation and comparing to management's concluded valuations.

/s/ GRANT THORNTON LLP


We have served as the Company’s auditor since 2007.2022.

Newport Beach, CaliforniaNew York, New York
March 7, 201817, 2023

F-2





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors and Stockholders
Acacia Research Corporation

New York, NY
Opinion on internal control over financial reporting

the Consolidated Financial Statements
We have audited the internal control over financial reportingaccompanying consolidated balance sheet of Acacia Research Corporation (the “Company”) as of December 31, 2017, based on criteria established in2021, the 2013 Internal Control-Integrated Framework issued byrelated consolidated statements of operations, series A redeemable convertible preferred stock and stockholders’ equity, and cash flows for the Committee of Sponsoring Organizations ofyear then ended, and the Treadway Commission (“COSO”related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the Company maintained,consolidated financial statements present fairly, in all material respects, effective internal control overthe financial reporting asposition of the Company at December 31, 2017, based on criteria established2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the 2013 Internal Control-Integrated Framework issued by COSO.United States of America.

Basis for Opinion
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theThese consolidated financial statements are the responsibility of the Company as of and for the year ended December 31, 2017, and our report dated March 7, 2018 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (“Management’s Report”).management. Our responsibility is to express an opinion on the Company’s internal control overconsolidated financial reportingstatements based on our audit. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effectivethe consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting was maintained in all material respects. Ourreporting. As part of our audit included obtainingwe are required to obtain an understanding of internal control over financial reporting assessingbut not for the riskpurpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a material weakness exists, testingtest basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the designaccounting principles used and operating effectivenesssignificant estimates made by management, as well as evaluating the overall presentation of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ GRANT THORNTONBDO USA, LLP

We have served as the Company’s auditor from 2021 to 2022.


Newport Beach, CaliforniaNew York, NY
March 7, 2018

31, 2022


F-3
ACACIA RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 2017 and 2016
(In thousands, except share and per share information)data)
  2017 2016
ASSETS    
Current assets:    
Cash and cash equivalents $136,604
 $127,540
Restricted cash —
 11,512
Short-term investments —
 19,443
Accounts receivable 153
 26,750
Prepaid expenses and other current assets 2,938
 3,245
Total current assets 139,695
 188,490
Investment at fair value(1)
 104,754
 —
Investment - equity method(1)
 2,195
 —
Loan receivable and accrued interest(1)
 —
 18,616
Investment in warrants and shares(1)
 —
 1,960
Patents, net of accumulated amortization 61,917
 86,319
Other non-current assets 207
 618

 $308,768
 $296,003
LIABILITIES AND STOCKHOLDERS’ EQUITY  
  
Current liabilities:  
  
Accounts payable and accrued expenses $7,956
 $14,283
Royalties and contingent legal fees payable 1,601
 13,908
Total current liabilities 9,557
 28,191
Other liabilities 3,552
 369
Total liabilities 13,109
 28,560
Commitments and contingencies (Note 11) 

 

Stockholders’ equity:  
  
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; no shares issued or outstanding —
 —
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 50,639,926 shares issued and outstanding as of December 31, 2017 and 50,476,042 shares issued and outstanding as of December 31, 2016 51
 50
Treasury stock, at cost, 1,729,408 shares as of December 31, 2017 and 2016 (34,640) (34,640)
Additional paid-in capital 648,996
 642,453
Accumulated comprehensive loss (88) (76)
Accumulated deficit (320,018) (342,198)
Total Acacia Research Corporation stockholders’ equity 294,301
 265,589
Noncontrolling interests in operating subsidiaries 1,358
 1,854
Total stockholders’ equity 295,659
 267,443
  $308,768
 $296,003
(1) Refer to Note 7 for additional information.





December 31,
20222021
ASSETS
Current assets:
Cash and cash equivalents$287,786 $308,943 
Equity securities61,608 361,778 
Equity securities without readily determinable fair value5,816 5,816 
Equity method investments30,934 30,934 
Accounts receivable, net8,231 9,517 
Inventories14,222 8,930 
Prepaid expenses and other current assets19,388 4,764 
Total current assets427,985 730,682 
Long-term restricted cash— 418 
Property, plant and equipment, net3,537 4,183 
Goodwill7,541 7,470 
Other intangible assets, net36,658 48,793 
Leased right-of-use assets2,005 2,027 
Other non-current assets5,202 5,283 
Total assets$482,928 $798,856 
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$6,036 $5,440 
Accrued expenses and other current liabilities14,058 6,227 
Accrued compensation4,737 3,698 
Royalties and contingent legal fees payable699 2,463 
Deferred revenue1,229 1,114 
Senior secured notes payable60,450 181,248 
Total current liabilities87,209 200,190 
Deferred revenue, net of current portion568 581 
Series A warrant liabilities— 11,291 
Series A embedded derivative liabilities16,835 18,448 
Series B warrant liabilities84,780 96,378 
Long-term lease liabilities1,873 2,027 
Deferred income tax liabilities, net742 18,552 
Other long-term liabilities1,675 6,161 
Total liabilities193,682 353,628 
Commitments and contingencies
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 December 31, 2022 and 2021; aggregate liquidation preference of $35,000 as of December 31, 2022 and 202119,924 14,753 
Stockholders' equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; no shares issued or outstanding— — 
Common stock, par value $0.001 per share; 300,000,000 shares authorized; 43,484,867 and 48,807,748 shares issued and outstanding as of December 31, 2022 and 2021, respectively43 49 
Treasury stock, at cost, 16,183,703 and 5,388,469 shares as of December 31, 2022 and 2021, respectively(98,258)(47,281)
Additional paid-in capital663,284 648,389 
Accumulated deficit(306,789)(181,724)
Total Acacia Research Corporation stockholders' equity258,280 419,433 
Noncontrolling interests11,042 11,042 
Total stockholders' equity269,322 430,475 
Total liabilities, redeemable convertible preferred stock, and stockholders' equity$482,928 $798,856 
The accompanying notes are an integral part of these consolidated financial statements.

F-4

ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2017, 2016 and 2015
(In thousands, except share and per share information)data)

  2017 2016 2015
       
Revenues $65,402
 $152,699
 $125,037
Operating costs and expenses:  
  
  
Cost of revenues:  
  
  
Inventor royalties 4,952
 22,730
 18,462
Contingent legal fees 16,682
 26,474
 16,169
Litigation and licensing expenses - patents 18,219
 27,858
 39,373
Amortization of patents 22,154
 34,208
 53,067
General and administrative expenses (including non-cash stock compensation expense of $8,885 in 2017, $9,062 in 2016 and $11,048 in 2015) 26,030
 32,919
 38,176
Other expenses - business development 1,189
 3,079
 3,391
Impairment of patent-related intangible assets 2,248
 42,340
 74,731
Impairment of goodwill —
 —
 30,149
  Other 1,200
 500
 4,141
Total operating costs and expenses 92,674
 190,108
 277,659
Operating loss (27,272) (37,409) (152,622)
Other income (expense):      
Gain on conversion of loans and accrued interest(1)
 2,671
 —
 —
Gain on exercise of Primary Warrant(1)
 4,616
 —
 —
Change in fair value of investment, net(1)
 42,239
 —
 —
Equity in losses of investee(1)
 (220) —
 —
Other income 1,000
 —
 —
Interest income 1,605
 798
 (56)
Total other income (expense) 51,911
 798
 (56)
Income (loss) from operations before provision for income taxes 24,639
 (36,611) (152,678)
Provision for income taxes (2,955) (18,188) (4,800)
Net income (loss) including noncontrolling interests in subsidiaries 21,684
 (54,799) (157,478)
Net (income) loss attributable to noncontrolling interests in subsidiaries 496
 732
 (2,558)
Net income (loss) attributable to Acacia Research Corporation $22,180
 $(54,067) $(160,036)
Net income (loss) attributable to common stockholders - basic and diluted $22,147
 $(54,067) $(160,730)
Basic and diluted income (loss) per common share $0.44
 $(1.08) $(3.25)
Weighted-average number of shares outstanding, basic 50,495,119
 50,075,847
 49,505,817
Weighted-average number of shares outstanding, diluted 50,692,012
 50,075,847
 49,505,817
Cash dividends declared per common share $—
 $—
 $0.50

(1) Refer to Note 7 for additional information.







Years Ended December 31,
20222021
Revenues:
Intellectual property operations$19,508 $76,043 
Industrial operations39,715 12,004 
Total revenues59,223 88,047 
Costs and expenses:
Cost of revenues - intellectual property operations18,029 28,691 
Cost of sales - industrial operations19,359 7,407 
Engineering and development expenses - industrial operations626 200 
Sales and marketing expenses - industrial operations8,621 1,538 
General and administrative expenses52,680 35,666 
Total costs and expenses99,315 73,502 
Operating (loss) income(40,092)14,545 
Other (expense) income:
Equity securities investments:
Change in fair value of equity securities(263,695)87,527 
Gain on sale of equity securities125,318 116,129 
Earnings on equity investment in joint venture42,531 3,530 
Net realized and unrealized (loss) gain(95,846)207,186 
Change in fair value of investment— (2,752)
Gain on sale of investment— 3,591 
Change in fair value of the Series A and B warrants and embedded derivatives13,102 (40,408)
Loss on foreign currency exchange(3,324)(89)
Interest expense on Senior Secured Notes(6,432)(7,922)
Interest income and other, net5,442 501 
Total other (expense) income(87,058)160,107 
 (Loss) income before income taxes(127,150)174,652 
Income tax benefit (expense)16,211 (24,287)
Net (loss) income including noncontrolling interests in subsidiaries(110,939)150,365 
Net income attributable to noncontrolling interests in subsidiaries(14,126)(1,168)
Net (loss) income attributable to Acacia Research Corporation$(125,065)$149,197 
(Loss) income per share:
Net (loss) income attributable to common stockholders - Basic$(133,035)$118,804 
Weighted average number of shares outstanding - Basic42,460,504 48,797,290 
Basic net (loss) income per common share$(3.13)$2.43 
Net (loss) income attributable to common stockholders - Diluted$(133,035)$188,224 
Weighted average number of shares outstanding - Diluted42,460,504 98,470,870 
Diluted net (loss) income per common share$(3.13)$1.91 
The accompanying notes are an integral part of these consolidated financial statements.

F-5

ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2017, 2016 and 2015SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(In thousands)thousands, except share data)

Year Ended December 31, 2022
Series A Redeemable Convertible Preferred StockCommon StockTreasury StockAdditional
Paid-in Capital		Accumulated DeficitNoncontrolling
Interests in
Operating Subsidiaries		Total
Stockholders' Equity
SharesAmountSharesAmount
Balance at December 31, 2021350,000 $14,753 48,807,748 $49 $(47,281)$648,389 $(181,724)$11,042 $430,475 
Net (loss) income including
   noncontrolling interests in
   subsidiaries		— — — — — — (125,065)14,126 (110,939)
Distributions to noncontrolling
   interests in subsidiaries		— — — — — — — (14,126)(14,126)
Accretion of Series A
   Redeemable Convertible
   Preferred Stock to
   redemption value		— 5,171 — — — (5,171)— — (5,171)
Dividend on Series A
   Redeemable Convertible
   Preferred Stock		— — — — — (2,799)— — (2,799)
Exercise of Series A warrants— — 5,000,000 5 — 20,645 — — 20,650 
Issuance of common stock for
   vesting of restricted stock
   units		— — 646,668 — — — — — — 
Issuance of common stock for
   unvested restricted
   stock awards, net of
   forfeitures		— — 197,999 — — — — — — 
Shares withheld related to net
   share settlement of
   share-based awards		— — (372,314)— — (1,600)— — (1,600)
Compensation expense for
   share-based awards		— — — — — 3,820 — — 3,820 
Repurchase of common stock— — (10,795,234)(11)(50,977)— — — (50,988)
Balance at December 31, 2022350,000 $19,924 43,484,867 $43 $(98,258)$663,284 $(306,789)$11,042 $269,322 
 2017 2016 2015
Net income (loss) including noncontrolling interests in subsidiaries$21,684
 $(54,799) $(157,478)
Other comprehensive income (loss):     
Unrealized gain (loss) on short-term investments, net of tax of $0(40) 40
 (356)
Unrealized gain (loss) on foreign currency translation, net of tax of $058
 77
 (123)
Add: reclassification adjustment for (gains) losses included in net income (loss)(30) 22
 617
Total other comprehensive income (loss)21,672
 (54,660) (157,340)
Comprehensive income (loss) attributable to noncontrolling interests496
 732
 (2,558)
Comprehensive income (loss) attributable to Acacia Research Corporation$22,168

$(53,928) $(159,898)




































Year Ended December 31, 2021
Series A Redeemable Convertible Preferred StockCommon StockTreasury StockAdditional
Paid-in Capital		Accumulated DeficitNoncontrolling
Interests in
Operating Subsidiaries		Total
Stockholders' Equity
SharesAmountSharesAmount
Balance at December 31, 2020350,000 $10,924 49,279,453 $49 $(43,270)$651,416 $(330,921)$11,042 $288,316 
Net income including
   noncontrolling interests in
   subsidiaries		— — — — — — 149,197 1,168 150,365 
Distributions to noncontrolling
   interests in subsidiaries		— — — — — — — (1,168)(1,168)
Accretion of Series A
   Redeemable Convertible
   Preferred Stock to
   redemption value		— 3,829 — — — (3,829)— — (3,829)
Dividend on Series A
   Redeemable Convertible
   Preferred Stock		— — — — — (1,452)— — (1,452)
Stock options exercised— — 60,000 1 — 201 — — 202 
Issuance of common stock for
   vesting of restricted stock
   units		— — 28,834 — — — — — — 
Issuance of common stock for
   unvested restricted
   stock awards, net of
   forfeitures		— — 223,565 — — — — — — 
Compensation expense for
   share-based awards		— — — — — 2,053 — — 2,053 
Repurchase of common stock— — (784,104)(1)(4,011)— — — (4,012)
Balance at December 31, 2021350,000 $14,753 48,807,748 $49 $(47,281)$648,389 $(181,724)$11,042 $430,475 
The accompanying notes are an integral part of these consolidated financial statements.

F-6

ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2017, 2016 and 2015CASH FLOWS
(In thousands, except share information)thousands)

  Common Shares Common Stock Treasury Stock Additional Paid-in Capital Accumulated Comprehensive Income (Loss) Accumulated Deficit Noncontrolling Interests in Operating Subsidiaries Total
                 
Balance at December 31, 2014 50,065,382
 $50
 $(34,640) $646,595
 $(353) $(128,095) $5,491
 $489,048
Net loss attributable to Acacia Research Corporation —
 —
 —
 —
 —
 (160,036) —
 (160,036)
Dividends paid to stockholders —
 —
 —
 (25,434) —
 —
 —
 (25,434)
Stock options exercised 135,000
 —
 —
 938
 —
 —
 —
 938
Compensation expense for share-based awards, net of forfeitures 450,857
 1
 —
 11,047
 —
 —
 —
 11,048
Net income attributable to noncontrolling interests in subsidiaries —
 —
 —
 —
 —
 —
 2,558
 2,558
Distributions to noncontrolling interests in operating subsidiary —
 —
 —
 —
 —
 —
 (4,105) (4,105)
Unrealized loss on foreign currency translation —
 —
 —
 —
 (123) —
 —
 (123)
Unrealized gain on short-term investments —
 —
 —
 —
 261
 —
 —
 261
Balance at December 31, 2015 50,651,239
 51
 (34,640) 633,146
 (215) (288,131) 3,944
 314,155
Net loss attributable to Acacia Research Corporation —
 —
 —
 —
 —
 (54,067) —
 (54,067)
Stock options exercised 100,992
 —
 —
 326
 —
 —
 —
 326
Compensation expense for share-based awards, net of forfeitures (262,660) (1) —
 9,063
 —
 —
 —
 9,062
Repurchase of restricted common stock (13,529) —
 —
 (82) —
 —
 —
 (82)
Net loss attributable to noncontrolling interests in subsidiaries —
 —
 —
 —
 —
 —
 (732) (732)
Distributions to noncontrolling interests in operating subsidiary —
 —
 —
 —
 —
 —
 (1,358) (1,358)
Unrealized gain on short-term investments —
 —
 —
 —
 40
 —
 —
 40
Unrealized gain on foreign currency translation —
 —
 —
 —
 99
 —
 —
 99
Balance at December 31, 2016 50,476,042
 50
 (34,640) 642,453
 (76) (342,198) 1,854
 267,443
Net income attributable to Acacia Research Corporation —
 —
 —
 —
 —
 22,180
 —
 22,180
Stock options exercised 207,863
 1
 —
 744
 —
 —
 —
 745
Compensation expense for share-based awards, net of forfeitures (35,310) —
 —
 5,844
 —
 —
 —
 5,844
Repurchase of restricted common stock (8,669) —
 —
 (45) —
 —
 —
 (45)
Net loss attributable to noncontrolling interests in subsidiaries —
 —
 —
 —
 —
 —
 (496) (496)
Unrealized gain on foreign currency translation —
 —
 —
 —
 28
 —
 —
 28
Unrealized loss on short-term investments —
 —
 —
 —
 (40) —
 —
 (40)
Balance at December 31, 2017 50,639,926
 $51
 $(34,640) $648,996
 $(88) $(320,018) $1,358
 $295,659
Years Ended December 31,
20222021
Cash flows from operating activities:
Net (loss) income including noncontrolling interests in subsidiaries$(110,939)$150,365 
Adjustments to reconcile net (loss) income including noncontrolling interests in subsidiaries to net cash (used in) provided by
   operating activities:
Change in fair value of investment— 2,752 
Gain on sale of investment— (3,591)
Depreciation and amortization13,514 10,688 
Amortization of debt discount and issuance costs90 110 
Change in fair value of Series A redeemable convertible preferred stock embedded derivatives(1,613)(8,280)
Change in fair value of Series A warrants(1,895)4,651 
Change in fair value of Series B warrants(11,598)44,037 
Loss on exercise of Series A warrants2,004 — 
Compensation expense for share-based awards3,820 2,053 
Loss on foreign currency exchange3,324 89 
Change in fair value of equity securities263,695 (87,527)
Gain on sale of equity securities(125,318)(116,129)
Earnings on equity investment in joint venture(42,531)(3,530)
Deferred income taxes(17,810)15,742 
Changes in assets and liabilities:
Accounts receivable998 (747)
Inventories(5,291)1,906 
Prepaid expenses and other assets(5,986)(78)
Accounts payable and accrued expenses(136)760 
Royalties and contingent legal fees payable(1,764)301 
Deferred revenue100 (246)
Net cash (used in) provided by operating activities(37,336)13,326 
Cash flows from investing activities:
Acquisition, net of cash acquired— (33,250)
Patent acquisition(5,000)(21,000)
Sale of investment at fair value— 3,591 
Purchases of equity securities(112,142)(66,624)
Sales of equity securities273,934 154,784 
Cash distributed for notes receivable— (4,021)
Distributions received from equity investment in joint venture28,404 2,362 
Purchases of property and equipment(732)(91)
Net cash provided by investing activities184,464 35,751 
Cash flows from financing activities:
Repurchase of common stock(50,988)(4,012)
Issuance of Senior Secured Notes, net of lender fee— 115,000 
Paydown of Senior Secured Notes(120,000)(50,000)
Dividend on Series A Redeemable Convertible Preferred Stock(2,799)(1,452)
Taxes paid related to net share settlement of share-based awards(1,600)— 
Proceeds from exercise of Series A warrants9,250 — 
Proceeds from exercise of stock options— 202 
Net cash (used in) provided by financing activities(166,137)59,738 
Effect of exchange rates on cash and cash equivalents(2,566)— 
(Decrease) increase in cash and cash equivalents and restricted cash(21,575)108,815 
Cash and cash equivalents and restricted cash, beginning309,361 200,546 
Cash and cash equivalents and restricted cash, ending$287,786 $309,361 
Supplemental schedule of cash flow information:
Interest paid$7,229 $7,336 
Income taxes paid384 25 
Noncash investing and financing activities:
Patent acquisition in exchange of notes receivable— 4,000 
Accrued patent costs9,000 5,000 
Distribution to noncontrolling interests in subsidiaries14,126 1,168 
The accompanying notes are an integral part of these consolidated financial statements.


ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2017, 2016 and 2015
 (In thousands)statements
F-7
  2017 2016 2015
       
Cash flows from operating activities:      
Net income (loss) including noncontrolling interests in subsidiaries $21,684
 $(54,799) $(157,478)
Adjustments to reconcile net income (loss) including noncontrolling interests in subsidiaries to net cash provided by (used in) operating activities:  
  
  
Gain on conversion of loans and accrued interest (2,671) —
 —
Gain on exercise of Primary Warrant (4,616) —
 —
Change in fair value of investment, net (42,239) —
 —
Depreciation and amortization 22,243
 34,355
 53,289
Non-cash stock compensation 8,885
 9,062
 11,048
Impairment of patent-related intangible assets 2,248
 42,340
 74,731
Impairment of goodwill —
 —
 30,149
Other (374) (477) (109)
Changes in assets and liabilities:  
  
  
Restricted cash 11,512
 (787) (10,725)
Accounts receivable 26,597
 6,750
 (13,332)
Prepaid expenses and other assets (135) 1,593
 (619)
Accounts payable and accrued expenses / patent costs (6,349) (3,006) 2,570
Royalties and contingent legal fees payable (12,307) (970) 527
Net cash provided by (used in) operating activities 24,478
 34,061
 (9,949)
Cash flows from investing activities:  
  
  
Investment in Investees (31,514) —
 —
Advances to Investee (Note 7) (4,000) (20,000) —
Purchases of property and equipment
(2)
(4)
(8)
Purchases of short-term investments
(448,388)
(62,633)
(23,296)
Sales and maturities of short-term investments
467,790

43,232

82,115
Patent portfolio investment costs
—
 (1,225) (19,504)
Net cash provided by (used in) investing activities
(16,114)
(40,630)
39,307
Cash flows from financing activities:  
  
  
Dividends paid to stockholders —
 —
 (25,434)
Distributions to noncontrolling interests in operating subsidiary —

(1,358)
(4,105)
Proceeds from the exercise of stock options 745

326

938
Repurchases of restricted common stock (45)
(82)
—
Net cash provided by (used in) financing activities 700
 (1,114) (28,601)
Increase (decrease) in cash and cash equivalents 9,064
 (7,683) 757
Cash and cash equivalents, beginning 127,540
 135,223
 134,466
Cash and cash equivalents, ending $136,604
 $127,540
 $135,223
Supplemental schedule of noncash investing activities:      
Patent portfolio investment costs included in accrued expenses / costs $—
 $—
 $1,000

The accompanying notes are an integral partTable of these consolidated financial statements.Contents
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. DESCRIPTION OF BUSINESS

Description of Business. As used herein, “Acacia” and the “Company” refer to Acacia Research Corporation and/(the “Company,” "Acacia," “we,” “us,” or its wholly"our") is an opportunistic capital platform that purchases businesses based on the differentials between public and majority-ownedprivate market valuations. We use a wide range of transactional and controlled operating subsidiaries, and/or where applicable, its management.

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 expertiseoperational capabilities to patent assets to unlockrealize the financialintrinsic value in their patented inventions. Acacia also identifies opportunities to partner with high-growth and potentially disruptive technology companies. These partnerships usually involve an equitythe businesses that we acquire. Our ideal transactions include the acquisition of public or debt investment by Acacia, along with entering into IP related agreements where Acacia provides IP andprivate companies, the acquisition of divisions of other patent related services to these companies. Acacia leverages its experience, expertise, data and relationships developed as a leadercompanies, or structured transactions that can result in the recapitalization or restructuring of the ownership of a business to enhance value.
Our focus is companies with market values in the sub-$2 billion range and particularly on businesses valued at $1 billion or less. We are, however, opportunistic, and may pursue acquisitions that are larger under the right circumstance.
We operate our business based on three key principles of People, Process and Performance and have built a management team with demonstrated expertise in Research, Transactions and Execution, and Operations and Management of our targeted acquisitions.
We utilized these skill sets and resources to acquire a portfolio of equity securities of public and private life science businesses, or the “Life Sciences Portfolio,” in June 2020. As of December 31, 2022, we have monetized a majority of the portfolio while retaining an interest in a number of operating businesses, including a controlling interest in one of the companies in the portfolio. Further, some of the businesses in which we continue to hold an interest generate revenues through the receipt of royalties. Refer to Note 3 for additional information.
Relationship with Starboard Value, LP
Our strategic relationship with Starboard Value, LP (“Starboard”) provides us access to industry expertise, and operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of such businesses once acquired. Starboard has provided, and we expect will continue to provide, ready access to its extensive network of industry executives and, as part of our relationship, Starboard has assisted, and we expect will continue to assist, with sourcing and evaluating appropriate acquisition opportunities. Refer to Note 8 for additional information.
Recapitalization
On October 30, 2022, the Company entered into a Recapitalization Agreement (the “Recapitalization Agreement”) with Starboard and certain funds and accounts affiliated with, or managed by, Starboard (collectively, the “Investors”), pursuant to which, among other things, the Company and Starboard agreed to enter into a series of transactions (the “Recapitalization”) to restructure Starboard’s existing investments in the Company in order to simplify the Company’s capital structure. Under the Recapitalization Agreement, the Company and Starboard agreed to take certain actions in connection with the Recapitalization. Refer to Note 8 for a detailed description of the Recapitalization and the actions taken and contemplated to be taken in connection therewith.
Intellectual Property Operations – Patent Licensing, Enforcement and Technologies Business
The Company invests in 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 intellectual property rights for the use of patented technologies that its operating subsidiaries control or own. Acacia’s operating subsidiaries assist patent owners with the prosecutionabsolute return assets 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 principalsengages in the licensing and enforcement effort,of patented technologies. Through our Patent Licensing, Enforcement and Technologies Business, operated under Acacia Research Group, LLC and its wholly-owned subsidiaries ("ARG"), we are a principal in the licensing and enforcement of patent portfolios, with our operating subsidiaries obtaining control of the rights in the patent portfolio or control ofpurchasing the patent portfolio outright. Acacia’sWhile we, from time to time, partner with inventors and patent owners, from small entities to large corporations, we assume all responsibility for advancing operational expenses while pursuing a patent licensing and enforcement program. When applicable, we share net licensing revenue with our patent partners as that program matures, on a pre-arranged and negotiated basis. We may also provide upfront capital to patent owners as an advance against future licensing revenue.
Currently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios, which include U.S. patents and certain foreign counterparts, covering technologies used in a wide variety of industries. ARG generates

F-8
Neither Acacia norrevenues and related cash flows from the granting of IP rights for the use of patented technologies that its operating subsidiaries invent new technologiescontrol or products; rather, Acaciaown.
Our Patent Licensing, Enforcement and Technologies Business depends upon the identification and investment in new patents, inventions and companies that own intellectual propertyIP through its relationships with inventors, universities, research institutions, technology companies and others. If Acacia’sARG’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 fiscalthe year 2017 Acaciaended December 31, 2022, ARG did not obtain control of any new patent portfolios. During the year ended December 31, 2021, ARG obtained control of one new patent portfolio. In fiscal year 2016, Acacia obtained control
Industrial Operations Acquisition
On October 7, 2021, we consummated our first operating company acquisition of two new patent portfolios, comparedPrintronix Holding Corporation and subsidiaries (“Printronix”). Printronix is a leading manufacturer and distributor of industrial impact printers, also known as line matrix printers, and related consumables and services. The Printronix business serves a diverse group of customers that operate across healthcare, food and beverage, manufacturing and logistics, and other sectors. This mature technology is known for its ability to three new patent portfolios,operate in hazardous environments. Printronix has a manufacturing site located in Malaysia and six new patent portfoliosthird-party configuration sites located in fiscal years 2015the United States, Singapore and 2014, respectively.Holland, along with sales and support locations around the world to support its global network of users, channel partners and strategic alliances. This acquisition was made at what we believe to be an attractive purchase price, and we are now supporting existing management in its execution of strategic partnerships to generate growth.

Acacia was incorporated on January 25, 1993 under the lawsWe acquired all of the Stateoutstanding stock of California. InPrintronix, for a cash purchase price of approximately $37.0 million, which included an initial $33.0 million cash payment and a $4.0 million working capital adjustment. The Company's consolidated financial statements include Printronix's consolidated operations from October 7, 2021 through December 1999, Acacia changed its state31, 2022. As of incorporation from California to Delaware.December 31, 2021, management finalized the valuations of all acquired assets and liabilities assumed in the acquisition and there was no contingent consideration.


2.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Principles and Fiscal Year End.  
The consolidated financial statements and accompanying notes are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP)("U.S. GAAP").

Reclassifications
Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period presentation. These changes had no impact on the previously reported consolidated results of operations or cash flows.
Principles of Consolidation.  Consolidation
The accompanying consolidated financial statements include the accounts of Acacia and its wholly and majority-owned and controlled subsidiaries. MaterialAll intercompany transactions and balances have been eliminated in consolidation.
Noncontrolling interests in Acacia’s majority-owned and controlled operating subsidiaries (“noncontrolling interests”) are separately presented as a component of stockholders’ equity. Consolidated net income or (loss) is adjusted to include the net (income) or loss attributed to noncontrolling interests in the consolidated statements of operations. Refer to the accompanying consolidated statementsConsolidated Statements of stockholders’Series A Redeemable Convertible Preferred Stock and Stockholders’ Equity for noncontrolling interests activity.
In 2020, in connection with the transaction with Link Fund Solutions Limited, which is more fully described in Note 3, the Company acquired equity for total noncontrolling interests.

A wholly owned subsidiarysecurities of Acacia is the general partner of the Acacia Intellectual Property Fund, L.P. (the “Acacia IP Fund”Malin J1 Limited (“MalinJ1”), which was formed in August 2010. The Acacia IP Fund. MalinJ1 is included in the Company’s consolidated financial statements since 2010, as Acacia’s wholly owned subsidiary, asbecause the general partner,Company, through its interest in the equity securities of MalinJ1, has the ability to control
F-9
the operations and activities of theMalinJ1. Viamet HoldCo LLC, a Delaware limited liability company and wholly-owned subsidiary of Acacia, IP Fund.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Revenue Recognition.  Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable, and (iv) the collectibility of amounts is reasonably assured.

In general, revenue arrangements provide for the payment of contractually determined fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by Acacia’s operating subsidiaries. These rights typically include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by Acacia’s operating subsidiaries, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation. The intellectual property rights granted may be perpetual in nature, extending until the expiration of the related patents, or can be granted for a defined, relatively short period of time, with the licensee possessing the right to renew the agreement at the end of each contractual term for an additional minimum upfront payment. Pursuant to the terms of these agreements, Acacia’s operating subsidiaries have no further obligation with respect to the grant of the non-exclusive retroactive and future licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on Acacia’s operating subsidiaries’ part to maintain or upgrade the technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the minimum upfront payment for term agreement renewals. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectibility is reasonably assured, or upon receipt of the minimum upfront fee for term agreement renewals, and when all other revenue recognition criteria have been met.

For the periods presented herein, the majority shareholder of the revenue agreements executed by the Company provided for the payment of one-time, paid-up license fees in consideration for the grant of certain intellectual property rights for patented technology owned by Acacia’s operating subsidiaries. These rights were primarily granted on a perpetual basis, extending until the expiration of the underlying patents.MalinJ1.

Certain of the Company’s revenue arrangements provide for future royalties or additional required payments based on future licensee activities. Additional royalties are recognized in revenue upon resolution of the related contingency provided that all revenue recognition criteria, as described above, have been met. Amounts of additional royalties due under these license agreements, if any, cannot be reasonably estimated by management.

Certain of the Company’s revenue arrangements provide for the calculation of fees based on a licensee’s actual quarterly sales or actual per unit activity, applied to a contractual royalty rate. Licensees that pay fees on a quarterly basis generally report actual quarterly sales or actual per unit activity information and related quarterly fees due within 30 days to 45 days after the end of the quarter in which such sales or activity takes place. The amount of fees due under these revenue arrangements each quarter cannot be reasonably estimated by management. Consequently, Acacia’s operating subsidiaries recognize revenue from these revenue arrangements on a three-month lag basis, in the quarter following the quarter of sales or per unit activity, provided amounts are fixed or determinable and collectibility is reasonably assured. The lag method described above allows for the receipt of licensee royalty reports prior to the recognition of revenue.
Amounts related to revenue arrangements that do not meet the revenue recognition criteria described above are deferred until the revenue recognition criteria are met.

Acacia assesses the collectibility of fees receivable based on a number of factors, including past transaction history and credit-worthiness of licensees. If it is determined that collection is not reasonably assured, the fee is recognized when collectibility becomes reasonably assured, assuming all other revenue recognition criteria have been met, which is generally upon receipt of cash.

Cost of Revenues.  Cost of revenues include the costs and expenses incurred in connection with Acacia’s patent licensing and enforcement activities, including inventor royalties paid to original 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 “Cost of revenues” in the accompanying consolidated statements of operations.  

Inventor Royalties and Contingent Legal Expenses. Inventor royalties are expensed in the 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
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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 consolidated statements of operations.

Contingent legal fees are expensed in the 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.

Fair Value Measurements. U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date, and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The three-level hierarchy of valuation techniques established to measure fair value is defined as follows:

(i)
Level 1 - Observable Inputs:  Quoted prices in active markets for identical investments;
(ii)
Level 2 - Pricing Models with Significant Observable Inputs:  Other significant observable inputs, including quoted prices for similar investments, interest rates, credit risk, etc.; and
(iii)
Level 3 - Unobservable Inputs:  Significant unobservable inputs, including the entity’s own assumptions in determining the fair value of investments.

Whenever possible, the Company is required to use observable market inputs (Level 1 - quoted market prices) when measuring fair value. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured. At December 31, 2017, all of the Company’s investments recorded at fair value were valued utilizing Level 3 - unobservable inputs. 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 (in thousands):
 Level 1 Level 2 Level 3
Assets as of December 31, 2017:     
Investment at fair value (Note 7)(1)
$—
 $—
 $104,754
      
Assets as of December 31, 2016:     
Short-term investments(1)
$19,443
 $—
 $—
____________________
(1) There were no transfers between fair value hierarchy categories for the period presented.

A reconciliation of the activity for fair value measurements categorized within Level 3 for the year ended December 31, 2017 is as follows (in thousands):
 Investment at Fair Value
 Common Stock Warrants Total
Opening balance as of January 1, 2017$—
 $—
 $—
Total gains and losses included in earnings for the period(1)
     
Gain on conversion of loans and accrued interest2,671
 —
 2,671
Gain on exercise of Primary Warrant—
 4,616
 4,616
Change in fair value of investment, net33,922
 8,317
 42,239
Purchases, issues, sales and settlements 
  
  
Purchases and issues(2)
54,202
 1,026
 55,228
Total recurring fair value measurements(1)
$90,795
 $13,959
 $104,754
____________________
(1) All gains and losses included in earnings for the period presented relate to assets and liabilities held as of December 31, 2017.
(2) Refer to Note 7 for information regarding purchase and issues activity for the years ended December 31, 2017 and 2016.

Cash and Cash Equivalents.  Acacia considers all highly liquid, short-term investments with original maturities of three months or less when purchased to be cash equivalents. For the periods presented, Acacia’s cash equivalents are comprised
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.
Short-term Investments.  Investments in securities with original maturities of greater than three months and less than one year and other investments representing amounts that are available for current operations are classified as short-term investments, unless there are indications that such investments may not be readily sold in the short-term. The fair values of these investments approximate their carrying values. For the applicable periods presented, all of Acacia’s short-term investments were classified as available-for-sale, which are reported at fair value on a recurring basis using significant observable inputs (Level 1), with related unrealized gains and losses in the value of such securities recorded as a separate component of other comprehensive income (loss) in stockholders’ equity until realized. Realized gains and losses are recorded in the 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 other income (expense).

Impairment of Short-term Investments. Acacia evaluates its investments in marketable securities for potential impairment, employing a methodology on a quarterly basis that considers available quantitative and qualitative evidence. If the cost or carrying value of an investment exceeds its estimated fair value, the Company evaluates, among other factors, general market conditions, credit quality of instrument issuers, the duration and extent to which the fair value is less than cost, and the Company’s intent and ability to hold, or plans or ability to sell. Fair value is estimated based on publicly available market information or other estimates determined by management. Investments are considered to be impaired when a decline in fair value is estimated to be other-than-temporary. Acacia reviews impairments associated with its investments in marketable securities and determines the classification of any impairment as temporary or other-than-temporary. An impairment is deemed other-than-temporary unless (a) Acacia has the ability and intent to hold an investment for a period of time sufficient for recovery of its carrying amount and (b) positive evidence indicating that the investment’s carrying amount is recoverable within a reasonable period of time outweighs any evidence to the contrary. All available evidence, both positive and negative, is considered to determine whether, based on the weight of such evidence, the carrying amount of the investment is recoverable within a reasonable period of time. For investments classified as available-for-sale, unrealized losses that are other-than-temporary are recognized in the consolidated statements of operations.  

Concentration of Credit Risks.  Financial instruments that potentially subject Acacia to concentrations of credit risk are cash equivalents, short-term investments and accounts receivable. Acacia places its cash equivalents and short-term investments primarily in highly rated money market funds and investment grade marketable securities. Cash and cash equivalents are also invested in deposits with certain financial institutions and may, at times, exceed federally insured limits. Acacia has not experienced any significant losses on its deposits of cash and cash equivalents.

Three licensees individually accounted for 54%, 21% and 10%, respectively, of revenues recognized during the year ended December 31, 2017. Three licensees individually accounted for 26%, 23% and 11%, respectively, of revenues recognized during the year ended December 31, 2016. Three licensees individually accounted for 24%, 20% and 16%, respectively, of revenues recognized during the year ended December 31, 2015. One licensee individually represented 100% of accounts receivable at December 31, 2017. Four licensees individually represented approximately 39%, 22%, 16% and 15%, respectively, of accounts receivable at December 31, 2016. 

For 2017, 2016 and 2015, 39%, 79% and 49%, respectively, of revenues were attributable to licensees domiciled in foreign jurisdictions, based on the jurisdiction of the entity obligated to satisfy payment obligations pursuant to the applicable revenue arrangement. The Company does not have any material foreign operations.

Acacia performs credit evaluations of its licensees with significant receivable balances, if any, and has not experienced any significant credit losses. Accounts receivable are recorded at the executed contract amount and generally do not bear interest. Collateral is not required. An allowance for doubtful accounts may be established to reflect the Company’s best estimate of probable losses inherent in the accounts receivable balance, and is reflected as a contra-asset account on the balance sheet and a charge to operating expenses in the statements of operations for the applicable period. The allowance is determined based on known troubled accounts, historical experience, and other currently available evidence. There was no allowance for doubtful accounts established for the periods presented.

Fair Value of Financial Instruments.  The carrying value of cash and cash equivalents, accounts receivables, and current liabilities approximates their fair values due to their short-term maturities.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment.  Property and equipment are recorded at cost. Major additions and improvements that materially extend useful lives of property and equipment are capitalized. Maintenance and repairs are charged against the results of operations as incurred. When these assets are sold or otherwise disposed of, the asset and related depreciation are relieved, and any gain or loss is included in the consolidated statements of operations for the period of sale or disposal. Depreciation and amortization is computed on a straight-line basis over the following estimated useful lives of the assets:
Furniture and fixtures3 to 5 years
Computer hardware and software3 to 5 years
Leasehold improvements2 to 5 years (Lesser of lease term or useful life of improvement)
Rental payments on operating leases are charged to expense in the consolidated statements of operations on a straight-line basis over the lease term.

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, ranging from one to six years.

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 option 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).

Equity Method Investments. Equity investments 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, and classified within “Equity Method Investments” in the consolidated balance sheet. Acacia includes its proportionate share of earnings and/or losses of its equity method investees in equity in earnings (losses) of investee in the consolidated statements of operations.

Impairment of Investments. Acacia reviews its equity method 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 consolidated statements of operations and a new cost basis in the investment is established.

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 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 5 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 the 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
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Contingent Liabilities. The Company, from time to time, is involved in certain legal proceedings. Based upon consultation with outside counsel handling its defense in these matters and the Company’s analysis of potential outcomes, if the Company determines that a loss arising from such matters is probable and can be reasonably estimated, an estimate of the contingent liability is recorded in its consolidated financial statements. If only a range of estimated loss can be determined, an amount within the range that, based on estimates, assumptions and judgments, reflects the most likely outcome, is recorded as a contingent liability in the consolidated financial statements. In situations where none of the estimates within the estimated range is a better estimate of probable loss than any other amount, the Company records the low end of the range. Any such accrual would be charged to expense in the appropriate period. Litigation expenses for these types of contingencies are recognized in the period in which the litigation services were provided.
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, and if required to be paid by Acacia or its operating subsidiaries, could materially harm the Company’s operating results and financial position.
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. Stock-based compensation expense for awards with service and/or performance conditions that affect vesting is recorded only for those awards expected to vest using an estimated forfeiture rate.

Segment Reporting
The FASB issued a new standard, effective January 1, 2017, that allows entities to make a policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. Effective January 1, 2017, the Company elected to account for forfeitures of awards as they occur. The prior standard required the Company to estimate the number of awards for which the requisite service period is expected to be rendered and base the accruals of compensation cost on the estimated number of awards that will vest.

The fair values of stock options granted during the periods presented were estimated using the Black-Scholes option-pricing model, based on the following weighted-average assumptions:
 For the Years Ended
 December 31, 2017 December 31, 2016
    
Risk-free interest rate1.77% 1.1%
Term4.37 3.06
Volatility51% 53%
Dividend yield—% —%

Due to a lack of sufficient historical stock option exercise experience, the Company utilized the simplified method for estimating the expected term for stock options granted during the periods presented.  Expected volatility is based on the historical volatility of the Company’s stock for the length of time corresponding to the expected term of the option. The risk-free interest rate is based on the U.S. treasury yield curve on the grant date for the expected term of the option.

Restricted stock awards and stock option awards with performance-based vesting conditions generally vest based upon the Company achieving specified cash flow performance targets over a one and two-year period from the date of grant.
Performance-based stock options awards with market-based vesting conditions vest based upon the Company achieving specified stock price targets over a four-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 for an option with a market-based vesting condition provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. The service period for options with a market-based vesting condition is inferred from the
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

application of the Monte Carlo valuation technique. The derived service period represents the duration of the median of the distribution of share price paths on which the market condition is satisfied. The duration is the period of time from the service inception date to the expected date of satisfaction, as determined from the valuation technique. Assumptions utilized in connection with the Monte Carlo valuation technique included: estimated risk-free interest rate; expected volatility; and expected dividend yield. 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”) are accounted for in accordance with Accounting Standards Codification (“ASC”) 718-10, “Compensation - Stock Compensation.” The Units vest as described at Note 10, and therefore, the vesting conditions do not meet the definition of service, market or performance conditions, as defined in ASC 718. As such, the Units are classified as liability awards. Liability classified awards are measured at fair value on the grant date and re-measured each reporting period at fair value until the award is settled. Compensation expense is adjusted each reporting period 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, and will continue to be fully recognized for any changes in fair value, until the Units are settled. Non-cash stock compensation expense related to the Units is reflected in general and administrative expense in the accompanying consolidated statements of operations.

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 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.

Under U.S. generally accepted accounting principles, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained upon examination. Tax positions that meet the more likely than not threshold are measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement.
Segment Reporting.  Acacia uses the management approach, which designates the internal organization that is used by management for making operating decisions and assessing performance as the basis of Acacia’sthe Company’s reportable segments. Acacia’s patent licensingRefer to Note 17 for additional information regarding our two reportable business segments: Intellectual Property Operations and enforcement business constitutes its single reportable segment.Industrial Operations.

Use of Estimates.  
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of AmericaU.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Acacia believes that, of the significant accounting policies described herein, the accounting policies associated with revenue recognition, estimates of variable consideration for revenue, including sales returns, the valuation of equity securities without readily determinable fair value, the loandetermination of excess and equity instruments discussed at Note 7,obsolete inventories, bad debt allowances and product warranty liabilities, 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”) and Series B warrants (the “Series B Warrants”), stock-based compensation expense, including the valuation of profits interests, impairment of goodwill, patent-related and other intangible assets, the determination of the economic useful life of amortizable intangible assets, and income taxes and valuation allowances against net deferred tax assets, require its most difficult, subjective or complex judgments.

Revenue Recognition
Income (Loss) Per Share.  The Company computes net income (loss) attributable to common stockholders using the two-class method required for capital structures that include participating securities. Under the two-class method, securities that participate in non-forfeitable dividends, such as the Company’s outstanding unvested restricted stock, are considered “participating securities.”Intellectual Property Operations
In applying the two-class method, (i) basic net income (loss) per shareARG's revenue is computed by dividing net income (loss) (less any dividends paid on participating securities)recognized upon transfer of control (i.e., by the weighted average numbergranting) of shares of common stockpromised bundled IP Rights and participating securities outstanding for the period and (ii) diluted earnings per share may include the additional effect of other securities, if dilutive, in which case the dilutive effect of such securities is calculated by applying the two-class method and the treasury stock methodcontractual performance obligations to the assumed exercise or vesting of potentially dilutive common shares. The method yielding the more dilutive result is ultimately reported for the applicable period. Potentially dilutive common stock equivalents primarily consist of
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

employee stock options, and restricted stock units for calculations utilizing the two-class method, and also include unvested restricted stock, when utilizing the treasury method.

The following table presents the weighted-average number of common shares outstanding used in the calculation of basic and diluted income per share:
  2017 2016 2015
Numerator (in thousands):      
Basic and Diluted      
Net income (loss) attributable to Acacia Research Corporation $22,180
 $(54,067) $(160,036)
Undistributed earnings allocated to participating securities (33) —
 —
Total dividends declared / paid —
 —
 (25,434)
Dividends attributable to common stockholders —
 —
 24,740
Net income (loss) attributable to common stockholders – basic and diluted $22,147
 $(54,067) $(160,730)
       
Denominator:      
Weighted-average shares used in computing net loss per share attributable to common stockholders – basic 50,495,119
 50,075,847
 49,505,817
Effect of potentially dilutive securities:      
Common stock options and restricted stock units 196,893
 —
 —
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders – diluted 50,692,012
 50,075,847
 49,505,817
Basic and diluted net loss per common share $0.44
 $(1.08) $(3.25)
Anti-dilutive equity-based incentive awards excluded from the computation of diluted loss per share 4,425,187
 3,682,532
 71,468
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 consolidated balance sheets.
Recent Accounting Pronouncements - Not Yet Adopted.

In May 2014, the FASB issued a new accounting standards update addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customerslicensees in an amount that reflects the consideration we expect to which the company expects to be entitledreceive in exchange for those goodsIP 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 ARG 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 ARG. Revenues also included license fees from sales-based revenue contracts, the majority of which were originally executed in prior periods, which provide for the payment of quarterly license fees based on quarterly sales of applicable product units by licensees (“Recurring License Revenue Agreements”). Revenues may also include court ordered settlements or awards related to our patent portfolio or sales of our patent portfolio. IP Rights granted included the following, as applicable: (i) the grant of a non-exclusive, 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 generally 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 grant combined items to which the promised IP Rights are inputs and (ii) the Company's promise to grant each individual IP right described above to the customer is not separately identifiable from other promises to grant IP Rights in the contract.
Since the promised IP Rights are not individually distinct, ARG combined each individual IP Right in the contract into a bundle of IP Rights that is distinct, and accounted for all of the IP Rights promised in the contract as a single performance obligation. The IP Rights granted were “functional IP rights” that have significant standalone functionality. ARG’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. ARG’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 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
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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 15-90 days of execution of the contract, or the end of the quarter in which the sale or usage occurs for Recurring License Revenue Agreements. Contractual payments made by licensees are generally non-refundable.
For sales-based royalties from Recurring License Revenue Agreements, ARG 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 are granted to the licensee. In doing so,determining the Company maytransaction price, ARG adjusts the promised amount of consideration for the effects of the time value of money. As a practical expedient, ARG does not adjust the promised amount of consideration for the effects of a significant financing component if ARG expects, at contract inception, that the period between when the entity grants promised IP Rights to a customer and when the customer pays for the IP Rights will be one year or less.
In general, ARG is required to use more judgmentmake certain judgments and make more estimates in connection with the accounting for revenue contracts with customers than under existing guidance.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 salessales-based royalties.
License revenues were comprised of the following for the periods presented:
Years Ended
December 31,
20222021
(In thousands)
Paid-up license revenue agreements$17,788 $73,585 
Recurring License Revenue Agreements1,720 2,458 
Total$19,508 $76,043 
Industrial Operations
Printronix recognizes revenue to depict the transfer of goods or usage based royalties. Under the standard, (i) an entity should account forservices to a promise to provide a customer with a right to access the entity’s intellectual property as a performance obligation satisfied over time because the customer will simultaneously receive and consume the benefit from the entity’s performance of providing access to its intellectual property as the performance occurs, and (ii) an entity’s promise to provide a customer with the right to use its intellectual property is satisfied at a point in time. In addition, revenues from contracts with significant financing components should be recognized at an amount that reflects the consideration which it expects to receive for providing those goods or services. To determine the transaction price, that a customer would have paid ifPrintronix estimates the customer had paid cashamount of consideration to which it expects to be entitled in exchange for thetransferring promised goods or services when they transferto a customer. Elements of variable consideration are estimated at the time of sale which primarily include product rights of return, rebates, price protection and other incentives that occur under established sales programs. These estimates are developed using the expected value or the most likely amount method and are reviewed and updated, as necessary, at each reporting period. Revenues, inclusive of variable consideration, are recognized to the customer (i.e. adjustment for the time value of money). For sales and usage based royalties, the new standard requires that the Company include 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 in future periods. The provision for returns and sales allowances is determined by an analysis of the historical rate of returns and sales allowances over recent quarters, and adjusted to reflect management’s future expectations.
Printronix enters into contract arrangements that may include various combinations of tangible products (which include printers, consumables and parts) and services, which are generally capable of being distinct and accounted for as separate performance obligations. Printronix evaluates whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract has more than one performance obligation. This evaluation requires judgement, and the decision to combine a group of contracts or separate the combined or single contract into multiple distinct performance obligations may impact the amount of revenue recorded in a reporting period. Printronix deems performance obligations to be distinct if the customer can benefit from the product or service on its own or together
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with readily available resources (i.e. capable of being distinct) and if the transfer of products or services is separately identifiable from other promises in the contract (i.e. distinct within the context of the contract).
For contract arrangements that include multiple performance obligations, Printronix allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices for each performance obligation. In general, standalone selling prices are observable for tangible products and standard software while standalone selling prices for repair and maintenance services are developed with an expected cost-plus margin or residual approach. Regional pricing, marketing strategies and business practices are evaluated to derive the estimated standalone selling price using a cost-plus margin methodology.
Printronix recognizes revenue for each performance obligation upon transfer of control of the promised goods or services. Control is deemed to have been transferred when the uncertainty associated withcustomer has the variable consideration is subsequently resolved.

The amendments for this new accounting standard update are effective for interimability to direct the use of and annual reporting periods beginning after December 15, 2017, and are to be applied retrospectively or via the cumulative effect ashas obtained substantially all of the dateremaining benefits from the goods and services. The determination of adoption,whether control transfers at a point in time or over time requires judgment and includes consideration of the following: (i) the customer simultaneously receives and consumes the benefits provided as Printronix performs its promises, (ii) the performance creates or enhances an asset that is under control of the customer, (iii) the performance does not create an asset with an alternative use to Printronix, and (iv) Printronix has an enforceable right to payment for its performance completed to date.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

with early application not permitted. The Company expects to use the modified retrospective methodRevenues for products are generally recognized upon shipment, whereas revenues for services are generally recognized over time, assuming all other criteria for revenue recognition have been met. Incremental costs of adoption and will recognize the cumulative effect of initially applying the newobtaining a contract are expensed as incurred. Service revenue standard as an adjustmentcommissions are tied to the opening balancerevenue recognized during the current year of retained earnings inthe related sale.
Printronix offers printer-maintenance services through service agreements that customers may purchase separately from the printer. These agreements commence upon expiration of the standard warranty period. Printronix provides the point-of-customer-contact, dispatches calls and sells the parts used for printer repairs to service providers. Printronix contracts third parties to perform the on-site repair services at the time of sale which covers the period of initial application (first quarterservice at a set amount. The maintenance service agreements are separately priced at a stand-alone value. For those transactions in which maintenance service agreements are purchased concurrently with the purchase of 2018 for Acacia). Comparative prior year periods would not be adjusted. The preliminary estimate ofprinters, the cumulative effect of initially applying the new revenue standard is an decrease to beginning accumulated deficit of $3.0 million, primarily relating to financing components of contracts executed in prior periods and estimates of variable consideration for sales and usagedeferred based royalty agreements executed in prior periods. Management continues to assess the impact of this new standard on the Company’s consolidated financial statements and related disclosures, including ongoingselling price, which approximates the stand-alone value for separately sold maintenance services agreements. Revenue from maintenance service contracts are recognized on a straight-line basis over the period of each individual contract, reviews. Preliminary estimates ofwhich is consistent with the adjustment upon initial adoption may change in connection with completion of the Company’s adoption procedures in the first quarter of 2018.

In February 2016, the FASB issued an accounting standard update which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities. The new lease standard does not substantially change lessor accounting. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statementspattern in which they first apply the new guidance, using a modified retrospective transition method. The requirements of this standard include a significant increase in required disclosures. Managementbenefit is currently assessingconsumed by the impact that adopting this new accounting guidance will have on its financial statements and footnote disclosures.customer.

In May 2017, the FASB issued amended guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions or the classification of the award changes as a result of the change in terms or conditions. This amendment is effective prospectively for annual periods beginning on or after December 15, 2017, with early adoption
permitted. Management is currently assessing the impact that adopting this new accounting guidance will have on its financial statements and footnote disclosures.

Recently Adopted Accounting Pronouncements - Recently Adopted.

In March 2016, the FASB issued a new standard that changes the accounting for certain aspects of share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to repurchase more of an employee’s shares than previously allowed for tax withholding purposes without triggering liability accounting and to make a policy election for forfeitures as they occur. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those years. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.


3.  SHORT-TERM INVESTMENTS

Short-term investments for the periods presentedPrintronix's net revenues were comprised of the following (in thousands):
for the periods presented:
 December 31, 2016
Security TypeCost Gross Unrealized Gains Gross Unrealized Losses Fair Value
U.S. government fixed income securities$19,403
 $40
 $—
 $19,443
Year Ended December 31, 2022October 7, 2021 to December 31, 2021
(In thousands)
Printers, consumables and parts$35,432 $10,934 
Services4,283 1,070 
Total$39,715 $12,004 
There were no short-term investments atRefer to Note 17 for additional information regarding net sales to customers by geographic region.
Deferred revenue in the consolidated balance sheets represents a contract liability under Accounting Standards Codification (“ASC”) 606 and consists of payments and billings in advance of the performance. Printronix recognized approximately $3.8 million and $800,000 in revenue that was previously included in the beginning balance of deferred revenue during the year ended December 31, 2017. Short-term investments at2022 and the period from October 7, 2021 through December 31, 20162021, respectively.
Printronix's payment terms vary by the type and location of its customers and the products, solutions or services offered. The time between invoicing and when payment is due is not significant. In instances where the timing of revenue recognition differs from the timing of invoicing, Printronix has determined that its contracts do not include a significant financing component.
Printronix's remaining performance obligations, following the transfer of products to customers, primarily relate to repair and support services. The aggregated transaction price allocated to remaining performance obligations for arrangements
F-12
with an original term exceeding one year was $681,000 and $772,000, inclusive of deferred revenue, as of December 31, 2022 and 2021, respectively. On average, remaining performance obligations as of December 31, 2022 are expected to be recognized over a period of approximately two years.
Cost of Revenues
Intellectual Property Operations
Cost of revenues include the costs and expenses incurred in connection with ARG’s patent licensing and enforcement activities, including inventor royalties paid to patent owners, patent maintenance and prosecution costs, 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. Cost of revenues were comprised of investments in highly liquid, AAA, U.S. government fixed income securities with maturity dates in 2017.

For the years ended December 31, 2017 and 2016, proceeds from the sale of short-term investments classified as available-for-sale were $467,790,000 and $43,232,000, respectively. Gross unrealized gains and losses were not materialfollowing for the years ended December 31, 2017periods presented:
Years Ended
December 31,
20222021
(In thousands)
Inventor royalties$1,212 $1,142 
Contingent legal fees2,444 12,074 
Litigation and licensing expenses3,970 5,462 
Amortization of patents10,403 9,851 
Other patent portfolio expense— 162 
Total$18,029 $28,691 
Inventor Royalties and 2016. ForContingent Legal Expenses
Inventor royalties are expensed in the year ended December 31, 2015, proceedsconsolidated statements of operations in the period that the related revenues are recognized. Patent costs, including any upfront advances paid to patent owners by ARG’s operating subsidiaries, that are recoverable from the sale of short-term investments were $82,115,000 and gross realized losses were $617,000.





ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following at December 31, 2017 and 2016 (in thousands):
  2017 2016
     
Payroll and other employee benefits $465
 $1,593
Accrued vacation 294
 533
Accrued legal expenses - patent 5,479
 6,564
Foreign taxes payable 15
 3,150
Accrued consulting and other professional fees 1,364
 1,967
Other accrued liabilities 339
 476
  $7,956
 $14,283


5.  PATENTS
Acacia’s only identifiable intangible assetsfuture net revenues are patents and patent rights, with estimated remaining economic useful lives ranging from one to six years. For all periods presented, all of Acacia’s identifiable intangible assets were subject to amortization. The gross carrying amounts and accumulated amortization related to investments in intangible assets as of December 31, 2017 and 2016 are as follows (in thousands): 
  2017 2016
     
Gross carrying amount - patents                                                         $444,137
 $444,362
Accumulated amortization - patents(1)                                                                         
 (382,220) (358,043)
Patents, net                                                                              $61,917
 $86,319
 (1) Includes patent impairment charges foramortized over the applicable periods.

The weighted-average remaining estimated economic useful life of Acacia’sthe related patents, or as the prepaid royalties are earned by the inventor, as appropriate, and patent rightsthe related expense is 4 years. Scheduled annual aggregateincluded in amortization expense is estimatedin the 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 consolidated statements of operations.
Contingent legal fees are expensed in the 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, ARG’s operating subsidiaries may be liable for certain out of pocket legal costs incurred pursuant to be $20,542,000 in 2018, $18,527,000 in 2019, $6,134,000 in 2020, $5,261,000 in 2021, $5,256,000 in 2022the underlying legal services agreement.
Inventor royalty and $6,197,000 thereafter.contingent legal agreements generally provide for payment by ARG of contractual amounts 30 days subsequent to the quarter end during which related license fee payments are received from licensees by ARG.
Litigation and Licensing Expenses
For the years ended December 31, 2017, 2016Litigation and 2015, Acacia paidlicensing expenses include patent-related litigation, enforcement and prosecution costs incurred by law firms and external patent investmentattorneys engaged on either an hourly basis or a contingent fee basis. Litigation and licensing expenses also includes third-party patent research, development, patent prosecution and maintenance fees, re-exam and inter partes reviews, consulting and other costs totaling $0, $1,225,000 and $19,504,000, respectively. The patents have initial estimated economic useful lives ranging from two to seven years.
Acacia recorded impairment of patent-related intangible asset charges totaling $2,248,000, $42,340,000 and $74,731,000 for the years ended December 31, 2017, 2016 and 2015, respectively. The impairment charges related to impairments of patent portfolios due to a reduction in expected estimated future net cash flows and certain patent portfolios that management determined it would no longer allocate future resources toincurred in connection with the licensing and enforcement of such portfolios, due primarilypatent portfolios.
Industrial Operations
Included in cost of sales are inventory costs (refer to adverse litigation outcomes, potential prior art related complexities and/or"Inventories" below), indirect labor, overhead and warranty costs. Printronix offers both assurance-type and service-type product warranties with varying terms depending on the overall determination that future resources would be allocatedproduct, region and customer contracts. Warranty periods range from three months to other licensingtwo years. The provision for warranty costs is determined by applying the historical claims experience and enforcement programs with higher potential return profiles. estimated repair costs to the outstanding units under warranty.
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The impairment charges for the periods presented consistedfollowing is a summary of the excess of the asset’s carrying value over its estimated fair value.

In December 2015, Acacia’s subsidiary Adaptix, Inc. received a jury verdictaccrued warranty liabilities, which are included in its case against Alcatel Lucent USA, Inc.,accrued expenses and others. The jury returned a verdict that the asserted claims of the patent at issue were invalidother current liabilities, and non-infringed. The Adaptix trial loss resulted in a reduction in estimated cash flows for the Adaptix portfolio expected to be realized from future licensing and enforcement activities, leading to partial impairment charges on the portfolioother long-term liabilities in the fourth quarterconsolidated balance sheets:
Year Ended December 31, 2022October 7, 2021 to December 31, 2021
(In thousands)
Beginning balance$222 $260 
Estimated future warranty expense25 17 
Warranty claims settled(116)(55)
Ending balance$131 $222 
Concentrations
Financial instruments that potentially subject the Company to concentrations of 2015. Fiscal year 2016 patent impairment charges included the impairmentcredit risk are cash equivalents and accounts receivable. The Company places its cash equivalents primarily in highly rated money market funds, investments in U.S. treasury securities 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. The Company has not experienced any significant losses on its deposits of the remaining carrying valuecash and cash equivalents.
Intellectual Property Operations
Three licensees individually accounted for the Adapitx portfolio. In addition, for15%, 15% and 27% of revenues recognized during the year ended December 31, 2015 analysis, management considered2022. Two licensees individually accounted for 66% and 16% of revenues recognized during the impactyear ended December 31, 2021.
Historically, ARG has not had material foreign operations. Based on the jurisdiction of the fourth quarter 2015 adverse trial outcomes on its estimates of future cash flows that could be realized from future licensing and enforcement activitiesentity obligated to satisfy payment obligations pursuant to the applicable license revenue arrangement, for other patent portfolios. Estimates of future cash flows for these portfolios were reduced in part in connection with the Company’s assessment of probabilities of realization given the recent adverse trial outcomes. Additionally, patent impairment charges include the carrying value of other patent portfolios for which, in 2015, the Company experienced adverse litigation or trial outcomes, leading to a reduction in or elimination of expected future cash flows. In addition, headcount reductions and internal staff optimization efforts led to changes with respect to which patent portfolios the Company intends to allocate
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

licensing and enforcement resources to in future periods. As such, certain portfolio programs were selected for termination due to a decision to no longer pursue or allocate resources, resulting in a write-off any remaining carrying value in the fourth quarter of 2015.

6. GOODWILL IMPAIRMENT CHARGE (Fiscal Year 2015)
Goodwill Impairment Testing -years ended December 31, 2015. At December 31, 2015, prior2022 and 2021, 3% and 69%, respectively, of revenues were attributable to the completionlicensees domiciled in foreign jurisdictions. Refer to Note 17 for additional information regarding revenue from customers by geographic region.
Two licensees individually represented approximately 57% and 43% of the annual goodwill impairment test, the goodwill balance totaled $30.1 million. Goodwill is tested for impairment at the Company’s single reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Factors considered important, which could trigger an impairment review, include the following:
significant consistent gradual decline in the Company’s stock price for a sustained period;
significant underperformance relative to expected historical or projected future operating results;
significant changes in the manner of use of assets or the strategy for the Company’s overall business;
significant negative industry or economic trends; and
significant adverse changes in legal factors or in the business climate, including adverse regulatory actions or assessments.

     In connection with Acacia’s annual goodwill impairment testing for 2015, the Company identified several qualitative factors triggering an impairment testaccounts receivable at December 31, 2015, as follows:2022. Two licensees individually represented approximately 59% and 41% of accounts receivable at December 31, 2021.
Industrial Operations
Adverse legal outcomesNo single Printronix customer accounted for more than 10% of revenue for the years ended December 31, 2022 and changes in legal factors. In December 2015, Acacia announced that its subsidiary Adaptix, Inc. received a jury verdict in its case against Alcatel Lucent USA, et al., deciding that the claims2021. Printronix has significant foreign operations, refer to Note 17 for additional information regarding net sales to customers by geographic region.
Two Printronix customers individually accounted for 15% and 11% of the applicable patents in suit were invalid and non-infringed. This adverse legal outcome and others in the fourth quarter of 2015 resulted in changes in estimates of realization related to litigation outcomes in future periods for certain patent portfolios.
Significant consistent gradual decline in the Company’s stock price. Historically, the Company’s stock price had been volatile, and the volatility continued during fiscal 2015, declining from $16.72 as of January 2, 2015, to $4.29accounts receivable as of December 31, 2015, a 74% decline. In addition, subsequent to December 31, 2015, the Company’s stock price volatility has continued, trending downward. In the fourth quarter2022, and one customer represented 11% of 2015, given the continued decline in stock price up through December 31, 2015, and the impact of the December 2015 adverse trial outcomes noted above, the gradual consistent decline in the Company’s stock price was deemed to be sustained, and hence indicative of a reduction in the estimated fair value of the Company, as reflected in its lower overall market capitalization.
Changes in Company Management and Resource Allocations. In connection with certain resource allocation changes within the organization given a change in management in the fourth quarter of 2015, headcount reductions and internal staff optimization efforts occurred, which led to changes with respect to estimates of which patent portfolios the Company intends to continue to allocate licensing and enforcement resources to in future periods. As such, certain patent portfolio programs were selected for termination due to a decision to no longer allocate resources. In addition, changes in estimates regarding the best and highest use of certain patent portfolios were made, resulting in reductions in estimated future cash flows.
At December 31, 2015, the Company utilized the following methods and assumptions in its annual goodwill impairment testing, which was prepared with the assistance of a third-party valuation specialist:
At December 31, 2015, the initial qualitative assessment included consideration of the factors described above, resulting in a conclusion thataccounts receivable as of December 31, 2015,2021. Exposure to credit risk is limited by the consistent gradual decline inlarge number of customers comprising the Company’s stock price was sustained. The Company also considered the impactremainder of the Printronix customer base and by periodic customer credit evaluations performed by Printronix.
No single Printronix vendor accounted for 10% or more of purchases for the years ended December 2015 adverse trial outcomes on the Company’s stock price31, 2022 and related estimates2021. Accounts payable to two vendors represented 21% and 13% of fair value for remaining portfolio opportunities. Based on the Company’s assessment of these factors, the Company determined that it was more likely than not that goodwill was impaired, constituting a triggering event requiring a goodwill impairment testaccounts payable as of December 31, 2015.
The Company conducted the first step2022, and one vendor represented 14% of the goodwill impairment test for its single reporting unitaccounts payable as of December 31, 2015. 2021.
Cash and Cash Equivalents
The Company utilizedconsiders all highly liquid 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 U.S. treasury securities and AAA rated money market capitalization plus cost synergies approach to estimatefunds that invest in first-tier only securities, which primarily include domestic commercial paper and securities issued or guaranteed by the U.S. government or its agencies.
F-14
Equity Securities
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 consolidated statements of operations in other income or (expense). Dividend income is included in other income or (expense). Refer to Note 3 for additional information.
Equity Securities Without Readily Determinable Fair Value
For equity securities that do not have a readily determinable fair value, the Company elected to report them under the measurement alternative. They are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the Company.same issuer. The fair values of the private company securities were estimated based on recent financing transactions and secondary market capitalization was determined by multiplyingtransactions and factoring in any adjustments for illiquidity or preference of these securities. Changes in fair value are reported in the Company’s stock price andconsolidated statements of operations in other income or (expense). To date, the common shares outstandingCompany has not recorded any impairments nor upward or downward adjustments on our equity securities without readily determinable fair values held as of December 31, 2015. Management also2022 and 2021. Refer to Note 3 for additional information.
Equity Method 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 earnings on equity investment in joint venture in the consolidated statements of operations. Refer to Note 3 for additional information.
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 control premium in its
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

estimate ofstated 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 investment 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 Company’s single reporting unit. The cost synergies were estimatedcumulative interest being based on the cost savingscharacteristics of the investment at the date at which could be achieved if the Company was acquired by a competitor inobtains the same operating business.additional interest.
Based on the analysis utilizing the market capitalization plus cost synergies approach, the estimated fair value of the reporting unit of $252 million was below its carrying value of $344.3 million as of December 31, 2015, and therefore, goodwill was determined to be more likely than not, impaired.
The purpose of step 2 of the analysis was to determine the estimated fair value of the assets and liabilities of the Company’s reporting unit, in order to determine the implied fair value of goodwill for the reporting unit. The excess, if any, of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. Based upon the analysis performed, the fair value of the Company’s single reporting unit did not exceed the amounts assigned to its reporting unit assets and liabilities, resulting in a difference between the implied fair value of goodwill of zero and the historical carrying value of goodwill. As a result, the Company recognized a goodwill impairment charge totaling $30.1 million in the fourth quarter of 2015.


7. INVESTMENTS

Investment at Fair Value
Veritone Investment Agreement. On August 15,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). As part of the Company’s equity securities in the Life Sciences Portfolio, the Company has elected to apply the fair value method to one investment, refer to Note 3 for additional information.
During 2016 and 2017, Acacia entered into an Investment Agreement withmade certain investments in Veritone, Inc. (“Veritone”), which provided. As a result of these transactions, Acacia received shares of Veritone common stock and warrants. We elected the fair value method for Acacia to invest up to $50 millionour investment in Veritone consistingupon acquisition. During 2018, Acacia began to divest its investments in Veritone. During 2020, Acacia sold its remaining shares of both debtcommon stock. During the quarter ended March 31, 2021, included in the consolidated statement of operations, Acacia recorded an unrealized loss of $2.8 million from our investment in warrants, as reflected in the change in fair value of investment, and equity components. PursuantAcacia exercised all remaining warrants and recorded a realized gain on sale of investment of $3.6 million. Since March 2021, the Company no longer has an investment in Veritone common stock and warrants.
F-15
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 Investment Agreement, on August 15, 2016, Acacia entered intofinancial 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 secured convertible promissory note with Veritone (the “Veritone Loans”), which permitted Veritonedecline in fair value is determined to borrow up to $20 million through two $10 million advances, each bearing interest at the rate of 6.0% per annum (included in Other Income (Expense)be other-than-temporary, an impairment charge is recorded in the consolidated statements of operations). On August 15, 2016, Acacia fundedoperations and a new cost basis in the investment is established.
Accounts Receivable and Allowance for Doubtful Accounts
Intellectual Property Operations
ARG performs credit evaluations of its licensees with significant receivable balances, if any, and has not experienced any significant credit losses. Accounts receivable are recorded at the executed contract amount and generally do not bear interest. Collateral is not required. An allowance for doubtful accounts may be established to reflect the Company’s best estimate of probable losses inherent in the accounts receivable balance, and is reflected as a contra-asset account on the balance sheets and a charge to general and administrative expenses in the consolidated statements of operations for the applicable period. The allowance is determined based on known troubled accounts, historical experience, and other currently available evidence. There was no allowance for doubtful accounts established as of December 31, 2022 and 2021.
Industrial Operations
Printronix's accounts receivable are recorded at the invoiced amount and do not bear interest. Printronix performs initial $10 million loan (the “First Loan”). On November 25, 2016, Acacia funded the second $10 million loan (the “Second Loan”). The First Loanand periodic credit evaluations on customers and adjusts credit limits based upon payment history and the Second Loancustomer’s current creditworthiness. The allowance for doubtful accounts is determined by evaluating individual customer receivables, based on contractual terms, reviewing the financial condition of customers, and from the historical experience of write-offs. Receivable losses are charged against the allowance when management believes the account has become uncollectible. Subsequent recoveries, if any, are credited to the allowance. As of December 31, 2022 and 2021, Printronix's combined allowance for doubtful accounts and allowance for sales returns was $22,000 and $78,000, respectively.
Inventories
Printronix's inventories, which include material, labor and overhead costs, are valued at the lower of cost or net realizable value. Cost is determined at standard cost adjusted on a first-in, first-out basis for variances. Cost includes shipping and handling fees and other costs, including freight insurance and customs duties for international shipments, which are subsequently expensed to cost of sales. Printronix evaluates and records a provision to reduce the carrying value of inventory for estimated excess and obsolete stocks based upon forecasted demand, planned obsolescence and market conditions. Refer to Note 4 for additional information.
Long-Term Notes Receivable
On October 13, 2021, Adaptix Limited issued £2.95 million, approximately $4.0 million at the exchange rate on October 13, 2021, in limited unsecured notes due in 2026 to Radcliffe 2 Ltd., a subsidiary of Merton Healthcare Holdco II LLC. The interest rate on the notes is 8.0% per year. During the years ended December 31, 2022 and 2021, we recorded $291,000 and $69,000, respectively, in interest income related to the notes. As of December 31, 2022 and 2021, the receivable including interest was $3.9 million and $4.0 million, respectively, and is included in other non-current assets in the consolidated balance sheets.
Long-Term Restricted Cash
Restricted cash related to a standby letter of credit, which expired and was cancelled in March 2022.
F-16
Property, Plant and Equipment
Property and equipment are recorded at cost. Major additions and improvements that materially extend useful lives of property and equipment are capitalized. Maintenance and repairs are charged against the results of operations as incurred. When these assets are sold or otherwise disposed of, the asset and related depreciation are relieved, and any gain or loss is included in the consolidated statements of operations for the period of sale or disposal. Refer to Note 5 for additional information. Depreciation and amortization is computed on a straight-line basis over the following estimated useful lives of the assets:
Machinery and equipment2 to 10 years
Furniture and fixtures3 to 5 years
Computer hardware and software3 to 5 years
Leasehold improvements2 to 5 years (Lesser of lease term or useful life of improvement)
Goodwill and Other Intangible Assets
Goodwill represents the excess of the acquisition price of a business over the fair value of identified net assets of that business. We evaluate goodwill for impairment annually in the fourth quarter and on an interim basis if the facts and circumstances lead us to believe that more-likely-than-not there has been an impairment. When evaluating goodwill for impairment, we estimate the fair value of the reporting unit. Several methods may be used to estimate a reporting unit’s fair value, including, but not limited to, discounted projected future net earnings or net cash flows and multiples of earnings. If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, then the excess is charged to earnings as an impairment loss. Refer to Note 6 for additional information.
ARG's patents include the cost of patents or patent rights acquired from third-parties or obtained in connection with business combinations. ARG's patent costs are amortized utilizing the straight-line method over their estimated useful lives, ranging from five to ten years. Refer to Note 6 for additional information.
Printronix's intangible assets consist of trade names and trademarks, patents and customer and distributor relationships. These definite-lived intangible assets, at the time of acquisition, are recorded at fair value and are stated net of accumulated amortization. Printronix currently amortizes the definite-lived intangible assets on a straight-line basis over their estimated useful lives of seven years. Refer to Note 6 for additional information.
Leases
The Company’s leases primarily consist of facility leases which are classified as operating leases. The Company assesses whether an arrangement contains a lease at inception. The Company recognizes a lease liability to make contractual payments under all leases with terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying asset for the lease term. Lease expense is recognized on a straight-line basis over the lease term. Refer to Note 11 for additional information.
Impairment of Long-lived Assets
The Company reviews long-lived assets, patents and other 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. 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
F-17
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. Refer to Note 6 for additional information.
Series A Warrants and Series B Warrants
The fair value of the Series A Warrants and the Series B Warrants were estimated using a Black-Scholes option-pricing model. Refer to Notes 8 and 9 for additional information related to the Series A Warrants and the Series B Warrants and their fair value measurements.
Embedded Derivatives
Embedded derivatives that are required to be bifurcated from their host contract are valued separately from the host instrument. Refer to Notes 8 and 9 for additional information related to the embedded derivatives and their fair value measurements.
Contingent Liabilities
The Company, from time to time, is involved in certain legal proceedings. Based upon consultation with outside counsel handling its defense in these matters and the Company’s analysis of potential outcomes, if the Company determines that a loss arising from such matters is probable and can be reasonably estimated, an estimate of the contingent liability is recorded in its consolidated financial statements. If only a range of estimated loss can be determined, an amount within the range that, based on estimates, assumptions and judgments, reflects the most likely outcome, is recorded as a contingent liability in the consolidated financial statements. In situations where none of the estimates within the estimated range is a better estimate of probable loss than any other amount, the Company records the low end of the range. Any such accrual would be charged to expense in the appropriate period. Litigation expenses for these types of contingencies are recognized in the period in which the litigation services were provided. Refer to Note 11 for additional information.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, restricted cash, accounts receivables and current liabilities approximates their fair values due to their short-term maturities. Refer to Note 9 for additional information.
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 payable on November 25, 2017. In conjunction withalso establishes a fair value hierarchy which requires an entity to maximize the First Loan and Second Loan, Veritone issued Acacia a totaluse of three four-year $700,000 warrantsobservable inputs, where available. Refer to purchase sharesNote 9 for additional information.
Treasury Stock
Repurchases of Veritone’sthe 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 in the consolidated balance sheets. Refer to Note 12 for additional information.
Engineering and Development
Engineering and development costs are expensed as incurred and consist of labor, supplies, consulting and other costs related to developing and improving Printronix's products.
F-18
Advertising
Printronix expenses advertising costs, including promotional literature, brochures and trade shows, as incurred. Advertising expense was approximately $315,000 and $52,000 during the year ended December 31, 2022 and the period from October 7, 2021 through December 31, 2021, respectively, and is included in sales and marketing expenses in the consolidated statements of operations.
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 exerciseexpense on a straight-line basis over the employee’s requisite service period (generally the vesting period of the equity award) which is currently one to four years. The fair value of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) are determined by the product of the number of shares or units granted and the grant date market price of $13.6088the 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. Refer to Note 13 for additional information.
Foreign Currency Gains and Losses
In connection with our Printronix business, the U.S. dollar is the functional currency for all of the foreign subsidiaries. Transactions that are recorded in currencies other than the U.S. dollar may result in transaction gains or losses at the end of the reporting period and when trade receipts and payments occur. For these subsidiaries, the assets and liabilities have been re-measured at the end of the period for changes in exchange rates, except inventories and property, plant and equipment, which have been remeasured at historical average rates. The consolidated statements of operations have been reevaluated at average rates of exchange for the reporting period, except cost of sales and depreciation, which have been reevaluated at historical rates. Although Acacia historically has not had material foreign operations, Acacia is exposed to fluctuations in foreign currency exchange rates between the U.S. dollar, and the British Pound and Euro currency exchange rates, primarily related to foreign cash accounts, a note receivable and certain equity security investments. All foreign currency exchange activity is recorded in the consolidated statements of operations.
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 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. When the Company establishes or reduces the valuation allowance against its deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period such determination is made.
Under U.S. GAAP, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained upon examination. Tax positions that meet the more likely than not threshold are measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Refer to Note 15 for additional information.
Income/Loss Per Share
For periods in which the Company generates net income, the Company computes basic net income per share. Veritone’s initial public offering date was May 12, 2017. Upon Veritone’s consummationshare attributable to common stockholders using the two-class method required for capital structures that include participating securities. Under the two-class method, securities that participate in non-forfeitable dividends, such as the Company’s outstanding unvested restricted stock and Series A Redeemable Convertible Preferred Stock, are considered participating securities and are allocated a portion of its public offeringthe Company’s earnings. For periods in which the Company generates a net loss, net losses are not allocated to holders of itsthe Company’s participating securities as the security holders are not contractually obligated to share in the Company’s losses.
Basic net income/loss per share of common stock on May 17, 2017 (“IPO”), all outstanding principal and accrued interest underis computed by dividing net income/loss attributable to common stockholders by the Veritone Loans, totaling $20.7 million, automatically converted into 1,523,746 shares of Veritone’s common stock based on a conversion price of $13.6088 per share.
In addition, in August 2016, Veritone issued Acacia a five-year Primary Warrant to purchase up to $50 million, less all converted amounts or amounts repaid under the Veritone Loans, worthweighted average number of shares of Veritone’s common stock atoutstanding for the period. Diluted net income/loss per share of common stock is computed by dividing net income/loss attributable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding for the period using the treasury
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stock method or the as-converted method, or the two-class method for participating securities, whichever is more dilutive. Potentially dilutive common stock equivalents consist of stock options, restricted stock units, unvested restricted stock, Series A Redeemable Convertible Preferred Stock, Series A Warrants and Series B Warrants. Refer to Note 16 for additional information.
Recent Accounting Pronouncements
Recently Adopted
In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” The amendments in this update clarify that a contractual restriction on the sale of an exerciseequity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. As such, an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction (e.g. an entity cannot apply a discount to the price of $13.6088an equity security subject to a lock-up agreement). The amendments also require the following disclosures for equity securities subject to contractual sale restrictions: (i) the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet, (ii) the nature and remaining duration of the restriction(s), and (iii) the circumstances that could cause a lapse in the restriction(s). The amendments are to be applied prospectively and are effective on January 1, 2024 for public entities, with early adoption permitted. The Company adopted the update on June 30, 2022. The adoption of the update did not have an impact on the Company’s financial position, results of operations or financial statement disclosures.
Not Yet Adopted
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 these updates will be adopted by the Company on January 1, 2023. Management has completed its evaluation of the impact that the amendments in these updates will have on the Company’s consolidated financial statements and there are no significant implementation matters that still need to be addressed. Based on Management's evaluation of the new standard, the Company does not expect it to have a material effect on the Company’s consolidated financial statements or disclosures, accordingly, a cumulative-effect adjustment to the opening accumulated deficit as of January 1, 2023 is not expected.
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” to simplify the accounting for convertible instruments by eliminating large sections of the existing guidance in this area. It also eliminates several triggers for derivative accounting, including a requirement to settle certain contracts by delivering registered shares. This update reduces the number of accounting models for convertible instruments, revises the derivatives scope exception, and provides targeted improvements for earnings per share. PursuantUpon adoption, companies have the option to apply a modified or full retrospective transition approach. The amendments in this update will currently be effective for the Company on January 1, 2024, with early adoption permitted. Management is currently evaluating the impact that the amendments in this update may have on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” to require that an amendmentacquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with “Revenue from Contracts with Customers (Topic 606).” At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in this update will be applied prospectively and will be adopted by the Company on January 1, 2023. Management does not expect the adoption of this new standard to have a material effect on the Primary Warrant effective March 15, 2017,Company’s consolidated financial statements.
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3. EQUITY SECURITIES
Equity securities for the Primary Warrantperiods presented were comprised of the following:
Security TypeCostGross
Unrealized
Gain		Gross
Unrealized
Loss		Fair Value
(In thousands)
December 31, 2022:
Equity securities - Life Sciences Portfolio$28,498 $14,815 $(617)$42,696 
Equity securities - other common stock34,885 4 (15,977)18,912 
Total$63,383 $14,819 $(16,594)$61,608 
December 31, 2021:
Equity securities - Life Sciences Portfolio$56,037 $262,811 $(1,488)$317,360 
Equity securities - other common stock43,822 2,068 (1,472)44,418 
Total$99,859 $264,879 $(2,960)$361,778 
Equity Securities Portfolio Investment
On April 3, 2020, the Company entered into an Option Agreement with LF Equity Income Fund, which included general terms through which the Company was exercised automatically uponprovided the consummation of Veritone’s IPO, resulting inoption to purchase the purchase by Acacia of an additional 2,150,335 shares of Veritone common stock, atLife Sciences Portfolio for an aggregate purchase price of $29.3 million. Immediately following Acacia’s exercise£223.9 million, approximately $277.5 million at the exchange rate on April 3, 2020.
For accounting purposes, the total purchase price of the Primary WarrantLife Sciences Portfolio was allocated to the individual equity securities based on their individual fair values as of April 3, 2020, in full, Veritoneorder 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. Included in our consolidated balance sheets as of December 31, 2022 and 2021, the total fair value of the remaining Life Sciences Portfolio investment was $68.4 million and $343.1 million, respectively.
As part of the Company’s acquisition of equity securities in the Life Sciences Portfolio, the Company acquired an equity interest in Arix Bioscience PLC (“Arix”), a public company listed on the London Stock Exchange. During the year ended December 31, 2022, the Company increased its investment in Arix amounting to approximately 26% as of December 31, 2022. In addition, two members of the Company's Board of Directors (the “Board”) have seats on the board of Arix, which is currently made up of five board members. Although the Company is presumed to have significant influence over operating and financial policies of Arix, we have elected to account for the investment under the fair value method. To date, the Company has not received any dividends from Arix. As of December 31, 2022, this investment did not meet the significance thresholds for additional summarized income statement disclosures, as defined by the SEC. As of December 31, 2022, the aggregate carrying amount of our Arix investment was $42.7 million, and is included in equity securities in the consolidated balance sheet.
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The following unrealized and realized gains or losses from our investment in the Life Sciences Portfolio are recorded in the change in fair value of equity securities and gain or loss on sale of equity securities, respectively, in the consolidated statements of operations:
Years Ended
December 31,
20222021
(In thousands)
Change in fair value of equity securities of public
   companies		$(247,126)$188,875 
Conversion of equity securities without readily
   determinable fair value to equity securities of
   public companies		— (102,067)
Gain on sale of equity securities of public
   companies		111,717 115,172 
Net realized and unrealized (loss) gain$(135,409)$201,980 
As part of the Company’s acquisition of equity securities in the Life Sciences Portfolio, the Company acquired a majority interest in the equity securities of MalinJ1 (63.9%), which were transferred to the Company on December 3, 2020. The acquisition of the MalinJ1 securities was accounted for as an asset acquisition as there was a change of control of MalinJ1 and substantially all of the fair value of the assets acquired was concentrated in a single identifiable asset, an investment in Viamet Pharmaceuticals Holdings, LLC (“Viamet”). As such, the cost basis of the MalinJ1 securities was used to allocate to the Viamet investment, the single identifiable asset, and no goodwill was recognized. The Company through its consolidation of MalinJ1 accounts for the Viamet investment under the equity method as MalinJ1 owns 41.0% of outstanding shares of Viamet. As of December 31, 2022 and 2021, this investment did not meet the significance thresholds for additional summarized income statement disclosures, as defined by the SEC. During the years ended December 31, 2022 and 2021, our consolidated earnings on equity investment was $42.5 million and $3.5 million, respectively, included in the consolidated statements of operations. During the year ended December 31, 2022, distributions received were $28.4 million to Acacia and $14.1 million to noncontrolling interests. During the year ended December 31, 2021, distributions received were $2.4 million to Acacia and $1.2 million to noncontrolling interests.
In April 2022, Viamet received a certain drug approval from the United States Food and Drug Administration ("FDA"). In connection with the FDA approval, MalinJ1 was due a milestone payment in the amount of $40.0 million. The Company's portion of that milestone payment was received in November 2022 in the amount of $27.2 million, including interest accrued at 8.5% per year. In June 2022, in connection with the submission to the European Medicines Agency, MalinJ1 was due an additional milestone payment in the amount of $1.8 million. The Company's portion of that milestone payment was received in July 2022 in the approximate amount of $1.2 million. During 2022, the Company has recorded consolidated earnings on equity investment of $42.5 million, including the two milestones and accrued interest.
4. INVENTORIES
Printronix's inventories consisted of the following:
December 31,
20222021
(In thousands)
Raw materials$4,335 $3,207 
Subassemblies and work in process3,045 1,712 
Finished goods7,340 4,011 
14,720 8,930 
Inventory reserves(498)— 
Total inventories$14,222 $8,930 
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5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
December 31,
20222021
(In thousands)
Machinery and equipment$3,057 $2,077 
Furniture and fixtures585 1,036 
Computer hardware and software660 614 
Leasehold improvements1,025 1,034 
5,327 4,761 
Accumulated depreciation and amortization(1,790)(578)
Property, plant and equipment, net$3,537 $4,183 
Total depreciation and amortization expense in the consolidated statements of operations was $1.4 million and $438,000 for the years ended December 31, 2022 and 2021, respectively. Our Intellectual Property Operations and parent company include depreciation and amortization in general and administrative expenses. For the year ended December 31, 2022, our Industrial Operations allocated depreciation and amortization, totaling $1.3 million, to all applicable operating expense categories, including cost of sales of $1.1 million. For the period from October 7, 2021 through December 31, 2021, our Industrial Operations allocated depreciation and amortization, totaling $684,000, to all applicable operating expense categories, including cost of sales of $257,000.
6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Changes in the carrying amount of goodwill consisted of the following:
Years Ended December 31,
20222021
(In thousands)
Beginning balance$7,470 $— 
Acquisition of business— 7,470 
Tax adjustment (Note 15)71 — 
Impairment losses— — 
Ending balance$7,541 $7,470 
The ending balance of goodwill includes no accumulated impairment losses to date. All goodwill is allocated to our Industrial Operations segment, refer to Note 1 for additional information related to the Printronix acquisition.
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Other intangible assets, net consisted of the following:
December 31, 2022
Weighted Average Amortization PeriodGross Carrying AmountAccumulated AmortizationNet Book Value
(In thousands)
Patents:
Intellectual property operations6 years$331,403 $(304,744)$26,659 
Industrial operations7 years3,400 (597)2,803 
Total patents334,803 (305,341)29,462 
Customer relationships - industrial operations7 years5,300 (931)4,369 
Trade name and trademarks - industrial operations7 years3,430 (603)2,827 
Total$343,533 $(306,875)$36,658 
December 31, 2021
Weighted Average Amortization PeriodGross Carrying AmountAccumulated AmortizationNet Book Value
(In thousands)
Patents:
Intellectual property operations6 years$331,403 $(294,341)$37,062 
Industrial operations7 years3,400 (112)3,288 
Total patents334,803 (294,453)40,350 
Customer relationships - industrial operations7 years5,300 (174)5,126 
Trade name and trademarks - industrial operations7 years3,430 (113)3,317 
Total$343,533 $(294,740)$48,793 
Total other intangible asset amortization expense in the consolidated statements of operations was $12.1 million and $10.3 million for the years ended December 31, 2022 and 2021, respectively. The Company did not record charges related to impairment of other intangible assets for the years ended December 31, 2022 and 2021. There was no accelerated amortization of other intangible assets for the years ended December 31, 2022 and 2021. During 2021, ARG reduced its gross patent costs and accumulated amortization by approximately $35.0 million for patents that were fully amortized. Intellectual Property Operations amortization of patents is expensed in cost of revenues and Industrial Operations amortization is expensed in general and administrative expenses.
The following table presents the scheduled annual aggregate amortization expense (in thousands):
Years Ending December 31,
2023$12,068 
202410,693 
20258,347 
20262,483 
20271,733 
Thereafter1,334 
Total$36,658 
During the year ended December 31, 2022, ARG entered into an agreement granting ARG the exclusive option to acquire all rights to license and enforce a patent portfolio and all future patents and patent applications, and incurred $15.0 million of certain patent and patent rights costs, of which $6.0 million was paid in 2022 and $9.0 million is accrued and included in
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accrued expenses and other current liabilities (see Note 7), and is due in three $3.0 million installments in February, April and June 2023. The patent costs are included in prepaid expenses and other current assets in the consolidated balance sheet as of December 31, 2022.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
December 31,
20222021
(In thousands)
Accrued consulting and other professional fees$1,173 $438 
Customer deposit— 3,000 
Income taxes payable474 506 
Product warranty liability, current36 84 
Service contract costs, current280 307 
Short-term lease liability1,559 935 
Accrued patent cost (see Note 6)9,000 — 
Other accrued liabilities1,536 957 
Total$14,058 $6,227 
8. STARBOARD INVESTMENT
Recapitalization Agreement
On October 30, 2022 the Company entered into the Recapitalization Agreement with Starboard and the Investors, pursuant to which, among other things, the Company and Starboard agreed to enter into a series of transactions to restructure Starboard’s existing investments in the Company in order to simplify the Company’s capital structure. As applicable, the following discussion of Starboard’s investments in the Company reflect the transactions effected or to be effected pursuant to the Recapitalization Agreement.
Series A Redeemable Convertible Preferred Stock
On November 18, 2019, the Company entered into a Securities Purchase Agreement with the Investors pursuant to which the Company issued (i) 350,000 shares of Series A Redeemable Convertible Preferred Stock with a par value of $0.001 per share and a stated value of $100 per share, and (ii) Series A Warrants to purchase up to 5 million shares of the Company’s common stock to the Investors. The Securities Purchase Agreement also established the terms of certain senior secured notes and additional Series B Warrants which may be issued to AcaciaStarboard in the future. On June 4, 2020, the Company entered into a Supplemental Agreement, as defined below under “Senior Secured Notes”, with certain contractual agreements affecting the Series A Redeemable Convertible Preferred Stock, reflected below.
The Series A Redeemable Convertible Preferred Stock can be converted into a number of shares of common stock equal to (i) the stated value thereof plus accrued and unpaid dividends, divided by (ii) the conversion price of $3.65 (subject to certain anti-dilution adjustments). Holders may elect to convert the Series A Redeemable Convertible Preferred Stock into common stock at any time. The Company may elect to convert the Series A Redeemable Convertible Preferred Stock into shares of common stock any time on or after November 15, 2025, provided that the closing price of the Company’s common stock equals or exceeds 190% of the conversion price for 30 consecutive trading days and assuming certain other conditions of the common stock have been met.
Holders have the option to redeem all or a portion of the Series A Redeemable Convertible Preferred Stock during the period of May 15, 2022 through August 15, 2022, provided that there is not outstanding at least $50.0 million aggregate principal of senior secured notes to the Investors pursuant to the Securities Purchase Agreement at the time of the redemption. 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
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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 there is not outstanding at least $50.0 million aggregate principal of the senior secured notes at the time of the redemption, 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 certain triggering events, the dividend rate will increase to 7.0% if the triggering event occurs before an additional 10% Warrantapproved investment or 10.0% on the stated value if the triggering event occurs after an approved investment. In connection with the approved investment in June 2020, the Company and the Investors agreed that providesthe dividend rate on the Series A Redeemable Convertible Preferred Stock would accrue at 3.0% so long as no triggering event occurs and the Company maintains $35.0 million in escrow. Series A Redeemable Convertible Preferred Stock also participates on an as-converted basis in any regular or special dividends paid to common stockholders. During October 2021, the Company consummated a suitable acquisition, accordingly $35.0 million was released to the Company from escrow (refer to Note 1 for discussion related to the Printronix acquisition). Upon consummation of the approved acquisition in October 2021, the dividend rate increased to 8.0% on the stated value. There are no accrued and unpaid dividends as of December 31, 2022 and 2021.
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.
In connection with the issuance of an additional 809,400the Series A Redeemable Convertible Preferred Stock, the Company executed a Registration Rights Agreement with Starboard and the Investors 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 Veritone common stock at an exercise priceissued upon conversion.
In accordance with the Recapitalization Agreement, subject to the receipt of $13.6088 per share, with 50% of the shares underlying the 10% Warrant vesting as of the issuance date of the 10% Warrant, and the remaining 50% of the shares underlying the 10% warrant vesting on the first anniversary of the issuance date of the 10% Warrant.
Veritone Bridge Loan. On March 14, 2017, Acacia entered into an additional secured convertible promissory note with Veritone (the “Veritone Bridge Loan”), which permitted Veritone to borrow up to an additional $4.0 million, bearing intereststockholder approval at the rateCompany’s next annual meeting of 8.0% per annum. On March 17, 2017, Acacia fundedstockholders, (i) the initial $1.0 million advance (the “First Bridge Loan”). On AprilCompany will cause the Certificate of Designations to be amended and restated in the form attached to the Recapitalization Agreement in order to remove the “4.89% blocker” provision and (ii) on or prior to July 14, 2017, Acacia funded2023, the second $1.0 million advance (the “Second Bridge Loan”). All advances and accrued interest under the Veritone Bridge Loan were due and payable on November 25, 2017. In May 2017, pursuant toInvestors will convert an aggregate amount of 350,000 shares of Preferred Stock into common stock in accordance with the terms of the Veritone Bridge Loan, Acacia elected to make an additional advance to Veritone totaling $2.0 million, representing all principal amounts not advanced upon Veritone’s consummationCertificate of its IPO. Upon consummation of Veritone’s IPO, the outstanding principal and accrued interest under the Veritone Bridge Loan of $4.0 million and $21,000, respectively, automatically converted into 295,440 shares of Veritone’s common stock at a conversion price of $13.6088 per share.Designations.
In conjunction with the Veritone Bridge Loan, Veritone issued to Acacia (i) 60,000 shares of Veritone common stock (“Upfront Shares”), (ii) 90,000 shares of Veritone common stock (the “Bridge Installment Shares”), and (iii) 10-year warrants to purchase up to 157,000 shares of Veritone common stock with other terms and conditions similar to the warrants described above.

ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All share amounts above have been adjusted to reflect a 0.6-for-1 reverse stock split of Veritone’s common stock, which was effected by Veritone in April 2017. The Veritone common shares are subject to a lock-up agreementCompany determined that expires on February 15, 2018, subsequent to which the shares may be sold pursuant to Rule 144, subject to volume limitations and Rule 144 filing requirements, as well as other restrictions under applicable securities laws. Allcertain features of the Veritone common stock held by Acacia was unregistered as of the issue dateSeries A Redeemable Convertible Preferred Stock should be bifurcated and are unregistered as of December 31, 2017.

Accounting Prior to Veritone IPO. Prior to conversion, Acacia’s Investment Agreement and the Veritone Bridge Loan represented variable interests in Veritone for which Acacia was not the primary beneficiary, primarily due to a lack of a controlling interest in Veritone. In addition, the Veritone Loans and Veritone Bridge Loan (the “Loans”) were not considered in-substance common stock, the common stock purchase warrants were unexercised, and the right to receive the Upfront Shares and the Bridge Installment shares (“Veritone Shares”) were considered in-substance common stock, however, application of the equity method was not material, therefore, the equity method of accounting was not applied prior to the IPO.

Prior to conversion, the Loans and the related common stock purchase warrants and Veritone Shares were accounted for as separate unitsa derivative. Each of accountthese features are bundled together as a single, compound embedded derivative.
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During 2019, total proceeds received and transaction costs incurred from the issuance of the Series A Redeemable Convertible Preferred Stock amounted to $35.0 million and $1.3 million, respectively. Proceeds received were allocated based on the relative estimated fair valuesvalue of the separate units asinstrument without the Series A Warrants and of the effective dateSeries A Warrants themselves at the time of the respective transactions, with the face amount of the loans allocated to (1) the Loans, which were accounted for as long-term loan receivables and (2) the common stock purchase warrants and Veritone Shares.issuance. The estimated relative fair value allocation was determined using a Monte Carlo simulation model. Key inputs to the model included the estimated value of Veritone’s equity on the effective date of the transactions, related volatility of equity assumptions, discounts for lack of marketability, assumptions related to liquidity scenarios, and assumptions related to recovery scenarios on the Loans. Assumptions used in connection with estimating the relative fair values included: (1) volatility ranging from 40% to 50%, (2) financing probabilities ranging from 25% to 75%, (3) marketability discount of 7% and (4) 100% investment recovery assumption. The loan discount, representing the difference between the face amount of the Loans and the relative fair valueproceeds allocated to the Loans, was accreted overSeries A Redeemable Convertible Preferred Stock were then further allocated between the expected lifehost 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 Loans,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 would 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 would 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. The Company determined that upon entering into the Recapitalization Agreement, the Series A Redeemable Convertible Preferred Stock was not modified related to the redemption, as such action is subject to the receipt of stockholder approval at the Company’s next annual meeting of stockholders. Accordingly, the Series A Redeemable Convertible Preferred Stock will continue to be classified as temporary equity and will continue to be accreted to its redemption value to the earliest redemption date of November 15, 2024. Accretion for the years ended December 31, 2022 and 2021 was $5.2 million and $3.8 million, respectively.
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 (the “put option”), (ii) the right of the holders to receive common stock upon conversion of the shares (the “conversion option”), (iii) the right of the Company to redeem the shares (the “call option”), and (iv) the change in dividend rate upon consummation of an approved investment or a triggering event (the “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 as other income or (expense) in the “Change in fair value of the Series A and B warrants and embedded derivatives” financial statement line item of the consolidated statements of operations. In connection with the Recapitalization Agreement, the Company determined that the embedded features will continue to be bifurcated from the host Series A Redeemable Convertible Preferred Stock and accounted for separately as a compound derivative. As of December 31, 2022 and 2021, the fair value of the Series A embedded derivative was $16.8 million and $18.4 million, respectively.
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 million shares of common stock at a price of $3.65 per share (subject to certain anti-dilution adjustments) at any time during a period of eight years beginning on the instrument’s issuance date of the Series A Warrants. The fair value of the Series A Warrants was $4.8 million upon issuance. As of December 31, 2022, the Series A Warrants have been fully exercised, as described below.
In accordance with the terms of the Recapitalization Agreement, within five (5) business days following the date of the Recapitalization Agreement, the Investors were required to consummate the Series A Warrants Exercise, and the Company was to issue to the Investors shares of common stock in accordance with the terms of the Series A Warrants and to pay to Starboard an aggregate amount of $9.0 million representing a negotiated settlement of the foregone time value of the Series A Warrants (which amount was paid through a reduction in the exercise price of the Series A Warrants). Effective as of November 1, 2022, the Investors exercised the Series A Warrants in full and the Company issued an aggregate of
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5,000,000 shares of the Company’s common stock to the Investors in consideration of their payment of the cash exercise price of $9.3 million, which amount represents a reduction in the exercise price to account for a negotiated settlement by the parties to account for the forgone time value of money of the Series A Warrants.
The Series A Warrants were classified as a liability in accordance with ASC 480, "Distinguishing Liabilities from Equity", as the agreement provided for net cash settlement upon a change in control, which is outside the control of the Company. As a result of the Series A Warrants exercise on November 1, 2022 and related interest amounts reflectedwarrant modification, the Company recognized the common stock issued at its fair value in equity and an approximate $2.0 million charge as a component of the change in fair value of the Series A Warrants in other expense.
The Series A Warrants were recognized at fair value at each reporting period until exercised, with changes in fair value recognized in other income or (expense) in the consolidated statements of operations. As of May 2017, the unamortized loan discount totaled $1.7 million. Interest income for the year ended December 31, 2017 was $1.1 million, including accretion of the loan discount of $630,000. The effective yield on the Loans for the year ended December 31, 2017 ranged from 9% to 53%.
Accounting Subsequent to Veritone IPO. Upon Veritone’s consummation of its IPO on May 17, 2017, the Loans were converted into shares of Veritone common stock2022 and the Primary Warrant was automatically exercised in full, as described above, resulting in a 20% ownership interest in Veritone (excluding warrants). Based on Acacia’s representation on the Veritone board of directors and Acacia’s 20% ownership interest in Veritone, Acacia management determined that the equity method of accounting was applicable. Upon becoming eligible for the equity method of accounting, Acacia elected to apply2021, the fair value optionof the Series A Warrants was zero and $11.3 million, respectively.
Series B Warrants
On February 25, 2020, pursuant to account for its equity investment in Veritone, including allthe terms of its investments in Veritonethe Securities Purchase Agreement with Starboard and the Investors, the Company issued Series B Warrants to purchase up to 100 million shares of the Company’s common stock and warrants, dueat an exercise price (subject to certain price-based anti-dilution adjustments) of either (i) $5.25 per share, if exercising by cash payment, within 30 months from the availabilityissuance date (i.e., August 25, 2022); or (ii) $3.65 per share, if exercising by cancellation of quoted prices ina portion of Notes. The Company issued the Series B Warrants for an active market foraggregate purchase price of $4.6 million. The Series B Warrants expire on November 15, 2027.
In connection with the Veritone common stock.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. 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 (the Series B Warrants not subject to such adjustment, the “Unadjusted Series B Warrants”). As of December 31, 2017, Acacia’s ownership2022, the Series B Warrants have not been exercised.
During the third quarter of 2022, the cash exercise feature of the Unadjusted Series B Warrants expiration date of August 25, 2022 was extended to October 28, 2022. On October 28, 2022, the cash exercise feature of the Unadjusted Series B Warrants expired, which resulted in a fair value of zero for the related 68,493,151 warrants.
In accordance with the terms of the Recapitalization Agreement, on or prior to July 14, 2023 (unless stockholder approval is required), the Company and Starboard will amend the Series B Warrant Agreement to remove the 4.89% blocker, and Starboard will irrevocably exercise 31,506,849 of the Series B Warrants (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction relating to the common stock occurring after the date of the Recapitalization Agreement), through the Series B Warrants Exercise. In March 2023, the remaining Series B Warrants were cancelled immediately following the completion of the Rights Offering (as described below).
At the closing of the Series B Warrants Exercise (the “Closing”), the Company will pay to Starboard an aggregate amount of $66.0 million (the “Recapitalization Payment”) representing a negotiated settlement of the foregone time value of the Series B Warrants and the Series A Redeemable Convertible Preferred Stock (which amount will be paid through a reduction in the exercise price of the Series B Warrants). As a result of the Recapitalization Agreement, the conversion of the Series A Redeemable Convertible Preferred Stock is probable (as discussed above), therefore, the Recapitalization Payment effectively modifies the exercise price of the Series B Warrants. Upon the Closing, the Investors will exercise the Series B Warrants at a reduced price and the Company will issue an aggregate of 31,506,849 shares of the Company’s common stock to the Investors in consideration of their cash payment and cancellation of any outstanding Notes. If stockholder approval for the amendment to the Certificate of Designations to remove the “4.89% blocker” provision is not obtained, the Recapitalization Payment will be reduced by $12.7 million.
The Series B Warrants are classified as a liability in accordance with ASC 480, "Distinguishing Liabilities from Equity", as the agreement provides for net cash settlement upon a change in control, which is outside the control of the Company. In connection with the Recapitalization Agreement and related warrant modification, the Company recognized the incremental fair value as a component of the change in fair value of the Series B Warrants in other expense as of December 31, 2022.
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The Series B Warrants will be recognized at fair value at each reporting period until exercised or expiration, with changes in fair value recognized in other income or (expense) in the consolidated statements of operations. As of December 31, 2022 and 2021, the total fair value of the Series B Warrants was $84.8 million and $96.4 million, respectively.
Senior Secured Notes
On June 4, 2020, pursuant to the Securities Purchase Agreement dated November 18, 2019 with Starboard and the Investors, the Company issued $115.0 million in Notes to the Investors. Also on June 4, 2020, in connection with the issuance of the Notes, the Company entered into a Supplemental Agreement with Starboard (the “Supplemental Agreement”), as discussed further below.
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 $115.0 million.
The New Notes bear interest at a rate of 6.00% per annum and had an initial maturity date of December 31, 2020. The New Notes are fully guaranteed by the Company and are secured by an all-assets pledge of the Company and Merton and non-recourse equity pledges of each of the Company’s material subsidiaries. Pursuant to the Exchange Agreement, the New Notes (i) are deemed to be “Notes” for purposes of the Securities Purchase Agreement, (ii) are deemed to be “June 2020 Approved Investment Notes” for purposes of the Supplemental Agreement, and with the Company agreeing to redeem $80.0 million principal amount of the New Notes by September 30, 2020 and $35.0 million principal amount of the New Notes by December 31, 2020, and (iii) are deemed to be “Notes” for the purposes of the Series B Warrants, and therefore may be tendered pursuant to a Note Cancellation under the Series B Warrants on the terms set forth in Veritone,the Series B Warrants and the New Notes. Delivery of notes in the form of the New Notes will also satisfy the delivery of Exchange Notes pursuant to Section 16(i) of the Certificate of Designations of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Certificate of Designations”). The New Notes will not be deemed to be “Notes” for the purposes of the Registration Rights Agreement, dated as of November 18, 2019, by and among the Company, Starboard and the Investors.
Because the New Notes are to be settled within twelve months pursuant to their terms, they are classified as current liabilities in the consolidated balance sheets. The Company capitalized $4.6 million in lender fees associated with the issuance of the Notes and amortized such fees over the approximate seven month period ended December 31, 2020, which was the initial redemption date of the Notes. There was $0.5 million and $1.3 million accrued and unpaid interest on the New Notes as of December 31, 2022 and 2021, respectively.
On January 29, 2021, the Company redeemed $50.0 million of the New Notes and on March 31, 2021, the Company reissued $50.0 million of the New Notes. On June 30, 2021, the Company issued $30.0 million in additional New Notes (the “June 2021 Merton Notes”) and amended the maturity date of the New Notes to October 15, 2021. On September 30, 2021, the Company issued $35.0 million in additional New Notes (the “September 2021 Merton Notes”) and amended the maturity date of the New Notes to December 1, 2021. The June 2021 Merton Notes and the September 2021 Merton Notes cannot be used to exercise Series B Warrants issued to Starboard. On November 30, 2021, the Company amended the maturity date of the New Notes to January 31, 2022. On January 31, 2022, the Company amended the maturity date of the New Notes to April 15, 2022, and agreed to repay an aggregate of $15.0 million principal amount of the New Notes, resulting in a principal amount outstanding of $165.0 million. On April 14, 2022, the Company amended the New Notes to extend the maturity date to July 15, 2022, permit the investment in certain types of derivative instruments and permit certain guarantees in connection with such derivative instruments, each as defined therein, and agreed to repay an aggregate of $50.0 million principal amount of the New Notes, resulting in a principal amount outstanding of $115.0 million. On July 15, 2022, the Company amended the maturity date of the New Notes to July 14, 2023, and agreed to repay an aggregate of $55.0 million principal amount of the New Notes, resulting in a principal amount outstanding of $60.0 million. The total principal amount outstanding of New Notes as of December 31, 2022 and 2021 was $60.0 million and $180.0 million, respectively.
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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 Redeemable Convertible Preferred Stock that would have otherwise accrued due to the Company’s use of the $35.0 million proceeds received from Starboard and the Investors 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. 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 fully-dilutedprospective basis.
The incremental fair value of the Series B Warrants associated with the modification of their terms in connection with the issuance of the Notes was $1.3 million and is recognized as a discount on the Notes and will be amortized to interest expense over the contractual life of the Notes. For the years ended December 31, 2022 and 2021, $90,000 and $103,000, respectively, was amortized to interest expense. The discount was fully amortized during the quarter ended September 30, 2022.
Rights Offering and Concurrent Private Rights Offering
On February 14, 2023, pursuant to the requirements of the Recapitalization Agreement and in accordance with the terms of the Series B Warrants, the Company commenced a rights offering (the “Rights Offering”). Under the terms of the Rights Offering, the Company distributed non-transferable subscription rights to record holders (“Eligible Securityholders”) of the Company’s common stock held as of 5 p.m. Eastern time on February 13, 2023, the record date for the Rights Offering. The subscription period for the Rights Offering terminated at 5 p.m. Eastern time on March 1, 2023 (the “Expiration Time”). Pursuant to the Rights Offering, Eligible Securityholders received one non-transferable subscription right (a “Subscription Right”) for every four shares of common stock owned by such Eligible Securityholders. Each Subscription Right entitles an Eligible Securityholder to purchase, at such Eligible Securityholder’s election, one share of common stock at a price of $5.25 per share (the “Subscription Price”).
The Investors received private subscription rights to purchase common stock at the Subscription Price pursuant to a concurrent private rights offering (the “Concurrent Private Rights Offering”) in connection with their ownership of common stock and, on an as-converted basis, the Company’s Series B Warrants and shares of the Company’s Series A Redeemable Convertible Preferred Stock. The private subscription rights provided to the Investors pursuant to the Concurrent Private Rights Offering were on substantially the same terms as the Subscription Rights, and were distributed substantially concurrently with the distribution of the Subscription Rights and expired at the Expiration Time.
The Company determined that upon entering into the Recapitalization Agreement on October 30, 2022, the Rights Offering and Concurrent Private Rights Offering and related commitment required no recognition in the Company's financial statements. The Company recognized the proceeds received from the sale of the shares in equity when the sale occurred.
The Company received aggregate gross proceeds of approximately $361,000 from the Rights Offering and aggregate gross proceeds of approximately $78.8 million from the Concurrent Private Rights Offering.
After giving effect to the issuance of 68,753 shares of common stock in the Rights Offering and 15,000,000 shares of Common Stock in the Concurrent Private Rights Offering, the Company has 58,543,312 shares of common stock issued and outstanding. Following the Closing, Starboard may be deemed the beneficial owner of 20,000,000 shares of common stock, representing approximately 34.2% of the issued and outstanding common stock as of March 6, 2023. The Rights Offering was approximately 23%.made pursuant to a prospectus supplement to the Company’s shelf registration statement on Form S-3 (No. 333-249984), filed with the SEC on February 14, 2023.
Acacia’s equity investmentOther Provisions of the Recapitalization Agreement
On February 14, 2023, Company entered into an amended and restated Registration Rights Agreement with Starboard as contemplated by the Recapitalization Agreement.
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Pursuant to the amended Registration Rights Agreement, the Company has agreed to file a registration statement covering the resale of the shares of Common Stock, issuable or issued to Starboard pursuant to or in Veritoneaccordance with Section 1.1 of the Recapitalization Agreement, including the shares issued to Starboard in the Concurrent Private Rights Offering, within 90 days after a written request made prior to the first anniversary of the Closing Date (as defined in the Registration Rights Agreement). The Registration Rights Agreement also provides Starboard with additional rights to require that the Company file a registration statement in other circumstances. The Registration Rights Agreement includes other customary terms.
The Recapitalization Agreement includes a “fair price” provision requiring, in addition to any other stockholder vote required by the Company’s Certificate of Incorporation or Delaware law, the affirmative vote of the holders of a majority of the outstanding voting stock held by stockholders of the Company other than Starboard and its affiliates, by or with whom or on whose behalf, directly or indirectly, a business combination is proposed, in order to approve such a business combination; provided, that the additional majority voting requirement would not be applicable if either (x) the business combination is approved by the Board by the affirmative vote of at least a majority of the directors who are unaffiliated with Starboard or (y) (i) the consideration to be received by stockholders other than Starboard and its affiliates meets certain minimum price conditions, and (ii) the consideration to be received by stockholders other than Starboard and its affiliates is of the same form and kind as the consideration paid by Starboard and its affiliates.
The consummation of the Series B Warrant Exercise is subject to certain conditions, including: (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (ii) the absence of any law or order prohibiting the consummation of the Series B Warrant Exercise; (iii) the representations and warranties of the Company and Starboard being true and correct, subject to the materiality standards contained in the Recapitalization Agreement; and (iv) the Company and Starboard having complied in all material respects with their respective obligations under the Recapitalization Agreement.
The Recapitalization Agreement may be terminated by either party under certain circumstances, including if (i) the parties agree to terminate by mutual consent, (ii) a governmental entity issues an order permanently prohibiting the Recapitalization, (iii) there is an uncured breach of the Recapitalization Agreement by the other party that results in a condition to Closing not being capable of being satisfied, or (iv) the Closing does not occur on or before July 31, 2023.
The Recapitalization Agreement also provides that, effective as of the later of the Closing and the date on which no Notes remain outstanding, (i) the Securities Purchase Agreement and (ii) that certain Governance Agreement, dated as of November 18, 2019, as amended and restated on January 7, 2020, shall be automatically terminated and of no further force and effect without any further action by any party thereto.
9. FAIR VALUE MEASUREMENTS
U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date, and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The three-level hierarchy of valuation techniques established to measure fair value is defined as follows:
(i)Level 1 - Observable Inputs:  Quoted prices in active markets for identical investments;
(ii)Level 2 - Pricing Models with Significant Observable Inputs:  Other significant observable inputs, including quoted prices for similar investments, interest rates, credit risk, etc.; and
(iii)Level 3 - Unobservable Inputs:  Unobservable inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Management estimates include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs, including the entity’s own assumptions in determining the fair value of derivatives and certain investments.
Whenever possible, the Company is required to use observable market inputs (Level 1) 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
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factors specific to the asset or liability being measured. In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy.
The Company held the following types of financial instruments at fair value on a recurring basis as of December 31, 2022 and 2021:
Equity Securities. Equity securities includes investments in public company common shares isstock and are recorded at fair value based on the quoted market price of Veritone’s common stock on The NASDAQ Global Market (the “NASDAQ”)each share on the applicable valuation date, as adjusted for an estimated discount for lackdate. The fair value of marketability (“DLOM”) associated with the restricted naturethese securities are within Level 1 of the common shares acquired (Level 3 input). Acacia’s investment in Veritone warrants isvaluation hierarchy. Equity investments that do not have regular market pricing, but for which fair value can be determined based on other data values or market prices, are recorded at fair value within Level 2 of the valuation hierarchy. The Company has elected to apply the fair value method to one equity securities investment that would otherwise be accounted for under the equity method of accounting. As of December 31, 2022, the aggregate carrying amount of this investment was $42.7 million, and is included in equity securities, in the consolidated balance sheet (refer to Note 3 for additional information). At December 31, 2021, our Level 2 equity securities included an investment measured with an applied pricing model that included significant observable inputs to the public company common stock value. The fair value of this Level 2 equity security investment as adjustedof December 31, 2021 was estimated based on a discount of 3 percent determined using the following significant inputs to the pricing model: expected term of restriction of 3 months and volatility of approximately 45 percent.
Series A Warrants. Series A Warrants were recorded at fair value, using a Black-Scholes option-pricing model (Level 3). During the quarter ended March 31, 2021, there was a change in estimate with regard to the calculation of the volatility assumption used in the Black-Scholes option-pricing model. As a result, the Series A Warrants were measured as Level 3 as opposed to Level 2 as measured previously. On November 1, 2022, the Series A Warrants were exercised in full (refer to Note 8 for anadditional information). The fair value of the Series A Warrants as of December 31, 2021 was estimated DLOM, based on the Black-Scholes option-pricing model, utilizing the following assumptions at December 31, 2017:significant assumptions: volatility of 30 percent, risk-free interest rates ranging from 1.94% to 2.37%; expected terms ranging from three to nine years; volatilities ranging from 45% to 55%;rate of 1.33 percent, term of 5.79 years and a dividend yield of zero.0 percent. Refer to the "Embedded derivative liabilities" discussion below for additional information on assumptions.
Series B Warrants. Series B Warrants are recorded at fair value, using a Black-Scholes option-pricing model (Level 3). During the quarter ended March 31, 2021, there was a change in methodology used to an acceptable Black-Scholes option-pricing model from a Monte Carlo valuation technique. On October 28, 2022, the cash exercise feature of the Unadjusted Series B Warrants expired, which resulted in a fair value of zero for such warrants (refer to Note 8 for additional information). The DLOM forfair value of the Veritone common stock and warrantsremaining Series B Warrants as of December 31, 2022 was estimated utilizingbased on the following significant assumptions: volatility of 53 percent, risk-free rate of 4.76 percent, term of 0.54 years and a Finnerty modeldividend yield of 0 percent. The fair value of the two Series B Warrants as of December 31, 2021 was estimated based on the following significant assumptions: (1) volatility of 30 percent, risk-free rate of 1.34 percent, term of 5.88 years and a dividend yield of 0 percent, and (2) volatility of 25 percent, risk-free rate of 0.25 percent, term of 0.65 years and a dividend yield of 0 percent. Refer to the "Embedded derivative liabilities" discussion below for additional information on assumptions.
Embedded derivative liabilities. Embedded derivatives that are required to be bifurcated from their host contract are evaluated and valued separately from the host instrument. During the quarter ended December 31, 2022 in connection with the following results and assumptions:
  Veritone Common Stock Veritone Warrants
  IPO Date December 31, 2017 IPO Date December 31, 2017
Estimated DLOM applied 5.7% 5% 5.7% 10%
Volatility assumptions 35% 37% 35% 72%-87%
Term assumptions 6 months 2 months 6 months 5 months
At December 31, 2017,Recapitalization Agreement, the Company changed its methodology to an as-converted value (Level 3), based on an expected Series A Convertible Preferred Stock conversion date on or prior to July 14, 2023 (refer to Note 8 for additional information). As of September 30, 2022, a binomial lattice framework was used to estimate the fair value of the 4,119,521 sharesembedded derivative in the Series A Convertible Preferred Stock (Level 3). The binomial model utilizes the Tsiveriotis and Fernandes implementation in which a convertible instrument is split into two separate components within a single lattice framework: 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 binomial model considers the (i) implied volatility of Veritonethe value of our common stock, owned(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 volatility of the Company’s common stock is estimated by Acacia totaled $90,795,000. Atanalyzing the Company’s historical volatility, implied volatility of publicly traded stock options, and the Company’s current asset composition and financial leverage. Prior to December 31, 2017,2022, the selected volatility, as described herein, represented a haircut from the Company’s actual realized 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. Prior to December 31, 2022, the assumed base case term used in the valuation models was the period remaining
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until November 15, 2027, the Series A Redeemable Convertible Preferred Stock maturity date. The risk-free interest rate was 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 as-converted valuation of the embedded derivative at December 31, 2022 were as follows: coupon rate of 8.00 percent, conversion ratio of 27.40, conversion date of July 14, 2023 and a discount rate of 16.30 percent. The significant assumptions utilized in the Company’s binomial model valuation of the embedded derivative at December 31, 2021 were as follows: volatility of 30 percent, risk-free rate of 1.30 percent, term of 5.87 years, a dividend yield of 0 percent and a discount rate of 9.60 percent. The fair value measurement of the embedded derivative is sensitive to these assumptions and changes in these assumptions could result in a materially different fair value measurement.
Financial assets and liabilities measured at fair value on a recurring basis were as follows:
Level 1Level 2Level 3Total
(In thousands)
Assets
December 31, 2022:
Equity securities$61,608 $— $— $61,608 
December 31, 2021:
Equity securities$113,630 $248,148 $— $361,778 
Liabilities
December 31, 2022:
Series A embedded derivative liabilities— — 16,835 16,835 
Series B warrants— — 84,780 84,780 
Total$— $— $101,615 $101,615 
December 31, 2021:
Series A warrants$— $— $11,291 $11,291 
Series A embedded derivative liabilities— — 18,448 18,448 
Series B warrants— — 96,378 96,378 
Total$— $— $126,117 $126,117 
The following table sets forth a summary of the changes in the estimated fair value of the Company’s Level 3 liabilities, which are measured at fair value as a on a recurring basis:
Series A Warrant LiabilitiesSeries A Embedded Derivative LiabilitiesSeries B Warrant LiabilitiesTotal
(In thousands)
Balance at December 31, 2020$— $26,728 $52,341 $79,069 
Transfer to Level 36,640 — — 6,640 
Remeasurement to fair value4,651 (8,280)44,037 40,408 
Balance at December 31, 202111,291 18,448 96,378 126,117 
Exercise of warrants(9,396)— — (9,396)
Remeasurement to fair value(1,895)(1,613)(11,598)(15,106)
Balance at December 31, 2022$— $16,835 $84,780 $101,615 
In accordance with U.S. GAAP, from time to time, the Company measures certain assets at fair value on a nonrecurring basis. The Company reviews the carrying value of equity securities without readily determinable fair value, equity method investments and patents on a quarterly basis for indications of impairment, and other long-lived assets at least annually.
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When indications of potential impairment are identified, the Company may be required to determine the fair value of those assets and record an adjustment for the 1,120,432 common stock purchase warrants held by Acacia totaled $13,959,000. A 10% increasecarrying amount in the DLOM assumptions utilized at all applicable valuation dates would result in an approximate 10% decrease inexcess of the fair value determined. Any fair value determination would be based on valuation approaches, which are appropriate under the circumstances and utilize Level 2 and Level 3 measurements as required.
10. RELATED PARTY TRANSACTIONS
During 2019, Acacia purchased shares of common stock of Drive Shack, Inc. (“Drive Shack”) for an aggregate purchase price of $2.4 million. At the time, Drive Shack and our former Chief Executive Officer were related parties as he was a board member of Drive Shack until June 2021. During the quarter ended September 30, 2021, Acacia sold its investment in Veritone atreceiving proceeds of $1.8 million and recognized a loss of $515,000.
The Company reimbursed an aggregate amount of $46,000 during the year ended December 31, 2017,2022 to a former executive officer in connection with legal fees incurred following such officer’s departure from the Company. The Company reimbursed an aggregate amount of $408,000 during the quarter ended December 31, 2021.
Refer to Note 8 for information about the Recapitalization Agreement with Starboard.
11. COMMITMENTS AND CONTINGENCIES
Facility Leases
Acacia primarily leases office facilities under operating lease arrangements that will end in various years through February 2025.
On June 7, 2019, Acacia entered into a building lease agreement with Jamboree Center 4 LLC. Pursuant to the lease, we have leased 8,293 square feet of office space in Irvine, California. The lease commenced on August 1, 2019. The term of the 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.
On January 7, 2020, Acacia entered into a corresponding decreasebuilding lease agreement with Sage Realty Corporation. Pursuant to the lease, as amended, we have leased approximately 8,600 square feet of office space for our corporate headquarters in New York, New York. The lease commenced on February 1, 2020. The term of the net investment gain reflectedinitial lease was 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. During August 2021, we entered into a first amendment of the New York office lease, to commence for a period of three years upon landlord's substantial completion of adequate substitution space. On January 25, 2022, the substitution space was substantially completed and the new expiration date is February 28, 2025. During July 2022, we entered into a second amendment of the New York office lease, to add space to the existing premises and increase the annual fixed rent through the existing expiration date. The new fixed rent commenced upon landlord's substantial completion of the additional space, which occurred on September 19, 2022.
Printronix conducts its foreign and domestic operations using leased facilities under non-cancelable operating leases that expire at various dates through February 2028. Printronix has leased 73,649 square feet of facilities space, of which the significant leases are as follows:
•On November 10, 2020, Printronix entered into a building lease agreement with PPC Irvine Center Investment, LLC for 8,662 square feet of office space in Irvine, California. The lease commenced on April 1, 2021. The term of the lease is 65 months from the commencement date, provides for annual rent increases and provides the right to early terminate the lease under certain circumstances, as well as extend the lease term.
•On September 30, 2019, Printronix entered into a building lease agreement with Dynamics Sing Sdn. Bhd for 52,000 square feet of warehouse/manufacturing space in Johor, Malaysia. The lease commenced on December 29, 2019. The term of the lease is 48 months from the commencement date, has no annual rent increases and provides the right to early terminate or extend our lease term. The Malaysia factory lease has two renewal options for an additional four years and one additional renewal option for two years.
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•On June 2, 2022, Printronix entered into a building lease agreement with HSBC Institutional Trust Services (Singapore) Limited for 4,560 square feet of office space in Singapore. The lease commenced on June 13, 2022. The term of the lease is 36 months from the commencement date, has no annual rent increases and does not provide the right to early terminate or extend the lease term.
•On November 28, 2019, Printronix entered into a building lease agreement with PF Grand Paris for 3,045 square feet of office space in Paris, France. The lease commenced on March 1, 2019. The term of the lease is 109 months from the commencement date, has no annual rent increases and provides the right to early terminate the lease under certain circumstances, however does not provide for an extension of the lease term.
•On November 1, 2020, Printronix entered into a building lease agreement with Shanghai SongYun Enterprise Management Center for 2,422 square feet of office space in Shanghai, China. The lease commenced on November 1, 2020. The term of the lease is 48 months from the commencement date, has no annual rent increases and provides the right to early terminate or extend the lease term.
The Company's operating lease costs were $1.5 million, and $851,000 for the years ended December 31, 2022 and 2021, respectively.
The table below presents aggregate future minimum lease payments due under the Company's leases discussed above, reconciled to long-term lease liabilities and short-term lease liabilities (included in accrued expenses and other current liabilities) included in the consolidated statementsbalance sheet as of December 31, 2022 (in thousands):
Years Ending December 31,
2023$1,539 
20241,137 
2025453 
2026238 
202765 
Thereafter— 
Total minimum payments3,432 
Less: short-term lease liabilities(1,559)
Long-term lease liabilities$1,873 
Inventor Royalties and Contingent Legal Expenses
In connection with the investment in certain patents and patent rights, certain of Acacia’s operating subsidiaries executed related agreements which grant to the former owners of the respective patents or patent rights, the right to receive inventor royalties based on future net revenues (as defined in the respective agreements) generated as a result of licensing and otherwise enforcing the respective patents or patent portfolios.
Acacia’s operating subsidiaries may retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with their licensing and enforcement activities. These law firms may be retained on a contingent fee basis whereby such law firms are paid on a scaled percentage of any negotiated fees, settlements or judgments awarded based on how and when the fees, settlements or judgments are obtained.
Patent Enforcement and Legal Proceedings
The Company 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 the Company’s consolidated financial position, results of operations or cash flows.
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
F-35
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.
In December 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. During the year ended December 31, 2017.2021, the Company made approximately $1.2 million in settlement payments. This settlement was fully paid as of December 31, 2021 and all claims were withdrawn.
ACACIA RESEARCH CORPORATIONOn September 6, 2019, Slingshot Technologies, LLC, or Slingshot, filed a lawsuit in Delaware Chancery Court against the Company and ARG, or collectively, the Acacia Entities, Monarch Networking Solutions LLC (“Monarch”), Acacia board member Katharine Wolanyk, and Transpacific IP Group, Ltd., or Transpacific. Slingshot alleges that the Acacia Entities and Monarch misappropriated its confidential and proprietary information, purportedly furnished to the Acacia Entities and Monarch 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. On March 15, 2021, the court issued orders granting Monarch’s motion to dismiss for lack of personal jurisdiction and Ms. Wolanyk’s motion to dismiss for lack of subject matter jurisdiction. The remaining parties served written discovery requests and responses, exchanged their respective document productions, and completed depositions as of October 27, 2022. On November 18, 2022, the Acacia Entities and Transpacific filed motions for summary judgment on Slingshot’s claims. As the Acacia Entities argue in their motion, discovery has confirmed that Slingshot’s allegations are baseless, the Acacia Entities neither had access to nor used Slingshot’s information in acquiring the portfolio, and the Acacia Entities acquired the portfolio as a result of the independent efforts of their IP licensing group. Slingshot filed its opposition to the summary judgment motions on December 23, 2022, and the Acacia Entities and Transpacific filed their replies on January 10, 2023. The Chancery Court took off calendar the two-day trial on liability that had been scheduled for April 18–19, 2023, and instead set the hearing on the summary judgment motions for April 19, 2023.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company resolved a legal dispute with a third-party relating to an agreement entered into in connection with the Life Sciences Portfolio and paid $4.8 million in the fourth quarter of 2022 to the third-party.

Guarantees and Indemnifications
ChangesCertain of Acacia’s operating subsidiaries have made guarantees and indemnities under which they may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. In connection with certain facility leases, Acacia and certain of its operating subsidiaries have indemnified lessors for certain claims arising from the facilities or the leases. Acacia indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware. However, Acacia has a directors and officers insurance policy that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any. The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to statute of limitations. The majority of guarantees and indemnities do not provide any limitations of the maximum potential future payments that Acacia could be obligated to make. To date, Acacia has made no payments related to these guarantees and indemnities. Acacia estimates the fair value of Acacia’s investment in Veritone areits indemnification obligations to be insignificant based on this history and therefore, have not recorded as unrealized gains or lossesany liability for these guarantees and indemnities in the consolidated statementsbalance sheets. Additionally, no events or transactions have occurred that would result in a material liability at December 31, 2022.
Printronix posted collateral in the form of operations. Fora surety bond or other similar instruments, which are issued by independent insurance carriers (the “Surety”), to cover the periodrisk of loss related to certain customs and employment activities. If any of the entities that hold such bonds should require payment from the IPO on May 17, 2017Surety, Printronix would be obligated to indemnify and reimburse the Surety for all costs incurred. As of December 31, 2017,2022 and 2021, Printronix had approximately $100,000 of these bonds outstanding.
Environmental Cleanup
Printronix maintained a manufacturing operation in a leased facility in Irvine, California from 1980 to 1994. The facility was used for similar manufacturing operations by another tenant from 1968 to 1977. The manufacturing operations employed by the accompanying consolidated statementsprevious tenant are believed to have resulted in the contamination of operations reflectedsoil and groundwater under the following (in thousands):
  2017
Gain on conversion of loans and accrued interest(1)
 $2,671
Gain on exercise of warrant(2)
 4,616
Change in fair value of investment, warrants 8,317
Change in fair value of investment, common stock 33,922
Net unrealized gain on investment at fair value $49,526
__________________________facility which included chlorinated volatile organic compounds (“VOCs”). Evidence indicates that the VOCs requiring cleanup were used by the prior tenant and not by Printronix. Printronix worked with the prior tenant, which agreed to share
(1) Pre-conversion difference between carrying value
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the costs of the activities in an equal percentage with Printronix, and the estimated fair valuestate regulatory agencies, including the California Department of common stock discounted for lack of marketability.Toxic Substances Control, to investigate and cleanup the subsurface contamination. A significant soil cleanup project was completed in 2017.
(2) Pre-conversion difference between carrying value of Primary Warrant andIn 2020, Printronix executed an agreement with the estimated fair value of common stock and 10% Warrant discounted for lack of marketability.
Summarized financial information for Veritone, presented on a three month lag basis, is as follows (in thousands, except per share amounts):
  
Nine Months Ended
September 30, 2017
  (Unaudited)
Revenues $10,914
Gross profit 10,090
Operating expenses 44,024
Other income (expense), net (12,872)
Net loss attributable to common stockholders (51,281)
Net loss per share attributable to common stockholders - basic and diluted $(5.94)
  September 30,
2017
Current assets $78,509
Noncurrent assets 1,173
Total Assets $79,682
   
Current liabilities $31,836
Noncurrent liabilities 14
Total liabilities 31,850
Preferred stock —
Total stockholders’ equity (deficit) 47,832
Total liabilities, preferred stock and stockholders’ equity $79,682
Equity Method Investment
In June 2017, Acacia made an investment in Miso Robotics, Inc. (“Miso Robotics”), an innovative leader in robotics and artificial intelligence solutions, totaling $2,250,000, acquiring a 22.6% ownership interest in Miso Robotics, and one board seat. Miso Robotics will useprior tenant whereby the funding to deliver an adaptable AI-driven robotic kitchen assistant that will work alongside kitchen staff to improve operational efficiencyprior tenant would take 100% responsibility for the restaurant industry. In addition, Acacia also entered into an intellectual property services agreementcosts and process of the cleanup going forward. Printronix is in process of filing for release of such responsibility from a governmental agency and so may currently be found to be secondarily liable if the prior tenant cannot fulfil their responsibilities under the agreement. Accordingly, Printronix no longer takes part in monitoring or paying for any future investigation or cleanup activity. Printronix expects to have no such further costs associated with Miso Roboticsthis facility. During 2020, Printronix was able to help Miso Robotics drive AI-based solutionsrecover $24,000 from the prior tenant. Since that date and for the entire restaurant industry. Based on Acacia’s representation on the Miso Robotics board of directors, and greater than 20% ownership interest in Miso Robotics, the equity method of accounting was applied. The fair value option was not elected for Acacia’s investment in
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Miso Robotics due to the lack of a readily determinable fair market value. For the year ended December 31, 2017, equity in losses of investee2022, Printronix has incurred no related to Miso Robotics totaled $220,000.legal fees.


8.12. STOCKHOLDERS’ EQUITY
Repurchases of Common Stock
Cash Dividends. On April 23, 2013, Acacia announced that itsDecember 6, 2021, the Board approved a stock repurchase program, which authorized the purchase of Directorsup to $15.0 million of the Company’s common stock through open market purchases, through block trades, through 10b5-1 plans, or by means of private purchases, from time to time, through December 6, 2022. During February 2022, we completed the December 2021 program with total common stock purchases of 3,125,819 shares for the aggregate amount of $15.0 million.
On March 31, 2022, the Board approved a stock repurchase program for up to $40.0 million of shares of common stock. The repurchase authorization had no time limit and did not require the adoptionrepurchase of a cash dividend policy that callsminimum number of shares. The common stock may be repurchased on the open market, in block trades, or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Exchange Act. During July 2022, we completed the March 2022 program with total common stock purchases of 8,453,519 shares for the paymentaggregate amount of an expected total annual$40.0 million.
Stock repurchases, all of which were purchased as part of a publicly announced plan or program, were as follows:
Total Number
of Shares
Purchased		Average
Price
paid per
Share		Approximate Dollar
Value of Shares that
May Yet be Purchased
under the Program
(In thousands)
December 1, 2021 - December 31, 2021784,104 $5.12 $11,004 
January 1, 2022 - January 31, 20221,588,820 $4.85 $3,286 
February 1, 2022 - February 28, 2022752,895 $4.36 $— 
Total repurchases in the quarter2,341,715 $4.69 
Total program repurchases3,125,819 $4.80 
April 1, 2022 - April 30, 2022692,538 $4.48 $36,901 
May 1, 2022 - May 31, 20222,192,238 $4.59 $26,832 
June 1, 2022 - June 30, 20223,262,043 $4.71 $11,480 
Total repurchases in the quarter6,146,819 $4.64 
July 1, 2022 - July 31, 20222,306,700 $4.98 $— 
Total program repurchases8,453,519 $4.73 
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In determining whether or not to repurchase any shares of Acacia’s common stock, the Board considers such factors, among others, as the impact of the repurchase on Acacia’s cash dividendposition, as well as Acacia’s capital needs and whether there is a better alternative use of $0.50 perAcacia’s capital. Acacia has no obligation to repurchase any amount of its common share, payablestock under its Stock Repurchase Programs. Repurchases to date were made in the amount of $0.125 per share per quarter. Under the policy, the Company paid four quarterly cash dividends totaling $25,434,000open market in 2015. On February 25, 2016, Acacia announced that its Board of Directors terminated the company’s dividend policy effective February 23, 2016.compliance with applicable SEC rules. The Board of Directors terminated the dividend policy dueauthorizations to a number of factors, including the Company’s financial performance and its available cash resources, the Company’s cash requirements and alternative uses of capital that the Board of Directors concluded would representrepurchase shares presented an opportunity to generate a greater return on investment forreduce the Companyoutstanding share count and its stockholders.enhance stockholder value.

Tax Benefits Preservation Plan. On March 15, 2016, Acacia’s Board
The Company has a provision in its Amended and Restated Certificate of Directors announcedIncorporation, as amended (the “Charter Provision”) which generally prohibits transfers of its common stock that it unanimously approvedcould result in an ownership change. Like the adoption of a Tax Benefits Preservation Plan, (the “Plan”). Thethe purpose of the PlanCharter Provision is to protect the Company’s ability to utilize potential tax assets, such as net operating loss carryforwards (“NOLs”) and tax credits to offset potential future taxable income.

The Plan is designed to reduce the likelihood that the Company will experience an ownership changeCharter Provision was approved by discouraging any (i) person or group from acquiring beneficial ownership of 4.9% or more of the Company’s outstanding common stock and (ii) any existing shareholders 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.stockholders on July 15, 2019.
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 shareholders of record at the close of business on March 16, 2016. 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 A Junior Participating Preferred Stock, $0.001 par value for a purchase price of $15.00. 


9.  INCOME TAXES
Acacia’s provision for income taxes for the fiscal periods presented consisted of the following (in thousands): 
  2017 2016 2015
       
Current:      
Federal $—
 $—
 $—
State                                                     90
 262
 379
Foreign 2,865
 17,926
 4,421
Total current 2,955
 18,188
 4,800
Deferred:      
Federal —
 —
 —
State                                              —
 —
 —
Total deferred —
 —
 —
Provision for income taxes $2,955
 $18,188
 $4,800





ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following at December 31, 2017 and 2016 (in thousands):
  2017 2016
     
Deferred tax assets:    
Net operating loss and capital loss carryforwards and credits $90,871
 $83,323
Stock compensation 2,635
 2,416
Fixed assets and intangibles 6,197
 14,343
Basis of investments in affiliates 984
 2,195
Accrued liabilities and other 167
 422
State taxes 35
 90
Total deferred tax assets 100,889
 102,789
Valuation allowance (90,278) (102,627)
Total deferred tax assets, net of valuation allowance 10,611
 162
Deferred tax liabilities:    
Unrealized gain on investments held at fair value (10,587) —
Other (24) (162)
Total deferred tax liabilities (10,611) (162)
Net deferred tax assets (liabilities) $—
 $—

A reconciliation of the federal statutory income tax rate and the effective income tax rate is as follows:
  2017 2016 2015
       
Statutory federal tax rate - (benefit) expense 35 % (35)% (35)%
State income and foreign taxes, net of federal tax effect 8 % 50 % 3 %
Foreign tax credit — % (49)% (3)%
Noncontrolling interests in operating subsidiaries 1 % 1 % (1)%
Goodwill — % — % 7 %
Nondeductible permanent items 3 % — % — %
Expired capital loss carryforwards — % — % 1 %
Change in tax rate 102 % — % — %
Valuation allowance (137)% 83 % 31 %
  12 % 50 % 3 %

For the periods presented, the Company recorded full valuation allowances against its net deferred tax assets due to uncertainty regarding future realization pursuant to guidance set forth in ASC 740, “Income Taxes.” In future periods, if the Company determines it will more likely than not be able to realize certain of these amounts, the applicable portion of the benefit from the release of the valuation allowance will generally be recognized in the statements of operations in the period the determination is made.

At December 31, 2017, Acacia had U.S. federal and state income tax net operating loss carryforwards (“NOLs”) totaling approximately $180,621,000 and $17,850,000, expiring between 2026 and 2037, and 2028 and 2037, respectively. Capital loss carryovers totaled $2,804,000 at December 31, 2017, expiring in 2019 and 2020.

At December 31, 2017, approximately $26,326,000 of the U.S. federal NOLs, acquired in connection with the acquisition of ADAPTIX, Inc. in 2012, are subject to an annual utilization limitation of approximately $14,100,000, pursuant to the “change in ownership” provisions under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).

As of December 31, 2017, Acacia had approximately $51,126,000 of foreign tax credits, expiring between 2018 and 2026. In general, foreign taxes withheld may be claimed as a deduction on future U.S. corporate income tax returns, or as a credit against future U.S. income tax liabilities, subject to certain limitations.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Tax expense for the periods presented primarily reflects foreign taxes withheld on revenue agreements executed with licensees in foreign jurisdictions and other state taxes. Excluding the impact of the change in valuation allowance and the impact of the federal tax rate change under the change in tax law described below, annual effective tax rates were 47%, (33)% and (28)%, for fiscal years 2017, 2016 and 2015, respectively. Results for fiscal year 2017 included an unrealized gain on Acacia’s investment in Veritone which created a deferred tax liability totaling approximately $10,587,000. The future anticipated reversal of this deferred tax liability provides for a source of taxable income that allows for the realizability of existing deferred tax assets that have been reduced by a valuation allowance for the periods presented. The effective tax rate reflects both the recognition of the deferred tax liability and the reversal of valuation allowance

Effective January 1, 2017, the Company adopted a new standard that requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. The adoption of this standard resulted in the Company recognizing gross federal and state deferred tax assets of $21,350,000 and $1,559,000, respectively, related to the impact of share-based payments to employees in prior periods. These deferred tax assets are fully offset by a valuation allowance and were impacted by the change in tax rate described below.

Acacia is subject to taxation in the U.S. and in various state jurisdictions and incurs foreign tax withholdings on revenue agreements with licensees in certain foreign jurisdictions. With no material exceptions, Acacia is no longer subject to U.S. federal or state examinations by tax authorities for years before 2011. The California Franchise Tax Board is auditing the 2011 and 2012 California combined income tax returns. The audit is in process and no findings or adjustments have been proposed.
At December 31, 2017 and 2016, the Company had total unrecognized tax benefits of approximately $808,000. No interest and penalties have been recorded for the unrecognized tax benefits for the periods presented. At December 31, 2017, if recognized, approximately $808,000 of tax benefits, net of valuation allowance, would impact the Company’s effective tax rate. The Company does not expect that the liability for unrecognized tax benefits will change significantly within the next 12 months. The change in total unrecognized tax benefits as of December 31, 2017 was due to a lapse of the applicable statute of limitations related to an unrecognized benefit originating in a prior period.

Acacia recognizes interest and penalties with respect to unrecognized tax benefits in income tax expense. Acacia has identified no uncertain tax position for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months.

On December 22, 2017, new U.S. tax legislation was enacted that has significantly changed the U.S. federal income taxation of U.S. corporations, including by reducing the U.S. corporate income tax rate to 21%, revising the rules governing net operating losses and foreign tax credits, and introducing new anti-base erosion provisions. Many of these changes are effective immediately, without any transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service (“IRS”), any of which could lessen or increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities.
While our analysis and interpretation of this legislation is ongoing, based on our current evaluation, we have reflected a write-down of our deferred income tax assets (including the value of our net operating loss carryforwards and our tax credit carryforwards) due the reduction of the U.S. corporate income tax rate. Based on currently available information, we recorded a reduction of approximately $25,261,000 in the fourth quarter of 2017 related to the revaluation of our deferred tax assets. Given the full valuation allowance provided for net deferred tax assets as of December 31, 2017, the change in tax law did not have a material impact on our consolidated financial statements provided herein. There may be additional tax impacts identified in subsequent periods throughout 2018 in accordance with subsequent interpretive guidance issued by the SEC or the IRS. Further, there may be other material adverse effects resulting from the legislation that we have not yet identified. No estimated tax provision has been recorded for tax attributes that are incomplete or subject to change.







ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.13. EQUITY-BASED INCENTIVE PLANS

Stock-Based Incentive Plans

The 2013 Acacia Research Corporation Stock Incentive Plan (“2013 Plan”) and the 2016 Acacia Research Corporation Stock Incentive Plan (“2016 Plan”) (collectively, the “Plans”) were approved by the stockholders of Acacia in May 2013 and June 2016, respectively. AllThe Plans allow grants of stock options, stock awards and performance shares with respect to Acacia common stock to eligible individuals, which generally includes directors, officers, employees and consultants. Except as noted below, the terms and provisions of the Plans are identical in all material respects.

Acacia’s compensation committee administers the discretionary option grant and stock issuance programs. The compensation committee determines which eligible individuals are to receive option grants or stock issuances under those programs, the time or times when the grants or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding. The exercise price of options is generally equal to the fair market value of Acacia’s common stock on the date of grant. Options generally begin to be exercisable six months to one year after grant and generally expire seven to ten years after grant. Stock options with time-based vesting generally vest over twothree to threefour years and restricted shares with time basedtime-based vesting generally vest in full after twoone to threefour years (generally representing the requisite service period). The Plans terminate no later than the tenth anniversary of the approval of the incentive plans by Acacia’s stockholders.
The Plans provide for the following separate programs:
Discretionary Option Grant Program. Under the discretionary option grant program, Acacia’s compensation committee may grant (1) non-statutory options to purchase shares of common stock to eligible individuals in the employ or service of Acacia or its subsidiaries (including employees, non-employee board members and consultants) at an exercise price not less than 85% of the fair market value of those shares on the grant date, and (2) incentive stock options to purchase shares of common stock to eligible employees at an exercise price not less than 100% of the fair market value of those shares on the grant date (not less than 110% of fair market value if such employee actually or constructively owns more than 10% of Acacia’s voting stock or the voting stock of any of its subsidiaries).

Stock Issuance Program. Under the stock issuance program, eligible individuals may be issued shares of common stock directly, upon the attainment of performance milestones or the completion of a specified period of service or as a bonus for past services. Under this program, the purchase price for the shares shall not be less than 100% of the fair market value of the shares on the date of issuance, and payment may be in the form of cash or past services rendered. The eligible individuals receiving RSAs shall have full stockholder rights with respect to any shares of Common Stockcommon stock issued to them under the Stock Issuance Program, whether or not their interest in those shares is vested. Accordingly, the eligible individuals shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.
The eligible individuals receiving RSUs shall not have full stockholder rights until they vest.

AutomaticDiscretionary Option Grant Program. EachUnder the discretionary option grant program, Acacia’s compensation committee may grant (1) non-statutory options to purchase shares of common stock to eligible individuals in the employ or service of Acacia or its subsidiaries (including employees, non-employee director will receive restricted stock units or stock options forboard members and consultants) at an exercise price not less than 85% of the numberfair market value of those shares determined by dividing the annual retainer byon the grant date, and (2) incentive stock options to purchase shares of common stock to eligible employees at an exercise price not less than 100% of the fair market value of Acacia’s common stockthose shares on the grant date. In addition, each new non-employee director will receive restricted stock unitsdate (not less than 110% of fair market value if such employee actually or stock options for the number of shares determined by dividing the annual board of directors retainer by the grant date fair valueconstructively owns more than 10% of Acacia’s commonvoting stock onor the commencement date. Restrictedvoting stock units and stock options vest in a series of twelve quarterly installments over the three year period following the grant date, subject to immediate acceleration upon a change in control. Acacia will deliver the unrestricted shares corresponding to the vested restricted stock units within thirty (30) days after the first to occurany of the following events: (i) the fifth (5th) anniversary of the grant date; or (ii) termination of the non-employee director’s service as a member of the Company’s Board of Directors. The non-employee directors do not have any rights, benefits or entitlements with respect to any shares unless and until the shares have been delivered.

its subsidiaries).
The number of shares of Common Stockcommon stock initially reserved for issuance under the 2013 Plan was 4,750,000 shares. No new additional shares will be added to the 2013 Plan without security holder approval (except for shares subject to outstanding awards that are forfeited or otherwise returned to the 2013 Plan). The stock issuable under the 2013 Plan shall be shares of
F-38
authorized but unissued or reacquired Common Stock,common stock, including shares repurchased by the Company on the open market. In June 2016, 625,390 shares of common stock available for issuance under the 2013 Plan were transferred into the 2016 Plan. At December 31, 2017,2022, there were 660,000175,119 shares available for grant under the 2013 Plan.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The number of shares of Common Stockcommon stock initially reserved for issuance under the 2016 Plan was 4,500,000 shares plus 625,390 shares of common stock available for issuance under the 2013 Plan, as of the effective date of the 2016 Plan. In May 2022, security holders approved an increase of 5,500,000 shares of common stock authorized to be issued pursuant to the 2016 Plan. At December 31, 2017,2022, there were 727,0006,540,370 shares available for grant under the 2016 Plan.

Upon the exercise of stock options, the granting of restricted stock,RSAs, or the delivery of shares pursuant to vested restricted stock units,RSUs, it is Acacia’s policy to issue new shares of common stock. Acacia’s board of directorsThe Board may amend or modify the Plans at any time, subject to any required stockholder approval. As of December 31, 2017,2022, there are 7,279,0008,868,208 shares of common stock reserved for issuance under the Plans.

Stock-based award grant activity for the periods presented was as follows:
  2017 2016
  Shares Aggregate fair value (in thousands) Shares Aggregate fair value (in thousands)
Restricted stock awards with performance-based vesting conditions —
 $—
 138,000
 $431
Stock options with time-based service vesting conditions 1,368,000
 2,930
 3,434,000
 5,704
Stock options with market-based vesting conditions —
 —
 2,250,000
 5,530
Stock options with performance-based vesting conditions —
 —
 200,000
 487
Total incentive awards granted 1,368,000
 $2,930
 6,022,000
 $12,152

During the year ended December 31, 2016 the Company granted restricted stock awards and stock options (with weighted-average exercise price of $5.75 per share) with performance-based vesting conditions. The awards vest based upon the Company achieving specified cash flow performance targets over a one and two-year period from the date of grant. Under the terms of the awards, the number of restricted shares or stock options that will actually vest is based on the extent to which the Company achieves the specified performance targets during the performance period. As of December 31, 2017, 102,000 (net of forfeitures) shares of restricted stock with performance-based vesting conditions were outstanding and unvested. During the year ended December 31, 2017, all stock options with performance-based vesting conditions expired unvested. As of December 31, 2017, there was no unrecognized expense for awards with performance-based vesting conditions.
During the year ended December 31, 2016, the Company granted stock options with market-based vesting conditions, with a weighted-average exercise price of $5.75 per share. The options with market-based vesting conditions vest based upon the Company achieving specified stock price targets over a four-year period. Under the terms of the awards, the number of stock options that will actually vest is based on the extent to which the Company achieves the specified market conditions during the four-year performance period. The stock options vest in equal installments of 25% upon the Company’s achievement of 30-day average share prices ranging from $7.00 to $10.00. As of December 31, 2017, 1,687,500 options with market-based vesting conditions remain unvested. As of December 31, 2017, there was no unrecognized expense for options with market-based vesting conditions.

The following table summarizes stock option activity for the Plans forPlans:
OptionsWeighted Average Exercise PriceAggregate Intrinsic ValueWeighted
Average
Remaining Contractual Life
(In thousands)
Outstanding at December 31, 2020310,083 $4.41 $104 2.2 years
Granted393,750 $5.84 $— 
Exercised(60,000)$3.36 $177 
Forfeited/Expired(88,416)$3.97 $103 
Outstanding at December 31, 2021555,417 $5.61 $71 7.3 years
Granted1,155,000 $3.61 $— 
Exercised— $— $— 
Forfeited/Expired(400,000)$4.17 $148 
Outstanding at December 31, 20221,310,417 $4.29 $535 8.0 years
Exercisable at December 31, 2022262,917 $5.37 $33 3.7 years
Vested and expected to vest at December 31, 20221,310,417 $4.29 $535 8.0 years
Unrecognized stock-based compensation expense at December 31, 2022 (in thousands)$1,024 
Weighted average remaining vesting period at December 31, 20222.3 years
Stock options granted in 2022 are time-based and will vest in full after three to four years. During the year ended December 31, 2017:
    Weighted-Average  
  Options 
Exercise
Price
 
Remaining
Contractual Term
 
Aggregate
Intrinsic Value
Outstanding at December 31, 2016 5,596,000
 $4.93
    
Granted 1,368,000
 $5.52
    
Exercised (208,000) $3.57
    
Expired/forfeited (926,000) $4.90
    
Outstanding at December 31, 2017 5,830,000
 $5.13
 5.8 years $856,000
Vested 1,959,000
 $4.84
 5.8 years $434,000
Exercisable at December 31, 2017 1,959,000
 $4.84
 5.8 years $434,000
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The aggregate intrinsic value of2022, the Company granted 1,155,000 stock options exercised during the years ended December 31, 2017, 2016 and 2015 was $296,000, $344,000, and $751,000, respectively. The aggregate intrinsic value of options vested during the year ended December 31, 2017 was $351,000. The aggregateat a weighted average grant-date fair value of $1.19 per share using the Black-Scholes option-pricing model. The fair value was estimated based on the following weighted average assumptions: volatility of 30 percent, risk-free interest rate of 1.85 percent, term of 6.11 years and a dividend yield of 0 percent as the Company does not pay common stock dividends. The volatility of the Company’s common stock was estimated by analyzing the Company’s historical volatility, implied volatility of publicly traded stock options, granted duringand the year ended December 31, 2017Company’s current asset composition and financial leverage (refer to Note 9 "Embedded derivative liabilities" for additional information). The risk-free rate was $2,930,000.based on the term assumption and U.S. Treasury constant maturities as published by the Federal Reserve. The Company currently uses the "simplified" method for determining the term, due to the limited option grant history, which assumes that the exercise date of an option would be halfway between its vesting date and the expiration date. The aggregate fair value of options vested during the year ended December 31, 20172022 and 20162021 was $2,009,000$235,000 and $2,342,000, respectively.  No options were$18,000.
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The following table summarizes nonvested restricted stock activity for the Plans:
RSAsRSUs
SharesWeighted
Average Grant
Date Fair Value		UnitsWeighted
Average Grant
Date Fair Value
Nonvested at December 31, 2020684,006 $3.38 986,500 $1.58 
Granted324,401 $5.56 506,500 $5.84 
Vested(394,169)$3.30 (28,834)$3.19 
Forfeited(96,669)$3.77 (450,000)$1.42 
Nonvested at December 31, 2021517,569 $4.74 1,014,166 $3.73 
Granted296,000 $3.62 709,804 $3.73 
Vested(309,567)$4.57 (646,668)$2.65 
Forfeited(98,001)$4.87 (235,000)$4.21 
Nonvested at December 31, 2022406,001 $4.02 842,302 $4.42 
Unrecognized stock-based compensation expense at December 31, 2022 (in thousands)$1,160 $2,507 
Weighted average remaining vesting period at December 31, 20221.7 years1.8 years
RSAs and RSUs granted orin 2022 are time-based and will vest in full after one to four years. The aggregate fair value of RSAs vested during the year ended December 31, 2015. As of December 31, 2017, the total unrecognized compensation expense related to nonvested stock option awards2022 and 2021 was $3,654,000, which is expected to be recognized over a weighted-average term of approximately 2 years.

The following table summarizes nonvested restricted share activity for the year ended December 31, 2017:
  
Nonvested
Restricted Shares
 
Weighted
Average Grant Date Fair Value
Nonvested restricted stock at December 31, 2016 333,000
 $8.9
Granted —
 $—
Vested (120,000) $12.95
Canceled (90,000) $9.10
Nonvested restricted stock at December 31, 2017 123,000
 $4.77
The weighted-average grant date fair value of nonvested restricted stock granted during the years ended December 31, 2016$1.4 million and 2015 was $3.12 and $12.83, respectively.$1.3 million. The aggregate fair value of restricted stock thatRSUs vested during the years ended December 31, 2017, 2016 and 2015 was $1,560,000, $5,243,000 and $11,494,000, respectively. As of December 31, 2017, the total unrecognized compensation expense related to nonvested restricted stock awards was $53,000, which is expected to be recognized over a weighted-average period of approximately 2 months.
The following table summarizes restricted stock unit activity for the year ended December 31, 2017:
  
Restricted
Stock Units
 
Weighted
Average Grant Date Fair Value
Nonvested restricted stock units outstanding at December 31, 2016 14,000
 $16.27
Vested (12,000) $16.18
Nonvested restricted stock units outstanding at December 31, 2017 2,000
 $16.72
Vested restricted stock units outstanding at December 31, 2017 60,000
 $15.38
The weighted-average grant date fair value of restricted stock units granted during the year ended December 31, 20152022 and 2021 was $16.72.  There$1.7 million and $92,000. During the year ended December 31, 2022, RSAs and RSUs totaling 956,235 shares were no restrictedvested and 372,314 shares of common stock were withheld to pay applicable required employee statutory withholding taxes based on the market value of the shares on the vesting date.
Certain RSUs were granted in September 2019 with market-based vesting conditions that 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 expense 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, that resulted in a fair value of $1.42 per unit, included: 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. During the year ended December 31, 2021, 450,000 RSUs were forfeited, leaving 450,000 units granted duringwith market-based vesting conditions outstanding and unvested at prior period end. The remaining units fully vested on September 3, 2022. Compensation expense (credit) for RSUs with market-based vesting conditions for the years ended December 31, 20172022 and 2016. The aggregate fair value2021, was $143,000 and $(71,000), respectively.
Compensation expense (credit) for share-based awards recognized in general and administrative expenses was comprised of restricted stock units that vested during the years ended following:
Years Ended
December 31,
20222021
(In thousands)
Options$488 $104 
RSAs1,360 1,521 
RSUs1,972 428 
Total compensation expense for share-based awards$3,820 $2,053 
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Total unrecognized stock-based compensation expense as of December 31, 2017, 2016 and 20152022 was $200,000, $324,000 and $480,000, respectively. As of December 31, 2017, the total unrecognized compensation expense related to restricted stock unit awards was $1,000,$4.7 million, which is expected towill be recognizedamortized over a weighted-averageweighted average remaining vesting period of approximately 1 month.1.9 years.
Profits Interest PlanGuarantees and Indemnifications

On February 16, 2017, AIP Operation LLC, a Delaware limited liability company (“AIP”), and an indirect subsidiary of Acacia, adopted a Profits Interest Plan (the “Plan”) that provides for the grant of membership interests in AIP to certain members of management and the Board of Directors of Acacia as compensation for services rendered for or on behalf of AIP. Each profits interest unit granted pursuant to the Plan is intended to qualify as a “profits interest” for U.S. federal income tax purposes and will only have value to the extent the fair value of AIP increases beyond the fair value at the issuance date of the membership interests. The membership interests are represented by units (the “Units”) reserved for the issuance of awards under the Plan. The Units entitle the holders to share in or be allocated certain AIP profits and losses and to receive or share in AIP distributions pursuant to the AIP Limited Liability Company Operating Agreement entered into as of February 16, 2017 (the “LLC Agreement”). In connection with the adoption of the Plan, a form of Profits Interest Agreement was approved pursuant to which Units may be granted from time to time. Units vest upon AIP’s achievement of certain performance milestones (one-third upon 150% appreciation, and the remaining two-thirds upon 300% appreciation in value of Acacia’s aggregate investment in Veritone), subject to the continued service of the recipient, and are subject to the terms and conditions of the Plan, the Profits Interest Agreement and the LLC Agreement. The Units were fully vested as of December 31, 2017.

ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acacia owns 60% of the membership interests in AIP and at all times will control AIP. Acacia from time to time may contribute to AIP certain assets or securities related to portfolio companies in which Acacia holds an interest. Units may be awarded as one-time, discretionary grants to recipients. As of December 31, 2017, AIP holds the Veritone 10% Warrant described at Note 7.

Profits interests totaling 400 Units, or 40% of the membership interests in AIP, were granted in February 2017, with an aggregate grant date fair value of $722,000. The fair value of the Units totaled $3,041,000 as of December 31, 2017. Upon full vesting of the units in September 2017, all previously unrecognized compensation expense was immediately recognized.

The fair value of the Units is estimated utilizing a Geometric Brownian Motion model (“GBM”) which considers probable vesting dates and values for the applicable instruments (i.e. common stock and warrants related to Acacia’s Veritone investment described at Note 7) underlying or associated with the Units. At the estimated end of the term of the underlying warrant (May 2022), the model estimates the total proceeds from the hypothetical exercise of the warrant and estimates the value of the Units by allocating the proceeds based on the waterfall described in the terms of the underlying agreement. The value of the Units on a marketable basis is the average allocation across all GBM simulation paths discounted to the applicable valuation date using the risk-free rate. This estimated value is adjusted for an estimate of a DLOM using the Finnerty model, based on a security specific volatility calculated by changing Veritone’s common stock price by 1% and measuring the corresponding change in the value of the Units. For the year ended December 31, 2017, assumptions utilized in the GBM included a term of 4.4 years, stock price of $23.20, volatility of 50%, and risk free interest rates ranging from 1.76% to 2.40% for terms ranging from one to 10 years. The estimated DLOM utilized was 30%, based on assumptions including a term of approximately 4.4 years and a volatility of 85% for Veritone’s common stock. Volatility was estimated based on the historical volatilities of a set of comparable public companies, adjusted for leverage, over a term matching the term of the underlying warrant asset, which was approximately 4.4 years.

Compensation expense for the periods presented was comprised of the following:
  2017 2016 2015
       
Restricted stock awards with time-based service conditions $1,025
 $4,071
 $10,575
Restricted stock unit awards with time-based service conditions 161
 320
 473
Restricted stock awards with performance-based vesting conditions 121
 197
 —
Stock options with time-based service vesting conditions 2,165
 1,316
 —
Stock options with market-based vesting conditions 2,372
 3,158
 —
Stock options with performance-based vesting conditions —
 —
 —
Profits interests units 3,041
 —
 —
Total compensation expense $8,885
 $9,062
 $11,048

11.  COMMITMENTS AND CONTINGENCIES

Operating Leases

Acacia leases certain office space under various operating lease agreements expiring at various dates from 2019 through 2020. Minimum annual rental commitments for operating leases of continuing operations having initial or remaining noncancellable lease terms in excess of one year are as follows (in thousands):
Years ending December 31, 
2018$1,213
20191,369
202016
Total minimum lease payments$2,598
Rent expense for the years ended December 31, 2017, 2016 and 2015 approximated $1,392,000, $1,795,000 and $1,926,000, respectively. Rental payments are expensed in the statements of operations in the period to which they relate. Scheduled rent increases are amortized on a straight-line basis over the lease term.

ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventor Royalties and Contingent Legal Expenses

In connection with the investment in certain patents and patent rights, certainCertain of Acacia’s operating subsidiaries executed related agreementshave made guarantees and indemnities under which grant to the former owners of the respective patents or patent rights, the right to receive inventor royalties based on future net revenues (as defined in the respective agreements) generated as a result of licensing and otherwise enforcing the respective patents or patent portfolios.

Acacia’s operating subsidiaries may retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with their licensing and enforcement activities. These law firmsthey may be retained onrequired to make payments to a contingent fee basis whereby such law firms are paid on a scaled percentage of any negotiated fees, settlementsguaranteed or judgments awarded based on how and when the fees, settlements or judgments are obtained.
Patent Enforcement and Other Litigation

Acacia is subjectindemnified party, in relation to claims, counterclaims and legal actions that arisecertain transactions, including revenue transactions in the ordinary course of business. Management believesIn connection with certain facility leases, Acacia and certain of its operating subsidiaries have indemnified lessors for certain claims arising from the facilities or the leases. Acacia indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware. However, Acacia has a directors and officers insurance policy that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any. The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to statute of limitations. The majority of guarantees and indemnities do not provide any limitations of the maximum potential future payments that Acacia could be obligated to make. To date, Acacia has made no payments related to these guarantees and indemnities. Acacia estimates the fair value of its indemnification obligations to be insignificant based on this history and therefore, have not recorded any liability for these guarantees and indemnities in the consolidated balance sheets. Additionally, no events or transactions have occurred that would result in a material liability at December 31, 2022.
Printronix posted collateral in the form of a surety bond or other similar instruments, which are issued by independent insurance carriers (the “Surety”), to cover the risk of loss related to certain customs and employment activities. If any of the entities that hold such bonds should require payment from the Surety, Printronix would be obligated to indemnify and reimburse the Surety for all costs incurred. As of December 31, 2022 and 2021, Printronix had approximately $100,000 of these bonds outstanding.
Environmental Cleanup
Printronix maintained a manufacturing operation in a leased facility in Irvine, California from 1980 to 1994. The facility was used for similar manufacturing operations by another tenant from 1968 to 1977. The manufacturing operations employed by the previous tenant are believed to have resulted in the contamination of soil and groundwater under the facility which included chlorinated volatile organic compounds (“VOCs”). Evidence indicates that the ultimate liabilityVOCs requiring cleanup were used by the prior tenant and not by Printronix. Printronix worked with the prior tenant, which agreed to share
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the costs of the activities in an equal percentage with Printronix, and the state regulatory agencies, including the California Department of Toxic Substances Control, to investigate and cleanup the subsurface contamination. A significant soil cleanup project was completed in 2017.
In 2020, Printronix executed an agreement with the prior tenant whereby the prior tenant would take 100% responsibility for the costs and process of the cleanup going forward. Printronix is in process of filing for release of such responsibility from a governmental agency and so may currently be found to be secondarily liable if the prior tenant cannot fulfil their responsibilities under the agreement. Accordingly, Printronix no longer takes part in monitoring or paying for any future investigation or cleanup activity. Printronix expects to have no such further costs associated with this facility. During 2020, Printronix was able to recover $24,000 from the prior tenant. Since that date and for the year ended December 31, 2022, Printronix has incurred no related legal fees.
12. STOCKHOLDERS’ EQUITY
Repurchases of Common Stock
On December 6, 2021, the Board approved a stock repurchase program, which authorized the purchase of up to $15.0 million of the Company’s common stock through open market purchases, through block trades, through 10b5-1 plans, or by means of private purchases, from time to time, through December 6, 2022. During February 2022, we completed the December 2021 program with total common stock purchases of 3,125,819 shares for the aggregate amount of $15.0 million.
On March 31, 2022, the Board approved a stock repurchase program for up to $40.0 million of shares of common stock. The repurchase authorization had no time limit and did not require the repurchase of a minimum number of shares. The common stock may be repurchased on the open market, in block trades, or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Exchange Act. During July 2022, we completed the March 2022 program with total common stock purchases of 8,453,519 shares for the aggregate amount of $40.0 million.
Stock repurchases, all of which were purchased as part of a publicly announced plan or program, were as follows:
Total Number
of Shares
Purchased		Average
Price
paid per
Share		Approximate Dollar
Value of Shares that
May Yet be Purchased
under the Program
(In thousands)
December 1, 2021 - December 31, 2021784,104 $5.12 $11,004 
January 1, 2022 - January 31, 20221,588,820 $4.85 $3,286 
February 1, 2022 - February 28, 2022752,895 $4.36 $— 
Total repurchases in the quarter2,341,715 $4.69 
Total program repurchases3,125,819 $4.80 
April 1, 2022 - April 30, 2022692,538 $4.48 $36,901 
May 1, 2022 - May 31, 20222,192,238 $4.59 $26,832 
June 1, 2022 - June 30, 20223,262,043 $4.71 $11,480 
Total repurchases in the quarter6,146,819 $4.64 
July 1, 2022 - July 31, 20222,306,700 $4.98 $— 
Total program repurchases8,453,519 $4.73 
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In determining whether or not to repurchase any shares of Acacia’s common stock, the Board considers such factors, among others, 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 its Stock Repurchase Programs. Repurchases to date were made in the open market in compliance with applicable SEC rules. The authorizations to repurchase shares presented an opportunity to reduce the outstanding share count and enhance stockholder value.
Tax Benefits Preservation Plan
The Company 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.
13. EQUITY-BASED INCENTIVE PLANS
Stock-Based Incentive Plans
The 2013 Acacia Research Corporation Stock Incentive Plan (“2013 Plan”) and the 2016 Acacia Research Corporation Stock Incentive Plan (“2016 Plan”) (collectively, the “Plans”) were approved by the stockholders of Acacia in May 2013 and June 2016, respectively. The Plans allow grants of stock options, stock awards and performance shares with respect to these claimsAcacia common stock to eligible individuals, which generally includes directors, officers, employees and legal actions, ifconsultants. Except as noted below, the terms and provisions of the Plans are identical in all material respects.
Acacia’s compensation committee administers the discretionary option grant and stock issuance programs. The compensation committee determines which eligible individuals are to receive option grants or stock issuances under those programs, the time or times when the grants or issuances are to be made, the number of shares subject to each grant or issuance, the status of any willgranted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding. The exercise price of options is generally equal to the fair market value of Acacia’s common stock on the date of grant. Options generally begin to be exercisable one year after grant and expire ten years after grant. Stock options with time-based vesting generally vest over three to four years and restricted shares with time-based vesting generally vest in full after one to four years (generally representing the requisite service period). The Plans terminate no later than the tenth anniversary of the approval of the incentive plans by Acacia’s stockholders.
The Plans provide for the following separate programs:
Stock Issuance Program. Under the stock issuance program, eligible individuals may be issued shares of common stock directly, upon the attainment of performance milestones or the completion of a specified period of service or as a bonus for past services. Under this program, the purchase price for the shares shall not be less than 100% of the fair market value of the shares on the date of issuance, and payment may be in the form of cash or past services rendered. The eligible individuals receiving RSAs shall have full stockholder rights with respect to any shares of common stock issued to them under the Stock Issuance Program, whether or not their interest in those shares is vested. Accordingly, the eligible individuals shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. The eligible individuals receiving RSUs shall not have full stockholder rights until they vest.
Discretionary Option Grant Program. Under the discretionary option grant program, Acacia’s compensation committee may grant (1) non-statutory options to purchase shares of common stock to eligible individuals in the employ or service of Acacia or its subsidiaries (including employees, non-employee board members and consultants) at an exercise price not less than 85% of the fair market value of those shares on the grant date, and (2) incentive stock options to purchase shares of common stock to eligible employees at an exercise price not less than 100% of the fair market value of those shares on the grant date (not less than 110% of fair market value if such employee actually or constructively owns more than 10% of Acacia’s voting stock or the voting stock of any of its subsidiaries).
The number of shares of common stock initially reserved for issuance under the 2013 Plan was 4,750,000 shares. No new additional shares will be added to the 2013 Plan without security holder approval (except for shares subject to outstanding awards that are forfeited or otherwise returned to the 2013 Plan). The stock issuable under the 2013 Plan shall be shares of
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authorized but unissued or reacquired common stock, including shares repurchased by the Company on the open market. In June 2016, 625,390 shares of common stock available for issuance under the 2013 Plan were transferred into the 2016 Plan. At December 31, 2022, there were 175,119 shares available for grant under the 2013 Plan.
The number of shares of common stock initially reserved for issuance under the 2016 Plan was 4,500,000 shares plus 625,390 shares of common stock available for issuance under the 2013 Plan, as of the effective date of the 2016 Plan. In May 2022, security holders approved an increase of 5,500,000 shares of common stock authorized to be issued pursuant to the 2016 Plan. At December 31, 2022, there were 6,540,370 shares available for grant under the 2016 Plan.
Upon the exercise of stock options, the granting of RSAs, or the delivery of shares pursuant to vested RSUs, it is Acacia’s policy to issue new shares of common stock. The Board may amend or modify the Plans at any time, subject to any required stockholder approval. As of December 31, 2022, there are 8,868,208 shares of common stock reserved for issuance under the Plans.
The following table summarizes stock option activity for the Plans:
OptionsWeighted Average Exercise PriceAggregate Intrinsic ValueWeighted
Average
Remaining Contractual Life
(In thousands)
Outstanding at December 31, 2020310,083 $4.41 $104 2.2 years
Granted393,750 $5.84 $— 
Exercised(60,000)$3.36 $177 
Forfeited/Expired(88,416)$3.97 $103 
Outstanding at December 31, 2021555,417 $5.61 $71 7.3 years
Granted1,155,000 $3.61 $— 
Exercised— $— $— 
Forfeited/Expired(400,000)$4.17 $148 
Outstanding at December 31, 20221,310,417 $4.29 $535 8.0 years
Exercisable at December 31, 2022262,917 $5.37 $33 3.7 years
Vested and expected to vest at December 31, 20221,310,417 $4.29 $535 8.0 years
Unrecognized stock-based compensation expense at December 31, 2022 (in thousands)$1,024 
Weighted average remaining vesting period at December 31, 20222.3 years
Stock options granted in 2022 are time-based and will vest in full after three to four years. During the year ended December 31, 2022, the Company granted 1,155,000 stock options at a materialweighted average grant-date fair value of $1.19 per share using the Black-Scholes option-pricing model. The fair value was estimated based on the following weighted average assumptions: volatility of 30 percent, risk-free interest rate of 1.85 percent, term of 6.11 years and a dividend yield of 0 percent as the Company does not pay common stock dividends. The volatility of the Company’s common stock was estimated by analyzing the Company’s historical volatility, implied volatility of publicly traded stock options, and the Company’s current asset composition and financial leverage (refer to Note 9 "Embedded derivative liabilities" for additional information). The risk-free rate was based on the term assumption and U.S. Treasury constant maturities as published by the Federal Reserve. The Company currently uses the "simplified" method for determining the term, due to the limited option grant history, which assumes that the exercise date of an option would be halfway between its vesting date and the expiration date. The aggregate fair value of options vested during the year ended December 31, 2022 and 2021 was $235,000 and $18,000.
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The following table summarizes nonvested restricted stock activity for the Plans:
RSAsRSUs
SharesWeighted
Average Grant
Date Fair Value		UnitsWeighted
Average Grant
Date Fair Value
Nonvested at December 31, 2020684,006 $3.38 986,500 $1.58 
Granted324,401 $5.56 506,500 $5.84 
Vested(394,169)$3.30 (28,834)$3.19 
Forfeited(96,669)$3.77 (450,000)$1.42 
Nonvested at December 31, 2021517,569 $4.74 1,014,166 $3.73 
Granted296,000 $3.62 709,804 $3.73 
Vested(309,567)$4.57 (646,668)$2.65 
Forfeited(98,001)$4.87 (235,000)$4.21 
Nonvested at December 31, 2022406,001 $4.02 842,302 $4.42 
Unrecognized stock-based compensation expense at December 31, 2022 (in thousands)$1,160 $2,507 
Weighted average remaining vesting period at December 31, 20221.7 years1.8 years
RSAs and RSUs granted in 2022 are time-based and will vest in full after one to four years. The aggregate fair value of RSAs vested during the year ended December 31, 2022 and 2021 was $1.4 million and $1.3 million. The aggregate fair value of RSUs vested during the year ended December 31, 2022 and 2021 was $1.7 million and $92,000. During the year ended December 31, 2022, RSAs and RSUs totaling 956,235 shares were vested and 372,314 shares of common stock were withheld to pay applicable required employee statutory withholding taxes based on the market value of the shares on the vesting date.
Certain RSUs were granted in September 2019 with market-based vesting conditions that 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 expense 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, that resulted in a fair value of $1.42 per unit, included: 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 Acacia’s consolidated financial position, resultsthe 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. During the year ended December 31, 2021, 450,000 RSUs were forfeited, leaving 450,000 units with market-based vesting conditions outstanding and unvested at prior period end. The remaining units fully vested on September 3, 2022. Compensation expense (credit) for RSUs with market-based vesting conditions for the years ended December 31, 2022 and 2021, was $143,000 and $(71,000), respectively.
Compensation expense (credit) for share-based awards recognized in general and administrative expenses was comprised of operations or cash flows. Fiscal year 2017 includes estimated contingency accruals totaling $1,200,000. The estimated rangethe following:
Years Ended
December 31,
20222021
(In thousands)
Options$488 $104 
RSAs1,360 1,521 
RSUs1,972 428 
Total compensation expense for share-based awards$3,820 $2,053 
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Total unrecognized stock-based compensation expense as of December 31, 2022 was $4.7 million, which will be amortized over a weighted average remaining vesting period of 1.9 years.
Guarantees and Indemnifications

Certain of Acacia’s operating subsidiaries have made guarantees and indemnities under which they may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. In connection with certain facility leases, Acacia and certain of its operating subsidiaries have indemnified lessors for certain claims arising from the facilities or the leases. Acacia indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware. However, Acacia has a directors and officers insurance policy that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any. The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to statute of limitations. The majority of guarantees and indemnities do not provide any limitations of the maximum potential future payments that Acacia could be obligated to make. To date, Acacia has made no payments related to these guarantees and indemnities. Acacia estimates the fair value of its indemnification obligations to be insignificant based on this history and therefore, have not recorded any liability for these guarantees and indemnities in the accompanying consolidated balance sheets. Additionally, no events or transactions have occurred that would result in a material liability at December 31, 2017.2022.

Bank Guarantee
In March 2015, an operating subsidiary of Acacia entered into a standby letter of credit and guarantee arrangement (“Guarantee”) with a bank for purposes of enforcing a court ruling in a German patent court granting an injunction against the defendantsPrintronix posted collateral in the form of a surety bond or other similar instruments, which are issued by independent insurance carriers (the “Surety”), to cover the risk of loss related patent infringement case. The Guarantee was secured by a cash deposit at the contracting bank, which was classified as restricted cash in the accompanying December 31, 2016 consolidated balance sheets, totaling $11,512,000. Upon resolution of all related matters in June 2017, the Guarantee was extinguished resulting in releaseto certain customs and employment activities. If any of the cash collateral (and related restrictions onentities that hold such bonds should require payment from the cash balance) bySurety, Printronix would be obligated to indemnify and reimburse the contracting bank.Surety for all costs incurred. As a result, currently no amounts of Acacia’s cash and investments are restricted as to use.
Other

In August 2010, a wholly owned subsidiary of Acacia became the general partner of the Acacia IP Fund, which was formed in August 2010. The Acacia IP Fund invests in, licenses and enforces intellectual property consisting primarily of patents, patent rights, and patented technologies. The Acacia IP Fund was terminated as of December 31, 2017. At December 31, 20172022 and 2016, the Acacia IP Fund net assets and net income (loss) were primarily comprised2021, Printronix had approximately $100,000 of the following (in thousands):these bonds outstanding.
ACACIA RESEARCH CORPORATIONEnvironmental Cleanup
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  2017 2016
Cash and other assets $986
 $1,118
Investments - noncurrent 1,905
 2,933
Total assets $2,891
 $4,051
     
Accrued expenses and contributions $2,567
 $2,394
Net assets $324
 $1,657
  2017 2016
Revenues $—
 $16
Operating expenses 390
 572
Loss from operations (390) (556)
Net loss in equity method investments (943) (1,013)
Net loss $(1,333) $(1,569)


12.  RETIREMENT SAVINGS PLAN AND EXECUTIVE SEVERANCE POLICY

Retirement Savings Plan.  Acacia has an employee savings and retirement plan under section 401(k) of the Code (the “Plan”).Printronix maintained a manufacturing operation in a leased facility in Irvine, California from 1980 to 1994. The Plan is a defined contribution plan in which eligible employees may electfacility was used for similar manufacturing operations by another tenant from 1968 to have a percentage of their compensation contributed to the Plan, subject to certain guidelines issued by the Internal Revenue Service. Acacia may contribute to the Plan at the discretion of the board of directors. There were no contributions made by Acacia during the periods presented.

Executive Severance Policy.  Under Acacia’s Amended Executive Severance Policy, full-time employees as of July 2017 and prior with the title of Senior Vice President and higher (“SVP and higher”) are entitled to receive certain benefits upon termination of employment. If employment of an SVP and higher employee is terminated for other than cause or other than on account of death or disability, Acacia will (i) promptly pay to the SVP and higher employee a lump sum amount equal to the aggregate of (a) accrued obligations (i.e., annual base salary through the date of termination to the extent not theretofore paid and any compensation previously deferred (together with any accrued interest or earnings thereon) and any accrued vacation pay, and reimbursable expenses, in each case to the extent not theretofore paid) and (b) three (3) months of base salary for each full year that the SVP and higher employee was1977. The manufacturing operations employed by the Company (the “Severance Period”), upprevious tenant are believed to a maximumhave resulted in the contamination of twelve (12) months (eighteen (18) months for executive officerssoil and groundwater under the facility which included chlorinated volatile organic compounds (“VOCs”). Evidence indicates that the VOCs requiring cleanup were used by the prior tenant and not by Printronix. Printronix worked with the prior tenant, which agreed to share
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the costs of base salary,the activities in an equal percentage with Printronix, and (ii) providethe state regulatory agencies, including the California Department of Toxic Substances Control, to investigate and cleanup the SVP and higher employee, Acacia paid COBRA coveragesubsurface contamination. A significant soil cleanup project was completed in 2017.
In 2020, Printronix executed an agreement with the prior tenant whereby the prior tenant would take 100% responsibility for the medicalcosts and dental benefits selectedprocess of the cleanup going forward. Printronix is in process of filing for release of such responsibility from a governmental agency and so may currently be found to be secondarily liable if the yearprior tenant cannot fulfil their responsibilities under the agreement. Accordingly, Printronix no longer takes part in whichmonitoring or paying for any future investigation or cleanup activity. Printronix expects to have no such further costs associated with this facility. During 2020, Printronix was able to recover $24,000 from the termination occurs,prior tenant. Since that date and for the duration of the Severance Period.


13.  SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for state income taxes totaled $181,000, $223,000 and $211,000 for the yearsyear ended December 31, 2017, 2016 and 20152022, respectively. Foreign taxes withheld totaled $2,865,000, $14,776,000 and $4,421,000 forPrintronix has incurred no related legal fees.
12. STOCKHOLDERS’ EQUITY
Repurchases of Common Stock
On December 6, 2021, the years ended December 31, 2017, 2016 and 2015, respectively. Refer to Note 4 for accrued foreign taxes payable.

Refer to Note 5 for information regarding noncash investing activity related to the investment in patent portfolios for the periods presented. Refer to Note 7 for information regarding noncash investing activity related to the investment in Veritone for the periods presented.
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  QUARTERLY FINANCIAL DATA (unaudited)
The following table sets forth unaudited consolidated statements of operations data for the eight quarters in the period ended December 31, 2017. This information has been derived from Acacia’s unaudited condensed consolidated financial statements that have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary forBoard approved a fair statement of the information when read in conjunction with the audited consolidated financial statements and related notes thereto. Acacia’s quarterly results have been, and may in the future be, subject to significant fluctuations. As a result, Acacia believes that results of operations for interim periods should not be relied upon as any indication of the results to be expected in any future periods.
  Quarter Ended
  Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar. 31, Jun. 30, Sept. 30, Dec. 31,
  2017 2017 2017 2017 2016 2016 2016 2016
  (Unaudited, in thousands, except share and per share information)
Revenues $8,854
 $16,457
 $36,633
 $3,458
 $24,721
 $41,351
 $64,658
 $21,969
Operating costs and expenses:  
  
      
  
  
  
Cost of revenues:  
  
      
  
  
  
Inventor royalties 666
 4,273
 —
 13
 1,573
 —
 17,844
 3,313
Contingent legal fees 627
 3,236
 12,173
 646
 4,109
 10,418
 7,709
 4,238
Litigation and licensing expenses - patents 6,386
 4,134
 4,073
 3,626
 7,723
 7,324
 7,348
 5,463
Amortization of patents 5,515
 5,571
 5,625
 5,443
 10,760
 10,759
 6,467
 6,222
General and administrative expenses (including non-cash stock compensation expense) 6,916
 6,734
 12,715
 (335) 7,994
 7,535
 8,334
 9,056
Other expenses - business development 320
 433
 241
 195
 522
 1,334
 666
 557
Impairment of patent-related intangible assets —
 —
 2,248
 —
 —
 40,165
 —
 2,175
Other —
 —
 —
 1,200
 1,742
 (1,242) —
 —
Total operating costs and expenses 20,430
 24,381
 37,075
 10,788
 34,423
 76,293
 48,368
 31,024
Operating income (loss) (11,576) (7,924) (442) (7,330) (9,702) (34,942) 16,290
 (9,055)
Total other income (expense) 696
 (4,862) 159,027
 (102,950) (3) (52) 261
 592
Income (loss) before (provision for) benefit from income taxes (10,880) (12,786) 158,585
 (110,280) (9,705) (34,994) 16,551
 (8,463)
Provision for income taxes (1,241) (1,478) (216) (20) (192) (5,927) (9,655) (2,414)
Net income (loss) including noncontrolling interests (12,121) (14,264) 158,369
 (110,300) (9,897) (40,921) 6,896
 (10,877)
Net (income) loss attributable to noncontrolling interests in subsidiaries 291
 12
 96
 97
 (68) 348
 186
 266
Net income (loss) attributable to Acacia Research Corporation $(11,830) $(14,252) $158,465
 $(110,203) $(9,965) $(40,573) $7,082
 $(10,611)
Net income (loss) per common share attributable to Acacia Research Corporation:  
  
  
  
  
  
  
  
Basic and diluted income (loss) per share $(0.24) $(0.28) $3.13
 $(2.18) $(0.20) $(0.81) $0.14
 $(0.21)
Weighted-average number of shares outstanding, basic 50,333,056
 50,499,948
 50,554,234
 50,590,460
 49,925,550
 50,015,869
 50,124,302
 50,237,784
Weighted-average number of shares outstanding, diluted 50,333,056
 50,499,948
 50,599,974
 50,590,460
 49,925,550
 50,015,869
 50,618,757
 50,237,784
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.  SUBSEQUENT EVENTS

Investments
In January 2018, Acacia entered into a Joint Venture and Services Agreement (“Joint Venture Agreement”) with Bitzumi, Inc., a company developing macro opportunities in the cryptocurrency and blockchain industries, including a next generation decentralized exchange. Bitzumi recently filed a Regulation A Offering Statement with the Securities and Exchange Commission and a listing application with NASDAQ. Acacia made an initial $1,000,000 equity investment in Bitzumi in January 2018. Under the Joint Venture Agreement, Acacia will provide various patent-related services to Bitzumi and has the option to invest up to an additional $9,000,000 to acquire Bitzumi common stock. In connection with Acacia’s initial investment, Acacia received a short-term warrant to purchase $4,000,000 of Bitzumi common shares. Under the Joint Venture Agreement, Acacia has a right to acquire up to an aggregate of $10.0 million of Bitzumi common shares (inclusive of Acacia’s initial $1,000,000 equity investment and exercise of Acacia’s short-term warrant) at a price, except as paid by Acacia for the initial investment and the exercise price of Acacia’s short-term warrant, of $2.50 per share. Upon meeting certain conditions set forth in the Joint Venture Agreement, Bitzumi will also issue Acacia a warrant for 30,000,000 shares of Bitzumi’s common stock. Acacia’s investment in Bitzumi represents its first venture in the cryptocurrency and blockchain marketplaces.
In February 2018, Acacia made an additional equity investment in Miso Robotics totaling $6,000,000, increasing its ownership interest in Miso Robotics to approximately 30%. In addition, Acacia acquired an additional board seat.

Stock Repurchase Program.

In February 2018, Acacia’s Board of Directorsstock repurchase program, which authorized the repurchasepurchase of up to $20,000,000$15.0 million of the Company’s outstanding common stock inthrough open market purchases, through block trades, through 10b5-1 plans, or by means of private purchases, from time to time, in amounts and at prices to be determined bythrough December 6, 2022. During February 2022, we completed the December 2021 program with total common stock purchases of 3,125,819 shares for the aggregate amount of $15.0 million.
On March 31, 2022, the Board approved a stock repurchase program for up to $40.0 million of Directors at its discretion (the “Stock Repurchase Program”). shares of common stock. The repurchase authorization had no time limit and did not require the repurchase of a minimum number of shares. The common stock may be repurchased on the open market, in block trades, or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Exchange Act. During July 2022, we completed the March 2022 program with total common stock purchases of 8,453,519 shares for the aggregate amount of $40.0 million.
Stock repurchases, all of which were purchased as part of a publicly announced plan or program, were as follows:
Total Number
of Shares
Purchased		Average
Price
paid per
Share		Approximate Dollar
Value of Shares that
May Yet be Purchased
under the Program
(In thousands)
December 1, 2021 - December 31, 2021784,104 $5.12 $11,004 
January 1, 2022 - January 31, 20221,588,820 $4.85 $3,286 
February 1, 2022 - February 28, 2022752,895 $4.36 $— 
Total repurchases in the quarter2,341,715 $4.69 
Total program repurchases3,125,819 $4.80 
April 1, 2022 - April 30, 2022692,538 $4.48 $36,901 
May 1, 2022 - May 31, 20222,192,238 $4.59 $26,832 
June 1, 2022 - June 30, 20223,262,043 $4.71 $11,480 
Total repurchases in the quarter6,146,819 $4.64 
July 1, 2022 - July 31, 20222,306,700 $4.98 $— 
Total program repurchases8,453,519 $4.73 
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In determining whether or not to repurchase any shares of Acacia’s common stock, Acacia’sthe Board of Directors will considerconsiders such factors, among others, 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 its Stock Repurchase Programs. Repurchases to date were made in the open market in compliance with applicable SEC rules. The authorizations to repurchase shares presented an opportunity to reduce the outstanding share count and enhance stockholder value.
Tax Benefits Preservation Plan
The Company 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.
13. EQUITY-BASED INCENTIVE PLANS
Stock-Based Incentive Plans
The 2013 Acacia Research Corporation Stock Incentive Plan (“2013 Plan”) and the 2016 Acacia Research Corporation Stock Incentive Plan (“2016 Plan”) (collectively, the “Plans”) were approved by the stockholders of Acacia in May 2013 and June 2016, respectively. The Plans allow grants of stock options, stock awards and performance shares with respect to Acacia common stock to eligible individuals, which generally includes directors, officers, employees and consultants. Except as noted below, the terms and provisions of the Plans are identical in all material respects.
Acacia’s compensation committee administers the discretionary option grant and stock issuance programs. The compensation committee determines which eligible individuals are to receive option grants or stock issuances under those programs, the time or times when the grants or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding. The exercise price of options is generally equal to the fair market value of Acacia’s common stock on the date of grant. Options generally begin to be exercisable one year after grant and expire ten years after grant. Stock options with time-based vesting generally vest over three to four years and restricted shares with time-based vesting generally vest in full after one to four years (generally representing the requisite service period). The Plans terminate no later than the tenth anniversary of the approval of the incentive plans by Acacia’s stockholders.
The Plans provide for the following separate programs:
Stock Issuance Program. Under the stock issuance program, eligible individuals may be issued shares of common stock directly, upon the attainment of performance milestones or the completion of a specified period of service or as a bonus for past services. Under this program, the purchase price for the shares shall not be less than 100% of the fair market value of the shares on the date of issuance, and payment may be in the form of cash or past services rendered. The eligible individuals receiving RSAs shall have full stockholder rights with respect to any shares of common stock issued to them under the Stock Repurchase Program.Issuance Program, whether or not their interest in those shares is vested. Accordingly, the eligible individuals shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. The Stock Repurchaseeligible individuals receiving RSUs shall not have full stockholder rights until they vest.
Discretionary Option Grant Program is set. Under the discretionary option grant program, Acacia’s compensation committee may grant (1) non-statutory options to expirepurchase shares of common stock to eligible individuals in the employ or service of Acacia or its subsidiaries (including employees, non-employee board members and consultants) at an exercise price not less than 85% of the fair market value of those shares on February 28, 2019.the grant date, and (2) incentive stock options to purchase shares of common stock to eligible employees at an exercise price not less than 100% of the fair market value of those shares on the grant date (not less than 110% of fair market value if such employee actually or constructively owns more than 10% of Acacia’s voting stock or the voting stock of any of its subsidiaries).



The number of shares of common stock initially reserved for issuance under the 2013 Plan was 4,750,000 shares. No new additional shares will be added to the 2013 Plan without security holder approval (except for shares subject to outstanding awards that are forfeited or otherwise returned to the 2013 Plan). The stock issuable under the 2013 Plan shall be shares of
F- 32
F-38
authorized but unissued or reacquired common stock, including shares repurchased by the Company on the open market. In June 2016, 625,390 shares of common stock available for issuance under the 2013 Plan were transferred into the 2016 Plan. At December 31, 2022, there were 175,119 shares available for grant under the 2013 Plan.
The number of shares of common stock initially reserved for issuance under the 2016 Plan was 4,500,000 shares plus 625,390 shares of common stock available for issuance under the 2013 Plan, as of the effective date of the 2016 Plan. In May 2022, security holders approved an increase of 5,500,000 shares of common stock authorized to be issued pursuant to the 2016 Plan. At December 31, 2022, there were 6,540,370 shares available for grant under the 2016 Plan.
Upon the exercise of stock options, the granting of RSAs, or the delivery of shares pursuant to vested RSUs, it is Acacia’s policy to issue new shares of common stock. The Board may amend or modify the Plans at any time, subject to any required stockholder approval. As of December 31, 2022, there are 8,868,208 shares of common stock reserved for issuance under the Plans.
The following table summarizes stock option activity for the Plans:
OptionsWeighted Average Exercise PriceAggregate Intrinsic ValueWeighted
Average
Remaining Contractual Life
(In thousands)
Outstanding at December 31, 2020310,083 $4.41 $104 2.2 years
Granted393,750 $5.84 $— 
Exercised(60,000)$3.36 $177 
Forfeited/Expired(88,416)$3.97 $103 
Outstanding at December 31, 2021555,417 $5.61 $71 7.3 years
Granted1,155,000 $3.61 $— 
Exercised— $— $— 
Forfeited/Expired(400,000)$4.17 $148 
Outstanding at December 31, 20221,310,417 $4.29 $535 8.0 years
Exercisable at December 31, 2022262,917 $5.37 $33 3.7 years
Vested and expected to vest at December 31, 20221,310,417 $4.29 $535 8.0 years
Unrecognized stock-based compensation expense at December 31, 2022 (in thousands)$1,024 
Weighted average remaining vesting period at December 31, 20222.3 years
Stock options granted in 2022 are time-based and will vest in full after three to four years. During the year ended December 31, 2022, the Company granted 1,155,000 stock options at a weighted average grant-date fair value of $1.19 per share using the Black-Scholes option-pricing model. The fair value was estimated based on the following weighted average assumptions: volatility of 30 percent, risk-free interest rate of 1.85 percent, term of 6.11 years and a dividend yield of 0 percent as the Company does not pay common stock dividends. The volatility of the Company’s common stock was estimated by analyzing the Company’s historical volatility, implied volatility of publicly traded stock options, and the Company’s current asset composition and financial leverage (refer to Note 9 "Embedded derivative liabilities" for additional information). The risk-free rate was based on the term assumption and U.S. Treasury constant maturities as published by the Federal Reserve. The Company currently uses the "simplified" method for determining the term, due to the limited option grant history, which assumes that the exercise date of an option would be halfway between its vesting date and the expiration date. The aggregate fair value of options vested during the year ended December 31, 2022 and 2021 was $235,000 and $18,000.
F-39
The following table summarizes nonvested restricted stock activity for the Plans:
RSAsRSUs
SharesWeighted
Average Grant
Date Fair Value		UnitsWeighted
Average Grant
Date Fair Value
Nonvested at December 31, 2020684,006 $3.38 986,500 $1.58 
Granted324,401 $5.56 506,500 $5.84 
Vested(394,169)$3.30 (28,834)$3.19 
Forfeited(96,669)$3.77 (450,000)$1.42 
Nonvested at December 31, 2021517,569 $4.74 1,014,166 $3.73 
Granted296,000 $3.62 709,804 $3.73 
Vested(309,567)$4.57 (646,668)$2.65 
Forfeited(98,001)$4.87 (235,000)$4.21 
Nonvested at December 31, 2022406,001 $4.02 842,302 $4.42 
Unrecognized stock-based compensation expense at December 31, 2022 (in thousands)$1,160 $2,507 
Weighted average remaining vesting period at December 31, 20221.7 years1.8 years
RSAs and RSUs granted in 2022 are time-based and will vest in full after one to four years. The aggregate fair value of RSAs vested during the year ended December 31, 2022 and 2021 was $1.4 million and $1.3 million. The aggregate fair value of RSUs vested during the year ended December 31, 2022 and 2021 was $1.7 million and $92,000. During the year ended December 31, 2022, RSAs and RSUs totaling 956,235 shares were vested and 372,314 shares of common stock were withheld to pay applicable required employee statutory withholding taxes based on the market value of the shares on the vesting date.
Certain RSUs were granted in September 2019 with market-based vesting conditions that 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 expense 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, that resulted in a fair value of $1.42 per unit, included: 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. During the year ended December 31, 2021, 450,000 RSUs were forfeited, leaving 450,000 units with market-based vesting conditions outstanding and unvested at prior period end. The remaining units fully vested on September 3, 2022. Compensation expense (credit) for RSUs with market-based vesting conditions for the years ended December 31, 2022 and 2021, was $143,000 and $(71,000), respectively.
Compensation expense (credit) for share-based awards recognized in general and administrative expenses was comprised of the following:
Years Ended
December 31,
20222021
(In thousands)
Options$488 $104 
RSAs1,360 1,521 
RSUs1,972 428 
Total compensation expense for share-based awards$3,820 $2,053 
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Total unrecognized stock-based compensation expense as of December 31, 2022 was $4.7 million, which will be amortized over a weighted average remaining vesting period of 1.9 years.
Profits Interest Plan
Profits Interest Units (“PIUs”) were accounted for in accordance with ASC 718, “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 PIUs 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 PIUs that are not otherwise forfeited after termination of continuous service. The exercise price of the purchase option is the fair market value of the PIUs on the date of termination of continuous service. The individuals holding PIUs are no longer employed by the Company. Included in other long-term liabilities in the consolidated balance sheets as of December 31, 2022 and 2021, the PIUs totaled $591,000, which was their fair value as of December 31, 2018 after termination of service.
14. RETIREMENT SAVINGS PLANS AND SEVERANCE
Retirement Savings Plans
Acacia has an employee savings and retirement plan under Section 401(k) of the Internal Revenue Code. The plan is a defined contribution plan in which eligible employees may elect to have a percentage of their compensation contributed to the plan, subject to certain guidelines issued by the Internal Revenue Service. During the years ended December 31, 2022 and 2021, Acacia's total contribution to the plan was $173,000 and zero.
In the United States of America, Printronix has a 401(k) Savings and Investment Plan, for all eligible U.S. employees, which is designed to be tax deferred in accordance with the provisions of Section 401(k). Printronix matches employee contributions dollar-for-dollar up to the first 1 percent of compensation, and then an additional $0.50 to-the-dollar on the next 1 percent of employee compensation. Printronix's contributions have graded-vesting annually and become fully vested to the employee after four full years of employment. During the year ended December 31, 2022, Printronix's total contribution to the plan was $45,500. For the period from October 7, 2021 through December 31, 2021, Printronix's total contribution to the plan was $9,000.
Printronix has statutory obligations to contribute to overseas employee retirement funds or the local social security pension funds in China, Malaysia, Singapore, France, Netherlands and the United Kingdom. During the year ended December 31, 2022, Printronix's total contribution overseas was $711,000. For the period from October 7, 2021 through December 31, 2021, Printronix's total contribution overseas was $189,000.
Severance
During the years ended December 31, 2022 and 2021, Acacia entered into separation agreements related to the termination of certain employees. The separation agreements generally provide base salary continuation payments and payments of employee and employer portions of monthly COBRA for a specified period. During the years ended December 31, 2022 and 2021, Acacia's total severance expenses were $3.2 million and $473,000, respectively.
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15. INCOME TAXES
The components of (loss) income before income taxes were as follows:
Years Ended December 31,
20222021
(In thousands)
Domestic$(126,810)$175,635 
Foreign(340)(983)
Total$(127,150)$174,652 
For purposes of reconciling the Company’s provision for income taxes at the statutory rate and the Company’s income tax expense (benefit) at the effective tax rate, a notional 21% tax rate was applied as follows:
Years Ended December 31,
20222021
Statutory federal tax rate - expense (benefit)(21)%21 %
Foreign rate differential— %5 %
Noncontrolling interests in operating subsidiaries(2)%— %
Nondeductible permanent items— %(1)%
Expired tax attributes6 %4 %
Derivative fair value adjustment(2)%5 %
Valuation allowance7 %(21)%
Other(1)%1 %
Effective income tax rate(13)%14 %
Acacia’s income tax benefit (expense) for the periods presented consisted of the following:
Years Ended December 31,
20222021
(In thousands)
Current:
Federal$(54)$— 
State(482)(15)
Foreign(606)(8,530)
Total current(1,142)(8,545)
Deferred:
Federal24,789 (54,165)
State259 1,573 
Foreign(28)332 
Total deferred25,020 (52,260)
Change in valuation allowance(7,667)36,518 
Income tax benefit (expense)$16,211 $(24,287)
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The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
December 31,
20222021
(In thousands)
Deferred tax assets:
Net operating loss and capital loss carryforwards and credits$47,386 $78,428 
Unrealized gain on investments held at fair value35 — 
Compensation expense for share-based awards607 383 
Fixed assets and intangibles— — 
Basis of investments in affiliates— 18 
Accrued liabilities and other1,551 1,495 
Lease liability784 726 
State taxes94 — 
Total deferred tax assets50,457 81,050 
Valuation allowance(48,250)(40,585)
Total deferred tax assets, net of valuation allowance2,207 40,465 
Deferred tax liabilities:
ROU Asset(782)(726)
Fixed assets and intangibles(2,166)(2,572)
Unrealized gain on investments held at fair value— (55,696)
Other— (23)
Total deferred tax liabilities(2,948)(59,017)
Net deferred tax liabilities$(742)$(18,552)
As of December 31, 2022 and 2021, management assessed the realizability of deferred tax assets and evaluated the need for a valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, "Income Taxes," wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company's deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more-likely-than-not that the asset will not be realized. In assessing the realization of the Company's deferred tax assets, management considers all available evidence, both positive and negative.
Based upon available evidence, it was concluded on a more-likely-than-not basis that as of December 31, 2022 a valuation allowance of $48.3 million was needed for foreign tax credits and certain state tax attributes the Company estimates will expire prior to utilization. As of December 31, 2021, the Company recorded a full valuation allowance of $40.6 million. The valuation allowance increased by $7.7 million for the year ended December 31, 2022 as a result of the use of the NOLs against realized gains and unrealized losses. The valuation allowance decreased by $(36.4) million for the year ended December 31, 2021 as a result of the use of the NOLs and increase in unrealized gains.
At December 31, 2022, Acacia had U.S. federal and state income tax net operating loss carryforwards (“NOLs”) totaling approximately $63.8 million and $36.0 million, respectively. Pursuant to the Tax Cuts and Jobs Act ("TCJA") enacted by the U.S. federal government in December 2017, for federal income tax purposes, NOL carryovers generated for our tax years beginning January 1, 2018 can be carried forward indefinitely but will be subject to a taxable income limitation. All federal losses are post TCJA NOLs, which do not expire. The $36.0 million of state NOLs will expire in varying amounts through 2040.
As of December 31, 2022 Acacia had combined foreign NOLs available to reduce future taxable income of approximately $1.9 million. As of December 31, 2022 a valuation of $1.9 million had been recorded against the related deferred tax assets for those NOLs that are not more likely than not to be fully utilized in reducing future taxable income.
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As of December 31, 2022, Acacia had approximately $31.2 million of foreign tax credits, expiring between 2023 and 2032. In general, foreign taxes withheld may be claimed as a deduction on future U.S. corporate income tax returns, or as a credit against future U.S. income tax liabilities, subject to certain limitations.
During the fourth quarter of 2022, the Company finalized Printronix's pre-acquisition income tax returns and recorded an adjustment to the assets acquired and liabilities assumed. As a result, the Company recognized an increase in goodwill of $71,000 from the initial assessment as of the acquisition date.
The following changes occurred in the amount of unrecognized tax benefits:
Years Ended December 31,
20222021
(In thousands)
Beginning balance$887 $731 
Additions for current year tax positions— 27 
Additions included in purchase accounting for prior year positions— 129 
Reductions for prior year tax positions(127)— 
Ending Balance (excluding interest and penalties)760 887 
Interest and penalties— — 
Total$760 $887 
At December 31, 2022 and 2021, the Company had total unrecognized tax benefits of approximately $760,000 and $887,000, respectively. At December 31, 2022 and 2021, $760,000 and $108,000, respectively, of unrecognized tax benefits are recorded in other long-term liabilities. At December 31, 2022, if recognized, $760,000 of tax benefits would impact the Company’s effective tax rate.
Acacia recognizes interest and penalties with respect to unrecognized tax benefits in income tax expense (benefit). No interest and penalties have been recorded for the unrecognized tax benefits for the periods presented. Acacia has identified no uncertain tax position for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months.
Acacia is subject to taxation in the U.S. and in various state/foreign jurisdictions and incurs foreign tax withholdings on revenue agreements with licensees in certain foreign jurisdictions. With no material exceptions, Acacia is no longer subject to U.S. federal or state examinations by tax authorities for years before 2018. The Company’s 2018 through 2022 tax years generally remain subject to examination by federal, state and foreign tax authorities. As the Company has incurred losses in most jurisdictions, the taxing authorities can generally challenge 2015 through 2021 either the amount of carryforward deduction reported in the open year or the amount of a net operating loss deduction that is absorbed in a closed year and supports the determination of the available net operating loss deduction for the open year under examination.
Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries, as earnings are permanently reinvested, however, no deferred tax liability would be necessary as the parent entity would not be required to include the distribution into income as the amount would be tax free under current law.
TCJA subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries.The FASB Staff Q&A, Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only.We have elected to account for GILTI in the year the tax is incurred.
On March 11, 2021 the United States enacted the American Rescue Plan Act of 2021. This Act includes various income and payroll tax measures. The Company does not expect a material impact from the American Rescue Plan on its consolidated financial statements and related disclosures.
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On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes a 15% minimum tax on the adjusted financial statement income of corporations with a three taxable year average annual adjusted financial statement income in excess of $1 billion, a 1% excise tax on net stock repurchases made by publicly traded U.S. corporations and several tax incentives to promote clean energy. The alternative minimum tax and excise tax are effective in taxable years beginning after December 31, 2022. These tax law changes are not expected to significantly impact the Company’s consolidated financial statements. The Company will continue to evaluate its impact as further information becomes available.
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16. INCOME/LOSS PER SHARE
The following table presents the calculation of basic and diluted income/loss per share of common stock:
Years Ended
December 31,
20222021
(In thousands, except share and per share data)
Numerator:
Net (loss) income attributable to Acacia Research Corporation$(125,065)$149,197 
Dividend on Series A redeemable convertible preferred stock(2,799)(1,452)
Accretion of Series A redeemable convertible preferred stock(5,171)(3,829)
Undistributed earnings allocated to participating securities— (25,112)
Net (loss) income attributable to common stockholders - Basic(133,035)118,804 
Add: Dividend on Series A redeemable convertible preferred
   stock		— 1,452 
Add: Accretion of Series A redeemable convertible preferred
   stock		— 3,829 
Less: Change in fair value of Series A redeemable
   convertible preferred stock embedded derivative		— (8,280)
Less: Change in fair value of Series A warrants— — 
Less: Change in fair value of dilutive Series B warrants— 44,037 
Add: Interest expense associated with Starboard Notes,
   net of tax		— 4,658 
Add: Undistributed earnings allocated to participating
   securities		— 25,112 
Reallocation of undistributed earnings to participating
   securities		— (1,388)
Net (loss) income attributable to common stockholders - Diluted$(133,035)$188,224 
Denominator:
Weighted average shares used in computing net (loss) income
   per share attributable to common stockholders - Basic		42,460,504 48,797,290 
Potentially dilutive common shares:
Series A Preferred Stock— 9,589,041 
Restricted stock units—��758,682 
Stock options— 37,167 
Series A Warrants— — 
Series B Warrants— 39,288,690 
Weighted average shares used in computing net (loss) income
   per share attributable to common stockholders - Diluted		42,460,504 98,470,870 
Basic net (loss) income per common share$(3.13)$2.43 
Diluted net (loss) income per common share$(3.13)$1.91 
Anti-dilutive potential common shares excluded from the
   computation of diluted net income/loss per share:
Equity-based incentive awards2,558,720 393,750 
Series A warrants— 5,000,000 
Series B warrants100,000,000 — 
Total102,558,720 5,393,750 
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17. SEGMENT REPORTING
As of December 31, 2022, the Company operates and reports its results in two reportable segments: Intellectual Property Operations and Industrial Operations. Historically, the Company has managed and reported under a single reporting segment. In October 2021, the Company acquired Printronix, which comprises all of the operations of the Company’s Industrial Operations reportable segment and led to the identification of the additional reporting segment.
The Company reports segment information based on the management approach and organizes its businesses based on products and services. The management approach designates the internal reporting used by the chief operating decision maker for decision making and performance assessment as the basis for determining the Company’s reportable segments. The performance measure of the Company’s reportable segments is primarily income or (loss) from operations. Income or (loss) from operations for each segment includes all revenues, cost of revenues, gross profit and other operating expenses directly attributable to the segment. Other than the Company's equity securities investments, specific asset information is not included in managements review at this time.
The Company’s Intellectual Property Operations segment invests in IP and related absolute return assets, and engages in the licensing and enforcement of patented technologies. Through our Patent Licensing, Enforcement and Technologies Business we are a principal in the licensing and enforcement of patent portfolios, with our operating subsidiaries obtaining the rights in the patent portfolio or purchasing the patent portfolio outright. While we, from time to time, partner with inventors and patent owners, from small entities to large corporations, we assume all responsibility for advancing operational expenses while pursuing a patent licensing and enforcement program. When applicable, we share net licensing revenue with our patent partners as that program matures, on a prearranged and negotiated basis. We may also provide upfront capital to patent owners as an advance against future licensing revenue. Currently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios, which include U.S. patents and certain foreign counterparts, covering technologies used in a variety of industries. We generate revenues and related cash flows from the granting of IP rights for the use of patented technologies that our operating subsidiaries control or own.
The Company’s Industrial Operations segment generates operating income by designing and manufacturing printers and consumable products for various industrial printing applications. Printers consist of hardware and embedded software and may be sold with maintenance service agreements. Consumable products include inked ribbons which are used in Printronix’s printers. Printronix’s products are primarily sold through channel partners, such as dealers and distributors, to end-users. The Industrial Operations reporting segment did not exist prior to the acquisition of Printronix in October 2021, accordingly, the periods presented below include Printronix's operations for the full year ended December 31, 2022 compared to an approximate three month period ended December 31, 2021.
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The Company's segment information is as follows:
Years Ended December 31,
20222021
Intellectual Property OperationsIndustrial OperationsTotalIntellectual Property OperationsIndustrial OperationsTotal
(In thousands)
Revenues:
License fees$19,508 $— $19,508 $76,043 $— $76,043 
Printers and parts— 16,118 16,118 — 4,961 4,961 
Consumable products— 19,314 19,314 — 5,973 5,973 
Services— 4,283 4,283 — 1,070 1,070 
Total revenues19,508 39,715 59,223 76,043 12,004 88,047 
Cost of revenues:
Inventor royalties1,212 — 1,212 1,142 — 1,142 
Contingent legal fees2,444 — 2,444 12,074 — 12,074 
Litigation and licensing expenses3,970 — 3,970 5,462 — 5,462 
Amortization of patents10,403 — 10,403 9,851 — 9,851 
Other patent portfolio expense— — — 162 — 162 
Cost of sales— 19,359 19,359 — 7,407 7,407 
Total cost of revenues18,029 19,359 37,388 28,691 7,407 36,098 
Segment gross profit1,479 20,356 21,835 47,352 4,597 51,949 
Other operating expenses:
Engineering and development expenses— 626 626 — 200 200 
Sales and marketing expenses— 8,621 8,621 — 1,538 1,538 
Amortization of intangible assets— 1,732 1,732 — 399 399 
General and administrative expenses5,428 8,254 13,682 6,177 2,398 8,575 
Total other operating expenses5,428 19,233 24,661 6,177 4,535 10,712 
Segment operating (loss) income$(3,949)$1,123 (2,826)$41,175 $62 41,237 
Parent general and administrative expenses37,266 26,692 
Operating (loss) income(40,092)14,545 
Total other (expense) income(87,058)160,107 
(Loss) income before income taxes$(127,150)$174,652 
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December 31,
20222021
(In thousands)
Equity securities investments:
Equity securities$61,608 $361,778 
Equity securities without readily determinable fair value5,816 5,816 
Equity method investments30,934 30,934 
Total parent equity securities investments98,358 398,528 
Other parent assets156,394 172,726 
Segment total assets:
Intellectual property operations176,119 175,286 
Industrial operations52,057 52,316 
Total assets$482,928 $798,856 
The Company's revenues and long-lived tangible assets by geographic area are presented below. Intellectual Property Operations revenues are attributed to licensees domiciled in foreign jurisdictions. Printronix's net sales to external customers are attributed to geographic areas based upon the final destination of products shipped. The Company, primarily through its Printronix subsidiary, has identified three global regions for marketing its products and services: Americas, Europe, Middle East and Africa, and Asia-Pacific. Assets are summarized based on the location of held assets.
Years Ended December 31,
20222021
Intellectual Property OperationsIndustrial OperationsTotalIntellectual Property OperationsIndustrial OperationsTotal
(In thousands)
Revenues by geographic area:
United States$18,882 $15,541 $34,423 $23,256 $4,937 $28,193 
Canada and Latin America11 2,145 2,156 402 251 653 
Total Americas18,893 17,686 36,579 23,658 5,188 28,846 
Europe, Middle East and Africa589 9,298 9,887 1,841 2,589 4,430 
China— 5,207 5,207 — 1,910 1,910 
India— 2,957 2,957 — 1,076 1,076 
Asia-Pacific, excluding China and India26 4,567 4,593 50,544 1,241 51,785 
Total Asia-Pacific26 12,731 12,757 50,544 4,227 54,771 
Total revenues$19,508 $39,715 $59,223 $76,043 $12,004 $88,047 
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December 31, 2022
Intellectual Property OperationsIndustrial OperationsTotal
(In thousands)
Long-lived tangible assets by geographic area:
United States$324 $302 $626 
Malaysia— 2,703 2,703 
Other foreign countries— 208 208 
Total$324 $3,213 $3,537 
December 31, 2021
Intellectual Property OperationsIndustrial OperationsTotal
(In thousands)
Long-lived tangible assets by geographic area:
United States$204 $473 $677 
Malaysia— 3,203 3,203 
Other foreign countries— 303 303 
Total$204 $3,979 $4,183 
18. SUBSEQUENT EVENTS
Change of Chief Financial Officer
Effective January 27, 2023, Richard Rosenstein resigned as the Chief Financial Officer of the Company. Mr. Rosenstein’s departure is not the result of any dispute or disagreement with the Company, including with respect to matters related to the Company’s accounting practices, general policies or financial reporting. Acacia and Mr. Rosenstein entered into a consulting agreement upon his departure, in accordance with Mr. Rosenstein will serve as a consultant through April 30, 2023. Effective as of January 28, 2023, Kirsten Hoover, who currently serves as Acacia’s Corporate Controller and previously held other senior finance roles at the Company, assumed the role of interim Chief Financial Officer. The Board is currently searching for a permanent successor.
Rights Offering and Concurrent Private Rights Offering
On February 14, 2023, pursuant to the requirements of the Recapitalization Agreement and in accordance with the terms of the Series B Warrants, the Company commenced a Rights Offering and Concurrent Private Rights Offering, which were completed on March 1, 2023. The Company received aggregate gross proceeds of approximately $361,000 from the Rights Offering and aggregate gross proceeds of approximately $78.8 million from the Concurrent Private Rights Offering. Refer to Note 8for additional information.
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