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Item 9A. Controls and Procedures

2023-03-17 compared with 2022-03-31 · 656 added, 676 removed, 1110 unchanged (55% of the section changed)

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Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e)and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that this information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the 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 Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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.

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.

I nternal 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 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 and procedures may deteriorate.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the criteria set forth in the Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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Changes in Internal Controls over Financial Reporting

Other than certain enhanced controls in connection with the acquisition of Printronix, 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 quarter ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control 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 quarter ended December 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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Code of Conduct

We have adopted a Code of Conduct that applies to all employees, including our Chief Executive Officer and Chief Financial Officer and any persons performing similar functions.

We have adopted a Code of Conduct that applies to all employees, including our principal executive officer and principal financial officer and any persons performing similar functions.

Our Code of Conduct is provided on our internet website at www.acaciaresearch.com .

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Acacia Research Corporation Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm (BDO USA, LLP;

Report of Independent Registered Public Accounting Firm (GRANT THORNTON LLP;

New York , NY ;

PCAOB ID# 248 )

Report of Independent Registered Public Accounting Firm (GRANT THORNTON LLP;

Newport Beach, CA;

Report of Independent Registered Public Accounting Firm (BDO USA, LLP;

New York, NY;

PCAOB ID# 243 )

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2.2 Transaction Agreement, dated as of June 4, 2020, between LF Equity Income Fund and Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on June 10, 2020)

3.1 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Acacia Research Corporation (as updated through May 18, 2021 and currently in effect) (incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, filed on August 16, 2021)

3.1 Third Amended and Restated Certificate of Incorporation of Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on May 20, 2022)

3.2 Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, as filed with the Delaware Secretary of State on January 7, 2020 (incorporated by reference to Appendix B to the Definitive Proxy Statement on Schedule 14A filed on January 17, 2020)

3.3 Third Amended and Restated Bylaws (incorporated by reference to the Current Report on Form 8-K filed on May 25 , 2021 )

3.3 Fourth Amended and Restated Bylaws (incorporated by reference to the Current Report on Form 8-K filed on May 20, 2022)

4.1 Tax Benefits Preservation Plan, dated as of March 16, 2019, by and between Acacia Research Corporation and Computershare Inc., as Rights Agent, which includes the Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock as Exhibit A, the Form of Rights Certificate as Exhibit B and the Summary of Terms as Exhibit C (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2018, filed on March 15, 2019)

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4.5 Form of Series B Warrant to Purchase Common Stock (incorporated by reference to Appendix D to the Definitive Proxy Statement on Schedule 14A filed on January 17, 2020)

4.6 Form of Subscription Rights Certificate (incorporated by reference to the Current Report on Form 8-K filed on February 14, 2023)

4.7 Form of First Amendment to Series B Warrant to Purchase Common Stock (incorporated by reference to the Current Report on Form 8-K filed on August 24, 2022)

4.8 Form of Second Amendment to Series B Warrant to Purchase Common Stock (incorporated by reference to the Current Report on Form 8-K filed on September 15, 2022)

4.9 Form of Third Amendment to Series B Warrant to Purchase Common Stock (incorporated by reference to the Current Report on Form 8-K filed on September 30, 2022)

10.1* Form of Indemnification Agreement (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 16, 2020)

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10.9* Form of Profits Interest Agreement Under AIP Operation LLC Profits Interest Plan (incorporated by reference to the Quarterly Report on Form 10-Q for the period ended March 31, 2017, filed on May 10, 2017)

10.10 Investment Agreement dated August 15, 2016, by and between Acacia Research Corporation and Veritone, Inc.

(incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017)

10.11 Secured Promissory Note dated August 15, 2016, issued by Veritone, Inc.

to Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017)

10.12 Primary Common Stock Purchase Warrant dated August 15, 2016, issued by Veritone, Inc.

to Acacia Research Corporation, together with form of 10% Warrant to Purchase Common Stock (incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017)

10.13 Common Stock Purchase Warrant dated August 15, 2016, issued by Veritone, Inc.

to Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017)

10.14 Common Stock Purchase Warrant dated November 25, 2016, issued by Veritone, Inc.

to Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017)

10.15 Common Stock Purchase Warrant dated November 25, 2016, issued by Veritone, Inc.

to Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017)

10.10* Employment Agreement, dated June 19, 2020, by and between Acacia Research Group, LLC and Marc W.

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10.15* Employment Agreement, effective March 16, 2021, by and between Acacia Research Group, LLC and Jason Soncini (incorporated by reference to the Current Report on Form 8-K filed on March 22, 2021)

10.22* Employment Agreement, effective March 10 , 202 2 , by and amo ng Acacia Research Corporation, Acacia Research Group LLC, and Martin D.

10.16* Employment Agreement, effective March 10, 2022, among Acacia Research Corporation, Acacia Research Group LLC, and Martin D.

(incorporated by reference to the Current Report on Form 8-K filed on March 15, 2022)

10.17*# Separation Agreement and General Release of Claims, effective November 28, 2022, among Acacia Research Group LLC, and Lawrence Wesley Golby (filed herewith as Exhibit 10.1 pursuant to Part II, Item 9B)

10.18*# Consulting Agreement, effective January 28, 2023, among Acacia Research Corporation and Richard Rosenstein (filed herewith as Exhibit 10.2)

10.19 Securities Purchase Agreement dated November 18, 2019, by and among Acacia Research Corporation, Starboard Value LP and the investors listed on the Schedule of Buyers attached thereto (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed on January 17, 2020)

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10.30 Fifth Supplemental Agreement, dated as of November 30, 2021, between Starboard Value, L.P., on behalf of the Starboard Funds, Acacia Research Corporation and Merton Acquisition Holdco LLC (incorporated by reference to the Current Report on Form 8-K filed on December 6, 2021)

10.35 Sixth Supplemental Agreement, dated as of January 31, 2022, between Starboard Value, L.P., on behalf of the Starboard Funds, Acacia Research Corporation and Merton Acquisition Holdco LLC (incorporated by reference to the Current Report on Form 8-K filed on February 4, 2022)

10.36 Registration Rights Agreement dated November 18, 2019, by and among Acacia Research Corporation and the investors listed on the Schedule of Buyers attached thereto (incorporated by reference to Appendix F to the Definitive Proxy Statement on Schedule 14A filed on January 17, 2020)

10.31 Governance Agreement dated November 18, 2019 and amended January 7, 2020, by and among Acacia Research Corporation and the entities and natural persons set forth on the signature pages thereto (incorporated by reference to Appendix G to the Definitive Proxy Statement on Schedule 14A filed on January 17, 2020)

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10.33 First Amendment of Lease, dated as of August 5, 2021, between Sage Realty Corporation and Acacia Research Corporation (incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed on November 15, 2021)

10.34 Sixth Supplemental Agreement, dated as of January 31, 2022, among Starboard Value, L.P., on behalf of the Starboard Funds, Acacia Research Corporation and Merton Acquisition Holdco LLC (incorporated by reference to the Current Report on Form 8-K filed on February 4, 2022)

10.35 Seventh Supplemental Agreement, dated as of April 14, 2022, among Starboard Value, L.P., on behalf of the Starboard Funds, Acacia Research Corporation and Merton Acquisition Holdco LLC (incorporated by reference to the Current Report on Form 8-K filed on April 20, 2022)

10.36 Eighth Supplemental Agreement, dated as of July 15, 2022, among Starboard Value, L.P., on behalf of the Starboard Funds, Acacia Research Corporation and Merton Acquisition Holdco LLC (incorporated by reference to the Current Report on Form 8-K filed on July 19, 2022)

10.37 Recapitalization Agreement dated October 30, 2022, by and among Acacia Research Corporation, Starboard Value Partners LP and the investors listed on the Schedule of Investors attached thereto (incorporated by reference to the Current Report on Form 8-K filed on November 1, 2022)

10.38 Amended and Restated Registration Rights Agreement dated as of February 14, 2023, by and among Acacia Research Corporation and the investors listed on the Schedule of Buyers attached thereto (incorporated by reference to the Current Report on Form 8-K filed on February 14, 2023)

16.1 Letter from BDO USA LLC to the SEC dated September 7, 2022 (incorporated by reference to the Current Report on Form 8-K filed on September 7, 2022)

List of Subsidiaries

Consent of Independent Registered Public Accounting Firm, BDO USA, LLP

Consent of Independent Registered Public Accounting Firm, GRANT THORNTON LLP

Consent of Independent Registered Public Accounting Firm, BDO USA, LLP

24.1 Power of Attorney (included in the signature page hereto).

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.

Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.

Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

Certification of Principal Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.

Certification of Principal Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.

The following financial statements from the Company’s Annual Report on Form 10-K for the years ended December 31, 2022 and 2021, formatted in Inline Extensible Business Reporting Language (iXBRL) include:

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____________________

* 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 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.

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March 17, 2023 By:

/s/ Clifford Press

Clifford Press

President and Chief Executive Officer (Principal Executive Officer and Duly Authorized Signatory)

/s/ Martin D.

Interim 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 Clifford Press and Richard Rosenstein, 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;

We, the undersigned directors and officers of Acacia Research Corporation, do hereby constitute and appoint Martin D.

and 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.

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Signature Title Date

/s/ Clifford Press President and Chief Executive Officer March 31, 2022

Clifford Press (Principal Executive Officer)

/s/ Richard Rosenstein Chief Financial Officer March 31, 2022

Richard Rosenstein (Principal Financial Officer)

/s/ Kirsten Hoover Corporate Controller March 31, 2022

Kirsten Hoover (Principal Accounting Officer)

/s/ Martin D.

Interim Chief Executive Officer March 17, 2023

(Principal Executive Officer)

/s/ Kirsten Hoover Interim Chief Financial Officer March 17, 2023

Kirsten Hoover (Principal Financial and Accounting Officer)

/s/ Gavin Molinelli Director March 17, 2023

Gavin Molinelli

/s/ Isaac Kohlberg Director March 17, 2023

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

Board of Directors and Stockholders

Acacia Research Corporation

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Acacia Research Corporation (the “Company”) as of December 31, 2021, the related consolidated statements of operations, series A redeemable convertible preferred stock and stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheet of Acacia Research Corporation (the “Company”) as of December 31, 2021, the related consolidated statements of operations, series A redeemable convertible preferred stock and stockholders’ equity, and cash flows for the year then ended December 31, 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 at December 31, 2022, and the results of its operations and its cash flows for the year then ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

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 audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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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 the consolidated financial statements are free of material misstatement, whether due to error or fraud.

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.

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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 test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit 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 regarding the amounts and disclosures in the financial statements.

Our audit also includes 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 audit 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 consolidated 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 consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Fair value measurements of the Series A and B Warrants and embedded derivative liabilities in the Series A Redeemable Convertible Preferred Stock.

As described further in Note 11 to the consolidated financial statements, the Series A and B Warrants are recorded at fair value using the Black-Scholes option-pricing model.

The embedded derivative liabilities in the Series A Redeemable Convertible Preferred Stock (embedded derivative) are recorded at fair value using a binomial model.

The Black Scholes option-pricing model and the binomial model require management to make significant assumptions, which include the determination of volatility and credit spread (binomial model only).

We identified the fair value measurements of the Series A and B Warrants and embedded derivative as a critical audit matter.

The principal consideration for our determination is management’s significant judgment related to the assumptions of volatility and credit spread.

Auditing these significant assumptions involved subjective auditor judgment and the use of our valuation specialist.

The primary procedures we performed to address this critical audit matter included:

• Utilizing personnel with specialized knowledge and skills in valuation to evaluate the reasonableness of the Company’s assumptions by:

(1) comparing volatility and credit spread assumptions against available market data and historical amounts and (2) validating the mathematical accuracy of the models by performing an independent calculation and comparing to management’s concluded valuations.

/s/ BDO USA, LLP

We have served as the Company’s auditor since 2021.

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.

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 served as the Company’s auditor since 2022.

New York, New York

March 17, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Shareholders and Board of Directors

Acacia Research Corporation

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of Acacia Research Corporation and subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of operations, series A redeemable convertible preferred stock and stockholders’ equity, and cash flows for the year then ended, 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 of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Opinion on the Consolidated Financial Statements

Basis for 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.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

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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 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.

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Accordingly, we express no such opinion.

Our audit included 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 regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We served as the Company’s auditor from 2007 to 2021.

Newport Beach, California

March 29, 2021 (except for Notes 7, 19 and 20, as to which the date is March 31, 2022)

/s/ BDO USA, LLP

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

March 31, 2022

ACACIA RESEARCH CORPORATION

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Cash and cash equivalents $ 287,786 $ 308,943

Equity securities at fair value 361,778 109,103

Equity securities 61,608 361,778

Equity securities without readily determinable fair value 5,816 5,816

Investment securities - equity method investments 30,934 30,673

Investment at fair value — 2,752

Equity method investments 30,934 30,934

Accounts receivable, net 8,231 9,517

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Total costs and expenses 99,315 73,502

Operating income (loss) 14,545 ( 19,518 )

Other income (expense):

Operating (loss) income ( 40,092 ) 14,545

Other (expense) income:

Equity securities investments:

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Earnings on equity investment in joint venture 42,531 3,530

Net realized and unrealized gain 207,186 183,525

Gain on sale of prepaid investment and derivative — 2,845

Net realized and unrealized (loss) gain ( 95,846 ) 207,186

Change in fair value of investment — ( 2,752 )

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Interest expense on Senior Secured Notes ( 6,432 ) ( 7,922 )

Interest income and other 501 838

Total other income 160,107 127,590

Income before income taxes 174,652 108,072

Income tax (expense) benefit ( 24,287 ) 1,159

Net income including noncontrolling interests in subsidiaries 150,365 109,231

Interest income and other, net 5,442 501

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 income attributable to Acacia Research Corporation $ 149,197 $ 109,231

Income per share:

Net income attributable to common stockholders - Basic $ 118,804 $ 86,846

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 - Basic 42,460,504 48,797,290

Basic net income per common share $ 2.43 $ 1.78

Net income attributable to common stockholders - Diluted $ 188,224 $ 84,894

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 - Diluted 42,460,504 98,470,870

Diluted net income per common share $ 1.91 $ 1.48

Diluted net (loss) income per common share $ ( 3.13 ) $ 1.91

The accompanying notes are an integral part of these consolidated financial statements.

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Balance at December 31, 2021 350,000 $ 14,753 48,807,748 $ 49 $ ( 47,281 ) $ 648,389 $ ( 181,724 ) $ 11,042 $ 430,475

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 — — 0 — — 2,053 — — 2,053

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, 2022 350,000 $ 19,924 43,484,867 $ 43 $ ( 98,258 ) $ 663,284 $ ( 306,789 ) $ 11,042 $ 269,322

The accompanying notes are an integral part of these consolidated financial statements.

ACACIA RESEARCH CORPORATION

CONSOLIDATED STATEMENTS OF SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

(In thousands, except share data)

Year Ended December 31, 2021

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Balance at December 31, 2020 350,000 $ 10,924 49,279,453 $ 49 $ ( 43,270 ) $ 651,416 $ ( 330,921 ) $ 11,042 $ 288,316

Net income attributable to Acacia Research Corporation — — — — — — 109,231 — 109,231

Accretion of Series A Redeemable Convertible Preferred Stock to redemption value — 2,835 — — — ( 2,835 ) — — ( 2,835 )

Dividend on Series A Redeemable Convertible Preferred Stock — — — — — ( 1,382 ) — — ( 1,382 )

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 — — 14,354 — — — — — —

Issuance of common stock for unvested restricted stock awards, net of forfeitures — — 565,316 — — — — — —

Compensation expense for share-based awards — — — — — 1,662 — — 1,662

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 )

Dissolution of Acacia Intellectual Property Fund, L.P.

— — — — — 1,920 ( 496 ) ( 1,424 ) —

Distributions to noncontrolling interests in subsidiaries — — — — — — — ( 409 ) ( 409 )

Acquisition of MalinJ1 — — — — — — — 11,042 11,042

Balance at December 31, 2021 350,000 $ 14,753 48,807,748 $ 49 $ ( 47,281 ) $ 648,389 $ ( 181,724 ) $ 11,042 $ 430,475

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Cash flows from operating activities:

Net income including noncontrolling interests in subsidiaries $ 150,365 $ 109,231

Adjustments to reconcile net income including noncontrolling interests in subsidiaries to net cash provided by (used in)

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, net 2,752 ( 5,474 )

Change in fair value of investment — 2,752

Gain on sale of investment — ( 3,591 )

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Change in fair value of Series B warrants ( 11,598 ) 44,037

Loss on exercise of Series A warrants 2,004 —

Compensation expense for share-based awards 3,820 2,053

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Gain on sale of equity securities ( 125,318 ) ( 116,129 )

Gain on sale of prepaid investment and derivative — ( 2,845 )

Earnings on equity investment in joint venture ( 42,531 ) ( 3,530 )

Deferred income taxes ( 17,810 ) 15,742

Changes in assets and liabilities:

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Deferred revenue 100 ( 246 )

Deferred income tax liabilities 15,742 —

Net cash provided by (used in) operating activities 13,326 ( 19,620 )

Net cash (used in) provided by operating activities ( 37,336 ) 13,326

Cash flows from investing activities:

Acquisition, net of cash acquired (Note 3) ( 33,250 ) —

Acquisition, net of cash acquired — ( 33,250 )

Patent acquisition ( 5,000 ) ( 21,000 )

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Sales of equity securities 273,934 154,784

Maturities and sales of debt securities — 118,459

Cash distributed for notes receivable — ( 4,021 )

Acquisition of Life Sciences Portfolio equity securities — ( 280,263 )

Distributions received from equity investment in joint venture 28,404 2,362

Distributions to noncontrolling interests in operating subsidiary — ( 409 )

Purchases of property and equipment ( 732 ) ( 91 )

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Paydown of Senior Secured Notes ( 120,000 ) ( 50,000 )

Senior Secured Notes issuance costs paid to other parties — ( 496 )

Dividend on Series A Redeemable Convertible Preferred Stock ( 2,799 ) ( 1,452 )

Issuance of Series B warrants — 4,600

Taxes paid related to net share settlement of share-based awards ( 1,600 ) —

Proceeds from exercise of Series A warrants 9,250 —

Proceeds from exercise of stock options — 202

Net cash provided by financing activities 59,738 109,209

Increase in cash and cash equivalents and restricted cash 108,815 108,187

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, beginning 309,361 200,546

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Interest paid $ 7,229 $ 7,336

Income taxes paid (refunded) 25 ( 3,482 )

Income taxes paid 384 25

Noncash investing and financing activities:

Patent acquisition in exchange of notes receivable — 4,000

Patent acquisition accrued liabilities 5,000 —

Accrued patent costs 9,000 5,000

Distribution to noncontrolling interests in subsidiaries 14,126 1,168

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DESCRIPTION OF BUSINESS

Acacia Research Corporation (the “Company,” “we,” “us,” or "our") is a permanent capital platform that purchases businesses based on the differentials between public and private market valuations.

Acacia Research Corporation (the “Company,” "Acacia," “we,” “us,” or "our") is 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.

Our focus to date has been on companies with market values in the sub-$2 billion range and particularly on businesses valued at $1 billion or less.

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.

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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, 2021, we have monetized a portion 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.

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

Acacia invests in intellectual property 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.

We assume all responsibility for advancing operational expenses while pursuing a patent licensing and enforcement program, and when applicable, share net licensing revenue with our patent partners as that program matures, on a pre-arranged and negotiated basis.

The Company invests in intellectual property and related absolute return assets and engages in the licensing and enforcement 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 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 pre-arranged and negotiated basis.

We may also provide upfront capital to patent owners as an advance against future licensing revenue.

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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.

Our Intellectual Property Operations business depends upon the identification and investment in new patents, inventions and companies that own IP through our relationships with inventors, universities, research institutions, technology companies and others.

If Acacia’s operating subsidiaries are unable to maintain those relationships and identify and grow new relationships, then they may not be able to identify new technology-based opportunities for sustainable revenue and/or revenue growth.

During the year ended December 31, 2021, Acacia obtained control of one new patent portfolio.

During 2020, Acacia obtained control of five new patent portfolios.

ARG generates

revenues and related cash flows from the granting of IP rights for the use of patented technologies that its operating subsidiaries control or own.

Our Patent Licensing, Enforcement and Technologies Business depends upon the identification and investment in new patents, inventions and companies that own IP through relationships with inventors, universities, research institutions, technology companies and others.

If ARG’s operating subsidiaries are unable to maintain those relationships and identify and grow new relationships, then they may not be able to identify new technology-based opportunities for sustainable revenue and/or revenue growth.

During the year ended 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.

Industrial Operations Acquisition

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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.

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.

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.

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 $ 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 3 for additional information.

COVID-19 Pandemic

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report.

While the Company does not expect the current situation to present direct risks to its business, and it has not had a material impact to date, the COVID-19 pandemic could adversely impact the Company’s operations, as well as the operations of its licensees and other business partners.

Our cash is held in major financial institutions primarily in government instruments.

Our business is fully able to operate in a socially distanced and/or remote capacity and in accordance with applicable laws, policies and best practices.

Our workforce is provided ample paid sick leave, and we have in place robust disaster recovery and business continuity policies that have been revised to account for a long-term remote work contingency such as this.

However, the ongoing pandemic may present risks that we do not currently consider material or risks that may evolve quickly that could have a materially adverse effect on our business, results of operations and financial condition.

As of December 31, 2021, management finalized the valuations of all acquired assets and liabilities assumed in the acquisition and there was no contingent consideration.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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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.

Correction of Immaterial Error

In connection with the preparation of the Company’s consolidated financial statements during the year ended December 31, 2021, the Company identified and recorded an adjustment to the current and prior periods related to the estimated amortization period of deferred debt issuance costs.

T he Company evaluated the error a nd determined that the related impact did not materially misstate previously issued consolidated financial statements.

Although the Company concluded that the misstatement was n ot material to its previously issued consolidated financial statements, the Company has determined it is appropriate to revise its previously issued consolidated financial statements to correct for the error .

Refer to Note 20 for additional information including a summary of the adjustments to certain previously reported financial information.

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

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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 Consolidated Statements of Series A Redeemable Convertible Preferred Stock and Stockholders’ Equity for total noncontrolling interests.

Refer to the Consolidated Statements of 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 securities of Malin J1 Limited (“MalinJ1”).

MalinJ1 is included in the Company’s consolidated financial statements because the Company, through its interest in the equity securities of MalinJ1, has the ability to control the operations and activities of MalinJ1.

MalinJ1 is included in the Company’s consolidated financial statements because the Company, through its interest in the equity securities of MalinJ1, has the ability to control

the operations and activities of MalinJ1.

Viamet HoldCo LLC, a Delaware limited liability company and wholly-owned subsidiary of Acacia, is the majority shareholder of MalinJ1.

A wholly-owned subsidiary of Acacia is the general partner of the Acacia Intellectual Property Fund, L.P.

(the “Acacia IP Fund”), which was formed in August 2010.

The Acacia IP Fund has been included in the Company’s consolidated financial statements since 2010, as Acacia’s wholly-owned subsidiary, the general partner of Acacia IP Fund, has the ability to

control the operations and activities of the Acacia IP Fund.

The Acacia IP Fund was terminated as of December 31, 2017 and dissolved in 2020.

Segment Reporting

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Intellectual Property Operations

Acacia's revenue is recognized upon transfer of control (i.e., by the granting) of promised bundled IP Rights and other contractual performance obligations to licensees in an amount that reflects the consideration we expect to receive in exchange for those IP Rights.

ARG's revenue is recognized upon transfer of control (i.e., by the granting) of promised bundled IP Rights and other contractual performance obligations to licensees in an amount that reflects the consideration we expect to receive in exchange for those IP Rights.

Revenue contracts that provide promises to grant the right to use IP Rights as they exist at the point in time at which the IP Rights are granted, are accounted for as performance obligations satisfied at a point in time and revenue is recognized at the point in time that the applicable performance obligations are satisfied and all other revenue recognition criteria have been met.

For the periods presented, revenue contracts executed by Acacia primarily provided for the payment of contractually determined, one-time, paid-up license fees in consideration for the grant of certain IP Rights for patented technologies owned or controlled by Acacia.

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”).

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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, Acacia 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.

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.

Acacia’s subsequent activities do not substantively change that functionality and do not significantly affect the utility of the IP to which the licensee has rights.

Acacia’s operating subsidiaries have no further obligation with respect to the grant of IP Rights, including no express or implied obligation to maintain or upgrade the technology, or provide future support or services.

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.

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Contractual payments made by licensees are generally non-refundable.

For sales-based royalties from Recurring License Revenue Agreements, Acacia 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.

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.

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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 determining the transaction price, Acacia adjusts the promised amount of consideration for the effects of the time value of money.

As a practical expedient, Acacia does not adjust the promised amount of consideration for the effects of a significant financing component if Acacia 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, Acacia is required to make certain judgments and estimates in connection with the accounting for revenue contracts with customers.

In determining the transaction 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 make certain judgments and estimates in connection with the accounting for revenue contracts with customers.

Such areas may include identifying performance obligations in the contract, estimating the timing of satisfaction of performance obligations, determining whether a promise to grant a license is distinct from other promised goods or services, evaluating whether a license transfers to a customer at a point in time or over time, allocating the transaction price to separate performance obligations, determining whether contracts contain a significant financing component, and estimating revenues recognized at a point in time for sales-based royalties.

License revenues were comprised of the following for the periods presented:

Years Ended December 31,

(In thousands)

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The determination of whether control transfers at a point in time or over time requires judgment and includes consideration of the following:

1) the customer simultaneously receives and consumes the benefits provided as Printronix performs its promises, 2) the performance creates or enhances an asset that is under control of the customer, 3) the performance does not create an asset with an alternative use to Printronix, and 4) Printronix has an enforceable right to payment for its performance completed to date.

(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.

Revenues 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.

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Revenue from maintenance service contracts are recognized on a straight-line basis over the period of each individual contract, which is consistent with the pattern in which the benefit is consumed by the customer.

Printronix's net revenues from October 7, 2021 through December 31, 2021 were comprised of the following (in thousands):

Printronix's net revenues were comprised of the following for the periods presented:

Year Ended December 31, 2022 October 7, 2021 to December 31, 2021

(In thousands)

Printers, consumables and parts $ 35,432 $ 10,934

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Refer to Note 17 for additional information regarding net sales to customers by geographic region.

Deferred revenue on 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 $ 800,000 in revenue that was previously included in the beginning balance (October 7, 2021) of deferred revenue during the period from October 7, 2021 through December 31, 2021.

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, 2022 and the period from October 7, 2021 through December 31, 2021, respectively.

Printronix's payment terms vary by the type and location of its customers and the products, solutions or services offered.

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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 with an original term exceeding one year was $ 772,000 , inclusive of deferred revenue, as of December 31, 2021.

The aggregated transaction price allocated to remaining performance obligations for arrangements

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 .

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Intellectual Property Operations

Cost of revenues include the costs and expenses incurred in connection with Acacia’s patent licensing and enforcement activities, including inventor royalties paid to original 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 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 the following for the periods presented:

Years Ended December 31,

(In thousands)

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Amortization of patents 10,403 9,851

Other patent portfolio expense (income) 162 ( 308 )

Other patent portfolio expense — 162

Total $ 18,029 $ 28,691

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Inventor royalties are expensed in the consolidated statements of operations in the period that the related revenues are recognized.

Patent costs, including any upfront advances paid to patent owners by Acacia’s operating subsidiaries, that are recoverable from future net revenues are amortized over the estimated economic useful life of the related patents, or as the prepaid royalties are earned by the inventor, as appropriate, and the related expense is included in amortization expense in the consolidated statements of operations.

Patent costs, including any upfront advances paid to patent owners by ARG’s operating subsidiaries, that are recoverable from future net revenues are amortized over the estimated economic useful life of the related patents, or as the prepaid royalties are earned by the inventor, as appropriate, and the related expense is included in amortization expense in the 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.

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In instances where there are no recoveries from potential infringers, no contingent legal fees are paid;

however, Acacia’s operating subsidiaries may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement.

Inventor royalty and contingent legal agreements generally provide for payment by the Company of contractual amounts 30 days subsequent to the quarter end during which related license fee payments are received from licensees by the Company.

however, ARG’s operating subsidiaries may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement.

Inventor royalty and contingent legal agreements 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

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.

Industrial Operations

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The provision for warranty costs is determined by applying the historical claims experience and estimated repair costs to the outstanding units under warranty.

The following is a summary of the accrued warranty liabilities for the period from October 7, 2021 through December 31, 2021, which are included in accrued expenses and other current liabilities, and other long-term liabilities in the consolidated balance sheet as of December 31, 2021 (in thousands):

Beginning balance (October 7, 2021) $ 260

The following is a summary of the accrued warranty liabilities, which are included in accrued expenses and other current liabilities, and other long-term liabilities in the consolidated balance sheets:

Year Ended December 31, 2022 October 7, 2021 to December 31, 2021

(In thousands)

Beginning balance $ 222 $ 260

Estimated future warranty expense 25 17

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Concentrations

Intellectual Property Operations

Financial instruments that potentially subject Acacia to concentrations of credit risk are cash equivalents and accounts receivable.

Acacia places its cash equivalents primarily in highly rated money market funds and investment grade marketable securities.

Financial instruments that potentially subject the Company to concentrations of credit 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.

Acacia has not experienced any significant losses on its deposits of cash and cash equivalents.

Two licensees individually accounted for 66 % and 16 % of revenues recognized during the year ended December 31, 2021.

The Company has not experienced any significant losses on its deposits of cash and cash equivalents.

Intellectual Property Operations

Three licensees individually accounted for 15 %, 15 % and 27 % of revenues recognized during the year ended December 31, 2022.

Historically, Acacia has not had material foreign operations.

Two licensees individually accounted for 66 % and 16 % of revenues recognized during the year ended December 31, 2021.

Historically, ARG has not had material foreign operations.

Based on the jurisdiction of the entity obligated to satisfy payment obligations pursuant to the applicable license revenue arrangement, for the years ended December 31, 2022 and 2021, 3 % and 69 %, respectively, of revenues were attributable to licensees domiciled in foreign jurisdictions.

During the fourth quarter of 2021, Acacia generated substantial revenue from a paid-up licensee domiciled in an Asia-Pacific country.

Refer to Note 17 for additional information regarding revenue from customers by geographic region.

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Industrial Operations

No single Printronix customer accounted for more than 10% of revenue during the period from October 7, 2021 through December 31, 2021.

Printronix has foreign operations, refer to Note 19 for additional information regarding net sales to customers by geographic region.

Accounts receivable from one customer represented 11 % of accounts receivable as of December 31, 2021.

No single Printronix customer accounted for more than 10% of revenue for the years ended December 31, 2022 and 2021.

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 accounts receivable as of December 31, 2022, and one customer represented 11 % of accounts receivable as of December 31, 2021.

Exposure to credit risk is limited by the large number of customers comprising the remainder of the Printronix customer base and by periodic customer credit evaluations performed by Printronix.

No Printronix vendor accounted for 10% or more of purchases during the period from October 7, 2021 through December 31, 2021.

Accounts payable to one vendor represented 14 % of accounts payable as of December 31, 2021.

No single Printronix vendor accounted for 10% or more of purchases for the years ended December 31, 2022 and 2021.

Accounts payable to two vendors represented 21 % and 13 % of accounts payable as of December 31, 2022, and one vendor represented 14 % of accounts payable as of December 31, 2021.

Cash and Cash Equivalents

Acacia considers 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 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.

The Company considers 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 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.

Equity Securities at Fair Value

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 11 for additional information related to fair value measurements.

Equity securities at fair value for the periods presented were comprised of the following:

Security Type Cost Gross

Loss Fair Value

(In thousands)

December 31, 2021:

Equity securities - Life Sciences Portfolio (Note 4) $ 56,037 $ 262,811 $ ( 1,488 ) $ 317,360

Equity securities 43,822 2,068 ( 1,472 ) 44,418

Total $ 99,859 $ 264,879 $ ( 2,960 ) $ 361,778

December 31, 2020:

Equity securities - Life Sciences Portfolio (Note 4) $ 32,765 $ 72,689 $ ( 583 ) $ 104,871

Equity securities 4,086 1,410 ( 1,264 ) 4,232

Total $ 36,851 $ 74,099 $ ( 1,847 ) $ 109,103

Debt Securities

Investments in debt securities were reported at fair value on a recurring basis, with related realized and unrealized gains and losses recorded in the consolidated statements of operations in other income or (expense).

Realized and unrealized gains and losses were recorded based on the specific identification method.

Interest is included in other income or (expense).

During the year ended December 31, 2020, we sold our investments in debt securities, resulting in proceeds from the sales and maturities of $ 118.5 million.

Refer to Note 3 for additional information.

Equity Securities Without Readily Determinable Fair Value

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Changes in fair value are reported in the consolidated statements of operations in other income or (expense).

To date, the Company has not recorded any impairments nor upward or downward adjustments on our equity securities without readily determinable fair values held as of December 31, 2021.

To date, the Company has not recorded any impairments nor upward or downward adjustments on our equity securities without readily determinable fair values held as of December 31, 2022 and 2021.

Refer to Note 3 for additional information.

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An investment in preferred stock with substantive liquidation preferences over common stock, is not substantially similar to common stock, and therefore is not considered in-substance common stock.

A liquidation preference is substantive if the

investment has a stated liquidation preference that is significant, from a fair value perspective, in relation to the purchase price of the investment.

A liquidation preference is substantive if the investment has a stated liquidation preference that is significant, from a fair value perspective, in relation to the purchase price of the investment.

A liquidation preference in an investee that has sufficient subordinated equity from a fair value perspective is substantive because, in the event of liquidation, the investment will not participate in substantially all of the investee's losses, if any.

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If the fair value method is applied to an investment that would otherwise be accounted for under the equity method of accounting, it is applied to all of the financial interests in the same entity that are eligible items (i.e., common stock and warrants).

We elected the fair value method for our investment in Veritone, Inc.

(“Veritone”) upon acquisition of the investment.

Since March 2021, we have no more investment in Veritone stocks and warrants.

Refer to Note 5 for additional information.

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, r efer to Note 3 for additional information.

During 2016 and 2017, Acacia made certain investments in Veritone, Inc.

(“Veritone”).

As a result of these transactions, Acacia received shares of Veritone common stock and warrants.

We elected the fair value method for our investment in Veritone upon acquisition.

During 2018, Acacia began to divest its investments in Veritone.

During 2020, Acacia sold its remaining shares of common 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 Acacia 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.

Impairment of Investments

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Intellectual Property Operations

Acacia performs credit evaluations of its licensees with significant receivable balances, if any, and has not experienced any significant credit losses.

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.

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Subsequent recoveries, if any, are credited to the allowance.

As of December 31, 2021, Printronix's combined allowance for doubtful accounts and allowance for sales returns was $ 78,000 .

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.

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.

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 relates primarily to the proceeds received from the issuance of Series A Redeemable Convertible Preferred Stock which are held in an escrow account (refer to Note 10).

Such amounts were to be released to the Company upon, among other things, (i) the consummation of a suitable investment or acquisition by the Company or (ii) the conversion of Series A Redeemable Convertible Preferred Stock into common stock.

During October 2021, the Company consummated a suitable acquisition, and accordingly $ 35.0 million was released to the Company.

Restricted cash related to a standby letter of credit, which expired and was cancelled in March 2022.

Property, Plant and Equipment

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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 at least annually.

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.

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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 Notes 3 and 8 for additional information.

Acacia's patents include the cost of patents or patent rights acquired from third-parties or obtained in connection with business combinations.

Acacia'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.

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.

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Printronix currently amortizes the definite-lived intangible assets on a straight-line basis over their estimated useful lives of seven years .

Refer to Notes 3 and 8 for additional information.

Refer to Note 6 for additional information.

The Company’s leases primarily consist of facility leases which are classified as operating leases.

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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.

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.

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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 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.

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Refer to Note 6 for additional information.

Series A and B Warrants

The fair value of the Series A and B Warrants are estimated using a Black-Scholes option-pricing model.

Refer to Notes 10 and 11 for additional information related to the Series A and B Warrants and their fair value measurements.

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.

A binomial lattice framework is used to estimate the fair value of the embedded derivative in the Series A Redeemable Convertible Preferred Stock issued by the Company in 2019.

Refer to Notes 8 and 9 for additional information related to the embedded derivatives and their fair value measurements.

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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

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Printronix expenses advertising costs, including promotional literature, brochures and trade shows, as incurred.

Advertising expense was approximately $ 52,000 during the period from October 7, 2021 through December 31, 2021, and is included in sales and marketing expenses in the 2021 consolidated statement of operations.

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 expense on a straight-line basis over the employee’s requisite service period (generally the vesting period of the equity award) which is generally one to three 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 the underlying common stock.

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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.

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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.

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.

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Refer to Note 15 for additional information.

Income Per Share

Income/Loss Per Share

For periods in which the Company generates net income, the Company computes basic net income per share 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 the Company’s earnings.

For periods in which the Company generates a net loss, net losses are not allocated to holders of the 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 is computed by dividing net income/loss attributable to common stockholders by the weighted average number of shares of common stock outstanding 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 stock method or the as-converted method, or the two-class method for participating securities, whichever is more dilutive.

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.

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Recently Adopted

In December of 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” The update removed certain exceptions to the general principles in Topic 740 in U.S.

The Company adopted the update on January 1, 2021.

The adoption of the update did not have a material effect on the Company’s financial position, results of operations or financial statement disclosures.

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 equity 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 an 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

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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 effective for the Company on January 1, 2023, with early adoption permitted.

Management is currently evaluating the impact that the amendments in these updates may have on the Company’s consolidated financial statements.

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.

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Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” to require that an acquirer 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 should be applied prospectively and will be effective for the Company on January 1, 2023, 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.

On October 7, 2021, we entered into a Stock Purchase Agreement and acquired all of the issued and outstanding shares of capital stock of Printronix.

Printronix became a consolidated subsidiary of our operations as of this date.

Printronix provides multi-technology printing solutions for the industrial, financial and logistics transportation industries.

Printronix is engaged in the business of selling (i) line matrix printers, serial dot matrix printers, impact printers and related consumables and parts, (ii) continuous form paper, (iii) printer management tools and (iv) services related to the foregoing throughout the world.

The products are generally used in industrial settings such as manufacturing plants and distribution centers.

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.

The following unaudited pro forma summary presents consolidated information, as if the business combination had occurred on January 1, 2020:

Years Ended December 31,

(Unaudited, in thousands)

Revenues $ 119,725 $ 67,663

Net income attributable to Acacia Research Corporation 153,641 106,919

We had material, nonrecurring pro forma adjustments directly attributable to the business combination included in the above pro forma revenues and net income.

These adjustments included an increase of $ 2.8 million in property and equipment related to the finalization of the valuations and an increase of $ 1.9 million related to finished goods inventory.

The adjustments also included a decrease of $ 557,000 in deferred revenue.

In 2021, we incurred $ 457,000 of acquisition-related costs.

These expenses are included in general and administrative expenses for the year ended December 31, 2021 and are reflected in pro forma net income for the year ended December 31, 2020, in the table above.

The following table summarizes the consideration transferred to acquire Printronix and the recognized amounts of identifiable assets acquired and liabilities assumed at the acquisition date (in thousands):

Fair value of consideration transferred:

Cash $ 35,937

Transaction expenses paid to Sellers

Other purchase price adjustments

Total consideration 37,142

Identifiable assets acquired and liabilities assumed:

Cash and cash equivalents 3,892

Trade receivables 8,281

Inventories 10,837

Prepaid expenses and other current assets 2,786

Property, plant and equipment, net 4,261

Leased right-of-use assets 1,590

Customer relationships 5,300

Trade names and trademarks 3,430

Patents 3,400

Other assets 752

Trade and other payables ( 7,849 )

Deferred revenue ( 1,941 )

Long-term lease liabilities ( 1,590 )

Other long-term liabilities ( 3,477 )

Total identifiable net assets 29,672

Goodwill $ 7,470

Intangible Assets and Liabilities

As of December 31, 2021, management has finalized the valuations of all acquired assets and liabilities assumed in the acquisition.

Goodwill of $ 7.5 million represents the excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed.

The goodwill recognized is primarily attributed to the assembled workforce of Printronix and new customer relationships that did not exist at the time of the transaction.

None of the goodwill resulting from the acquisition is deductible for tax purposes.

All of the goodwill acquired is allocated to the Printronix reporting unit.

Other intangible assets include $ 5.3 million of customer relationships, $ 3.4 million of patents, and $ 3.4 million of trade names and trademarks, all with weighted average useful lives of 7 years.

Refer to Note 8 for additional information.

The fair values of all intangibles were estimated using the income approach.

Specifically, the multi-period excess earnings method was applied in the valuation of the customer relationships, and the relief-from-royalty method was applied in the valuation of the patents and trade names.

These fair value measurements are based on significant inputs unobservable in the market and, therefore, represent a Level 3 measurement as defined in ASC 820.

The key assumptions in applying the multi-period excess earnings method include the discount rate, attrition rate, estimated profit margin and contributory asset charges.

The key assumptions in applying the relief-from-royalty method include the applicable projected revenues, discount rate, remaining economic life or rate of obsolescence and estimated royalty rate.

Refer to Note 11 for additional information related to fair value measurements.

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 Company’s consolidated financial statements.

EQUITY SECURITIES

Equity securities for the periods presented were comprised of the following:

Security Type Cost Gross

Loss Fair Value

(In thousands)

December 31, 2022:

Equity securities - Life Sciences Portfolio $ 28,498 $ 14,815 $ ( 617 ) $ 42,696

Equity securities - other common stock 34,885 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 stock 43,822 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 (“Seller”), which included general terms through which the Company was provided the option to purchase life sciences equity securities in a portfolio

of public and private companies (“Life Sciences Portfolio”) for an aggregate purchase price of £ 223.9 million, approximately $ 277.5 million at the exchange rate on April 3, 2020.

On June 4, 2020, the Company executed the Transaction Agreement between Link Fund Solutions Limited, Seller, and the Company.

Pursuant to the Transaction Agreement, the Company agreed to purchase from Seller and Seller agreed to transfer to the Company the specified equity securities of all companies in the Life Sciences Portfolio at set prices at various future dates.

The transfer dates would vary among the Life Sciences Portfolio companies as the Transaction Agreement gives the Company the exclusive right to determine when to call for transfer of each security, and because each Life Sciences Portfolio company (or its existing equity holders) may be required to approve the transfer due to rights of first refusals and other company-specific terms and conditions.

Thus, the execution of the Transaction Agreement resulted in forward contracts for the Company to purchase equity securities in each public and private company at a specified price on a future date.

In accordance with the Transaction Agreement, the Company transferred the total purchase price of £ 223.9 million into an escrow account.

Upon the transfer of equity securities in the Life Sciences Portfolio to the Company, the associated funds were released from the escrow account to Seller based on the consideration amount assigned to the equity securities for such Life Sciences Portfolio company in the Transaction Agreement.

As of December 31, 2020, all of the equity securities in the Life Sciences Portfolio were transferred to the Company pursuant to the Transaction Agreement.

The Company has sold a portion of the equity securities of such Life Sciences Portfolio while retaining an interest in a number of operating businesses, including a controlling interest in one of the companies.

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 provided the option to purchase the Life Sciences Portfolio for an aggregate purchase price of £ 223.9 million, approximately $ 277.5 million at the exchange rate on April 3, 2020.

For accounting purposes, the total purchase price of the Life Sciences Portfolio was allocated to the individual equity securities based on their individual fair values as of April 3, 2020, in order to establish an appropriate cost basis for each of the acquired securities.

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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.

As of December 31, 2021 and 2020, the total fair value of the remaining Life Sciences Portfolio investment was $ 343.1 million and $ 267.8 million, respectively.

During the year ended December 31, 2020, Seller returned a total of £ 4.5 million of the Company’s prepaid investment upon the failure to obtain the approval of the existing equity holders, pursuant to their rights of first refusals, of one of the companies in connection with the transfer of its securities.

In addition, due to an ownership restriction applicable to one of the companies, the Company sold a small portion of an equity securities derivative for £ 33,000 before the remaining shares of such company could be transferred to us.

The Company recognized a net gain of $ 2.8 million related to the returned prepaid investments and sale of the derivative.

Changes in the fair value of Acacia’s investment in the Life Sciences Portfolio are recorded as unrealized gains or losses in the consolidated statements of operations.

The consolidated statements of operations reflected the following net realized and unrealized gains from our Life Sciences Portfolio:

Years Ended December 31,

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.

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:

(In thousands)

Change in fair value of equity securities of public companies $ 188,875 $ 72,104

Change in fair value of equity securities without readily determinable fair value — 103,751

Conversion of equity securities without readily determinable fair value

to equity securities of public companies ( 102,067 ) —

Gain (loss) on sale of equity securities of public companies 115,172 ( 3,930 )

Gain on sale of prepaid investment and derivative — 2,845

Net realized and unrealized gain $ 201,980 $ 174,770

On October 13, 2021, Adaptix Limited issued $ 4.0 million in limited unsecured notes due in 2026 to Ratcliffe 2 Ltd., a subsidiary of Merton Healthcare Holdco II LLC.

The interest rate on the notes is 8 percent per year.

During the year ended December 31, 2021, we recorded $ 69,000 in interest income related to the notes.

The receivable was $ 4.0 million and is included in other non-current assets on the consolidated balance sheet as of December 31, 2021.

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.

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”).

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.

During the year ended December 31, 2021, our consolidated earnings on equity investment was $ 3.5 million, included in the consolidated statement of operations, and distributions received amounted to approximately $ 2.4 million to Acacia and approximately $ 1.2 million to noncontrolling interests.

INVESTMENT AT FAIR VALUE

During 2016 and 2017, Acacia made certain investments in Veritone.

As a result of these transactions, Acacia received an aggregate total of 4,119,521 shares of Veritone common stock and warrants to purchase a total of 1,120,432 shares of Veritone common stock at an exercise price of $ 13.61 per share expiring between 2020 and 2027.

During 2018, Acacia sold 2,700,000 shares Veritone common stock and recorded a realized loss of $ 19.1 million.

During 2019, Acacia sold 1,121,071 shares Veritone common stock and recorded a realized loss of $ 9.2 million.

During the year ended December 31, 2020, Acacia sold all remaining 298,450 shares of Veritone common stock and recorded a realized loss of $ 3.3 million.

During the year ended December 31, 2020, Acacia exercised 963,712 warrants and recorded a realized gain of $ 11.5 million.

During the year ended December 31, 2021, Acacia exercised all remaining 156,720 warrants and recorded a realized gain of $ 3.6 million.

The Company no longer has an investment in Veritone common stock and warrants.

Unrealized and realized gains or losses from our investment in Veritone are recorded in the change in fair value of investment and gain on sale of investment, respectively, in the consolidated statements of operations.

The consolidated statements of operations reflected the following net realized and unrealized gains:

Years Ended December 31,

(In thousands)

Change in fair value of investment, warrants $ ( 2,752 ) $ 1,996

Change in fair value of investment, common stock — 3,478

Gain on sale of investment, warrants 3,591 11,503

Loss on sale of investment, common stock — ( 3,316 )

Net realized and unrealized gain $ 839 $ 13,661

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.

Du ring 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.

Printronix's inventories consisted of the following:

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Finished goods 7,340 4,011

Inventories $ 8,930

Inventory reserves ( 498 ) —

Total inventories $ 14,222 $ 8,930

PROPERTY, PLANT AND EQUIPMENT, NET

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Property, plant and equipment, net $ 3,537 $ 4,183

Total depreciation and amortization expense in the consolidated statements of operations was $ 438,000 and $ 119,000 for the years ended December 31, 2021 and 2020, respectively.

Our Intellectual Property Operations includes depreciation and amortization in general and administrative expenses, and our Industrial Operations, for the period from October 7, 2021 through December 31, 2021, allocates depreciation and amortization to all applicable operating expense categories.

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 .

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Changes in the carrying amount of goodwill consisted of the following:

Year Ended December 31,

Years Ended December 31,

(In thousands)

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Acquisition of business — 7,470

Tax adjustment (Note 15) 71 —

Impairment losses — —

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The ending balance of goodwill includes no accumulated impairment losses to date.

Refer to Note 3 for additional information related to the Printronix acquisition.

All goodwill is allocated to our Industrial Operations segment, refer to Note 1 for additional information related to the Printronix acquisition.

Other intangible assets, net consisted of the following:

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Intellectual property operations 6 years $ 331,403 $ ( 294,341 ) $ 37,062

Industrial operations 7 years 3,400 ( 112 ) 3,288

Total patents 334,803 ( 294,453 ) 40,350

Total intangible asset amortization expense in the consolidated statements of operations was $ 10.3 million and $ 4.7 million for the years ended December 31, 2021 and 2020, respectively.

The Company did not record charges related to the impairment of intangible assets for the years ended December 31, 2021 and 2020.

There was approximately $ 152,000 in accelerated amortization of intangible assets for the year ended December 31, 2021 and none in 2020.

During 2021, Acacia 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, for the period from October 7, 2021 through December 31, 2021, is expensed in general and administrative expenses.

Customer relationships - industrial operations 7 years 5,300 ( 174 ) 5,126

Trade name and trademarks - industrial operations 7 years 3,430 ( 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):

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Total $ 36,658

During the year ended December 31, 2021, Acacia accrued certain patent and patent rights acquisition costs, of which $ 5.0 million is due February 18, 2023.

Such amount is included in other long-term liabilities in the consolidated balance sheet as of December 31, 2021.

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

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.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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(In thousands)

Accrued legal expenses $ — $ 2,284

Accrued consulting and other professional fees $ 1,173 $ 438

Customer deposit — 3,000

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Product warranty liability, current 36 84

Service contract costs 307 —

Service contract costs, current 280 307

Short-term lease liability 1,559 935

Accrued patent cost (see Note 6) 9,000 —

Other accrued liabilities 1,536 957

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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 Starboard Value LP (“Starboard”) and certain funds and accounts affiliated with, or managed by, Starboard (collectively, the “Buyers”) 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 Buyers.

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 Starboard in the future.

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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 Buyers pursuant to the Securities Purchase Agreement at the time of the redemption.

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 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.

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.

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Upon certain triggering events, the dividend rate will increase to 7.0 % if the triggering event occurs before an approved investment or 10.0 % on the stated value if the triggering event occurs after an approved investment.

In connection with the approved investment in June 2020, the Company and the Buyers agreed that the 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.

In connection with the approved investment in June 2020, the Company and the Investors agreed that the 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 3).

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, 2021.

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.

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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 the 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 common stock issued upon conversion.

In accordance with the Recapitalization Agreement, subject to the receipt of stockholder approval at the Company’s next annual meeting of stockholders, (i) the Company 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, 2023, the Investors will convert an aggregate amount of 350,000 shares of Preferred Stock into common stock in accordance with the terms of the Certificate of Designations.

The Company determined that certain features of the Series A Redeemable Convertible Preferred Stock should be bifurcated and accounted for as a derivative.

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The transaction costs allocated to the Series A Warrants were expensed as incurred.

The Company classifies the Series A Redeemable Convertible Preferred Stock as mezzanine equity as the instrument will become redeemable at the option of the holder in various scenarios or otherwise on November 15, 2027.

As it is probable that the Series A Redeemable Convertible Preferred Stock will become redeemable, the Company accretes the instrument to its redemption value using the effective interest method and recognizes any changes against additional paid in capital in the absence of retained earnings.

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.

In connection with the issuance of the Series A Redeemable Convertible Preferred Stock, the Company executed a Registration Rights Agreement with Starboard and the Buyers and a Governance Agreement with Starboard and certain affiliates of Starboard.

In accordance with the Governance Agreement, the Company agreed to (i) increase the size of the Board of Directors from six to seven members, (ii) appoint Jonathan Sagal as a director of the Company, (iii) grant Starboard the right to recommend two additional directors for appointment to the board, (iv) form a Strategic Committee of the Board tasked with sourcing and performing due diligence on potential acquisition targets, (v) appoint certain directors to the Strategic Committee, and (vi) appoint a director to the Nominating and Corporate Governance Committee.

The following features of the Series A Redeemable Convertible Preferred Stock are required to be bifurcated from the host preferred stock and accounted for separately as an embedded derivative:

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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 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.

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.

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The fair value of the Series A Warrants was $ 4.8 million upon issuance.

The Series A Warrants will be 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 December 31, 2021 and 2020, the fair value of the Series A Warrants was $ 11.3 million and $ 6.6 million, respectively.

As of December 31, 2021, the Series A Warrants have not been exercised.

The Series A Warrants are classified as a liability in accordance with ASC 480, "Distinguishing Liabilities from Equity", as the agreement provides for net cash settlement upon a change in control, which is outside the control of the Company.

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

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 warrant 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 December 31, 2022 and 2021, the fair value of the Series A Warrants was zero and $ 11.3 million, respectively.

Series B Warrants

On February 25, 2020, pursuant to the terms of the Securities Purchase Agreement with Starboard and the Buyers, the Company issued Series B Warrants to purchase up to 100 million shares of the Company’s common stock at an exercise price (subject to certain price-based anti-dilution adjustments) of either (i) $ 5.25 per share, if exercising by cash payment, within 30 months from the issuance date (i.e., August 25, 2022);

On February 25, 2020, pursuant to the terms of the 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 at an exercise price (subject to certain price-based anti-dilution adjustments) of either (i) $ 5.25 per share, if exercising by cash payment, within 30 months from the issuance date (i.e., August 25, 2022);

or (ii) $ 3.65 per share, if exercising by cancellation of a portion of Notes.

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In connection with the issuance of the Notes on June 4, 2020, the terms of certain of the Series B Warrants were amended to permit the payment of the lower exercise price of $ 3.65 through the payment of cash, rather than only through the cancellation of Notes outstanding, at any time until the expiration date of November 15, 2027.

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.

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, 2022, the Series B Warrants have not been exercised.

The Series B Warrants will be recognized at fair value at each reporting period until exercised, with changes in fair value recognized in other income or (expense) in the consolidated statements of operations.

As of December 31, 2021 and 2020, the fair value of the Series B Warrants was $ 96.4 million and $ 52.3 million, respectively.

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.

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 Buyers, the Company issued $ 115.0 million in Notes to the Buyers.

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.

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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 a maturity date of December 31, 2020.

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 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 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 Buyers.

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 the Series B Warrants and the New Notes.

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 and $ 0.5 million in other issuance costs associated with the issuance of the Notes.

The $ 4.6 million of lender fees were initially recognized as long-term deferred debt issuance costs and were included in other non-current assets in the consolidated balance sheets up to and as of September 30, 2021, and were to be amortized to interest expense until November 15, 2027, the original maturity/expiration date of the transactions governed by the Starboard investment.

During the fourth quarter of 2021, it was determined the correct deferred debt issuance costs amortization period was the approximate seven month period ended December 31, 2020, the initial redemption date of the Notes.

Accordingly, the Company has adjusted the related prior period consolidated financial statements to reflect this correction.

Refer to Note 20 " Correction of Immaterial Error " for additional information.

The $ 0.5 million issuance costs are recognized as a discount on the Notes and will be amortized to interest expense over the contractual life of the Notes.

There was $ 1,338,000 and $ 863,000 accrued and unpaid interest on the New Notes as of December 31, 2021 and 2020, respectively.

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.

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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 and September 2021 Merton Notes cannot be used to exercise Series B Warrants issued to Starboard Value.

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.

The total principal amount outstanding of New Notes as of December 31, 2021 and 2020 was $ 180.0 million and $ 115.0 million, respectively.

The New Notes interest rate remains at 6.00 % per annum as of December 31, 2021.

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.

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 Buyers upon the issuance of the Series A Redeemable Convertible Preferred Stock in November 2019, (ii) the replacement of original optional redemption rights for the Series A Redeemable Convertible Preferred Stock provided to both the Company and the holders that otherwise would have been nullified through the issuance of the Notes, and (iii) an amendment to the terms of the previously issued Series B Warrants to permit the payment of the lower exercise price of $ 3.65 through the payment of cash, rather than only through the cancellation of Notes outstanding, at any time until the expiration of the Series B Warrants on November 15, 2027.

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.

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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, 2021 and 2020, $ 103,000 and $ 1.2 million, respectively, was amortized to interest expense.

As of December 31, 2021, $ 68,000 is remaining to be amortized until the maturity date of April 15, 2022.

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 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.

Other 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.

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 accordance 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.

FAIR VALUE MEASUREMENTS

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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.

The assessment of the significance of a particular input requires judgment and considers

factors specific to the asset or liability being measured.

In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy.

The Company holds the following types of financial instruments at fair value on a recurring basis as of December 31, 2021 and 2020:

Equity Securities at Fair Value.

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 stock and are recorded at fair value based on the quoted market price of each share on the valuation date.

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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.

At December 31, 2021, our Level 2 equity securities include an investment measured with an applied pricing model that includes significant observable inputs to the public company common stock value.

T he 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 ( r efer 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 of 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.

Investments at Fair Value - Warrants.

Acacia’s equity investment in Veritone warrants was recorded at fair value based on the Black-Scholes option-pricing model (Level 2).

Refer to Note 5 for additional information.

Series A Warrants.

Series A Warrants are recorded at fair value, using Black-Scholes option-pricing model (Level 3).

In 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 are now measured as Level 3 as opposed to Level 2 as measured previously.

The fair value of the Series A Warrants as of December 31, 2021 was estimated based on the following significant assumptions:

volatility of 30 percent, risk-free rate of 1.33 percent, term of 5.79 years and a dividend yield of 0 percent.

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 additional information).

The fair value of the Series A Warrants as of December 31, 2021 was estimated based on the following significant assumptions:

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Series B Warrants.

Series B Warrants are recorded at fair value, using Black-Scholes option-pricing model (Level 3).

In 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 used to value the Series B Warrants as of December 31, 2020.

The fair value of the Series B Warrants as of December 31, 2021 was estimated based on the following significant assumptions:

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 fair value of the remaining Series B Warrants as of December 31, 2022 was estimated based on the following significant assumptions:

volatility of 53 percent, risk-free rate of 4.76 percent, term of 0.54 years and a dividend 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.

The fair value of the

Series B Warrants as of December 31, 2020 was estimated based on the following significant assumptions:

(1) volatility of 29 percent, risk-free rate of 0.63 percent, term of 6.87 years, a dividend yield of 0 percent and a discount for lack of marketability of 10.00 percent, and (2) volatility of 50 percent, risk-free rate of 0.12 percent, term of 1.65 years, a dividend yield of 0 percent and a discount for lack of marketability of 10.00 percent.

Refer to the " Embedded derivative liabilities" discussion below for additional information on assumptions.

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Embedded derivatives that are required to be bifurcated from their host contract are evaluated and valued separately from the host instrument.

A binomial lattice framework is used to estimate the fair value of the embedded derivative in the Series A Redeemable Convertible Preferred Stock issued by the Company in 2019 (Level 3).

During the quarter ended December 31, 2022 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 (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 embedded 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 model considers the (i) implied volatility of the value of our common stock, (ii) appropriate risk-free interest rate, (iii) credit spread, (iv) dividend yield, (v) dividend accrual (and a step-up in rates), and (vi) event probabilities of the various conversion and redemption scenarios.

The binomial model considers the (i) implied volatility of the value of our common stock, (ii) appropriate risk-free interest rate, (iii) credit spread, (iv) dividend yield, (v) dividend accrual (and a step-up in rates), and (vi) event probabilities of the various conversion and redemption scenarios.

The volatility of the Company’s common stock is 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.

The selected volatility, as described below, represents a haircut from the Company’s actual realized historical volatility.

Prior to December 31, 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.

The assumed base case term used in the valuation model is the period remaining until November 15, 2027, the Series A Redeemable Convertible Preferred Stock maturity date.

The risk-free interest rate is based on the yield on the U.S.

Prior to December 31, 2022, the assumed base case term used in the valuation models was the period remaining

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 valuation of the embedded derivative at December 31, 2021 are as follows:

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 significant assumptions utilized in the Company’s valuation of the embedded derivative at December 31, 2020 are as follows:

volatility of 29 percent, risk-free rate of 0.62 percent, term of 6.87 years, a discount rate of 19.25 percent and a dividend yield of 0 percent .

The fair value measurement of the embedded derivative is sensitive to these assumptions and changes in these assumptions could result in a materially different fair value measurement.

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December 31, 2022:

Equity securities at fair value $ 113,630 $ 248,148 $ — $ 361,778

Total $ 113,630 $ 248,148 $ — $ 361,778

Equity securities $ 61,608 $ — $ — $ 61,608

December 31, 2021:

Equity securities at fair value $ 109,103 $ — $ — $ 109,103

Investment at fair value - warrants — 2,752 — 2,752

Total $ 109,103 $ 2,752 $ — $ 111,855

Equity securities $ 113,630 $ 248,148 $ — $ 361,778

December 31, 2022:

Series A warrants $ — $ — $ 11,291 $ 11,291

Series A embedded derivative liabilities — — 16,835 16,835

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Balance at December 31, 2020 $ — $ 26,728 $ 52,341 $ 79,069

Issuance of Series B warrants — — 4,600 4,600

Transfer to Level 3 6,640 — — 6,640

Remeasurement to fair value 4,651 ( 8,280 ) 44,037 40,408

Balance at December 31, 2021 11,291 18,448 96,378 126,117

Transfer to Level 3 6,640 — — 6,640

Exercise of warrants ( 9,396 ) — — ( 9,396 )

Remeasurement to fair value ( 1,895 ) ( 1,613 ) ( 11,598 ) ( 15,106 )

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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.

In connection with our Printronix acquisition, nonrecurring Level 3 valuations were performed for certain intangible assets, refer to Note 3 for additional information.

RELATED PARTY TRANSACTIONS

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(“Drive Shack”) for an aggregate purchase price of $ 2.4 million.

At the time, Drive Shack and Clifford Press, Chief Executive Officer and director of Acacia, were related parties as Mr.

Press was a board member of Drive Shack until June 2021.

The market value of the investment was $ 1.4 million as of December 31, 2020.

During the year ended December 31, 2021, Acacia sold its investment receiving proceeds of $ 1.8 million and recognized a loss of $ 515,000 .

The Company reimbursed an aggregate amount of $ 408,000 as of December 31, 2021 to a former executive officer in connection with legal fees incurred following such officer’s departure from the Company.

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 receiving 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, 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.

COMMITMENTS AND CONTINGENCIES

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On June 7, 2019, Acacia entered into a building lease agreement with Jamboree Center 4 LLC.

Pursuant to the lease, we have leased approximately 8,293 square feet of office space in Irvine, California.

Pursuant to the lease, we have leased 8,293 square feet of office space in Irvine, California.

The lease commenced on August 1, 2019.

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On January 7, 2020, Acacia entered into a building lease agreement with Sage Realty Corporation.

Pursuant to the lease, we have leased approximately 4,600 square feet of office space for our corporate headquarters in New York, New York.

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 lease is 24 months from the commencement date, provides for annual rent increases, and does not provide us the right to early terminate or extend our lease terms.

During August 2021, we entered into a first amendment of the New York office lease, to commence for a period of three years upon landlords’ substantial completion of adequate substitution space.

The term of the initial 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.

The significant Printronix leases are as follows:

• On November 10, 2020, Printronix entered into a building lease agreement with PPC Irvine Center Investment, LLC for office space in Irvine, California.

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.

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• On September 30, 2019, Printronix entered into a building lease agreement with Dynamics Sing Sdn.

Bhd for warehouse/manufacturing space in Johor, Malaysia.

Bhd for 52,000 square feet of warehouse/manufacturing space in Johor, Malaysia.

The lease commenced on December 29, 2019.

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The Malaysia factory lease has two renewal options for an additional four years and one additional renewal option for two years .

• On November 28, 2019, Printronix entered into a building lease agreement with PF Grand Paris for office space in Paris, France.

• 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 office space in Shanghai, China.

• 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, including Printronix for the period from October 7, 2021 through December 31, 2021, were $ 851,000 , and $ 603,000 for the years ended December 31, 2021 and 2020, respectively.

The table below presents aggregate future minimum 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 balance sheet as of December 31, 2021 (in thousands):

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 balance sheet as of December 31, 2022 (in thousands):

Years Ending December 31,

Thereafter 29

Total minimum payments 3,432

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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.

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This settlement was fully paid as of December 31, 2021 and all claims were withdrawn.

On September 6, 2019, Slingshot Technologies, LLC, or Slingshot, filed a lawsuit in Delaware Chancery Court against the Company and Acacia Research Group, LLC, or collectively, the Acacia Entities, Monarch Networking Solutions LLC (“Monarch”), Acacia board member Katharine Wolanyk, and Transpacific IP Group, Ltd., or Transpacific.

On 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.

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Wolanyk’s motion to dismiss for lack of subject matter jurisdiction.

The remaining parties then commenced discovery, and have since served initial written requests and responses, notices of the depositions of the parties’ corporate designees, and initial

document productions.

The Chancery Court has set a two-day trial on liability for April 18–19, 2023, with a third day of trial on damages to follow in the event that Slingshot prevails on liability.

The Acacia Entities maintain that Slingshot’s allegations are baseless, that the Acacia Entities neither had access to nor used Slingshot’s information in acquiring the portfolio, that the Acacia Entities acquired the portfolio as a result of the independent efforts of its IP licensing group, and that Slingshot suffered no damages given its exclusive option to purchase the portfolio had already ended and it has proven itself incapable of closing on the portfolio purchase.

During the year ended December 31, 2021, Acacia incurred $ 162,000 in operating expenses for settlement and contingency accruals.

During the year ended December 31, 2020, operating expenses included a net income for settlement, offset by contingency accruals totaling $ 308,000 , net of prior accruals.

At December 31, 2021 and 2020, our contingency accrual balance, included in accrued expenses and other current liabilities in the consolidated balance sheets, was zero and $ 1.3 million, respectively.

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.

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

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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, 2021, Printronix had approximately $ 100,000 of these bonds outstanding.

As of December 31, 2022 and 2021, Printronix had approximately $ 100,000 of these bonds outstanding.

Environmental Cleanup

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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 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.

Printronix worked with the prior tenant, which agreed to share

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.

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During 2020, Printronix was able to recover $ 24,000 from the prior tenant.

During the period from October 7, 2021 through December 31, 2021, Printronix incurred no related legal fees.

Since that date and for the year ended December 31, 2022 , Printronix has incurred no related legal fees.

STOCKHOLDERS’ EQUITY

Repurchases of Common Stock

On August 5, 2019, Acacia’s Board of Directors approved a stock repurchase program, which authorized the purchase of up to $ 10.0 million of the Company’s common stock through open market purchases, through block trades, through 10b5-1 plans, or by means of private purchases, from time to time, through July 31, 2020.

On December 6, 2021, Acacia’s Board of Directors 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.

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:

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(In thousands)

March 20, 2020 - March 31, 2020 576,898 $ 2.28 $ 8,686

April 1, 2020 - April 23, 2020 1,107,639 $ 2.42 $ 6,001

Total repurchases in 2020 1,684,537 $ 2.37

December 1, 2021 - December 31, 2021 784,104 $ 5.12 $ 11,004

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.

In determining whether or not to repurchase any shares of Acacia’s common stock, Acacia’s Board of Directors consider 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 the Stock Repurchase Program.

January 1, 2022 - January 31, 2022 1,588,820 $ 4.85 $ 3,286

February 1, 2022 - February 28, 2022 752,895 $ 4.36 $ —

Total repurchases in the quarter 2,341,715 $ 4.69

Total program repurchases 3,125,819 $ 4.80

April 1, 2022 - April 30, 2022 692,538 $ 4.48 $ 36,901

May 1, 2022 - May 31, 2022 2,192,238 $ 4.59 $ 26,832

June 1, 2022 - June 30, 2022 3,262,043 $ 4.71 $ 11,480

Total repurchases in the quarter 6,146,819 $ 4.64

July 1, 2022 - July 31, 2022 2,306,700 $ 4.98 $ —

Total program repurchases 8,453,519 $ 4.73

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 authorization to repurchase shares presented an opportunity to reduce the outstanding share count and enhance stockholder value.

The authorizations to repurchase shares presented an opportunity to reduce the outstanding share count and enhance stockholder value.

Tax Benefits Preservation Plan

On March 12, 2019, Acacia’s Board of Directors announced that it had unanimously approved the adoption of a Tax Benefits Preservation Plan (the “Plan”).

Our stockholders ratified the adoption of the Plan in July 2019.

The purpose of the Plan is to protect the Company’s ability to utilize potential tax assets, such as net operating loss carryforwards and tax credits to offset potential future taxable income.

The Plan is designed to reduce the likelihood that the Company will experience an ownership change by discouraging (i) any person or group from acquiring beneficial ownership of 4.9% or more of the Company’s outstanding common stock and (ii) any existing stockholders who, as of the time of the first public announcement of the adoption of the Plan, beneficially own more than 4.9% of the Company’s then-outstanding shares of the Company’s common stock from acquiring additional shares of the Company’s common stock (subject to certain exceptions).

There is no guarantee, however, that the Plan will prevent the Company from experiencing an ownership change.

In connection with the adoption of the Plan, Acacia’s Board of Directors authorized and declared a dividend distribution of one right for each outstanding share of the Company’s common stock to stockholders of record at the close of business on March 16, 2019.

On or after the distribution date, each right would initially entitle the holder to purchase one one-thousandth of a share of the Company’s Series B Junior Participating Preferred Stock, $ 0.001 par value for a purchase price of $ 12.00 .

On March 15, 2021 the rights expired pursuant to their terms.

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.

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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.

All 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.

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.

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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 generally expire ten years after grant.

Stock options with time-based vesting generally vest over three years and restricted shares with time-based vesting generally vest in full after one to three years (generally representing the requisite service period).

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.

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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 authorized but unissued or reacquired common stock, including shares repurchased by the Company on the open market.

The stock issuable under the 2013 Plan shall be shares of

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.

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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.

Acacia’s Board of Directors may amend or modify the Plans at any time, subject to any required stockholder approval.

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.

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Exercisable at December 31, 2022 262,917 $ 5.37 $ 33 3.7 years

Expected to vest at December 31, 2021 393,750 $ 5.84 $ — 9.6 years

Vested and expected to vest at December 31, 2022 1,310,417 $ 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, 2022 2.3 years

Stock options granted in 2021 are time-based and will vest in full after three years .

During the year ended December 31, 2021, the Company granted 393,750 non-qualified stock options at a grant-date fair value of $ 1.79 per share using the Black-Scholes option-pricing model.

The fair value was estimated based on the following assumptions:

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 risk-free rate is based on the term assumption and U.S.

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.

No options were granted during the year ended December 31, 2020.

The aggregate fair value of options vested during the years ended December 31, 2021 and 2020 was $ 18,000 and $ 54,000 , respectively.

The aggregate fair value of options vested during the year ended December 31, 2022 and 2021 was $ 235,000 and $ 18,000 .

The following table summarizes nonvested restricted stock activity for the Plans:

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Weighted average remaining vesting period at December 31, 2022 1.7 years 1.8 years

RSAs and RSUs granted in 2021 are time-based and will vest in full after one to three years .

The aggregate fair value of RSAs vested during the years ended December 31, 2021 and 2020 was $ 1.3 million and $ 1.1 million, respectively.

The aggregate fair value of RSUs vested during the year ended December 31, 2021 was $ 92,000 .

No RSUs were vested during the year ended December 31, 2020.

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 th e 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.

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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 period end.

The remaining units are expected to fully vest on September 3, 2022.

Compensation expense for RSUs with market-based vesting conditions for the years ended December 31, 2021 and 2020, was $( 71,000 ) and $ 427,000 , respectively.

Compensation expense for share-based awards recognized in general and administrative expenses was comprised of the following:

Years Ended December 31,

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:

(In thousands)

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RSAs 1,360 1,521

RSUs 1,972 428

Total compensation expense for share-based awards $ 3,820 $ 2,053

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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.

RETIREMENT SAVINGS PLANS AND EXECUTIVE SEVERANCE POLICY

RETIREMENT SAVINGS PLANS AND SEVERANCE

Retirement Savings Plans

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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.

There were no contributions made by Acacia during the years ended December 31, 2021 and 2020.

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.

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Printronix's contributions have graded-vesting annually and become fully vested to the employee after four full years of employment.

During the period from October 7, 2021 through December 31, 2021, Printronix's total contribution to the plan was $ 9,000 .

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 period from October 7, 2021 through December 31, 2021, Printronix's total contribution overseas was $ 189,000 .

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 was employed by Acacia (the “Severance Period”), up to a maximum of twelve (12) months (eighteen (18) months for executive officers of Acacia Research Corporation) of base salary, and (ii) provide to the SVP and higher employee, Acacia paid COBRA coverage for the medical and dental benefits selected in the year in which the termination occurs, for the duration of the Severance Period.

Results for the year ended December 31, 2021 and 2020 include $ 332,000 and $ 304,000 of expenses incurred under the executive severance policy.

The components of income before income taxes were as follows:

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 .

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.

The components of (loss) income before income taxes were as follows:

Years Ended December 31,

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Foreign rate differential — % 5 %

Noncontrolling interests in operating subsidiaries ( 2 ) % — %

Nondeductible permanent items — % ( 1 ) %

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Effective income tax rate ( 13 ) % 14 %

Acacia’s income tax (expense) benefit for the periods presented consisted of the following:

Acacia’s income tax benefit (expense) for the periods presented consisted of the following:

Years Ended December 31,

(In thousands)

Federal $ ( 54 ) $ —

State ( 482 ) ( 15 )

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Change in valuation allowance ( 7,667 ) 36,518

Income tax (expense) benefit $ ( 24,287 ) $ 1,159

Income tax benefit (expense) $ 16,211 $ ( 24,287 )

The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:

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Net operating loss and capital loss carryforwards and credits $ 47,386 $ 78,428

Unrealized gain on investments held at fair value 35 —

Compensation expense for share-based awards 607 383

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As of December 31, 2021, the Company recorded a full valuation allowance of $ 40.6 million.

The valuation allowance (decreased)/increased by $( 36.4 ) million and $( 38.1 ) million for the years ended December 31, 2021 and 2020, respectively, as a result of the use of the NOLs and increase in unrealized gains.

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.

$ 76.4 million of federal NOL carryovers generated in tax years beginning before January 1, 2018 will begin to expire in 2034.

Pursuant to the Tax Cuts and Jobs Act enacted by the U.S.

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.

For state income tax purposes, our NOLs will expire between 2024 and 2040.

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.

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:

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At December 31, 2022 and 2021, the Company had total unrecognized tax benefits of approximately $ 760,000 and $ 887,000 , respectively.

At December 31, 2021 and 2020, $ 110,000 of unrecognized tax benefits are recorded in other long-term liabilities and the remaining amount is included as an offset to deferred tax assets.

No interest and penalties have been recorded for the unrecognized tax benefits for the periods presented.

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.

The Company does not expect that the liability for unrecognized tax benefits will change significantly within the next 12 months.

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.

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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 2014 through 2020 losses to determine 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.

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.

The Tax Cuts and Jobs Act subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries.

TCJA subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries.

The FASB Staff Q&A, Topic 740 No.

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We have elected to account for GILTI in the year the tax is incurred.

On March 27, 2020, the United States enacted the CARES Act which provides certain income tax benefits including the ability to carryback federal NOLs generated in 2018 through 2020 for an extended five-year period and increased the limitation for the deduction of interest expense from 30 percent to 50 percent of modified taxable income.

The CARES Act also provides other economic benefits such as allowing employers to defer payment of the employer’s portion of payroll taxes for 2020 and a refundable employee retention credit of up to $5,000 per eligible employee wages.

The Company did not realize benefits from the provisions of the CARES Act including the extended NOL carryback period, the payroll tax deferral, and the employee retention credit.

On December 27, 2020, the United States enacted the Consolidated Appropriations Act which extended many of the benefits of the CARES Act that were scheduled to expire.

The Company does not expect a material impact from the Consolidated Appropriations Act on its consolidated financial statements and related disclosures.

On March 11, 2021 the United States enacted the American Rescue Plan Act of 2021.

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The Company does not expect a material impact from the American Rescue Plan on its consolidated financial statements and related disclosures.

On June 29, 2020, the state of California passed Assembly Bill 85 which suspends the California net operating loss deduction for the 2020-2022 tax years and the R&D credit usage for the same period (for credit usages in excess of $5.0 million).

The Company does not expect a material impact from Assembly Bill 85 on its financial statements and related disclosures.

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.

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,

(In thousands, except share and per share data)

Net income attributable to Acacia Research Corporation $ 149,197 $ 109,231

Net (loss) income attributable to Acacia Research Corporation $ ( 125,065 ) $ 149,197

Dividend on Series A redeemable convertible preferred stock ( 2,799 ) ( 1,452 )

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Undistributed earnings allocated to participating securities — ( 25,112 )

Net income attributable to common stockholders - Basic 118,804 86,846

Dividend on Series A redeemable convertible preferred stock 1,452 —

Accretion of Series A redeemable convertible preferred stock 3,829 —

Change in fair value of Series A redeemable convertible preferred stock embedded

derivative ( 8,280 ) —

Net (loss) income attributable to common stockholders - Basic ( 133,035 ) 118,804

Dividend on Series A redeemable convertible preferred

stock — 1,452

Accretion of Series A redeemable convertible preferred

stock — 3,829

Change in fair value of Series A redeemable

convertible preferred stock embedded derivative — ( 8,280 )

Change in fair value of Series A warrants — —

Change in fair value of dilutive Series B warrants — 44,037

Interest expense associated with Starboard Notes, net of tax 4,658 1,889

Undistributed earnings allocated to participating securities 25,112 18,169

Reallocation of undistributed earnings to participating securities ( 1,388 ) ( 15,105 )

Net income attributable to common stockholders - Diluted $ 188,224 $ 84,894

Weighted average shares used in computing net income per share attributable to

common stockholders - Basic 48,797,290 48,840,829

Interest expense associated with Starboard Notes,

net of tax — 4,658

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

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:

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Series B Warrants — 39,288,690

Weighted average shares used in computing net income per share attributable to

common stockholders - Diluted 98,470,870 57,435,128

Basic net income per common share $ 2.43 $ 1.78

Diluted net income per common share $ 1.91 $ 1.48

Anti-dilutive potential common shares excluded from the computation of diluted

net income per common share:

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 awards 2,558,720 393,750

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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 Acacia's equity securities investments, specific asset information is not included in managements review at this time.

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.

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.

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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.

Therefore, as of and for the year ended December 31, 2020, the consolidated results represented the results of the Company’s single reporting segment.

The Company's segment information, including Printronix's operations from October 7, 2021 through December 31, 2021, is as follows:

Year Ended December 31, 2021

Intellectual Property Operations Industrial Operations Total

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.

The Company's segment information is as follows:

Years Ended December 31,

Intellectual Property Operations Industrial Operations Total Intellectual Property Operations Industrial Operations Total

(In thousands)

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Amortization of patents 10,403 — 10,403 9,851 — 9,851

Other patent portfolio expense (income) 162 — 162

Other patent portfolio expense — — — 162 — 162

Cost of sales — 19,359 19,359 — 7,407 7,407

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Total other operating expenses 5,428 19,233 24,661 6,177 4,535 10,712

Segment operating income $ 41,175 $ 62 41,237

Segment operating (loss) income $ ( 3,949 ) $ 1,123 ( 2,826 ) $ 41,175 $ 62 41,237

Parent general and administrative expenses 37,266 26,692

Operating income 14,545

Total other income 160,107

Income before income taxes $ 174,652

For comparability purposes, Acacia's year ended December 31, 2020 general and administrative expenses, as reported in the consolidated statement of operations, were $ 24.5 million, and included parent general and administrative expenses of $ 19.5 million, which derives a comparative Intellectual Property Operations general and administrative expense amount of approximately $ 5.0 million.

Operating (loss) income ( 40,092 ) 14,545

Total other (expense) income ( 87,058 ) 160,107

(Loss) income before income taxes $ ( 127,150 ) $ 174,652

(In thousands)

Equity securities investments:

Equity securities at fair value $ 361,778

Equity securities $ 61,608 $ 361,778

Equity securities without readily determinable fair value 5,816 5,816

Investment securities - equity method investments 30,934

Total 398,528

Equity method investments 30,934 30,934

Total parent equity securities investments 98,358 398,528

Other parent assets 156,394 172,726

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Total assets $ 482,928 $ 798,856

The Company's revenues, including Printronix's net sales from October 7, 2021 through December 31, 2021, and long-lived tangible assets, by geographic area are presented below.

Acacia's revenues are attributed to licensees domiciled in foreign jurisdictions.

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.

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Assets are summarized based on the location of held assets.

Year Ended December 31, 2021

Intellectual Property Operations Industrial Operations Total

Years Ended December 31,

Intellectual Property Operations Industrial Operations Total Intellectual Property Operations Industrial Operations Total

(In thousands)

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Total $ 324 $ 3,213 $ 3,537

CORRECTION OF IMMATERIAL ERROR

The Company identified and recorded an adjustment to the current and prior periods related to the estimated amortization period of deferred debt issuance costs.

Pursuant to the Securities Purchase Agreement dated November 18, 2019 with Starboard and the Buyers, an upfront fee was payable by the Company upon the first closing of Senior Secured Notes.

The fee was defined as 1.25 % of the maximum $ 365.0 million principal amount of the Senior Secured Notes issuable under the Securities Purchase Agreement.

The Company paid and capitalized this upfront fee of $ 4.6 million upon the issuance of our Senior Secured Notes in June 2020 (refer to Note 10).

The lender fees were initially recognized as long-term deferred debt issuance costs and were included in other non-current assets in the consolidated balance sheets up to and as of September 30, 2021, and were to be amortized to interest expense until November 15, 2027, the original maturity/expiration date of the transactions governed by the Starboard investment.

Accordingly, the Company has adjusted the related prior period consolidated financial statements to reflect this correction to the periods presented below.

In accordance with Staff Accounting Bulletin ("SAB") No.

99, “Materiality,” and SAB No.

108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the error a nd determined that the related impact did not materially misstate previously issued consolidated financial statements.

Although the Company concluded that the misstatement was n ot material to its previously issued consolidated financial statements, the Company has determined it is appropriate to adjust its previously issued consolidated financial statements to correct for the error .

The following are the relevant line items from the Company's consolidated financial statements illustrating the effect of the corrections to the periods presented:

As of and for the Year Ended December 31, 2020

As Previously Reported Adjustments As Adjusted

(In thousands, except per share data)

Balance Sheet:

Other non-current assets (excluding property, plant and equipment) $ 4,718 $ ( 4,213 ) $ 505

Total assets 515,520 ( 4,213 ) 511,307

Accumulated deficit ( 326,708 ) ( 4,213 ) ( 330,921 )

Total stockholders' equity 292,529 ( 4,213 ) 288,316

Statement of Operations:

Interest expense on Senior Secured Notes $ ( 5,923 ) $ ( 4,213 ) $ ( 10,136 )

Total other income 131,803 ( 4,213 ) 127,590

Net income attributable to Acacia Research Corporation 113,444 ( 4,213 ) 109,231

Income per share:

Basic net income per common share $ 1.85 $ ( 0.07 ) $ 1.78

Diluted net income per common share $ 1.54 $ ( 0.06 ) $ 1.48

Statement of Cash Flows:

Net income including noncontrolling interests in subsidiaries $ 113,444 $ ( 4,213 ) $ 109,231

Amortization of debt discount and issuance costs 2,838 4,213 7,051

Net cash used in operating activities ( 19,620 ) — ( 19,620 )

As of and for the Three Months Ended March 31, 2021

As Previously Reported Adjustments As Adjusted

(Unaudited and in thousands, except per share data)

Balance Sheet:

Other non-current assets $ 4,834 $ ( 4,060 ) $ 774

Total assets 568,958 ( 4,060 ) 564,898

Accumulated deficit ( 491,326 ) ( 4,060 ) ( 495,386 )

Total stockholders' equity 128,148 ( 4,060 ) 124,088

Statement of Operations:

Interest expense on Senior Secured Notes $ ( 1,310 ) $ 153 $ ( 1,157 )

Total other expense ( 158,032 ) 153 ( 157,879 )

Net loss attributable to Acacia Research Corporation ( 164,618 ) 153 ( 164,465 )

Loss per share:

Basic and diluted net loss per common share $ ( 2.81 ) $ — $ ( 2.81 )

Statement of Cash Flows:

Net loss including noncontrolling interests in subsidiaries $ ( 163,718 ) $ 153 $ ( 163,565 )

Amortization of debt discount and issuance costs 702 ( 153 ) 549

Net cash used in operating activities ( 6,120 ) — ( 6,120 )

As of and for the Six Months Ended June 30, 2021

As Previously Reported Adjustments As Adjusted

(Unaudited and in thousands, except per share data)

Balance Sheet:

Other non-current assets $ 4,653 $ ( 3,907 ) $ 746

Total assets 627,732 ( 3,907 ) 623,825

Accumulated deficit ( 471,819 ) ( 3,907 ) ( 475,726 )

Total stockholders' equity 147,103 ( 3,907 ) 143,196

Statement of Operations:

Interest expense on Senior Secured Notes $ ( 3,070 ) $ 306 $ ( 2,764 )

Total other expense ( 139,653 ) 306 ( 139,347 )

Net loss attributable to Acacia Research Corporation ( 145,111 ) 306 ( 144,805 )

Loss per share:

Basic and diluted net loss per common share $ ( 3.03 ) $ 0.01 $ ( 3.02 )

Statement of Cash Flows:

Net loss including noncontrolling interests in subsidiaries $ ( 144,205 ) $ 306 $ ( 143,899 )

Amortization of debt discount and issuance costs 128 ( 306 ) ( 178 )

Net cash used in operating activities ( 6,197 ) — ( 6,197 )

As of and for the Nine Months Ended

September 30, 2021

As Previously Reported Adjustments As Adjusted

(Unaudited and in thousands, except per share data)

Balance Sheet:

Other non-current assets $ 4,482 $ ( 3,754 ) $ 728

Total assets 749,834 ( 3,754 ) 746,080

Accumulated deficit ( 382,215 ) ( 3,754 ) ( 385,969 )

Total stockholders' equity 235,862 ( 3,754 ) 232,108

Statement of Operations:

Interest expense on Senior Secured Notes $ ( 5,601 ) $ 459 $ ( 5,142 )

Total other expense ( 37,316 ) 459 ( 36,857 )

Net loss attributable to Acacia Research Corporation ( 55,507 ) 459 ( 55,048 )

Loss per share:

Basic and diluted net loss per common share $ ( 1.21 ) $ 0.01 $ ( 1.20 )

Statement of Cash Flows:

Net loss including noncontrolling interests in subsidiaries $ ( 54,601 ) $ 459 $ ( 54,142 )

Amortization of debt discount and issuance costs 460 ( 459 ) 1

Net cash used in operating activities ( 7,602 ) — ( 7,602 )

December 31, 2021

Intellectual Property Operations Industrial Operations Total

(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

SUBSEQUENT EVENTS

Change of Chief Financial Officer

Effective January 27, 2023, Richard Rosenstein resigned as the Chief Financial Officer of the Company.

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.

Refer to Note 8 for additional information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures