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Item 9A. Controls and Procedures

2021-03-29 compared with 2020-03-16 · 1652 added, 1577 removed, 390 unchanged (89% of the section changed)

CONTROLS AND PROCEDURES

(a) Conclusion Regarding the Effectiveness of Disclosure

Controls and Procedures

Under the supervision and with the participation

of our management, including our Chief Executive Officer and Corporate Controller, we conducted an evaluation of our disclosure

controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Based on this evaluation, our

Chief Executive Officer and Corporate Controller concluded that, as of December 31, 2019, our disclosure controls and procedures

were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange

Act is accumulated and communicated to our management, including our Chief Executive Officer and Corporate Controller, as appropriate

to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported

within the time periods prescribed by the SEC.

(b) Management’s Report on Internal Control Over Financial

Our management is responsible for establishing

and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange

Under the supervision and with the participation of our management, including our Chief Executive Officer and Corporate Controller,

we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in

Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our

internal control over financial reporting was effective as of December 31, 2019.

Grant Thornton LLP, the independent registered

public accounting firm who audited our consolidated financial statements included in this annual report, has issued an attestation

report on the effectiveness of our internal control over financial reporting as of December 31, 2019, which is included herein.

Changes in Internal Controls .

were no changes in our internal control over financial reporting during the fourth fiscal quarter that have materially affected,

(a) Conclusion Regarding the

Effectiveness of Disclosure Controls and Procedures

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.

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, 2020.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, 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.

(b) Management’s 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.

Our management conducted an assessment of the effectiveness of our internal control over

financial reporting as of December 31, 2020 based on the criteria set forth in the Internal Control Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on the assessment, our management has concluded

that our internal control over financial reporting was effective as of December 31, 2020.

Report of Independent Registered Public Accounting Firm

Report does not include an attestation report of our independent registered public accounting firm regarding internal control

over financial reporting.

Management’s report was not subject to attestation by our independent registered public accounting

firm pursuant to the rules of the SEC that permit us to provide only Management’s Report because we are a non-accelerated

in Internal Controls over Financial Reporting

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, 2020 that materially affected,

or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness

Our management, including our Chief Executive Officer and Corporate Controller, does not expect that our disclosure

controls or our internal control over financial reporting will prevent or detect all errors and all fraud.

A control system, no

matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives

The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls

must be considered relative to their costs.

Further, because of the inherent limitations in all control systems, no evaluation

of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues

and instances of fraud, if any, have been detected.

The design of any system of controls is based in part on certain assumptions

about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals

under all potential future conditions.

Projections of any evaluation of the effectiveness of controls to future periods are subject

Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance

with policies or procedures.

OTHER INFORMATION

DIRECTORS, EXECUTIVE OFFICERS

AND CORPORATE GOVERNANCE

Except as provided below, in accordance

with General Instruction G(3) to Form 10-K, certain information required by this Item is incorporated herein by reference to our

definitive proxy statement for our 2020 annual meeting of stockholders to be filed with the SEC no later than April 30, 2020.

Code of Conduct.

We have adopted a Code of Conduct

that applies to all employees, including our Chief Executive Officer and Corporate Controller and any persons performing similar

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Except as provided

below, in accordance with General Instruction G(3) to Form 10-K, certain information required by this Item is incorporated herein

by reference to our definitive proxy statement for our 2021 annual meeting of stockholders to be filed with the SEC no later than

April 30, 2021.

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.

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

EXECUTIVE COMPENSATION

In accordance with General Instruction G(3)

to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive proxy statement for our

2020 annual meeting of stockholders to be filed with the SEC no later than April 30, 2020.

SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

In accordance with General Instruction G(3)

to Form 10-K, certain information required by this Item is incorporated herein by reference to our definitive proxy statement for

our 2020 annual meeting of stockholders to be filed with the SEC no later than April 30, 2020.

CERTAIN RELATIONSHIPS AND RELATED

TRANSACTIONS, AND DIRECTOR INDEPENDENCE

In accordance with General Instruction G(3)

to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive proxy statement for our

2020 annual meeting of stockholders to be filed with the SEC no later than April 30, 2020.

PRINCIPAL ACCOUNTING FEES AND

In accordance with General Instruction G(3)

to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive proxy statement for our

2020 annual meeting of stockholders to be filed with the SEC no later than April 30, 2020.

EXHIBITS, FINANCIAL STATEMENT

The following documents are filed as part of this report.

In accordance

with General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive

proxy statement for our 2021 annual meeting of stockholders to be filed with the SEC no later than April 30, 2021.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

In accordance

with General Instruction G(3) to Form 10-K, certain information required by this Item is incorporated herein by reference to our

definitive proxy statement for our 2021 annual meeting of stockholders to be filed with the SEC no later than April 30, 2021.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

In accordance

with General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive

proxy statement for our 2021 annual meeting of stockholders to be filed with the SEC no later than April 30, 2021.

PRINCIPAL ACCOUNTING FEES AND SERVICES

In accordance

with General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive

proxy statement for our 2021 annual meeting of stockholders to be filed with the SEC no later than April 30, 2021.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed

as part of this report.

(1) Financial Statements

Acacia Research Corporation Consolidated Financial Statements

Acacia Research Corporation Consolidated

Financial Statements

Reports of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2019 and 2018

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019

Statements of Comprehensive Loss for the Years Ended December 31, 2019 and 20 18

Consolidated Statements

of Series A Redeemable Convertible Preferred Stock and Stockholders’

Consolidated Statements of Series A Redeemable Convertible Preferred Stock and Stockholders’

Equity for the Years Ended December 31, 2020 and 2019

1 unchanged sentence

Notes to Consolidated Financial Statements

(2) Financial Statement Schedules

Financial statement schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the Notes thereto.

Refer to Item 15(b) below.

The following exhibits are either filed herewith or incorporated herein by reference:

and Plan of Merger, dated November 22, 2011, by and among Acacia Research Group LLC, Apollo Patent Corp., Adaptix, Inc., and

Baker Communications Fund II (QP), L.P., solely in its capacity as representative for the shareholders of Adaptix, Inc.

Amended and Restated Certificate of Incorporation (as updated through February 18, 2020 and currently in effect)

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 (1)

Second Amended

and Restated Bylaws (7)

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 (21)

Description of Acacia Research Corporation Capital Stock

Form of Senior Secured Note (15)

Form of Series A Warrant to Purchase Common Stock (16)

Form of Series B Warrant to Purchase Common Stock (17)

Form of Indemnification Agreement

Acacia Research Corporation Amended and Restated Executive Severance Policy (2)

Form of Purchase Agreement (4)

2013 Acacia Research Corporation Stock Incentive Plan (5)

Form of Stock Issuance Agreement under the 2013 Acacia Research Corporation Stock Incentive Plan (6)

2016 Acacia Research Corporation Stock Incentive Plan (8)

Form of Stock Option Agreement under the 2016 Acacia Research Corporation Stock Incentive Plan (9)

Form of Stock Issuance Agreement under the 2016 Acacia Research Corporation Stock Incentive Plan (9)

Form of Profits Interest Agreement Under AIP Operation LLC Profits Interest Plan (10)

(2) Financial

Statement Schedules

Financial statement

schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or

the Notes thereto.

Refer to Item 15(b)

following exhibits are either filed herewith or incorporated herein by reference:

Agreement and Plan of Merger, dated November 22, 2011, by and among Acacia Research Group LLC, Apollo Patent Corp., Adaptix, Inc., and Baker Communications Fund II (QP), L.P., solely in its capacity as representative for the shareholders of Adaptix, Inc.

(incorporated by reference to the Current Report on Form 8-K/A filed on January 19, 2012)

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)

and Restated Certificate of Incorporation (as updated through February 18, 2020 and currently in effect) (incorporated

by reference to the Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 16, 2020)

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)

Second Amended and Restated Bylaws (incorporated by reference to the Quarterly Report on Form 10-Q for the period ended June 30, 2020, filed on August 20, 2020)

of Acacia Research Corporation Capital Stock (incorporated

by reference to the Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 16, 2020)

Form of Senior Secured Note (incorporated by reference to the Current Report on Form 8-K filed on July 7, 2020)

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

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)

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)

Acacia Research Corporation Amended and Restated Executive Severance Policy (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2008, filed on February 26, 2009)

Form of Purchase Agreement (incorporated by reference to the Current Report on Form 8-K filed on February 16, 2012)

2013 Acacia Research Corporation Stock Incentive Plan (incorporated by reference to Annex A to the Definitive Proxy Statement on Schedule 14A filed on April 24, 2013)

Form of Stock Issuance Agreement under the 2013 Acacia Research Corporation Stock Incentive Plan (incorporated by reference to the Current Report on Form 8-K on May 22, 2013)

2016 Acacia Research Corporation Stock Incentive Plan (incorporated by reference to the Quarterly Report on Form 10-Q for the period ended June 30, 2016, filed on August 9, 2016)

Form of Stock Option Agreement under the 2016 Acacia Research Corporation Stock Incentive Plan (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 10, 2017)

Form of Stock Issuance Agreement under the 2016 Acacia Research Corporation Stock Incentive Plan (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 10, 2017)

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)

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)

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

to Acacia Research Corporation (11)

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

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 (11)

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)

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

to Acacia Research Corporation (11)

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

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

to Acacia Research Corporation (11)

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

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

to Acacia Research Corporation (11)

Employment Agreement, effective August 13, 2018, by and between Acacia Research Group, LLC and Marc Booth (12)

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

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

Booth (incorporated by reference to the Current Report on Form 8-K filed on June 25, 2020)

Separation Agreement and General Release of Claims, effective August 10, 2018, by and between Acacia Research Group, LLC and Clayton J.

Haynes (incorporated by reference to the Current Report on Form 8-K filed on August 16, 2018)

Consulting Agreement, effective August 10, 2018, by and between Acacia Research Corporation and Clayton J.

Separation Agreement and

General Release of Claims, effective August 10, 2018, by and between Acacia Research Group, LLC and Edward J.

Haynes (incorporated by reference to the Current Report on Form 8-K filed on August 16, 2018)

Separation Agreement and General Release of Claims, effective August 10, 2018, by and between Acacia Research Group, LLC and Edward J.

Treska (incorporated by reference to the Current Report on Form 8-K filed on August 16, 2018 )

Consulting Agreement, effective August 10, 2018, by and between Acacia Research Corporation and Edward J.

Separation Agreement and General Release of Claims, dated February 12, 2019, by and between Acacia Research Group, LLC and Kirsten Hoover (13)

Employment Agreement, dated September 3, 2019, by and among Acacia Research Group LLC, Acacia Research Corporation and Clifford Press (14)

Employment Agreement, dated September 3, 2019, by and among Acacia Research Group LLC, Acacia Research Corporation and Alfred Tobia (14)

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 (18)

Registration Rights Agreement dated November 18, 2019, by and among Acacia Research Corporation and the investors listed on the Schedule of Buyers attached thereto (19)

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 (20)

Lease Agreement dated June 7, 2019, by and between Acacia Research Corporation and Jamboree Center 4 LLC

Treska (incorporated by reference to the Current Report on Form 8-K filed on August 16, 2018)

Agreement and General Release of Claims, dated February 12, 2019, by and between Acacia Research Group, LLC and Kirsten Hoover

(incorporated by reference to the Current Report on Form 8-K filed on February 13, 2019)

Agreement, dated September 3, 2019, by and among Acacia Research Group LLC, Acacia Research Corporation and Clifford Press (incorporated

by reference to the Quarterly Report on Form 10-Q for the period ended September 30, 2019, filed on November 12, 2019)

Agreement, dated September 3, 2019, by and among Acacia Research Group LLC, Acacia Research Corporation and Alfred Tobia (incorporated

by reference to the Quarterly Report on Form 10-Q for the period ended September 30, 2019, filed on November 12, 2019)

Agreement, dated June 4, 2020, by and between Acacia Research Group, LLC and Richard Rosenstein (incorporated by reference to

the Current Report on Form 8-K filed on June 4, 2020)

Agreement, dated June 4, 2020, by and between Acacia Research Group, LLC and Meredith Simmons (incorporated by reference to the

Current Report on Form 8-K filed on June 4, 2020)

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)

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)

Agreement, dated as of June 4, 2020, between Starboard Value, L.P.

and Acacia Research Corporation (incorporated by reference

to the Current Report on Form 8-K filed on June 10, 2020)

Agreement, dated June 30, 2020, among Acacia Research Corporation, Merton Acquisition HoldCo LLC and Starboard Value LP (incorporated

by reference to the Current Report on Form 8-K filed on July 7, 2020)

Pledge Agreement, dated June 30, 2020, entered into by Acacia Research Group LLC, Advanced Skeletal Innovations LLC and Saint Lawrence

Communications LLC in favor of Starboard Value Intermediate Fund LP, as collateral agent (incorporated by reference to the Current

Report on Form 8-K filed on July 7, 2020)

dated June 30, 2020, entered into by the Guarantors (as defined therein) in favor of the Holders (as defined therein) (incorporated

by reference to the Current Report on Form 8-K filed on July 7, 2020)

of Security Interests in Patents, dated June 30, 2020, between the Releasees (as defined therein) and Starboard Value Intermediate

Fund LP, as collateral agent.

(incorporated by reference to the Current Report on Form 8-K filed on July 7, 2020)

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

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)

Agreement dated June 7, 2019, by and between Acacia Research Corporation and Jamboree Center 4 LLC (incorporated by reference

to the Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 16, 2020)

List of Subsidiaries

Consent of Independent Registered Public Accounting Firm

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

Interactive Date Files Pursuant to Rule 405 of Regulation S-T.

Consent of Independent

Registered Public Accounting Firm

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.

Interactive Date Files Pursuant to Rule 405 of Regulation

_________________________

The referenced exhibit is a management contract, compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 15(c) of Form 10-K.

The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with the SEC and are not to be incorporated by reference into any filing of Acacia Research Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, regardless of any general incorporation language contained in any filing.

Incorporated by reference to Appendix B to Acacia Research Corporation’s

Definitive Proxy Statement on Schedule 14A filed on January 17, 2020 (File No.

Incorporated by reference to Acacia Research

Corporation’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on February 26, 2009 (File No.

Incorporated by reference to Acacia Research Corporation’s

Current Report on Form 8-K/A filed on January 19, 2012 (File No.

Portions of this exhibit have been omitted pursuant

to a request for confidential treatment under Rule 24-b-2 of the Securities Exchange Act of 1934, as amended.

The omitted material

has been separately filed with the Securities and Exchange Commission.

Incorporated by reference to Acacia Research Corporation’s

Current Report on Form 8-K filed on February 16, 2012 (File No.

Incorporated by reference to Annex A to Acacia Research Corporation’s

Definitive Proxy Statement on Schedule 14A filed on April 24, 2013 (File No.

Incorporated by reference to Acacia Research

Corporation’s Current Report on Form 8-K on May 22, 2013 (File No.

Incorporated by reference to Acacia

Research Corporation’s Annual Report on Form 8-K filed on July 25, 2019 (File No.

Incorporated by reference to Acacia

Research Corporation’s Quarterly Report on Form 10-Q for the period ended June 30, 2016, filed on August 9, 2016 (File No.

Incorporated by reference to Acacia Research Corporation’s

Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 10, 2017 (File No.

Incorporated by reference to Acacia Research Corporation’s

Quarterly Report on Form 10-Q for the period ended March 31, 2017, filed on May 10, 2017 (File No.

Incorporated by reference to Acacia Research Corporation’s

Current Report on Form 8-K filed on March 16, 2017 (File No.

Incorporated by reference to Acacia Research Corporation’s

Current Report on Form 8-K filed on August 16, 2018 (File No.

Incorporated by reference to Acacia Research Corporation’s

Current Report on Form 8-K filed on February 13, 2019 (File No.

Incorporated by reference to Acacia

Research Corporation’s Annual Report on Form 10-Q for the period ended September 30, 2019, filed on November 12, 2019

Incorporated by reference to Appendix E to Acacia Research Corporation’s

Definitive Proxy Statement on Schedule 14A filed on January 17, 2020 (File No.

Incorporated by reference to Appendix C to Acacia Research Corporation’s

Definitive Proxy Statement on Schedule 14A filed on January 17, 2020 (File No.

Incorporated by reference to Appendix D to Acacia Research Corporation’s

Definitive Proxy Statement on Schedule 14A filed on January 17, 2020 (File No.

Incorporated by reference to Appendix A to Acacia Research Corporation’s

Definitive Proxy Statement on Schedule 14A filed on January 17, 2020 (File No.

Incorporated by reference to Appendix F to Acacia Research Corporation’s

Definitive Proxy Statement on Schedule 14A filed on January 17, 2020 (File No.

Incorporated by reference to Appendix G

to Acacia Research Corporation’s Definitive Proxy Statement on Schedule 14A filed on January 17, 2020 (File No.

Incorporated by reference to Acacia Research

Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on March 15, 2019 (File No.

Pursuant to the requirements of Section

13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the

undersigned, thereunto duly authorized.

ACACIA RESEARCH CORPORATION

March 16, 2020

/s/ Clifford Press

Clifford Press

Chief Executive Officer

(Authorized Signatory)

POWER OF ATTORNEY

the undersigned directors and officers of Acacia Research Corporation, do hereby constitute and appoint Clifford Press and Li

Yu, and each of them, as our true and lawful attorneys-in-fact and agents with power of substitution, to do any and all acts and

things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in

our names in the capacities indicated below, which said attorney-in-fact and agent may deem necessary or advisable to enable said

corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the

Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation,

power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments hereto;

and we do hereby ratify and confirm all that said attorney-in-fact and agent, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities

Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and the capacities

and on the dates indicated.

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.

of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24-b-2 of the Securities Exchange

Act of 1934, as amended.

The omitted material has been separately filed with the Securities and Exchange Commission.

certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with

the SEC and are not to be incorporated by reference into any filing of Acacia Research Corporation under the Securities Act

of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual

Report on Form 10-K, regardless of any general incorporation language contained in any filing.

the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to

be signed on its behalf by the undersigned, thereunto duly authorized.

RESEARCH CORPORATION

Clifford Press

Executive Officer

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;

do hereby ratify and confirm all that said attorney-in-fact and agent, shall do or cause to be done by virtue hereof.

the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf

of the registrant and the capacities and on the dates indicated.

Chief Executive Officer

March 16, 2020

Clifford Press

(Principal Executive Officer)

Corporate Controller

March 16, 2020

(Principal Financial Officer)

Isaac Kohlberg

March 16, 2020

Chief Financial Officer

Financial Officer)

(Principal Accounting Officer)

Isaac Kohlberg

Maureen O'Connell

March 16, 2020

Maureen O'Connell

Jonathan Sagal

March 16, 2020

Jonathan Sagal

March 16, 2020

Katharine Wolanyk

March 16, 2020

Katharine Wolanyk

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

3 unchanged sentences

of Acacia Research Corporation (and subsidiaries) (the “Company”) as of December 31, 2020 and 2019, the related consolidated

statements of operations, comprehensive loss, changes in series A redeemable convertible preferred stock and stockholders’

equity, and cash flows for each of the two years in the period ended December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for

each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the

United States of America.

We also have audited, in accordance with the standards of the

Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial

reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework

issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March

16, 2020 expressed an unqualified opinion.

statements of operations, series A redeemable convertible preferred stock and stockholders’

equity, and cash flows for each

of the two years in the period ended December 31, 2020, 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 2019, and the results of its operations and its cash flows for each of the two years in

the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

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

a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance

with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the

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.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of

1 unchanged sentence

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

Our audits 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 supporting the amounts and disclosures in the financial

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits 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

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

Our audits also included evaluating the accounting principles used and significant estimates made by management, as

2 unchanged sentences

for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising

from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee

(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 matters 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.

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

As described further in Note 16 to the consolidated financial

statements, the Company entered into a Securities Purchase Agreement with Starboard Value LP, pursuant to which the Company issued

(i) Series A Redeemable Convertible Preferred Stock and (ii) Series A Warrants.

The Securities Purchase Agreement also established

terms of certain additional warrants, referred to as the Series B Warrants.

The Series A Redeemable Convertible Preferred Stock

contained certain features that required to be bifurcated and accounted for as a compound embedded derivative.

We identified the fair value measurements of the Series B Warrants

and embedded derivatives in the Series A Redeemable Convertible Preferred Stock (together, “Series B Warrants and Series

A Embedded Derivative Liabilities”) as a critical audit matter.

The principal considerations for our determination that the

fair value measurement of the Series B Warrants and Series A Embedded Derivative Liabilities was a critical audit matter are as

There is limited observable market data available for the Series B Warrants and Series A Embedded Derivative Liabilities

as they are complex financial instruments 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 volatility and credit spread.

In addition, the fair

value measurements of the Series B Warrants and Series A Embedded Derivative Liabilities require the use of complex financial models,

including Monte Carlo valuation techniques and binomial lattice models.

As a result, obtaining sufficient appropriate audit evidence

related to the fair value measurements required significant auditor subjectivity.

Our audit procedures related to the fair value measurements

of the Series B Warrants and Series A Embedded Derivative Liabilities included the following among others.

With the assistance

of our firm valuation specialists, we evaluated the reasonableness of the Company’s valuation methodology and assumptions

(1) comparing selected assumptions against available market data and historical amounts and (2) validating the mathematical

accuracy of the models by developing an independent calculation and comparing to management’s concluded valuations.

GRANT THORNTON LLP

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2007.

Newport Beach, CA

March 16, 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

Board of Directors and Stockholders

Acacia Research Corporation

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting

of Acacia Research Corporation and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established

in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over

financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework

issued by COSO.

We also have audited, in accordance with the standards of the

Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company

as of and for the year ended December 31, 2019, and our report dated March 16, 2020 expressed an unqualified opinion on those financial

Basis for opinion

The Company’s management is responsible for maintaining

effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial

reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (“Management’s

Report”).

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based

on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the

Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange

Commission and the PCAOB.

We conducted our audit in accordance with the standards of the

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal

control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal

control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating

effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in

the circumstances.

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

Definition and limitations of internal control over financial

A company’s internal control over financial reporting

is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control

over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable

detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance

that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted

accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations

of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized

acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial

reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject

to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies

or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Newport Beach, CA

Newport Beach, California

March 29, 2021

ACACIA RESEARCH CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share

BALANCE SHEETS

(In thousands,

except share and per share information)

Current assets:

2 unchanged sentences

Trading securities - equity

Investment securities - private equity

Investment securities - equity method investments

Investment at fair value (Note 6)

Accounts receivable

expenses and other current assets

Prepaid expenses and other current assets

Total current assets

Long-term restricted cash

Investment at fair value (Note

Other investments (Note 6)

Patents, net of accumulated

Patents, net of accumulated amortization

Leased right-of-use assets

non-current assets

LIABILITIES, REDEEMABLE CONVERTIBLE

PREFERRED STOCK, AND STOCKHOLDERS' EQUITY

Other non-current assets

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

Accrued expenses and other

current liabilities

Accrued expenses and other current liabilities

Accrued compensation

and contingent legal fees payable

Royalties and contingent legal fees payable

Senior Secured Notes Payable - short-term

Total current liabilities

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Series A embedded derivative liabilities

Series B warrant liabilities

Long-term lease liabilities

Other long-term liabilities

Total liabilities

Commitments and contingencies (Note 10)

Series A redeemable convertible

preferred stock, par value $0.001 per share;

Series A redeemable convertible preferred stock, par value $0.001 per share;

stated value $100 per share;

350,000 shares authorized, issued and outstanding

as of December 31, 2019;

no shares authorized, issued or outstanding as of December 31, 2018;

aggregate liquidation preference

of $35,125 and $0 as of December 31, 2019 and December 31, 2018, respectively (Note 16)

350,000 shares authorized, issued and outstanding as of December 31, 2020 and December 31, 2019, respectively;

aggregate liquidation preference of $35,000 as of December 31, 2020 and December 31, 2019, respectively

Stockholders' equity:

Preferred stock, par value

$0.001 per share;

Preferred stock, par value $0.001 per share;

10,000,000 shares authorized;

no shares issued or outstanding

Common stock, par value $0.001

Common stock, par value $0.001 per share;

300,000,000 shares authorized;

50,370,987 and 49,639,319 shares issued and outstanding as of December 31, 2019

and December 31, 2018, respectively

Treasury stock, at cost,

2,919,828 shares as of December 31, 2019 and December 31, 2018

49,279,453 and 50,370,987 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively

Treasury stock, at cost, 4,604,365 and 2,919,828 shares as of December 31, 2020 and December 31, 2019, respectively

Additional paid-in capital

Total Acacia Research Corporation

stockholders' equity

Accumulated deficit

Total Acacia Research Corporation stockholders' equity

Noncontrolling interests

Total stockholders' equity

Total liabilities, redeemable

convertible preferred stock, and stockholders' equity

The accompanying notes are an integral

part of these consolidated financial statements.

RESEARCH CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per

share information)

Total liabilities, redeemable convertible preferred stock, and stockholders' equity

The accompanying

notes are an integral part of these consolidated financial statements.

ACACIA RESEARCH

STATEMENTS OF OPERATIONS

(In thousands,

except share and per share information)

Portfolio operations:

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Contingent legal fees

Patent acquisition expenses

Litigation and licensing expenses

Litigation and licensing expenses - patents

Amortization of patents

portfolio expenses

portfolio operations

Other portfolio expenses (income)

Total portfolio operations

Net portfolio income (loss)

General and administrative

of patent-related intangible assets

General and administrative expenses (1)

Operating loss

Other income (expense):

Change in fair value of investment,

Loss on sale of investment

Change in fair value of investment, net (Note 6)

Gain (loss) on sale of investment (Note 6)

Impairment of other investment

Gain on disposal of other investment

Change in fair value of the

Series A warrants and embedded derivative

income and other

other income (expense)

Loss before income taxes

Income taxes (expense) benefit

Net loss including noncontrolling interests in

Net (income) loss attributable

to noncontrolling interests in subsidiaries

Net loss attributable to Acacia Research Corporation

of redeemable preferred stock

Net loss attributable to

common stockholders - basic

Basic net loss per share

of common stock

Weighted average number of shares outstanding

Accretion of redeemable preferred stock

Mark-to-market adjustment

for preferred stock embedded derivative

Net loss attributable to

common stockholders - diluted

Diluted net loss per share

of common stock

Weighted average number of shares outstanding

__________________________________

Change in fair value of the Series A and B warrants and embedded derivatives

Gain on sale of prepaid investment and derivative

Change in fair value of trading securities and equity securities

Gain on sale of trading securities

Loss on foreign currency exchange

Interest expense on Senior Secured Notes

Interest income and other

Total other income

Income (loss) before income taxes

Income tax benefit

Net income (loss) including noncontrolling interests in subsidiaries

Net loss attributable to noncontrolling interests in subsidiaries

Net income (loss) attributable to Acacia Research Corporation

Net income (loss) attributable to common stockholders - basic

Basic net income (loss) per common share

Weighted average number of shares outstanding - basic

Net income (loss) attributable to common stockholders - diluted

Diluted net income (loss) per common share

Weighted average number of shares outstanding - diluted

(1) General and administrative expenses were comprised of the following:

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Non-cash stock compensation expense - G&A

Non-cash stock compensation

expense - Profits Interests

general and administrative expenses

The accompanying notes are an integral

part of these consolidated financial statements.

ACACIA RESEARCH CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE

Total general and administrative expenses

The accompanying

notes are an integral part of these consolidated financial statements.

ACACIA RESEARCH

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

(In thousands,

Net loss including noncontrolling

Other comprehensive income (loss):

Unrealized loss

on foreign currency translation, net of tax of $0.

Total other comprehensive loss

Comprehensive (income) loss

attributable to noncontrolling interests

Comprehensive loss attributable

to Acacia Research Corporation

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 information)

For the Year Ended December 31, 2019

Redeemable Convertible Preferred Stock

Comprehensive

except share information)

the Year Ended December 31, 2020

A Redeemable Convertible Preferred Stock

Noncontrolling

Stockholders'

Balance at December 31, 2018

Net loss attributable to Acacia Research Corporation

Issuance of shares of Series A redeemable

convertible preferred stock, net of embedded derivative, Series A warrants, and issuance costs

Accretion of Series A redeemable convertible preferred stock to redemption value

Stock options exercised

Compensation expense for share-based awards, net of forfeitures

Net loss attributable to noncontrolling interests in subsidiaries

Balance at December 31, 2019

at December 31, 2019

attributable to Acacia Research Corporation

of Series A Redeemable Convertible Preferred Stock to redemption value

Series A Redeemable Convertible Preferred Stock

Stock options

expense for share-based awards, net of forfeitures

of common stock

of Acacia Intellectual Property Fund, L.P.

Distributions

to noncontrolling interests in subsidiaries

December 31, 2020

For the Year Ended December 31, 2019

Redeemable Convertible Preferred Stock

Comprehensive

Noncontrolling

2 unchanged sentences

Net loss attributable to Acacia Research Corporation

Cumulative effect of new accounting principle

Issuance of Series A Redeemable

Convertible Preferred Shares, net of embedded derivative, Series A Warrant, and issuance costs

Accretion of Series A redeemable convertible preferred stock to redemption value

Stock options exercised

Compensation expense for share-based awards, net of forfeitures

Repurchase of restricted common stock

Repurchase of common stock

Net income attributable to noncontrolling interests in subsidiaries

Unrealized loss on foreign currency translation

Net loss attributable to noncontrolling interests in subsidiaries

Balance at December 31, 2019

1 unchanged sentence

notes are an integral part of these consolidated financial statements.

ACACIA RESEARCH CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

ACACIA RESEARCH

STATEMENTS OF CASH FLOWS

(In thousands)

Cash flows from operating activities:

Net loss including noncontrolling interests in subsidiaries

Adjustments to reconcile net loss including noncontrolling interests in subsidiaries to net cash provided by (used in) operating activities:

Net income (loss) including noncontrolling interests in subsidiaries

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

Change in fair value of investment, net (Note 6)

Loss on sale of investment (Note 6)

Impairment of other investment (Note 6)

Loss (gain) on sale of investment (Note 6)

Impairment of other investment

Gain on disposal of other investment (Note 6)

Depreciation and amortization

Amortization of debt discount and issuance costs

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

Change in fair value of Series A warrant

Change in fair value of Series A warrants

Change in fair value of Series B warrants

Non-cash stock compensation

Change in value of trading securities

Impairment of patent-related intangible assets

Loss on foreign currency exchange

Change in fair value of trading securities and equity securities - private

Gain on sale of trading securities

Gain on sale of prepaid investment and derivative

Changes in assets and liabilities:

3 unchanged sentences

Royalties and contingent legal fees payable

Net cash provided by (used in) operating activities

Net cash used in operating activities

Cash flows from investing activities:

Patent acquisition costs

Patent acquisition

Sale of investment at fair value (Note 6)

(Purchase) Sale of other investments (Note 6)

Sale of other investments (Note 6)

Purchases of trading securities

Maturities and sales of trading securities

Acquisition of LF Equity Income Fund equity securities

Distributions to noncontrolling interests in operating subsidiary

Purchases of property and equipment

2 unchanged sentences

Repurchase of common stock

Repurchase of restricted common stock

Issuance of Senior Secured Notes, net of lender fee

Senior Secured Notes issuance costs paid to other parties

Dividend on Series A Redeemable Convertible Preferred Stock

Issuance of Series A redeemable convertible preferred stock and Series A warrants, net of issuance costs

Issuance of Series B warrants

Proceeds from exercise of stock options

Net cash provided by (used in) financing activities

Decrease in cash and cash equivalents and restricted cash

Net cash provided by financing activities

Increase (decrease) in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash, beginning

Cash and cash equivalents and restricted cash, ending

The accompanying notes are an integral

part of these consolidated financial statements

ACACIA RESEARCH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DESCRIPTION OF BUSINESS

The accompanying

notes are an integral part of these consolidated financial statements

ACACIA RESEARCH

CONSOLIDATED FINANCIAL STATEMENTS

DESCRIPTION OF BUSINESS

herein, “we,”

As used herein, “we,”

“us,”

2 unchanged sentences

and the “Company”

refer to Acacia

Research Corporation and/or its wholly and majority-owned and controlled operating subsidiaries, and/or where applicable, its

Acacia’s operating subsidiaries invest

in, license and enforce patented technologies.

Acacia’s operating subsidiaries partner with inventors and patent owners,

applying their legal and technology expertise to patent assets to unlock the financial value in their patented inventions.

years, Acacia has also invested in technology companies.

Acacia leverages its experience, expertise, data and relationships developed

as a leader in the IP industry to pursue these opportunities.

In some cases, these opportunities will complement and/or supplement

Acacia’s primary licensing and enforcement business.

Acacia’s operating subsidiaries generate

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

control or own.

Acacia’s operating subsidiaries assist patent owners with the prosecution and development of their patent

portfolios, the protection of their patented inventions from unauthorized use, the generation of licensing revenue from users of

their patented technologies and, where necessary, with the enforcement against unauthorized users of their patented technologies

through the filing of patent infringement litigation.

Acacia’s operating subsidiaries are

principals in the licensing and enforcement effort, obtaining control of the rights in the patent portfolio, or control of the

patent portfolio outright.

Acacia’s operating subsidiaries own or control the rights to multiple patent portfolios, which

refer to Acacia Research Corporation and/or its wholly and majority-owned and controlled operating subsidiaries, and/or where

applicable, its management.

Acacia acquires businesses and operating assets

that the Company believes to be undervalued and where the Company believes it can leverage its resources and skill sets to realize and

unlock value.

The Company intends to leverage its (i) access to flexible capital that can be deployed unconditionally, (ii) expertise

in corporate governance and operational restructuring, (iii) willingness to invest in out of favor industries and businesses that suffer

from a complexity discount and untangle complex, multi-factor situations, and (iv) expertise and relationships in certain sectors, to

complete strategic acquisitions of businesses, divisions, and/or assets with a focus on mature technology, healthcare, industrial and

certain financial segments.

Acacia seeks to identify opportunities where the Company believes it is an advantaged buyer, where the Company

can avoid structured sale processes and create the opportunity to purchase businesses, divisions and/or assets of companies at an attractive

price due to the Company’s unique capabilities, relationships, or expertise, or where Acacia believes the target would be worth

more to the Company than to other buyers.

Acacia operates its business based on three

key principles of People, Process and Performance and have built a management team with identified expertise in Research, Execution

and Operation of the Company’s targeted acquisitions.

Acacia, through

its operating subsidiaries, also currently engages in its legacy business of investing in, licensing and enforcing patented technologies.

Acacia’s operating subsidiaries partner with inventors and patent owners, applying their legal and technology expertise

to patent assets to unlock the financial value in their patented inventions.

In recent years, Acacia has also invested in technology

Acacia leverages its experience, expertise, data and relationships developed as a leader in the IP industry to pursue

these opportunities.

In some cases, these opportunities will complement and/or supplement Acacia’s primary licensing and

enforcement business.

Acacia’s

operating subsidiaries generate revenues and related cash flows from the granting of IP rights for the use of patented technologies

that its operating subsidiaries control or own.

Acacia’s operating subsidiaries assist patent owners with the prosecution

and development of their patent portfolios, the protection of their patented inventions from unauthorized use, the generation

of licensing revenue from users of their patented technologies and, where necessary, with the enforcement against unauthorized

users of their patented technologies through the filing of patent infringement litigation.

Acacia’s

operating subsidiaries are principals in the licensing and enforcement effort, obtaining control of the rights in the patent portfolio,

or control of the patent portfolio outright.

Acacia’s operating subsidiaries own or control the rights to multiple patent

portfolios, which include U.S.

patents and certain foreign counterparts, covering technologies used in a wide variety of industries.

Neither Acacia nor its operating subsidiaries

invent new technologies or products;

rather, Acacia depends upon the identification and investment in new patents, inventions and

companies that own IP through its relationships with inventors, universities, research institutions, technology companies and others.

If Acacia’s operating subsidiaries are unable to maintain those relationships and identify and grow new relationships, then

they may not be able to identify new technology-based opportunities for sustainable revenue and/or revenue growth.

During fiscal year 2019, Acacia obtained

control of five new patent portfolios.

During fiscal year 2018, Acacia did not obtain control of any new patent portfolios.

Acacia was incorporated on January 25, 1993

under the laws of the State of California.

In December 1999, Acacia changed its state of incorporation from California to Delaware.

SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

Accounting Principles.

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.

Principles of Consolidation.

accompanying consolidated financial statements include the accounts of Acacia and its wholly and majority-owned and controlled

subsidiaries.

Neither Acacia

nor its operating subsidiaries invent new technologies or products;

rather, Acacia depends upon the identification and investment

in new patents, inventions and companies that own IP through its relationships with inventors, universities, research institutions,

technology companies and others.

If Acacia’s operating subsidiaries are unable to maintain those relationships and identify

and grow new relationships, then they may not be able to identify new technology-based opportunities for sustainable revenue and/or

revenue growth.

During fiscal

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

During fiscal

year 2019, Acacia obtained control of four new patent portfolios.

Acacia was incorporated

on January 25, 1993 under the laws of the State of California.

In December 1999, Acacia changed its state of incorporation from

California to Delaware.

OF SIGNIFICANT ACCOUNTING POLICIES

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.

of Consolidation.

The accompanying consolidated financial statements include the accounts of Acacia and its wholly and majority-owned

and controlled subsidiaries.

Material intercompany transactions and balances have been eliminated in consolidation.

Noncontrolling interests in

Acacia’s majority-owned and controlled operating subsidiaries (“noncontrolling interests”) are separately presented

as a component of stockholders’

Consolidated net income or (loss) is adjusted to include the net (income) or loss

attributed to noncontrolling interests in the consolidated statements of operations.

Refer to the accompanying consolidated statements

of Series A redeemable convertible preferred stock and stockholders’

equity for total noncontrolling interests.

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 is included in the Company’s consolidated financial statements since 2010, as Acacia’s wholly owned

subsidiary, as the general partner, has the ability to control the operations and activities of the Acacia IP Fund.

IP Fund was terminated as of December 31, 2017 and is in the process of being liquidated.

Noncontrolling

interests in Acacia’s majority-owned and controlled operating subsidiaries (“noncontrolling interests”) are

separately presented as a component of stockholders’

Consolidated net income or (loss) is adjusted to include the

net (income) or loss attributed to noncontrolling interests in the consolidated statements of operations.

Refer to the accompanying

consolidated statements of Series A redeemable convertible preferred stock and stockholders’

equity for total noncontrolling

In 2020, in connection with the transaction

with Link Fund Solutions Limited, which is more fully described in Note 17, 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.

Viamet HoldCo LLC, a Delaware limited liability company and wholly-owned subsidiary of Acacia (see Note 17), is the majority shareholder

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 is included in the Company’s consolidated financial statements since

2010, as Acacia’s wholly owned subsidiary, as the general partner, 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.

Revenue Recognition.

is recognized upon transfer of control of promised bundled IP rights (hereinafter “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

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

For the periods presented, revenue contracts

executed by the Company primarily provided for the payment of contractually determined, one-time, paid-up license fees in consideration

for the grant of certain IP Rights for patented technologies owned or controlled by Acacia (“Paid-up Revenue Agreements”).

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 Revenue Agreements”).

Revenues may also include court ordered settlements or awards related to our patent

portfolio ("Other Settlements") or sales of our patent portfolio ("Sales").

IP Rights granted included the

following, as applicable:

(i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products

covered by patented technologies, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv)

the dismissal of any pending litigation.

The IP Rights granted were perpetual in nature, extending until the legal expiration

date of the related patents.

The individual IP Rights are not accounted for as separate performance obligations, as (i) the nature

of the promise, within the context of the contract, is to transfer combined items to which the promised IP Rights are inputs and

(ii) the Company's promise to transfer each individual IP right described above to the customer is not separately identifiable

from other promises to transfer IP Rights in the contract.

Since the promised IP Rights are not

individually distinct, the Company 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.

Revenue is recognized upon transfer of control of promised bundled IP rights (hereinafter “IP Rights”) and other

contractual performance obligations to licensees in an amount that reflects the consideration we expect to receive in exchange

for those IP Rights.

Revenue contracts that provide promises to grant the right to use IP Rights as they exist at the point in

time at which the IP Rights are granted, are accounted for as performance obligations satisfied at a point in time and revenue

is recognized at the point in time that the applicable performance obligations are satisfied and all other revenue recognition

criteria have been met.

For the periods

presented, revenue contracts executed by the Company primarily provided for the payment of contractually determined, one-time,

paid-up license fees in consideration for the grant of certain IP Rights for patented technologies owned or controlled by Acacia

(“Paid-up Revenue Agreements”).

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 Revenue Agreements”).

Revenues may also include court ordered

settlements or awards related to our patent portfolio ("Other Settlements") or sales of our patent portfolio ("Sales").

IP Rights granted included the following, as applicable:

(i) the grant of a non-exclusive, retroactive and future license to manufacture

and/or sell products covered by patented technologies, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain

claims, and (iv) the dismissal of any pending litigation.

The IP Rights granted were perpetual in nature, extending until the

legal expiration date of the related patents.

The individual IP Rights are not accounted for as separate performance obligations,

as (i) the nature of the promise, within the context of the contract, is to transfer combined items to which the promised IP Rights

are inputs and (ii) the Company's promise to transfer each individual IP right described above to the customer is not separately

identifiable from other promises to transfer IP Rights in the contract.

Since the promised

IP Rights are not individually distinct, the Company 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

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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.

contracts provide for the grant (i.e., transfer of control) of the licenses, covenants-not-to-sue, releases, and other

significant deliverables upon execution of the contract.

Licensees legally obtain control of the IP Rights upon execution of

the contract.

As such, the earnings process is complete and revenue is recognized upon the execution of the contract, when

collectability is probable and all other revenue recognition criteria have been met.

Revenue contracts generally provide for

payment of contractual amounts with 30-90 days of execution of the contract, or the end of the quarter in which the sale or

usage occurs for Recurring Revenue Agreements.

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

Acacia’s operating subsidiaries have no further obligation with respect to the grant of IP Rights, including no

express or implied obligation to maintain or upgrade the technology, or provide future support or services.

The contracts provide

for the grant (i.e., transfer of control) of the licenses, covenants-not-to-sue, releases, and other significant deliverables

upon execution of the contract.

Licensees legally obtain control of the IP Rights upon execution of the contract.

earnings process is complete and revenue is recognized upon the execution of the contract, when collectability is probable and

all other revenue recognition criteria have been met.

Revenue contracts generally provide for payment of contractual amounts with

30-90 days of execution of the contract, or the end of the quarter in which the sale or usage occurs for Recurring Revenue Agreements.

Contractual payments made by licensees are generally non-refundable.

For sales-based royalties, the Company

includes in the transaction price some or all of an amount of estimated variable consideration to the extent that it is

probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the

uncertainty associated with the variable consideration is subsequently resolved.

Notwithstanding, revenue is recognized

for a sales-based royalty promised in exchange for a license of IP Rights when the later of (i) the subsequent sale or usage

occurs, or (ii) the performance obligation to which some or all of the sales-based royalty has been allocated has

been satisfied.

Estimates are generally based on historical levels of activity, if available.

Revenues from contracts with significant

financing components (either explicit or implicit) are recognized at an amount that reflects the price that a licensee would have

paid if the licensee had paid cash for the IP Rights when they transfer to the licensee.

In determining the transaction price,

the Company adjusts the promised amount of consideration for the effects of the time value of money.

As a practical expedient,

the Company does not adjust the promised amount of consideration for the effects of a significant financing component if the Company

expects, at contract inception, that the period between when the entity transfers promised IP Rights to a customer and when the

customer pays for the IP Rights will be one year or less.

In general, the Company is required to make

certain judgments and estimates in connection with the accounting for revenue contracts with customers.

Such areas may include

identifying performance obligations in the contract, estimating the timing of satisfaction of performance obligations, determining

whether a promise to grant a license is distinct from other promised goods or services, evaluating whether a license transfers

to a customer at a point in time or over time, allocating the transaction price to separate performance obligations, determining

whether contracts contain a significant financing component, and estimating revenues recognized at a point in time for sales-based

Revenues were comprised of the following

for the periods presented:

For sales-based

royalties, the Company includes in the transaction price some or all of an amount of estimated variable consideration to the extent

that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty

associated with the variable consideration is subsequently resolved.

Notwithstanding, revenue is recognized for a sales-based

royalty promised in exchange for a license of IP Rights when the later of (i) the subsequent sale or usage occurs, or (ii) the

performance obligation to which some or all of the sales-based royalty has been allocated has been satisfied.

Estimates are generally

based on historical levels of activity, if available.

Revenues from

contracts with significant financing components (either explicit or implicit) are recognized at an amount that reflects the price

that a licensee would have paid if the licensee had paid cash for the IP Rights when they transfer to the licensee.

In determining

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

a practical expedient, the Company does not adjust the promised amount of consideration for the effects of a significant financing

component if the Company expects, at contract inception, that the period between when the entity transfers promised IP Rights

to a customer and when the customer pays for the IP Rights will be one year or less.

the Company is required to make certain judgments and estimates in connection with the accounting for revenue contracts with customers.

Such areas may include identifying performance obligations in the contract, estimating the timing of satisfaction of performance

obligations, determining whether a promise to grant a license is distinct from other promised goods or services, evaluating whether

a license transfers to a customer at a point in time or over time, allocating the transaction price to separate performance obligations,

determining whether contracts contain a significant financing component, and estimating revenues recognized at a point in time

for sales-based royalties.

Revenues were

comprised of the following for the periods presented:

(In thousands)

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Recurring Revenue Agreements

Other Settlements

Refer to “Inventor Royalties and Contingent

Legal Expenses”

Total Revenue

Refer to “Inventor

Royalties and Contingent Legal Expenses”

below for information on related direct costs of revenues.

Portfolio Operations.

of revenues include the costs and expenses incurred in connection with Acacia’s patent licensing and enforcement activities,

including inventor royalties paid to original patent owners, contingent legal fees paid to external patent counsel, other patent-related

legal expenses paid to external patent counsel, licensing and enforcement related research, consulting and other expenses paid

to third-parties and the amortization of patent-related investment costs.

These costs are included under the caption “Portfolio

operations”

Cost of revenues include the costs and expenses incurred in connection with Acacia’s patent licensing and

enforcement activities, including inventor royalties paid to original patent owners, contingent legal fees paid to external patent

counsel, other patent-related legal expenses paid to external patent counsel, licensing and enforcement related research, consulting

and other expenses paid to third-parties and the amortization of patent-related investment costs.

These costs are included under

the caption “Portfolio operations”

in the accompanying consolidated statements of operations.

Inventor Royalties and Contingent Legal

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

are recognized.

In certain instances, pursuant to the terms of the underlying inventor agreements, upfront advances paid to patent

owners by Acacia’s operating subsidiaries are recoverable from future net revenues.

Patent costs that are recoverable from

future net revenues are amortized over the estimated economic useful life of 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.

There were no patent acquisition expenses for fiscal year 2019.

Cost of revenues for fiscal year 2018 included $4.0 million of costs to acquire certain patent rights related to revenues recognized

in the period.

Contingent legal fees are expensed in the

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

In instances where there are no recoveries

from potential infringers, no contingent legal fees are paid;

however, Acacia’s operating subsidiaries may be liable for

certain out of pocket legal costs incurred pursuant to the underlying legal services agreement.

Royalties and Contingent Legal Expenses.

Inventor royalties are expensed in the consolidated statements of operations in the

period that the related revenues are recognized.

In certain instances, pursuant to the terms of the underlying inventor agreements,

upfront advances paid to patent owners by Acacia’s operating subsidiaries are recoverable from future net revenues.

costs that are recoverable from future net revenues are amortized over the estimated economic useful life of the related patents,

or as the prepaid royalties are earned by the inventor, as appropriate, and the related expense is included in amortization expense

in the 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.

There were no patent acquisition

expenses for the years ended December 31, 2020 and 2019.

Contingent legal

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

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

however, Acacia’s operating

subsidiaries may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement.

Fair Value Measurements.

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also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available.

three-level hierarchy of valuation techniques established to measure fair value is defined as follows:

Level 1 - Observable Inputs :

Quoted prices in active markets for identical investments;

Level 2 - Pricing Models with Significant Observable Inputs :

Other significant observable inputs, including quoted prices for similar investments, interest rates, credit risk, etc.;

Level 3 - Unobservable Inputs :

Significant unobservable inputs, including the entity’s own assumptions in determining the fair value of investments.

Whenever possible,

the Company is required to use observable market inputs (Level 1 - quoted market prices) when measuring fair value.

In such cases,

the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair

value measurement.

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

the asset or liability being measured.

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

value hierarchy.

Financial assets and liabilities measured at fair value on a recurring basis were as follows:

(In thousands)

Assets as of December 31, 2019:

Trading securities - debt

Trading securities - equity

Investment at fair value - warrants (Note 6)

Investment at fair value - common stock (Note 6)

Total recurring fair value measurements as of December 31, 2019

Assets as of December 31, 2018:

Trading securities - debt

Trading securities - equity

Investment at fair value - warrants (Note 6)

Investment at fair value - common stock (Note 6)

Total recurring fair value measurements as of December 31, 2018

Liabilities as of December 31, 2019:

Profits interest units

Series A warrants

Embedded derivative liability

Total liabilities as of December 31, 2019

Liabilities as of December 31, 2018:

Profits interest units

Total liabilities as of December 31, 2018

The following table sets forth a summary of the changes in the

estimated fair value of the Company’s embedded derivative, which is measured at fair value as a Level 3 liability on a recurring

Embedded Derivative

(In thousands)

Opening balance as of January 1, 2019

Issuance of Series A redeemable convertible preferred stock with embedded derivative

Remeasurement of Series A redeemable convertible preferred

stock embedded derivative to fair value

Total Level 3 recurring fair value measurements as of December 31, 2019

Cash and Cash Equivalents .

considers all highly liquid, trading securities with original maturities of three months or less when purchased to be cash equivalents.

For the periods presented, Acacia’s cash equivalents are comprised of investments in AAA rated money market funds that invest

in first-tier only securities, which primarily includes:

domestic commercial paper, securities issued or guaranteed by the U.S.

to Note 14 to our notes to consolidated financial statements for more information related to our fair value measurement.

Cash Equivalents .

Acacia considers all highly liquid, trading securities with original maturities of three months or less

when purchased to be cash equivalents.

For the periods presented, Acacia’s cash equivalents are comprised of investments

in AAA rated money market funds that invest in first-tier only securities, which primarily includes:

domestic commercial paper,

securities issued or guaranteed by the U.S.

government or its agencies, U.S.

bank obligations, and fully collateralized repurchase agreements.

Acacia’s cash equivalents

are measured at fair value using quoted prices that represent Level 1 inputs.

Long Term Restricted Cash .

restricted cash relates to the proceeds received from the issuance of Series A redeemable convertible preferred stock (the “Series

A Redeemable Convertible Preferred Stock”) which are held in an escrow account.

The amounts are to be released to the Company

upon, among other things, (i) the consummation of a suitable investment or acquisition by the Company or (ii) the conversion of

Series A Redeemable Convertible Preferred Stock into common stock (see Note 16).

bank obligations, and fully collateralized repurchase

Acacia’s cash equivalents are measured at fair value using quoted prices that represent Level 1 inputs.

Restricted Cash .

Long-term restricted cash relates to the proceeds received from the issuance of Series A redeemable convertible

preferred stock (the “Series A Redeemable Convertible Preferred Stock”) which are held in an escrow account.

are to be released to the Company upon, among other things, (i) the consummation of a suitable investment or acquisition by the

Company or (ii) the conversion of Series A Redeemable Convertible Preferred Stock into common stock (see Note 16).

Trading Securities- Debt.

in debt securities are reported at fair value on a recurring basis, with related realized and unrealized gains and losses recorded

in the statements of operations in other income (expense).

Realized and unrealized gains and losses are recorded based on the specific

identification method.

in the consolidated statements of operations in other income (expense).

Realized and unrealized gains and losses are recorded based

on the specific identification method.

Interest is included in other income (expense).

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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 statements of operations in other income (expense).

Dividend income is included

in other income (expense).

the value of such securities recorded in the consolidated statements of operations in other income (expense).

Dividend income is

included in other income (expense).

Investment Securities

Private Equity.

As the private company equity securities do not have readily determinable fair value, we have elected

to report them under the measurement alternative.

They are reported at cost minus impairment, if any, plus or minus changes resulting

from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

The fair values

of the private company securities were estimated based on recent financing transactions and secondary market transactions and factoring

in any adjustments for illiquidity or preference of these securities.

Changes in fair value are reported in the consolidated statements

of operations in other income (expense).

Impairment of Investments.

evaluates its investments in marketable securities for potential impairment, employing a methodology on a quarterly basis that

considers available quantitative and qualitative evidence.

If the cost or carrying value of an investment exceeds its estimated

fair value, the Company evaluates, among other factors, general market conditions, credit quality of instrument issuers, the duration

and extent to which the fair value is less than cost, and the Company’s intent and ability to hold, or plans or ability to

evaluates its investments in marketable and private equity securities for potential impairment, employing a methodology on a quarterly

basis that considers available quantitative and qualitative evidence.

If the cost or carrying value of an investment exceeds its

estimated fair value, the Company evaluates, among other factors, general market conditions, credit quality of instrument issuers,

the duration and extent to which the fair value is less than cost, and the Company’s intent and ability to hold, or plans

or ability to sell.

Fair value is estimated based on publicly available market information or other estimates determined by management.

are considered to be impaired when a decline in fair value is estimated to be other-than-temporary.

Acacia reviews impairments

associated with its investments in marketable securities and determines the classification of any impairment as temporary or other-than-temporary.

An impairment is deemed other-than-temporary unless (a) Acacia has the ability and intent to hold an investment for a period of

time sufficient for recovery of its carrying amount and (b) positive evidence indicating that the investment’s carrying amount

is recoverable within a reasonable period of time outweighs any evidence to the contrary.

All available evidence, both positive

and negative, is considered to determine whether, based on the weight of such evidence, the carrying amount of the investment is

recoverable within a reasonable period of time.

For investments classified as available-for-sale, unrealized losses that are other-than-temporary

are recognized in the consolidated statements of operations.

Concentration of Credit Risks.

instruments that potentially subject Acacia to concentrations of credit risk are cash equivalents, trading securities and accounts

Acacia places its cash equivalents and trading securities primarily in highly rated money market funds and investment

grade marketable securities.

Cash and cash equivalents are also invested in deposits with certain financial institutions and may,

at times, exceed federally insured limits.

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

Three licensees individually accounted for

43%, 22% and 15%, respectively, of revenues recognized during the year ended December 31, 2019.

Three licensees individually

accounted for 45%, 17% and 17%, respectively, of revenues recognized during the year ended December 31, 2018.

Two licensees

individually represented approximately 70% and 17%, respectively, of accounts receivable at December 31, 2019.

Four licensees

individually represented approximately 38%, 36%, 12% and 11%, respectively, of accounts receivable at December 31, 2018.

For 2019 and 2018, 39% and 26%, respectively,

of revenues were attributable to licensees domiciled in foreign jurisdictions, based on the jurisdiction of the entity obligated

to satisfy payment obligations pursuant to the applicable revenue arrangement.

The Company does not have any material foreign operations.

Acacia performs credit evaluations of its

licensees with significant receivable balances, if any, and has not experienced any significant credit losses.

Accounts receivable

are recorded at the executed contract amount and generally do not bear interest.

Investments are considered to be impaired when a decline in fair value is estimated to be other-than-temporary.

Acacia reviews

impairments associated with its investments in these securities and determines the classification of any impairment as temporary

or other-than-temporary.

An impairment is deemed other-than-temporary unless (a) Acacia has the ability and intent to hold an investment

for a period of time sufficient for recovery of its carrying amount and (b) positive evidence indicating that the investment’s

carrying amount is recoverable within a reasonable period of time outweighs any evidence to the contrary.

All available evidence,

both positive and negative, is considered to determine whether, based on the weight of such evidence, the carrying amount of the

investment is recoverable within a reasonable period of time.

For investments classified as available-for-sale, unrealized losses

that are other-than-temporary are recognized in the consolidated statements of operations.

Concentration

of Credit Risks.

Financial instruments that potentially subject Acacia to concentrations of credit risk are cash equivalents,

trading securities and accounts receivable.

Acacia places its cash equivalents and trading securities primarily in highly rated

money market funds and investment grade marketable securities.

Cash and cash equivalents are also invested in deposits with certain

financial institutions and may, at times, exceed federally insured limits.

Acacia has not experienced any significant losses on

its deposits of cash and cash equivalents.

Three licensees

individually accounted for 64%, 10% and 7%, respectively, of revenues recognized during the year ended December 31, 2020.

licensees individually accounted for 43%, 22% and 15%, respectively, of revenues recognized during the year ended December 31,

Two licensees individually represented approximately 62% and 21%, respectively, of accounts receivable at December 31, 2020.

Two licensees individually represented approximately 70% and 17%, respectively, of accounts receivable at December 31, 2019.

2019, 8% and 39%, respectively, of revenues were attributable to licensees domiciled in foreign jurisdictions, based on the jurisdiction

of the entity obligated to satisfy payment obligations pursuant to the applicable revenue arrangement.

The Company does not have

any material foreign operations.

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

Collateral is not required.

An allowance for doubtful

accounts may be established to reflect the Company’s best estimate of probable losses inherent in the accounts receivable

balance, and is reflected as a contra-asset account on the balance sheet and a charge to operating expenses in the statements of

operations for the applicable period.

The allowance is determined based on known troubled accounts, historical experience, and

other currently available evidence.

An allowance for doubtful accounts may be established to reflect the Company’s

best estimate of probable losses inherent in the accounts receivable balance, and is reflected as a contra-asset account on

the balance sheet and a charge to operating expenses in the consolidated statements of operations for the applicable period.

The allowance is determined based on known troubled accounts, historical experience, and other currently available evidence.

There was no allowance for doubtful accounts established for the periods presented.

Fair Value of Financial

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.

Property and Equipment.

and equipment are recorded at cost.

Major additions and improvements that materially extend useful lives of property and equipment

are capitalized.

of Financial Instruments.

The carrying value of cash and cash equivalents, restricted cash, accounts receivables, and current

liabilities approximates their fair values due to their short-term maturities.

and Equipment.

Property and equipment are recorded at cost.

Major additions and improvements that materially extend useful

lives of property and equipment are capitalized.

Maintenance and repairs are charged against the results of operations as incurred.

When these assets are sold

or otherwise disposed of, the asset and related depreciation are relieved, and any gain or loss is included in the consolidated

statements of operations for the period of sale or disposal.

Depreciation and amortization is computed on a straight-line basis

over the following estimated useful lives of the assets:

Furniture and fixtures

When these assets are sold or otherwise disposed of, the asset and related depreciation are relieved, and any gain or loss is

included in the consolidated statements of operations for the period of sale or disposal.

Depreciation and amortization is computed

on a straight-line basis over the following estimated useful lives of the assets:

Furniture and

Computer hardware and software

Leasehold improvements

2 to 5 years (Lesser of lease term or useful life of improvement)

Rental payments on operating leases are

charged to expense in the consolidated statements of operations on a straight-line basis over the lease term.

Patents include

the cost of patents or patent rights (hereinafter, collectively “patents”) acquired from third-parties or obtained

in connection with business combinations.

Patent costs are amortized utilizing the straight-line method over their remaining economic

useful lives, ranging from one to five years.

The Company adopted ASC

842 as of January 1, 2019, electing the practical expedient approaches.

The primary impact of adopting ASC 842 for the Company

was the recognition in the consolidated balance sheet of certain lease-related assets and liabilities for operating leases with

terms longer than 12 months.

Such amounts were not previously accounted for in the Company's consolidated balance sheets.

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

The Company assesses whether

an arrangement contains a lease at inception.

The Company recognizes a lease liability to make contractual payments under all

leases with terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying

asset for the lease term.

Upon adoption of ASC 842 on January 1, 2019, the carrying value of certain lease related liabilities

for its excess of lease payments over anticipated sublease income existing at that date, was offset against the related right-of-use

2 to 5 years (Lesser of lease

term or useful life of improvement)

Rental payments

on operating leases are charged to expense in the consolidated statements of operations on a straight-line basis over the lease

Patents include the cost of patents or patent rights (hereinafter, collectively “patents”) acquired from third-parties

or obtained in connection with business combinations.

Patent costs are amortized utilizing the straight-line method over their

remaining economic useful lives, ranging from one to five years.

Company adopted ASC 842 as of January 1, 2019, electing the practical expedient approaches.

The primary impact of adopting ASC

842 for the Company was the recognition in the consolidated balance sheet of certain lease-related assets and liabilities for

operating leases with terms longer than 12 months.

Such amounts were not previously accounted for in the Company's consolidated

balance sheets.

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

Company assesses whether an arrangement contains a lease at inception.

The Company recognizes a lease liability to make contractual

payments under all leases with terms greater than twelve months and a corresponding right-of-use asset, representing its right

to use the underlying asset for the lease term.

Upon adoption of ASC 842 on January 1, 2019, the carrying value of certain lease

related liabilities for its excess of lease payments over anticipated sublease income existing at that date, was offset against

the related right-of-use assets.

Lease expense is recognized on a straight-line basis over the lease term.

Investments at Fair Value .

individual investment basis, Acacia may elect to account for investments in companies where the Company has the ability to exercise

significant influence over operating and financial policies of the investee, at fair value.

If the fair value option is applied

to an investment that would otherwise be accounted for under the equity method of accounting, it is applied to all of the financial

interests in the same entity that are eligible items (i.e., common stock and warrants).

Other Investments .

Equity investments

in common stock and in-substance common stock without readily determinable fair values in companies over which the Company has

the ability to exercise significant influence, are accounted for using the equity method of accounting.

Acacia includes its proportionate

share of earnings and/or losses of its equity method investees in equity in earnings (losses) of investee in the consolidated

statements of operations.

Investments in preferred stock with substantive

liquidation preferences are accounted for at cost, (subject to impairment considerations, as described below, if any), as adjusted

for the impact of changes resulting from observable price changes in orderly transactions for identical or similar investments

of the same issuer.

In-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially

similar to that entity's common stock.

An investment in preferred stock with substantive liquidation preferences over common stock,

is not substantially similar to common stock, and therefore is not considered in-substance common stock.

A liquidation preference

is substantive if the investment has a stated liquidation preference that is significant, from a fair value perspective, in relation

to the purchase price of the investment.

A liquidation preference in an investee that has sufficient subordinated equity from a

fair value perspective is substantive because, in the event of liquidation, the investment will not participate in substantially

all of the investee's losses, if any.

at Fair Value .

On an individual investment basis, Acacia may elect to account for investments in companies where the Company

has the ability to exercise significant influence over operating and financial policies of the investee, at fair value.

fair value option is applied to an investment that would otherwise be accounted for under the equity method of accounting, it

is applied to all of the financial interests in the same entity that are eligible items (i.e., common stock and warrants).

Investments - equity method investments .

Equity investments in common stock and in-substance common stock without readily

determinable fair values in companies over which the Company has the ability to exercise significant influence, are accounted

for using the equity method of accounting.

Acacia includes its proportionate share of earnings and/or losses of its equity

method investees in equity in earnings (losses) of investee in the consolidated statements of operations.

in preferred stock with substantive liquidation preferences are accounted for at cost, (subject to impairment considerations,

as described below, if any), as adjusted for the impact of changes resulting from observable price changes in orderly transactions

for identical or similar investments of the same issuer.

In-substance common stock is an investment in an entity that has risk

and reward characteristics that are substantially similar to that entity's common stock.

An investment in preferred stock with

substantive liquidation preferences over common stock, is not substantially similar to common stock, and therefore is not considered

in-substance common stock.

A liquidation preference is substantive if the investment has a stated liquidation preference that

is significant, from a fair value perspective, in relation to the purchase price of the investment.

A liquidation preference in

an investee that has sufficient subordinated equity from a fair value perspective is substantive because, in the event of liquidation,

the investment will not participate in substantially all of the investee's losses, if any.

The initial determination of whether an

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exercise significant influence over the operating and financial policies of the investee.

That determination is reconsidered

if (i) contractual terms of the investment are changed, (ii) there is a significant change in the capital structure of the investee,

including the investee's receipt of additional subordinated financing, or (iii) the Company obtains an additional interest in an

investment, resulting in the method of accounting for the cumulative interest being based on the characteristics of the investment

That determination is reconsidered if

(i) contractual terms of the investment are changed, (ii) there is a significant change in the capital structure of the investee,

including the investee's receipt of additional subordinated financing, or (iii) the Company obtains an additional interest in

an investment, resulting in the method of accounting for the cumulative interest being based on the characteristics of the investment

at the date at which the Company obtains the additional interest.

Refer to Note 6 for additional information.

Impairment of Other Investments.

reviews its investments quarterly for indicators of other-than-temporary impairment.

This determination requires significant

In making this judgment, Acacia considers available quantitative and qualitative evidence in evaluating potential

impairment of its investments.

If the cost of an investment exceeds its fair value, Acacia evaluates, among other factors,

general market conditions and the duration and extent to which the fair value is less than cost.

Acacia also considers

specific adverse conditions related to the financial health of and business outlook for the investee, including industry and

sector performance, changes in technology, and operational and financing cash flow factors.

Once a decline in fair value is

determined to be other-than-temporary, an impairment charge is recorded in the consolidated statements of operations and a

new cost basis in the investment is established.

Impairment of Long-lived Assets.

Acacia reviews long-lived assets and intangible assets for potential impairment annually (quarterly for patents) and when events

or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

In the event the expected undiscounted

future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss is recorded

equal to the excess of the asset’s carrying value over its fair value.

If an asset is determined to be impaired, the loss

is measured based on quoted market prices in active markets, if available.

If quoted market prices are not available, the estimate

of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows.

that management decides to no longer allocate resources to a patent portfolio, an impairment loss equal to the remaining carrying

value of the asset is recorded.

Refer to Notes 6 and 17 for additional information.

of Long-lived Assets.

Acacia reviews long-lived assets and intangible assets for potential impairment annually (quarterly

for patents) and when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

event the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the

asset, an impairment loss is recorded equal to the excess of the asset’s carrying value over its fair value.

is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available.

If quoted market

prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of

estimated future cash flows.

In the event that management decides to no longer allocate resources to a patent portfolio, an impairment

loss equal to the remaining carrying value of the asset is recorded.

Refer to Note 5 for additional information.

Fair value is generally estimated using

the “Income Approach,”

focusing on the estimated future net income-producing capability of the patent portfolios over

the estimated remaining economic useful life.

Estimates of future after-tax cash flows are converted to present value through “discounting,”

including an estimated rate of return that accounts for both the time value of money and investment risk factors.

Estimated cash

inflows are typically based on estimates of reasonable royalty rates for the applicable technology, applied to estimated market

Estimated cash outflows are based on existing contractual obligations, such as contingent legal fee and inventor royalty

obligations, applied to estimated license fee revenues, in addition to other estimates of out-of-pocket expenses associated with

a specific patent portfolio’s licensing and enforcement program.

The analysis also contemplates consideration of current

information about the patent portfolio including, status and stage of litigation, periodic results of the litigation process, strength

of the patent portfolio, technology coverage and other pertinent information that could impact future net cash flows.

Contingent Liabilities.

The Company, from time to time,

is involved in certain legal proceedings.

Based upon consultation with outside counsel handling its defense in these matters and

the Company’s analysis of potential outcomes, if the Company determines that a loss arising from such matters is probable

and can be reasonably estimated, an estimate of the contingent liability is recorded in its consolidated financial statements.

If only a range of estimated loss can be determined, an amount within the range that, based on estimates, assumptions and judgments,

reflects the most likely outcome, is recorded as a contingent liability in the consolidated financial statements.

In situations

where none of the estimates within the estimated range is a better estimate of probable loss than any other amount, the Company

records the low end of the range.

Any such accrual would be charged to expense in the appropriate period.

Litigation expenses for

these types of contingencies are recognized in the period in which the litigation services were provided.

Certain of Acacia’s operating

subsidiaries are often required to engage in litigation to enforce their patents and patent rights.

In connection with any of

Acacia’s operating subsidiaries’

patent enforcement actions, it is possible that a defendant may request and/or a

court may rule that an operating subsidiary has violated statutory authority, regulatory authority, federal rules, local

court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions.

such event, a court may issue monetary sanctions against Acacia or its operating subsidiaries or award attorney’s fees

and/or expenses to a defendant(s), which could be material, and if required to be paid by Acacia or its operating

subsidiaries, could materially harm the Company’s operating results and financial position.

Fair value is

generally estimated using the “Income Approach,”

focusing on the estimated future net income-producing capability

of the patent portfolios over the estimated remaining economic useful life.

Estimates of future after-tax cash flows are converted

to present value through “discounting,”

including an estimated rate of return that accounts for both the time value

of money and investment risk factors.

Estimated cash inflows are typically based on estimates of reasonable royalty rates for

the applicable technology, applied to estimated market data.

Estimated cash outflows are based on existing contractual obligations,

such as contingent legal fee and inventor royalty obligations, applied to estimated license fee revenues, in addition to other

estimates of out-of-pocket expenses associated with a specific patent portfolio’s licensing and enforcement program.

analysis also contemplates consideration of current information about the patent portfolio including, status and stage of litigation,

periodic results of the litigation process, strength of the patent portfolio, technology coverage and other pertinent information

that could impact future net cash flows.

The Company, from time to time, is involved in certain legal proceedings.

Based upon consultation with outside

counsel handling its defense in these matters and the Company’s analysis of potential outcomes, if the Company determines

that a loss arising from such matters is probable and can be reasonably estimated, an estimate of the contingent liability is

recorded in its consolidated financial statements.

If only a range of estimated loss can be determined, an amount within the range

that, based on estimates, assumptions and judgments, reflects the most likely outcome, is recorded as a contingent liability in

the consolidated financial statements.

In situations where none of the estimates within the estimated range is a better estimate

of probable loss than any other amount, the Company records the low end of the range.

Any such accrual would be charged to expense

in the appropriate period.

Litigation expenses for these types of contingencies are recognized in the period in which the litigation

services were provided.

Certain of Acacia’s

operating subsidiaries are often required to engage in litigation to enforce their patents and patent rights.

In connection with

any of Acacia’s operating subsidiaries’

patent enforcement actions, it is possible that a defendant may request and/or

a court may rule that an operating subsidiary has violated statutory authority, regulatory authority, federal rules, local court

rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions.

In such event, a

court may issue monetary sanctions against Acacia or its operating subsidiaries or award attorney’s fees and/or expenses

to a defendant(s), which could be material, and if required to be paid by Acacia or its operating subsidiaries, could materially

harm the Company’s operating results and financial position.

Compensation.

7 unchanged sentences

for as they occur.

No stock options were granted during the

year ended December 31, 2019.

The fair values of stock options granted during the year ended December 31, 2018 were estimated

using the Black-Scholes option-pricing model, based on the following weighted-average assumptions:

December 31, 2018

Risk-free interest rate

Dividend yield

Due to a lack of sufficient historical stock

option exercise experience, the Company utilized the simplified method for estimating the expected term.

Expected volatility

is based on the historical volatility of the Company’s stock for the length of time corresponding to the expected term of

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

treasury yield curve on the grant date for the expected term of the

Restricted stock units awards with market-based

vesting conditions vest based upon the Company achieving specified stock price targets over a three-year period.

The effect of

a market condition is reflected in the estimate of the grant-date fair value of the options utilizing a Monte Carlo valuation

Compensation cost is recognized with a market-based vesting condition provided that the requisite service is rendered,

regardless of when, if ever, the market condition is satisfied.

Assumptions utilized in connection with the Monte Carlo valuation

technique included:

stock units granted in September 2019 with market-based vesting conditions vest based upon the Company achieving specified stock

price targets over a three-year period.

The effect of a market condition is reflected in the estimate of the grant-date fair value

of the options utilizing a Monte Carlo valuation technique.

Compensation cost is recognized with a market-based vesting condition

provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied.

Assumptions utilized

in connection with the Monte Carlo valuation technique included:

estimated risk-free interest rate of 1.38 percent;

term of 3.00 years;

expected volatility of 38 percent;

and expected dividend yield of 0 percent.

The risk-free interest rate was determined based on the yields available on U.S.

zero-coupon issues.

The expected stock price volatility was determined using historical volatility.

The expected dividend yield

was based on expectations regarding dividend payments.

Profits Interest Units (“Units”)

are accounted for in accordance with Accounting Standards Codification (“ASC”) 718-10, “Compensation - Stock

Compensation.”

The Units vest as described at Note 9, and therefore, the vesting conditions do not meet the definition of

service, market or performance conditions, as defined in ASC 718.

As such, the Units are classified as liability awards.

classified awards are measured at fair value on the grant date and re-measured each reporting period at fair value until the award

Compensation expense is adjusted each reporting period for changes in fair value prorated for the portion of the requisite

service period rendered.

Initially, compensation expense was recognized on a straight-line basis over the employee’s requisite

service period (generally the vesting period of the equity award) which was five years.

Upon full vesting of the award, which occurred

during the three months ended September 30, 2017, previously unrecognized compensation expense was immediately recognized in the

period, and will continue to be fully recognized for any changes in fair value, until the Units are settled.

The Company has a

purchase option to purchase the vested Units that are not otherwise forfeited after termination of continuous service.

price of the purchase option is the fair market value of the Units on the date of termination of continuous service.

At each reporting

date, the value of the Units that are subject to the purchase option will be the measured at the fair value on the termination

Non-cash stock compensation expense related to the Units is reflected in general and administrative expense in the accompanying

consolidated statements of operations.

The risk-free interest rate was determined

based on the yields available on U.S.

Treasury zero-coupon issues.

The expected stock price volatility was determined using historical

The expected dividend yield was based on expectations regarding dividend payments.

Profits Interest

Units (“Units”) are accounted for in accordance with Accounting Standards Codification (“ASC”) 718-10,

“Compensation - Stock Compensation.”

The Units vest as described at Note 9, and therefore, the vesting conditions

do not meet the definition of service, market or performance conditions, as defined in ASC 718.

As such, the Units are classified

as liability awards.

Liability classified awards are measured at fair value on the grant date and re-measured each reporting period

at fair value until the award is settled.

Compensation expense is adjusted each reporting period for changes in fair value prorated

for the portion of the requisite service period rendered.

Initially, compensation expense was recognized on a straight-line basis

over the employee’s requisite service period (generally the vesting period of the equity award) which was five years.

full vesting of the award, which occurred during the three months ended September 30, 2017, previously unrecognized compensation

expense was immediately recognized in the period, and will continue to be fully recognized for any changes in fair value, until

the Units are settled.

The Company has a purchase option to purchase the vested Units that are not otherwise forfeited after termination

of continuous service.

The exercise price of the purchase option is the fair market value of the Units on the date of termination

of continuous service.

At each reporting date, the value of the Units that are subject to the purchase option will be the measured

at the fair value on the termination date.

Non-cash stock compensation expense related to the Units is reflected in general and

administrative expense in the accompanying consolidated statements of operations.

Series A Warrants.

The fair value

of the Series A warrants (the “Series A Warrants”) is estimated using a Black-Scholes

option-pricing model.

The fair value of the Series A Warrants as of December 31, 2019 was estimated based on the following assumptions:

volatility of 30 percent, risk-free rate of 1.85 percent, term of 7.79 years and a dividend yield of 0 percent.

Embedded derivatives.

Embedded derivatives

that are required to be bifurcated from their host contract are valued separately from host instrument.

A binomial lattice framework

is used to estimate the fair value of the embedded derivative in the Series A Redeemable Convertible Preferred Stock (see Note

The binomial model utilizes the Tsiveriotis and Fernandes (“TF”) implementation in which a convertible instrument

is split into two separate components:

a cash-only component which is subject to the selected risk-adjusted discount rate and an

equity component which is subject only to the risk-free rate.

The model considers the (i) implied volatility of the value of our

common stock, (ii) appropriate risk-free interest rate, (iii) credit spread, (iv) dividend yield, (v) dividend accrual (and a step-up

in rates), and (vi) event probabilities of the various conversion and redemption scenarios.

The implied volatility of the Company’s

common stock is estimated based on a haircut applied to the historical volatility.

A volatility haircut is a concept used to describe

a commonly observed occurrence in which the volatility implied by market prices involving options, warrants, and convertible debt

is lower than historical actual realized volatility.

The assumed base case term used in the valuation model is the period remaining

until November 15, 2027 (the maturity date).

fair value of the Series A warrants (the “Series A Warrants”) is estimated using a Black-Scholes option-pricing model.

fair value of the Series A Warrants as of December 31, 2020 was estimated based on the following assumptions:

volatility of 29 percent,

risk-free rate of 0.62 percent, term of 6.79 years and a dividend yield of 0 percent.

The fair value of the Series A Warrants as of December

31, 2019 was estimated based on the following assumptions:

volatility of 30 percent, risk-free rate of 1.85 percent, term of 7.79 years

and a dividend yield of 0 percent.

Refer to Notes 16 for additional information.

The fair value of the Series B Warrants is estimated using Monte Carlo valuation technique.

The fair value of

the Series B Warrants as of December 31, 2020 was estimated based on event probabilities of future exercise scenarios and the

following weighted-average 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 percent, and (2) volatility of 50 percent, risk-free rate of

0.12 percent, term of 1.65 years and a dividend yield of 0 percent, and a discount for lack of marketability of 10 percent.

to Notes 16 for additional information.

derivatives .

Embedded derivatives that are required to be bifurcated from their host contract are valued separately from host

A binomial lattice framework is used to estimate the fair value of the embedded derivative in the Series A Redeemable

Convertible Preferred Stock.

Refer to Notes 16 for additional information.

model utilizes the Tsiveriotis and Fernandes (“TF”) implementation in which a convertible instrument is split into

two separate components:

a cash-only component which is subject to the selected risk-adjusted discount rate and an equity component

which is subject only to the risk-free rate.

The model considers the (i) implied volatility of the value of our common stock,

(ii) appropriate risk-free interest rate, (iii) credit spread, (iv) dividend yield, (v) dividend accrual (and a step-up in rates),

and (vi) event probabilities of the various conversion and redemption scenarios.

The implied volatility of the Company’s common

stock is estimated based on a haircut applied to the historical volatility.

A volatility haircut is a concept used to describe a commonly

observed occurrence in which the volatility implied by market prices involving options, warrants, and convertible debt is lower than historical

actual realized volatility.

The assumed base case term used in the valuation model is the period remaining until November 15, 2027 (the

maturity date).

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

Treasury with a remaining

term equal to the expected term of the conversion and early redemption options.

The significant assumptions utilized in the Company’s

valuation of the embedded derivative at December 31, 2019 are as follows:

volatility of 30 percent, risk-free rate of 1.86

percent, a credit spread of 25 percent and a dividend yield of 0 percent.

The fair value measurement of the embedded derivative

is sensitive to these assumptions and changes in these assumptions could result in a materially different fair value measurement.

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, 2020 are as follows:

volatility of 29 percent, risk-free rate of 0.62 percent, a credit spread of 19 percent

and a dividend yield of 0 percent.

The significant assumptions utilized in the Company’s valuation of the embedded derivative at

December 31, 2019 are as follows:

volatility of 30 percent, risk-free rate of 1.86 percent, a credit spread of 25 percent and a dividend

yield of 0 percent.

The fair value measurement of the embedded derivative is sensitive to these assumptions and changes in these assumptions

could result in a materially different fair value measurement.

Income Taxes.

are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for

the expected future tax consequences of events that have been recognized in Acacia’s consolidated financial statements or

consolidated income tax returns.

A valuation allowance is established to reduce deferred tax assets if all, or some portion, of

such assets will more than likely not be realized, or if it is determined that there is uncertainty regarding future realization

of such assets.

generally accepted accounting

principles, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing

that is reflected in measuring current or deferred income tax assets and liabilities.

Tax positions are recognized only when it

is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained upon examination.

Tax positions that meet the more likely than not threshold are measured using a probability weighted approach as the largest amount

of tax benefit that is greater than 50% likely of being realized upon settlement.

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets

and liabilities for the expected future tax consequences of events that have been recognized in Acacia’s consolidated financial

statements or consolidated income tax returns.

A valuation allowance is established to reduce deferred tax assets if all, or some

portion, of such assets will more than likely not be realized, or if it is determined that there is uncertainty regarding future

realization of such assets.

accepted accounting principles, a tax position is a position in a previously filed tax return or a position expected to be taken

in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities.

Tax positions are

recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position

will be sustained upon examination.

Tax positions that meet the more likely than not threshold are measured using a probability

weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement.

Segment Reporting.

uses the management approach, which designates the internal organization that is used by management for making operating decisions

and assessing performance as the basis of Acacia’s reportable segments.

Acacia’s patent licensing and enforcement business

constitutes its single reportable segment.

Acacia uses the

management approach, which designates the internal organization that is used by management for making operating decisions and

assessing performance as the basis of Acacia’s reportable segments.

The Company manages its operations as a single segment

for the purposes of assessing performance and making operating decisions.

Use of Estimates .

preparation of financial statements in conformity with generally accepted accounting principles in the United States of America

requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues

and expenses during the reporting period.

The preparation

of financial statements in conformity with generally accepted accounting principles in the United States of America requires management

to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets

and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the

reporting period.

Actual results could differ from these estimates.

Acacia believes that, of the significant

accounting policies described herein, the accounting policies associated with revenue recognition, the valuation of the equity

instruments discussed at Note 6, the valuation of Series A redeemable convertible preferred stock, Series A warrants and embedded

derivatives, stock-based compensation expense, impairment of patent-related intangible assets, the determination of the economic

useful life of amortizable intangible assets, income taxes and valuation allowances against net deferred tax assets, require its

most difficult, subjective or complex judgments.

Loss Per Share.

in which the Company generates net income, the Company computes earnings 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.

For the periods presented, due to the Company’s

net loss, the Company did not apply the two-class method to allocate earnings to the participating securities.

Basic net loss

per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number

of shares of common stock outstanding for the period.

Diluted net loss per share of common stock is computed by dividing net 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.

Potentially dilutive common stock equivalents consist

of stock options, restricted stock units, unvested restricted stock, Series A Redeemable Convertible Preferred Stock, and Series

The following table presents the calculation

of basic and diluted loss per share of common stock:

(In thousands, except percentage change values)

Net loss attributable to Acacia Research Corporation

Acacia believes that, of the significant accounting policies

described herein, the accounting policies associated with revenue recognition, the valuation of the equity instruments discussed

at Notes 6, 14 and 17, the valuation of Series A redeemable convertible preferred stock, Series A warrants, Series B warrants,

and embedded derivatives, stock-based compensation expense, impairment of patent-related intangible assets, the determination of

the economic useful life of amortizable intangible assets, income taxes and valuation allowances against net deferred tax assets,

require its most difficult, subjective or complex judgments.

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.

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.

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

The following

table presents the calculation of basic and diluted income per share of common stock:

(In thousands, except share and per share information)

Net income (loss) attributable to Acacia Research Corporation

Dividend on Series A redeemable convertible preferred stock

Accretion of Series A redeemable convertible preferred stock

Net loss attributable to common stockholders - basic

Weighted-average shares used in computing net loss per share attributable to common stockholders - basic

Basic net loss per share of common stock

Net loss attributable to Acacia Research Corporation

Mark-to-market adjustment for preferred stock embedded derivative

Net loss attributable to common stockholders - diluted

Weighted-average shares used in computing

net loss per share attributable to common stockholders - basic

Effect of potentially dilutive securities:

Undistributed earnings allocated to participating securities

Net income (loss) attributable to common stockholders - basic

Accretion of Series A redeemable convertible preferred stock

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

Change in fair value of Series A warrants

Change in fair value of dilutive Series B warrants

Interest expense associated with Starboard Notes, net of tax

Undistributed earnings allocated to participating securities

Reallocation of undistributed earnings to participating securities

Net income (loss) attributable to common stockholders - diluted

Weighted-average shares used in computing net income (loss) per share attributable to common stockholders - basic

Potentially dilutive common shares:

Series A Preferred Stock

Weighted-average shares used in computing net loss per share attributable to common stockholders - diluted

Diluted net loss per share of common stock

As the Company reported a net loss for

the years ended December 31, 2019 and 2018, all potentially dilutive shares of common stock other than those associated with the

Series A Redeemable Convertible Preferred Stock have been excluded from the calculation of diluted net loss per share of common

stock because including such instruments would be anti-dilutive.

Treasury Stock .

Repurchases of the

Company’s outstanding common stock are accounted for using the cost method.

The applicable par value is deducted from the

appropriate capital stock account on the formal or constructive retirement of treasury stock.

Any excess of the cost of treasury

stock over its par value is charged to additional paid-in capital, and reflected as Treasury Stock on the consolidated balance

Restricted stock units

Employee stock options

Series A Warrants

Series B Warrants

Weighted-average shares used in computing net income (loss) per share attributable to common stockholders - diluted

Basic net income (loss) per common share

Diluted net income (loss) per common share

Anti-dilutive potential common shares excluded from the computation of diluted net income (loss) per common share:

Equity-based incentive awards

Series A warrants

Series B warrants

Repurchases of the Company’s outstanding common stock are accounted for using the cost method.

The applicable

par value is deducted from the appropriate capital stock account on the formal or constructive retirement of treasury stock.

excess of the cost of treasury stock over its par value is charged to additional paid-in capital, and reflected as Treasury Stock

on the consolidated balance sheets.

Trading securities

Trading securities for the

periods presented were comprised of the following:

for the periods presented were comprised of the following:

(In thousands)

1 unchanged sentence

December 31, 2020:

Trading securities - debt

Trading securities - equity

2 unchanged sentences

Trading securities - equity

Trading securities as of December 31, 2019

and 2018, were comprised of investments in corporate bonds (debt securities) and investments in equity securities of publicly

held companies (equity securities).

For the year ended December 31, 2019, proceeds from the sale and maturity of debt securities

and equity securities were $49,751,000 and $25,339,000, respectively.

For the year ended December 31, 2018, proceeds from

the sale and maturity of debt securities and equity securities were $65,144,000 and $1,496,000, respectively.

securities as of December 31, 2020 and 2019, were comprised of investments in equity securities of publicly held companies (equity

securities) and investments in corporate bonds (debt securities).

For the year ended December 31, 2020, proceeds from the sale

and maturity of debt securities and equity securities were $118,459,000 and $46,383,000 , respectively.

For the year ended December 31, 2019, proceeds from the sale and maturity of debt securities and equity securities were $49,751,000

and $25,339,000, respectively.

Accrued expenses

Accrued expenses consist of the following

at December 31, 2019 and 2018:

consist of the following at December 31, 2020 and 2019:

(In thousands)

Accrued litigation liabilities

Accrued legal expenses - patent

Accrued consulting and other professional fees

Foreign taxes payable

State income taxes payable

Short-term lease liability

Other accrued liabilities

Acacia’s only identifiable intangible

assets are patents and patent rights, with estimated remaining economic useful lives ranging from one to five years.

For all periods

presented, all of Acacia’s identifiable intangible assets were subject to amortization.

The gross carrying amounts and accumulated

amortization related to investments in intangible assets as of December 31, 2019 and 2018 are as follows (in thousands):

Acacia’s

only identifiable intangible assets are patents and patent rights, with estimated remaining economic useful lives ranging from

one to five years.

For all periods presented, all of Acacia’s identifiable intangible assets were subject to amortization.

The gross carrying amounts and accumulated amortization related to investments in intangible assets as of December 31, 2020 and

2019 are as follows (in thousands):

Gross carrying amount - patents

Accumulated amortization - patents (1)

patent impairment charges for the applicable periods.

The weighted-average remaining estimated

economic useful life of Acacia’s patents and patent rights is 4 years.

Scheduled annual aggregate amortization expense is

estimated to be $2,555,000 in 2020, $1,695,000 in 2021, $1,695,000 in 2022, $1,620,000 in 2023 and $249,000 in 2024.

Acacia did not record charges related to

the impairment of patent-related intangible assets for the year ended December 31, 2019.

Acacia recorded impairment of patent-related

intangible asset charges totaling $28,210,000 for the year ended December 31, 2018.

The impairment charges related to impairments

of patent portfolios due to a reduction in expected estimated future net cash flows and certain patent portfolios that management

determined it would no longer allocate future resources to in connection with the licensing and enforcement of such portfolios,

due primarily to adverse litigation outcomes, potential prior art related complexities and/or the overall determination that future

resources would be allocated to other licensing and enforcement programs with higher potential return profiles.

The impairment

charges for the periods presented consisted of the excess of the asset’s carrying value over its estimated fair value.

For the year ended December 31, 2018, pursuant

to the terms of the respective inventor agreements, certain Acacia operating subsidiaries elected to terminate or sell their rights

to patent portfolios, resulting in the acceleration of amortization expense for the patent-related assets totaling $8,307,000.

There is no accelerated amortization or sales for patent-related assets for the year ended December 31, 2019.

_____________

Includes patent impairment charges for the applicable periods.

The weighted-average

remaining estimated economic useful life of Acacia’s patents and patent rights is 4 years.

Scheduled annual aggregate amortization

expense is estimated to $4,450,000 in 2021, $4,451,000 in 2022, $4,376,000 in 2023, $3,005,000 in 2024, and $630,000 thereafter.

Acacia did not record

charges related to the impairment of patent-related intangible assets for the years ended December 31, 2020 and December 31, 2019.

is no accelerated amortization or sales for patent-related assets for the years ended December 31, 2020 and December 31, 2019.

INVESTMENT AT FAIR VALUE

During 2016 and 2017, Acacia made certain

investments in Veritone, Inc.

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

(“Veritone”).

As a result of these transactions, Acacia received an aggregate total

of 4,119,521 shares of Veritone common stock and warrants to purchase a total of 1,120,432 shares of Veritone common stock at

an exercise price of $13.61 per share expiring between 2020 and 2027.

During the year ended December 31, 2018, Acacia sold 2,700,000

shares Veritone common stock and recorded a realized loss of $19.1 million.

During the year ended December 31, 2019, Acacia sold

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

As a result of these transactions, Acacia

received an aggregate total of 4,119,521 shares of Veritone common stock and warrants to purchase a total of 1,120,432 shares

of Veritone common stock at an exercise price of $13.61 per share expiring between 2020 and 2027.

During the year ended December

31, 2020, Acacia exercised 963,712 warrants, and recorded a realized gain of $11.5 million.

At December 31, 2020, the fair value

of the 298,449 shares of Veritone common stock owned by Acacia totaled $743,000.

At December 31, 2019, the fair value of

the 1,120,432 common stock purchase warrants held by Acacia totaled $757,000.

At December 31, 2018, the fair value of the 1,419,521

shares of Veritone common stock owned by Acacia totaled $5,395,000.

At December 31, 2018, the fair value of the 1,120,432 common

stock purchase warrants held by Acacia totaled $2,064,000.

Changes in the fair value of Acacia’s

investment in Veritone are recorded as unrealized gains or losses in the consolidated statements of operations.

For the year ended

December 31, 2019, and 2018, the accompanying consolidated statements of operations reflected the following:

of the 156,720 remaining warrants held by Acacia totaled $2,752,000.

the year ended December 31, 2019, Acacia sold 1,121,071 shares Veritone common stock and recorded a realized loss of $9.2 million.

During the three months ended March 31, 2020, Acacia sold all remaining 298,450 shares Veritone common stock and recorded a realized

loss of $3.3 million.

Changes in the

fair value of Acacia’s investment in Veritone are recorded as unrealized gains or losses in the consolidated statements

of operations.

For the year ended December 31, 2020, and 2019, the accompanying consolidated statements of operations reflected

the following:

(In thousands)

1 unchanged sentence

Change in fair value of investment, common stock

Gain on sale of investment, warrants

Loss on sale of investment, common stock

Net realized and unrealized gain (loss) on investment at fair value

Miso Robotics Investment

In June 2017, Acacia made an investment

in the Series A Preferred financing round for Miso Robotics, Inc.

(“Miso Robotics”), an innovative leader in robotics

and artificial intelligence solutions, totaling $2,250,000, acquiring a 22.6% ownership interest in Series A preferred stock of

Miso Robotics, and one board seat.

In February 2018, Acacia made an additional equity investment in the Series B Preferred financing

round for Miso Robotics totaling $6,000,000, increasing its ownership interest (Series B preferred stock) in Miso Robotics to approximately

30%, and acquiring an additional board seat.

As of June 30, 2019, Acacia recorded an impairment of $8.2 million for its investment

in Miso Robotics.

In September 2019, Acacia received a cash payment of $2.0 million upon the sale of its entire investment, and

therefore relinquished its ownership interest in Miso Robotics.

Net realized and unrealized gain on investment at fair value

STOCKHOLDERS’

Repurchases of Common Stock.

2018, Acacia’s Board of Directors authorized the repurchase of up to $20,000,000 of the Company’s outstanding

common stock in open market purchases or private purchases, from time to time, in amounts and at prices to be determined by the

Board of Directors at its discretion (the “Stock Repurchase Program”).

On August 5, 2019, Acacia’s Board of Directors

approved a new stock repurchase program, which authorized the purchase of up to $10.0 million of the Company's common stock through

open market purchases, through block trades, through 10b5-1 plans, or by means of private purchases, from time to time, through

July 31, 2020.

In determining whether or not to repurchase

any shares of Acacia’s common stock, Acacia’s Board of Directors consider such factors as the impact of the repurchase

on Acacia’s cash position, as well as Acacia’s capital needs and whether there is a better alternative use of Acacia’s

Acacia has no obligation to repurchase any amount of its common stock under the Stock Repurchase Program.

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 repurchased shares are expected to be retired.

Monthly stock repurchases for the periods presented, all of which were purchased as part of a publicly announced plan or program,

were as follows:

of Common Stock.

In February 2018, Acacia’s Board of Directors authorized the repurchase of up to $20,000,000 of the

Company’s outstanding common stock in open market purchases or private purchases, from time to time, in amounts and at prices

to be determined by the Board of Directors at its discretion (the “Stock Repurchase Program”).

On August 5, 2019,

Acacia’s Board of Directors approved a new stock repurchase program, which authorized the purchase of up to $10.0 million

of the Company's common stock through open market purchases, through block trades, through 10b5-1 plans, or by means of private

purchases, from time to time, through July 31, 2020.

In determining

whether or not to repurchase any shares of Acacia’s common stock, Acacia’s Board of Directors consider such factors

as the impact of the repurchase on Acacia’s cash position, as well as Acacia’s capital needs and whether there is

a better alternative use of Acacia’s capital.

Acacia has no obligation to repurchase any amount of its common stock under

the Stock Repurchase Program.

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 repurchased

shares are expected to be retired.

Monthly stock repurchases for the periods presented, all of which were purchased as part of

a publicly announced plan or program, were as follows:

Approximate Dollar

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Plan Expiration Date

May 1, 2018 - May 30, 2018

February 28, 2019

March 20, 2020 - March 31, 2020

July 31, 2020

April 1, 2020 - April 23, 2020

July 31, 2020

Totals for 2020

Tax Benefits Preservation Plan .

March 12, 2019, Acacia’s Board of Directors announced that it had unanimously approved the adoption of a Tax Benefits Preservation

Plan (the “Plan”).

The purpose of the Plan is to protect the Company’s ability to utilize potential tax assets,

such as net operating loss carryforwards and tax credits to offset potential future taxable income.

The Plan is designed to reduce the likelihood

that the Company will experience an ownership change by discouraging (i) any person or group from acquiring beneficial ownership

of 4.9% or more of the Company’s outstanding common stock and (ii) any existing stockholders who, as of the time of the first

public announcement of the adoption of the Plan, beneficially own more than 4.9% of the Company’s then-outstanding shares

of the Company’s common stock from acquiring additional shares of the Company’s common stock (subject to certain exceptions).

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

In connection with the adoption of the Plan,

Acacia’s Board of Directors authorized and declared a dividend distribution of one right for each outstanding share of the

Company’s common stock to stockholders of record at the close of business on March 16, 2019.

On or after the distribution

date, each right would initially entitle the holder to purchase one one-thousandth of a share of the Company’s Series B Junior

Participating Preferred Stock, $0.001 par value for a purchase price of $12.00.

The Company also has a provision in its

Amended and Restated Certificate of Incorporation, as amended (the “Charter Provision”) which generally prohibits transfers

of its common stock that could result in an ownership change.

Like the Plan, the purpose of the Charter Provision is to protect

the Company’s ability to utilize potential tax assets, such as net operating loss carryforwards and tax credits to offset

potential future taxable income.

The Charter Provision was approved by the Company’s stockholders on July 15, 2019.

Acacia’s income tax benefit (expense) for the fiscal periods

presented consisted of the following:

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”).

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.

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

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,

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.

also has a provision in its Amended and Restated Certificate of Incorporation, as amended (the “Charter Provision”)

which generally prohibits transfers of its common stock that could result in an ownership change.

Like the Plan, the purpose of

the Charter Provision is to protect the Company’s ability to utilize potential tax assets, such as net operating loss carryforwards

and tax credits to offset potential future taxable income.

The Charter Provision was approved by the Company’s stockholders

on July 15, 2019.

Acacia’s

income tax benefit (expense) for the fiscal periods presented consisted of the following:

(in thousands)

1 unchanged sentence

Total deferred

Income tax benefit (expense)

tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities

consist of the following at December 31, 2019 and 2018 :

Income tax benefit

The tax effects of temporary differences

and carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following at December

31, 2020 and 2019:

(in thousands)

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Deferred tax liabilities:

Unrealized loss on investments held at fair value

Total deferred tax liabilities

Net deferred tax assets (liabilities)

A reconciliation of the federal statutory

income tax rate and the effective income tax rate is as follows:

A reconciliation of the federal

statutory income tax rate and the effective income tax rate is as follows:

Statutory federal tax rate - (benefit) expense

6 unchanged sentences

Valuation allowance

For the periods presented, the Company recorded

full valuation allowances against its net deferred tax assets due to uncertainty regarding future realization pursuant to guidance

set forth in ASC 740, “Income Taxes.”

In future periods, if the Company determines it will more likely than not be

able to realize certain of these amounts, the applicable portion of the benefit from the release of the valuation allowance will

generally be recognized in the statements of operations in the period the determination is made.

At December 31, 2019, Acacia had U.S.

federal and state income tax net operating loss carryforwards (“NOLs”) totaling approximately $253,824,000 and $19,683,000,

respectively.

For federal income tax purposes, our NOL carryovers generated for tax years beginning before January 1, 2018 will

begin to expire in 2026.

periods presented, the Company recorded full valuation allowances against its net deferred tax assets due to uncertainty

regarding future realization pursuant to guidance set forth in ASC 740, “Income Taxes.”

In future periods, if the

Company determines it will more likely than not be able to realize certain of these amounts, the applicable portion of the

benefit from the release of the valuation allowance will generally be recognized in the consolidated statements of operations

in the period the determination is made.

31, 2020, Acacia had U.S.

federal and state income tax net operating loss carryforwards (“NOLs”) totaling approximately

$274,283,000 and $13,809,000, respectively.

For federal income tax purposes, our NOL carryovers generated for tax years beginning

before January 1, 2018 will begin to expire in 2026.

Pursuant to the Tax Cuts and Jobs Act 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.

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.

Our capital loss carryovers totaled $11,155,000

at December 31, 2020, expiring in 2029.

For state income tax purposes, our NOLs will expire between 2028 and 2040.

Our capital loss carryovers totaled $23,652,000 at December 31, 2019, expiring between 2025 and 2029.

As of December 31, 2019, Acacia had

approximately $51,508,000 of foreign tax credits, expiring between 2020 and 2026.

In general, foreign taxes withheld may be claimed

as a deduction on future U.S.

As of December

31, 2020, Acacia had approximately $50,973,000 of foreign tax credits, expiring between 2021 and 2026.

In general, foreign taxes

withheld may be claimed as a deduction on future U.S.

corporate income tax returns, or as a credit against future U.S.

income tax liabilities, subject

to certain limitations.

Tax expense (benefit) for the periods presented

primarily reflects foreign taxes withheld and refunded on revenue agreements executed with licensees in foreign jurisdictions

and other state taxes.

Excluding the impact of the change in valuation allowance, annual effective tax rates were 23% for fiscal

year 2019 and 19% for fiscal year 2018.

Results for fiscal year 2019 included an unrealized loss on Acacia’s investment

in Veritone which created a deferred tax asset totaling approximately $538,000.

Results for fiscal year 2018 included an unrealized

loss on Acacia’s investment in Veritone which created a deferred tax asset totaling approximately $2,455,000.

The 2017 deferred

tax liability was reversed in fiscal year 2018 as a result of the 2018 unrealized loss on Acacia’s investment in Veritone

and the realized loss on the sale of Veritone common stock.

Acacia is subject to taxation in the U.S.

and in various state jurisdictions and incurs foreign tax withholdings on revenue agreements with licensees in certain foreign

jurisdictions.

tax liabilities, subject to certain limitations.

(benefit) for the periods presented primarily reflects foreign taxes withheld and refunded on revenue agreements executed with

licensees in foreign jurisdictions and other state taxes.

Excluding the impact of the change in valuation allowance, annual effective

tax rates were 32% for fiscal year 2020 and 23% for fiscal year 2019.

Results for fiscal year 2020 included an unrealized gain

on our investment in Veritone which created a deferred tax liability totaling approximately $590,000, and an unrealized gain on

our investment in the LF equity income fund portfolio which created a deferred tax liability totaling approximately $37,706,000.

Results for fiscal year 2019 included an unrealized loss on Acacia’s investment in Veritone which created a deferred tax

asset totaling approximately $538,000.

Acacia is subject

to taxation in the U.S.

and in various state jurisdictions and incurs foreign tax withholdings on revenue agreements with licensees

in certain foreign jurisdictions.

With no material exceptions, Acacia is no longer subject to U.S.

federal or state examinations by tax authorities

for years before 2011.

The California Franchise Tax Board is auditing the 2011 through 2016 California combined income tax returns.

The California Franchise Tax Board has proposed adjustments for 2011 and 2012 that, if expensed, would not be material to the consolidated

statements of operations for the periods presented.

We have protested these adjustments.

At December 31, 2019 and 2018, the

Company had total unrecognized tax benefits of approximately $731,000 and $816,000, respectively.

No interest and penalties have

been recorded for the unrecognized tax benefits for the periods presented.

federal or state examinations

by tax authorities for years before 2016.

The California Franchise Tax Board audited the 2011 through 2016 California combined

income tax returns.

The California Franchise Tax Board has proposed adjustments for 2011 through 2016 that will result in a reduction

in our net operating loss carryforward deferred tax asset of $571,000.

As those NOL’s have been subject to a full

valuation allowance, the impact of these adjustments has no impact to the consolidated statements of operations for the periods

At both December

31, 2020 and 2019, the Company had total unrecognized tax benefits of approximately $731,000.

No interest and penalties have been

recorded for the unrecognized tax benefits for the periods presented.

At December 31, 2020, if recognized, approximately $731,000

of tax benefits, net of valuation allowance, would impact the Company’s effective tax rate.

The Company does not expect that

the liability for unrecognized tax benefits will change significantly within the next 12 months.

Acacia recognizes interest and

penalties with respect to unrecognized tax benefits in income tax expense (benefit).

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.

EQUITY-BASED INCENTIVE

Stock-Based Incentive Plans

The 2013 Acacia Research Corporation Stock

Incentive Plan (“2013 Plan”) and the 2016 Acacia Research Corporation Stock Incentive Plan (“2016 Plan”)

(collectively, the “Plans”) were approved by the stockholders of Acacia in May 2013 and June 2016, respectively.

Plans allow grants of stock options, stock awards and performance shares with respect to Acacia common stock to eligible individuals,

which generally includes directors, officers, employees and consultants.

Except as noted below, the terms and provisions of

the Plans are identical in all material respects.

Acacia’s compensation committee

administers the discretionary option grant and stock issuance programs.

The compensation committee determines which

eligible individuals are to receive option grants or stock issuances under those programs, the time or times when the grants

or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as

either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in

effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding.

exercise price of options is generally equal to the fair market value of Acacia’s common stock on the date of

Options generally begin to be exercisable six months to one year after grant and generally expire seven to ten

years after grant.

Stock options with time-based vesting generally vest over two to three years and restricted shares

with time based vesting generally vest in full after one to three years (generally representing the requisite service

The Plans terminate no later than the tenth anniversary of the approval of the incentive plans by Acacia’s

stockholders.

The Plans provide for the following separate

Discretionary Option Grant Program .

Under the discretionary option grant program, Acacia’s compensation committee may grant (1) non-statutory options to purchase shares of common stock to eligible individuals in the employ or service of Acacia or its subsidiaries (including employees, non-employee board members and consultants) at an exercise price not less than 85% of the fair market value of those shares on the grant date, and (2) incentive stock options to purchase shares of common stock to eligible employees at an exercise price not less than 100% of the fair market value of those shares on the grant date (not less than 110% of fair market value if such employee actually or constructively owns more than 10% of Acacia’s voting stock or the voting stock of any of its subsidiaries).

The 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).

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.

INCENTIVE PLANS

Incentive Plans

The 2013 Acacia

Research Corporation Stock Incentive Plan (“2013 Plan”) and the 2016 Acacia Research Corporation Stock Incentive Plan

(“2016 Plan”) (collectively, the “Plans”) were approved by the stockholders of Acacia in May 2013 and

June 2016, respectively.

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.

Except as noted below,

the terms and provisions of the Plans are identical in all material respects.

Acacia’s

compensation committee administers the discretionary option grant and stock issuance programs.

The compensation committee determines

which eligible individuals are to receive option grants or stock issuances under those programs, the time or times when the grants

or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as either

an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for

the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding.

The exercise price

of options is generally equal to the fair market value of Acacia’s common stock on the date of grant.

Options generally

begin to be exercisable six months to one year after grant and generally expire seven to ten years after grant.

Stock options

with time-based vesting generally vest over two to three years and restricted shares with time based vesting generally vest in

full after one to three years (generally representing the requisite service period).

The Plans terminate no later than the tenth

anniversary of the approval of the incentive plans by Acacia’s stockholders.

The Plans provide

for the following separate programs:

Discretionary Option Grant

Under the discretionary option grant program, Acacia’s compensation committee may grant (1) non-statutory

options to purchase shares of common stock to eligible individuals in the employ or service of Acacia or its subsidiaries

(including employees, non-employee board members and consultants) at an exercise price not less than 85% of the fair market

value of those shares on the grant date, and (2) incentive stock options to purchase shares of common stock to eligible employees

at an exercise price not less than 100% of the fair market value of those shares on the grant date (not less than 110% of

fair market value if such employee actually or constructively owns more than 10% of Acacia’s voting stock or the voting

stock of any of its subsidiaries).

Automatic Option Grant Program .

Through fiscal year 2016, each non-employee director received restricted stock units or stock options for the number of shares determined by dividing the annual retainer by the grant date fair value of Acacia’s common stock on the grant date.

In addition, each new non-employee director received restricted stock units or stock options for the number of shares determined by dividing the annual Board of Directors retainer by the grant date fair value of Acacia’s common stock on the commencement date.

These restricted stock units and stock options vested in a series of twelve quarterly installments over the three year period following the grant date, subject to immediate acceleration upon a change in control.

Acacia will deliver the unrestricted shares corresponding to the vested restricted stock units within thirty (30) days after the first to occur of the following events:

Through fiscal year 2016, each non-employee director received restricted stock units or stock options for the number of shares

determined by dividing the annual retainer by the grant date fair value of Acacia’s common stock on the grant date.

In addition, each new non-employee director received restricted stock units or stock options for the number of shares determined

by dividing the annual Board of Directors retainer by the grant date fair value of Acacia’s common stock on the commencement

These restricted stock units and stock options vested in a series of twelve quarterly installments over the three year

period following the grant date, subject to immediate acceleration upon a change in control.

Acacia will deliver the unrestricted

shares corresponding to the vested restricted stock units within thirty (30) days after the first to occur of the following

(i) the fifth (5th) anniversary of the grant date;

or (ii) termination of the non-employee director’s service as a member of the Company’s Board of Directors.

The non-employee directors do not have any rights, benefits or entitlements with respect to any shares unless and until the shares have been delivered.

or (ii) termination of the non-employee director’s service

as a member of the Company’s Board of Directors.

The non-employee directors do not have any rights, benefits or entitlements

with respect to any shares unless and until the shares have been delivered.

Stock Issuance Program .

Under the stock issuance program, eligible individuals may be issued shares of common stock directly, upon the attainment of performance milestones or the completion of a specified period of service or as a bonus for past services.

Under this program, the purchase price for the shares shall not be less than 100% of the fair market value of the shares on the date of issuance, and payment may be in the form of cash or past services rendered.

The eligible individuals receiving restricted stock awards (“RSA”) shall have full stockholder rights with respect to any shares of Common Stock issued to them under the Stock Issuance Program, whether or not their interest in those shares is vested.

Accordingly, the eligible individuals shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.

The eligible individuals receiving restricted stock units (“RSU”) shall not have full stockholder rights until they vest.

The number of shares of Common Stock initially

reserved for issuance under the 2013 Plan was 4,750,000 shares.

No new additional shares will be added to the 2013 Plan without

security holder approval (except for shares subject to outstanding awards that are forfeited or otherwise returned to the 2013

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.

At December 31, 2019, there were 1,024,419 shares available for grant under

the 2013 Plan.

The number of shares of Common Stock initially

reserved for issuance under the 2016 Plan was 4,500,000 shares plus 625,390 shares of common stock available for issuance under

the 2013 Plan, as of the effective date of the Plan.

At December 31, 2019, there were 4,067,891 shares available for grant

under the 2016 Plan.

Upon the exercise of stock options, the

granting of restricted stock, or the delivery of shares pursuant to vested restricted stock units, 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.

As of December 31, 2019, there are 6,875,564 shares of common stock reserved for issuance under

Stock-based award grant activity for the

periods presented was as follows:

Under the stock issuance program, eligible individuals may be issued shares of common stock directly, upon the attainment

of performance milestones or the completion of a specified period of service or as a bonus for past services.

Under this program,

the purchase price for the shares shall not be less than 100% of the fair market value of the shares on the date of issuance,

and payment may be in the form of cash or past services rendered.

The eligible individuals receiving restricted stock awards

(“RSA”) shall have full stockholder rights with respect to any shares of Common Stock issued to them under the

Stock Issuance Program, whether or not their interest in those shares is vested.

Accordingly, the eligible individuals shall

have the right to vote such shares and to receive any regular cash dividends paid on such shares.

The eligible individuals

receiving restricted stock units (“RSU”) shall not have full stockholder rights until they vest.

The number of

shares of Common Stock initially reserved for issuance under the 2013 Plan was 4,750,000 shares.

No new additional shares will

be added to the 2013 Plan without security holder approval (except for shares subject to outstanding awards that are forfeited

or otherwise returned to the 2013 Plan).

The stock issuable under the 2013 Plan shall be shares of authorized but unissued or

reacquired Common Stock, including shares repurchased by the Company on the open market.

In June 2016, 625,390 shares of common

stock available for issuance under the 2013 Plan were transferred into the 2016 Plan.

At December 31, 2020, there were 378,270

shares available for grant under the 2013 Plan.

The number of

shares of Common Stock initially reserved for issuance under the 2016 Plan was 4,500,000 shares plus 625,390 shares of common

stock available for issuance under the 2013 Plan, as of the effective date of the Plan.

At December 31, 2020, there were 4,068,308

shares available for grant under the 2016 Plan.

Upon the exercise

of stock options, the granting of restricted stock, or the delivery of shares pursuant to vested restricted stock units, 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.

As of December 31, 2020, there are 6,509,469 shares of common stock reserved

for issuance under the Plans.

award grant activity for the periods presented was as follows:

Aggregate fair value (in thousands)

2 unchanged sentences

Restricted stock units with market-based service conditions

Stock options with time-based service vesting conditions

Restricted stock units with time-based service conditions

Total incentive awards granted

The following table summarizes stock option

activity for the Plans for the year ended December 31, 2019:

The following

table summarizes stock option activity for the Plans for the year ended December 31, 2020:

Weighted-Average

Exercise Price

Remaining Contractual Term

Aggregate Intrinsic Value

Contractual Term

Intrinsic Value

Outstanding at December 31, 2019

4 unchanged sentences

intrinsic value of options exercised during the years ended December 31, 2020 and 2019 was $7,000 and $4,000, respectively.

The aggregate intrinsic value of options vested during the year ended December 31, 2019 was $0.

No options were granted

during the year ended December 31, 2019.

The aggregate fair value of options vested during the years ended December 31, 2019

and 2018 was $294,000 and $1,918,000, respectively.

As of December 31, 2019, the total unrecognized compensation expense

related to non-vested stock option awards was $1,074,000, which is expected to be recognized over a weighted-average term of

approximately 2 year.

The following table

summarizes non-vested restricted share activity for the year ended December 31, 2019:

aggregate intrinsic value of options vested during the year ended December 31, 2020 was $8,000.

No options were granted during

the year ended December 31, 2020.

The aggregate fair value of options vested during the years ended December 31, 2020 and 2019

was $54,000 and $294,000, respectively.

As of December 31, 2020, the total unrecognized compensation expense related to non-vested

stock option awards was $9,000, which is expected to be recognized over a weighted-average term of approximately 4 months.

following table summarizes non-vested restricted share activity for the year ended December 31, 2020:

Average Grant

Date Fair Value

Non-vested restricted stock at December 31, 2018

Non-vested restricted stock at December 31, 2019

The weighted-average grant date fair value

of non-vested restricted stock granted during the years ended December 31, 2019 and 2018 was $2.98 and $3.79, respectively.

The aggregate fair value of restricted stock that vested during the years ended December 31, 2019 and 2018 was $672,000 and $972,000,

Nonvested restricted stock at December 31, 2019

Nonvested restricted stock at December 31, 2020

The weighted-average

grant date fair value of non-vested restricted stock granted during the years ended December 31, 2020 and 2019 was $3.38 and $2.98,

respectively.

As of December 31, 2019, unrecognized compensation expense related to non-vested restricted stock awards

was $1,321,000, which is expected to be recognized over a weighted-average term of approximately 2 year.

The following table summarizes restricted

stock units activity for the year ended December 31, 2019:

The aggregate fair value of restricted stock that vested during the years ended December 31, 2020 and 2019 was $1,101,000

and $672,000, respectively.

As of December 31, 2020, unrecognized compensation expense related to non-vested restricted stock

awards was $2,023,000, which is expected to be recognized over a weighted-average term of approximately 2 years.

The following

table summarizes restricted stock units activity for the year ended December 31, 2020:

Average Grant

Date Fair Value

Non-vested restricted stock units at December 31, 2018

Non-vested restricted stock units at December 31, 2019

Nonvested restricted stock units at December 31, 2019

Nonvested restricted stock units at December 31, 2020

Vested restricted stock units at December 31, 2020

The weighted-average grant date fair

value of restricted units granted during the years ended December 31, 2019 was $1.42.

There were no restricted units granted

during the year ended December 31, 2018.

The aggregate fair value of restricted stock units granted during the year ended

December 31, 2019 was $1,280,000.

The aggregate fair value of restricted stock units that vested during the years ended

December 31, 2019 and 2018 was $240,000 and $40,000, respectively.

As of December 31, 2019, unrecognized compensation

expense related to non-vested restricted stock units was $1,140,000.

Stock compensation expense is recognized in general and

administrative expenses.

Profits Interest Plan

On February 16, 2017, AIP Operation

LLC, a Delaware limited liability company (“AIP”), and an indirect subsidiary of Acacia, adopted a Profits Interest

Plan (the “Plan”) that provides for the grant of membership interests in AIP to certain members of management

and the Board of Directors of Acacia as compensation for services rendered for or on behalf of AIP.

Each profits interest unit

granted pursuant to the Plan is intended to qualify as a “profits interest”

federal income tax purposes and

will only have value to the extent the fair value of AIP increases beyond the fair value at the issuance date of the membership

The membership interests are represented by units (the “Units”) reserved for the issuance of awards

under the Plan.

The Units entitle the holders to share in or be allocated certain AIP profits and losses and to receive or share

in AIP distributions pursuant to the AIP Limited Liability Company Operating Agreement entered into as of February 16, 2017 (the “LLC

Agreement”).

In connection with the adoption of the Plan, a form of Profits Interest Agreement was approved pursuant to which

Units may be granted from time to time.

Units vest upon AIP’s achievement of certain performance milestones (one-third upon

150% appreciation, and the remaining two-thirds upon 300% appreciation in value of Acacia’s aggregate investment in Veritone),

subject to the continued service of the recipient, and are subject to the terms and conditions of the Plan, the Profits Interest

Agreement and the LLC Agreement.

The weighted-average

grant date fair value of restricted units granted during the years ended December 31, 2020 was $3.19.

The aggregate fair value

of restricted stock units granted during the year ended December 31, 2020 was $276,000.

The aggregate fair value of restricted

stock units granted during the year ended December 31, 2019 was $1,280,000.

No restricted stock units were vested during the years

ended December 31, 2020 and 2019.

As of December 31, 2020, unrecognized compensation expense related to non-vested restricted

stock units was $936,000, which is expected to be recognized over a weighted-average term of approximately 2 years.

Profits Interest

16, 2017, AIP Operation LLC, a Delaware limited liability company (“AIP”), and an indirect subsidiary of Acacia, adopted

a Profits Interest Plan (the “Plan”) that provides for the grant of membership interests in AIP to certain members

of management and the Board of Directors of Acacia as compensation for services rendered for or on behalf of AIP.

interest unit granted pursuant to the Plan is intended to qualify as a “profits interest”

federal income

tax purposes and will only have value to the extent the fair value of AIP increases beyond the fair value at the issuance date

of the membership interests.

The membership interests are represented by units (the “Units”) reserved for the issuance

of awards under the Plan.

The Units entitle the holders to share in or be allocated certain AIP profits and losses and to receive

or share in AIP distributions pursuant to the AIP Limited Liability Company Operating Agreement entered into as of February 16,

2017 (the “LLC Agreement”).

In connection with the adoption of the Plan, a form of Profits Interest Agreement was

approved pursuant to which Units may be granted from time to time.

Units vest upon AIP’s achievement of certain performance

milestones (one-third upon 150% appreciation, and the remaining two-thirds upon 300% appreciation in value of Acacia’s aggregate

investment in Veritone), subject to the continued service of the recipient, and are subject to the terms and conditions of the

Plan, the Profits Interest Agreement and the LLC Agreement.

The Units were fully vested in September 2017.

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in AIP and at all times will control AIP.

Acacia from time to time may contribute to AIP certain assets or securities related

to portfolio companies in which Acacia holds an interest.

Units may be awarded as one-time, discretionary grants to recipients.

As of December 31, 2019, AIP holds the Veritone Warrant described at Note 6.

Profits interests totaling 400 Units, or

40% of the membership interests in AIP, were granted in February 2017, with an aggregate grant date fair value of $722,000.

fair value of the Units totaled $591,000 as of December 31, 2019.

Upon full vesting of the units in September 2017, all previously

unrecognized compensation expense was immediately recognized.

Compensation expense for the periods presented

was comprised of the following:

Profits interests totaling 400 Units, or 40% of the membership interests in AIP, were

granted in February 2017, with an aggregate grant date fair value of $722,000.

The carrying value of the Units totaled $591,000

as of December 31, 2020, based on the fair value of the Units at the recipient’s service termination date.

Upon full vesting

of the units in September 2017, all previously unrecognized compensation expense was immediately recognized.

As of December 31,

2020, AIP holds the Veritone warrants described at Note 6.

Stock compensation

expense is recognized in general and administrative expenses.

Compensation expense for the periods presented was comprised of

the following:

(in thousands)

Restricted stock awards with time-based service conditions

Restricted stock units with time-based service conditions

Restricted stock units with performance-based vesting conditions

Restricted stock units awards with time-based service conditions

Restricted stock units with market-based vesting conditions

Stock options with time-based service vesting conditions

Profits interests units

Total compensation expense

COMMITMENTS AND CONTINGENCIES

Facility Leases

The Company primarily leases office facilities

under operating lease arrangements that will end in various years through July 2024.

On June 7, 2019, we entered into a building

lease agreement (the “New Lease”) with Jamboree Center 4 LLC (the “Landlord”).

Pursuant to the New Lease,

we have leased approximately 8,293 square feet of office space for our corporate headquarters in Irvine, California.

AND CONTINGENCIES

primarily leases office facilities under operating lease arrangements that will end in various years through July 2024.

On June 7, 2019,

we entered into a building lease agreement (the “New Lease”) with Jamboree Center 4 LLC (the “Landlord”).

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

The New Lease

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and does not provide us the right to early terminate or extend our lease terms.

The Company has subleased a facility under

another operating lease agreement (the “Old Lease”) that we ceased using in December 2018, and the sublease will go

through the remaining term of the Old Lease, which ended on January 31, 2020.

During the year ended December 31, 2018, the Company

recorded a one-time charge of $629,000 for the excess of lease payments over the anticipated sublease income through expiration

of the lease.

Operating lease costs, net of sublease income

of $780,000, were $426,000 for the year ended December 31, 2019.

Operating lease costs, net of sublease income of $65,000, were

$1,106,000 for the year ended December 31, 2018.

The table below presents aggregate future

minimum payments due under the New Lease and the Old Lease, reconciled to lease liabilities included in the consolidated balance

sheet as of December 31, 2019:

leased a facility under an operating lease agreement (the “Old Lease”), the term of which ended on January 31, 2020.

The Company ceased using the facility in December 2018 and the subleased the facility for the remainder of the Old Lease term.

All sublease income under the Old Lease was received and recorded in 2019.

No sublease income on the Old Lease was recognized

On January 7,

2020, we entered into a building lease agreement (the “New York Office Lease”) with Sage Realty Corporation (the “New

York Office Landlord”).

Pursuant to the New York Office Lease, we have leased approximately 4,000 square feet of office

space in New York, New York.

The New York Office Lease commenced on February 1, 2020.

The term of the New York Office Lease is

24 months from the commencement date, provides for annual rent increases, and does not provide us the right to early terminate

or extend our lease terms.

Operating lease

costs, net of sublease income, were $603,000, and $426,000 for the years ended December 31, 2020 and 2019, respectively.

The table below

presents aggregate future minimum payments due under the New Lease and the Old Lease, reconciled to lease liabilities included

in the consolidated balance sheet as of December 31, 2020:

Operating Leases

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Long-term lease liabilities

Inventor Royalties and Contingent Legal Expenses

In connection with the investment in certain

patents and patent rights, certain of Acacia’s operating subsidiaries executed related agreements which grant to the former

owners of the respective patents or patent rights, the right to receive inventor royalties based on future net revenues (as defined

in the respective agreements) generated as a result of licensing and otherwise enforcing the respective patents or patent portfolios.

Acacia’s operating subsidiaries may

retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with their licensing

and enforcement activities.

These law firms may be retained on a contingent fee basis whereby such law firms are paid on a

scaled percentage of any negotiated fees, settlements or judgments awarded based on how and when the fees, settlements or judgments

are obtained.

Inventor Royalties and Contingent

Legal Expenses

In connection

with the investment in certain patents and patent rights, certain of Acacia’s operating subsidiaries executed related agreements

which grant to the former owners of the respective patents or patent rights, the right to receive inventor royalties based on

future net revenues (as defined in the respective agreements) generated as a result of licensing and otherwise enforcing the respective

patents or patent portfolios.

Acacia’s

operating subsidiaries may retain the services of law firms that specialize in patent licensing and enforcement and patent law

in connection with their licensing and enforcement activities.

These law firms may be retained on a contingent fee basis whereby

such law firms are paid on a scaled percentage of any negotiated fees, settlements or judgments awarded based on how and when

the fees, settlements or judgments are obtained.

Patent Enforcement

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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

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.

On June 17, 2015, Celltrace Communications

(“Celltrace”) filed a lawsuit against Acacia in U.S.

District Court for the Southern District of New York, Case

1:15-cv-04746, alleging, among other things, significant damages for alleged breach of contract, unjust enrichment and fraud.

Acacia disputes the allegations and does not believe that Celltrace is entitled to any damages.

Acacia successfully moved

to compel arbitration of the dispute, and the District Court stayed the litigation pending arbitration before the International

Court of Arbitration for the International Chamber of Commerce (the “ICC”).

Celltrace appealed the decision to the

Court of Appeals for the Second Circuit, which denied the appeal.

Celltrace filed its request for arbitration of the claims

with the ICC on November 28, 2016.

Acacia filed an answer denying all allegations of wrongdoing and asserting affirmative defenses.

A tribunal was appointed to preside over the arbitration and conducted its first case management conference on June 26, 2017.

parties conducted discovery and submitted their cases in chief to the tribunal in a series of written submissions per the tribunal’s

orders between January 2018 and December 2018.

The tribunal held an evidentiary hearing with live witness testimony in New York

City between February 4, 2019 and February 13, 2019.

At the end of the hearing, the tribunal set a schedule for post-hearing briefing

by the parties, which concluded in April 2019.

We are now waiting for the tribunal to issue its decision.

Acacia continues to vigorously contest all allegations of wrongdoing.

In a separate case on December 6, 2017,

the Federal Court of Canada allowed a counterclaim for invalidity of a patent asserted by Rapid Completions LLC and awarded costs

payable by Rapid Completions LLC in an amount to be determined.

Acacia is subject to claims, counterclaims

and legal actions that arise in the ordinary course of business.

Management believes that the ultimate liability with respect

to these claims and legal actions, if any, will not have a material effect on Acacia’s consolidated financial position,

results of operations or cash flows.

Fiscal year 2019 operating expenses included expenses for settlement and contingency accruals

totaling $1,756,000, net of prior accruals.

Refer to Note 4 for information on accrued expenses.

Guarantees and Indemnifications

Certain of Acacia’s operating

subsidiaries have made guarantees and indemnities under which they may be required to make payments to a guaranteed or

indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business.

connection with certain facility leases, Acacia and certain of its operating subsidiaries have indemnified lessors for

certain claims arising from the facilities or the leases.

Acacia indemnifies its directors and officers to the maximum

extent permitted under the laws of the State of Delaware.

However, Acacia has a directors and officers insurance policy

that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be

payable, if any.

The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to

statute of limitations.

The majority of guarantees and indemnities do not provide any limitations of the maximum potential

future payments that Acacia could be obligated to make.

To date, Acacia has made no payments related to these guarantees and

Acacia estimates the fair value of its indemnification obligations to be insignificant based on this history and

therefore, have not recorded any liability for these guarantees and indemnities in the accompanying consolidated balance

Additionally, no events or transactions have occurred that would result in a material liability at December 31,

In August 2010, a wholly owned subsidiary

of Acacia became the general partner of the Acacia IP Fund, which was formed in August 2010.

The Acacia IP Fund invests in, licenses

and enforces IP consisting primarily of patents, patent rights, and patented technologies.

The Acacia IP Fund was terminated as

of December 31, 2017.

The final distribution to the partners of the Acacia IP Fund will be made in 2020.

RETIREMENT SAVINGS PLAN AND EXECUTIVE SEVERANCE

Retirement Savings Plan.

has an employee savings and retirement plan under section 401(k) of the Code (the “Plan”).

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.

Acacia may contribute to the Plan at the

discretion of the Board of Directors.

There were no contributions made by Acacia during the periods presented.

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.

Acacia is subject

to claims, counterclaims and legal actions that arise in the ordinary course of business.

6, 2017, the Federal Court of Canada allowed a counterclaim for invalidity of a patent asserted by Rapid Completions LLC and awarded

costs payable by Rapid Completions LLC in an amount to be determined.

6, 2019, Slingshot Technologies, LLC (“Slingshot”) filed a lawsuit in Delaware Chancery Court against the Company

and Acacia Research Group, LLC (collectively, the “Acacia Entities”) ,

Monarch Networking Solutions LLC (“Monarch”) , Acacia board member Katharine Wolanyk, and Transpacific IP Group,

(“Transpacific”).

Slingshot alleges that the Acacia Entities and Monarch

misappropriated its confidential and proprietary information, purportedly furnished to the Acacia Entities and

Monarch by Ms.

Wolanyk, in acquiring a patent portfolio from Transpacific after Slingshot’s exclusive option to purchase

the same patent portfolio from Transpacific had already expired.

Slingshot seeks monetary damages, as well as equitable and injunctive

relief related to its alleged right to own the portfolio.

On March 15, 2021, the court

issued orders granting Monarch’s motion to dismiss for lack of personal jurisdiction and Ms.

Wolanyk’s motion to dismiss

for lack of subject matter jurisdiction.

The 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.

Management believes

that the ultimate liability with respect to these claims and legal actions, if any, will not have a material effect on Acacia’s

consolidated financial position, results of operations or cash flows.

Fiscal year 2020 operating expenses included a net income

for settlement offset by contingency accruals totaling $308,000, net of prior accruals.

Refer to Note 4 for information on accrued

and Indemnifications

Certain of Acacia’s

operating subsidiaries have made guarantees and indemnities under which they may be required to make payments to a guaranteed

or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business.

In connection with certain facility leases, Acacia and certain of its operating subsidiaries have indemnified lessors for certain

claims arising from the facilities or the leases.

Acacia indemnifies its directors and officers to the maximum extent permitted

under the laws of the State of Delaware.

However, Acacia has a directors and officers insurance policy that may reduce its exposure

in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any.

The duration of

the guarantees and indemnities varies and, in many cases is indefinite but subject to statute of limitations.

The majority of

guarantees and indemnities do not provide any limitations of the maximum potential future payments that Acacia could be obligated

To date, Acacia has made no payments related to these guarantees and indemnities.

Acacia estimates the fair value of

its indemnification obligations to be insignificant based on this history and therefore, have not recorded any liability for these

guarantees and indemnities in the accompanying consolidated balance sheets.

Additionally, no events or transactions have occurred

that would result in a material liability at December 31, 2020.

RETIREMENT SAVINGS PLAN AND

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

Savings Plan.

Acacia has an employee savings and retirement plan under section 401(k) of the Code (the “Plan”).

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.

Acacia may contribute to the Plan at the discretion

of the Board of Directors.

There were no contributions made by Acacia during the periods presented.

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 the Company (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, 2019 and

2018 include $420,000 and $2,458,000 of expenses incurred under the executive severance policy.

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 the Company (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, 2020 and 2019 include $304,000 and $420,000 of expenses incurred

under the executive severance policy.

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for state income taxes totaled

$85,000 and $140,000 for the years ended December 31, 2019 and 2018, respectively.

Foreign taxes withheld totaled $249,000 and

$1,093,000 for the years ended December 31, 2019 and 2018, respectively.

Refer to Note 4 for accrued foreign taxes payable.

Refer to Note 6 for information regarding

noncash investing activity related to the investment in Veritone for the periods presented.

Cash paid for

state income taxes totaled $118,000 and $85,000 for the years ended December 31, 2020 and 2019, respectively.

Foreign taxes refunded

totaled $3,600,000 and foreign taxes withheld totaled $249,000 for the years ended December 31, 2020 and 2019, respectively.

ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements

Recent Accounting Pronouncements - Recently Adopted.

In February 2016, FASB issued ASU 2016-02,

Leases , or ASC 842 which requires a lessee to recognize in the statement of financial position a liability to make lease

payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset.

In July 2018, FASB

issued ASU 2018-11, Leases, which provides an additional transition option for an entity to apply the provisions of ASC 842 by

recognizing a cumulative effect adjustment at the effective date of adoption without adjusting the prior comparative periods presented.

Further, in January 2019, FASB issued ASU 2019-01, Leases:

Codification Improvements, which provides disclosure relief for the

interim periods when adopting ASC 842.

The primary impact of adopting ASC 842 for the Company was the recognition in the consolidated

balance sheet of certain lease-related assets and liabilities for operating leases with terms longer than 12 months as of January

Such amounts were not previously accounted for in the Company's consolidated balance sheets.

The Company adopted ASC

842 as of January 1, 2019, electing the practical expedient approaches.

As a result, we recognized approximately $1.6 million

of right-of-use assets and an increase of $1.7 million in lease-related liabilities as of December 31, 2019.

The adoption of ASC

842 did not have a material impact on the Company's consolidated results of operations for the year ending December 31, 2019.

Recent Accounting Pronouncements - Not Yet Adopted.

In December 2019, the FASB issued ASU No.

2019-12 Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, to remove certain exceptions and improve consistency

of application, including, among other things, requiring that an entity reflect the effect of an enacted change in tax laws or

rates in the annual effective tax rate computation in the interim period that includes the enactment date.

The amendments in this

update will be effective for the Company beginning with fiscal year 2021, with early adoption permitted.

Most amendments within

the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or

modified retrospective basis.

Management is currently evaluating the impact that the amendments in this update will have on the

Company’s consolidated financial statements.

FAIR VALUE DISCLOSURES

the following types of financial instruments at December 31, 2019 and 2018.

- Not Yet Adopted.

2019, the FASB issued ASU No.

2019-12 Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, to remove certain

exceptions and improve consistency of application, including, among other things, requiring that an entity reflect the effect

of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the

enactment date.

The amendments in this update will be effective for the Company beginning with fiscal year 2021, with early adoption

Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must

be applied on a retrospective or modified retrospective basis.

Management is currently evaluating the impact that the amendments

in this update will have on the Company’s consolidated financial statements.

In June 2016,

the FASB issued ASU No.

2016-13,Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial

Instruments, to replace the incurred loss methodology with an expected credit loss model that requires consideration of a broader

range of information to estimate credit losses over the lifetime of the asset, including current conditions and reasonable and

supportable forecasts in addition to historical loss information, to determine expected credit losses.

Pooling of assets with

similar risk characteristics and the use of a loss model are also required.

Also, in April 2019, the FASB issued ASU No.

Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic

825, Financial Instruments, to clarify the inclusion of recoveries of trade receivables previously written off when estimating

an allowance for credit losses.

The amendments in this update will be effective for the Company in fiscal year 2023, with early

adoption permitted.

Management is currently evaluating the impact that the amendments in this update will have on the Company’s

consolidated financial statements.

FAIR VALUE MEASUREMENTS

GAAP defines fair value as the price that would be received for an asset or the exit price that would be

paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants

on the measurement date, and also establishes a fair value hierarchy which requires an entity to maximize the use of observable

inputs, where available.

The three-level hierarchy of valuation techniques established to measure fair value is defined as follows:

Level 1 - Observable Inputs :

prices in active markets for identical investments;

Level 2 - Pricing Models with

Significant Observable Inputs :

Other significant observable inputs, including quoted prices for similar investments,

interest rates, credit risk, etc.;

Level 3 - Unobservable Inputs :

unobservable inputs, including the entity’s own assumptions in determining the fair value of investments.

possible, the Company is required to use observable market inputs (Level 1 - quoted market prices) when measuring fair value.

In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant

to the fair value measurement.

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

specific to the asset or liability being measured.

In certain cases, inputs used to measure fair value fall into different levels

of the fair value hierarchy.

Acacia holds the following types of financial

instruments at December 31, 2020 and 2019.

Trading securities - debt.

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Warrants are recorded at fair value, as based on the Black-Scholes option-pricing model (Level 2).

For the years ended December 31, 2019 and 2018, the fair value of the Units was estimated at 40% of the fair

value of the 10% Warrant, based on the Black-Scholes option-pricing model (Level 2).

Series A Warrants are recorded at fair value, using Black-Scholes option-pricing model (Level 2).

Series A Warrants.

Series A Warrants

are recorded at fair value, using Black-Scholes option-pricing model (Level 2).

Series B Warrants.

Series B Warrants are recorded at fair value, using Monte Carlo valuation technique (Level 3).

Embedded derivative liability.

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Preferred Stock issued by the Company in 2019 (Level 3).

Financial assets

and liabilities measured at fair value on a recurring basis were as follows:

(In thousands)

Assets as of December 31, 2020:

Trading securities - equity

Investment at fair value - warrants (Note 6)

Total recurring fair value measurements as of December 31, 2020

Assets as of December 31, 2019:

Trading securities - debt

Trading securities - equity

Investment at fair value - warrants (Note 6)

Investment at fair value - common stock (Note 6)

Total recurring fair value measurements as of December 31, 2019

Liabilities as of December 31, 2020:

Series A warrants

Series B warrants

Embedded derivative liability

Total liabilities as of December 31, 2020

Liabilities as of December 31, 2019:

Series A warrants

Embedded derivative liability

Total liabilities as of December 31, 2019

The following table sets forth a summary of the

changes in the estimated fair value of the Company’s Level 3 liabilities, which are measured at fair value as a on a recurring basis:

Series A Preferred Stock Embedded Derivative Liability

Series B Warrants Liability

(In thousands)

Opening balance as of January 1, 2019

Issuance of Series A warrants

Remeasurement to fair value

Balance as of December 31, 2019

Issuance of Series B warrants

Remeasurement to fair value

Balance as of December 31, 2020

RELATED PARTY TRANSACTIONS

the year ended December 31, 2019, the Company purchased shares of common stock of Drive Shack, Inc.

(“Drive Shack”)

for an aggregate purchase price of $2.4 million.

Drive Shack and Clifford Press, Chief Executive Officer and director of Acacia,

are related parties as Mr.

During the year ended December 31, 2019, the Company purchased shares of common stock of Drive

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

Drive Shack and Clifford Press, Chief Executive

Officer and director of Acacia, are related parties as Mr.

Press is a board member of Drive Shack.

the year ended December 31, 2018, the Company paid $976,000 in expenses related to the reimbursement of costs incurred by Sidus

Investment Management, LLC (“Sidus”) on behalf of the participants (together with Sidus, the “Participants”)

named in the proxy statement filed on June 7, 2018 by the Participants, in connection with a contested proxy election.

These expenses

are included in general and administrative expenses on the consolidated statements of operations.

Press are related parties as each of them are Participants and members of the Company’s Board of Directors.

Sidus is a related party as Mr.

Tobia is a Co-Founder and Managing Member at Sidus.

SERIES A REDEEMABLE CONVERTIBLE PREFERRED

On November 18, 2019, the Company entered

into a Securities Purchase Agreement with Starboard Value LP (“Starboard”) pursuant to which the Company issued (i)

350,000 shares of Series A Redeemable Convertible Preferred Stock with a par value of $0.001

per share and a stated value of $100 per share, and (ii) Series A Warrants to purchase up to 5,000,000

shares of the Company’s common stock (see Note 17) to Starboard.

The Securities Purchase Agreement also established the terms

of certain senior secured notes and additional warrants (the “Series B Warrants”) which may be issued to Starboard

in the future.

The Series A Redeemable Convertible Preferred

Stock can be converted into a number of shares of common stock equal to (i) the stated value thereof plus accrued and unpaid dividends,

divided by (ii) the conversion price of $3.65 (subject to certain anti-dilution adjustments).

Holders may elect to convert the

Series A Redeemable Convertible Preferred Stock into common stock at any time.

The Company may elect to convert the Series A Redeemable

Convertible Preferred Stock into shares of Common Stock any time on or after November 15, 2025, provided that the closing price

of the Company’s common stock equals or exceeds 190% of the conversion price for 30 consecutive trading days and assuming

certain other conditions of the common stock have been met.

The market value of the investment

was $1.4 million and $2.1 million for the years ended December 31, 2020, and December 31, 2019, respectively.

During the years ended

December 31, 2020 and 2019, the Company recognized unrealized losses from the investment of $998,000 and $263,000, respectively.

STARBOARD INVESTMENT

Redeemable Convertible Preferred Stock.

On November 18, 2019, the Company entered into a Securities Purchase Agreement with

Starboard Value LP (“Starboard”) pursuant to which the Company issued (i) 350,000 shares of Series A Redeemable Convertible

Preferred Stock with a par value of $0.001 per share and a stated value of $100 per share, and (ii) Series A Warrants to purchase

up to 5,000,000 shares of the Company’s common stock to Starboard.

The Securities Purchase Agreement also

established the terms of certain senior secured notes and additional warrants (the “Series B Warrants”) which may

be issued to Starboard in the future.

On June 4, 2020, the Company entered into a Supplemental Agreement,

as defined below under “Senior Secured Notes”, with certain contractual agreements affecting the Series A Redeemable

Convertible Preferred Stock, reflected below.

Redeemable Convertible Preferred Stock can be converted into a number of shares of common stock equal to (i) the stated value

thereof plus accrued and unpaid dividends, divided by (ii) the conversion price of $3.65 (subject to certain anti-dilution adjustments).

Holders may elect to convert the Series A Redeemable Convertible Preferred Stock into common stock at any time.

The Company may

elect to convert the Series A Redeemable Convertible Preferred Stock into shares of Common Stock any time on or after November

15, 2025, provided that the closing price of the Company’s common stock equals or exceeds 190% of the conversion price for

30 consecutive trading days and assuming certain other conditions of the common stock have been met.

Holders have the option to redeem all or

a portion of the Series A Redeemable Convertible Preferred Stock during the periods of May 15, 2021 through August 15, 2021 and

May 15, 2022 through August 15, 2022, provided that the Company has not issued at least $50.0 million aggregate principal of senior

secured notes to Starboard pursuant to the Securities Purchase Agreement.

Holders also have the option to redeem all or a portion

of the Series A Redeemable Convertible Preferred Stock during the period of November 15, 2024 through February 15, 2025.

Additionally,

holders have the option to redeem all or a portion of the Series A Redeemable Convertible Preferred Stock upon the occurrence of

(i) a change of control or (ii) various other triggering events, such as the suspension from trading or delisting of the Company’s

common stock.

If the Series A Redeemable Convertible Preferred Stock is redeemed at the option of the holders, the redemption price

may include a make-whole amount or a stated premium, depending on the redemption scenario.

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 Starboard 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.

The Company may redeem all, and not less

than all, of the Series A Redeemable Convertible Preferred Stock (i) upon a change of control or (ii) during the period of May

15, 2022 through August 15, 2022, provided that the Company has not issued at least $50.0 million aggregate principal of the senior

secured notes, and assuming certain conditions of the common stock have been met.

If the Series A Redeemable Convertible Preferred

Stock is redeemed at the option of the Company, the redemption price would include a make-whole amount or a 15% premium depending

on the circumstances.

15, 2022 through August 15, 2022, provided that there is not outstanding at least $50.0 million aggregate principal of the senior

secured notes at the time of the redemption, and assuming certain conditions of the common stock have been met.

If the Series A

Redeemable Convertible Preferred Stock is redeemed at the option of the Company, the redemption price would include a make-whole

amount or a 15% premium depending on the circumstances.

If any Series A Redeemable Convertible Preferred

2 unchanged sentences

price for the Series A Redeemable Convertible Preferred Stock includes the stated value plus accrued and unpaid dividends.

addition, depending on the redemption scenario, the redemption price may also include a make-whole amount or stated premium as

described above.

If the Company issues senior secured notes,

the Holder may exchange the Series A Redeemable Convertible Preferred Stock for (i) senior secured notes and (ii) Series B Warrants

to purchase common stock.

depending on the redemption scenario, the redemption price may also include a make-whole amount or stated premium as described

When the Company issues

Notes, the Holder may exchange the Series A Redeemable Convertible Preferred Stock for (i) Notes and (ii) Series B Warrants to

purchase common stock.

The Series A Redeemable Convertible Preferred

Stock accrues cumulative dividends quarterly at annual rate of 3.0% on the stated value.

Upon consummation of an approved investment

(an investment to be identified and approved by each of the Company and Starboard), the dividend rate will increase to 8.0% on

the stated value.

Upon certain triggering events, the dividend rate will increase to 7.0% if the triggering event occurs before

an approved investment or 10.0% on the stated value if the triggering event occurs after an approved investment.

The Series A Redeemable

Convertible Preferred Stock also participates on an as-converted basis in any regular or special dividends paid to common stockholders.

Total accrued and unpaid dividends as of December 31, 2019 was $0.1 million.

Upon consummation of the approved investment

in June 2020, the dividend rate increased to 8.0% on the stated value.

Upon certain triggering events, the dividend rate will increase

to 7.0% if the triggering event occurs before an approved investment or 10.0% on the stated value if the triggering event occurs

after an approved investment.

In connection with the approved investment in June 2020, the Company and Starboard 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 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.

No accrued and unpaid dividends as of December 31, 2020.

Holders of the Series A Redeemable Convertible

15 unchanged sentences

respectively.

Proceeds received were allocated based on the fair value of the instrument without the Series

A Warrants and of the Series A Warrants themselves at the time of issuance.

allocated to the Series A Redeemable Convertible Preferred Stock were then further allocated between the host preferred stock

instrument and the embedded derivative, with the embedded derivative recorded at fair value and the Series A Redeemable Convertible

Preferred Stock recorded at the residual amount.

The portion of the proceeds allocated to the Series

A Warrants, embedded derivative, and Series A Redeemable Convertible Preferred Stock was $4.8 million, $21.2 million, and

$8.9 million, respectively.

Transaction costs were also allocated between the Series A Redeemable Convertible Preferred Stock

and the Series A Warrants on the same basis as the proceeds.

The transaction costs allocated to

the Series A Redeemable Convertible Preferred Stock were treated as a discount to the Series A Redeemable Convertible Preferred

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

Proceeds received were allocated based on the fair value of the instrument without the Series A Warrants and of the

Series A Warrants themselves at the time of issuance.

The proceeds allocated to the Series A Redeemable Convertible Preferred Stock

were then further allocated between the host preferred stock instrument and the embedded derivative, with the embedded derivative

recorded at fair value and the Series A Redeemable Convertible Preferred Stock recorded at the residual amount.

The portion of

the proceeds allocated to the Series A Warrants, embedded derivative, and Series A Redeemable Convertible Preferred Stock was $4.8

million, $21.2 million, and $8.9 million, respectively.

Transaction costs were also allocated between the Series A Redeemable Convertible

Preferred Stock and the Series A Warrants on the same basis as the proceeds.

The transaction costs allocated to the Series A Redeemable

Convertible Preferred Stock were treated as a discount to the Series A Redeemable Convertible Preferred Stock.

The transaction

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

The Company classifies the Series A Redeemable

31 unchanged sentences

financial statement line item of the accompanying consolidated statements of operations.

December 31, 2020, the fair value of the Series A embedded derivative was $26.7 million.

Series A Warrants.

On November 18, 2019, in connection with

the issuance of the Series A Redeemable Convertible Preferred Stock, the Company issued a detachable Series A Warrants to acquire

up to purchase 5,000,000 shares of common stock at a price of $3.65 per share (subject to certain anti-dilution adjustments) at

any time during a period of eight years beginning on the instrument’s issuance date of the Series A Warrants.

The fair value

of the Series A Warrants was $4.8 million.

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 (expense) in the accompanying consolidated statements of operations.

On November 18,

2019, in connection with the issuance of the Series A Redeemable Convertible Preferred Stock, the Company issued a detachable Series

A Warrants to acquire up to purchase 5,000,000 shares of common stock at a price of $3.65 per share (subject to certain anti-dilution

adjustments) at any time during a period of eight years beginning on the instrument’s issuance date of the Series A Warrants.

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

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 (expense) in the accompanying consolidated statements

of operations.

As of December 31, 2020, the fair value of the Series A Warrants was $6.6 million.

As of December 31, 2019, the Series A Warrants

have not been exercised.

As of December 31, 2020, the

Series A Warrants have not been exercised.

The Series A Warrants are classified as

1 unchanged sentence

upon a change in control, which is outside the control of the Company.

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);

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

issued the Series B Warrants for an aggregate purchase price of $4.6 million.

The Series B Warrants expire on November 15, 2027.

In connection with the issuance

of the Notes on June 4, 2020, the terms of certain of the Series B Warrants were amended to permit the payment of the lower exercise price

of $3.65 through the payment of cash, rather than only through the cancellation of Notes outstanding, at any time until the expiration

date of November 15, 2027.

Only 31,506,849 of the Series B Warrants are subject to this adjustment with the remaining balance of 68,493,151

Series B Warrants continuing under their original terms.

As of December 31, 2020, the Series B Warrants have not been exercised.

The Series B Warrants

will be recognized at fair value at each reporting period until exercised, with changes in fair value recognized in the consolidated

statements of operations in other income (expense).

As of December 31, 2020, the fair value of the Series B Warrants was $52.3

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.

Senior Secured Notes.

Pursuant to the Securities Purchase Agreement dated November 18, 2019 with Starboard and the Buyers, on June 4, 2020, the Company

issued $115 million in Notes to the Buyers.

Also on June 4, 2020, in connection with the issuance of the Notes, the Company entered

into a Supplemental Agreement with Starboard (the “Supplemental Agreement”), pursuant to which the Company agreed to

redeem $80 million aggregate principal amount of the Notes by September 30, 2020, and $35 million aggregate principal amount of

the Notes by December 31, 2020, resulting in the total principal outstanding being paid by December 31, 2020.

Per the Supplemental

Agreement, interest is payable semiannually at a rate of 6.00% per annum, and in an event of default, the interest rate is increased

to 10% per annum.

The Notes include certain financial and non-financial covenants.

Additionally, all or any portion of the principal

amount outstanding under the Notes may, at the election of Starboard, be surrendered to the Company for cancellation in payment

of the exercise price upon the exercise of Series B Warrants.

On June 30, 2020, the

Company entered into an Exchange Agreement (the “Exchange Agreement”) with Merton Acquisition HoldCo LLC, a Delaware

limited liability company and wholly-owned subsidiary of the Company (“Merton”) and Starboard, on behalf of itself

and on behalf of certain funds and accounts under its management, including the holders of the Notes.

Pursuant to the Exchange

Agreement, the holders of the Notes exchanged the entire outstanding principal amount for new senior notes (the “New Notes”)

issued by Merton having an aggregate outstanding original principal amount of $115 million.

The New Notes bear

interest at a rate of 6.00% per annum and had a 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”

of the Securities Purchase Agreement, (ii) are deemed to be “June 2020 Approved Investment Notes”

for purposes of the

Supplemental Agreement, and therefore the Company has agreed to redeem $80 million principal amount of the New Notes by September

30, 2020 (the “Initial Redemption Date”) and $35 million principal amount of the New Notes by December 31, 2020 (the

“Final Redemption Date”), 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

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.

Because the New Notes

will be settled within twelve months pursuant to their terms, they are classified as current liabilities on the balance sheet.

The Company capitalized $4.6 million in lender fees and $0.5 million in other issuance costs associated with the issuance of the

The $4.6 million of lender fees are recognized as long term deferred debt issuance cost and will be amortized to interest

expense until November 15, 2027, the maturity date of Series A Redeemable Convertible Preferred Stock.

The $0.5 million issuance

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

There is $0.9 million accrued and unpaid interest on the New Note as of December 31, 2020.

On January 29, 2021,

the Company redeemed $50 million of the New Notes, and the parties agreed that the Company will redeem the remaining $65 million

of the principal amount of the New Notes on or before July 15, 2021.

Modifications

to Series A Redeemable Convertible Preferred Stock and Series B Warrants.

The June 4, 2020 Supplemental Agreement also provided

for (i) a waiver of increased dividends under the original terms of the Series A Preferred Stock that would have otherwise accrued

due to the Company’s use of the $35 million proceeds received from Starboard and the Buyers upon the issuance of the Series

A Redeemable Convertible Preferred Stock in November 2019, (ii) the replacement of original optional redemption rights for the

Series A Redeemable Convertible Preferred Stock provided to both the Company and the holders that otherwise would have been nullified

through the issuance of the Notes, and (iii) an amendment to the terms of the previously issued Series B Warrants to permit the

payment of the lower exercise price of $3.65 through the payment of cash, rather than only through the cancellation of Notes outstanding,

at any time until the expiration of the Series B Warrants on November 15, 2027.

Only 31,506,849 of the Series B Warrants are subject

to this adjustment with the remaining balance of 68,493,151 Series B Warrants continuing under their original terms.

analyzed the amendments to the Series A Redeemable Convertible Preferred Stock and determined that the amendments were not significant.

Therefore, the amendments are accounted for as a modification on a prospective basis.

incremental fair value of the Series B Warrants associated with their modification in connection with the issuance of the Notes

is $1.3 million and is recognized as a discount on the Notes and will be amortized to interest expense over the contractual life

of the Notes.

For the year ended December 31, 2020, $1,158,000 was amortized to interest expense.

As of December 31, 2020, $171,000

is remaining to be amortized until the Final Redemption Date of July 15, 2021.

LF EQUITY INCOME FUND PORTFOLIO

April 3, 2020, the Company entered into an Option Agreement with Seller, which included general terms through which the Company

was provided the option to purchase life sciences equity securities in a portfolio of public and private companies (“Portfolio

Companies”) for an aggregate purchase price of £223.9 million, approximately $277.5 million at the exchange rate on

April 3, 2020.

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

to the Transaction Agreement, the Company will purchase from Seller and Seller will transfer to the Company the specified equity

securities of all Portfolio Companies at set prices at various future dates.

The transfer dates will vary among the Portfolio

Companies as the Transaction Agreement gives the Company the exclusive right to determine when to call for transfer of each security,

and because each Portfolio Company (or its existing equity holders) may be required to approve the transfer due to rights of first

refusals and other company-specific terms and conditions.

Thus, the execution of the Transaction Agreement resulted in forward

contracts for the Company to purchase equity securities in each public and private company at a specified price on a future date.

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

Upon the transfer of equity securities in the Portfolio Companies

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

Portfolio Companies in the Transaction Agreement.

As of December 31, 2020, all

of the equity securities in the Portfolio Companies were transferred to the Company pursuant to the Transaction Agreement.

Company has sold a portion of the equity securities of such Portfolio Companies while retaining an interest in a number of operating

businesses, including a controlling interest in one of the Portfolio Companies.

accounting purposes, the total purchase price of the portfolio was allocated to the individual equity securities based on their

individual fair values as of April 3, 2020, in order to establish an appropriate cost basis for each of the acquired securities.

The fair values of the public company securities were based on their quoted market price.

The fair values of the private company

securities were estimated based on recent financing transactions and secondary market transactions and factoring in a discount

for the illiquidity of these securities.

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 Portfolio

Companies in connection with the transfer of its securities.

In addition, due to an ownership restriction applicable to one of

the Portfolio Companies, the Company sold a small portion of an equity securities derivative for £33,000 before the remaining

shares of such Portfolio 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.

in the fair value of Acacia’s investment in the Portfolio Companies are recorded as unrealized gains or losses in the

consolidated statements of operations.

For the year ended December 31, 2020, the accompanying consolidated statements

of operations reflected the following:

(In thousands)

Change in fair value of trading security - LF Fund public securities

Change in fair value of investment security - LF Fund private securities

Loss on sale of trading security - LF Fund public securities

Gain on sale of prepaid investment and derivative

Net realized and unrealized gain on investment in LF Fund securities

of the Company’s acquisition of equity securities in the Portfolio Companies, the Company acquired a majority interest in the equity

securities of MalinJ1, which were transferred to the Company on December 3, 2020.

The acquisition of the MalinJ1 securities was accounted

for as an asset acquisition as there was a change of control of MalinJ1 and substantially all of the fair value of the assets acquired

was concentrated in a single identifiable asset, an investment in Viamet Pharmaceuticals Holdings, LLC (“Viamet”).

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 it owns

37.9% of outstanding shares of Viamet.

QUARTERLY FINANCIAL DATA

The following table

sets forth unaudited consolidated statements of operations data for the eight quarters in the period ended December 31, 2019.

This information has been derived from Acacia’s unaudited condensed consolidated financial statements that have been prepared

on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments,

consisting of normal recurring adjustments, necessary for a fair statement of the information when read in conjunction with the

audited consolidated financial statements and related notes thereto.

Acacia’s quarterly results have been, and may in the

future be, subject to significant fluctuations.

As a result, Acacia believes that results of operations for interim periods should

not be relied upon as any indication of the results to be expected in any future periods.

(Unaudited, in thousands, except

share and per share information)

following table sets forth unaudited consolidated statements of operations data for the eight quarters in the period ended December

This information has been derived from Acacia’s unaudited condensed consolidated financial statements that have

been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all

adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the information when read in conjunction

with the audited consolidated financial statements and related notes thereto.

Acacia’s quarterly results have been, and

may in the future be, subject to significant fluctuations.

As a result, Acacia believes that results of operations for interim

periods should not be relied upon as any indication of the results to be expected in any future periods.

Quarter Ended

(Unaudited, in thousands, except share and per share

Portfolio operations:

4 unchanged sentences

Amortization of patents

portfolio expenses (income)

Other portfolio expenses

Total portfolio operations

Net portfolio income (loss)

General and administrative expenses (including

non-cash stock compensation expense)

Impairment of patent-related

intangible assets

General and administrative expenses (including non-cash stock compensation

Impairment of patent-related intangible assets

Operating income (loss)

3 unchanged sentences

Net income (loss) including noncontrolling interests

Net (income) loss attributable

to noncontrolling interests in subsidiaries

Net income (loss) attributable

to Acacia Research Corporation

Accretion of redeemable

preferred stock

Net income (loss) attributable

to common shareholders –

Net (income) loss attributable to noncontrolling

interests in subsidiaries

Net income (loss) attributable to Acacia

Research Corporation

Net income (loss) attributable to common

shareholders - basic

Basic income (loss) per share

Weighted-average number

of shares outstanding, basic

Accretion of redeemable preferred

Mark-to-market adjustment

for preferred stock embedded derivative

loss attributable to common shareholders –

Diluted income (loss) per share

Weighted-average number

of shares outstanding, diluted

Subsequent to the issuance of the interim

reports for the periods ended March, June and September 2019, the Company identified balances that were presented incorrectly relating

to the presentation of cash flows.

The Company re-evaluated its determination of the classification of cash flows related to trading

securities and determined the classification of such cash flows within investing activities to be more appropriate.

Included below is a summary of the previously

reported amounts, the impact of these adjustments and the as-adjusted amounts for the interim periods ended March, June and September

Three months ended

March 31, 2019

June 30, 2019

September 30, 2019

Net cash provided by (used in) operating

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Increase/(decrease) in cash and cash equivalent

Weighted-average number of shares outstanding,

Net loss attributable to common stockholders

Diluted net income (loss) per common share

Weighted average number of shares outstanding

SUBSEQUENT EVENTS

Stockholder approval .

14, 2020, the Company’s stockholders approved, for purposes of Nasdaq Rules 5635(b) and 5635(d), as applicable, (i) the voting

of the Series A Convertible Preferred Stock on an as-converted basis and (ii) the issuance of the maximum number of shares of common

stock issuable in connection with the potential future (A) conversion of the Series A Convertible Preferred Stock and (B) exercise

of the Series A and Series B Warrants, in each case, without giving effect to the exchange cap set forth in the Series A Preferred

Stock Certificate of Designations and in the Series A Warrants, issued pursuant to the Securities Purchase Agreement dated November

18, 2019 (see Note 16).

The Company’s stockholders also approved an amendment to the Company’s Amended and Restated

Certificate of Incorporation to increase the total number of authorized shares of common stock by 200,000,000 shares, from 100,000,000

shares to 300,000,000 shares.

Issuance of Series B Warrants to Starboard .

On February 25, 2020, pursuant to the terms of the Securities Purchase Agreement with Starboard, the Company issued Series B Warrants

to purchase up to 100 million shares of the Company’s common stock at an exercise price of either (i) $5.25 per share, if

exercising by cash payment, or (ii) $3.65 per share, if exercising by cancellation of a portion of senior secured notes.

issued the Series B Warrants for an aggregate purchase price of $4.6 million.

January 29, 2021, the Company redeemed $50 million of the New Notes, and the parties agreed that the Company will redeem the remaining

$65 million of the principal amount of the New Notes on or before July 15, 2021.

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