5. Investments

6 Months Ended

Jun. 30, 2019

Schedule of Investments [Abstract]

Investments

5. INVESTMENTS

Investment at Fair Value

Veritone Investment Agreement

On August 15, 2016, Acacia entered into an Investment Agreement with Veritone, Inc. (“Veritone”) pursuant to which Acacia funded in an aggregate of $20 million of loans to Veritone, which were converted into 1,523,746 shares of Veritone’s common stock upon the public offering of Veritone’s common stock on May 17, 2017 (“IPO”), based on a conversion price of $13.61 per share. Veritone also issued Acacia warrants to purchase up to a total of 154,312 shares of Veritone’s common stock at an exercise price of $13.61 per share expiring in 2020.

In addition, in August 2016, Veritone issued Acacia a five-year warrant to purchase up to $50 million worth of shares of Veritone’s common stock at an exercise price of $13.61 per share subject to certain adjustments. Upon the consummation of Veritone’s IPO, Acacia exercised its option to purchase an additional 2,150,335 shares of Veritone common stock, at an aggregate purchase price of $29.3 million. Acacia then received an additional warrant (the “10% Warrant”) that provides for the issuance of an additional 809,400 shares of Veritone common stock at an exercise price of $13.61 per share expiring in 2022.

Veritone Bridge Loan

On March 14, 2017, Acacia entered into an additional secured convertible promissory note with Veritone pursuant to which Acacia funded $4.0 million which was converted into 445,440 shares of Veritone’s common stock at a conversion price of $13.61 per share in the IPO. Acacia also received a 10-year warrant to purchase up to 156,720 shares of Veritone common stock at an exercise price of $13.61 per share expiring in 2027.

As a result of the foregoing transactions, Acacia received an aggregate total of 4,119,521 of Veritone shares of Veritone’s common stock and warrants to purchase up to 1,120,432 shares of in Veritone common stock. On October 5, 2018, a registration statement on Form S-3 registering all of Acacia’s shares of Veritone common stock was declared effective by the SEC. During the year ended December 31, 2018, Acacia sold 2,700,000 shares of Veritone common stock at prices ranging from $4.95 to $10.44 and recorded a realized loss of $19.1 million. During the three and six months ended June 30, 2019, Acacia sold 239,920 and 867,968 shares of Veritone common stock at prices ranging from $6.45 to $9.21 and from $4.77 to $9.21 for the three and six months ended June 30, 2019, respectively, and recorded a realized loss of $1.6 million and $7.2 million for the three and six months ended June 30, 2019, respectively.

At June 30, 2019, the fair value of the 551,552 shares of Veritone common stock owned by Acacia totaled $4,611,000. At June 30, 2019, the fair value of the 1,120,432 common stock purchase warrants held by Acacia totaled $4,459,000.

Changes in the fair value of Acacia’s investment in Veritone are recorded as unrealized gains or losses in the consolidated statements of operations. For the three and six months ended June 30, 2019 and 2018, the accompanying consolidated statements of operations reflected the following:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2019			2018		2019			2018
	(In thousands)
Change in fair value of investment, warrants	$	3,091		$	2,865	$	2,394		$	(4,782	)
Change in fair value of investment, common stock		3,889			8,482		11,494			(24,968	)
Loss on sale of investment, common stock		(1,642	)		–		(7,232	)		–
Net realized and unrealized gain (loss) on investment at fair value	$	5,338		$	11,347	$	6,656		$	(29,750	)

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 February 2018, the preferred stock was not deemed to be in-substance common stock due to the substantive liquidation preference associated with the preferred stock. As such, as of February 2018, the cumulative investment in Miso Robotics is recorded at cost and assessed for any impairment at each balance sheet date. Prior to February 2018, the equity method of accounting was applied.

Acacia reviews its investments quarterly for indicators of other-than-temporary impairment. In making this judgment, Acacia considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. As of June 30, 2019, Acacia recorded an impairment of $8.2 million for its investment in Miso Robotics based on analyses including, but not limited to, operating results and trends, recent events and changes in circumstances, which resulted in a determination that the carrying amount of the investment may not be recoverable and thus a full impairment was warranted. This determination requires significant judgment, and valuations of private companies are inherently more complex due to the lack of readily available market data. The future actual operational result of the investee may differ significantly from our current conclusion. Refer to Note 2 “Impairment of Investments” for further information.