As for you continual question over the value of the license --it's meaningless. It's an intangible asset that no bank would ever lend against anyway. Also the written-off or amortizatio of it is a non-cash item.
FROM THE PROSPECTUS:
".Measurement uncertainty:
In January 1997, the Company entered into an agreement in principle to acquire the exclusive worldwide rights to the V-Chip technology for a period of 20 years.
As partial consideration for the acquisition of the V-Chip technology, 3,600,000 common shares were required to be issued to the vendor. At the time that the agreement in principle was entered into, the quoted market price of the Company's common shares was subject to significant price volatility and placing a value on the 3,600,000 shares issued to acquire the above rights was therefore very difficult. After careful consideration, an amount of $2.20 per share was used. This equated to an amount shown for share capital issued of approximately $7,920,000 which, when added to the debt issued of $1,900,000 and a payment of $200,000 cash resulted in a total cost of $10,020,000.
The Company intends to continue to assess the ultimate recoverable amount for the rights to this technology and, if circumstances require a reduction in the unamortized cost, a write down will be taken."
Simply put, they paid CVC for the licensing rights to their IP with shares of the company, some cash and a note. At the time, the shares were around $2 a share --that is the ascribed value for them. I would imagine the shares are escrowed dependent on one or more patent's being granted. Clearly, over time, it will be amortized --since it's a 20 year license I imagine that would be the max. I would guess that as you "use" the asset to earn (hence neccessitating some "cost" to be assigned) it will be adjusted accordingly. If they can't sell any ASICs or the like and the marketing life of decoders is estimated at only 6 years, then they'll probably amortize it over fewer than 20 years, and most likely 6. Who cares, they can write it off now if they want, there's no cash flow effect whatsoever and it will serve to lower their tax rate. Of course, you'd have a hard time proving that something you just paid $10mil for has changed in value that quickly. (Only Acacia seems to get away with that one.)
They will always have to show that some stream of income is coming in due to that license --hence costs must be associated with the depreciating assets. There's no tomfoolery going on hear. They are just stating that because the share price was volatile, one could have ascribed a value of $5mil or a value of $15mil. Then picked an average. Most likely, they discussed a total $ amount they were willing to pay and it was the share amount that was the fudge factor, not the price. No matter what, it was going to be around $10mil on the balance sheet.
As an intangible asset, one shouldn't consider this in it's book value. Of course a biotech or software company would say your crazy, but frankly it doesn't matter since TVl is unleveraged and has more cash on the balance sheet than they know what to do with.
They state it very honestly, they will continue to monitor the recoverable value of the rights" --They have to.
Don't you wish Acacia would monitor the recoverable value of their voraciously cash-sucking investment.
Acacia would love their balance sheet. |
