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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
 
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to             
Commission file number 001-38334
IMMERSION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3180138
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
330 Townsend Street, Suite 234, San Francisco, CA 94107
(Address of principal executive offices) (Zip Code)
(408) 467-1900
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)


Securities Registered Pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 par valueIMMRThe NASDAQ Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller Reporting Company 
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

Number of shares of common stock outstanding at October 22, 2021 was 33,025,762.

Risk Factor Summary

Our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our business strategy and affect our financial results. You should carefully consider all of the information in this report and, in particular, the following principal risks and all of the other specific factors described in Item 1A of this report, “Risk Factors,” before deciding whether to invest in our company.

• Risks related to our business:

▪ Our business, results of operations, financial condition, cash flows, and stock price can be adversely affected by catastrophic events, such as pandemics, or other public health emergencies, such as COVID-19, or by the uncertain economic and political environment in geographies in which we operate.

▪ Our business could be materially and adversely affected if we are unable to enter into new licensing arrangements (or renew existing licenses) on favorable terms. In addition, a limited number of customers account for a significant portion of our revenue, and the loss of major customers could harm our operating results. Moreover, if our customers discontinue product lines that incorporate our technology, our operating results may be negatively impacted.

Shortages of electronic components may cause a decrease in production and sales of our customers’ products which could result in lower royalties payable to us.

▪ If we fail to protect and enforce our patent rights and other IP rights (or if there are adverse changes in patent and litigation legislation or enforcement), our ability to license our technologies and generate revenues could be impaired.

▪ Our failure to develop or acquire successful innovations and obtain patents on those innovations could significantly harm our business.

▪ If we are not able to attract, recruit and retain qualified personnel, we may not be able to effectively develop and deploy our technologies. In addition, we have experienced turnover in our senior management and our employee base, which could result in operational and administrative inefficiencies and could hinder the execution of our growth strategy.

▪ We are or may become involved in litigation to enforce our IP rights (or defend against assertions that we violate a third party’s IP), or resolve conflicts over license terms in our license agreements, and the costs thereof could adversely affect our business.

▪ Our licenses with component manufacturers may cause confusion as to our licensing model and may prevent us from enforcing our patents based on the patent exhaustion doctrine, or other legal doctrines.

▪ We may not return to consistent profitability in the future.

▪ We may incur greater tax liability than anticipated which could adversely affect our financial condition and operating results.

▪ Our international operations subject us to risks and costs, and our failure to comply with complex U.S. or foreign laws could have a material adverse effect on our operations.

▪ We may not be able to continue to derive significant revenues from gaming peripheral makers for various reasons, including as a result of our fixed payment license with Microsoft, which could adversely affect our financial condition and operating results.

Summary Risk Factors:

▪ Automobiles incorporating our technologies are subject to lengthy development periods, making it difficult to predict when and whether we will receive royalties for these product types.




▪ If our licensees’ efforts fail to generate consumer demand, our revenue may be adversely affected.

▪ Our business and operations could suffer in the event of any actual or perceived security breaches, including breaches that compromise personal information.

▪ The rejection of our haptic technology by standards-setting organizations, or failure of the standards-setting organization to develop timely commercially viable standards may negatively impact our business.

▪ If we are unable to develop open-source compliant products (or our products contain undetected errors), our ability to license our technologies and generate revenues may be impaired.

▪ Our business depends in part on access to third-party platforms and technologies. If such access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies change, our business and operating results could be adversely affected.

▪ If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our business and our stock price.

▪ Entrance into the highly competitive and fragmented sexual wellness market may adversely impact our financial results.

• Risks related to investing in our common stock:

▪ Our quarterly revenues and operating results are volatile, and if our future results are below expectations, the price of our common stock is likely to decline. Our stock price may fluctuate regardless of our performance.

▪ Future sales of our equity could result in significant dilution to our existing stockholders and depress the market price of our common stock. In addition, we will have broad discretion as to the use of proceeds from the “at the market” offerings that we announced in February 2021and July 2021, and we may not use the proceeds effectively.

▪ We may elect to purchase marketable securities, or digital or alternative currencies, as part of our capital allocation or investment strategy; and if we determine to purchase marketable securities, or digital or alternative currencies (such as bitcoin and other cryptocurrencies,), our financial results and the market price of our common stock may be affected by the price of these alternative investments, which may be highly volatile.

▪ We may engage in the acquisition of other companies or other investments outside of our current line of business, which may have an adverse material effect on our existing business.

▪ Any stock repurchase program could affect our stock price and add volatility.

▪ Changes in financial accounting standards or policies may affect our reported financial condition or results of operations.

▪ Our business is subject to changing regulations regarding corporate governance and other compliance areas that will increase both our costs and the risk of noncompliance. Further, provisions in our charter documents and Delaware law could prevent or delay a change in control, which could reduce the market price of our common stock.



Table of Contents
IMMERSION CORPORATION
INDEX
  Page

3

Table of Contents
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

IMMERSION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)

September 30,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$90,601 $59,522 
Marketable securities28,028  
Accounts and other receivables 4,171 2,218 
Prepaid expenses and other current assets11,739 12,610 
Total current assets134,539 74,350 
Property and equipment, net220 209 
Long-term deposits11,928 12,571 
Other assets13,836 9,000 
Total assets$160,523 $96,130 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$117 $149 
Accrued compensation729 1,001 
Other current liabilities4,962 2,457 
Deferred revenue4,914 5,173 
Total current liabilities10,722 8,780 
Long-term deferred revenue17,859 21,334 
Other long-term liabilities1,153 2,035 
Total liabilities29,734 32,149 
Contingencies (Note 5)
Stockholders’ equity:
Common stock and additional paid-in capital — $0.001 par value; 100,000,000 shares authorized; 45,167,893 and 39,161,214 shares issued, respectively; 33,024,460 and 27,017,781 shares outstanding, respectively313,885 258,756 
Accumulated other comprehensive income653 122 
Accumulated deficit(102,016)(113,164)
Treasury stock at cost: 12,143,433 and 12,143,433 shares, respectively(81,733)(81,733)
Total stockholders’ equity130,789 63,981 
Total liabilities and stockholders’ equity$160,523 $96,130 
See accompanying Notes to Condensed Consolidated Financial Statements.

4

Table of Contents

IMMERSION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Revenues:
Royalty and license$7,068 $7,531 $25,017 $19,306 
Development, services, and other105 65 325 215 
Total revenues7,173 7,596 25,342 19,521 
Costs and expenses:
Cost of revenues 8 32 78 138 
Sales and marketing443 1,096 2,743 4,067 
Research and development803 920 3,442 3,932 
General and administrative2,246 2,963 7,106 14,406 
Total costs and expenses3,500 5,011 13,369 22,543 
Operating income (loss)3,673 2,585 11,973 (3,022)
Interest and other income (loss), net438 174 162 334 
Income (loss) before benefit from (provision for) income taxes4,111 2,759 12,135 (2,688)
Benefit from (provision for) income taxes(340)96 (987)3 
Net income (loss)$3,771 $2,855 $11,148 $(2,685)
Basic net income (loss) per share$0.12 $0.11 $0.36 $(0.09)
Shares used in calculating basic net income (loss) per share32,474 26,898 30,693 28,507 
Diluted net income (loss) per share$0.12 $0.11 $0.36 $(0.09)
Shares used in calculating diluted net income (loss) per share32,612 27,134 31,065 28,507 
Other comprehensive income (loss)
Change in unrealized gains (loss) on short-term investments531  531 (2)
Total comprehensive income (loss)$4,302 $2,855 $11,679 $(2,687)
See accompanying Notes to Condensed Consolidated Financial Statements.
5

Table of Contents
IMMERSION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except number of shares)
(Unaudited)

Three Months Ended September 30, 2021
 Common Stock and
Additional Paid-In Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Treasury StockTotal
Stockholders’
Equity
 SharesAmountSharesAmount
Balances at June 30, 202143,252,670 $299,124 $122 $(105,787)12,143,433 $(81,733)$111,726 
Net income3,771 3,771 
Unrealized gain on available-for-sale securities, net of taxes531 531 
Issuance of stock for ESPP purchases9,490 61 61 
Release of restricted stock units and awards8,407  
Shares issued in connection with public offering, net of offering costs1,897,326 14,285 14,285 
Stock-based compensation415 415 
Balances at September 30, 202145,167,893 $313,885 $653 $(102,016)12,143,433 $(81,733)$130,789 

Three Months Ended September 30, 2020
 Common Stock and
Additional Paid-In Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Treasury StockTotal
Stockholders’
Equity
 SharesAmountSharesAmount
Balances at June 30, 202039,007,576 $255,446 $122 $(124,105)12,143,433 $(81,733)$49,730 
Net income2,855 2,855 
Issuance of stock for ESPP purchase12,394 71 71 
Exercise of stock options, net of shares withheld for employee taxes2,300 19 19 
Release of restricted stock units and awards35,821  
Stock-based compensation1,339 1,339 
Balances at September 30, 202039,058,091 $256,875 $122 $(121,250)12,143,433 $(81,733)$54,014 
See accompanying Notes to Condensed Consolidated Financial Statements.


6

Table of Contents
IMMERSION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except number of shares)
(Unaudited)

Nine Months Ended September 30, 2021
Common Stock and
Additional Paid-In Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Treasury StockTotal
Stockholders’
Equity
SharesAmountSharesAmount
Balances at December 31, 202039,161,214 $258,756 $122 $(113,164)12,143,433 $(81,733)$63,981 
Net income11,148 11,148 
Unrealized gain on available-for-sale securities, net of taxes531 531 
Issuance of stock for ESPP purchases25,033 150 150 
Exercise of stock options, net of shares withheld for employee taxes325,737 2,864 2,864 
Release of restricted stock units and awards448,772  
Shares issued in connection with public offering, net of offering costs5,207,137 50,118 50,118 
Stock-based compensation1,997 1,997 
Balances at September 30, 202145,167,893 $313,885 $653 $(102,016)12,143,433 $(81,733)$130,789 

Nine Months Ended September 30, 2020
Common Stock and
Additional Paid-In Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Treasury StockTotal
Stockholders’
Equity
SharesAmountSharesAmount
Balances at December 31, 201938,624,784 $253,289 $124 $(118,565)7,210,456 $(51,091)$83,757 
Net loss(2,685)(2,685)
Unrealized loss on available-for-sale securities, net of taxes(2)(2)
Stock repurchases4,932,977 $(30,642)(30,642)
Issuance of stock for ESPP purchases22,556 134 134 
Exercise of stock options, net of shares withheld for employee taxes2,300 19 19 
Release of restricted stock units and awards408,451  
Stock-based compensation3,433 3,433 
Balances at September 30, 202039,058,091 $256,875 $122 $(121,250)12,143,433 $(81,733)$54,014 

7

Table of Contents
See accompanying Notes to Condensed Consolidated Financial Statements.
8

Table of Contents
IMMERSION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Nine Months Ended
September 30,
 20212020
Cash flows provided by (used in) operating activities:
Net income (loss)$11,148 $(2,685)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization575 1,681 
Stock-based compensation1,997 3,433 
Foreign currency remeasurement losses612 66 
Unrealized gain on available-for-sale debt securities(490) 
Other68 (161)
Changes in operating assets and liabilities:
Accounts and other receivables(1,953)2,019 
Prepaid expenses and other current assets870 4,147 
Long-term deposits33 (4,889)
Other assets2,097 1,471 
Accounts payable(30)(642)
Accrued compensation (272)(2,013)
Other current liabilities917 (1,465)
Deferred revenue(3,734)(2,984)
Other long-term liabilities(1,116)(966)
Net cash provided by (used in) operating activities10,722 (2,988)
Cash flows provided by (used in) investing activities:
Purchases of marketable securities(34,443) 
Proceeds from sale of derivative instruments1,757  
Proceeds from maturities of short-term investments 3,000 
Purchases of property and equipment(89)(40)
Net cash provided by (used in) investing activities(32,775)2,960 
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock, net 50,118  
Cash paid for purchases of treasury shares (30,642)
Proceeds from issuance of common stock under employee stock purchase plan150 134 
Proceeds from stock options exercises2,864 19 
Net cash provided by (used in) financing activities53,132 (30,489)
Net increase (decrease) in cash and cash equivalents31,079 (30,517)
Cash and cash equivalents:
Beginning of period59,522 86,478 
End of period$90,601 $55,961 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$88 $65 
Supplemental disclosure of non-cash operating, investing, and financing activities:
Release of restricted stock units and awards under stock plan$4,081 $2,801 
Leased assets obtained in exchange for new operating lease liabilities$ $577 

See accompanying Notes to Condensed Consolidated Financial Statements.
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IMMERSION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Immersion Corporation (the "Company", "Immersion", "we" or "us") was incorporated in 1993 in California and reincorporated in Delaware in 1999. We focus on the creation, design, development, and licensing of innovative haptic technologies that allow people to use their sense of touch more fully as they engage with products and experience the digital world around them. We have adopted a business model under which it provides advanced tactile software, related tools, technical assistance designed to help integrate our patented technology into our customers’ products or enhance the functionality of our patented technology to certain customers, and offers licenses to our patented technology to other customers.

Impact of COVID-19

In response to the COVID-19 pandemic, we implemented work-from-home and restricted travel policies in the first quarter of 2020, which are expected to remain in place for rest of 2021. We implemented a series of cost reduction initiatives in 2020 and 2021 to preserve financial flexibility. In 2020, these actions included: reductions of the base salaries and cash compensation of company executives and board members; cancellation and reduction of bonus amounts in executive and employee bonus plans; renegotiated professional services fees from third-party services providers; relocation of certain positions to lower-cost regions; the temporary suspension of employee retirement savings plan matched by Immersion and accessing broad-based employer relief provided by the governments. In 2021, additional actions included: cancellation of 2021 Executive Incentive Plan and elimination of certain positions.

In April 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) for Canadian employers whose businesses were affected by the COVID-19 pandemic. The CEWS provides a subsidy of up to 75% of eligible employees’ employment insurable remuneration, subject to certain criteria. We applied for the CEWS to the extent we met the requirements to receive the subsidy. During the nine months ended September 30, 2021, we recorded $0.3 million in government subsidies as a reduction in operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). During the nine months ended September 30, 2020, we recorded $0.5 million in government subsidies as a reduction in operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Immersion and our wholly-owned subsidiaries. All intercompany accounts, transactions, and balances have been eliminated in consolidation.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all information and footnotes necessary for a complete presentation of the financial position, results of operations, and cash flows, in conformity with U.S. GAAP and should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, all adjustments consisting of only normal and recurring items necessary for the fair presentation of the financial position and results of operations for the interim periods presented have been included.

Use of Estimates

The preparation of condensed consolidated financial statements and related disclosures requires management to make estimates and assumptions that affect the reported amounts of the condensed consolidated financial statements. Significant estimates include revenue recognition, useful lives of property and equipment, valuation of income taxes including uncertain tax provisions, stock-based compensation and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year.
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Segment Information

We develop, license, and support a wide range of software and IP that more fully engage users’ senses of touch when operating digital devices. We focus on the following target application areas: mobile devices, wearables, consumer, mobile entertainment and other content; console gaming; automotive; medical; and commercial. We manage these application areas in one operating and reporting segment with only one set of management, development, and administrative personnel.

Our chief operating decision maker (“CODM”) is the Chief Executive Officer. The CODM approves budgets and allocates resources to and assesses the performance of our business using information about our revenue and operating loss. There is only one segment that is reported to management.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standard Board (the "FASB") issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment is effective for public companies with fiscal years beginning after December 15, 2020; early adoption is permitted. We adopted this new guidance in the first quarter of 2021. This adoption did not have material impact on our condensed consolidated financial statements.


2. REVENUE RECOGNITION

Disaggregated Revenue

The following table presents the disaggregation of our revenue for the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Fixed fee license revenue$1,247 $1,243 $4,346 $3,821 
Per-unit royalty revenue5,821 6,288 20,671 15,485 
Total royalty and license revenue7,068 7,531 25,017 19,306 
Development, services, and other revenue105 65 325 215 
Total revenue$7,173 $7,596 $25,342 $19,521 

Per-unit Royalty Revenue

We record per-unit royalty revenue in the same period in which the licensee’s underlying sales occur. As we generally do not receive the per-unit licensee royalty reports for sales during a given quarter within the time frame that allows us to adequately review the reports and include the actual amounts in our quarterly results for such quarter, we accrue the related revenue based on estimates of our licensees’ underlying sales, subject to certain constraints on our ability to estimate such amounts. We develop such estimates based on a combination of available data including, but not limited to, approved customer forecasts, a look back at historical royalty reporting for each of our customers, and industry information available for the licensed products.

As a result of accruing per-unit royalty revenue for the quarter based on such estimates, adjustments will be required in the following quarter to true up revenue to the actual amounts reported by our licensees. In the three months ended September 30, 2021, we recorded adjustments of $0.5 million to decrease royalty revenue. We recorded adjustments of $0.3 million to increase royalty revenue during the three months ended September 30, 2020.

Contract Assets

As of September 30, 2021, we had contract assets of $10.8 million included within Prepaid expenses and other current assets, and $2.5 million included within Other assets, on the Condensed Consolidated Balance Sheets. As of December 31,
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2020, we had contract assets of $11.6 million included within Prepaid expenses and other current assets, and $4.6 million included within Other assets, on the Condensed Consolidated Balance Sheets.

Contract assets decreased by $3.0 million from December 31, 2020 to September 30, 2021, primarily due to actual royalties billed during the nine months ended September 30, 2021.

Fixed Fee License Revenue

We recognize revenue from a fixed fee license agreement when we have satisfied our performance obligations, which typically occurs upon the transfer of rights to our technology upon the execution of the license agreement. However, in certain contracts, we grant a license to our existing patent portfolio at the inception of the license agreement as well as rights to the portfolio as it evolves throughout the contract term. For such arrangements, we have concluded that there are two separate performance obligations:

• Performance Obligation A: to transfer rights to our patent portfolio as it exists when the contract is executed.

• Performance Obligation B: to transfer rights to our patent portfolio as it evolves over the term of the contract, including access to new patent applications that the licensee can benefit from over the term of the contract.

If a fixed fee license agreement contains only Performance Obligation A, we recognize most or all of the revenue from the agreement at the inception of the contract. For fixed fee license agreements that contain both Performance Obligation A and B, we allocate the transaction price based on the standalone price for each of the two performance obligations. We use a number of factors primarily related to the attributes of our patent portfolio to estimate standalone prices related to Performance Obligation A and B. Once the transaction price is allocated, the portion of the transaction price allocable to Performance Obligation A is recognized in the period the license agreement is signed and the customer can benefit from rights provided in the contract. The portion allocable to Performance Obligation B is recognized on a straight-line basis over the contract term. For such contracts, a contract liability account is established and included within Deferred revenue on the Condensed Consolidated Balance Sheets. As the rights and obligations in a contract are interdependent, contract assets and contract liabilities that arise in the same contract are presented on a net basis.

Based on contracts signed and payments received as of September 30, 2021, we expect to recognize $22.7 million in revenue related to Performance Obligation B under our fixed fee license agreements, which is satisfied over time, including $14.1 million over one to three years and $8.6 million over more than three years.

Capitalized Contract Costs

During the three and nine months ended September 30, 2021, we capitalized $14,000 and $0.2 million of incremental costs incurred to obtain new contracts with customers, respectively.


3. INVESTMENTS AND FAIR VALUE MEASUREMENTS

Marketable Debt Securities

Marketable debt securities as of September 30, 2021 consisted of the following (in thousands):

September 30, 2021
Amortized
Cost
Unrealized Holding GainsUnrealized Holding LossesFair Value
Corporate debt securities6,935 531  7,466 
$6,935 $531 $ $7,466 

We invest surplus funds in excess of operational requirements in a diversified portfolio of marketable securities, with the objectives of delivering competitive returns, maintaining a high degree of liquidity, and seeking to avoid the permanent
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impairment of principal. Fair values were determined for each individual security in the investment portfolio based on quoted market prices.

Our investments in marketable debt securities are classified and accounted for as available-for-sale. Our marketable debt securities are classified either short-term or long-term based on each instrument’s underlying contractual maturity date. As of September 30, 2021, we reported $7.5 million investment in debt securities as Other assets on our Condensed Consolidated Balance Sheets as the management intends to hold these investment for more than 12 months from the reporting date. We did
not have marketable securities as of December 31, 2020.

Unrealized gains and losses on marketable debt securities classified as available-for-sale are recognized as Other comprehensive income (loss) on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

We may sell certain marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.

The amortized costs and fair value of our marketable debt securities, by contractual maturity, as of September 30, 2021 (in thousands) are as follows:

September 30, 2021

Amortized
Cost
Fair
Value
Less than 1 year$ $ 
1 to 5 years6,935 7,466 
Total$6,935 $7,466 

Marketable Equity Securities

Marketable equity securities as of September 30, 2021 consisted of the following (in thousands):


September 30, 2021
Initial CostsCumulative Unrealized Holding GainsFair Value
Equity securities$27,538 $490 $28,028 
$27,538 $490 $28,028 

Our investments in marketable equity securities are classified based on the nature of the securities and their availability for use in current operations. The marketable equity securities are measured at fair value with gains and losses recognized in Interest and other income (loss), net on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

We regularly review our investment portfolio to identify and evaluate investments that have indicators of possible impairment. Investments are considered impaired when a decline in fair value is judged to be other-than-temporary. If the cost of an individual investment exceeds its fair value, we evaluate, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and our intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, we will record an impairment charge and establish a new cost basis in the investment.
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Derivative Financial Instruments

We invest in derivatives that are not designated as hedging instruments and which consisted of call and put options. When we sell call and put options, the premium received is reported as Other current liabilities on our Condensed Consolidated Balance Sheets. When we purchase put or call options, the premium paid is reported as Marketable securities current on our Condensed Consolidated Balance Sheets. The carrying value of these options are adjusted to the fair value at the end of each reporting period until the options expire. Gains and losses recognized from the periodic adjustments to fair value are recognized as Interest and other income (loss), net on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). At September 30, 2021, we had $1.8 million derivative instruments which consisted of call and put options sold at their fair value as of the balance sheet date. These derivative instruments are reported as Other current liabilities on our Condensed Consolidated Balance Sheets.


Cost
Unrealized Holding LossesFair Value
Liabilities
Derivative instruments$1,757 $2 $1,759 
$1,757 $2 $1,759 



A summary of realized and unrealized gains and losses from our equity securities and derivative instruments are as follows (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Net unrealized gains (losses) recognized on equity investments held as of the end of the period$490 $ $490 $ 
Net realized gains (losses) recognized on derivative instruments9  9  
Net unrealized gains (losses) recognized on derivative instruments(2) $(2) 
Total net gains (losses) recognized in Interest and other income (loss), net$497 $ $497 $ 


Fair Value Measurements

Our financial instruments measured at fair value on a recurring basis consisted of money market funds, equity securities, corporate debt securities and derivatives. We value these securities based on quoted prices in active markets for identical assets. Such instruments are generally classified within Level 1 of the fair value hierarchy. Money market accounts are classified as cash equivalents.

Financial instruments valued based on quoted prices in markets that are less active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency are generally classified within Level 2 of the fair value hierarchy and include corporate debt securities and derivative instruments. We had no Level 2 financial instruments at December 31, 2020.

Financial instruments valued based on unobservable inputs which reflect the reporting entity’s own assumptions or data that market participants would use in valuing an instrument are generally classified within Level 3 of the fair value hierarchy. As of September 30, 2021 and December 31, 2020, we did not hold any Level 3 financial instruments.
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Financial instruments measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 are classified based on the valuation technique in the table below (in thousands):

 September 30, 2021 
Fair Value Measurements Using
Quoted Prices
 in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets:
Equity securities$28,028 $ $ $28,028 
Corporate debt securities 7,466  7,466 
Total assets at fair value$28,028 $7,466 $ $35,494 
Liabilities
Derivative instruments$ $1,759 $ $1,759 
Total liabilities at fair value$ $1,759 $ $1,759 

 
 December 31, 2020 
Fair Value Measurements Using
Quoted Prices 
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets:
Money market accounts (1)
45,614 $ $ $45,614 
Total assets at fair value $45,614 $ $ $45,614 
(1) The above table excludes $13.9 million of cash held in banks.

4. BALANCE SHEETS DETAILS

Cash and Cash Equivalents

Our cash and cash equivalent balances were as follows (in thousands):

 September 30,
2021
December 31,
2020
Cash $90,601 $13,908 
Money market funds 45,614 
Total cash and cash equivalents$90,601 $59,522 

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Accounts and Other Receivables
Accounts and other receivables consisted of the following (in thousands):
September 30,
2021
December 31,
2020
Trade accounts receivable$3,243 $1,618 
Other receivables928 600 
Total accounts and other receivables$4,171 $2,218 

Allowance for credit losses as of September 30, 2021 and December 31, 2020 were not material.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

September 30,
2021
December 31,
2020
Prepaid expenses$785 $816 
Contract assets - current10,756 11,623 
Other current assets198 171 
Total prepaid expenses and other current assets11,739 12,610 

Other Assets

Other assets consisted of the following (in thousands):

September 30,
2021
December 31,
2020
Contract assets - long-term$2,451 $4,596 
Right-of-use ("ROU") assets1,075 1,607 
Deferred tax assets2,659 2,659 
Marketable debt securities - non-current7,466  
Other assets185 138 
Total other assets$13,836 $9,000 

Other Current Liabilities

Other current liabilities are as follows (in thousands):
September 30,
2021
December 31,
2020
Lease liabilities - current$1,213 $1,382 
Derivative instruments1,759  
Other current liabilities1,990 1,075 
Total other current liabilities$4,962 $2,457 

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5. CONTINGENCIES

From time to time, we receive claims from third parties asserting that our technologies, or those of our licensees, infringe on the other parties’ IP rights. Management believes that these claims are without merit. Additionally, periodically, we are involved in routine legal matters and contractual disputes incidental to our normal operations. In management’s opinion, unless we disclosed otherwise, the resolution of such matters will not have a material adverse effect on our consolidated financial condition, results of operations, or liquidity.

In the normal course of business, we provide indemnification of varying scope to customers, most commonly to licensees in connection with licensing arrangements that include our IP, although these provisions can cover additional matters. Historically, costs related to these guarantees have not been significant, and we are unable to estimate the maximum potential impact of these guarantees on its future results of operations.

Samsung Electronics Co. v. Immersion Corporation and Immersion Software Ireland Limited

On April 28, 2017, Immersion and Immersion Software Ireland Limited (collectively referred to as “Immersion” in this section) received a letter from Samsung Electronics Co. (“Samsung”) requesting that we reimburse Samsung with respect to withholding tax and penalties imposed on Samsung by the Korean tax authorities following an investigation where the tax authority determined that Samsung failed to withhold taxes on Samsung’s royalty payments to Immersion Software Ireland from 2012 to 2016. On July 12, 2017, on behalf of Samsung, Immersion filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes and penalties. On October 18, 2018, the Korea Tax Tribunal held a hearing and on November 19, 2018, the Korea Tax Tribunal issued its ruling in which it decided not to accept our arguments with respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on Samsung. On behalf of Samsung, we filed an appeal with the Korea Administrative Court on February 15, 2019. On July 16, 2020, the Korea Administrative Court issued its ruling in which it ruled that the withholding taxes and penalties which were imposed by the Korean tax authorities on Samsung should be cancelled with some litigation costs to be borne by the Korean tax authorities.

On August 1, 2020, the Korean tax authorities filed an appeal with the Korea High Court. The first hearing in the Korea High Court occurred on November 11, 2020. A second hearing occurred on January 13, 2021. A third hearing occurred on March 21, 2021. The Korea High Court had indicated that a final decision was originally expected on May 28, 2021, but instead, decided to hold a fourth hearing on July 9, 2021. On October 1, 2021, the Korea High Court issued its ruling in which it ruled that withholding taxes and penalties totaling approximately KRW 6,186,218,586 (approximately $5.2 million) in national-level withholding tax and local withholding taxes imposed by the Korean tax authorities on Samsung for royalties paid to Immersion during the period of 2012 – 2014 be cancelled on the basis that the Korea tax authorities wrongfully engaged in a duplicative audit with respect to such time period. The Korea High Court also ruled that approximately KRW 1,655,105,584 (approximately $1.4 million) of national-level withholding tax and local withholding taxes imposed by the Korean tax authorities on Samsung for royalties paid to Immersion during 2015 and 2016 be upheld in part on the basis that Immersion Software Ireland Limited did not have sufficient economic substance to be considered the beneficial owner of the royalties paid by Samsung to Immersion Software Ireland Limited. On or about October 22, 2021, the Korean tax authorities filed an appeal with the Korea Supreme Court with respect to certain portions of the Korea High Court decision and we filed an appeal with the Korea Supreme Court with respect to certain portions of the Korea High Court decision.

On September 29, 2017, Samsung filed an arbitration demand with the International Chamber of Commerce against us demanding that we reimburse Samsung for the imposed tax and penalties that Samsung paid to the Korean tax authorities. Samsung is requesting that we pay Samsung the amount of KRW 7,841,324,165 (approximately $6.9 million) plus interest from and after May 2, 2017, plus the cost of the arbitration including legal fees. On March 27, 2019, we received the final award. The award ordered Immersion to pay Samsung KRW 7,841,324,165 (approximately $6.9 million as of March 31, 2019) which we paid on April 22, 2019 and recorded in Long-term deposit on our Condensed Consolidated Balance Sheets. The award also denied Samsung’s claim for interest from and after May 2, 2017 and ordered Immersion to pay Samsung’s cost of the arbitration in the amount of approximately $871,454, which was paid in 2019.

We believe that there are valid defenses to all of the claims from the Korean tax authorities. We intend to vigorously defend against the claims from the Korean tax authorities. We expect to be reimbursed by Samsung to the extent we ultimately prevail in the appeal in the Korea courts. On March 31, 2019, $6.9 million was recorded as a deposit included in Long-term deposits on our Condensed Consolidated Balance Sheets. In the event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Long-term deposits would be recorded as additional income tax expense on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

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LGE Korean Withholding Tax Matter

On October 16, 2017, we received a letter from LG Electronics Inc. (“LGE”) requesting that we reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following an investigation where the tax authority determined that LGE failed to withhold on LGE’s royalty payments to Immersion Software Ireland from 2012 to 2014. Pursuant to an agreement reached with LGE, on April 8, 2020, we provided a provisional deposit to LGE in the amount of KRW 5,916,845,454 (approximately $5.0 million) representing the amount of such withholding tax that was imposed on LGE, which provisional deposit would be returned to us to the extent we ultimately prevail in the appeal in the Korea courts. In the second quarter of 2020, we recorded this deposit in Long-term deposits on our Condensed Consolidated Balance Sheets. In the event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Long-term deposits would be recorded as additional income tax expense on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

On November 3, 2017, on behalf of LGE, we filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes. The Korea Tax Tribunal hearing took place on March 5, 2019. On March 19, 2019, the Korea Tax Tribunal issued its ruling in which it decided not to accept our arguments with respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on LGE. On behalf of LGE, we filed an appeal with the Korea Administrative Court on June 10, 2019. The first hearing occurred on October 15, 2019. A second hearing occurred on December 19, 2019. A third hearing occurred on February 13, 2020. A fourth hearing occurred on June 9, 2020. A fifth hearing occurred on July 16, 2020. We anticipated a decision to be rendered on or about October 8, 2020, but the Korea Administrative Court scheduled and held a sixth hearing for November 12, 2020. A seventh hearing occurred on January 14, 2021. An eighth hearing occurred on April 8, 2021. A ninth hearing occurred on June 24, 2021. A tenth hearing occurred on September 13, 2021. An eleventh hearing is scheduled for November 15, 2021. The Court has indicated that it expects to render a decision on this matter by the end of February 2022.

We believe that there are valid defenses to the claims raised by the Korean tax authorities and that LGE’s claims are without merit. We intend to vigorously defend ourselves against these claims. In the event that we do not ultimately prevail in our appeal in the Korean courts, any payments to LGE with respect to withholding tax imposed on LGE by the Korean tax authorities as described in the previous paragraph would be recorded as additional income tax expense on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

Immersion Software Ireland Limited v. Marquardt GMBH

On August 3, 2021, we filed an arbitration demand with the American Arbitration Association (the “AAA”) against Marquardt GmbH (“Marquardt”), one of our licensees in the automotive market. The arbitration demand arises out of that certain Amended and Restated Patent License Agreement (the “Marquardt License”), effective as of January 1, 2018, between us as licensor and Marquardt, as licensee. Pursuant to the arbitration demand, we are demanding that Marquardt cure its breach of the Marquardt License and pay all royalties currently owed under the Marquardt License. The last royalty report we have received from Marquardt was for the third quarter of calendar year 2020 in which Marquardt reported approximately $0.5 million in royalties but did not pay such royalties. Further, since that date, we have not received any other royalty reports or royalty payments from Marquardt. The term of the Marquardt License expires by its terms on December 31, 2023. As a result of Marquardt’s breach of the Marquardt License, per unit royalties and applicable interest fees, in the amount of a definite sum to be determined, are currently past due.

Pursuant to the terms of the Marquardt License, we requested arbitration by a single arbitrator in Madison County, New York. On August 9, 2021, the AAA confirmed receipt of our arbitration demand dated August 3, 2021. On August 13, 2021, the AAA conducted an administrative conference call to discuss communications, mediation, tribunal appointment, place of arbitration, and other administrative topics. On September 15, 2021, Marquardt filed an answer to our arbitration demand with the AAA, in which Marquardt provided general denials of our claims and asserted a counterclaim for approximately $138,000 in royalties previously paid to us under the Marquardt License. On September 30, 2021, we filed an answer to Marquardt’s counterclaim in which we denied the allegations set forth in Marquardt’s counterclaim. An arbitrator has been chosen to arbitrate this matter. We anticipate that the arbitrator will conduct the arbitration proceedings in New York City or White Plains, New York, with the consent of the parties. The arbitrator has not yet set a preliminary hearing date.

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6. STOCK-BASED COMPENSATION

Stock Options and Awards

Our equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for employees, consultants, officers, and directors and to align stockholder and employee interests. We may grant time-based options, market condition-based options, stock appreciation rights, restricted stock (“RSAs”), restricted stock units (“RSUs”), performance shares, market condition-based performance restricted stock units (“PSUs”), and other stock-based equity awards to employees, officers, directors, and consultants. Under this program, stock options may be granted at prices not less than the fair market value on the date of grant for stock options. Stock options generally vest over four years and expire seven years from the grant date. Market condition-based options are subject to a market condition whereby the closing price of our common stock must exceed a certain level for a number of trading days within a specified time frame or the options will be canceled before the expiration of the options. RSAs generally vest over one year. RSUs generally vest over three years. Awards granted other than a stock option or stock appreciation right shall reduce the common stock shares available for grant by 1.75 shares for every share issued.

A summary of our equity incentive program is as follows (in thousands):

 September 30,
2021
Common stock shares available for grant(1)
 
Stock options outstanding 296 
PSUs outstanding90 
RSUs outstanding247 
RSAs outstanding 
(1) We granted equity awards under the 2011 Equity Incentive Plan (the "2011 Plan") from July 2011 through November 2020. The 2011 Plan expired on April 5, 2021, and the remaining 3,708,238 authorized shares were cancelled on the 2011 Plan expiration date. We do not have an active equity incentive plan as of September 30, 2021.

Time-Based Stock Options

The following summarizes activities for the time-based stock options for the nine months ended September 30, 2021 (in thousands except for weighted average exercise price per share and weighted average remaining contractual life data):

Number of Shares
Underlying Stock Options
Weighted Average
Exercise Price
Per Share
Weighted Average
Remaining Contractual Life
(Years)
Aggregate
Intrinsic Value
Outstanding at December 31, 2020828 $8.16 4.36$2,628 
Exercised(326)$8.79 
Canceled or expired(206)$7.46 
Outstanding at September 30, 2021296 $7.96 3.85$171 
Vested and expected to vest at September 30, 2021272 $7.99 3.74$171 
Exercisable at September 30, 2021170 $8.20 2.95$171 

Aggregate intrinsic value is the difference between the closing price on the last trading day in September 2021 and the exercise price, multiplied by the number of in-the-money stock options.

Restricted Stock Units

The following summarizes RSU activities for the nine months ended September 30, 2021 (in thousands except for weighted average grant date fair value and weighted average remaining contractual life data):

Number of Restricted Stock UnitsWeighted Average Grant Date Fair ValueWeighted Average
Remaining Contractual Life
(Years)
Aggregate
Intrinsic Value
Outstanding at December 31, 2020802 $6.98 1.00$9,057 
Released(319)$7.45 
Forfeited(236)$6.67 
Outstanding at September 30, 2021247 $6.67 0.79$1,690 

Restricted Stock Awards

The following summarizes RSA activities for the nine months ended September 30, 2021 (in thousands except for weighted average grant date fair value and weighted average remaining recognition period):

Number of Restricted Stock AwardsWeighted Average Grant Date Fair ValueWeighted Average Remaining Recognition Period
(Years)
Outstanding at December 31, 2020130 $6.53 0.45
Granted $ 
Released(130)$6.53 
Forfeited $ 
Outstanding at September 30, 2021 $ 0.00

Market Condition-Based Restricted Stock Units

In the fourth quarter of 2020, we granted 250,000 shares of PSUs to our executives. Each PSU represents the right to one share of our common stock with vesting subject to: (a) the achievement of specified levels of the volume weighted average closing prices of our common stock during any one hundred (100) day-period between November 10, 2020 and November 10, 2025, subject to certification by the Compensation Committee (“Performance Milestones”); and (b) continued employment with us through the later of each achievement date or service vesting date, which occurs over a four (4) year-period commencing on November 10, 2020. The Performance Milestones of the PSUs were fully achieved, subject to final certification by the Compensation Committee.

The following summarizes PSU activities for the nine months ended September 30, 2021 (in thousands except for weighted average grant date fair value and weighted average remaining recognition period):

Number of Market Condition-Based Restricted Stock UnitsWeighted Average Grant Date Fair ValueWeighted Average Remaining Recognition Period
(Years)
Outstanding at December 31, 2020250 $6.20 2.08
Forfeited(160)$6.20 
Outstanding at September 30, 202190 $6.20 1.33

Employee Stock Purchase Plan

Under our 1999 Employee Stock Purchase Plan ("ESPP"), eligible employees may purchase common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of our common stock at the beginning of the offering period or the purchase date. Participants may not purchase more than 2,000 shares in a six months offering period or purchase stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period. A total of 1.0 million shares of common stock has been reserved for issuance under the ESPP. During the nine months ended September 30, 2021, 25,033 shares were purchased under the ESPP. As of September 30, 2021, 205,848 shares were available for future purchase under the ESPP.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expenses recognized for the three and nine months ended September 30, 2021 and 2020 (in thousands):

 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Stock options$123 $259 $317 $812 
RSUs, RSAs and PSUs286 1,065 1,635 2,583 
Employee stock purchase plan6 15 45 38 
Total$415 $1,339 $1,997 $3,433 
Sales and marketing$141 $205 $678 $593 
Research and development118 233 653 653 
General and administrative156 901 666 2,187 
Total$415 $1,339 $1,997 $3,433 

We use the Black-Scholes-Merton option pricing model for our time-based options, single-option approach to determine the fair value of standard stock options. All share-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

The determination of the fair value of share-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include actual and projected employee stock option exercise behaviors that impact the expected term, our expected stock price volatility over the term of the awards, risk-free interest rate, and expected dividend.

We did not grant stock options during the nine months ended September 30, 2021.

As of September 30, 2021, there were $3.2 million of unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested stock options, RSAs, RSUs and PSUs. This unrecognized compensation cost will be recognized over an estimated weighted-average period of approximately 1.4 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.


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7. STOCKHOLDERS’ EQUITY

Stock Offering

On February 3, 2021, we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission which provided us with the flexibility to raise up to $250 million of capital. We intend to use the net proceeds from the sale of the securities offered by this prospectus for working capital and other general corporate purposes, and we may use a portion of any net proceeds for investment in complementary businesses or alternative currencies.

On February 11, 2021, we entered into an equity distribution agreement (the "February 2021 Distribution Agreement") with Craig-Hallum Capital Group LLC (“Craig-Hallum”), as sales agent to issue and sell shares of our common stock having an aggregated offering price of up to $50 million. Under the terms of the February 2021 Distribution Agreement, we were obligated to pay a 2.25% commission on the gross sales proceeds from common stock sold and customary indemnification rights and the reimbursement of legal fees and disbursements.

During the first quarter of 2021, we sold 3.3 million shares of our common stock pursuant to the February 2021 Distribution Agreement and we received net proceeds of $35.9 million from the offering net of $1.2 million of commissions and other offering costs. We terminated the February 2021 Distribution Agreement on March 5, 2021.

On July 6, 2021, we entered into an equity distribution agreement (the "July 2021 Distribution Agreement") with Craig-Hallum Capital Group LLC (“Craig-Hallum”), as sales agent to issue and sell shares of our common stock having an aggregated offering price of up to $60 million. Under the July 2021 Distribution Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the July 2021 Distribution Agreement, the investment banker may sell the shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made through the Nasdaq Global Select Market or on any other existing trading market for the common stock. We are obligated to pay 2.25% commission on the gross sales proceeds from common stock sold and customary indemnification rights and the reimbursement of legal fees and disbursements. The July 2021 Distribution Agreement may be terminated by either party upon prior written notice to the other party, or at any time under certain circumstances, including but not limited to the occurrence of a material adverse change in Immersion. We are not obligated to sell any shares under the July 2021 Distribution Agreement.

During the third quarter of 2021, we sold 1.9 million shares of our common stock pursuant to the July 2021 Distribution Agreement and we received net proceeds of approximately $14.2 million from the offering after deducting commissions and other estimated offering expense.

Stock Repurchase Program

On November 1, 2007, our Board of Directors (the “Board”) authorized the repurchase of up to $50.0 million of our common stock (the “Stock Repurchase Program”). In addition, on October 22, 2014, the Board authorized another $30.0 million under the Stock Repurchase Program. As of September 30, 2020, we repurchased the maximum amount of shares of common stock available under the Stock Repurchase Program and no longer have any amount available for repurchase under the Stock Repurchase Plan.

During the six months ended June 30, 2020, we repurchased approximately 4.9 million shares for approximately $30.6 million at an average cost of $6.39 per share.

8. INCOME TAXES

Income tax provision consisted of the following (in thousands, except for effective tax rate percentage):

Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Income (loss) before benefit from (provision for) income taxes$4,111 $2,759 $12,135 $(2,688)
Benefit from (provision for) income taxes(340)96 (987)3 
Effective tax rates(8.3)%3.5 %(8.1)%(0.1)%

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The provision for income tax for the three months and nine months ended September 30, 2021 and 2020, respectively, resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate. We continue to carry a full valuation allowance on our U.S. federal and State as well as Canada federal deferred tax assets. The effective tax rate is lower than statutory tax rate mainly due to the benefit from the utilization of a Net Operating Loss ("NOL") in the current year for the U.S. federal and state jurisdictions.

As of September 30, 2021, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $4.3 million and applicable interest of $0. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $0. Our policy is to account for interest and penalties related to uncertain tax positions as a component of income tax provision. We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months.

As of September 30, 2021, we had net deferred income tax assets of $2.7 million and deferred income tax liabilities of $0.4 million. Because we have net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state, and foreign taxing authorities may examine our tax returns for all years from 2001 through the current period. We have received a letter of no change from the California Franchise Tax Board related to the examination for tax years 2017 and 2018. Currently we are under examination by the Internal Revenue Services for tax year 2018.

We maintain a valuation allowance of $28.5 million against certain of our deferred tax assets, including all federal, state, and certain foreign deferred tax assets because of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and uncertainty regarding near term projected results. If we determine the deferred tax assets are realizable based on our assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made.

9. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of shares of common stock, adjusted for any dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method, includes stock options, RSUs, RSAs, PSUs and ESPP.

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income (loss) per share (in thousands, except per share amounts):

Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020