SEC Filing - Immersion Corporation

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immr-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


[x]			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


[ ]			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 000-38334

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.)

2999 N.E. 191st Street, Suite 610, Aventura, FL, 33180

(Address of principal executive offices, zip code)

(408) 467-1900

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	IMMR	NASDAQ Global Market
Series B Junior Participating Preferred Stock Purchase Rights	IMMR	NASDAQ Global 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 [x] 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 [x] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the 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

[X ]

Smaller reporting company

[X ]

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 Act). Yes [ ] No [X]

Number of shares of common stock outstanding at August 5, 2022 was 33,512,873.

IMMERSION CORPORATION

TABLE OF CONTENTS


PART I		Page
FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	2
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2022 and 2021	3
	Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended June 30, 2022 and 2021	4
	Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 2022 and 2021	0
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	6
	Unaudited Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 4.	Controls and Procedures	34
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 6.	Exhibits	39
Signatures		40

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

IMMERSION CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	June 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	57,390	$	51,490
Marketable equity securities	79,476		86,431
Accounts and other receivables	1,923		1,970
Prepaid expenses and other current assets	9,550		13,432
Total current assets	148,339		153,323
Property and equipment, net	376		444
Long-term deposits	4,451		9,658
Marketable debt securities	17,147		7,286
Other assets	3,705		4,809
Total assets	$	174,018	$	175,520
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	77	$	2
Accrued compensation	1,125		555
Deferred revenue	4,649		4,826
Other current liabilities	13,602		11,247
Total current liabilities	19,453		16,630
Long-term deferred revenue	14,334		16,699
Other long-term liabilities	494		896
Total liabilities	34,281		34,225
Commitments and contingencies (Note 5)
Stockholders’ equity:
Common stock and additional paid-in capital	325,351		323,296
Accumulated other comprehensive income (loss)	(401)		412
Accumulated deficit	(97,423)		(100,680)
Treasury stock	(87,790)		(81,733)
Total stockholders’ equity	139,737		141,295
Total liabilities and stockholders’ equity	$	174,018	$	175,520

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

IMMERSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021
Revenues:
Royalty and license	$	7,918	$	10,881	$	15,148	$	17,949
Development, services, and other	65		129		143		220
Total revenues	7,983		11,010		15,291		18,169
Costs and expenses:
Cost of revenues	—		41		4		70
Sales and marketing	218		1,194		704		2,300
Research and development	355		1,332		864		2,639
General and administrative	3,304		2,636		6,010		4,860
Total costs and expenses	3,877		5,203		7,582		9,869
Operating income	4,106		5,807		7,709		8,300
Interest and other income (loss), net	(6,099)		40		(4,065)		(276)
Income (loss) before benefit from (provision for) income taxes	(1,993)		5,847		3,644		8,024
Benefit from (provision for) income taxes	174		(506)		(387)		(647)
Net income (loss)	$	(1,819)	$	5,341	$	3,257	$	7,377
Basic net income (loss) per share	$	(0.05)	$	0.17	$	0.10	$	0.25
Shares used in calculating basic net income (loss) per share	33,616		30,982		33,638		29,787
Diluted net income (loss) per share	$	(0.05)	$	0.17	$	0.10	$	0.24
Shares used in calculating diluted net income (loss) per share	33,616		31,247		33,955		30,253
Other comprehensive income, net of tax
Change in unrealized losses on available-for-sale securities	$	(1,054)	$	—	$	(813)	$	—
Total other comprehensive loss	(1,054)		—		(813)		—
Total comprehensive income (loss)	$	(2,873)	$	5,341	$	2,444	$	7,377

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

IMMERSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except number of shares)

(Unaudited)


	Three Months Ended June 30, 2022
	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount						Shares	Amount
Balances at March 31, 2022	46,658,734	$	324,476	$	653	$	(95,604)	13,082,214	$	(86,175)	$	143,350
Net loss	—	—		—		(1,819)		—	—		(1,819)
Unrealized loss on available-for-sale securities, net of taxes	—	—		(1,054)		—		—	—		(1,054)
Stock repurchases	—	—		—		—		281,765	(1,535)		(1,535)

Release of restricted stock units and awards, net of shares withheld	176,258	—		—		—		14,549	(80)		(80)

Shares issued to an employee in lieu of cash compensation	16,517	84		—		—		—	—		84
Stock-based compensation	—	791		—		—		—	—		791
Balances at June 30, 2022	46,851,509	$	325,351	$	(401)	$	(97,423)	13,378,528	$	(87,790)	$	139,737


	Three Months Ended June 30, 2021
	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income		Accumulated Deficit		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount						Shares	Amount
Balances at March 31, 2021	43,020,610	$	298,037	$	122	$	(111,128)	12,143,433	$	(81,733)	$	105,298
Net income	—	—		—		5,341		—	—		5,341
Exercise of stock options, net of shares withheld for employee taxes	18,750	140		—		—		—	—		140
Release of restricted stock units and awards	213,310	—		—		—		—	—		—
Shares issued in connection with public offering, net of issuance costs	—	(104)		—		—		—	—		(104)
Stock-based compensation		1,051		—		—		—	—		1,051
Balances at June 30, 2021	43,252,670	$	299,124	$	122	$	(105,787)	12,143,433	$	(81,733)	$	111,726

See accompanying Notes to Condensed Consolidated Financial Statements.

IMMERSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except number of shares)

(Unaudited)


	Six Months Ended June 30, 2022
	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount						Shares	Amount
Balances at December 31, 2021	46,534,198	$	323,296	$	412	$	(100,680)	12,143,433	$	(81,733)	$	141,295
Net income						3,257					3,257
Unrealized loss on available-for-sale securities, net of taxes	—	—		(813)		—		—	—		(813)
Stock repurchases								1,220,546	(5,977)		(5,977)
Issuance of stock for ESPP purchase	7,725	34		—		—			—		34

Release of restricted stock units and awards, net of shares withheld for employee taxes	293,069	—		—		—		14,549	(80)		(80)
Shares issued to an employee in lieu of cash compensation	16,517	84		—		—		—	—		84
Shares issued in connection with public offering, net of issuance costs	—	5		—		—		—	—		5
Stock-based compensation		1,932		—		—		—	—		1,932
Balances at June 30, 2022	46,851,509	$	325,351	$	(401)	$	(97,423)	13,378,528	$	(87,790)	139,737


	Six Months Ended June 30, 2021
	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income		Accumulated Deficit		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount						Shares	Amount
Balances at December 31, 2020	39,161,214	$	258,756	$	122	$	(113,164)	12,143,433	$	(81,733)	$	63,981
Net income	—	—		—		7,377		—	—		7,377
Exercise of stock options, net of shares withheld for employee taxes	325,737	2,864		—		—		—	—		2,864
Issuance of stock for ESPP purchase	15,543	89		—		—		—	—		89
Release of restricted stock units and awards	440,365	—		—		—		—	—		—
Shares issued in connection with public offering, net of issuance costs	3,309,811	35,833		—		—		—	—		35,833
Stock-based compensation		1,582		—		—		—	—		1,582
Balances at June 30, 2021	43,252,670	$	299,124	$	122	$	(105,787)	12,143,433	$	(81,733)	111,726

See accompanying Notes to Condensed Consolidated Financial Statements.

IMMERSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2022		2021
Cash flows provided by (used in) operating activities:
Net income	$	3,257	$	7,377
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	421		389
Stock-based compensation	1,932		1,582
Net loss on investment in marketable securities	3,644		—
Net loss on derivative instruments	2,728		—
Deferred income taxes	(124)		280
Foreign currency remeasurement gains	139		32
Shares issued to an employee in lieu of cash compensation	84		—
Other	5		45
Changes in operating assets and liabilities:
Accounts and other receivables	47		(694)
Prepaid expenses and other current assets	3,882		667
Long-term deposits	5,072		(60)
Other assets	997		1,408
Accounts payable	74		(7)
Accrued compensation	570		640
Other current liabilities	(872)		610
Deferred revenue	(2,542)		(2,476)
Other long-term liabilities	(675)		(739)
Net cash provided by operating activities	18,639		9,054
Cash flows provided by (used in) investing activities:
Purchases of marketable securities	(71,959)		—
Proceeds from sale or maturities of marketable securities and other investments	64,876		—
Proceeds from sale of derivative instruments	9,272		—
Payments for settlement of derivative instruments	(8,903)		—
Purchases of property and equipment	(8)		(88)
Net cash used in investing activities	(6,722)		(88)
Cash flows provided by (used in) financing activities:
Payment for purchases of treasury stock	(6,056)		—
Proceeds from issuance of common stock, net of issuance costs	5		35,833
Proceeds from issuance of common stock under employee stock purchase plan	34		89
Proceeds from stock options exercises	—		2,864
Net cash provided by (used in) financing activities	(6,017)		38,786
Net increase in cash and cash equivalents	5,900		47,752
Cash and cash equivalents:
Beginning of period	51,490		59,522
End of period	$	57,390	$	107,274

See accompanying Notes to Condensed Consolidated Financial Statements.

IMMERSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	647	$	13
Supplemental disclosure of non-cash investing, and financing activities:
Release of restricted stock units and awards under company stock plan	$	1,557	$	4,016
Leased assets obtained in exchange for new operating lease liabilities	$	120	$	—

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The outbreak of a novel strain of coronavirus ("COVID-19") caused governments and public health officials around the world to implementing stringent measures to help control the spread of the virus. In response to the COVID-19 pandemic, we implemented work-from-home and restricted travel policies in the first quarter of 2020, which have remained in place.

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 six months ended June 30, 2021 we recognized $0.2 million in government subsidies as a reduction to operating expenses in the Condensed Consolidated Statements of Operation and Comprehensive Income (Loss). We did not recognize for any government subsidy during the six months ended June 30, 2022.

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, 2021. 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, fair value of financial instruments, useful lives of property and equipment, valuation of income taxes including uncertain tax provisions, stock-based compensation and long-term deposits for withholding 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 six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year.

Segment Information

We develop, license, and support a wide range of software and IP that more fully engage users’ sense 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 November 2021, Financial Accounting Standard Board ("FASB") issued ASU 2021-10, Government Assistance (Topic 832), which requires annual disclosures that increase the transparency of transactions involving government grants, including the types of transactions, the accounting for those transactions, and the effect of those transactions on an entity’s financial statements. This new standard became effective for annual periods beginning after December 15, 2021. We adopted this new guidance in the first quarter of 2022. 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 six months ended June 30, 2022 and 2021 (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Fixed fee license revenue	$	1,246	$	1,824	$	2,991	$	3,099
Per-unit royalty revenue	6,672		9,057		12,157		14,850
Total royalty and license revenue	7,918		10,881		15,148		17,949
Development, services, and other revenue	65		129		143		220
Total revenues	$	7,983	$	11,010	$	15,291	$	18,169

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 June 30, 2022, we recorded adjustments of $0.5 million to increase royalty revenue. We recorded adjustments of $2.0 million to increase royalty revenue during the three months ended June 30, 2021.

Contract Assets

As of June 30, 2022, we had contract assets of $8.5 million included within Prepaid expenses and other current assets, and $0.8 million included within Other assets on the Condensed Consolidated Balance Sheets. As of December 31, 2021, we had contract assets of $12.4 million included within Prepaid expenses and other current assets, and $1.7 million included within Other assets on the Condensed Consolidated Balance Sheets.

Contract assets decreased by $4.9 million from January 1, 2022 to June 30, 2022, primarily due to actual royalties billed and the reduction in contact assets balance following our settlement agreement with Marquardt GmbH.

Contracted 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 June 30, 2022, we expect to recognize $19.0 million in revenue related to Performance Obligation B under our fixed fee license agreements, which are satisfied over time, including $11.7 million over one to three years and $7.3 million over more than three years.

3. INVESTMENTS AND FAIR VALUE MEASUREMENTS

Marketable Securities

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 impairment of principal.

Our investments in marketable debt securities are classified and accounted for as available-for-sale. The marketable debt securities are classified either short-term or long-term based on each instrument’s underlying contractual maturity date. As of June 30, 2022 and December 31, 2021, we reported $17.1 million and $7.3 million of investments in debt securities as Marketable debt securities on our Condensed Consolidated Balance Sheets, respectively, as management intends to hold these investment for more than 12 months from the reporting date. 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.

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.

Marketable securities as of June 30, 2022 and December 31, 2021 consisted of following (in thousands):


	June 30, 2022
	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Mutual funds	$	40,297	$	—	$	(2,990)	$	37,307
Corporate bonds	17,670		—		(523)		17,147
Equity securities	45,633		1,335		(4,799)		42,169
	$	103,600	$	1,335	$	(8,312)	$	96,623


	December 31, 2021
	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Mutual funds	$	50,000	$	—	$	(338)	$	49,662
Corporate bonds	6,996		290		—		7,286
Equity securities	38,100		—		(1,331)		36,769
	$	95,096	$	290	$	(1,669)	$	93,717

As of June 30, 2022 and December 31, 2021, marketable securities are classified and reported on our Condensed Consolidated Balance Sheets as follows (in thousands):


	June 30, 2022
	Marketable Equity Securities		Marketable Debt Securities		Total
Mutual funds	$	37,307	$	—	$	37,307
Equity securities	42,169		—		42,169
Corporate bonds	—		17,147		17,147
	$	79,476	$	17,147	$	96,623


	December 31, 2021
	Marketable Equity Securities		Marketable Debt Securities		Total
Mutual funds	$	49,662	$	—	$	49,662
Equity securities	36,769		—		36,769
Corporate bonds	—		7,286		7,286
	$	86,431	$	7,286	$	93,717

The amortized costs and fair value of our marketable debt securities, by contractual maturity, as of June 30, 2022 (in thousands) are as follows:


	June 30, 2022
	Amortized Cost		Fair Value
Less than 1 year	$	—	$	—
1 to 5 years	9,158		9,217
More than 5 years	8,512		7,930
Total	$	17,670	$	17,147

Derivative Financial Instruments

We invest in derivatives that are not designated as hedging instruments and which consist 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 Other current liabilities 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, on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Our 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 as of June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022
	Cost		Unrealized Losses		Fair Value
Derivative instruments	$	4,863	$	4,501	$	9,364
	$	4,863	$	4,501	$	9,364


	December 31, 2021
	Cost		Unrealized Gains		Fair Value
Derivative instruments	$	6,370	$	(103)	$	6,267
	$	6,370	$	(103)	$	6,267

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net unrealized losses recognized on marketable equity securities	$	(6,923)	$	—	$	(4,784)	$	—
Net realized gains (losses) recognized on marketable equity securities	(254)		—		772		—
Net unrealized losses recognized on derivative instruments	(1,943)		—		(4,603)		—
Net realized gains recognized on derivative instruments	2,009		—		1,875		—
Net realized gains recognized on marketable debt securities	—		—		368		—
Total net losses recognized in interest and other income (loss), net	$	(7,111)	$	—	$	(6,372)	$	—

Fair Value Measurements

Our financial instruments measured at fair value on a recurring basis consisted of money-market funds, mutual funds, equity securities, corporate debt securities and derivatives. Equity securities are classified within Level 1 of the fair value hierarchy as they are valued based on quoted market price in an active market. Corporate debt securities and derivative instruments are 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.

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. We did not hold Level 3 financial instruments as of June 30, 2022 and December 31, 2021.

Financial instruments measured at fair value on a recurring basis as of June 30, 2022 and December 2021 are classified based on the valuation technique in the table below (in thousands):


	June 30, 2022
	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:
Mutual funds	$	37,307	$	—	$	—	$	37,307
Equity securities	42,169		—		—		42,169
Corporate bonds	—		17,147		—		17,147
Total assets at fair value	$	79,476	$	17,147	$	—	$	96,623

Liabilities
Derivative instruments	$	—	$	9,364	$	—	$	9,364
Total liabilities at fair value	$	—	$	9,364	$	—	$	9,364


	December 31, 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:
Mutual funds	$	49,662	$	—	$	—	49,662
Equity securities	36,769		—		—		36,769
Corporate bonds	—		7,286		—		7,286
Total assets at fair value	$	86,431	$	7,286	$	—	$	93,717

Liabilities
Derivative instruments	$	—	$	6,267	$	—	$	6,267
Total liabilities at fair value	$	—	$	6,267	$	—	$	6,267

4. BALANCE SHEETS DETAILS

Cash and Cash Equivalents

Cash and cash equivalents were as follow (in thousands):


	June 30, 2022		December 31, 2021
Cash	$	37,390	$	51,490
Money market funds	20,000		—
Cash and cash equivalents	$	57,390	$	51,490

Accounts and Other Receivables

Accounts and other receivables were as follows (in thousands):


	June 30, 2022		December 31, 2021
Trade accounts receivables	$	1,266	$	1,235
Other receivables	657		735
Accounts and other receivables	$	1,923	$	1,970

Allowance for credit losses as of June 30, 2022 and December 31, 2021 were not material.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets were as follows (in thousands):


	June 30, 2022		December 31, 2021
Prepaid expenses	$	835	$	798
Contract assets - current	8,524		12,448
Other current assets	191		186
Prepaid expenses and other current assets	$	9,550	$	13,432

Other Assets

Other assets are as follows (in thousands):


	June 30, 2022		December 31, 2021
Contract assets - long-term	$	777	$	1,746
Lease right-of-use assets	679		912
Deferred tax assets	2,240		2,115
Other assets	9		36
Total other assets	$	3,705	$	4,809

Other Current Liabilities

Other current liabilities are as follows (in thousands):


	June 30, 2022		December 31, 2021
Derivative instruments	$	9,364	$	6,267
Lease liabilities - current	969		1,098
Other current liabilities	3,269		3,882
Total other current liabilities	$	13,602	$	11,247

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 KRW1,655,105,584 (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 December 1, 2021, the Korean tax authorities submitted its brief to the Korea Supreme Court challenging the cancellation by the Korea High Court of a portion of the withholding tax imposed by the Korean tax authorities. On December 3, 2021, we submitted our own brief to the Korea Supreme Court providing arguments in support of our position that Immersion Software Ireland Limited has sufficient economic substance to be considered the beneficial owner of the royalties paid by Samsung to Immersion Software Ireland Limited. Such brief also provided arguments challenging the calculation of the imposed withholding tax upheld by the Korea High Court. On December 2021, the Korean tax authorities filed a rebuttal brief relating to our brief filed on December 3, 2021. On December 29, 2021, we filed our rebuttal brief relating to the Korean tax authorities’ brief filed on December 1, 2021. On February 24, 2022, the Korea Supreme Court issued a decision affirming the rulings of the Korea High Court. We believe that any impairment in the Long-term deposits associated with the rulings of the Korea High Court is appropriately reflected in the Condensed Consolidated Balance Sheets.

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 deposits 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.

In the fourth quarter of 2021, we recorded an impairment charge of $1.4 million related to long-term deposits paid to Samsung. In March 2022, as a result of the Korea Supreme Court decision described above, we were reimbursed by Samsung in an amount equal to KRW6,088,855,388 (approximately $5 million) representing Korea national-level taxes, penalties and interest that were canceled by the Korea Supreme Court, which amount is net of $1.3 million of the impairment charge previously recorded in the fourth quarter of 2021. We were also reimbursed an additional KRW608,885,000 (approximately $0.5 million) representing local-level taxes, penalties and interest that were canceled by the Korea Supreme Court, which amount is net of $0.1 million of the impairment charge previously recorded in the fourth quarter of 2021.

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 occurred on November 15, 2021. A twelfth hearing occurred on December 23, 2021. The Court had indicated that it expected to render a decision on this matter by the end of February 2022. However, due to a reshuffling of judges, another hearing, which was originally scheduled for April 14, 2022 occurred on July 7, 2022. A thirteenth hearing is scheduled for October 27, 2022. The Court has indicated that it expects to render a decision on this matter by December 31, 2022.

Based on the developments in these cases, we regularly reassess the likelihood that we will prevail in the claims from the Korean tax authorities with respect to the LGE case. To the extent that we determine that it is more likely than not that we will prevail against the claims from the Korean tax authorities, then no additional tax expense is provided for in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). In the event that we determine that it is more likely than not that we will not prevail against the claims from the Korean tax authorities, or a portion thereof, then we would estimate the anticipated additional tax expense associated with that outcome and record it as additional income tax expense in our Condensed Consolidated Statements of Operation and Comprehensive Income (Loss) in the period of the new determination. If the additional income tax expense was related to the periods assessed by Korean tax authorities and for which we recorded a Long-term deposits on our Condensed Consolidated Balance Sheets, then the additional income tax expense would be recorded as an impairment to the Long-term deposits. If the additional income tax expense was not related to the periods assessed by Korean tax authorities and for a which we recorded in Long-term deposits on our Condensed Consolidated Balance Sheets, then the additional income tax expense would be accrued as an Other current liabilities.

In the event that we do not ultimately prevail in our appeal in the Korean courts with respect to this case, the applicable deposits 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.

In the fourth quarter of 2021, we recorded an impairment charge of $0.8 million related to the long-term deposits paid to LGE.

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 relating to past royalty periods, and applicable interest fees, 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. A preliminary hearing occurred on December 6, 2021, during which the parties agreed to explore mediation and the arbitrator set forth a schedule relating to the arbitration. A mediation session occurred during the period of March 14-16, 2022. At the mediation, we entered into a binding settlement term sheet with Marquardt pursuant to which we agreed to cause our arbitration demand to be dismissed. In exchange, Marquardt agreed to the prepayment of certain royalties otherwise payable under the Marquardt License. Additionally on April 4, 2022, we entered into an amendment to the Marquardt License to reflect such payment and other related terms. On May 20, 2022, the parties submitted a stipulation of dismissal to the AAA dismissing with prejudice all claims brought by us against Marquardt in the arbitration.

Immersion Corporation vs. Meta Platforms, Inc., f/k/a Facebook, Inc.

On May 26, 2022, we filed a complaint against Meta Platforms, Inc. (formerly known as Facebook, Inc.) (“Meta”) in the United States District Court for the Western District of Texas. The complaint alleges that Meta’s augmented and virtual reality (“AR/VR”) systems, including the Meta Quest 2, infringe six of our patents that cover various uses of haptic effects in connection with such AR/VR systems. We are seeking to enjoin Meta from further infringement and to recover a reasonable royalty for such infringement.

The complaint against Meta asserts infringement of the following patents:

•U.S. Patent No. 8,469,806: “System and method for providing complex haptic stimulation during input of control gestures, and relating to control of virtual equipment”

•U.S. Patent No. 8,896,524: “Context-dependent haptic confirmation system”

•U.S. Patent No. 9,727,217: “Haptically enhanced interactivity with interactive content”

•U.S. Patent No. 10,248,298: “Haptically enhanced interactivity with interactive content”

•U.S. Patent No. 10,269,222: “System with wearable device and haptic output device”

•U.S. Patent No. 10,664,143: “Haptically enhanced interactivity with interactive content”

Meta responded to our complaint on August 1, 2022.

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 awards (“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.

On January 18, 2022, our stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan"), which provides for a total number of shares reserved and available for grant and issuance equal to 3,525,119 shares plus up to an additional 855,351 shares that are subject to stock options or other awards granted under the 2011 Equity Incentive Plan.

Under our equity incentive plans, 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 stock awards 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 awards will be canceled before expiration. RSAs generally vests over one year. RSUs generally vest over three years. Awards granted other than a stock option or a 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 as of June 30, 2022 is as follows (in thousands):



Common stock shares available for grant			1,873
Stock options outstanding			172
RSUs outstanding			592
RSAs outstanding			119
PSUs outstanding