0001213900-23-065921 | 10-Q | XBRL Viewer

		Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
Fixed fee license revenue	$	1,189	$	1,246	$	2,404	$	2,991
Per-unit royalty revenue		5,729		6,672		11,523		12,157
Total royalty and license revenue		6,918		7,918		13,927		15,148
Development, services, and other revenue		65		65		130		143
Total revenues	$	6,983	$	7,983	$	14,057	$	15,291

Per-unit Royalty Revenue

We record per-unit royalty revenue in the same period in which the licensee’s underlying sales occur. When we 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, 2023, we recorded adjustments of $0.3 million to increase royalty revenue. We recorded adjustments of $0.5 million to increase royalty revenue during the three months ended June 30, 2022.

Contract Assets

As of June 30, 2023, we had contract assets of $5.8 million included within Prepaid expenses and other current assets, and $0.3 million included within Other assets on the Condensed Consolidated Balance Sheets. As of December 31, 2022, we had contract assets of $7.7 million included within Prepaid expenses and other current assets, and $0.5 million included within Other assets on the Condensed Consolidated Balance Sheets.

Contract assets decreased by $2.1 million from January 1, 2023, to June 30, 2023, primarily due to actual royalties billed during the first half of 2023.

Deferred 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: Transfer of rights to our patent portfolio as it exists when the contract is executed; and

• Performance Obligation B: Transfer of 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 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 which best represents the ongoing and continuous nature of the patent prosecution process. 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, 2023, we expect to recognize $15.0 million in revenue related to Performance Obligation B under our fixed fee license agreements, which are satisfied over time, including $9.3 million over one to three years and $5.7 million over more than three years.

As of December 31, 2022, total deferred revenue was $17.4 million. We recognized $2.3 million of deferred revenue during the six months ended June 30, 2023.

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
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Reference 10: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

LEASES - Schedule of Minimum Future Lease Payment Obligations (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Lessee, Operating Lease, Liability, Payment, Due [Abstract]
2023	$ 121
2024	39
Total lease payments	160
Less: Interest	(23)
Total lease liability	$ 137	$ 542

STOCK-BASED COMPENSATION - Summary of Time-based Stock Options (Details) - Time-based stock options $ / shares in Units, shares in Thousands, $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023 USD ($) $ / shares shares	Dec. 31, 2022 USD ($) $ / shares shares
Number of Shares Underlying Stock Options
Beginning outstanding balance (in shares) \| shares	140
Granted (in shares) \| shares	0
Exercised (in shares) \| shares	(21)
Canceled or expired (in shares) \| shares	0
Ending outstanding balance (in shares) \| shares	119	140
Number of shares underlying stock options, vested and expected to vest (in shares) \| shares	118
Number of shares underlying stock options, exercisable (in shares) \| shares	99
Weighted Average Exercise Price Per Share
Beginning outstanding balance (in dollars per share) \| $ / shares	$ 7.57
Granted (in dollars per share) \| $ / shares	0
Exercised (in dollars per share) \| $ / shares	7.54
Canceled or expired (in dollars per share) \| $ / shares	0
Ending outstanding balance (in dollars per share) \| $ / shares	7.57	$ 7.57
Weighted average exercise price, vested and expected to vest (in dollars per share) \| $ / shares	7.57
Weighted average exercise price, exercisable (in dollars per share) \| $ / shares	$ 7.57
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Weighted average remaining contractual life, outstanding	3 years 6 months 14 days	4 years 10 days
Weighted average remaining contractual life, vested and expected to vest	3 years 6 months 14 days
Weighted average remaining contractual life, exercisable	3 years 6 months 14 days
Aggregate intrinsic value, outstanding \| $	$ 0	$ 0
Aggregate intrinsic value, vested and expected to vest \| $	0
Aggregate intrinsic value, exercisable \| $	$ 0

BALANCE SHEET DETAILS - Cash and Cash Equivalents (Details) - USD ($)
$ in Thousands

Jun. 30, 2023

Dec. 31, 2022

Cash and Cash Equivalents, at Carrying Value [Abstract]

Cash

$ 5,269

$ 9,630

Money market funds

20,551

13,586

Certificates of deposit

^[1]

25,604

Cash and cash equivalents

$ 25,820

$ 48,820

[1]	Represents certificates of deposit with initial maturity days of 90 days or less.

SIGNIFICANT ACCOUNTING POLICIES (Policies)	6 Months Ended
SIGNIFICANT ACCOUNTING POLICIES (Policies)	Jun. 30, 2023
Accounting Policies [Abstract]
Principles of Consolidation	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 the applicable articles 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, 2022. 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. Certain prior year amounts have been reclassified to conform with the current year presentation.
Use of Estimates	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 six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year.
Reclassification	Reclassification Certain prior period amounts have been reclassified to conform to the current period presentation.
Segment Information	Segment Information We develop, license, and support a wide range of software and intellectual property (“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 Pronouncements	Recent Account Pronouncements We do not expect recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2023, to have significant impact on our financial positions and results of operations.

STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2023

Share-Based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

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. On March 30, 2023, our stockholders approved an amendment to the 2021 Plan to increase the number of shares reserved for issuance under the 2021 Plan by 4,621,488 shares.

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 such stock options. Stock options generally vest over four years and expire seven years from the applicable 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, 2023 is as follows (in thousands):

Common stock shares available for grant	5,056
Stock options outstanding	119
RSUs outstanding	751
RSAs outstanding	75
PSUs outstanding	411

Time-Based Stock Options

The following summarizes time-based stock options activities for the six months ended June 30, 2023:

	Number of Shares Underlying Stock Options (in thousands)			Weighted Average Exercise Price Per Share	Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	140		$	7.57	4.03	$	—
Granted	—			—
Exercised	(21	)		7.54
Canceled or expired	—			—
Outstanding as of June 30, 2023	119		$	7.57	3.54	$	—
Vested and expected to vest at June 30, 2023	118		$	7.57	3.54	$	—
Exercisable at June 30, 2023	99		$	7.57	3.54	$	—

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the exercise price of our common stock for the options that were in-the-money.

We did not grant stock options in the six months ended June 30, 2023.

Restricted Stock Units

The following summarizes RSU activities for the six months ended June 30, 2023:

	Number of Restricted Stock Units (in thousands)			Weighted Average Grant Date Fair Value Per Share	Weighted Average Remaining Recognition Period (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	887		$	5.85	2.38	$	6,226
Granted	50			7.76
Released	(134	)		5.35
Forfeited	(52	)		6.91
Outstanding at June 30, 2023	751		$	5.99	1.72	$	5,317

The aggregate intrinsic value is calculated as the market value as of the end of the reporting period.

Restricted Stock Awards

The following summarizes RSA activities for the six months ended June 30, 2023:

	Number of Restricted Stock Awards (in thousands)			Weighted Average Grant Date Fair Value Per Share	Weighted Average Remaining Recognition Period (Years)
Outstanding at December 31, 2022	119		$	5.47	0.39
Granted	75			8.31
Released	(119	)		5.47
Forfeited	—			—
Outstanding at June 30, 2023	75		$	8.31	0.75

Market Condition-Based Performance Stock Units

The following summarizes PSU activities for the six months ended June 30, 2023:

	Number of Market Condition-Based Performance Stock Units (in thousands)			Weighted Average Grant Date Fair Value Per Share	Weighted Average Remaining Recognition Period (Years)
Outstanding at December 31, 2022	615		$	3.69	1.12
Granted	—			—
Released	(204	)		—
Forfeited	—			—
Outstanding at June 30, 2023	411		$	3.70	0.87

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-month 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 have been reserved for issuance under the ESPP. During the six months ended June 30, 2023, 1,298 shares were purchased under the ESPP. Effective February 1, 2023, our ESPP was discontinued and 193,134 shares expired following the ESPP termination.

Stock-based Compensation Expense

Valuation and amortization methods

Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period. Estimated forfeitures are based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation related to all of our stock-based awards and ESPP for the three and six months ended June 30, 2023, and 2022 is as follows (in thousands):

		Three Months Ended June 30,					Six Months Ended June 30,
		2023		2022			2023			2022
Stock options	$	16	$	52		$	(40	)	$	15
RSUs, RSAs and PSUs		744		734			1,747			1,915
ESPP		—		5			0			2
Total	$	760	$	791		$	1,707		$	1,932

Sales and marketing	$	97	$	(99	)	$	(2	)	$	(2	)
Research and development		1		(23	)		(73	)		81
General and administrative		662		913			1,782			1,853
Total	$	760	$	791		$	1,707		$	1,932

As of June 30, 2023, there was $3.8 million of unrecognized compensation cost adjusted for estimated forfeitures related to non-vested stock options, RSUs, RSAs and PSUs granted to our employees and directors. This unrecognized compensation cost will be recognized over an estimated weighted-average period of approximately 1.7 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

STOCKHOLDERS' EQUITY - Narrative (Detail) - USD ($) $ / shares in Units, $ in Thousands							3 Months Ended		6 Months Ended		12 Months Ended
	Aug. 11, 2023	Aug. 08, 2023	May 10, 2023	Feb. 21, 2023	Dec. 29, 2022	Nov. 14, 2022	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022	Feb. 23, 2022
Class of Stock [Line Items]
Repurchased shares, value							$ 2,852	$ 1,535	$ 2,852	$ 5,977
Dividends paid (in dollars per share)			$ 0.03	$ 0.03		$ 0.03
Special dividends paid (in dollards per share)					$ 0.1
Dividends paid									$ 5,400
Subsequent Event
Class of Stock [Line Items]
Dividends paid (in dollars per share)	$ 0.03
Stock Repurchase Program
Class of Stock [Line Items]
Stock repurchase program, average cost (in dollars per share)											$ 5.46
Stock repurchase program, authorized amount												$ 30,000
Repurchased shares, value											$ 8,900
Common Stock \| Stock Repurchase Program
Class of Stock [Line Items]
Stock repurchase program, average cost (in dollars per share)									$ 6.88
Repurchase of stock (in shares)									413,696		1,637,566
Repurchased shares, value									$ 2,900
Common Stock \| December 2022 Stock Repurchase Program
Class of Stock [Line Items]
Stock repurchase program, authorized amount					$ 50,000
Stock repurchase program, remaining authorized repurchase amount							$ 47,100		$ 47,100
Common Stock \| December 2022 Stock Repurchase Program \| Subsequent Event \| Minimum
Class of Stock [Line Items]
Stock repurchase program expiration date		Dec. 29, 2023
Common Stock \| December 2022 Stock Repurchase Program \| Subsequent Event \| Maximum
Class of Stock [Line Items]
Stock repurchase program expiration date		Dec. 29, 2024

CONTINGENCIES

6 Months Ended

Jun. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

CONTINGENCIES

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 our future results of operations.

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, a subsidiary of the Company, 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 Korean courts. In the second quarter of 2020, we recorded this deposit in Long-term deposits on our Condensed Consolidated Balance Sheets. In the fourth quarter of 2021, we recorded an impairment charge of $0.8 million related to the long-term deposits paid to LGE.

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 related to the 2012 to 2014 period. 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. We have had numerous hearings before the Korea Administrative Court in the years 2019 through 2022. We had a hearing on April 27, 2023, and the Korea Administrative Court rendered a decision on this matter on June 7, 2023, in which it ruled that the withholding taxes and penalties which were imposed by the Korean tax authorities on LGE should be cancelled with litigation costs to be borne by the Korean tax authorities. In connection with the Korea Administrative Court’s decision, the Korean tax authorities filed an appeal on June 28, 2023 with the Korea Administrative Court to seek the cancellation of the court’s decision.

On April 25, 2023, we received notice from LGE requesting us to reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following a recent tax audit of LGE for the years 2018 through 2022. Pursuant to an agreement reached with LGE, on June 2, 2023, we provided a provisional deposit to LGE in the amount of KRW 3,024,877,044 (approximately $2.3 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 Korean courts. In the second quarter of 2023, we recorded this deposit in Long-term deposits on our Condensed Consolidated Balance Sheets. On June 29, 2023, on behalf of LGE, we filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes related to the 2018 to 2022 period. As of June 30, 2023, we have accrued $0.3 million of withholding taxes, interest and penalties related to the 2018 to 2022 period for which the Korean tax authorities have recently assessed LGE. These withholding taxes have been reclassified and reported as an impairment reduction to the Long-term deposit made in the second quarter of 2023 in order to present the deposit at its estimated recoverable value.

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 Income and Comprehensive Income. 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 Income and Comprehensive Income 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 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 Income and Comprehensive Income, in the period in which we do not ultimately prevail.

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 the Company’s complaint on August 1, 2022. On September 12, 2022, Meta filed a motion to transfer the lawsuit to the Northern District of California or, in the alternative, to the Austin Division of the Western District of Texas. The Court denied Meta’s motion on May 30, 2023, and held the claim construction hearing on the same day. The Court adopted certain claim constructions during the hearing, and issued a formal claim construction order consistent with those constructions on July 7, 2023. Fact discovery is ongoing, and is set to close on September 6, 2023.

In addition, Meta filed inter partes reviews (“IPRs”), IPR2023-00942; IPR2023-00943; and IPR2023-00944 on May 25, 2023. These are directed to U.S. Patent Nos. 8,469,806; 8,896,524; and 10,269,222, respectively. The Company’s response to IPR2023-00942 and IPR2023-0094 is due on September 8, 2023, and to IPR2023-00944 is due on September 12, 2023. Meta filed IPR2023-00945; IPR2023-00946; and IPR2023-00947 on May 26, 2023. These IPRs are directed to United States Patent Nos. 10,664,143; 9,727,217; and 10,248,298, respectively. Our response to IPR2023-00945 is due on September 8, 2023, and our response to IPR2023-00946 and IPR2023-00947 is due on September 12, 2023.

Immersion Corporation vs. Xiaomi Group

On or about March 3, 2023, we initiated patent infringement lawsuits against several companies of the Xiaomi-Group (the “Xiaomi-Group”) in Germany, France and India. We initiated lawsuits against Xiaomi-Group companies and their agents in the Düsseldorf Regional Court in Germany, the Tribunal judiciaire de Paris (Paris First Instance Civil Court) in France, and the High Court of Delhi, at New Delhi, in India.

The complaints allege that the Xiaomi-Group’s devices, including the Xiaomi 12, infringe our patents that cover various uses of haptic effects in connection with such devices. We are seeking injunctions that would allow us to prohibit Xiaomi-Group from selling the infringing devices in Germany, France and India, as well as costs and damages as compensation for such infringement.

The complaints against the Xiaomi-Group assert infringement of the following patents:

• EP 2 463 752 B1 (German part) titled “Haptisches Feedback-System mit gespeicherten Effekten”

• EP 2 463 752 B1 (French part) titled “Système de rendu haptique avec stockage d’effets”

• IN 304 396 (India) titled “Haptic Feedback System With Stored Effects”

On June 19, 2023, Xiaomi filed an initial response to the Company’s lawsuit in India. On July 7, 2023, the Indian litigation was listed before the Learned Joint Registrar (“JR”), Mr. Siddharth Mathur. Immersion’s preliminary response to Xiaomi’s initial response is due on August 11, 2023.

On July 11, 2023, in the German proceeding Xiaomi filed its nullity action in the German Federal Patent Court, which was served on Immersion on July 27, 2023.

Immersion Corporation vs. Valve Corporation

On May 15, 2023, we filed a complaint against Valve Corporation (“Valve”) in the United States District Court for the Western District of Washington. The complaint alleges that Valve’s AR/VR systems, including the Valve Index, and handheld Steam Deck, infringe seven of our patents that cover various uses of haptic effects in connection with such AR/VR systems and other video game systems. We are seeking to enjoin Valve from further infringement and to recover a reasonable royalty for such infringement.

The complaint against Valve asserts infringement of the following patents:

• U.S. Patent No. 7,336,260: “Method and Apparatus for Providing Tactile Sensations”

• U.S. Patent No. 8,749,507: “Systems and Methods for Adaptive Interpretation of Input from a Touch-Sensitive Input Device”

• U.S. Patent No. 9,430,042: “Virtual Detents Through Vibrotactile Feedback”

• U.S. Patent No. 9,116,546: “System for Haptically Representing Sensor Input”

• U.S. Patent No. 10,627,907: “Position Control of a User Input Element Associated With a Haptic Output Device”

• U.S. Patent No. 10,665,067: “Systems and Methods for Integrating Haptics Overlay in Augmented Reality”

• U.S. Patent No. 11,175,738: “Systems and Methods for Proximity-Based Haptic Feedback”

Valve responded to the Complaint on July 24, 2023 with a motion to dismiss. Immersion’s response to the motion is due on August 14, 2023.

- Definition

The entire disclosure for loss and gain contingencies. Describes any existing condition, situation, or set of circumstances involving uncertainty as of the balance sheet date (or prior to issuance of the financial statements) as to a probable or reasonably possible loss incurred by an entity that will ultimately be resolved when one or more future events occur or fail to occur, and typically discloses the amount of loss recorded or a range of possible loss, or an assertion that no reasonable estimate can be made.

+ References + Details

INVESTMENTS AND FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2023

Investments, Debt and Equity Securities [Abstract]

INVESTMENTS AND FAIR VALUE MEASUREMENTS

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.

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 for the investment.

Marketable securities as of June 30, 2023 and December 31, 2022 consisted of the following (in thousands):

		June 30, 2023
		Cost or Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Marketable equity securities
Mutual funds	$	27,020	$	—	$	(2,955	)	$	24,065
Equity securities		67,800		3,214		(5,703	)		65,311
Total marketable equity securities		94,820		3,214		(8,658	)		89,376
Marketable debt securities
U.S. treasury securities		48,534		807		(43	)		49,298
Corporate bonds		13,305		87		(99	)		13,293
Total marketable debt securities		61,839		894		(142	)		62,591
	$	156,659	$	4,108	$	(8,800	)	$	151,967

		December 31, 2022
		Cost or Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Marketable equity securities
Mutual funds	$	26,352	$	—	$	(3,143	)	$	23,209
Equity securities		53,273		2,776		(5,836	)		50,213
Total marketable equity securities		79,625		2,776		(8,979	)		73,422
Marketable debt securities
U.S. treasury securities		25,640		182		(24	)		25,798
Corporate bonds		13,496		48		(106	)		13,438
Total marketable debt securities		39,136		230		(130	)		39,236
	$	118,761	$	3,006	$	(9,109	)	$	112,658

The amortized costs and fair value of our marketable debt securities, by contractual maturity, as of June 30, 2023 (in thousands) are as follows:

		June 30, 2023
		Amortized Cost		Fair Value
Less than 1 year	$	41,559	$	42,342
1 to 5 years		20,280		20,249
More than 5 years		—		—
Total	$	61,839	$	62,591

Derivative Financial Instruments

Our derivative instruments 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, 2023 and December 31, 2022 (in thousands):

		June 30, 2023
		Cost		Unrealized Losses		Fair Value
Derivative instruments	$	5,471	$	752	$	6,223
	$	5,471	$	752	$	6,223

		December 31, 2022
		Cost		Unrealized Losses		Fair Value
Derivative instruments	$	2,987	$	662	$	3,649
	$	2,987	$	662	$	3,649

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,
		2023			2022			2023			2022
Net unrealized gains (losses) recognized on marketable equity securities	$	(1,255	)	$	(6,923	)	$	759		$	(4,784	)
Net realized gains (losses) recognized on marketable equity securities		4,561			(254	)		6,230			772
Net unrealized losses recognized on derivative instruments		(91	)		(1,943	)		(194	)		(4,603	)
Net realized gains recognized on derivative instruments		1,520			2,009			2,237			1,875
Net realized gains recognized on marketable debt securities		217			—			217			368
Total net gains (losses) recognized in interest and other income (loss), net	$	4,952		$	(7,111	)	$	9,249		$	(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, 2023, and December 31, 2022.

Financial instruments measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 are classified based on the valuation technique in the table below (in thousands):

		June 30, 2023
		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:
U.S. treasury securities	$	49,298	$	—	$	—	$	49,298
Mutual funds		24,065		—		—		24,065
Equity securities		65,311		—		—		65,311
Corporate bonds		—		13,293		—		13,293
Total assets at fair value	$	138,674	$	13,293	$	—	$	151,967

Liabilities
Derivative instruments	$	—	$	6,223	$	—	$	6,223
Total liabilities at fair value	$	—	$	6,223	$	—	$	6,223

		December 31, 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:
Certificate of deposit	$	—	$	5,300	$	—	$	5,300
U.S. treasury securities		25,798		—		—		25,798
Mutual funds		23,209		—		—		23,209
Equity securities		50,213		—		—		50,213
Corporate bonds		—		13,438		—		13,438
Total assets at fair value	$	99,220	$	18,738	$	—	$	117,958

Liabilities
Derivative instruments	$	—	$	3,649	$	—	$	3,649
Total liabilities at fair value	$	—	$	3,649	$	—	$	3,649

SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2023

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

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 we provide advanced tactile software, related tools and 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 offer licenses for our patented technology to other customers.

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 the applicable articles 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, 2022. 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. Certain prior year amounts have been reclassified to conform with the current year presentation.

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 six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year.

Reclassification

Certain prior period amounts have been reclassified to conform to the current period presentation.

Segment Information

We develop, license, and support a wide range of software and intellectual property (“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.

Recent Account Pronouncements

We do not expect recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2023, to have significant impact on our financial positions and results of operations.

BALANCE SHEET DETAILS - Other Assets, Net (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Other Assets, Net [Abstract]
Contract assets - long-term	$ 326	$ 545
Lease right-of-use assets	129	360
Other assets	0	11
Total other assets	$ 455	$ 916

NET INCOME (LOSS) PER SHARE - Reconciliation used in Computing Basic and Diluted Net Income (Loss) per Share (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Earnings Per Share [Abstract]
Weighted-average shares outstanding, basic	32,583	33,616	32,474	33,638
Shares related to outstanding options, unvested RSUs, RSAs, and PSUs	227	0	365	317
Weighted average shares outstanding, diluted	32,810	33,616	32,839	33,955

LEASES - Summary of Right of Use Assets and Lease Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Assets
Right-of-use assets	$ 129	$ 360
Liabilities
Operating lease liabilities - current	137	486
Operating lease liabilities - long-term	0	56
Total lease liabilities	$ 137	$ 542
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List]	Other assets	Other assets
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Other current liabilities	Other current liabilities
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List]	Other long-term liabilities	Other long-term liabilities

LEASES - Narrative (Details) - ft²	Jun. 30, 2023	Nov. 14, 2014
Lessee, Lease, Description [Line Items]
Initial term of lease	12 months
SJ Facility
Lessee, Lease, Description [Line Items]
Area (in square feet)		42,000

INVESTMENTS AND FAIR VALUE MEASUREMENTS - DERIVATIVE INSTRUMENT (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Investments, Debt and Equity Securities [Abstract]
Cost	$ 5,471	$ 2,987
Unrealized Gains	752	662
Derivative instruments	6,223	3,649
Total financial liability, cost	5,471	2,987
Unrealized Gains	752	662
Total liabilities at fair value	$ 6,223	$ 3,649