IMMERSION CORP 10-Q

Item 1 . Financial Statements IMMERSION CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) September 30, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 28,701 $ 48,820 Investments - current 121,997 100,918 Accounts and other receivables 2,558 1,235 Prepaid expenses and other current assets 7,589 9,347 Total current assets 160,845 160,320 Property and equipment, net 231 293 Investments - noncurrent 29,855 17,040 Long-term deposits 6,230 4,324 Deferred tax assets 7,217 7,217 Other assets 303 916 Total assets $ 204,681 $ 190,110 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 44 $ 86 Accrued compensation 616 2,029 Deferred revenue - current 4,731 4,766 Other current liabilities 20,424 12,465 Total current liabilities 25,815 19,346 Deferred revenue - noncurrent 9,088 12,629 Other long-term liabilities 345 435 Total liabilities 35,248 32,410 Commitments and contingencies (Note 5 ) Stockholders’ equity: Common stock and additional paid-in capital 322,747 322,714 Accumulated other comprehensive income 1,195 202 Accumulated deficit ( 52,030 ) ( 70,016 ) Treasury stock ( 102,479 ) ( 95,200 ) Total stockholders’ equity 169,433 157,700 Total liabilities and stockholders’ equity $ 204,681 $ 190,110 See accompanying Notes to Condensed Consolidated Financial Statements. 1 Table of Contents IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATION S AND COMPREHENSIVE INCOME (In thousands, except per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Royalty and license $ 9,474 $ 13,931 $ 23,401 $ 29,079 Development, services, and other 8 75 138 218 Total revenues 9,482 14,006 23,539 29,297 Operating expenses: Sales and marketing 367 282 861 990 Research and development 30 254 259 1,118 General and administrative 2,566 2,540 9,528 8,550 Total operating expenses 2,963 3,076 10,648 10,658 Operating income 6,519 10,930 12,891 18,639 Interest and other income (loss), net ( 2,554 ) ( 2,348 ) 10,731 ( 6,413 ) Income before provision for income taxes 3,965 8,582 23,622 12,226 Provision for income taxes ( 1,285 ) ( 877 ) ( 5,636 ) ( 1,264 ) Net income $ 2,680 $ 7,705 $ 17,986 $ 10,962 Basic net income per share $ 0.08 $ 0.23 $ 0.56 $ 0.33 Shares used in calculating basic net income per share 32,523 33,201 32,254 33,601 Diluted net income per share $ 0.08 $ 0.23 $ 0.55 $ 0.32 Shares used in calculating diluted net income per share 32,750 33,682 32,586 34,035 Other comprehensive income, net of tax Deferred gains on available-for-sale marketable debt securities 320 156 776 ( 1,025 ) Realized losses on available-for-sale marketable debt securities reclassified to net income — 188 217 556 Total other comprehensive income 320 344 993 ( 469 ) Total comprehensive income $ 3,000 $ 8,049 $ 18,979 $ 10,493 See accompanying Notes to Condensed Consolidated Financial Statements. 2 Table of Contents IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except number of shares) (Unaudited) Three Months Ended September 30, 2023 Common Stock and Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Treasury Stock Total Stockholders ’ Equity Shares Amount Shares Amount Balances at June 30, 2023 47,519,064 $ 322,870 $ 875 $ ( 54,710 ) 15,260,452 $ ( 98,999 ) $ 170,036 Net income — — — 2,680 — — 2,680 Unrealized gain on available-for-sale securities, net of taxes — — 320 — — — 320 Release of restricted stock units and awards, net of shares withheld 51,875 — — — 21,527 ( 152 ) ( 152 ) Stock option exercises — — — — — — — Shares issued to an employee in lieu of cash compensation 7,326 48 — — — — 48 Stock repurchases — — — — 485,061 ( 3,328 ) ( 3,328 ) Dividends declared — ( 991 ) — — — — ( 991 ) Stock-based compensation — 820 — — — — 820 Balances at September 30, 2023 47,578,265 $ 322,747 $ 1,195 $ ( 52,030 ) 15,767,040 $ ( 102,479 ) $ 169,433 Three Months Ended September 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 June 30, 2022 46,851,509 $ 325,351 $ ( 401 ) $ ( 97,423 ) 13,378,528 $ ( 87,790 ) $ 139,737 Net income — — — 7,705 — — 7,705 Unrealized gains on available-for-sale securities, net of taxes — — 344 — — — 344 Stock repurchases — — — — 954,247 ( 5,304 ) ( 5,304 ) Release of restricted stock units and awards, net of shares withheld 51,875 — — — 13,768 ( 74 ) ( 74 ) Issuance of stock for ESPP purchase 3,691 16 — — — — 16 Stock-based compensation — 730 — — — — 730 Balances at September 30, 2022 46,907,075 $ 326,097 $ ( 57 ) $ ( 89,718 ) 14,346,543 $ ( 93,168 ) $ 143,154 3 Table of Contents IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except number of shares) (Unaudited) Nine Months Ended September 30, 2023 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, 2022 46,974,598 $ 322,714 $ 202 $ ( 70,016 ) 14,727,582 $ ( 95,200 ) $ 157,700 Net income — — — 17,986 — — 17,986 Unrealized gain on available-for-sale securities, net of taxes — — 993 — — — 993 Stock repurchases — — — — 898,757 ( 6,180 ) ( 6,180 ) Release of restricted stock units and awards, net of shares withheld 508,344 — — — 140,701 ( 1,099 ) ( 1,099 ) Proceeds from stock options exercises 21,222 160 — — — — 160 Issuance of stock for ESPP purchase 1,298 6 — — — — 6 Shares issued to an employee in lieu of cash compensation 72,803 538 — — — — 538 Dividends declared — ( 3,197 ) — — — — ( 3,197 ) Stock-based compensation — 2,526 — — — — 2,526 Balances at September 30, 2023 47,578,265 $ 322,747 $ 1,195 $ ( 52,030 ) 15,767,040 $ ( 102,479 ) $ 169,433 Nine Months Ended September 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 — — — 10,962 — — 10,962 Unrealized loss on available-for-sale securities, net of taxes — — ( 469 ) — — — ( 469 ) Stock repurchases — — — — 2,174,793 ( 11,281 ) ( 11,281 ) Issuance of stock for ESPP purchase 11,416 51 — — — — 51 Release of restricted stock units and awards, net of shares withheld 344,944 — — — 28,317 ( 154 ) ( 154 ) 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 — 2,661 — — — — 2,661 Balances at September 30, 2022 46,907,075 $ 326,097 $ ( 57 ) $ ( 89,718 ) 14,346,543 $ ( 93,168 ) $ 143,154 See accompanying Notes to Condensed Consolidated Financial Statements. 4 Table of Contents IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2023 2022 Cash flows provided by (used in) operating activities: Net income $ 17,986 $ 10,962 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Depreciation of property and equipment 56 95 Reduction in carrying value of right of use assets 277 524 Stock-based compensation 2,526 2,661 Net (gains) losses on investment in marketable securities ( 4,330 ) 13,288 Net loss on derivative instruments ( 341 ) ( 3,393 ) Foreign currency remeasurement gains 68 161 Shares issued to an employee in lieu of cash compensation 538 84 Other noncash ( 86 ) ( 29 ) Changes in operating assets and liabilities: Accounts and other receivables ( 1,323 ) ( 1,373 ) Prepaid expenses and other current assets 1,024 5,702 Long-term deposits ( 1,967 ) 1,114 Other assets 337 5,084 Accounts payable ( 44 ) 16 Accrued compensation ( 1,413 ) 715 Other current liabilities 3,080 527 Deferred revenue ( 3,576 ) ( 2,954 ) Other long-term liabilities ( 33 ) ( 950 ) Net cash and cash equivalents provided by operating activities 12,779 32,234 Cash flows provided by (used in) investing activities: Purchases of marketable securities and other investments ( 158,347 ) ( 131,100 ) Proceeds from sale or maturities of marketable securities and other investments 130,602 95,225 Proceeds from sale of derivative instruments 17,888 11,170 Payments for settlement of derivative instruments ( 9,508 ) ( 10,844 ) Purchases of property and equipment ( 1 ) ( 29 ) Net cash and cash equivalents used in investing activities ( 19,366 ) ( 35,578 ) Cash flows provided by (used in) financing activities: Dividend payments to stockholders ( 6,419 ) — Payment for purchases of treasury stock ( 6,180 ) ( 11,281 ) Proceeds from issuance of common stock under employee stock purchase plan 6 51 Proceeds from stock options exercises 160 — Shares withheld to cover payroll taxes ( 1,099 ) ( 154 ) Other financing activities — 5 Net cash and cash equivalents used in financing activities ( 13,532 ) ( 11,379 ) Net decrease in cash and cash equivalents ( 20,119 ) ( 14,723 ) Cash and cash equivalents: Beginning of period 48,820 51,490 End of period $ 28,701 $ 36,767 See accompanying Notes to Condensed Consolidated Financial Statements. 5 Table of Contents IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2023 2022 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 883 $ 662 Supplemental disclosure of non-cash investing, and financing activities: Dividends declared but not yet paid $ 991 $ — Leased assets obtained in exchange for new operating lease liabilities $ — $ 120 6 Table of Contents 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 offer licenses for our patented technology to our 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, 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 nine months ended September 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. 7 Table of Contents Segment Information We develop, license, and support a wide range of 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 nine months ended September 30, 2023 , to have significant impact on our financial positions and results of operations. 2. REVENUE RECOGNITION Disaggregated Revenue The following table presents the disaggregation of our revenue for the three and nine months ended September 30, 2023 , and 2022 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Fixed fee license revenue $ 1,191 $ 7,662 $ 3,594 $ 10,653 Per-unit royalty revenue 8,283 6,269 19,807 18,426 Total royalty and license revenue 9,474 13,931 23,401 29,079 Development, services, and other revenue 8 75 138 218 Total revenues $ 9,482 $ 14,006 $ 23,539 $ 29,297 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 September 30, 2023 , we recorded adjustments of $ 0.5 million to increase royalty revenue. We recorded adjustments of $ 0.2 million to decrease royalty revenue during the three months ended September 30, 2022 . Contract Assets As of September 30, 2023 , we had contract assets of $ 6.3 million included within Prepaid expenses and other current asset s, and $ 0.2 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 . 8 Table of Contents Contract assets decreased by $ 1.7 million from January 1 , 2023 , to September 30 , 2023 , primarily due to actual royalties billed during the nine months ended September 30, 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 Sheet s. As the rights and obligations in a contract are interdependent, contract assets and contract liabilities that arise in the same contract are presented on a net basis. Based on contracts signed and payments received as of September 30, 2023 , we expect to recognize $ 13.8 million in revenue related to Performance Obligation B under our fixed fee license agreements, which are satisfied over time, including $ 8.1 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 $ 3.6 million of deferred revenue during the nine months ended September 30, 2023 . 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. 9 Table of Contents Marketable securities as of September 30, 2023 and December 31, 2022 consisted of the following (in thousands): September 30, 2023 Cost or Amortized Cost Unrealized Gains Unrealized Losses Fair Value Marketable equity securities Mutual funds $ 13,009 $ — $ ( 1,381 ) $ 11,628 Equity securities 69,253 3,087 ( 7,437 ) 64,903 Total marketable equity securities 82,262 3,087 ( 8,818 ) 76,531 Marketable debt securities U.S. treasury securities 58,237 808 ( 87 ) 58,958 Corporate bonds 16,123 273 ( 33 ) 16,363 Total marketable debt securities 74,360 1,081 ( 120 ) 75,321 $ 156,622 $ 4,168 $ ( 8,938 ) $ 151,852 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 September 30, 2023 (in thousands) are as follows: September 30, 2023 Amortized Cost Fair Value Less than 1 year $ 44,691 $ 45,466 1 to 5 years 29,669 29,855 Total $ 74,360 $ 75,321 10 Table of Contents 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 September 30, 2023 and December 31, 2022 (in thousands): September 30, 2023 Cost Unrealized Losses Fair Value Derivative instruments $ 9,306 $ 2,383 $ 11,689 $ 9,306 $ 2,383 $ 11,689 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net unrealized gains (losses) recognized on marketable equity securities $ ( 287 ) $ ( 9,278 ) $ 472 $ ( 14,062 ) Net realized gains (losses) recognized on marketable equity securities ( 2,588 ) ( 555 ) 3,643 218 Net unrealized gains (losses) recognized on derivative instruments ( 1,631 ) 3,907 ( 1,825 ) ( 696 ) Net realized gains recognized on derivative instruments ( 72 ) 2,214 2,165 4,089 Net realized gains recognized on marketable debt securities — 188 217 556 Total net gains (losses) recognized in interest and other income (loss), net $ ( 4,578 ) $ ( 3,524 ) $ 4,672 $ ( 9,895 ) 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 September 30, 2023 , and December 31, 2022 . 11 Table of Contents Financial instruments measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 are classified based on the valuation technique in the table below (in thousands): September 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 $ 58,958 $ — $ — $ 58,958 Mutual funds 11,628 — — 11,628 Equity securities 64,903 — — 64,903 Corporate bonds — 16,363 — 16,363 Total assets at fair value $ 135,489 $ 16,363 $ — $ 151,852 Liabilities Derivative instruments $ — $ 11,689 $ — $ 11,689 Total liabilities at fair value $ — $ 11,689 $ — $ 11,689 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 12 Table of Contents 4. BALANCE SHEETS DETAILS Cash and Cash Equivalents Cash and cash equivalents were as follows (in thousands): September 30, 2023 December 31, 2022 Cash $ 5,818 $ 9,630 Money market funds 22,883 13,586 Certificates of deposit (1) — 25,604 Cash and cash equivalents $ 28,701 $ 48,820 (1) Represents certificates of deposit with initial maturity days of 90 days or less. Investments - Current Investments - current were as follows (in thousands): September 30, 2023 December 31, 2022 Certificates of deposit (2) $ — $ 5,300 Marketable securities 76,531 73,422 U.S. treasury securities 45,466 22,196 Short-term investments $ 121,997 $ 100,918 (2) Represents investments with initial maturity days between 91 days and one year. Accounts and Other Receivables Accounts and other receivables were as follows (in thousands): September 30, 2023 December 31, 2022 Trade accounts receivables, net $ 1,960 $ 1,003 Other receivables 598 232 Accounts and other receivables $ 2,558 $ 1,235 Allowance for credit losses as of September 30, 2023 and December 31, 2022 were not material. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets were as follows (in thousands): September 30, 2023 December 31, 2022 Prepaid expenses $ 1,238 $ 1,576 Contract assets - current 6,303 7,671 Other current assets 48 100 Prepaid expenses and other current assets $ 7,589 $ 9,347 13 Table of Contents Investments - noncurrent Investments- noncurrent were as follows (in thousands): September 30, 2023 December 31, 2022 U.S. treasury securities $ 13,492 $ 3,602 Marketable debt securities 16,363 13,438 Investments- noncurrent $ 29,855 $ 17,040 Other Assets Other assets were as follows (in thousands): September 30, 2023 December 31, 2022 Contract assets - long-term 220 545 Lease right-of-use assets 83 360 Other assets — 11 Total other assets $ 303 $ 916 Other Current Liabilities Other current liabilities were as follows (in thousands): September 30, 2023 December 31, 2022 Derivative instruments $ 11,689 $ 3,649 Lease liabilities - current 88 486 Income taxes payable 6,963 2,700 Dividends payable 991 4,212 Other current liabilities 693 1,418 Total other current liabilities $ 20,424 $ 12,465 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. 14 Table of Contents 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 8, 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 High Court to seek the cancellation of the lower court’s decision. The appellate case is in progress at the Seoul High Court and the first hearing has been scheduled for November 30, 2023. 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. On August 7, 2023, the Assessment Authority submitted its answer against the tax appeal. On September 8, 2023, the Appellant submitted its rebuttal brief in response thereto. As of September 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 third quarter of 2023 in order to present the deposit at its estimated recoverable value. Based on th e 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. 15 Table of Contents 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. On August 2, 2023, Meta filed a mandamus petition asking the Federal Circuit to reverse the district court’s order on Meta’s transfer motion. Immersion responded on August 11, 2023, and Meta filed its reply brief on August 14, 2023. Meta’s petition remains pending. Fact discovery closed on October 6, 2023. In addition, Meta filed inter partes reviews (“IPRs”), IPR 2023 - 00942 ; IPR 2023 - 00943 ; and IPR 2023 - 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 filed its response to IPR 2023 - 00942 and IPR 2023 - 0094 on September 8, 2023, and to IPR 2023 - 00944 on September 12, 2023. Meta filed IPR 2023 - 00945 ; IPR 2023 - 00946 ; and IPR 2023 - 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. The Company filed its response to IPR 2023 - 00945 on September 8, 2023, and our response to IPR 2023 - 00946 and IPR 2023 - 00947 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. 16 Table of Contents The complaints against the Xiaomi-Group assert infringement of the following patents: • EP 2 463 752 B 1 (German part) titled “ Haptisches Feedback-System mit gespeicherten Effekten ” • EP 2 463 752 B 1 (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. 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 has until October 27, 2023 to respond. In the German infringement proceeding, Xiaomi’s statement of defense is due on October 25, 2023. Xiaomi has until December 21, 2023 to reply to Immersion’s writ of summons in the French proceeding. The Court will hear Immersion’s application for a preliminary injunction on January 4, 2024 in the Indian proceeding. 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. Valve re-noted its motion, which changed the Company’s response deadline from August 14, 2023 to August 21, 2023. The Company timely filed its response and Valve filed its reply on August 25, 2023. The motion remains pending, and although the parties have agreed to a case schedule, the Court has not yet entered such case schedule. 17 Table of Contents 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 September 30, 2023 is as follows (in thousands): Common stock shares available for grant 5,028 Stock options outstanding 102 RSUs outstanding 728 RSAs outstanding 75 PSUs outstanding 400 Time-Based Stock Options The following summarizes time-based stock options activities for the nine months ended September 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 ) 7.57 Canceled or expired ( 17 ) 7.57 Outstanding as of September 30, 2023 102 $ 7.57 0.12 $ — Vested and expected to vest at September 30, 2023 102 $ 7.57 0.12 $ — Exercisable at September 30, 2023 102 $ 7.57 0.12 $ — 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. 18 Table of Contents We did not grant stock options in the nine months ended September 30, 2023 . Restricted Stock Units The following summarizes RSU activities for the nine months ended September 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 1.31 $ 6,226 Granted 77 7.60 Released ( 184 ) 5.19 Forfeited ( 52 ) 6.91 Outstanding at September 30, 2023 728 $ 6.12 0.98 $ 4,812 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 nine months ended September 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 September 30, 2023 75 $ 8.31 0.50 Market Condition-Based Performance Stock Units The following summarizes PSU activities for the nine months ended September 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 ( 206 ) 3.70 Forfeited ( 9 ) 6.20 Outstanding at September 30, 2023 400 $ 3.63 0.75 19 Table of Contents 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 nine months ended September 30, 2023 , no 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 nine months ended September 30, 2023 , and 2022 is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Stock options $ 10 $ 53 $ ( 31 ) $ 67 RSUs, RSAs and PSUs 810 678 2,557 2,593 ESPP — ( 1 ) — 1 Total $ 820 $ 730 $ 2,526 $ 2,661 Sales and marketing $ 113 $ 19 $ 110 $ 20 Research and development 1 18 ( 72 ) 96 General and administrative 706 693 2,488 2,545 Total $ 820 $ 730 $ 2,526 $ 2,661 As of September 30, 2023 , there was $ 3.3 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 1.6 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. 7 . STOCKHOLDERS’ EQUITY Stock Repurchase Program On February 23, 2022, our Board of Directors ( the “ Board” ) approved a stock repurchase program of up to $ 30.0 million of our common stock for a period of up to twelve months (the “February 2022 Stock Repurchase Program”). Any stock repurchases were made through open market or privately negotiated transactions, at such times and in such amounts as management deemed appropriate, including pursuant to one or more Rule 10 b 5 - 1 trading plans adopted in accordance with Rule 10 b 5 - 1 of the Securities Exchange Act of 1934 . Additionally, the Board authorized the use of derivative or similar instrument to effect stock repurchase transactions, including without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, naked put options, floor transactions or other similar transactions or any combination of the foregoing transactions. The stock repurchase program was implemented as a method to return value to our stockholders. The timing, pricing and sizes of any repurchases depended on a number of factors, including the market price of our common stock and general market and economic conditions. The stock repurchase program did not obligate us to repurchase any dollar amount or number of shares, and the program could be suspended or discontinued at any time. 20 Table of Contents In the year ended December 31, 2022, we repurchased 1,637,566 shares of our common stock for $ 8.9 million at an average purchase price of $ 5.46 per share. The February 2022 Stock Repurchase Program was terminated on December 29, 2022. On December 29, 2022, the Board approved a stock repurchase program of up to $ 50.0 million of our common stock for a period of up to twelve months (the “December 2022 Stock Repurchase Program”), which terminated and superseded the stock repurchase program that had been approved by the Board on February 23, 2022. Any stock repurchases may be made through open market and privately negotiated transactions, at such times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10 b 5 - 1 trading plans adopted in accordance with Rule 10 b 5 - 1 of the Securities Exchange Act of 1934 , as amended. Additionally, the Board authorized the use of any derivative or similar instrument to effect stock repurchase transactions, including without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, naked put options, floor transactions or other similar transactions or any combination of the foregoing transactions. The stock repurchase program was implemented as a method to return value to our stockholders. The timing, pricing and sizes of any repurchases will depend on a number of factors, including the market price of our common stock and general market and economic conditions. The stock repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time. On August 8, 2023, the Board approved an amendment to extend the expiration date of the December 2022 Stock Repurchase Program that was set to expire on December 29, 2023 to December 29, 2024 . We repurchased 898,757 shares of our common stock for $ 6.2 million at average purchase price of $ 6.8602 per share during the nine months ended September 30, 2023 . As of September 30, 2023, we had $ 43.8 million available for repurchase under the December 2022 Stock Repurchase Program. Dividends Payment On November 14, 2022, our Board declared a quarterly dividend in the amount of $ 0.03 per share, which was paid on January 30, 2023, to stockholders of record on January 15, 2023. In addition, on December 29, 2022, the Board declared a special dividend in the amount of $ 0.10 per share, which was paid on January 30, 2023 to stockholders of record on January 15, 2023. On February 21, 2023, the Board declared a second quarterly dividend, in the amount of $ 0.03 per share, which was paid on April 28, 2023 to stockholders of record on April 13, 2023. On May 10, 2023, the Board declared a third quarterly dividend in the amount of $ 0.03 per share which was paid on July 28, 2023, to shareholders of record on July 13, 2023. On August 11, 2023 , the Board declared a quarterly dividend in the amount of $ 0.03 per share, which was paid on October 27 , 2023 to shareholders of record on October 16 , 2023 . On November 13 , 2023, our Board declared a quarterly dividend in the amount of $ 0.045 per share , will be payable, subject to any prior revocation, on January 25, 2024 to shareholders of record on January 14, 2024. Future dividends will be subject to further review and approval by the Board in accordance with applicable law. The Board reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews our capital allocation strategy from time-to-time. In the first nine months of 2023 , the total dividends paid was $ 6.4 million. 21 Table of Contents 8 . INCOME TAXES Provision for income taxes the three and nine months ended September 30, 2023 and 2022 consisted of the following (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Income before provision for income taxes $ 3,965 $ 8,582 $ 23,622 $ 12,226 Provision for income taxes ( 1,285 ) ( 877 ) ( 5,636 ) ( 1,264 ) Effective tax rate 32.4 % 10.2 % 23.9 % 10.3 % Provision for income taxes for the three and nine months ended September 30, 2023 resulted primarily from estimated domestic and foreign taxes included in the calculation of the effective tax rate. Provision for income taxes for the three months ended September 30, 2022 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate. Provision for income taxes for the nine months ended September 30, 2022 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate. We maintain a partial valuation allowance against our U.S. federal deferred tax assets and maintain a full valuation allowance against our U.S. state and Canadian federal deferred tax assets. The change in the estimated effective tax rate was mainly driven by higher U.S. taxable income which was a result of higher U.S. passive income. As of September 30, 2023 , we had unrecognized tax benefits under Accounting Standards Certification (“ASC”) 740 Income Taxes of approximately $ 7.3 million and applicable interest of $ 0.1 million. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $ 3.5 million. Our policy is to account for interest and penalties related to uncertain tax positions as a component of income tax provision. We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months. As of September 30, 2023 , we had net deferred income tax assets of $ 7.0 million and deferred income tax liabilities of $ 0.1 million. Because we have net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state, and foreign taxing authorities may examine our tax returns for all years from 2005 through the current period. We maintain a valuation allowance against certain of our deferred tax assets, including certain federal, all state, and certain foreign deferred tax assets because of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and uncertainty regarding near term projected results. If we determine the deferred tax assets are realizable based on our assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made. 22 Table of Contents 9. NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of shares of common stock, adjusted for any dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method, includes stock options, stock awards and ESPP. The following is a reconciliation of the denominators used in computing basic and diluted net income (loss) per share (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Denominator: Weighted-average shares outstanding, basic 32,523 33,201 32,254 33,601 Shares related to outstanding options, unvested RSUs, RSAs, and PSUs 227 481 332 434 Weighted average shares outstanding, diluted 32,750 33,682 32,586 34,035 We include PSUs in the calculation of diluted earnings per share if the applicable performance condition has been satisfied as of the end of the reporting period and exclude stock equity awards if the performance condition has not been met. For the three and nine months ended September 30, 2023 and 2022 , we had stock options, RSUs, PSUs and RSAs outstanding that could potentially dilute basic earnings per share in the future, but these were excluded from the computation of diluted net income per share because their effect would have been anti-dilutive. These outstanding securities consisted of the following (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Stock options 110 145 128 197 RSUs, RSAs and PSUs 64 15 20 27 Total 174 160 148 224 10 . LEASES We lease our office space under lease arrangements with expiration dates on or before March 31, 2024. We recognize lease expense on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets . We combine lease and non-lease components for new and reassessed leases. We apply discount rates to operating leases using a portfolio approach. Below is a summary of our right-of-use assets and lease liabilities (in thousands): Balance Sheets Classification September 30, 2023 December 31, 2022 Assets Right-of-use assets Other assets $ 83 $ 360 Liabilities Operating lease liabilities - current Other current liabilities 88 486 Operating lease liabilities - long-term Other long-term liabilities — 56 Total lease liabilities $ 88 $ 542 23 Table of Contents The table below provides supplemental information related to operating leases during the nine months ended September 30, 2023 and 2022 (in thousands except for lease term): Nine Months Ended September 30, 2023 2022 Cash paid within operating cash flow $ 105 $ 982 Weighted average lease terms (in years) 0.45 0.88 Weighted average discount rates N/A 3.93 % On June 6, 2022, we entered into a sublease agreement with Innovobot Fund LLP for our facility located in Montreal Canada (the “ Montreal Facility ” ). This sublease commenced on June 8, 2022, and ends on February 27, 2024 which approximates the lease termination date of the original Montreal Facility lease. On November 12, 2014, we entered into an amendment to the lease of approximately 42,000 square feet office space in San Jose, California facilities (the “SJ Facility” ). The lease commenced in May 2015 and expired as of April 2023. We vacated the SJ Facility in the first quarter of 2020 . On March 12, 2020, we entered into a sublease agreement with Neato Robotics, Inc. (“Neato”) for the SJ Facility. This sublease commenced in June 2020 and ended on April 30, 2023, which is the lease termination date of the San Jose Facility. Both SJ Facility lease and related sublease expired in April 2023. In accordance with provisions of ASC 842 , we treated each sublease as a separate lease as we were not relieved of the primary obligation under each original lease. We continue to account for each original lease as a lessee, in the same manner as prior to the commencement date of the sublease. We accounted for each sublease as a lessor of such lease. We classified each sublease as an operating lease as it did not meet the criteria of a Sale-Type or Direct Financing lease. We recognize operating lease expense and lease payments from the sublease, on a straight-line basis, in our Condensed Consolidated Statements of Income and Comprehensive Income over the lease terms. During the three and nine months ended September 30, 2023 and 2022 , our net operating lease expenses were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating lease cost $ 97 $ 138 $ 314 $ 343 Variable lease payments 1 98 170 329 Sublease income ( 49 ) ( 306 ) ( 489 ) ( 837 ) Total lease cost $ 49 $ ( 70 ) $ ( 5 ) $ ( 165 ) Minimum future lease payments obligations as of September 30, 2023 were as follows (in thousands): For the Years Ending December 31, 2023 $ 50 2024 39 Total lease payments 89 Less: Interest ( 1 ) Total lease liability $ 88 Future cash receipts from our sublease agreements as of September 30, 2023 were as follows (in thousands): For the Years Ending December 31, 2023 50 2024 33 Total $ 83 24 Table of Contents 11. Subsequent Event On November 10, 2023 , we filed an additional complaint against Meta in the United States District Court for the Western District of Texas, alleging that Meta’s AR/VR systems, including the Meta Quest 3, infringe five 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. 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” 25 Table of Contents