What changed in this filing

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Item 1. Financial Statements

2020-08-07 compared with 2020-05-08 · 202 added, 135 removed, 402 unchanged (46% of the section changed)

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Property and equipment, net

Long-term deposits

LIABILITIES AND STOCKHOLDERS’ EQUITY

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

Three months ended March 31,

Three Months Ended

Six Months Ended

Royalty and license

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Operating loss

Interest and other income (loss)

Loss before provision for income taxes

Provision for income taxes

Interest and other income

Loss before benefit from (provision for) income taxes

Benefit from (provision for) income taxes

Basic net loss per share

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Shares used in calculating diluted net loss per share

Other comprehensive income

Other comprehensive income (loss)

Change in unrealized gains (loss) on short-term investments

Total other comprehensive income (loss)

Total comprehensive income (loss)

Total comprehensive loss

See accompanying Notes to Condensed Consolidated Financial Statements.

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(In thousands, except number of shares)

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Common Stock and

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Stockholders’

Balances at March 31, 2020

Stock repurchases

Release of restricted stock units and awards

Stock-based compensation

Balances at June 30, 2020

Three Months Ended June 30, 2019

Common Stock and

Additional Paid-In Capital

Comprehensive

Treasury Stock

Stockholders’

Balances at March 31, 2019

Unrealized gain on available-for-sale securities, net of taxes

Exercise of stock options, net of shares withheld for employee taxes

Release of restricted stock units and awards

Stock-based compensation

Balances at June 30, 2019

See accompanying Notes to Condensed Consolidated Financial Statements.

IMMERSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except number of shares)

Six Months Ended June 30, 2020

Common Stock and

Additional Paid-In Capital

Comprehensive

Treasury Stock

Stockholders’

Balances at December 31, 2019

Unrealized loss on available-for-sale securities, net of taxes

Repurchase of stock

Stock repurchases

Issuance of stock for ESPP purchase

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Stock-based compensation

Balances at March 31, 2020

Three Months Ended March 31, 2019

Balances at June 30, 2020

Six Months Ended June 30, 2019

Common Stock and

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Unrealized gain on available-for-sale securities, net of taxes

Issuance of common stock for employee stock purchase

Issuance of stock for ESPP purchase

Exercise of stock options, net of shares withheld for employee taxes

1 unchanged sentence

Stock-based compensation

Balances at March 31, 2019

See accompanying Notes to Condensed Consolidated Financial Statements.

Balances at June 30, 2019

IMMERSION CORPORATION

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(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows provided by (used in) operating activities:

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Stock-based compensation

Foreign currency translation loss

Changes in operating assets and liabilities:

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Prepaid expenses and other current assets

Long-term deposit

Accounts payable

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Purchases of property and equipment

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Cash flows provided by (used in) financing activities:

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Supplemental disclosure of cash flow information:

Leased assets obtained in exchange for new operating lease liabilities

Cash paid for income taxes

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Release of restricted stock units and awards under company stock plan

Leased assets obtained in exchange for new operating lease liabilities

See accompanying Notes to Condensed Consolidated Financial Statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

June 30, 2020

SIGNIFICANT ACCOUNTING POLICIES

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Impact of COVID-19

In March 2020, the World Health Organization declared Coronavirus Disease 2019 (“COVID-19”) to be a global pandemic and the President of the United States declared the COVID-19 outbreak a national emergency.

The outbreak has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, which has resulted in a significant deterioration of economic conditions in many of the countries in which we operate.

The spread of the COVID-19 virus has also caused us to modify our business practices (including implementing work-from-home policies and restricting travel by our employees) in ways that may be detrimental to our business.

These practices may impact our ability to deploy our workforce effectively.

These same developments may affect the operations of our suppliers and customers, as their own workforces and operations are disrupted by efforts to curtail the spread of this virus.

While expected to be temporary, these disruptions may negatively impact our revenue, results of operations, financial condition, and liquidity in 2020.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the U.S.

and the world and has resulted in authorities implementing numerous measures to combat the spread of the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns.

The COVID-19 outbreak and related public health measures, including orders to shelter-in-place, travel restrictions and mandated business closures, have adversely affected workforces, organizations, consumers, economies, and financial markets globally, leading to an economic downturn and increased market volatility.

Our compliance with these containment measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our customers and suppliers for an extended period of time.

To support the health and well-being of our employees, customers and communities, we implemented work-from-home and restricted travel policies in the first quarter of 2020, which are expected to remain in place until the end of September 2020.

In addition, many of our customers are working remotely, which may delay the timing of some orders due to their and our compliance with frequently changing government-mandated or recommended shelter-in-place orders in jurisdictions in which we, our customers and our suppliers operate.

We reported lower estimated royalties revenue in the second quarter of 2020 following the anticipated volume reductions due to delay in shipments as well as decline in general business environment due to the impact of COVID-19.

In response to certain anticipated impacts from the COVID-19 pandemic, we have also implemented a series of cost reduction initiatives to further preserve financial flexibility.

These actions include:

reductions of the base salaries and cash compensation of company executives and board members;

cancellation and reduction in current year's executive and employee bonus plans;

renegotiated professional services fees from third-party services providers;

relocation of certain positions to lower-cost regions;

temporarily suspended company matching of our employee retirement savings plan and taking advantage of the broad-based employer relief provided by the governments.

In April 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) for Canadian employers whose businesses were affected by the COVID-19 pandemic.

The CEWS provides a subsidy of up to 75% of eligible employees’ employment insurable remuneration, subject to certain criteria.

We applied for the CEWS to the extent we met the requirements to receive the subsidy.

During the three months ended June 30, 2020, we recorded $ 0.2 million in government subsidies as a reduction to operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Principles of Consolidation and Basis of Presentation

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GAAP") for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X.

Accordingly, these condensed consolidated financial statements do not include all information and footnotes necessary for a complete presentation of the financial position, results of operations, and cash flows, in conformity with U.S.

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, 2019 .

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.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

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Actual results may differ materially from those estimates which were made based on the best information known to management at that time.

The business and economic uncertainty resulting from the COVID-19 pandemic has made such estimates and assumptions more difficult to calculate.

Accordingly, actual results and outcomes may differ from those estimates.

Segment Information

We develop, license, and support a wide range of software and IP that more fully engage users’ sense of touch when operating digital devices.

We develop, license, and support a wide range of software and IP that more fully engage users’ senses of touch when operating digital devices.

We focus on the following target application areas:

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Simplifying the Accounting for Income Taxes (ASU 2019-12), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

The amendment will be effective for public companies with fiscal years beginning after December 15, 2020;

The amendment is effective for public companies with fiscal years beginning after December 15, 2020;

early adoption is permitted.

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Fixed fee license revenue

We are required to 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.

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.

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

If a fixed fee license agreement contains only Performance Obligation A, we will recognize most or all of the revenue from the agreement at the inception of the contract.

For fixed fee license agreements that contain both Performance Obligation A and B, we will allocate the transaction price based on the standalone price for each of the two performance obligations.

If a fixed fee license agreement contains only Performance Obligation A, we recognize most or all of the revenue from the agreement at the inception of the contract.

For fixed fee license agreements that contain both Performance Obligation A and B, we allocate the transaction price based on the standalone price for each of the two performance obligations.

We use a number of factors primarily related to the attributes of our patent portfolio to estimate standalone prices related to Performance Obligation A and B.

Once the transaction price is allocated, the portion of the transaction price allocable to Performance Obligation A will be recognized in the quarter the license agreement is signed and the customer can benefit from rights provided in the contract, and the portion allocable to Performance Obligation B will be recognized on a straight-line basis over the contract term.

For such contracts, a contract liability account will be established and included within "deferred revenue" on

the condensed consolidated balance sheet.

Once the transaction price is allocated, the portion of the transaction price allocable to Performance Obligation A is recognized in the period the license agreement is signed and the customer can benefit from rights provided in the contract.

The portion allocable to Performance Obligation B is recognized on a straight-line basis over the contract term.

For such contracts, a contract liability account is established and included within Deferred revenue on the Condensed Consolidated Balance Sheets.

As the rights and obligations in a contract are interdependent, contract assets and contract liabilities that arise in the same contract are presented on a net basis.

Some of our license agreements contain fixed fees related to past infringements.

Such fixed fees are recognized as revenue or recorded as a deduction to our operating expense in the quarter the license agreement is signed.

Such fixed fees are recognized as revenue or recorded as a deduction to our operating expense in the period the license agreement is signed.

Payments for fixed fee license contracts typically are due in full within 30 - 45 days from execution of the contract.

From time to time, we enter into a fixed fee license contract with payments due in a number of installments payable throughout the contract term.

In such cases, we will determine if a significant financing component exists and if it does, we will recognize more or less revenue and corresponding interest expense or income, as appropriate.

In such cases, we will determine if a significant financing component exists and if it does, we will recognize revenue and corresponding interest expense or income, as appropriate.

Per-unit Royalty revenue

ASC 606 requires an entity to record per-unit royalty revenue in the same period in which the licensee’s underlying sales occur.

We record per-unit royalty revenue in the same period in which the licensee’s underlying sales occur.

As we generally do not receive the per-unit licensee royalty reports for sales during a given quarter within the time frame that allows us to adequately review the reports and include the actual amounts in our quarterly results for such quarter, we accrue the related revenue based on estimates of our licensees’ underlying sales, subject to certain constraints on our ability to estimate such amounts.

We develop such estimates based on a combination of available data including, but not limited to, approved customer forecasts, a lookback 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.

During the three months ended March 31, 2020, we recorded a $ 0.1 million adjustment to decrease royalty revenue.

This adjustment represents the difference between the actual per-unit royalty revenue for the three months ended December 31, 2019 as reported by our licensees during the three months ended March 31, 2020 and the estimated per-unit royalty revenue for the three months ended December 31, 2019 that we reported during the quarter.

As a result of accruing per-unit royalty revenue for the quarter based on such estimates, we make adjustments in the following quarter to true-up revenue to the actual amounts reported by our licensees.

During the three months ended June 30, 2020 , we recorded a $ 20,000 adjustment to decrease per-unit royalty revenue.

This adjustment represents the difference between the actual per-unit royalty revenue for the three months ended March 31, 2020 as reported by our licensees during the three months ended June 30, 2020 and the estimated per-unit royalty revenue for the three months ended March 31, 2020 that we reported during the quarter.

Certain of our per-unit royalty agreements contains a minimum royalty provision which sets forth minimum amounts to be received by us during the contract term.

Under ASC 606, minimum royalties are considered a fixed transaction price to which we will have an unconditional right once all other performance obligations, if any, are satisfied.

Under Accounting Standard Codification 606, Revenue from Contracts with Customers , (“ASC 606”), minimum royalties are considered a fixed transaction price to which we have an unconditional right

once all other performance obligations, if any, are satisfied.

We recognize all minimum royalties as revenue at the inception of the license agreement, or in the period in which all remaining revenue recognition criteria have been met.

We account for the unbilled minimum royalties as contract assets on a contract basis on our Condensed Consolidated Balance Sheets, and the balance of such contract assets will be reduced by the actual royalties to be reported by the licensee during the contract term until fully utilized, after which point any excess per-unit royalties reported will be recognized as revenue.

We account for the unbilled minimum royalties as contract assets on our Condensed Consolidated Balance Sheets, and the balance of such contract assets will be reduced by the actual royalties to be reported by the licensee during the contract term until fully utilized, after which point any excess per-unit royalties reported are recognized as revenue.

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.

Payments of per-unit royalties typically are due within 30 to 60 days from the end of the calendar quarter in which the underlying sales took place.

Payments of per-unit royalties typically are due within 30 to 60 days from the end of the quarter in which the underlying sales took place.

Development, services, and other revenue

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Disaggregated Revenue

The following table presents the disaggregation of our revenue for the three months ended March 31, 2019 and 2020 (in thousands).

Three Months Ended March 31,

The following table presents the disaggregation of our revenue for the three and six months ended June 30, 2020 and 2019 (in thousands).

Three Months Ended

Six Months Ended

Fixed fee license revenue

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Development, services, and other revenue

Total revenues

As of March 31, 2020 , we had contract assets of $ 8.3 million included within prepaid expenses and other current assets, and $ 6.4 million included within other non-current assets on the Condensed Consolidated Balance Sheets.

As of December 31, 2019, we had contract assets of $ 13.1 million included within prepaid expenses and other current assets, and $ 6.9 million included within other non-current assets, net, on the Consolidated Balance Sheets.

Contract assets decreased by $ 5.4 million from December 31, 2019 to March 31, 2020, primarily due to actual royalties billed during the three months ended March 31, 2020 that reduced the minimum royalties recorded in contract assets.

Contracted Revenue

Based on contracts signed and payments received as of March 31, 2020 , we expect to recognize $ 29.3 million in revenue related to Performance Obligation B under our fixed fee license agreements, which is satisfied over time, including $ 13.9 million over one to three years and $ 15.4 million over more than three years.

Total revenue

As of June 30, 2020 , we had contract assets of $ 7.8 million included within Prepaid expenses and other current assets , and $ 6.0 million included within Other assets on the Condensed Consolidated Balance Sheets.

As of December 31, 2019 , we had contract assets of $ 13.1 million included within Prepaid expenses and other current assets , and $ 6.9 million included within Other assets , on the Condensed Consolidated Balance Sheets.

Contract assets decreased by $ 6.2 million from December 31, 2019 to June 30, 2020 , primarily due to actual royalties billed during the six months ended June 30, 2020 that reduced the minimum royalties recorded in contract assets.

Contract Revenue

Based on contracts signed and payments received as of June 30, 2020 , we expect to recognize $ 28.1 million in revenue related to Performance Obligation B under our fixed fee license agreements, which is satisfied over time, including $ 13.8 million over one to three years and $ 14.3 million over more than three years.

Revenue related to Performance Obligation B was $ 30.6 million as of December 31, 2019 .

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Instruments valued based on unobservable inputs which reflect the reporting entity’s own assumptions or data that market participants would use in valuing an instrument are generally classified within Level 3 of the fair value hierarchy.

As of March 31, 2020 and December 31, 2019 , we did not hold any Level 3 instruments.

Financial instruments measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 are classified based on the valuation technique in the table below (in thousands):

March 31, 2020

As of June 30, 2020 and December 31, 2019 , we did not hold any Level 3 instruments.

Financial instruments measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 are classified based on the valuation technique in the table below (in thousands):

June 30, 2020

Fair Value Measurements Using

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(2) The above table excludes $ 23.1 million of cash held in banks.

The contractual maturities of our available-for-sale securities on March 31, 2020 and December 31, 2019 were all due within one year .

There were no transfers of instruments between Level 1 and 2 during the three months ended March 31, 2020 and the year ended December 31, 2019 .

The contractual maturities of our available-for-sale securities on June 30, 2020 and December 31, 2019 were all due within one year .

There were no transfers of instruments between Level 1 and 2 during the three and six months ended June 30, 2020 and the year ended December 31, 2019 .

Money market accounts are classified as cash equivalents and U.S.

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Treasury securities

We had no short-term investments as of March 31, 2020.

We had no short-term investments as of June 30, 2020 .

BALANCE SHEETS DETAILS

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Cash and cash equivalents

Accounts and Other Receivable

Accounts and other receivables consisted of the following (in thousands):

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Accounts and other receivables

There was no allowance for credit losses as of March 31, 2020 and December 31, 2019 .

Allowance for credit losses as of June 30, 2020 and December 31, 2019 were not material.

Prepaid Expenses and Other Current Assets

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

Prepaid expenses

Contract assets - current

Other current assets

Prepaid expenses and other current assets

Other assets consisted of the following (in thousands):

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Deferred tax assets

Other assets and deposits

Total other assets

Other Current Liabilities

Other liabilities are as follows (in thousands):

Other current liabilities are as follows (in thousands):

Accrued legal

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Our equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for employees, consultants, officers, and directors and to align stockholder and employee interests.

We may grant time-based options, market condition-based options, stock appreciation rights, restricted stock ("RSAs"), restricted stock units (“RSUs”), performance shares, performance units, and other stock-based to employees, officers, directors, and consultants.

We may grant time-based options, market condition-based options, stock appreciation rights, restricted stock ("RSAs"), restricted stock units (“RSUs”), performance shares, performance units, and other stock-based equity awards to employees, officers, directors, and consultants.

Under this program, stock options may be granted at prices not less than the fair market value on the date of grant for stock options.

These stock options generally vest over four years and expire from seven to ten years from the grant date.

In addition to time-based vesting, market condition-based options are subject to a market condition whereby the closing price of our common stock must exceed a certain level for a number of trading days within a specified time frame or the options will be canceled before the expiration of the options.

Stock options generally vest over four years and expire seven years from the grant date.

Market condition-based options are subject to a market condition whereby the closing price of our common stock must exceed a certain level for a number of trading days within a specified time frame or the options will be canceled before the expiration of the options.

RSAs generally vest over one year .

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Time-Based Stock Options

The following summarizes activities for the time-based stock options for the three months ended March 31, 2020 (in thousands except for weighted average exercise price per share and weighted average remaining contractual life data):

The following summarizes activities for the time-based stock options for the six months ended June 30, 2020 (in thousands except for weighted average exercise price per share and weighted average remaining contractual life data):

Number of Shares

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Canceled or expired

Outstanding as of March 31, 2020

Vested and expected to vest at March 31, 2020

Exercisable at March 31, 2020

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.

Outstanding as of June 30, 2020

Vested and expected to vest at June 30, 2020

Exercisable at June 30, 2020

Aggregate intrinsic value is the difference between the closing price on the last trading day in June 30, 2020 and the exercise price, multiplied by the number of in-the-money stock options.

Restricted Stock Units

The following summarizes RSU activities for the three months ended March 31, 2020 (in thousands except for weighted average grant date fair value and weighted average remaining contractual life data):

The following summarizes RSU activities for the six months ended June 30, 2020 (in thousands except for weighted average grant date fair value and weighted average remaining contractual life data):

Number of Restricted Stock Units

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Outstanding at December 31, 2019

Outstanding at March 31, 2020

Outstanding at June 30, 2020

Restricted Stock Awards

The following summarizes RSA activities for the three months ended March 31, 2020 (in thousands except for weighted average grant date fair value and weighted average remaining recognition period):

The following summarizes RSA activities for the six months ended June 30, 2020 (in thousands except for weighted average grant date fair value and weighted average remaining recognition period):

Number of Restricted Stock Awards

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Outstanding at December 31, 2019

Outstanding at March 31, 2020

Outstanding at June 30, 2020

Employee Stock Purchase Plan

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A total of 1.0 million shares of common stock has been reserved for issuance under the ESPP.

During the three months ended March 31, 2020 , 10,162 shares were purchased under the ESPP.

As of March 31, 2020 , 243,275 shares were available for future purchase under the ESPP.

During the six months ended June 30, 2020 , 10,162 shares were purchased under the ESPP.

As of June 30, 2020 , 243,275 shares were available for future purchase under the ESPP.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expenses recognized for the three months ended March 31, 2020 and 2019 (in thousands):

The following table summarizes stock-based compensation expenses recognized for the three and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended

Six Months Ended

Stock options

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Three Months Ended

Six Months Ended

Expected life (in years)

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Dividend yield

As of March 31, 2020 , there were $ 9.6 million of unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested stock options, RSAs and RSUs.

(1) There were no stock option grants in the three month ended June 30, 2020.

As of June 30, 2020 , there were $ 9.0 million of unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested stock options, RSAs and RSUs.

This unrecognized compensation cost will be recognized over an estimated weighted-average period of approximately 2.31 years.

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STOCKHOLDERS’ EQUITY

Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income for the three ended March 31, 2020 are as follows (in thousands):

Unrealized Gains & Losses on Available for Sale Securities

Foreign Currency Items

Balance as of December 31, 2019

Amounts reclassified from accumulated other comprehensive income

Balance as of March 31, 2020

Stock Repurchase Program

On November 1, 2007, we announced our Board of Directors (the "Board") authorized the repurchase of up to $ 50.0 million of our common stock (the “Stock Repurchase Program”).

On November 1, 2007, our Board of Directors (the "Board") authorized the repurchase of up to $ 50.0 million of our common stock (the “Stock Repurchase Program”).

In addition, on October 22, 2014, the Board authorized another $ 30.0 million under the Stock Repurchase Program.

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The stock repurchase authorization has no expiration date, does not require us to repurchase a specific number of shares, and may be modified, suspended, or discontinued at any time.

During the first quarter of 2020, we repurchased approximately 2.0 million shares for approximately $ 12.0 million at an average cost of $ 5.95 per share leaving approximately $ 18.7 million available for repurchase under the Stock Repurchase Program.

There were no stock repurchases during the three months ended March 31, 2019 .

During the three months ended June 30, 2020 , we repurchased 2.9 million shares for $ 18.7 million at an average cost of $ 6.39 per share.

During the six months ended June 30, 2020 .

we repurchased approximately 4.9 million for $ 30.6 million at an average cost of $ 6.21 per share.

As of June 30, 2020, we have no amount available for repurchase under the Stock Repurchase Program.

There were no stock repurchases during the three and six months ended June 30, 2019 .

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

Three Months Ended

Loss before provision for income taxes

Provision for income taxes

Six Months Ended

Loss before benefit from (provision for) income taxes

Benefit from (provision for) income taxes

Effective tax rate

The provision for income tax for the three months ended March 31, 2020 and 2019, respectively, resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

We continue to carry a full valuation allowance on our federal deferred tax assets.

The provision for income tax for the three and six months ended June 30, 2020 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

The benefit from income taxes for the three months ended June 30, 2019 and provision for income taxes for the six months ended June 30, 2019 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

For the three and six months ended June 30, 2019, we used a year-to-date approach to calculate the effective tax rate.

We continue to carry a full valuation allowance on its federal deferred tax assets.

As a result, no benefit for losses generated from our U.S.

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The regulations at issue require related entities to share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as “qualified cost-sharing arrangements” and to avoid potential IRS adjustment.

On June 7, 2019, the reconstituted panel of the Ninth Circuit upheld the 2018 decision of the Ninth Circuit, concluding stock-based

compensation must be included in intercompany cost sharing agreements for the agreements to be classified as “qualified cost-sharing arrangements”.

On June 7, 2019, the reconstituted panel of the Ninth Circuit upheld the 2018 decision of the Ninth Circuit, concluding stock-based compensation must be included in intercompany cost sharing agreements for the agreements to be classified as “qualified cost-sharing arrangements”.

On July 22, 2019, Altera filed a petition for an en banc rehearing with the Ninth Circuit which was denied.

On February 10, 2020, Altera filed an appeal to the United States Supreme Court (the “Supreme Court”) for review.

Although we believe stock-based compensation is not required to be included in its pool of shared costs under its intercompany cost sharing arrangement, we have concluded that it is not more likely than not that Altera will prevail with an appeal to the Supreme Court.

As such, we have made corresponding provisions.

We will continue to monitor ongoing developments and potential impacts to our condensed consolidated financial statements.

On June 22, 2020, the Supreme Court refused to hear the Altera case, leaving intact the Ninth Circuit ruling.

We had concluded that it was not more-likely-than-not that Altera would prevail with an appeal to the Supreme Court and had made corresponding provisions in previous periods.

Accordingly, there was no impact to our condensed consolidated financial statements for the three months ended June 30, 2020 arising from the Supreme Court’s refusal to hear the Altera case.

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was passed into law.

Among other changes, the Tax Act reduced the US federal corporate income tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings.

In addition, the Act introduced the Base Erosion and Anti-Abuse Tax (the “BEAT”), which creates a new tax on certain related-party payments.

We concluded that we have not met the threshold requirements of the BEAT.

Although the measurement period has closed, further technical guidance related to the Tax Act, including final regulations on a broad range of topics, is expected to be issued.

We concluded that it has not met the threshold requirements of the BEAT.

On July 9, 2020, the Internal Revenue Service issued final regulations regarding deductions for global intangible low-taxed income (“GILTI”) and foreign-derived intangible income (“FDII”).

On July 9, 2020, the Treasury Department released final regulations (TD 9901) under IRC Section 250, which allows an annual deduction to a domestic corporation for its foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI) inclusion.

The final guidance is not expected to have a material impact on our consolidated financial statements.

Although the measurement period has closed, further technical guidance related to the Tax Act, including final regulations on a broad range of other topics, is expected to be issued.

In accordance with ASC 740, we will recognize any effects of the guidance in the period that such guidance is issued.

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We analyzed the provisions of the CARES Act and determined there was no effect on our provision for the current period.

As of March 31, 2020 , we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $ 4.8 million and applicable interest of $ 27,000 .

As of June 30, 2020 , we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $ 4.8 million and applicable interest of $ 29,000 .

The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $ 97,000 .

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We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months.

As of March 31, 2020 , we had net deferred income tax assets of $ 0.5 million and deferred income tax liabilities of $ 0.5 million .

As of June 30, 2020 , we had net deferred income tax assets of $ 0.5 million and deferred income tax liabilities of $ 0.5 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 2000 through the current period.

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In the event that 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.

The valuation allowance does not impact our ability to utilize the underlying net operating loss carryforwards.

NET INCOME (LOSS) PER SHARE

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Three Months Ended

Six Months Ended

Weighted-average common stock outstanding, basic

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Diluted net loss per share

For the three months ended March 31, 2020 , approximately 1.4 million stock options and 1.3 million RSUs and RSAs were excluded from computation of diluted net loss per share because their effect would have been anti-dilutive.

For the three months ended March 31, 2019 , approximately 2.3 million stock options and 0.9 million RSUs and RSAs were excluded from computation of diluted net loss per share because their effect would have been anti-dilutive.

We lease all of our office space pursuant to lease arrangements, each of which have expiration dates on or before February 29, 2024.

As of June 30, 2020 , approximately 1.4 million stock options and 1.3 million RSUs and RSAs were excluded from computation of diluted net loss per share because their effect would have been anti-dilutive.

As of June 30, 2019 , approximately 2.0 million stock options and 0.8 million RSUs and RSAs were excluded from computation of diluted net loss per share because their effect would have been anti-dilutive.

We lease all of our office space pursuant to operating lease and sublease arrangements, which expire at various dates through February 29, 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 balance sheet.

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.

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On January 31, 2020, we entered into an agreement to lease approximately 5,000 square feet of office space in San Francisco, California.

This facility will be used for administrative and headquarter functions.

This facility is used for administrative and headquarter functions.

The lease commenced in the first quarter of 2020 and expires in 2022.

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We also recognized lease right-of-use assets ("ROU") of $ 0.6 million which represents our right to use an underlying asset for the lease term.

Below is a summary of our ROU assets and lease liabilities as of March 31, 2020 and December 31, 2019, respectively (in thousands):

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Below is a summary of our ROU assets and lease liabilities as of June 30, 2020 and December 31, 2019 , respectively (in thousands):

Balance Sheets Classification

March 31, 2020

June 30, 2020

December 31, 2019

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Total lease liabilities

The table below provides supplemental information related to operating leases during the three months ended as of March 31, 2020 (in thousands except for lease term):

Cash paid within operating cash flow

Weighted average lease terms (in years)

In the fourth quarter 2019, we announced our decision to exit the San Jose California facility (“SJ Facility”) by March 31, 2020.

During 2019, we began to shift general and administrative, research and development and executive functions and employees from our San Jose, California facility (“SJ Facility”) to our San Francisco, California and Montreal, Canada offices.

In the fourth quarter of 2019, we announced our decision to exit the SJ Facility by March 31, 2020.

We accelerated the amortization of our SJ Facility leasehold improvements over their remaining estimated life.

As of March 31, 2020, the SJ Facility leasehold improvements were fully amortized.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Operating lease expenses are recognized on a straight-line basis over the lease term.

During the three months ended March 31, 2020 , and 2019, our operating lease expenses are as follows:

Three Months Ended March 31,

Operating lease costs

Minimum future lease payment obligations as of March 31, 2020 are as follows (in thousands):

For the Years Ending December 31,

Remainder of 2020

On March 12, 2020, we entered into a sublease agreement with Neato Robotics, Inc.

("Neato") for the San Jose California Facility ("SJ Facility").

The term of the sublease agreement commences upon the later of (i) May 1, 2020 and (ii) fifteen ( 15 ) days following our landlord’s consent to the sublease (the "Commencement Date").

Effective May 1, 2020, we entered into an amendment to the sublease agreement with Neato, pursuant to which the Commencement Date occurs upon the earlier of (i) the date Neato commences conduct of business operations from the SJ Facility or (ii) the date that is fifteen ( 15 ) days after delivery of the SJ Facility to Neato and the lifting of the Order of the Health Officer of the County of Santa Clara, dated March 16, 2020, and Executive Order N-33-20 issued by the Executive Department, State of California, dated March 19, 2020, and any extensions thereof, or similar directives requiring residents to shelter in place or businesses that include businesses of ours or Neato, to shut down or work remotely, issued by applicable municipal, state, and federal authorities having jurisdiction over the SJ Facility in connection with the management of the COVID-19 pandemic.

However, if we do not deliver the premises to Neato by the Commencement Date, then the sublease would commence 15 days after we deliver the premises to Neato.

Subject to any delays related to the COVID-19 pandemic, this sublease is expected to commence in the second quarter of 2020 and ends on April 30, 2023 which is the lease termination date of the original SJ Facility lease.

This lease will be accounted for as an operating lease as we are not relieved of the primary obligation under the original lease.

Sublease income we expect to receive under the term of the sublease agreement are as follows (in thousands):

This sublease commenced in June 2020 and ends on April 30, 2023 which is the lease termination date of the original SJ Facility lease.

In accordance with provisions of ASC 842 Leases ("ASC 842"), we treated the sublease as a separate lease as we were not relieved of the primary obligation under the original lease.

We continue to account for the original SJ Facility, as a lessee, in the same manner as prior to the commencement date of the sublease.

We accounted for the sublease as a lessor of the lease.

We classified the sublease as an operating lease as it did not meet the criteria of a Sale-Type or Direct Financing lease.

At the commencement date of the sublease, we recognized initial direct costs of $ 0.3 million .

These deferred costs will be amortized over the terms of the sublease payments.

As of June 30, 2020 , $ 0.1 million was reported in Prepaid expenses and other current assets and $ 0.2 million was reported in Other assets on our Condensed Consolidated Balance Sheets.

We recognize operating lease expense and lease payments from the sublease, on a straight-line basis, in our Condensed Consolidated Statements of Operations and Comprehensive Loss over the lease terms.

During the three and six months ended June 30, 2020 , and 2019, our net operating lease expenses are as follows (in thousands):

Three Months Ended

Six Months Ended

Operating lease cost

Sublease income

Total lease cost

The table below provides supplemental information related to operating leases for the six months ended June 30, 2020 (in thousands except for lease term):

Cash paid within operating cash flow

Weighted average lease terms (in years)

Weighted average discount rate

Minimum future lease payment obligations for our operating leases as of June 30, 2020 are as follows (in thousands):

For the Years Ending December 31,

Remainder of 2020

Future lease payments as of June 30, 2020 from our sublease agreement are as follows (in thousands):

For the Years Ending December 31,

Remainder of 2020

CONTINGENCIES

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A fifth hearing occurred on April 2, 2020.

A sixth hearing is scheduled for May 14, 2020.

A sixth hearing occurred on May 14, 2020.

A seventh hearing occurred on June 4, 2020.

On July 16, 2020, the Korea Administrative Court issued its ruling in which it ruled that the withholding taxes and penalties which were imposed by the Korean tax authorities on Samsung should be canceled with some litigation costs to be borne by the Korean tax authorities.

On August 3, 2020, the Korean tax authorities filed a petition of appeal with the Korea High Court indicating the Korean tax authorities’ intent to appeal the decision of the Korea Administrative Court.

On September 29, 2017, Samsung filed an arbitration demand with the International Chamber of Commerce against Immersion demanding that we reimburse Samsung for the imposed tax and penalties that Samsung paid to the Korean tax authorities.

On March 27, 2019, we received the final award.

The award ordered Immersion to pay Samsung KRW 7,841,324,165 ( $ 6.9 million ) which Immersion paid on April 22, 2019, and recorded in Other Assets.

The award ordered Immersion to pay Samsung KRW 7,841,324,165 ( $ 6.9 million ) which Immersion paid on April 22, 2019, and recorded in Long-term deposits on our Condensed Consolidated Balance Sheets.

The award also denied Samsung’s claim for interest from and after May 2, 2017, and ordered Immersion to pay Samsung’s cost of the arbitration in the amount of approximately $ 871,454 .

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We expect to be reimbursed by Samsung to the extent we ultimately prevail in the appeal in the Korea courts.

At March 31, 2019, $ 6.9 million was recorded as a deposit included in Other assets on our Condensed Consolidated Balance Sheets.

In the event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Other assets would be recorded as additional income tax expense on our Condensed Consolidated Statement of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

On March 31, 2019, $ 6.9 million was recorded as a deposit included in Long-term deposits on our Condensed Consolidated Balance Sheets.

In the event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Long-term deposits would be recorded as additional income tax expense on our Condensed Consolidated Statement of Operations and Comprehensive Loss, in the period in which we do not ultimately prevail.

On October 16, 2017, we received a letter from LG Electronics Inc.

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Pursuant to an agreement reached with LGE, on April 8, 2020, we provided a provisional deposit to LGE in the amount of KRW 5,916,845,454 (approximately $ 5.0 million ) representing the amount of such withholding tax that was imposed on LGE, which provisional deposit would be returned to us to the extent we ultimately prevail in the appeal in the Korea courts.

In the second quarter of 2020, we will record this deposit as Other Assets on our Condensed Consolidated Balance Sheets.

event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Other assets would be recorded as additional income tax expense on our Condensed Consolidated Statement of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

In the second quarter of 2020, we recorded this deposit in Long-term deposits on our Condensed Consolidated Balance Sheets.

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.

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A third hearing occurred on February 13, 2020.

A fourth hearing is scheduled for May 26, 2020.

A fourth hearing occurred on June 9, 2020.

A fifth hearing occurred on July 16, 2020.

We anticipate a decision to be rendered on or about October 8, 2020.

We believe that there are valid defenses to the claims raised by the Korean tax authorities and that LGE’s claims are without merit.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements