What changed in this filing

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Item 1A. Risk Factors

2020-08-07 compared with 2020-05-08 · 48 added, 58 removed, 401 unchanged (21% of the section changed)

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Company Risks

Our business, results of operations, financial condition, cash flows, and stock price can be adversely affected by catastrophic events, such as natural disasters, war, acts of terrorism, pandemics, epidemics, or other public health emergencies, such as the recent outbreak of COVID-19.

Our business, results of operations, financial condition, cash flows and stock price can be adversely affected by catastrophic events, such as natural disasters, war, acts of terrorism, pandemics, epidemics, or other public health emergencies, such as the recent outbreak of COVID-19 which has spread to many countries including the United States, Canada, and other countries in which we operate.

Our business, results of operations, financial condition, cash flows and stock price can be adversely affected by catastrophic events, such as natural disasters, war, acts of terrorism, pandemics, epidemics, or other public health emergencies, such as the outbreak of COVID-19 which is spreading in many countries including the United States, Canada, and other countries in which we operate.

The World Health Organization characterized COVID-19 as a 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, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures, which has resulted in a significant number of layoffs or furloughs of employees, and/or other negative economic conditions in many of the countries in which we operate.

The COVID-19 pandemic and its resulting economic and other effects could result in significant adverse effects on our customers’ ability to manufacture, distribute and sell products incorporating our touch-enabling technologies, which may result in a reduction in the royalties we receive which may be based on the number of units sold or distributed by our customers, which reduction could cause adverse effects on our business, results of operations, financial condition, cash flows and stock price.

While some governments around the world are easing restrictions designed to help control the spread of the virus, a resurgence of COVID-19 cases (including increased COVID-19 cases in recent months) may cause governments around the world to implement or reinstitute such restrictions.

The COVID-19 pandemic and its resulting economic and other effects could result in significant adverse effects on our customers’ cash flow and their ability to manufacture, distribute and sell products incorporating our touch-enabling technologies.

This in turn, may cause our customers to be less able to pay invoices for our royalties or may result in a reduction in the royalties we receive which may be based on the number of units sold or distributed by our customers, which reduction could cause adverse effects on our business, results of operations, financial condition, cash flows and stock price.

In addition, any depression or recession resulting from the COVID-19 pandemic may adversely change consumer behavior and demand, including with respect to products sold by our customers, which may result in a significant reduction in our revenue, results of operations, and financial condition.

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These practices may have an adverse effect on our employees’ productivity (especially with respect to our engineering and research and development efforts which may require hardware and software not available while working remotely) and morale and our ability to engage and support our current and prospective customers.

We cannot predict the ultimate impact that COVID -19 will have on our business, results of operations, financial condition, cash flows and stock price.

Our facilities could also be subject to a catastrophic loss such as fire, flood, earthquake, power outage, or terrorist activity.

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While we believe that we maintain insurance sufficient to cover most long-term potential losses at our facilities, our existing insurance may not be adequate for all possible losses including losses due to earthquakes.

If we are unable to renew our existing licensing arrangements for our patents and other technologies on favorable terms that are consistent with our business objectives, our royalty and license revenue and cash flow could be materially adversely affected.

Our revenue and cash flow largely dependent on our ability to renew existing licensing arrangements.

Our revenue and cash flow are largely dependent on our ability to renew existing licensing arrangements.

If we are unable to obtain renewed licenses on terms consistent with our business objectives or effectively maintain, expand, and support our relationships with our licensees, our licensing revenue and cash flow could decline.

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A significant amount of our revenue is derived from a limited number of customers, and we expect that this will continue to be the case in the future.

For example, for the three months ended March 31, 2020, Samsung accounted for a significant amount of our total revenues.

For example, for the three months ended June 30, 2020, Samsung accounted for a significant amount of our total revenues.

In addition, we cannot be certain that other customers that have accounted for significant revenue in past periods, individually or as a group, will continue to generate similar revenue in any future period.

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If our development efforts are not successful or are significantly delayed, companies may not incorporate our haptic innovations into their products and our revenues may not grow and could decline.

From time to time, stockholders have attempted and may continue to attempt to influence us, which could adversely affect our operations, financial condition and the value of our common stock.

Our stockholders have proposed and may continue to propose a variety of actions for our company, including seeking to acquire a controlling stake in our company, engaging in proxy solicitations, involving themselves in the governance and strategic direction of our company, or otherwise attempting to effect changes at our company.

Campaigns by stockholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases, or sales of assets or the entire company or changes to our business strategy.

Such campaigns can also be led by stockholders that have interests that are different from the majority of our stockholders and may not be in the best interests of the company.

Responding to proxy contests and other actions by stockholders can be costly and time-consuming and could disrupt our operations and divert the attention of our board of directors and senior management from the pursuit of our business strategies.

These actions could adversely affect our operations, financial condition and the value of our common stock.

For example, on March 5, 2020 we entered into a letter agreement with VIEX Capital Advisors, LLC pursuant to which, among other things, we added Stephen Domenik, Franz Fink and Eric Singer to our Board of Directors, and Sid Ganis and Jonathan Visbal resigned from our Board of Directors.

In addition, our Board of Directors was classified into three classes of directors with staggered three-year terms.

However, in June of 2017, we filed an amended and restated certificate of incorporation providing for the gradual declassification of our Board of Directors beginning in 2018.

The terms of the directors who were elected at the 2017 Annual Meeting expire in 2020, after which time all members of the Board of Directors will be elected on an annual basis.

Without the classification of the Board of Directors or the staggering of elections, characteristics of our governance structure that have historically served as anti-takeover protections, we could be more vulnerable to a hostile takeover by an activist stockholder that may not be in the best interest of all stockholders.

Such an attempt of a hostile takeover could distract our management team and could adversely affect our operating results.

Potential patent and litigation reform legislation, potential United States Patent and Trademark Office (“USPTO”) and international patent rule changes, potential legislation affecting mechanisms for patent enforcement and available remedies, and potential changes to the intellectual property rights policies of worldwide standards bodies, as well as rulings in legal proceedings may affect our investments in research and development and our strategies for patent prosecution, licensing and enforcement and could have a material adverse effect on our licensing business as well as our business as a whole.

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Any potential changes in the law, the IP rights policies of standards bodies or other developments that reduce the number of forums available or the type of relief available in such forums (such as injunctive relief), restrict permissible licensing practices (such as our ability to license on a worldwide portfolio basis) or that otherwise cause us to seek alternative forums (such as arbitration or state court), could make it more difficult for us to enforce our patents, whether in adversarial proceedings or in negotiations.

developments in law and/or policy that undermine our ability to do so could have a negative impact on future licensing efforts and on revenue derived from such efforts.

Because we have historically depended on the availability of certain forms of legal process to (i) enforce our patents and (ii) obtain fair and adequate compensation for our investments in research and development and for the unauthorized use of our intellectual property, developments in law and/or policy that undermine our ability to do so could have a negative impact on future licensing efforts and on revenue derived from such efforts.

Rulings of courts and administrative bodies may affect our strategies for patent prosecution, licensing and enforcement.

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In addition, licensing to semiconductor and actuator manufacturers increases the risk of patent exhaustion and implied licenses such that incorrectly structured licenses could negatively impact our business and financial results.

We had an accumulated deficit of $123 million as of March 31, 2020 and we may not return to consistent profitability in the future.

As of March 31, 2020, we had an accumulated deficit of $123 million .

We had an accumulated deficit of $124 million as of June 30, 2020 and we may not return to consistent profitability in the future.

As of June 30, 2020, we had an accumulated deficit of $124 million .

We need to generate significant ongoing revenues to return to consistent profitability.

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If our revenues grow more slowly than we anticipate or if our operating expenses exceed our expectations, we may not return to profitability.

We have experienced turnover in our senior management and our employee base, which could result in operational and administrative inefficiencies and could hinder the execution of our growth strategy.

We have recently experienced turnover in our senior management.

For example, our Chief Executive Officer joined us in January 2019, our General Counsel joined us in June 2019, our Chief Financial Officer joined us in January 2020, and our Head of Human Resources joined us in April 2020.

Lack of management continuity could harm our customer relationships, delay product development processes, adversely affect our ability to successfully execute our growth strategy, result in operational and administrative inefficiencies and added costs, and could impede our ability to recruit new talented individuals to senior management positions, which could adversely impact our results of operations, stock price and customer relationships.

Our success largely depends on our ability to integrate any new senior management within our organization in order to achieve our operating objectives, and changes in other key positions may affect our financial performance and results of operations as new members of management become familiar with our business.

General employee turnover also presents risks discussed in this paragraph.

If we are not able to attract, recruit and retain qualified personnel, we may not be able to effectively develop and deploy our technologies.

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Competition for talented candidates is intense, especially for individuals with patent licensing, engineering and haptics expertise, and we may not be successful in attracting, integrating, and continuing to motivate such qualified personnel.

In this competitive recruiting environment, especially when hiring in Silicon Valley, our compensation packages need to be attractive to the candidates we recruit.

However, given the protracted and uncertain nature of our royalty collection practices, it could be difficult to craft compensation plans that will attract and retain salespeople with the skills to secure complex licensing arrangements.

In this competitive recruiting environment, especially when hiring in Montreal, Canada and Silicon Valley, our compensation packages need to be attractive to the candidates we recruit.

However, given the negative effects that COVID-19 may have on our business, as well as the protracted and uncertain nature of our royalty collection practices, it could be difficult to craft compensation plans that will attract and retain salespeople with the skills to secure complex licensing arrangements.

In the greater San Francisco Bay Area and Montreal, Canada, candidates and employees view the stock component of compensation as an important factor in deciding both whether to accept an employment opportunity as well as whether to remain in a position at a company.

Even if we are able to present robust compensation packages that enable us to attract and recruit new candidates for hire, we may not be able to retain our current executive officers and key employees if the structure of their compensation packages does not provide incentives for them to remain employed by us.

Some of our executive officers and key employees hold stock options with exercise prices that may be above the current market price of our common stock or that are largely vested, which could impair our ability to retain their continued services.

For instance, our 2020 Executive Incentive Plan was cancelled and the base salaries of our executive officers were reduced by 10%.

In addition, some of our executive officers and key employees hold stock options with exercise prices that may be above the current market price of our common stock or that are largely vested, which could impair our ability to retain their continued services.

We have experienced turnover in our senior management and our employee base, which could result in operational and administrative inefficiencies and could hinder the execution of our growth strategy.

We have recently experienced turnover in our senior management.

General employee turnover also presents risks discussed in this paragraph.

We may incur greater tax liability than we have provided for or have anticipated and may incur additional tax liability due to certain indemnification agreements with certain licensees, which could adversely affect our financial condition and operating results.

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and ordered us to pay Samsung’s cost of the arbitration in the amount of approximately $871,454.

In the first quarter of 2019, $6.9 million was recorded in our Consolidated Balance Sheet.

In the first quarter of 2019, $6.9 million was recorded as a deposit included in Long-term deposits on our Condensed Consolidated Balance Sheets.

We are currently appealing in the Korean courts, on behalf of Samsung, the imposition of such withholding taxes and penalties.

In the event that the 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 Consolidated Statement of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

In the event that the 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 Consolidated Statement of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

For additional background on this matter, please see Part II, Item 1 Legal Proceedings.

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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 recorded this deposit as 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.

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

We intend to vigorously defend ourselves against these claims.

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.

In the event that we do not ultimately prevail in our appeal in the Korean courts, any payments to LGE with respect to withholding tax imposed on LGE by the Korean tax authorities as described in the previous paragraph would be recorded as additional income tax expense on our Consolidated Statement of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

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For example, we had previously initiated patent infringement litigation against Samsung and Motorola.

Due to the inherent uncertainties of litigation and administrative proceedings, we cannot accurately predict how these proceedings will ultimately be resolved.

We anticipate that currently pending and any future legal proceedings will continue to be costly, especially in cases where our adverse parties have access to relatively more significant resources.

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Our international operations subject us to additional risks and costs.

We currently have sales personnel in Japan, Korea, and China who engage customers and prospective customers in those regions.

International revenues accounted for approximately 79% of our total revenues in the first quarter of 2020.

We currently have sales personnel in Japan and Korea who engage customers and prospective customers in those regions.

International revenues accounted for approximately 84% of our total revenues in the first six months of 2020.

International operations are subject to a number of difficulties, risks, and special costs, including:

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• the possibility of volatility in financial markets as certain market participants transition away from the London Inter-bank Offered Rate (LIBOR).

ability to obtain additional patent rights in these countries and our ability to effectively enforce such patents and contractual rights in these countries, which is uncertain.

In addition, since we derive a significant portion of our revenues from licenses and royalties from our haptic patents in foreign countries, our ability to maintain and grow our revenue in foreign countries, such as China, will depend in part on our ability to obtain additional patent rights in these countries and our ability to effectively enforce such patents and contractual rights in these countries, which is uncertain.

Our technology licenses with customers in foreign countries subject us to an increased risk of theft of our technology.

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However, if such opportunities fail to materialize and/or if less haptic touch interfaces are sold in the future, it may have a material and adverse effect on our business, financial position, results of operations or cash flows.

We have little or no control or influence on our licensees’ design, manufacturing, quality control, promotion, distribution, or pricing of their products incorporating our touch-enabling technologies, upon which we generate royalty revenue.

Our inability to control or influence our licensees’ design, manufacturing, quality control, promotion, distribution, or pricing of their products incorporating our touch-enabling technologies could result in diminished royalty revenue if our licensees’ efforts fail to generate consumer demand.

A key part of our business strategy is to license our software and patents (and other IP) to companies that manufacture and sell products incorporating our touch-enabling technologies.

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Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

While we utilize certain measures in an effort to protect the security of our systems and the integrity, confidentiality and security of our intellectual property and personal information or other confidential business information, there can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats.

There can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats.

Our security measures or those of our third-party service providers could fail, whether as a result of third-party action, employee error, malfeasance or otherwise, and could result in unauthorized access to or use of our systems or unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our intellectual property and data and data of our customers.

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We often take steps to disclose source code for which disclosure is required under an open source license, but it is possible that we have made or will make mistakes in doing so, which could negatively impact our brand or the adoption of our products by our customers or prospective customers or could expose us to additional liability.

In addition, we rely on multiple software programmers to design our proprietary products and technologies.

Although we take steps to ensure that our programmers (both internal and outsourced) do not include open source software in products and technologies we intend to keep proprietary, we cannot be certain that open source software is not inadvertently incorporated into products and technologies we intend to keep proprietary.

In addition, we rely on multiple software programmers to design our proprietary products and technologies and we cannot be certain that open source software is not inadvertently incorporated into products and technologies we intend to keep proprietary.

In the event that portions of our proprietary technology are determined to be subject to an open source license, or are intentionally released under an open source license, we could be required to publicly release the relevant portions of our source code, which could reduce or eliminate our ability to commercialize our products and technologies.

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Both the EU-U.S.

Shield and these model contractual clauses have been subject to legal challenge, however, and it is unclear what effect these challenges will have and whether the means we presently use will continue as appropriate means for us to legitimize personal data transfers from the EU or Switzerland to the U.S.

Privacy Shield and these model contractual clauses have been subject to legal challenge, however, and it is unclear what effect these challenges will have and whether the means we presently use will continue as appropriate means for us to legitimize personal data transfers from the EU or Switzerland to the U.S.

Further, in June 2016, the United Kingdom voted to leave the European Union, commonly referred to as “Brexit,” which could also lead to further legislative and regulatory changes.

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The CCPA has been amended on multiple occasions and is the subject of proposed regulations of the California Attorney General that were released on October 10, 2019.

While the CCPA went into effect on January 1, 2020, aspects of the legislation and its interpretation remain unclear at this time.

While the CCPA went into effect on

January 1, 2020, aspects of the legislation and its interpretation remain unclear at this time.

We therefore cannot fully predict the impact of the CCPA on our business or operations, but it may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.

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These factors include:

• the impact of COVID-19

• the establishment or loss of licensing relationships;

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In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has been initiated against that company, which could lead to increased litigation costs and could adversely affect our operating results and our stock price.

Our stock repurchase program could affect our stock price and add volatility.

Any repurchases pursuant to our stock repurchase program could affect our stock price and add volatility.

There can be no assurance that any repurchases will continue to be made under the program, nor is there any assurance that a sufficient number of shares of our common stock will be repurchased to satisfy the market’s expectations.

Furthermore, there can be no assurance that any repurchases conducted under the plan will be made at the best possible price.

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

Any repurchases by us pursuant to a stock repurchase program could affect our stock price and add volatility.

There can be no assurance that any repurchases will be made under any program, nor is there any assurance that a sufficient number of shares of our common stock will be repurchased to satisfy the market’s expectations.

Furthermore, there can be no assurance that any repurchases conducted under any plan will be made at the best possible price.

The existence of a stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock.

Additionally, we are permitted to and could discontinue our stock repurchase program at any time and any such discontinuation could cause the market price of our stock to decline.

Additionally, we are permitted to and could discontinue any stock repurchase program at any time and any such discontinuation could cause the market price of our stock to decline.

Changes in financial accounting standards or policies may affect our reported financial condition or results of operations and, in certain cases, could cause a decline and/or fluctuation in the price of our common stock.

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Under ASC 606, we are required to 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 contractual terms on our ability to estimate such amounts.

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 contractual terms on our ability to estimate such amounts.

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

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Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our board of directors or management, including the following:

• our board of directors is classified into three classes of directors with staggered three-year terms which will be phased out over time until our 2020 annual meeting of stockholders, and at the 2020 annual meeting of stockholders only a single class of directors will exist and directors will be elected on an annual basis going forward;

• only a majority of our board of directors or stockholders of not less than 10% of all of the shares entitled to cast votes at such meeting are authorized to call a special meeting of stockholders;

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Certificate of Designations of Series B Participating Preferred Stock of Immersion Corporation

Office Lease, effective January 31, 2020, by and between Immersion Corporation, a Delaware corporation, and 330 Townsend (SF) Owner, LLC

Letter Agreement, dated March 5, 2020, by and between Immersion Corporation, a Delaware corporation, on one hand, and VIEX Capital Advisors, LLC, VIEX Opportunities Fund, LP - Series One, VIEX Opportunities Fund, LP - Series Two, VIEX GP, LLC, VIEX Special Opportunities Fund II, LP, VIEX GP, LLC, VIEX Special Opportunities GP II, LLC and Eric Singer, on the other hand

March 9, 2020

Description of Compensation Reductions for Directors and Officers as disclosed in the Company’s Form 8-K filed with the SEC on April 7, 2020

Description of Cancellation of the Company’s 2020 Executive Incentive Plan as disclosed in the Company’s Form 8-K filed with the SEC on July 1, 2020

Sublease, dated March 12, 2020, by and between Immersion Corporation, a Delaware corporation, and Neato Robotics, Inc.

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This certification is deemed not filed for purposes of section 18 of the Exchange Act, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act, as amended, or the Exchange Act, as amended.

Management contract.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

IMMERSION CORPORATION

August 6, 2020

/s/ AARON AKERMAN

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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 1A. Risk Factors