What changed in this filing

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Item 1A. Risk Factors

2021-05-07 compared with 2020-11-06 · 173 added, 150 removed, 363 unchanged (47% of the section changed)

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Risk Factor Summary

Our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our business strategy and affect our financial results.

You should carefully consider all of the information in this report and, in particular, the following principal risks and all of the other specific factors described in Item 1A of this report, “Risk Factors,” before deciding whether to invest in our company.

• Risks related to our business:

◦ 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.

◦ 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 and adversely affected.

◦ If we are unable to enter into new licensing arrangements for our patents or other technologies (including reference designs, firmware/software or other products) on favorable terms that are consistent with our business objectives, our royalty and license revenue and cash flow could be materially adversely affected.

◦ A limited number of customers account for a significant portion of our revenue, and the loss of major customers could harm our operating results.

◦ If we fail to protect and enforce our patent rights and other IP rights, our ability to license our technologies and generate revenues could be impaired.

◦ Our failure to continuously develop or acquire successful innovations and obtain patents on those innovations could significantly harm our business, financial condition, results of operations or cash flows.

◦ 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.

◦ Our licenses with semiconductor and actuator manufacturers may cause confusion as to our licensing model and may prevent us from enforcing our patents based on the patent exhaustion doctrine, the implied license doctrine, or other legal doctrines.

◦ We had an accumulated deficit of $121 million as of September 30, 2020 and we may not return to consistent profitability in the future.

▪ Our business, results of operations, financial condition, cash flows, and stock price can be adversely affected by catastrophic events, such as pandemics, or other public health emergencies, such as COVID-19, or by the uncertain economic and political environment in geographies in which we operate.

▪ Our business could be materially and adversely affected if we are unable to enter into new licensing arrangements (or renew existing licenses) on favorable terms.

In addition, a limited number of customers account for a significant portion of our revenue, and the loss of major customers could harm our operating results.

• Shortages of electronic components may cause a decrease in production and sales of our customers’ products which could result in lower royalties payable to us.

▪ If we fail to protect and enforce our patent rights and other IP rights (or if there are adverse changes in patent and litigation legislation or enforcement), our ability to license our technologies and generate revenues could be impaired.

▪ Our failure to develop or acquire successful innovations and obtain patents on those innovations could significantly harm our business.

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

◦ 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 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.

◦ We are or may become involved in litigation, arbitration and administrative proceedings to enforce or defend our intellectual property rights and to defend our licensing practices that are expensive, disruptive and time consuming, and will continue to be, until resolved, and regardless of whether we are ultimately successful, could adversely affect our business.

◦ The terms in our agreements may be construed by our licensees in a manner that is inconsistent with the rights that we have granted to other licensees or in a manner that may require us to incur substantial costs to resolve conflicts over license terms.

◦ Our international operations subject us to additional risks and costs.

◦ Our failure to comply with complex US and foreign laws and regulations could have a material adverse effect on our operations.

◦ We may not be able to continue to derive significant revenues from makers of peripherals for popular video gaming platforms, which could adversely affect our financial condition and operating results.

◦ Because we have a fixed payment license with Microsoft, our royalty revenue from licensing in the gaming market and other consumer markets has previously declined and may further do so if Microsoft increases its volume of sales of touch-enabled products at the expense of our other licensees.

◦ Automobiles incorporating our touch-enabling technologies are subject to lengthy product development periods, making it difficult to predict when and whether we will receive royalties for these product types.

◦ 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.

◦ Our business may suffer if third parties assert that we violate their IP rights.

◦ Our business and operations could suffer in the event of any actual or perceived security breaches.

In addition, 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 are or may become involved in litigation to enforce our IP rights (or defend against assertions that we violate a third party’s IP), or resolve conflicts over license terms in our license agreements, and the costs thereof could adversely affect our business.

▪ Our licenses with component manufacturers may cause confusion as to our licensing model and may prevent us from enforcing our patents based on the patent exhaustion doctrine, or other legal doctrines.

▪ We may not return to consistent profitability in the future.

▪ We may incur greater tax liability than anticipated which could adversely affect our financial condition and operating results.

▪ Our international operations subject us to risks and costs, and our failure to comply with complex U.S.

or foreign laws could have a material adverse effect on our operations.

▪ We may not be able to continue to derive significant revenues from gaming peripheral makers for various reasons, including as a result of our fixed payment license with Microsoft, which could adversely affect our financial condition and operating results.

▪ Automobiles incorporating our technologies are subject to lengthy development periods, making it difficult to predict when and whether we will receive royalties for these product types.

▪ If our licensees’ efforts fail to generate consumer demand, our revenue may be adversely affected.

▪ Our business and operations could suffer in the event of any actual or perceived security breaches, including breaches that compromise personal information.

▪ The rejection of our haptic technology by standards-setting organizations, or failure of the standards-setting organization to develop timely commercially viable standards may negatively impact our business.

◦ Entrance into the highly competitive and fragmented sexual wellness market may adversely impact our financial results.

◦ If we are unable to develop open source compliant products, our ability to license our technologies and generate revenues may be impaired.

▪ If we are unable to develop open-source compliant products (or our products contain undetected errors), our ability to license our technologies and generate revenues may be impaired.

▪ Our business depends in part on access to third-party platforms and technologies.

If such access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies change, our business and operating results could be adversely affected.

◦ The uncertain economic and political environment could reduce our revenues and could have an adverse effect on our financial condition and results of operations.

◦ Our technologies are complex and may contain undetected errors, which could harm our reputation and future sales.

◦ If we fail to adequately protect personal information or other information we process or maintain, our business, financial condition and operating results could be adversely affected.

◦ If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business and our stock price.

▪ If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our business and our stock price.

▪ Entrance into the highly competitive and fragmented sexual wellness market may adversely impact our financial results.

• Risks related to investing in our common stock:

◦ Our quarterly revenues and operating results are volatile, and if our future results are below the expectations of public market analysts or investors, the price of our common stock is likely to decline.

▪ Our quarterly revenues and operating results are volatile, and if our future results are below expectations, the price of our common stock is likely to decline.

Our stock price may fluctuate regardless of our performance.

▪ Future sales of our equity could result in significant dilution to our existing stockholders and depress the market price of our common stock.

In addition, we will have broad discretion as to the use of proceeds from the “at the market” offering that we announced in February 2021, and we may not use the proceeds effectively.

▪ We may elect to purchase digital or alternative currencies as part of our capital allocation or investment strategy;

and if we determine to purchase digital or alternative currencies such as bitcoin and other cryptocurrencies, our financial results and the market price of our common stock may be affected by the price of these alternative investments, which may be highly volatile.

▪ We may engage in the acquisition of other companies or other investments outside of our current line of business, which may have an adverse material effect on our existing business.

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

◦ 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.

▪ Changes in financial accounting standards or policies may affect our reported financial condition or results of operations.

▪ Our business is subject to changing regulations regarding corporate governance and other compliance areas that will increase both our costs and the risk of noncompliance.

◦ Provisions in our charter documents and Delaware law could prevent or delay a change in control, which could reduce the market price of our common stock.

The factors summarized above should be read in connection with the detailed descriptions below.

These and many other factors described in this report could adversely affect our operations, performance and financial condition.

Further, provisions in our charter documents and Delaware law could prevent or delay a change in control, which could reduce the market price of our common stock.

Company Risks

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

A substantial portion of our research and development activities, our corporate headquarters, and other critical business operations are located near major earthquake faults in or around the San Francisco Bay Area in general, areas with a history of seismic events.

An earthquake at or near our facilities could disrupt our operations and result in large expenses to repair and replace the facility.

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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 September 30, 2020, Samsung accounted for a significant amount of our total revenues.

For example, for the three months ended March 31, 2021, 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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In addition, if potential customers or customers with expiring agreements view the loss of one of our major customers as an indicator of the value of our software and/or the strength of our intellectual property, they may choose not to take or renew a license which could adversely affect our operating results.

If we fail to protect and enforce our patent rights and other IP rights, our ability to license our technologies and generate revenues could be impaired.

Our patent licensing business generates revenues by licensing our portfolio of patents to customers interested in selling products that incorporate our technologies.

We have faced in the past, and expect to face in the future, challenges from third parties of the validity, enforceability, or scope of certain patents in our portfolio, and we have encountered situations in which third parties attempt to circumvent our patents through design changes.

It is also possible that:

• our patents may not be broad enough to protect our proprietary rights;

• effective patent protection may not be available in every country, particularly in Asia, where some of our licensees do business;

• any litigation we are or may be involved in may be unsuccessful or may result in one or more of our patents becoming limited in scope, declared unenforceable or invalidated.

If we are not able to protect and enforce the validity, enforceability and scope of the patents in our portfolio, or if a court or patent office were to limit the scope, declare unenforceable, or invalidate any of our patents, our ability to obtain future licenses could be impaired, and current licensees may refuse to make royalty payments or may choose to challenge one or more of our patents.

We also rely on licenses, confidentiality agreements, other contractual agreements, and copyright, trademark, and trade secret laws to establish and protect our proprietary rights.

It is possible that:

• laws and contractual restrictions may not be sufficient to prevent misappropriation of our technologies or deter others from developing similar technologies;

• policing unauthorized use of our patented technologies, trademarks, and other proprietary rights would be difficult, expensive, and time-consuming, within and particularly outside of the United States.

Our failure to continuously develop or acquire successful innovations and obtain patents on those innovations could significantly harm our business, financial condition, results of operations or cash flows.

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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.

Shortages of electronic components (such as integrated circuits) that may be integral to the manufacturing of our customers’ products may cause a decrease in production and sales of our customers’ products which could result in lower royalties payable to us.

Many of our customers report and pay royalties to us based on the number of products in their shipments that incorporate our patented technology or other technology.

Our customers’ products may incorporate various electronic components, such as integrated circuits.

A significant disruption in the supply of these electronic components (such as integrated circuits) could decrease the number of products that our customers sell which could reduce the amount of royalties that are payable to us.

For instance, the semiconductor industry has recently faced significant global supply chain issues as a result of the impact of the COVID-19 pandemic and the related imposition of government restrictions on staffing and facility operations, supply chain shortages, and other disruptions.

Even though government restrictions have loosened, integrated circuit manufacturers continued to struggle to meet the new surge in demand.

This is due to changing consumer habits fueled by the COVID-19 pandemic.

If our customers experience significant shortages of electronic components that result in a reduction in our revenues, then our business, results of operations, financial condition, cash flows, and stock price may be adversely affected.

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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however, any resulting change in such strategies could have a material adverse effect on our business and financial condition.

Our licenses with semiconductor and actuator manufacturers may cause confusion as to our licensing model and may prevent us from enforcing our patents based on the patent exhaustion doctrine, the implied license doctrine, or other legal doctrines.

We also license our software and/or patents to semiconductor and actuator manufacturers who incorporate our technologies into their integrated circuits or actuators for use in certain electronic devices.

While our relationships with these manufacturers increase our distribution channels by leveraging their sales channels, this could introduce confusion into our licensing model which has traditionally been focused on licensing the OEM.

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 $121 million as of September 30, 2020, and we may not return to consistent profitability in the future.

As of September 30, 2020, we had an accumulated deficit of $121 million.

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

Among other ongoing expenses, we may continue to incur expenses related to:

• sales and marketing efforts;

• research and development activities;

• the protection and enforcement of our IP;

• litigation.

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

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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In this competitive recruiting environment, especially when hiring in Montreal, Canada and the greater San Francisco Bay Area, 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.

However, given the negative effects that COVID-19 may have on our business as well as potential volatility in our quarterly revenues, it could be difficult to craft compensation plans that will attract and retain salespeople with the skills to secure complex licensing arrangements.

In Montreal, Canada, and the greater San Francisco Bay Area, 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.

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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.

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For example, on November 3, 2020, Ramzi Haidamus departed as our Chief Executive Officer and a member of our board of directors, and Jared Smith, our Vice President, Worldwide Sales, was appointed as Interim Chief Executive Officer.

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.

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.

In 2015, we completed a reorganization of our corporate organization in order to more closely align our corporate structure with the international nature of our business activities.

We began a second reorganization of our corporate organization in 2019 in order to address changing international tax laws and to re-align our corporate structure with the evolving nature of our international business activities.

As a result of this second reorganization, we have maintained our overall effective tax rate through changes in how we develop and use our intellectual property and changes in the structure of our international sales operations, including by entering into intercompany arrangements.

There can be no assurance that the taxing authorities of the jurisdictions in which we operate or to which we are otherwise deemed to have sufficient tax nexus will not challenge the restructuring or the tax position that we take.

Our tax rate is dependent on our ability to operate our business in a manner consistent with the second reorganization of our corporate organization and applicable tax provisions, as well as on our achieving our forecasted revenue growth rates.

If the intended tax treatment is not accepted by the applicable taxing authorities, changes in tax law negatively impact the structure, or we do not operate our business consistent with the intended reorganization and applicable tax provisions, we may fail to achieve the financial efficiencies that we anticipate as a result of the second reorganization and our future operating results and financial condition may be negatively impacted.

In addition, future changes to U.S.

tax laws, including legislation to reform U.S.

or other countries' taxation of international business activities, could negatively impact the anticipated tax benefits of the reorganization.

Additionally, from time to time, we enter into license agreements with our licensees pursuant to which we may agree to indemnify a customer for certain taxes imposed on the customer by an applicable tax authority and related expense.

We have received requests from certain licensees requesting that we reimburse them for certain tax liabilities.

For example, on April 28, 2017, we received a letter from Samsung requesting that we reimburse Samsung with respect to withholding tax and penalties imposed on Samsung by the Korean tax authorities as a result of its determination that withholding taxes should have been withheld from certain payments made from Samsung to Immersion Software Ireland Limited, a request that was arbitrated by a panel of the International Chamber of Commerce.

On March 27, 2019, the panel issued a final award.

The award ordered us to pay Samsung KRW 7,841,324,165 (approximately $6.9 million as of March 31, 2019), which we paid on April 22, 2019, denied Samsung’s claim for interest from and after May 2, 2017;

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 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 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.

On October 16, 2017, we received a letter from LGE requesting that we reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following an investigation where the tax authority determined that LGE failed to withhold on LGE’s royalty payments to Immersion Software Ireland from 2012 to 2014.

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

In the second quarter of 2020, we recorded this deposit 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.

The Korea Tax Tribunal hearing took place on March 5, 2019.

On March 19, 2019, the Korea Tax Tribunal issued its ruling in which it decided not to accept our arguments with respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on LGE.

On behalf of LGE, we filed an appeal with the Korea Administrative Court on June 10, 2019.

The first hearing occurred on October 15, 2019.

A second hearing occurred on December 19, 2019.

A third hearing occurred on February 13, 2020.

A fourth hearing occurred on June 9, 2020.

hearing occurred on July 16, 2020.

We anticipated a decision to be rendered on or about October 8, 2020, but the Korea Administrative Court scheduled a sixth hearing for November 12, 2020.

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

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.

In the event that it is determined that we are obligated to further indemnify Samsung and/or LGE for such withholding taxes imposed by the Korean tax authorities, receive further requests for reimbursement of tax liabilities from other licensees, we could incur significant expenses.

We are or may become involved in litigation, arbitration and administrative proceedings to enforce or defend our intellectual property rights and to defend our licensing practices that are expensive, disruptive and time consuming, and will continue to be, until resolved, and regardless of whether we are ultimately successful, could adversely affect our business.

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When assessing payments due by customers under these types of arrangements, we rely upon the accuracy of our customers’ recordkeeping and reporting, and inaccuracies or payment disputes regarding amounts our customers owe under their licensing agreements may negatively impact our results of operations.

The royalties that are originally reported by a customer could differ materially from those determined by either a customer-self-reported correction or from an audit we have

performed on a customer’s books and records.

The royalties that are originally reported by a customer could differ materially from those determined by either a customer-self-reported correction or from an audit we have performed on a customer’s books and records.

Differing interpretations of royalty calculations may also cause disagreements during customer audits, may lead to claims or litigation, and may have an adverse effect on the results of our operations.

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As a result, in any agreement, we may have granted rights that will preclude or restrict our exploitation of new opportunities that arise after the execution of the agreement.

We had an accumulated deficit of $111.1 million as of March 31, 2021, and we may not maintain consistent profitability in the future.

As of March 31, 2021, we had an accumulated deficit of $111.1 million.

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

Among other ongoing expenses, we may continue to incur expenses related to:

• sales and marketing efforts;

• research and development activities;

• the protection and enforcement of our IP;

• litigation.

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

We began a reorganization of our corporate organization in 2019 in order to address changing international tax laws and to re-align our corporate structure with the evolving nature of our international business activities.

As a result of this reorganization, we have maintained our overall effective tax rate through changes in how we develop and use our intellectual property and changes in the structure of our international sales operations, including by entering into intercompany arrangements.

Our tax rate is dependent on our ability to operate our business in a manner consistent with the reorganization of our corporate organization and applicable tax provisions, as well as on our achieving our forecasted revenue growth rates.

If the intended tax treatment is not accepted by the applicable taxing authorities, changes in tax law negatively impact the structure, or we do not operate our business consistent with the intended reorganization and applicable tax provisions, we may fail to achieve the financial efficiencies that we anticipate as a result of the reorganization and our future operating results and financial condition may be negatively impacted.

In addition, future changes to U.S.

tax laws, including legislation to reform U.S.

or other countries’ taxation of the organization.

We have received requests from certain licensees requesting that we reimburse them for certain tax liabilities.

a panel of the International Chamber of Commerce.

On March 27, 2019, the panel issued a final award.

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 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 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 Statements 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 I, Item 3 Legal Proceedings.

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.

The Korea Tax Tribunal hearing took place on March 5, 2019.

On behalf of LGE, we filed an appeal with the Korea Administrative Court on June 10, 2019.

For additional background on this matter, please see Part I, Item 3 Legal Proceedings.

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 Statements of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

Our international operations subject us to additional risks and costs.

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

International revenues accounted for approximately 85% of our total revenues in the first nine months of 2020.

We currently have sales personnel and other personnel in Canada, the United Kingdom and Japan who may engage in various activities, including engaging our customers and prospective customers outside of the United States.

International revenues accounted for approximately 85% of our total revenues in the first three months of 2021.

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

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Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”) and other anticorruption, anti-bribery and anti-money laundering laws in the jurisdictions in which we do business, both domestic and abroad.

These laws generally prohibit us and our employees from improperly influencing government officials in order to obtain or retain business,

direct business to any person or gain any improper advantage.

These laws generally prohibit us and our employees from improperly influencing government officials in order to obtain or retain business, direct business to any person or gain any improper advantage.

The FCPA and other applicable anti-bribery and anti-corruption laws also may hold us liable for acts of corruption and bribery committed by our third-party business partners, representatives and agents.

While we have policies and procedure to address compliance with such laws, we cannot assure you that our employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held responsible and our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in foreign jurisdictions.

While we have policies and procedures to address compliance with such laws, we cannot assure you that our employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held responsible and our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in foreign jurisdictions.

Any violation of such laws could result in whistleblower complaints, adverse media coverage, investigations, imposition of significant legal fees, and other consequences which may have an adverse effect on our reputation, business, results of operations and financial condition.

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Such violation could result in penalties, including prohibiting us from exporting our products to one or more countries, and could materially and adversely affect our business.

We may not be able to continue to derive significant revenues from makers of peripherals for popular video gaming platforms.

A significant portion of our gaming royalty revenues comes from third-party peripheral makers who make licensed gaming products designed for use with popular video game console systems from Microsoft, Sony, and Nintendo.

Video game console systems are closed, proprietary systems, and video game console system makers typically impose certain requirements or restrictions on third-party peripheral makers who wish to make peripherals that will be compatible with a particular video game console system.

We may not be able to continue to innovate in the gaming market or continue to derive significant revenues from third party gaming peripheral makers for video gaming platforms.

To remain competitive in the gaming market, we must continue introduce new haptic patents in a timely manner and the market must adopt such technology.

As part of our continuing efforts to bring new advanced haptic technologies to the gaming market, we seek to engage with third party gaming peripheral makers to utilize our advanced haptic technologies and expand the use of haptics across the gaming market.

If our engagement efforts are not successful or are significantly delayed, we may be unsuccessful in our innovation efforts in the gaming market, which could have an adverse effect on our revenues.

In addition, while Microsoft, Sony, and Nintendo are among our licensees in the gaming market, a significant portion of our gaming royalty revenues comes from third-party peripheral makers who make licensed gaming products designed for use with popular video game console systems from such video game console makers.

Video game console systems are closed,

proprietary systems, and video game console system makers typically impose certain requirements or restrictions on third-party peripheral makers who wish to make peripherals that will be compatible with a particular video game console system.

If third-party peripheral makers cannot or are not allowed to satisfy these requirements or restrictions, our gaming royalty revenues could be significantly reduced.

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We will not receive any further revenues or royalties from Microsoft under our current agreement with Microsoft, including with respect to Microsoft’s Xbox Series X gaming product or any other haptic-related product that Microsoft produces or sells.

Microsoft has a significant share of the market for touch-enabled console gaming computer peripherals and is pursuing other consumer markets such as mobile

devices, tablets, personal computers, and VR and augmented reality (or AR).

Microsoft has a significant share of the market for touch-enabled console gaming computer peripherals and is pursuing other consumer markets such as mobile devices, tablets, personal computers, and VR and augmented reality (or AR).

Microsoft has significantly greater financial, sales, and marketing resources, as well as greater name recognition and a larger customer base than some of our other licensees from whom, unlike with respect to Microsoft, we are able to collect royalty payments.

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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.

For the years ended December 31, 2019, 99% of our total revenues were royalty and license revenues, as compared to 97% and 98% for the years ended December 31, 2018 and 2017, respectively.

We do not control or influence the design, manufacture, quality control, promotion, distribution or pricing of products that are manufactured and sold by our licensees, nor can we control consolidation within an industry which could either reduce the number of licensable products available or reduce royalty rates for the combined licensees.

For the year ended December 31, 2020, 99% of our total revenues were royalty and license revenues, as compared to 99% for the year ended December 31, 2019.

We do not control or influence the design, manufacture, quality control, promotion, distribution or pricing of products that are manufactured and sold by our

licensees, nor can we control consolidation within an industry which could either reduce the number of licensable products available or reduce royalty rates for the combined licensees.

In addition, we generally do not have commitments from our licensees that they will continue to use our technologies in current or future products.

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We license some technologies from third parties and in doing so, we must rely upon the owners of these technologies for information on the origin and ownership of the technologies.

As a result, our exposure to infringement claims may increase if

the owners misrepresent, intentionally or unintentionally, the scope or validity of their ownership.

As a result, our exposure to infringement claims may increase if the owners misrepresent, intentionally or unintentionally, the scope or validity of their ownership.

We generally obtain representations as to the origin and ownership of acquired or licensed technologies and indemnification to cover any breach of these representations.

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We might be unaware of any actual or potential security breach or be delayed in detecting a security breach, or, even if we are able to identify a breach, we may be unaware of its magnitude and effects.

Actual or perceived security breaches could result in unauthorized use of or access to our systems, system interruptions or shutdowns, unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers’ data or intellectual property, may lead to litigation, indemnity obligations, regulatory investigations and other proceedings, severe reputational damage adversely affecting customer or investor confidence and causing damage to our brand, indemnity obligations, disruption to our operations, damages for contract breach, and other liability, reduction in the value of our investment in research and development and other strategic initiatives, and adverse effects upon our revenues and operating results.

Actual or perceived security breaches could

result in unauthorized use of or access to our systems, system interruptions or shutdowns, unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers’ data or intellectual property, may lead to litigation, indemnity obligations, regulatory investigations and other proceedings, severe reputational damage adversely affecting customer or investor confidence and causing damage to our brand, indemnity obligations, disruption to our operations, damages for contract breach, and other liability, reduction in the value of our investment in research and development and other strategic initiatives, and adverse effects upon our revenues and operating results.

Additionally, our service providers may suffer, or be perceived to suffer, data security breaches or other incidents that may compromise data stored or processed for us that may give rise to any of the foregoing.

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The rejection of our haptic technology or failure of the standards-setting organizations to develop timely commercially viable standards may negatively impact our business and financial results.

Entrance into the highly competitive and fragmented sexual wellness market may adversely impact our financial results.

As part of our strategy, we entered the sexual wellness market.

As a new market entrant, our competitors may have significant competitive advantages over us, including longer operating histories, larger and broader customer bases, more established relationships with a broader set of suppliers, and greater brand recognition.

In addition, the sexual wellness market vertical is highly fragmented, which may lead to unexpected challenges and expenses in licensing our technology.

These factors could cause our entrance into the sexual wellness market to negatively impact our financial results.

In addition, the sexual wellness market vertical we intend to license into may subject us to obscenity or other legal claims by third parties for which our financial position and results of operations could be harmed.

If we are unable to develop open source compliant products, our ability to license our technologies and generate revenues may be impaired.

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We rely on the Swiss-U.S.

Privacy Shield programs, and the use of Standard Contractual Clauses (“SCCs”) approved by the EU Commission, to legitimize these transfers.

Privacy Shield programs, and the use of Standard Contractual Clauses (“SCCs”) approved by the EU Commission, to

legitimize these transfers.

Previously, we relied on the EU-U.S.

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The United Kingdom ceased to be an EU Member State on January 31, 2020, but remains subject to EU law for a transition period ending on December 31, 2020.

The UK Data Protection

Act that substantially implements the GDPR became law in May 2018 and was further amended to more closely align to GDPR post-Brexit.

The UK Data Protection Act that substantially implements the GDPR became law in May 2018 and was further amended to more closely align to GDPR post-Brexit.

It remains unclear, however, how United Kingdom data protection laws or regulations will develop in the medium to longer term and how data transfers to and from the United Kingdom will be regulated.

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Any delay or failure on our part to remedy identified material weaknesses or any additional delays or errors in our financial reporting controls or procedures could cause our financial reporting to be unreliable, could have a material adverse effect on our business, results of operations, or financial condition, and could have a substantial adverse impact on the trading price of our common stock.

Entrance into the highly competitive and fragmented sexual wellness market may adversely impact our financial results.

As part of our strategy, we entered the sexual wellness market.

In addition, the sexual wellness market vertical is highly fragmented, which may lead to unexpected challenges and expenses in licensing our technology.

These factors could cause our entrance into the sexual wellness market to negatively impact our financial results.

General Risk Factors:

Investment Risks

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Our stock price may fluctuate regardless of our performance.

The stock market has experienced extreme volatility that often has been unrelated or disproportionate to the performance of particular companies.

These market fluctuations may cause our stock price to decline regardless of our performance.

The market price of our common stock has been, and in the future could be, significantly affected by factors such as:

Our stock price has experienced substantial price volatility in the past and may continue to do so in the future.

Further, our business, the technology industry and the stock market as a whole have experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to corporate operating performance.

For example, in 2020 as a result of macroeconomic conditions and the related impact of COVID-19, the stock market experienced wide fluctuations.

In the past twelve months, our stock price has fluctuated from as low as $5.67 per share in June 2020 to a high of $16.64 in February 2021.

This significant volatility may continue to occur in the future for reasons that are unrelated to our business or if our business experiences unexpected results.

The market price of our common stock has been, and in the

future could be, significantly affected by our operations as well such as:

actual or anticipated fluctuations in operating results;

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stock repurchase activity;

changes in securities analysts’ recommendations;

sale of stock by the company, changes in securities analysts’ recommendations;

personnel changes;

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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.

Future sales of our equity could result in significant dilution to our existing stockholders and depress the market price of our common stock.

It is likely that we will need to seek additional capital in the future and from time to time.

If this financing is obtained through the issuance of equity securities, debt convertible into equity securities, options or warrants to acquire equity securities or similar instruments or securities, our existing stockholders will experience dilution in their ownership percentage upon the issuance, conversion or exercise of such securities and such dilution could be significant.

Additionally, any new equity securities issued by us could have rights, preferences or privileges senior to those of our common stock.

For example, on February 11, 2021, we entered into an Equity Distribution Agreement with Craig-Hallum Capital Group LLC (“Craig-Hallum”), pursuant to which we were able to issue and sell shares of our common stock having an aggregate offering price of up to $50 million, from time to time, through an “at the market” equity offering program under which Craig-Hallum acted as sales agent.

While we terminated the Equity Distribution Agreement on March 5, 2021, the issuance and sale of shares of our common stock pursuant to that “at the market” equity offering program has had a dilutive impact on our existing stockholders.

Further, the issuance and sale of, or the perception that we may issue and sell, additional shares of common stock pursuant to future “at the market” equity offering programs or an additional private placement could have the effect of depressing the market price of our common stock or increasing the volatility thereof.

Any issuance by us or sales of our securities by our security holders, including by any of our affiliates, or the perception that such issuances or sales could occur, could negatively impact the market price of our securities.

We will have broad discretion as to the use of proceeds from the “at the market” offering that we announced in February 2021, and we may not use the proceeds effectively.

We currently intend to use the net proceeds from our “at the market” offering announced in February 2021 for working capital and other general corporate purposes.

We may also use a portion of the net proceeds from the offering to acquire or invest in businesses, assets or technologies.

Accordingly, we will retain broad discretion over the use of proceeds.

Pending application of the net proceeds as described above, we may, from time to time, invest in digital or alternative currencies such as bitcoin or other cryptocurrencies.

We may also invest net proceeds in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S.

If we determine to purchase digital or alternative currencies as part of our capital allocation and investment strategy, our financial results and the market price of our common stock may be affected by the price of these digital or alternative currencies.

In the future, as part of our capital allocation and investment strategy, we may elect to purchase digital or alternative currencies such as bitcoin or other cryptocurrencies.

The price of bitcoin and other cryptocurrencies has historically been subject to dramatic price fluctuations and is highly volatile.

For example, the price of these digital or alternative currencies may be influenced by regulatory, commercial and technical factors that are highly uncertain and unrelated to our business.

Any decrease in the fair value of bitcoin or other cryptocurrencies we may purchase below our carrying value for such assets at any time would require us to incur an impairment charge, and such charge could be material to our financial results for the applicable reporting period, which may create significant volatility in our reported earnings and decrease the carrying value of our assets.

Any decrease in reported earnings or increased volatility of such earnings due to impairment charges related to bitcoin or other cryptocurrency holdings could have a material adverse effect on the market price of our common stock.

Any future changes in GAAP that require us to change the manner in which we account for any bitcoins or other cryptocurrencies that we may purchase could have a material adverse effect on our financial results and the market price of our common stock.

If we determine to purchase digital or alternative currencies, including bitcoin and other cryptocurrencies, as part of our capital allocation and investment strategy, these investments would be less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.

Historically, the bitcoin market has been characterized by more price volatility, less liquidity, and lower trading volumes compared to sovereign currencies markets, as well as relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, and various other risks inherent in its entirely electronic, virtual form and decentralized network.

During times of market instability, we may not be able to sell any bitcoins that we hold at reasonable prices or at all.

As a result, any bitcoins that we may purchase may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.

If we are unable to sell any bitcoins that we hold, or if we are forced to sell any bitcoins that we may hold at a significant loss, in order to meet our working capital requirements, our business and financial condition could be negatively impacted.

We may engage in the acquisition of other companies, investments, joint ventures and strategic alliances outside of our current line of business, which may have an adverse material effect on our existing business.

We may engage in the acquisition of other companies, investments, joint ventures and strategic alliances outside of our current line of business to design and develop new technologies and products, to strengthen competitiveness by scaling up expanding our operations.

Such transactions, especially in new lines of business, inherently involve risk due to the difficulties in integrating operations, technologies, products and personnel.

Integration issues are complex, time-consuming and expensive and, without proper planning and implementation, may adversely affect our existing business.

Furthermore, we may incur significant acquisition, administrative and other costs in connection with these transactions, including costs related to integration or restructuring of acquired businesses.

In addition, we may make investments in companies outside our current line of business in an attempt to broaden our business opportunities.

If we determine to make these investments, they may not provide a return or lead to an increase in our operating results, and we may not obtain the benefits of these investments that we intend to recognize when making them.

There can be no assurance that these transactions, if pursued or made, will be beneficial to our business or financial condition.

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

We have established stock repurchase programs in the past, and may adopt similar programs in the future.

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

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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.

From time to time, financial and accounting standard setters such as the Financial Accounting Standards Board (“FASB”) and the SEC change their guidance governing the form and content of registrants’ external financial statements or update their previous interpretations with regard to the application of certain General Accepted Accounting Principles (“GAAP”).

Such change in GAAP or their interpretation have historically and could in the future have a significant effect on our reported financial condition and/or results of operations.

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Under ASC 606, if a fixed fee license agreement contains both performance obligations to transfer rights to our patent portfolio as it exists when the contract is executed as well as rights to our patent portfolio as it evolves throughout the contract term, we are required to allocate the fixed fee between the two performance obligations which could result in the recognition of a substantial majority of the fixed fee as revenue upon the execution of the license agreement.

Prior to the adoption, as a historical practice applied by many licensing companies, we recognized fixed license fees ratably over the contract term.

Prior to the adoption, as a historical practice applied by many

licensing companies, we recognized fixed license fees ratably over the contract term.

In addition, our previous accounting practice was to recognize revenue from per-unit royalty agreements in the period in which the related royalty report was received from our licensees, generally one quarter in arrears from the period in which the underlying sales occurred (i.e.

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EXHIBIT INDEX

Number Exhibit Description Incorporated by Reference Filed

Number Exhibit Description Incorporated by Reference

Form File No.

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8-K 000-27969 3.1 December 27,

Amendment No.

1 to Employment Agreement, dated February 27, 2020, between Immersion Corporation and Ramzi Haidamus

Amendment No.

2 to Employment Agreement, dated June 25, 2020, between Immersion Corporation and Ramzi Haidamus

Form of Amendment No.

1 to Retention and Ownership Change Event Agreement with each of its executive officers (other than Ramzi Form of Amendment No.

1 to Retention and Ownership Change Event Agreement with each of its executive officers (other than Ramzi Haidamus) )

Certification of Jared Smith , Interi m Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .

Equity Distribution Agreement, dated as of February 11, 2021, by and between Immersion Corporation and Craig-Hallum Capital Group LLC

8-K 001-38334 1.1 February 11,

* Certification of Jared Smith, Interim Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

* Certification of Aaron Akerman, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Jared S mith , Interim Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

+ Certification of Jared Smith, Interim Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

+ Certification of Aaron Akerman, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS XBRL Report Instance Document X

101.SCH XBRL Taxonomy Extension Schema Document X

101.CAL XBRL Taxonomy Calculation Linkbase Document X

101.DEF XBRL Taxonomy Extension Definition Linkbase Document X

101.LAB XBRL Taxonomy Label Linkbase Document X

101.PRE XBRL Presentation Linkbase Document X

* 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.

** Constitutes a management contract or compensatory plan.

101.INS * XBRL Report Instance Document

101.SCH * XBRL Taxonomy Extension Schema Document

101.CAL * XBRL Taxonomy Calculation Linkbase Document

101.DEF * XBRL Taxonomy Extension Definition Linkbase Document

101.LAB * XBRL Taxonomy Label Linkbase Document

101.PRE * XBRL Presentation Linkbase Document

* Filed herewith.

+ Furnished herewith.

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

November 5, 2020 By:

May 6, 2021 By:

/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