What changed in this filing

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Item 1. Financial Statements

2021-11-03 compared with 2021-08-16 · 210 added, 127 removed, 497 unchanged (40% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

September 30,

2021 December 31,

1 unchanged sentence

Cash and cash equivalents $ 90,601 $ 59,522

Marketable securities 28,028 —

Accounts and other receivables 4,171 2,218

33 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

10 unchanged sentences

Interest and other income (loss), net 438 174 162 334

Income (loss) before provision for income taxes 5,847 ( 671 ) 8,024 ( 5,447 )

Provision for income taxes ( 506 ) ( 41 ) ( 647 ) ( 93 )

Income (loss) before benefit from (provision for) income taxes 4,111 2,759 12,135 ( 2,688 )

Benefit from (provision for) income taxes ( 340 ) 96 ( 987 ) 3

Net income (loss) $ 3,771 $ 2,855 $ 11,148 $ ( 2,685 )

5 unchanged sentences

Change in unrealized gains (loss) on short-term investments 531 — 531 ( 2 )

Total other comprehensive income (loss) — — — ( 2 )

Total comprehensive income (loss) $ 4,302 $ 2,855 $ 11,679 $ ( 2,687 )

3 unchanged sentences

(In thousands, except number of shares)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Common Stock and

5 unchanged sentences

Shares Amount Shares Amount

Balances at March 31, 2021 43,020,610 $ 298,037 $ 122 $ ( 111,128 ) 12,143,433 $ ( 81,733 ) $ 105,298

Balances at June 30, 2021 43,252,670 $ 299,124 $ 122 $ ( 105,787 ) 12,143,433 $ ( 81,733 ) $ 111,726

Net income 3,771 3,771

Exercise of stock options, net of shares withheld for employee taxes 18,750 140 140

Unrealized gain on available-for-sale securities, net of taxes 531 531

Issuance of stock for ESPP purchases 9,490 61 61

Release of restricted stock units and awards 8,407 —

Issuance costs in connection with public stock offering — ( 104 ) ( 104 )

Shares issued in connection with public offering, net of offering costs 1,897,326 14,285 14,285

Stock-based compensation 415 415

Balances at June 30, 2021 43,252,670 $ 299,124 $ 122 $ ( 105,787 ) 12,143,433 $ ( 81,733 ) $ 111,726

Three Months Ended June 30, 2020

Balances at September 30, 2021 45,167,893 $ 313,885 $ 653 $ ( 102,016 ) 12,143,433 $ ( 81,733 ) $ 130,789

Three Months Ended September 30, 2020

Common Stock and

5 unchanged sentences

Shares Amount Shares Amount

Balances at March 31, 2020 38,824,681 $ 254,081 $ 122 $ ( 123,393 ) 9,223,222 $ ( 63,066 ) $ 67,744

Net loss ( 712 ) ( 712 )

Repurchase of stock 2,920,211 ( 18,667 ) ( 18,667 )

Balances at June 30, 2020 39,007,576 $ 255,446 $ 122 $ ( 124,105 ) 12,143,433 $ ( 81,733 ) $ 49,730

Net income 2,855 2,855

Issuance of stock for ESPP purchase 12,394 71 71

Exercise of stock options, net of shares withheld for employee taxes 2,300 19 19

Release of restricted stock units and awards 35,821 —

Stock-based compensation 1,339 1,339

Balances at June 30, 2020 39,007,576 $ 255,446 $ 122 $ ( 124,105 ) 12,143,433 $ ( 81,733 ) $ 49,730

Balances at September 30, 2020 39,058,091 $ 256,875 $ 122 $ ( 121,250 ) 12,143,433 $ ( 81,733 ) $ 54,014

See accompanying Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands, except number of shares)

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Common Stock and

7 unchanged sentences

Net income 11,148 11,148

Issuance of stock for ESPP purchase 15,543 89 89

Unrealized gain on available-for-sale securities, net of taxes 531 531

Issuance of stock for ESPP purchases 25,033 150 150

Exercise of stock options, net of shares withheld for employee taxes 325,737 2,864 2,864

2 unchanged sentences

Stock-based compensation 1,997 1,997

Balances at June 30, 2021 43,252,670 $ 299,124 $ 122 $ ( 105,787 ) 12,143,433 $ ( 81,733 ) $ 111,726

Six Months Ended June 30, 2020

Balances at September 30, 2021 45,167,893 $ 313,885 $ 653 $ ( 102,016 ) 12,143,433 $ ( 81,733 ) $ 130,789

Nine Months Ended September 30, 2020

Common Stock and

7 unchanged sentences

Net loss ( 2,685 ) ( 2,685 )

Unrealized gain on available-for-sale securities, net of taxes ( 2 ) ( 2 )

Unrealized loss on available-for-sale securities, net of taxes ( 2 ) ( 2 )

Stock repurchases 4,932,977 $ ( 30,642 ) ( 30,642 )

Issuance of stock for ESPP purchase 10,162 63 63

Issuance of stock for ESPP purchases 22,556 134 134

Exercise of stock options, net of shares withheld for employee taxes 2,300 19 19

Release of restricted stock units and awards 408,451 —

Stock-based compensation 3,433 3,433

Balances at June 30, 2020 39,007,576 $ 255,446 $ 122 $ ( 124,105 ) 12,143,433 $ ( 81,733 ) $ 49,730

Balances at September 30, 2020 39,058,091 $ 256,875 $ 122 $ ( 121,250 ) 12,143,433 $ ( 81,733 ) $ 54,014

See accompanying Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows provided by (used in) operating activities:

3 unchanged sentences

Stock-based compensation 1,997 3,433

Deferred income taxes 280 3

Foreign currency remeasurement losses 612 66

Unrealized gain on available-for-sale debt securities ( 490 ) —

Other 68 ( 161 )

Changes in operating assets and liabilities:

10 unchanged sentences

Cash flows provided by (used in) investing activities:

Purchases of marketable securities ( 34,443 ) —

Proceeds from sale of derivative instruments 1,757 —

Proceeds from maturities of short-term investments — 3,000

19 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

September 30, 2021

SIGNIFICANT ACCOUNTING POLICIES

4 unchanged sentences

Impact of COVID-19

In response to the COVID-19 pandemic, we implemented work-from-home and restricted travel policies in the first quarter of 2020, which are expected to remain in place for most of 2021.

We implemented a series of cost reduction initiatives in the first half of 2020 to further preserve financial flexibility.

These actions include:

In response to the COVID-19 pandemic, we implemented work-from-home and restricted travel policies in the first quarter of 2020, which are expected to remain in place for rest of 2021.

We implemented a series of cost reduction initiatives in 2020 and 2021 to preserve financial flexibility.

In 2020, these actions included:

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

cancellation and reduction in the 2020 executive and employee bonus plans;

cancellation and reduction of bonus amounts in executive and employee bonus plans;

renegotiated professional services fees from third-party services providers;

relocation of certain positions to lower-cost regions;

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

the temporary suspension of employee retirement savings plan matched by Immersion and accessing broad-based employer relief provided by the governments.

In 2021, additional actions included:

cancellation of 2021 Executive Incentive Plan and elimination of certain positions.

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

1 unchanged sentence

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

During the six months ended June 30, 2021, we recorded $ 0.2 million in government subsidies as a reduction in operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) .

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

During the nine months ended September 30, 2021, we recorded $ 0.3 million in government subsidies as a reduction in operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) .

During the nine months ended September 30, 2020, we recorded $ 0.5 million in government subsidies as a reduction in operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Principles of Consolidation and Basis of Presentation

10 unchanged sentences

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year.

Segment Information

18 unchanged sentences

Disaggregated Revenue

The following table presents the disaggregation of our revenue for the three and six months ended June 30, 2021 and 2020 (in thousands).

The following table presents the disaggregation of our revenue for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

8 unchanged sentences

We develop such estimates based on a combination of available data including, but not limited to, approved customer forecasts, a look back at historical royalty reporting for each of our customers, and industry information available for the licensed products.

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

In the three months ended June 30, 2021, we recorded adjustments of $ 2.0 million to increase royalty revenue.

We recorded adjustments of $ 20,000 to decrease royalty revenue during the three months ended June 30, 2020.

In the three months ended September 30, 2021, we recorded adjustments of $ 0.5 million to decrease royalty revenue.

We recorded adjustments of $ 0.3 million to increase royalty revenue during the three months ended September 30, 2020.

Contract Assets

As of June 30, 2021, we had contract assets of $ 10.8 million included within Prepaid expenses and other current assets , and $ 3.2 million included within Other assets, on the Condensed Consolidated Balance Sheets .

As of December 31, 2020, we

had contract assets of $ 11.6 million included within Prepaid expenses and other current assets , and $ 4.6 million included within Other assets , on the Condensed Consolidated Balance Sheets.

Contract assets decreased by $ 2.2 million from December 31, 2020 to June 30, 2021, primarily due to actual royalties billed during the six months ended June 30, 2021.

As of September 30, 2021, we had contract assets of $ 10.8 million included within Prepaid expenses and other current assets , and $ 2.5 million included within Other assets, on the Condensed Consolidated Balance Sheets .

As of December 31,

2020, we had contract assets of $ 11.6 million included within Prepaid expenses and other current assets , and $ 4.6 million included within Other assets , on the Condensed Consolidated Balance Sheets.

Contract assets decreased by $ 3.0 million from December 31, 2020 to September 30, 2021, primarily due to actual royalties billed during the nine months ended September 30, 2021.

Fixed Fee License Revenue

13 unchanged sentences

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

Based on contracts signed and payments received as of June 30, 2021, we expect to recognize $ 24.0 million in revenue related to Performance Obligation B under our fixed fee license agreements, which is satisfied over time, including $ 12.0 million over one to three years and $ 12.0 million over more than three years.

Based on contracts signed and payments received as of September 30, 2021, we expect to recognize $ 22.7 million in revenue related to Performance Obligation B under our fixed fee license agreements, which is satisfied over time, including $ 14.1 million over one to three years and $ 8.6 million over more than three years.

Capitalized Contract Costs

During the three and six months ended June 30, 2021, we capitalized $ 0.1 million and $ 0.2 million of incremental costs incurred to obtain new contracts with customers, respectively.

During the three and nine months ended September 30, 2021, we capitalized $ 14,000 and $ 0.2 million of incremental costs incurred to obtain new contracts with customers, respectively.

INVESTMENTS AND FAIR VALUE MEASUREMENTS

Marketable Debt Securities

Marketable debt securities as of September 30, 2021 consisted of the following (in thousands):

September 30, 2021

Cost Unrealized Holding Gains Unrealized Holding Losses Fair Value

Corporate debt securities 6,935 531 — 7,466

$ 6,935 $ 531 $ — $ 7,466

We invest surplus funds in excess of operational requirements in a diversified portfolio of marketable securities, with the objectives of delivering competitive returns, maintaining a high degree of liquidity, and seeking to avoid the permanent

impairment of principal.

Fair values were determined for each individual security in the investment portfolio based on quoted market prices.

Our investments in marketable debt securities are classified and accounted for as available-for-sale.

Our marketable debt securities are classified either short-term or long-term based on each instrument’s underlying contractual maturity date.

As of September 30, 2021, we reported $ 7.5 million investment in debt securities as Other assets on our Condensed Consolidated Balance Sheets as the management intends to hold these investment for more than 12 months from the reporting date.

not have marketable securities as of December 31, 2020.

Unrealized gains and losses on marketable debt securities classified as available-for-sale are recognized as Other comprehensive income (loss) on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) .

We may sell certain marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.

The amortized costs and fair value of our marketable debt securities, by contractual maturity, as of September 30, 2021 (in thousands) are as follows:

September 30, 2021

Less than 1 year $ — $ —

1 to 5 years 6,935 7,466

Total $ 6,935 $ 7,466

Marketable Equity Securities

Marketable equity securities as of September 30, 2021 consisted of the following (in thousands):

September 30, 2021

Initial Costs Cumulative Unrealized Holding Gains Fair Value

Equity securities $ 27,538 $ 490 $ 28,028

$ 27,538 $ 490 $ 28,028

Our investments in marketable equity securities are classified based on the nature of the securities and their availability for use in current operations.

The marketable equity securities are measured at fair value with gains and losses recognized in Interest and other income (loss), net on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

We regularly review our investment portfolio to identify and evaluate investments that have indicators of possible impairment.

Investments are considered impaired when a decline in fair value is judged to be other-than-temporary.

If the cost of an individual investment exceeds its fair value, we evaluate, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and our intent and ability to hold the investment.

Once a decline in fair value is determined to be other-than-temporary, we will record an impairment charge and establish a new cost basis in the investment.

Derivative Financial Instruments

We invest in derivatives that are not designated as hedging instruments and which consisted of call and put options.

When we sell call and put options, the premium received is reported as Other current liabilities on our Condensed Consolidated Balance Sheets .

When we purchase put or call options, the premium paid is reported as Marketable securities current on our Condensed Consolidated Balance Sheets .

The carrying value of these options are adjusted to the fair value at the end of each reporting period until the options expire.

Gains and losses recognized from the periodic adjustments to fair value are recognized as Interest and other income (loss ), net on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) .

At September 30, 2021, we had $ 1.8 million derivative instruments which consisted of call and put options sold at their fair value as of the balance sheet date.

These derivative instruments are reported as Other current liabilities on our Condensed Consolidated Balance Sheets.

Cost Unrealized Holding Losses Fair Value

Derivative instruments $ 1,757 $ 2 $ 1,759

$ 1,757 $ 2 $ 1,759

A summary of realized and unrealized gains and losses from our equity securities and derivative instruments are as follows (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net unrealized gains (losses) recognized on equity investments held as of the end of the period $ 490 $ — $ 490 $ —

Net realized gains (losses) recognized on derivative instruments 9 — 9 —

Net unrealized gains (losses) recognized on derivative instruments ( 2 ) — $ ( 2 ) —

Total net gains (losses) recognized in Interest and other income (loss), net $ 497 $ — $ 497 $ —

Fair Value Measurements

Cash and Cash Equivalents

Our financial instruments measured at fair value on a recurring basis consisted of money market funds.

We value these securities based quoted prices in active markets for identical assets.

Financial instruments are valued based on quoted market prices in active markets include mostly money market securities.

Our financial instruments measured at fair value on a recurring basis consisted of money market funds, equity securities, corporate debt securities and derivatives.

We value these securities based on quoted prices in active markets for identical assets.

Such instruments are generally classified within Level 1 of the fair value hierarchy.

Instruments valued based on quoted prices in markets that are less active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency are generally classified within Level 2 of the fair value hierarchy and include U.S.

treasury securities.

We had no Level 2 instruments at June 30, 2021 and December 31, 2020.

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

As of June 30, 2021 and December 31, 2020, we did not hold any Level 3 instruments.

Our financial instruments consisted of money market accounts as of June 30, 2021 and December 31, 2020 are classified as cash equivalents.

Financial instruments measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 are classified based on the valuation technique in the table below (in thousands):

June 30, 2021

Money market accounts are classified as cash equivalents.

Financial instruments valued based on quoted prices in markets that are less active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency are generally classified within Level 2 of the fair value hierarchy and include corporate debt securities and derivative instruments.

We had no Level 2 financial instruments at December 31, 2020.

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

As of September 30, 2021 and December 31, 2020, we did not hold any Level 3 financial instruments.

Financial instruments measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 are classified based on the valuation technique in the table below (in thousands):

September 30, 2021

Fair Value Measurements Using

4 unchanged sentences

(Level 3) Total

Money market accounts $ 70,620 $ — $ — $ 70,620

Equity securities $ 28,028 $ — $ — $ 28,028

Corporate debt securities — 7,466 — 7,466

Total assets at fair value $ 28,028 $ 7,466 $ — $ 35,494

$ 70,620 $ — $ — $ 70,620

(1) The above table excludes $ 36.7 million of cash held in banks.

Derivative instruments $ — $ 1,759 $ — $ 1,759

Total liabilities at fair value $ — $ 1,759 $ — $ 1,759

December 31, 2020

6 unchanged sentences

Money market accounts (1)

Total assets at fair value (2)

45,614 $ — $ — $ 45,614

Total assets at fair value $ 45,614 $ — $ — $ 45,614

(1) The above table excludes $ 13.9 million of cash held in banks.

2 unchanged sentences

Our cash and cash equivalent balances were as follows (in thousands):

September 30,

2021 December 31,

1 unchanged sentence

Money market funds — 45,614

Cash and cash equivalents $ 107,274 $ 59,522

Total cash and cash equivalents $ 90,601 $ 59,522

Accounts and Other Receivables

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

September 30,

2021 December 31,

1 unchanged sentence

Other receivables 928 600

Accounts and other receivables $ 2,912 $ 2,218

Allowance for credit losses as of June 30, 2021 and December 31, 2020 were not material.

Total accounts and other receivables $ 4,171 $ 2,218

Allowance for credit losses as of September 30, 2021 and December 31, 2020 were not material.

Prepaid Expenses and Other Current Assets

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

September 30,

2021 December 31,

2 unchanged sentences

Other current assets 198 171

Prepaid expenses and other current assets 11,942 12,610

Total prepaid expenses and other current assets 11,739 12,610

Other assets consisted of the following (in thousands):

September 30,

2021 December 31,

2 unchanged sentences

Deferred tax assets 2,659 2,659

Marketable debt securities - non-current 7,466 —

Other assets 185 138

2 unchanged sentences

Other current liabilities are as follows (in thousands):

September 30,

2021 December 31,

Lease liabilities - current $ 1,213 $ 1,382

Derivative instruments 1,759 —

Other current liabilities 1,990 1,075

12 unchanged sentences

On July 12, 2017, on behalf of Samsung, Immersion filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes and penalties.

On October 18, 2018, the Korea Tax Tribunal held a hearing and on November 19, 2018, 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 Samsung.

On October 18, 2018, the Korea Tax Tribunal held a hearing and on November 19, 2018, 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 Samsung.

On behalf of Samsung, we filed an appeal with the Korea Administrative Court on February 15, 2019.

5 unchanged sentences

The Korea High Court had indicated that a final decision was originally expected on May 28, 2021, but instead, decided to hold a fourth hearing on July 9, 2021.

Following the hearing, the Court indicated that it expects to render a decision on this matter on October 1, 2021.

On October 1, 2021, the Korea High Court issued its ruling in which it ruled that withholding taxes and penalties totaling approximately KRW 6,186,218,586 (approximately $ 5.2 million) in national-level withholding tax and local withholding taxes imposed by the Korean tax authorities on Samsung for royalties paid to Immersion during the period of 2012 – 2014 be cancelled on the basis that the Korea tax authorities wrongfully engaged in a duplicative audit with respect to such time period.

The Korea High Court also ruled that approximately KRW 1,655,105,584 (approximately $ 1.4 million) of national-level withholding tax and local withholding taxes imposed by the Korean tax authorities on Samsung for royalties paid to Immersion during 2015 and 2016 be upheld in part on the basis that Immersion Software Ireland Limited did not have sufficient economic substance to be considered the beneficial owner of the royalties paid by Samsung to Immersion Software Ireland Limited.

On or about October 22, 2021, the Korean tax authorities filed an appeal with the Korea Supreme Court with respect to certain portions of the Korea High Court decision and we filed an appeal with the Korea Supreme Court with respect to certain portions of the Korea High Court decision.

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

27 unchanged sentences

A ninth hearing occurred on June 24, 2021.

A tenth hearing is scheduled for October 14, 2021.

A tenth hearing occurred on September 13, 2021.

An eleventh hearing is scheduled for November 15, 2021 .

The Court has indicated that it expects to render a decision on this matter by the end of February 2022.

4 unchanged sentences

Marquardt GMBH

On August 3 , 2021, we filed an arbitration demand with the American Arbitration Association against Marquardt GmbH (“Marquardt”), one of our licensees in the automotive market.

The arbitration demand arises out of that certain Amended and

Restated Patent License Agreement (the “Marquardt License”), effective as of January 1, 2018, between us as licensor and Marquardt, as licensee.

On August 3, 2021, we filed an arbitration demand with the American Arbitration Association (the “AAA”) against Marquardt GmbH (“Marquardt”), one of our licensees in the automotive market.

The arbitration demand arises out of that certain Amended and Restated Patent License Agreement (the “Marquardt License”), effective as of January 1, 2018, between us as licensor and Marquardt, as licensee.

Pursuant to the arbitration demand, we are demanding that Marquardt cure its breach of the Marquardt License and pay all royalties currently owed under the Marquardt License.

3 unchanged sentences

As a result of Marquardt’s breach of the Marquardt License, per unit royalties and applicable interest fees, in the amount of a definite sum to be determined, are currently past due.

Pursuant to the terms of the Marquardt License, we are requesting arbitration by a single arbitrator in Madison County, New York.

Pursuant to the terms of the Marquardt License, we requested arbitration by a single arbitrator in Madison County, New York.

On August 9, 2021, the AAA confirmed receipt of our arbitration demand dated August 3, 2021.

On August 13, 2021, the AAA conducted an administrative conference call to discuss communications, mediation, tribunal appointment, place of arbitration, and other administrative topics.

On September 15, 2021, Marquardt filed an answer to our arbitration demand with the AAA, in which Marquardt provided general denials of our claims and asserted a counterclaim for approximately $ 138,000 in royalties previously paid to us under the Marquardt License.

On September 30, 2021, we filed an answer to Marquardt’s counterclaim in which we denied the allegations set forth in Marquardt’s counterclaim.

An arbitrator has been chosen to arbitrate this matter.

We anticipate that the arbitrator will conduct the arbitration proceedings in New York City or White Plains, New York, with the consent of the parties.

The arbitrator has not yet set a preliminary hearing date.

STOCK-BASED COMPENSATION

9 unchanged sentences

A summary of our equity incentive program is as follows (in thousands):

September 30,

Common stock shares available for grant (1)

3 unchanged sentences

RSAs outstanding —

(1) We granted equity awards under the 2011 Equity Incentive Plan (the "2011 Plan") from July 2011 through April 2021.

(1) We granted equity awards under the 2011 Equity Incentive Plan (the "2011 Plan") from July 2011 through November 2020.

The 2011 Plan expired on April 5, 2021, and the remaining 3,708,238 authorized shares were cancelled on the 2011 Plan expiration date.

We do not have an active equity incentive plan as of June 30, 2021.

We do not have an active equity incentive plan as of September 30, 2021.

Time-Based Stock Options

The following summarizes activities for the time-based stock options for the six months ended June 30, 2021 (in thousands except for weighted average exercise price per share and weighted average remaining contractual life data):

The following summarizes activities for the time-based stock options for the nine months ended September 30, 2021 (in thousands except for weighted average exercise price per share and weighted average remaining contractual life data):

Number of Shares

8 unchanged sentences

Canceled or expired ( 206 ) $ 7.46

Outstanding at June 30, 2021 375 $ 7.85 4.80 $ 431

Vested and expected to vest at June 30, 2021 375 $ 7.85 4.80 $ 431

Exercisable at June 30, 2021 158 $ 8.21 4.24 $ 161

Aggregate intrinsic value is the difference between the closing price on the last trading day in June 2021 and the exercise price, multiplied by the number of in-the-money stock options.

Outstanding at September 30, 2021 296 $ 7.96 3.85 $ 171

Vested and expected to vest at September 30, 2021 272 $ 7.99 3.74 $ 171

Exercisable at September 30, 2021 170 $ 8.20 2.95 $ 171

Aggregate intrinsic value is the difference between the closing price on the last trading day in September 2021 and the exercise price, multiplied by the number of in-the-money stock options.

Restricted Stock Units

The following summarizes RSU activities for the six months ended June 30, 2021 (in thousands except for weighted average grant date fair value and weighted average remaining contractual life data):

The following summarizes RSU activities for the nine months ended September 30, 2021 (in thousands except for weighted average grant date fair value and weighted average remaining contractual life data):

Number of Restricted Stock Units Weighted Average Grant Date Fair Value Weighted Average

5 unchanged sentences

Forfeited ( 236 ) $ 6.67

Outstanding at June 30, 2021 364 $ 6.71 1.01 $ 3,197

Outstanding at September 30, 2021 247 $ 6.67 0.79 $ 1,690

Restricted Stock Awards

The following summarizes RSA activities for the six months ended June 30, 2021 (in thousands except for weighted average grant date fair value and weighted average remaining recognition period):

The following summarizes RSA activities for the nine months ended September 30, 2021 (in thousands except for weighted average grant date fair value and weighted average remaining recognition period):

Number of Restricted Stock Awards Weighted Average Grant Date Fair Value Weighted Average Remaining Recognition Period

3 unchanged sentences

Forfeited — $ —

Outstanding at June 30, 2021 — $ — 0.00

Outstanding at September 30, 2021 — $ — 0.00

Market Condition-Based Restricted Stock Units

4 unchanged sentences

The Performance Milestones of the PSUs were fully achieved, subject to final certification by the Compensation Committee.

The following summarizes PSU activities for the six months ended June 30, 2021 (in thousands except for weighted average grant date fair value and weighted average remaining recognition period):

The following summarizes PSU activities for the nine months ended September 30, 2021 (in thousands except for weighted average grant date fair value and weighted average remaining recognition period):

Number of Market Condition-Based Restricted Stock Units Weighted Average Grant Date Fair Value Weighted Average Remaining Recognition Period

Outstanding at December 31, 2020 250 $ 6.20 2.08

Granted — $ —

Released — $ —

Forfeited ( 160 ) $ 6.20

Outstanding at June 30, 2021 190 $ 6.20 1.58

Outstanding at September 30, 2021 90 $ 6.20 1.33

Employee Stock Purchase Plan

2 unchanged sentences

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

During the six months ended June 30, 2021, 15,543 shares were purchased under the ESPP.

As of June 30, 2021, 215,338 shares were available for future purchase under the ESPP.

During the nine months ended September 30, 2021, 25,033 shares were purchased under the ESPP.

As of September 30, 2021, 205,848 shares were available for future purchase under the ESPP.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expenses recognized for the three and six months ended June 30, 2021 and 2020 (in thousands):

The following table summarizes stock-based compensation expenses recognized for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

11 unchanged sentences

These variables include actual and projected employee stock option exercise behaviors that impact the expected term, our expected stock price volatility over the term of the awards, risk-free interest rate, and expected dividend.

We did not grant stock options during the six months ended June 30, 2021.

As of June 30, 2021, there were $ 4.1 million of unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested stock options, RSAs and RSUs.

We did not grant stock options during the nine months ended September 30, 2021.

As of September 30, 2021, there were $ 3.2 million of unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested stock options, RSAs, RSUs and PSUs.

This unrecognized compensation cost will be recognized over an estimated weighted-average period of approximately 1.4 years.

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Stock Offering

On February 3, 2021, we filed an universal shelf registration statement on Form S-3 with the Securities and Exchange Commission which provided us with the financial flexibility to raise up to $ 250 million of capital.

On February 3, 2021, we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission which provided us with the flexibility to raise up to $ 250 million of capital.

We intend to use the net proceeds from the sale of the securities offered by this prospectus for working capital and other general corporate purposes, and we may use a portion of any net proceeds for investment in complementary businesses or alternative currencies.

On February 11, 2021, we entered into an equity distribution agreement (the "February 2021 Distribution Agreement") with an investment banking firm to issue and sell shares of our common stock having an aggregated offering price of up to $ 50 million.

Under the terms of the February 2021 Distribution Agreement, we are obligated to pay 2.25 % commission on the gross sales proceeds from common stock sold and customary indemnification rights and the reimbursement of legal fees and disbursements.

On February 11, 2021, we entered into an equity distribution agreement (the "February 2021 Distribution Agreement") with Craig-Hallum Capital Group LLC (“Craig-Hallum”), as sales agent to issue and sell shares of our common stock having an aggregated offering price of up to $ 50 million.

Under the terms of the February 2021 Distribution Agreement, we were obligated to pay a 2.25 % commission on the gross sales proceeds from common stock sold and customary indemnification rights and the reimbursement of legal fees and disbursements.

During the first quarter of 2021, we sold 3.3 million shares of our common stock pursuant to the February 2021 Distribution Agreement and we received net proceeds of $ 35.9 million from the offering net of $ 1.2 million of commissions and other offering costs.

We terminated the February 2021 Distribution Agreement on March 5, 2021.

On July 6, 2021, we entered into an equity distribution agreement (the "July 2021 Distribution Agreement") with Craig-Hallum Capital Group LLC (“Craig-Hallum”), as sales agent to issue and sell shares of our common stock having an aggregated offering price of up to $ 60 million.

Under the July 2021 Distribution Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made.

Subject to the terms and conditions of the July 2021 Distribution Agreement, the investment banker may sell the shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made through the Nasdaq Global Select Market or on any other existing trading market for the common stock.

We are obligated to pay 2.25 % commission on the gross sales proceeds from common stock sold and customary indemnification rights and the reimbursement of legal fees and disbursements.

The July 2021 Distribution Agreement may be terminated by either party upon prior written notice to the other party, or at any time under certain circumstances, including but not limited to the occurrence of a material adverse change in Immersion.

We are not obligated to sell any shares under the July 2021 Distribution Agreement .

During the third quarter of 2021, we sold 1.9 million shares of our common stock pursuant to the July 2021 Distribution Agreement and we received net proceeds of approximately $ 14.2 million from the offering after deducting commissions and other estimated offering expense.

Stock Repurchase Program

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

As of June 30, 2020, we repurchased the maximum amount of shares of common stock available under the Stock Repurchase Program and no longer have any amount available for repurchase under the Stock Repurchase Plan.

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

As of September 30, 2020, we repurchased the maximum amount of shares of common stock available under the Stock Repurchase Program and no longer have any amount available for repurchase under the Stock Repurchase Plan.

During the six months ended June 30, 2020, we repurchased approximately 4.9 million shares for approximately $ 30.6 million at an average cost of $ 6.39 per share.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Income (loss) before provision for income taxes $ 5,847 $ ( 671 ) $ 8,024 $ ( 5,447 )

Provision for income taxes 506 41 647 93

Effective tax rate 8.7 % ( 6.1 ) % 8.1 % ( 1.7 ) %

The provision for income tax for the three months and six months ended June 30, 2021 and 2020, respectively, resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

Income (loss) before benefit from (provision for) income taxes $ 4,111 $ 2,759 $ 12,135 $ ( 2,688 )

Benefit from (provision for) income taxes ( 340 ) 96 ( 987 ) 3

Effective tax rates ( 8.3 ) % 3.5 % ( 8.1 ) % ( 0.1 ) %

The provision for income tax for the three months and nine months ended September 30, 2021 and 2020, respectively, resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

We continue to carry a full valuation allowance on our U.S.

federal and State as well as Canada federal deferred tax assets.

The effective tax rate is lower than statutory tax rate is mainly due to the benefit recorded on deferred tax assets utilized in current year for the U.S.

The effective tax rate is lower than statutory tax rate mainly due to the benefit from the utilization of a Net Operating Loss ("NOL") in the current year for the U.S.

federal and state jurisdictions.

As of June 30, 2021, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $ 4.5 million and applicable interest of $ 0 .

As of September 30, 2021, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $ 4.3 million and applicable interest of $ 0 .

The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $ 0 .

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

As of June 30, 2021, we had net deferred income tax assets of $ 2.7 million and deferred income tax liabilities of $ 0.4 million.

As of September 30, 2021, we had net deferred income tax assets of $ 2.7 million and deferred income tax liabilities of $ 0.4 million.

Because we have net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state, and foreign taxing authorities may examine our tax returns for all years from 2001 through the current period.

Currently we are under examination by the Internal Revenue Services for tax year 2018 and California Franchise Tax Board for tax years 2017 to 2019.

We have received a letter of no change from the California Franchise Tax Board related to the examination for tax years 2017 and 2018.

Currently we are under examination by the Internal Revenue Services for tax year 2018.

We maintain a valuation allowance of $ 28.5 million against certain of our deferred tax assets, including all federal, state, and certain foreign deferred tax assets because of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and uncertainty regarding near term projected results.

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Diluted net income (loss) per share is computed using the weighted average number of shares of common stock, adjusted for any dilutive effect of potential common stock.

Potential common stock, computed using the treasury stock method, includes stock options, RSUs, RSAs and ESPP.

Potential common stock, computed using the treasury stock method, includes stock options, RSUs, RSAs, PSUs and ESPP.

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income (loss) per share (in thousands, except per share amounts):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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We include the underlying market condition stock awards in the calculation of diluted earnings per share if the performance condition has been satisfied as of the end of the reporting period and exclude stock equity awards if the performance condition has not been met.

For the three months ended June 30, 2021, we had stock options, RSUs, PSUs and RSAs outstanding that could potentially dilute basic earnings per share in the future, but these were excluded from the computation of diluted net income (loss) per share because their effect would have been anti-dilutive.

For the three and nine months ended September 30, 2021, we had stock options, RSUs, PSUs and RSAs outstanding that could potentially dilute basic earnings per share in the future, but these were excluded from the computation of diluted net income (loss) per share because their effect would have been anti-dilutive.

These outstanding securities consisted of the following (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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We apply discount rates to operating leases using a portfolio approach.

Below is a summary of our right-of-use assets (“ROU”) assets and lease liabilities as of June 30, 2021 and December 31, 2020, respectively (in thousands):

Balance Sheets Classification June 30,

Below is a summary of our right-of-use assets (“ROU”) assets and lease liabilities as of September 30, 2021 and December 31, 2020, respectively (in thousands):

Balance Sheets Classification September 30,

2021 December 31, 2020

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

As of June 30, 2021, $ 0.1 million was reported in Prepaid expenses and other current assets and $ 0.1 million was reported in Other assets on our Condensed Consolidated Balance Sheets .

As of September 30, 2021, $ 0.1 million was reported in Prepaid expenses and other current assets and $ 0.1 million was reported in Other assets on our Condensed Consolidated Balance Sheets .

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

During the three and six months ended June 30, 2021, and 2020, our net operating lease expenses are as follows (in thousands):

During the three and nine months ended September 30, 2021, and 2020, our net operating lease expenses are as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Net lease cost (income) $ ( 48 ) $ 21 $ ( 149 ) $ 524

The table below provides supplemental information related to operating leases for the six months ended June 30, 2021 and 2020 (in thousands except for lease term):

Six Months Ended

The table below provides supplemental information related to operating leases for the nine months ended September 30, 2021 and 2020 (in thousands except for lease term):

Nine Months Ended

September 30,

Cash paid within operating cash flow $ 1,115 $ 1,061

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Weighted average discount rate N/A 3.5 %

Minimum future lease payment obligations for our operating leases as of June 30, 2021 are as follows (in thousands):

Minimum future lease payment obligations for our operating leases as of September 30, 2021 are as follows (in thousands):

For the Years Ending December 31,

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Total $ 2,085

Future lease payments as of June 30, 2021 from our sublease agreement are as follows (in thousands):

Future lease payments as of September 30, 2021 from our sublease agreement are as follows (in thousands):

For the Years Ending December 31,

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Total $ 1,692

SUBSEQUENT EVENT

On July 6, 2021, we entered into an equity distribution agreement (the "July 2021 Distribution Agreement") with an investment banking firm to issue and sell shares of our common stock having an aggregated offering price of up to $ 60 million.

We are obligated to pay 2.25 % commission on the gross sales proceeds from common stock sold and customary indemnification rights and the reimbursement of legal fees and disbursements.

We are not obligated to sell any shares under the July 2021 Distribution Agreement .

As of August 12, 2021, we sold 1.9 million shares of our common stock pursuant to the July 2021 Distribution Agreement and we received net proceeds of approximately $ 14.5 million from the offering after deducting commissions and other estimated offering expense.

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

What changed 10-Q

Item 1. Financial Statements