IMMERSION CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS IMMERSION CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) September 30, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 90,601 $ 59,522 Marketable securities 28,028 — Accounts and other receivables 4,171 2,218 Prepaid expenses and other current assets 11,739 12,610 Total current assets 134,539 74,350 Property and equipment, net 220 209 Long-term deposits 11,928 12,571 Other assets 13,836 9,000 Total assets $ 160,523 $ 96,130 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 117 $ 149 Accrued compensation 729 1,001 Other current liabilities 4,962 2,457 Deferred revenue 4,914 5,173 Total current liabilities 10,722 8,780 Long-term deferred revenue 17,859 21,334 Other long-term liabilities 1,153 2,035 Total liabilities 29,734 32,149 Contingencies (Note 5) Stockholders’ equity: Common stock and additional paid-in capital — $0.001 par value; 100,000,000 shares authorized; 45,167,893 and 39,161,214 shares issued, respectively; 33,024,460 and 27,017,781 shares outstanding, respectively 313,885 258,756 Accumulated other comprehensive income 653 122 Accumulated deficit ( 102,016 ) ( 113,164 ) Treasury stock at cost: 12,143,433 and 12,143,433 shares, respectively ( 81,733 ) ( 81,733 ) Total stockholders’ equity 130,789 63,981 Total liabilities and stockholders’ equity $ 160,523 $ 96,130 See accompanying Notes to Condensed Consolidated Financial Statements. 4 Table of Contents IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenues: Royalty and license $ 7,068 $ 7,531 $ 25,017 $ 19,306 Development, services, and other 105 65 325 215 Total revenues 7,173 7,596 25,342 19,521 Costs and expenses: Cost of revenues 8 32 78 138 Sales and marketing 443 1,096 2,743 4,067 Research and development 803 920 3,442 3,932 General and administrative 2,246 2,963 7,106 14,406 Total costs and expenses 3,500 5,011 13,369 22,543 Operating income (loss) 3,673 2,585 11,973 ( 3,022 ) Interest and other income (loss), net 438 174 162 334 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 ) Basic net income (loss) per share $ 0.12 $ 0.11 $ 0.36 $ ( 0.09 ) Shares used in calculating basic net income (loss) per share 32,474 26,898 30,693 28,507 Diluted net income (loss) per share $ 0.12 $ 0.11 $ 0.36 $ ( 0.09 ) Shares used in calculating diluted net income (loss) per share 32,612 27,134 31,065 28,507 Other comprehensive income (loss) Change in unrealized gains (loss) on short-term investments 531 — 531 ( 2 ) Total comprehensive income (loss) $ 4,302 $ 2,855 $ 11,679 $ ( 2,687 ) See accompanying Notes to Condensed Consolidated Financial Statements. 5 Table of Contents IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except number of shares) (Unaudited) Three Months Ended September 30, 2021 Common Stock and Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount Balances at June 30, 2021 43,252,670 $ 299,124 $ 122 $ ( 105,787 ) 12,143,433 $ ( 81,733 ) $ 111,726 Net income 3,771 3,771 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 — 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 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 Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount 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 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. 6 Table of Contents IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except number of shares) (Unaudited) Nine Months Ended September 30, 2021 Common Stock and Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount Balances at December 31, 2020 39,161,214 $ 258,756 $ 122 $ ( 113,164 ) 12,143,433 $ ( 81,733 ) $ 63,981 Net income 11,148 11,148 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 Release of restricted stock units and awards 448,772 — Shares issued in connection with public offering, net of offering costs 5,207,137 50,118 50,118 Stock-based compensation 1,997 1,997 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 Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Treasury Stock Total Stockholders’ Equity Shares Amount Shares Amount Balances at December 31, 2019 38,624,784 $ 253,289 $ 124 $ ( 118,565 ) 7,210,456 $ ( 51,091 ) $ 83,757 Net loss ( 2,685 ) ( 2,685 ) 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 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 September 30, 2020 39,058,091 $ 256,875 $ 122 $ ( 121,250 ) 12,143,433 $ ( 81,733 ) $ 54,014 7 Table of Contents See accompanying Notes to Condensed Consolidated Financial Statements. 8 Table of Contents IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2021 2020 Cash flows provided by (used in) operating activities: Net income (loss) $ 11,148 $ ( 2,685 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 575 1,681 Stock-based compensation 1,997 3,433 Foreign currency remeasurement losses 612 66 Unrealized gain on available-for-sale debt securities ( 490 ) — Other 68 ( 161 ) Changes in operating assets and liabilities: Accounts and other receivables ( 1,953 ) 2,019 Prepaid expenses and other current assets 870 4,147 Long-term deposits 33 ( 4,889 ) Other assets 2,097 1,471 Accounts payable ( 30 ) ( 642 ) Accrued compensation ( 272 ) ( 2,013 ) Other current liabilities 917 ( 1,465 ) Deferred revenue ( 3,734 ) ( 2,984 ) Other long-term liabilities ( 1,116 ) ( 966 ) Net cash provided by (used in) operating activities 10,722 ( 2,988 ) 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 Purchases of property and equipment ( 89 ) ( 40 ) Net cash provided by (used in) investing activities ( 32,775 ) 2,960 Cash flows provided by (used in) financing activities: Proceeds from issuance of common stock, net 50,118 — Cash paid for purchases of treasury shares — ( 30,642 ) Proceeds from issuance of common stock under employee stock purchase plan 150 134 Proceeds from stock options exercises 2,864 19 Net cash provided by (used in) financing activities 53,132 ( 30,489 ) Net increase (decrease) in cash and cash equivalents 31,079 ( 30,517 ) Cash and cash equivalents: Beginning of period 59,522 86,478 End of period $ 90,601 $ 55,961 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 88 $ 65 Supplemental disclosure of non-cash operating, investing, and financing activities: Release of restricted stock units and awards under stock plan $ 4,081 $ 2,801 Leased assets obtained in exchange for new operating lease liabilities $ — $ 577 See accompanying Notes to Condensed Consolidated Financial Statements. 9 Table of Contents IMMERSION CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021 (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES Description of Business Immersion Corporation (the "Company", "Immersion", "we" or "us") was incorporated in 1993 in California and reincorporated in Delaware in 1999. We focus on the creation, design, development, and licensing of innovative haptic technologies that allow people to use their sense of touch more fully as they engage with products and experience the digital world around them. We have adopted a business model under which it provides advanced tactile software, related tools, technical assistance designed to help integrate our patented technology into our customers’ products or enhance the functionality of our patented technology to certain customers, and offers licenses to our patented technology to other customers. 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 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 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; 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. The CEWS provides a subsidy of up to 75% of eligible employees’ employment insurable remuneration, subject to certain criteria. We applied for the CEWS to the extent we met the requirements to receive the subsidy. During the 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 The accompanying condensed consolidated financial statements include the accounts of Immersion and our wholly-owned subsidiaries. All intercompany accounts, transactions, and balances have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all information and footnotes necessary for a complete presentation of the financial position, results of operations, and cash flows, in conformity with U.S. GAAP and should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, all adjustments consisting of only normal and recurring items necessary for the fair presentation of the financial position and results of operations for the interim periods presented have been included. Use of Estimates The preparation of condensed consolidated financial statements and related disclosures requires management to make estimates and assumptions that affect the reported amounts of the condensed consolidated financial statements. Significant estimates include revenue recognition, useful lives of property and equipment, valuation of income taxes including uncertain tax provisions, stock-based compensation and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year. 10 Table of Contents Segment Information We develop, license, and support a wide range of software and IP that more fully engage users’ senses of touch when operating digital devices. We focus on the following target application areas: mobile devices, wearables, consumer, mobile entertainment and other content; console gaming; automotive; medical; and commercial. We manage these application areas in one operating and reporting segment with only one set of management, development, and administrative personnel. Our chief operating decision maker (“CODM”) is the Chief Executive Officer. The CODM approves budgets and allocates resources to and assesses the performance of our business using information about our revenue and operating loss. There is only one segment that is reported to management. Recently Adopted Accounting Pronouncements In December 2019, the Financial Accounting Standard Board (the "FASB") issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment is effective for public companies with fiscal years beginning after December 15, 2020; early adoption is permitted. We adopted this new guidance in the first quarter of 2021. This adoption did not have material impact on our condensed consolidated financial statements. 2. REVENUE RECOGNITION Disaggregated Revenue 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Fixed fee license revenue $ 1,247 $ 1,243 $ 4,346 $ 3,821 Per-unit royalty revenue 5,821 6,288 20,671 15,485 Total royalty and license revenue 7,068 7,531 25,017 19,306 Development, services, and other revenue 105 65 325 215 Total revenue $ 7,173 $ 7,596 $ 25,342 $ 19,521 Per-unit Royalty Revenue We record per-unit royalty revenue in the same period in which the licensee’s underlying sales occur. As we generally do not receive the per-unit licensee royalty reports for sales during a given quarter within the time frame that allows us to adequately review the reports and include the actual amounts in our quarterly results for such quarter, we accrue the related revenue based on estimates of our licensees’ underlying sales, subject to certain constraints on our ability to estimate such amounts. We develop such estimates based on a combination of available data including, but not limited to, approved customer forecasts, a look back at historical royalty reporting for each of our customers, and industry information available for the licensed products. As a result of accruing per-unit royalty revenue for the quarter based on such estimates, adjustments will be required in the following quarter to true up revenue to the actual amounts reported by our licensees. In the three months ended September 30, 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 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, 11 Table of Contents 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 We recognize revenue from a fixed fee license agreement when we have satisfied our performance obligations, which typically occurs upon the transfer of rights to our technology upon the execution of the license agreement. However, in certain contracts, we grant a license to our existing patent portfolio at the inception of the license agreement as well as rights to the portfolio as it evolves throughout the contract term. For such arrangements, we have concluded that there are two separate performance obligations: • Performance Obligation A: to transfer rights to our patent portfolio as it exists when the contract is executed. • Performance Obligation B: to transfer rights to our patent portfolio as it evolves over the term of the contract, including access to new patent applications that the licensee can benefit from over the term of the contract. If a fixed fee license agreement contains only Performance Obligation A, we recognize most or all of the revenue from the agreement at the inception of the contract. For fixed fee license agreements that contain both Performance Obligation A and B, we allocate the transaction price based on the standalone price for each of the two performance obligations. We use a number of factors primarily related to the attributes of our patent portfolio to estimate standalone prices related to Performance Obligation A and B. Once the transaction price is allocated, the portion of the transaction price allocable to Performance Obligation A is recognized in the period the license agreement is signed and the customer can benefit from rights provided in the contract. The portion allocable to Performance Obligation B is recognized on a straight-line basis over the contract term. For such contracts, a contract liability account is established and included within Deferred revenue on the Condensed Consolidated Balance Sheet s. As the rights and obligations in a contract are interdependent, contract assets and contract liabilities that arise in the same contract are presented on a net basis. Based on contracts signed and payments received as of September 30, 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 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. 3. 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 Amortized 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 12 Table of Contents 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. We did 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 Amortized Cost Fair Value 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. 13 Table of Contents 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 Liabilities 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 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. 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. 14 Table of Contents 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 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets: Equity securities $ 28,028 $ — $ — $ 28,028 Corporate debt securities — 7,466 — 7,466 Total assets at fair value $ 28,028 $ 7,466 $ — $ 35,494 Liabilities Derivative instruments $ — $ 1,759 $ — $ 1,759 Total liabilities at fair value $ — $ 1,759 $ — $ 1,759 December 31, 2020 Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets: Money market accounts (1) 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. 4. BALANCE SHEETS DETAILS Cash and Cash Equivalents Our cash and cash equivalent balances were as follows (in thousands): September 30, 2021 December 31, 2020 Cash $ 90,601 $ 13,908 Money market funds — 45,614 Total cash and cash equivalents $ 90,601 $ 59,522 15 Table of Contents Accounts and Other Receivables Accounts and other receivables consisted of the following (in thousands): September 30, 2021 December 31, 2020 Trade accounts receivable $ 3,243 $ 1,618 Other receivables 928 600 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, 2020 Prepaid expenses $ 785 $ 816 Contract assets - current 10,756 11,623 Other current assets 198 171 Total prepaid expenses and other current assets 11,739 12,610 Other Assets Other assets consisted of the following (in thousands): September 30, 2021 December 31, 2020 Contract assets - long-term $ 2,451 $ 4,596 Right-of-use ("ROU") assets 1,075 1,607 Deferred tax assets 2,659 2,659 Marketable debt securities - non-current 7,466 — Other assets 185 138 Total other assets $ 13,836 $ 9,000 Other Current Liabilities Other current liabilities are as follows (in thousands): September 30, 2021 December 31, 2020 Lease liabilities - current $ 1,213 $ 1,382 Derivative instruments 1,759 — Other current liabilities 1,990 1,075 Total other current liabilities $ 4,962 $ 2,457 16 Table of Contents 5. CONTINGENCIES From time to time, we receive claims from third parties asserting that our technologies, or those of our licensees, infringe on the other parties’ IP rights. Management believes that these claims are without merit. Additionally, periodically, we are involved in routine legal matters and contractual disputes incidental to our normal operations. In management’s opinion, unless we disclosed otherwise, the resolution of such matters will not have a material adverse effect on our consolidated financial condition, results of operations, or liquidity. In the normal course of business, we provide indemnification of varying scope to customers, most commonly to licensees in connection with licensing arrangements that include our IP, although these provisions can cover additional matters. Historically, costs related to these guarantees have not been significant, and we are unable to estimate the maximum potential impact of these guarantees on its future results of operations. Samsung Electronics Co. v. Immersion Corporation and Immersion Software Ireland Limited On April 28, 2017, Immersion and Immersion Software Ireland Limited (collectively referred to as “Immersion” in this section) received a letter from Samsung Electronics Co. (“Samsung”) requesting that we reimburse Samsung with respect to withholding tax and penalties imposed on Samsung by the Korean tax authorities following an investigation where the tax authority determined that Samsung failed to withhold taxes on Samsung’s royalty payments to Immersion Software Ireland from 2012 to 2016. 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 behalf of Samsung, we filed an appeal with the Korea Administrative Court on February 15, 2019. On July 16, 2020, the Korea Administrative Court issued its ruling in which it ruled that the withholding taxes and penalties which were imposed by the Korean tax authorities on Samsung should be cancelled with some litigation costs to be borne by the Korean tax authorities. On August 1, 2020, the Korean tax authorities filed an appeal with the Korea High Court. The first hearing in the Korea High Court occurred on November 11, 2020. A second hearing occurred on January 13, 2021. A third hearing occurred on March 21, 2021. 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. 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. Samsung is requesting that we pay Samsung the amount of KRW 7,841,324,165 (approximately $ 6.9 million) plus interest from and after May 2, 2017, plus the cost of the arbitration including legal fees. On March 27, 2019, we received the final award. The award ordered Immersion to pay Samsung KRW 7,841,324,165 (approximately $ 6.9 million as of March 31, 2019) which we paid on April 22, 2019 and recorded in Long-term deposit on our Condensed Consolidated Balance Sheets . The award also denied Samsung’s claim for interest from and after May 2, 2017 and ordered Immersion to pay Samsung’s cost of the arbitration in the amount of approximately $ 871,454 , which was paid in 2019. We believe that there are valid defenses to all of the claims from the Korean tax authorities. We intend to vigorously defend against the claims from the Korean tax authorities. We expect to be reimbursed by Samsung to the extent we ultimately prevail in the appeal in the Korea courts. On March 31, 2019, $ 6.9 million was recorded as a deposit included in Long-term deposits on our Condensed Consolidated Balance Sheets . In the event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Long-term deposits would be recorded as additional income tax expense on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail. 17 Table of Contents LGE Korean Withholding Tax Matter On October 16, 2017, we received a letter from LG Electronics Inc. (“LGE”) requesting that we reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following an investigation where the tax authority determined that LGE failed to withhold on LGE’s royalty payments to Immersion Software Ireland 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 in Long-term deposits on our Condensed Consolidated Balance Sheets . In the event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Long-term deposits would be recorded as additional income tax expense on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) , in the period in which we do not ultimately prevail. 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. A fifth 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 and held a sixth hearing for November 12, 2020. A seventh hearing occurred on January 14, 2021. An eighth hearing occurred on April 8, 2021. A ninth hearing occurred on June 24, 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. We believe that there are valid defenses to the claims raised by the Korean tax authorities and that LGE’s claims are without merit. We intend to vigorously defend ourselves against these claims. 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 the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) , in the period in which we do not ultimately prevail. Immersion Software Ireland Limited v. Marquardt GMBH 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. The last royalty report we have received from Marquardt was for the third quarter of calendar year 2020 in which Marquardt reported approximately $ 0.5 million in royalties but did not pay such royalties. Further, since that date, we have not received any other royalty reports or royalty payments from Marquardt. The term of the Marquardt License expires by its terms on December 31, 2023. 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 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. 18 Table of Contents 6. STOCK-BASED COMPENSATION Stock Options and Awards Our equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for employees, consultants, officers, and directors and to align stockholder and employee interests. We may grant time-based options, market condition-based options, stock appreciation rights, restricted stock (“RSAs”), restricted stock units (“RSUs”), performance shares, market condition-based performance restricted stock units (“PSUs”), and other stock-based equity awards to employees, officers, directors, and consultants. Under this program, stock options may be granted at prices not less than the fair market value on the date of grant for stock options. Stock options generally vest over four years and expire seven years from the grant date. Market condition-based options are subject to a market condition whereby the closing price of our common stock must exceed a certain level for a number of trading days within a specified time frame or the options will be canceled before the expiration of the options. RSAs generally vest over one year . RSUs generally vest over three years . Awards granted other than a stock option or stock appreciation right shall reduce the common stock shares available for grant by 1.75 shares for every share issued. A summary of our equity incentive program is as follows (in thousands): September 30, 2021 Common stock shares available for grant (1) — Stock options outstanding 296 PSUs outstanding 90 RSUs outstanding 247 RSAs outstanding — (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 September 30, 2021. Time-Based Stock Options 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 Underlying Stock Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at December 31, 2020 828 $ 8.16 4.36 $ 2,628 Exercised ( 326 ) $ 8.79 Canceled or expired ( 206 ) $ 7.46 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 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 Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at December 31, 2020 802 $ 6.98 1.00 $ 9,057 Released ( 319 ) $ 7.45 Forfeited ( 236 ) $ 6.67 Outstanding at September 30, 2021 247 $ 6.67 0.79 $ 1,690 Restricted Stock Awards 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 (Years) Outstanding at December 31, 2020 130 $ 6.53 0.45 Granted — $ — Released ( 130 ) $ 6.53 Forfeited — $ — Outstanding at September 30, 2021 — $ — 0.00 Market Condition-Based Restricted Stock Units In the fourth quarter of 2020, we granted 250,000 shares of PSUs to our executives. Each PSU represents the right to one share of our common stock with vesting subject to: (a) the achievement of specified levels of the volume weighted average closing prices of our common stock during any one hundred (100) day-period between November 10, 2020 and November 10, 2025, subject to certification by the Compensation Committee (“Performance Milestones”); and (b) continued employment with us through the later of each achievement date or service vesting date, which occurs over a four (4) year-period commencing on November 10, 2020. The Performance Milestones of the PSUs were fully achieved, subject to final certification by the Compensation Committee. 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 (Years) Outstanding at December 31, 2020 250 $ 6.20 2.08 Forfeited ( 160 ) $ 6.20 Outstanding at September 30, 2021 90 $ 6.20 1.33 Employee Stock Purchase Plan Under our 1999 Employee Stock Purchase Plan ("ESPP"), eligible employees may purchase common stock through payroll deductions at a purchase price of 85 % of the lower of the fair market value of our common stock at the beginning of the offering period or the purchase date. Participants may not purchase more than 2,000 shares in a six months offering period or purchase stock having a value greater than $ 25,000 in any calendar year as measured at the beginning of the offering period. A total of 1.0 million shares of common stock has been reserved for issuance 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 nine months ended September 30, 2021 and 2020 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Stock options $ 123 $ 259 $ 317 $ 812 RSUs, RSAs and PSUs 286 1,065 1,635 2,583 Employee stock purchase plan 6 15 45 38 Total $ 415 $ 1,339 $ 1,997 $ 3,433 Sales and marketing $ 141 $ 205 $ 678 $ 593 Research and development 118 233 653 653 General and administrative 156 901 666 2,187 Total $ 415 $ 1,339 $ 1,997 $ 3,433 We use the Black-Scholes-Merton option pricing model for our time-based options, single-option approach to determine the fair value of standard stock options. All share-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods. The determination of the fair value of share-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. 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 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. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. 19 Table of Contents 7. STOCKHOLDERS’ EQUITY Stock Offering 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 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 On November 1, 2007, our Board of Directors (the “Board”) authorized the repurchase of up to $ 50.0 million of our common stock (the “Stock Repurchase Program”). In addition, on October 22, 2014, the Board authorized another $ 30.0 million under the Stock Repurchase Program. 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. 8. INCOME TAXES Income tax provision consisted of the following (in thousands, except for effective tax rate percentage): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 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 ) % 20 Table of Contents 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 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 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 . Our policy is to account for interest and penalties related to uncertain tax positions as a component of income tax provision. We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months. As of September 30, 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. 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. If we determine the deferred tax assets are realizable based on our assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made. 9. NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of shares of common stock, adjusted for any dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method, includes stock options, 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Numerator: Net income (loss) $ 3,771 $ 2,855 $ 11,148 $ ( 2,685 ) Denominator: Weighted-average common stock outstanding, basic 32,474 26,898 30,693 28,507 Dilutive effect of potential common shares: Stock options, stock awards and ESPP 138 236 372 — Total shares, diluted 32,612 27,134 31,065 28,507 Basic net income (loss) per share $ 0.12 $ 0.11 $ 0.36 $ ( 0.09 ) Diluted net income (loss) per share $ 0.12 $ 0.11 $ 0.36 $ ( 0.09 ) 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 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): 21 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Stock options 342 1,368 97 1,367 RSUs and RSAs — 181 — 1,197 342 1,549 97 2,564 10. LEASES We lease our office space under lease arrangements with expiration dates on or before February 29, 2024. We recognize lease expense on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets . We combine lease and non-lease components for new and reassessed leases. We apply discount rates to operating leases using a portfolio approach. Below is a summary of our right-of-use assets (“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 Assets Right-of-use assets Other assets $ 1,075 $ 1,607 Liabilities Operating lease liabilities - current Other current liabilities 1,213 1,382 Operating lease liabilities - long-term Other long-term liabilities 795 1,677 Total lease liabilities $ 2,008 $ 3,059 On January 31, 2020, we entered into an agreement to lease approximately 5,000 square feet of office space in San Francisco, California (“SF Facility”). This facility is used for administrative functions. The lease commenced in the first quarter of 2020 and expires in 2022. In the first quarter of 2020, we recorded a lease liability of $ 0.6 million, which represents the present value of the lease payments using an estimated incremental borrowing rate of 3.50 %. We also recognized ROU of $ 0.6 million which represents our right to use an underlying asset for the lease term. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As a result of COVID-19, we implemented work-from-home policy in the first quarter of 2020. Our San Francisco office has been closed since the first quarter of 2020 and we expect our San Francisco-based employees to continue to work-from-home in the foreseeable future. We have been actively seeking a sublease tenant for the SF Facility without success since early 2020. In the fourth quarter of 2020, we recorded $ 0.3 million impairment charge to the SF Facility ROU asset. In the second quarter of 2021, we recorded an additional $ 32,000 impairment charge to the SF Facility ROU asset. On November 12, 2014, we entered into an amendment to the lease of approximately 42,000 square feet office space in San Jose, California facilities (“SJ Facility”). The lease commenced in May 2015 and expires as of April 2023. On March 12, 2020, we entered into a sublease agreement with Neato Robotics, Inc. (“Neato”) for the SJ Facility. This sublease commenced in June 2020 and ends on April 30, 2023 which is the lease termination date of the original SJ Facility lease. In accordance with provisions of ASC 842 Lease s (“ASC 842”), we treated the sublease as a separate lease as we were not relieved of the primary obligation under the original lease. We continue to account for the original SJ Facility, as a lessee, in the same manner as prior to the commencement date of the sublease. We accounted for the sublease as a lessor of the lease. We classified the sublease as an operating lease as it did not meet the criteria of a Sale-Type or Direct Financing lease. At the commencement date of the sublease, we recognized initial direct costs of $ 0.3 million. These deferred costs will be amortized over the terms of the sublease payments. As of 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 . 22 Table of Contents 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 nine months ended September 30, 2021, and 2020, our net operating lease expenses are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Operating lease cost $ 209 $ 278 $ 623 $ 851 Sublease income ( 257 ) ( 257 ) ( 772 ) ( 327 ) Net lease cost (income) $ ( 48 ) $ 21 $ ( 149 ) $ 524 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, 2021 2020 Cash paid within operating cash flow $ 1,115 $ 1,061 Weighted average lease terms (in years) 1.6 2.3 Weighted average discount rate N/A 3.5 % 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, Remainder of 2021 $ 377 2022 1,223 2023 460 2024 25 Total $ 2,085 Future lease payments as of September 30, 2021 from our sublease agreement are as follows (in thousands): For the Years Ending December 31, Remainder of 2021 $ 264 2022 1,077 2023 351 Total $ 1,692 23 Table of Contents