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Item 1. Financial Statements

2022-05-13 compared with 2021-11-03 · 292 added, 356 removed, 351 unchanged (65% of the section changed)

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CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

September 30,

(In thousands, except number of shares and per share amounts)

2022 December 31, 2021

Current assets:

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

Marketable securities 28,028 —

Cash $ 62,958 $ 51,490

Marketable equity securities 83,532 86,431

Accounts and other receivables 2,079 1,970

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Long-term deposits 4,917 9,658

Other assets 13,836 9,000

Marketable debt securities 11,181 7,286

Other assets, net 4,001 4,809

Total assets $ 180,861 $ 175,520

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Accrued compensation 567 555

Other current liabilities 4,962 2,457

Deferred revenue 4,736 4,826

Other current liabilities 15,955 11,247

Total current liabilities 21,311 16,630

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Total liabilities 37,511 34,225

Contingencies (Note 5)

Commitments and 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

Common stock and additional paid-in capital 324,476 323,296

Accumulated other comprehensive income 653 412

Accumulated deficit ( 95,604 ) ( 100,680 )

Treasury stock at cost:

12,143,433 and 12,143,433 shares, respectively ( 81,733 ) ( 81,733 )

Treasury stock ( 86,175 ) ( 81,733 )

Total stockholders’ equity 143,350 141,295

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IMMERSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)

Three Months Ended March 31,

Royalty and license $ 7,230 $ 7,068

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Total costs and expenses 3,705 4,666

Operating income (loss) 3,673 2,585 11,973 ( 3,022 )

Operating income 3,603 2,493

Interest and other income (loss), net 2,034 ( 316 )

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 )

Income before provision for income taxes 5,637 2,177

Provision for income taxes ( 561 ) ( 141 )

Net income $ 5,076 $ 2,036

Basic net income per share $ 0.15 $ 0.07

Shares used in calculating basic net income per share 33,996 28,579

Diluted net income per share $ 0.15 $ 0.07

Shares used in calculating diluted net income per share 34,268 29,180

Other comprehensive income, net of tax

Change in unrealized gains on available-for-sale securities $ 241 $ —

Total other comprehensive income 241 —

Total comprehensive income $ 5,317 $ 2,036

See accompanying Notes to Condensed Consolidated Financial Statements.

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(In thousands, except number of shares)

Three Months Ended September 30, 2021

Common Stock and

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Shares Amount Shares Amount

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

Balances at December 31, 2021 46,534,198 323,296 412 ( 100,680 ) 12,143,433 ( 81,733 ) 141,295

Net income — — — 5,076 — — 5,076

Unrealized gain on available-for-sale securities, net of taxes — — 241 — — — 241

Issuance of stock for ESPP purchases 9,490 61 61

Stock repurchases — — — — 938,781 ( 4,442 ) ( 4,442 )

Release of restricted stock units and awards 116,811 — — — — — —

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

Comprehensive

Income Accumulated

Deficit Treasury Stock Total

Stockholders’

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 7,725 34 — — — — 34

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

Release of restricted stock units and awards 35,821 —

Shares issued in connection with public offering, net of issuance costs — 5 — — — — 5

Stock-based compensation — 1,141 — — — — 1,141

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.

IMMERSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except number of shares)

Nine Months Ended September 30, 2021

Balances at March 31, 2022 46,658,734 $ 324,476 $ 653 $ ( 95,604 ) 13,082,214 $ ( 86,175 ) $ 143,350

Common Stock and

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Net income — — — 2,036 — — 2,036

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 306,987 2,724 — — — — 2,724

Release of restricted stock units and awards 227,055 — — — — — —

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

Comprehensive

Income (Loss) Accumulated

Deficit Treasury Stock Total

Stockholders’

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 —

Issuance of stock for ESPP purchase 15,543 89 — — — — 89

Shares issued in connection with public offering, net of issuance costs 3,309,811 35,937 — — — — 35,937

Stock-based compensation 531 — — — — 531

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

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

See accompanying Notes to Condensed Consolidated Financial Statements.

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(In thousands)

Nine Months Ended

September 30,

Three Months Ended

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:

Net income $ 5,076 $ 2,036

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 206 192

Stock-based compensation 1,141 531

Foreign currency remeasurement losses 612 66

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

Net gains on investment in marketable equity securities ( 3,166 ) —

Net losses on derivative instruments 2,795 —

Realized gains on investment in marketable debt securities ( 368 ) —

Foreign currency remeasurement gains 131 280

Other ( 17 ) 24

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Other long-term liabilities ( 355 ) ( 367 )

Net cash provided by (used in) operating activities 10,722 ( 2,988 )

Net cash provided by operating activities 11,038 4,410

Cash flows provided by (used in) investing activities:

Purchases of marketable securities ( 36,778 ) —

Proceeds from sale or maturities of marketable securities and other investments 39,899 —

Proceeds from sale of derivative instruments 6,817 —

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

Payments for settlement of derivative instruments ( 5,105 ) —

Purchases of property and equipment — ( 57 )

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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 )

Proceed from issuance of common stock, net of issuance costs 5 35,937

Proceeds from issuance of common stock under employee stock purchase plan 34 89

Proceeds from stock options exercises — 2,723

Cash paid for purchases of treasury stock ( 4,442 ) —

Net cash provided by (used in) financing activities ( 4,403 ) 38,749

Net increase (decrease) in cash and cash equivalents 31,079 ( 30,517 )

Net increase in cash and cash equivalents 11,468 43,102

Cash and cash equivalents:

Beginning of period 59,522 86,478

End of period $ 90,601 $ 55,961

Beginning of year 51,490 59,522

End of year $ 62,958 $ 102,624

See accompanying Notes to Condensed Consolidated Financial Statements.

IMMERSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Supplemental disclosure of cash flow information:

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Supplemental disclosure of non-cash operating, investing, and financing activities:

Release of restricted stock units and awards under stock plan $ 4,081 $ 2,801

Release of restricted stock units and awards under company stock plan $ 612 $ 2,367

Leased assets obtained in exchange for new operating lease liabilities $ 120 $ —

See accompanying Notes to Condensed Consolidated Financial Statements.

IMMERSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

SIGNIFICANT ACCOUNTING POLICIES

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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.

The outbreak of a novel strain of coronavirus ("COVID-19") caused governments and public health officials around the world to implementing stringent measures to help control the spread of the virus.

In response to the COVID-19 pandemic, we implemented work-from-home and restricted travel policies in the first quarter of 2020, which remained in place during the first quarter of 2022.

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.

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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).

During the three months ended March 31, 2021, we recognized $ 0.1 million in government subsidies as a reduction to operating expenses in the Condensed Consolidated Statements of Income and Comprehensive Income .

We did not recognize government subsidy during the three months ended March 31, 2022.

Principles of Consolidation and Basis of Presentation

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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.

Significant estimates include revenue recognition, fair value of financial instruments, useful lives of property and equipment, valuation of income taxes including uncertain tax provisions, stock-based compensation and long-term deposits for withholding 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.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year.

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

We focus on the following target application areas:

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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.

In November 2021, Financial Accounting Standard Board ("FASB") issued ASU 2021-10, Government Assistance (Topic 832) , which requires annual disclosures that increase the transparency of transactions involving government grants, including the types of transactions, the accounting for those transactions, and the effect of those transactions on an entity’s financial statements.

This new standard became effective for annual periods beginning after December 15, 2021.

We adopted this new guidance in the first quarter of 2022.

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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

The following table presents the disaggregation of our revenue for the three months ended March 31, 2022 and 2021 (in thousands):

For the Three Months Ended

Fixed fee license revenue $ 1,745 $ 1,275

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Development, services, and other revenue 78 91

Total revenue $ 7,173 $ 7,596 $ 25,342 $ 19,521

Total revenues $ 7,308 $ 7,159

Per-unit Royalty Revenue

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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.

In the three months ended March 31, 2022, we recorded adjustments of $ 0.3 million to increase royalty revenue.

We recorded adjustments of $ 0.5 million to decrease royalty revenue during the three months ended March 31, 2021.

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,

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

As of March 31, 2022, we had contract assets of $ 10.9 million included within Prepaid expenses and other current asset s, and $ 1.0 million included within Other assets, net on the Condensed Consolidated Balance Sheets .

As of December 31, 2021, we had contract assets of $ 12.4 million included within Prepaid expenses and other current assets , and $ 1.7 million included within Other assets, net on the Condensed Consolidated Balance Sheets .

Contract assets decreased by $ 2.3 million from January 1, 2022 to March 31, 2022, primarily due to actual royalties billed during the period.

Contracted 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.

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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.

Based on contracts signed and payments received as of March 31, 2022, we expect to recognize $ 20.2 million revenue related to Performance Obligation B under our fixed fee license agreements, which are satisfied over time, including $ 13.0 million over one to three years and $ 7.2 million over more than three years.

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.

Marketable Securities

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) .

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

As of March 31, 2022 and December 31, 2021, we reported $ 11.2 million and $ 7.3 million of investments in debt securities as Marketable debt securities on our Condensed Consolidated Balance Sheets, respectively , as management intends to hold these investment for more than 12 months from the reporting date.

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.

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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.

Marketable securities as of March 31, 2022 and December 31, 2021 consisted of following (in thousands):

March 31, 2022

Cost or Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Mutual funds $ 40,023 $ — $ ( 1,601 ) $ 38,422

Corporate bonds 10,651 530 — 11,181

Equity securities 43,039 3,038 ( 967 ) 45,110

$ 93,713 $ 3,568 $ ( 2,568 ) $ 94,713

December 31, 2021

Cost or Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Mutual funds $ 50,000 $ — $ ( 338 ) $ 49,662

Corporate bonds 6,996 290 — 7,286

Equity securities 38,100 — ( 1,331 ) 36,769

$ 95,096 $ 290 $ ( 1,669 ) $ 93,717

As of March 31, 2022 and December 31, 2021, marketable securities are classified and reported on our Condensed Consolidated Balance Sheets as follows:

March 31, 2022

Marketable Equity Securities Marketable Debt Securities Total

Mutual funds $ 38,422 $ — $ 38,422

Equity securities 45,110 — 45,110

Corporate bonds — 11,181 11,181

$ 83,532 $ 11,181 $ 94,713

December 31, 2021

Marketable Equity Securities Marketable Debt Securities Total

Mutual funds $ 49,662 $ — $ 49,662

Equity securities 36,769 — 36,769

Corporate bonds — 7,286 7,286

$ 86,431 $ 7,286 $ 93,717

The amortized costs and fair value of our marketable debt securities, by contractual maturity, as of March 31, 2022 (in thousands) are as follows:

March 31, 2022

Less than 1 year $ — $ —

1 to 5 years 10,651 11,181

Total $ 10,651 $ 11,181

Derivative Financial Instruments

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

We invest in derivatives that are not designated as hedging instruments and which consist 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 .

When we purchase put or call options, the premium paid is reported as Marketable securities 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

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

Our 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 as of March 31, 2022 and December 31, 2021 (in thousands).

March 31, 2022

Cost Unrealized Losses Fair Value

Derivative instruments $ 8,392 $ 2,558 $ 10,950

$ 8,392 $ 2,558 $ 10,950

December 31, 2021

Cost Unrealized Gains Fair Value

Derivative instruments $ 6,370 $ ( 103 ) $ 6,267

$ 6,370 $ ( 103 ) $ 6,267

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 $ —

Net unrealized gains recognized on marketable equity securities $ 2,140 $ —

Net realized gains recognized on marketable equity securities 1,026 —

Net unrealized losses recognized on derivative instruments ( 2,661 ) —

Net realized loss recognized on derivative instruments ( 134 ) —

Net realized gains recognized on marketable debt securities 368 —

Total net gains recognized in interest and other income (loss), net $ 739 $ —

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.

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

Equity securities are classified within Level 1 of the fair value hierarchy as they are valued based on quoted market price in an active market.

Corporate debt securities and derivative instruments are 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.

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

We did not hold Level 3 financial instruments as of March 31, 2022 and December 31, 2021.

Financial instruments measured at fair value on a recurring basis as of March 31, 2022 and December 2021 are classified based on the valuation technique in the table below (in thousands):

March 31, 2022

Fair Value Measurements Using

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(Level 3) Total

Mutual funds $ 38,422 $ — $ — $ 38,422

Equity securities 45,110 — — 45,110

Corporate debt securities — 7,466 — 7,466

Corporate bonds — 11,181 — 11,181

Total assets at fair value $ 83,532 $ 11,181 $ — $ 94,713

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(Level 3) Total

Money market accounts (1)

45,614 $ — $ — $ 45,614

Mutual funds $ 49,662 $ — $ — 49,662

Equity securities 36,769 — — 36,769

Corporate bonds — 7,286 — 7,286

Total assets at fair value $ 86,431 $ 7,286 $ — $ 93,717

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

Derivative instruments $ — $ 6,267 $ — $ 6,267

Total liabilities at fair value $ — $ 6,267 $ — $ 6,267

BALANCE SHEETS DETAILS

Cash and Cash Equivalents

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

September 30,

2021 December 31,

Cash $ 90,601 $ 13,908

Money market funds — 45,614

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,

Accounts and other receivables were as follows (in thousands):

2022 December 31

Trade accounts receivable $ 3,243 $ 1,618

Trade accounts receivables $ 1,118 $ 1,235

Other receivables 961 735

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.

Accounts and other receivables $ 2,079 $ 1,970

Allowance for credit losses as of March 31, 2022 and December 31, 2021 were not material.

Prepaid Expenses and Other Current Assets

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

September 30,

Prepaid expenses and other current assets were as follows (in thousands):

2022 December 31

2 unchanged sentences

Other current assets 181 186

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

Other assets consisted of the following (in thousands):

September 30,

Prepaid expenses and other current assets $ 11,788 $ 13,432

Other Assets, Net

Other assets, net are as follows (in thousands):

2022 December 31

Contract assets - long-term $ 1,014 $ 1,746

Right-of-use ("ROU") assets 1,075 1,607

Lease right-of-use assets 861 912

Deferred tax assets 2,116 2,115

Marketable debt securities - non-current 7,466 —

Other assets 10 36

Total other assets $ 13,836 $ 9,000

Total other assets, net $ 4,001 $ 4,809

Other Current Liabilities

Other current liabilities are as follows (in thousands):

September 30,

2022 December 31

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

Derivative instruments $ 10,950 $ 6,267

Lease liabilities - current 1,065 1,098

Other current liabilities 3,940 3,882

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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 December 1, 2021, the Korean tax authorities submitted its brief to the Korea Supreme Court challenging the cancellation by the Korea High Court of a portion of the withholding tax imposed by the Korean tax authorities.

On December 3, 2021, we submitted our own brief to the Korea Supreme Court providing arguments in support of our position that Immersion Software Ireland Limited has sufficient economic substance to be considered the beneficial owner of the royalties paid by Samsung to Immersion Software Ireland Limited.

Such brief also provided arguments challenging the calculation of the imposed withholding tax upheld by the Korea High Court.

On December 2021, the Korean tax authorities filed a rebuttal brief relating to our brief filed on December 3, 2021.

On December 29, 2021, we filed our rebuttal brief relating to the Korean tax authorities’ brief filed on December 1, 2021.

On February 24, 2022, the Korea Supreme Court issued a decision affirming the rulings of the Korea High Court.

We believe that any impairment in the Long-term deposits associated with the rulings of the Korea High Court is appropriately reflected in the Condensed Consolidated Balance Sheets .

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.

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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 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 deposits on our Condensed Consolidated Balance Sheets .

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

In the fourth quarter of 2021, we recorded an impairment charge of $ 1.4 million related to long-term deposits paid to Samsung.

In March 2022, as a result of the Korea Supreme Court decision described above, we were reimbursed by Samsung in an amount equal to KRW 6,088,855,388 (approximately $ 5 million) representing Korea national-level taxes, penalties and interest that were canceled by the Korea Supreme Court, which amount is net of $ 1.3 million of the impairment charge previously recorded in the fourth quarter of 2021.

We expect to be reimbursed an additional KRW 608,885,000 (approximately $ 0.5 million) representing local-level taxes, penalties and interest that were canceled by the Korea Supreme Court, which amount is net of $ 0.1 million of the impairment charge previously recorded in the fourth quarter of 2021.

LGE Korean Withholding Tax Matter

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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.

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 Income and Comprehensive 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.

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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.

An eleventh hearing occurred on November 15, 2021.

A twelfth hearing occurred on December 23, 2021.

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

However, due to a reshuffling of judges, another hearing, which was originally scheduled for April 14, 2022 is currently scheduled for July 7, 2022, at which time we believe we will have a better indication as to when the Court will render a decision on this matter.

Based on the developments in these cases, we regularly reassess the likelihood that we will prevail in the claims from the Korean tax authorities with respect to the LGE case.

To the extent that we determine that it is more likely than not that we will prevail against the claims from the Korean tax authorities, then no additional tax expense is provided for in our Condensed Consolidated Statements of Income and Comprehensive Income .

In the event that we determine that it is more likely than not that we will not prevail against the claims from the Korean tax authorities, or a portion thereof, then we would estimate the anticipated additional tax expense associated with that outcome and record it as additional income tax expense in our C ondensed Consolidated Statements of Income and Comprehensive Income in the period of the new determination.

If the additional income tax expense was related to the periods assessed by Korean tax authorities and for which we recorded a Long-term deposits on our Condensed Consolidated Balance Sheets , then the additional income tax expense would be recorded as an impairment to the Long-term deposits .

If the additional income tax expense was not related to the periods assessed by Korean tax authorities and for a which we recorded in Long-term deposits on our Condensed Consolidated Balance Sheets , then the additional income tax expense would be accrued as an Other current liabilities .

In the event that we do not ultimately prevail in our appeal in the Korean courts with respect to this case, the applicable deposits included in Long-term deposits would be recorded as additional income tax expense on our Condensed Consolidated Statements of Income and Comprehensive Income , in the period in which we do not ultimately prevail.

In the fourth quarter of 2021, we recorded an impairment charge of $ 0.8 million related to the long-term deposits paid to LGE.

Immersion Software Ireland Limited v.

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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.

As a result of Marquardt’s breach of the Marquardt License, per unit royalties relating to past royalty periods, and applicable interest fees, are currently past due.

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

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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.

A preliminary hearing occurred on December 6, 2021, during which the parties agreed to explore mediation and the arbitrator set forth a schedule relating to the arbitration.

A mediation session occurred during the period of March 14-16, 2022.

At the mediation, we entered into a binding settlement term sheet with Marquardt pursuant to which we agreed to cause our arbitration demand to be dismissed.

In exchange, Marquardt agreed to the prepayment of certain royalties otherwise payable under the Marquardt License.

Additionally on April 4, 2022, we entered into an amendment to the Marquardt License to reflect such payment and other related terms.

STOCK-BASED COMPENSATION

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

We may grant time-based options, market condition-based options, stock appreciation rights, restricted stock (“RSAs”), restricted stock units (“RSUs”), performance shares, 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.

We may grant time-based options, market condition-based options, stock appreciation rights, restricted stock awards (“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.

On January 18, 2022, our stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan"), which provides for a total number of shares reserved and available for grant and issuance equal to 3,525,119 shares plus up to an additional 855,351 shares that are subject to stock options or other awards granted under the 2011 Equity Incentive Plan.

Under our equity incentive plans, 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 .

Market condition-based stock awards 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 awards will be canceled before expiration.

RSAs generally vests 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,

Awards granted other than a stock option or a 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 as of March 31, 2022 is as follows (in thousands):

Common stock shares available for grant 2,080

Stock options outstanding 212

PSUs outstanding 90

RSUs outstanding 247

RSAs outstanding 114

(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.

RSUs outstanding 665

PSUs outstanding 641

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):

The following summarizes activities for the time-based stock options for the three months ended March 31, 2022:

Number of Shares

Underlying Stock Options Weighted Average

Underlying Stock Options

(in thousands) Weighted Average

Exercise Price

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Intrinsic Value

(in thousands)

Outstanding at December 31, 2021 242 $ 8.04 4.44 $ —

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Canceled or expired ( 30 ) 7.27

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.

Outstanding as of March 31, 2022 212 $ 8.14 3.25 $ —

Vested and expected to vest at March 31, 2022 212 $ 8.14 3.25 $ —

Exercisable at March 31, 2022 148 $ 8.35 2.58 $ —

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the exercise price of our common stock for the options that were in-the-money.

We did not grant stock options during the first quarter of 2022.

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

The following summarizes RSU activities for the three months ended March 31, 2022:

Number of Restricted Stock Units

(in thousands) Weighted Average Grant Date Fair Value Per Share Weighted Average

Remaining Contractual Life

(Years) Aggregate

Intrinsic Value

(in thousands)

Outstanding at December 31, 2021 224 $ 6.66 0.56 $ 1,280

Granted 600 4.78

Released ( 111 ) 6.80

Forfeited ( 48 ) 6.04

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

Outstanding at March 31, 2022 665 $ 4.97 1.32 $ 3,700

The aggregate intrinsic value is calculated as the market value as of the end of the reporting period.

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

The following summarizes RSA activities for the three months ended March 31, 2022:

Number of Restricted Stock Awards

(in thousands)

Weighted Average Grant Date Fair Value Per Share Weighted Average Remaining Recognition Period

Outstanding at December 31, 2021 — $ — 0.00

Granted 114 4.78

Released ( 130 ) $ 6.53

Forfeited — —

Outstanding at September 30, 2021 — $ — 0.00

Outstanding at March 31, 2022 114 $ 4.78 0.12

Market Condition-Based Restricted Stock Units

In the fourth quarter of 2020, we granted 250,000 shares of PSUs to our executives.

In the first quarter of 2022, we granted 600,000 shares of PSUs to members of our management team.

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

(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 January 1, 2022 and January 1, 2027, 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 three (3) year period commencing on January 1, 2022.

The following summarizes PSU activities for the three months ended March 31, 2022:

Number of Market Condition-Based Restricted Stock Units

(in thousands) Weighted Average Grant Date Fair Value Per Share Weighted Average Remaining Recognition Period

Outstanding at December 31, 2021 67 $ 6.20 1.49

Granted 600 3.63

Released ( 6 ) $ 6.20

Forfeited ( 20 ) $ 6.20

Outstanding at September 30, 2021 90 $ 6.20 1.33

Outstanding at March 31, 2022 641 $ 3.80 1.49

The assumptions used to value market condition based restricted stock units granted during the first quarter of 2022 under our equity incentive program are as follows:

Market condition based restricted stock units:

Three Months Ended

March 31, 2022

Expected life (in years) 1.2

Volatility 52 %

Interest rate 1.0 %

Dividend yield —

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.

Under the 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-month 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.

During the three months ended March 31, 2022, 7,725 shares were purchased under the ESPP.

As of March 31, 2022, 198,123 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):

Valuation and amortization methods

Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period.

Estimated forfeitures are based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The stock-based compensation related to all of our stock-based awards and ESPP for the years ended March 31, 2022 and 2021 is as follows (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Stock options $ ( 43 ) $ 15

RSUs, RSAs and PSUs 1,187 497

Employee stock purchase plan 6 15 45 38

ESPP ( 3 ) 19

Total $ 1,141 $ 531

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Total $ 1,141 $ 531

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.

As of March 31, 2022, there was $ 5.2 million of unrecognized compensation cost adjusted for estimated forfeitures related to non-vested stock options, RSUs, RSAs and PSUs granted to our employees and directors.

This unrecognized compensation cost will be recognized over an estimated weighted-average period of approximately 1.7 years.

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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 Agreement

On February 14, 2022, we entered into a Common Stock Repurchase Agreement (the “Agreement”) with Invenomic Capital Management LP.

(“Invenomic”).

P ursuant to the Agreement, we purchased 904,499 shares of our common stock from Invenomic at $ 4.725 per share, or an aggregate purchase price of $ 4.3 million.

The closing price of our common stock on February 14, 2022 was $ 4.80 per share.

We adopted a Section 382 Tax Benefits Preservation Plan on November 17, 2021 to diminish the risk we could experience an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended, which could substantially limit or permanently eliminate our ability to utilize its net operating loss carryovers to reduce potential future income tax obligations.

Under this plan, a person who acquires, without the approval of our Board of Directors, beneficial ownership of 4.99 % or more of the outstanding common stock could be subject to significant dilution.

Following the repurchase, Invenomic’s holdings dropped to below 4.99 % of the outstanding common stock.

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.

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

On February 23, 2022, our Board of Directors approved a stock repurchase program of up to $ 30 million of our common stock for a period of up to twelve months.

Any stock repurchases may be made through open market and privately negotiated transactions, at such times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10b5-1 trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934.

Additionally, the Board authorized the use of any derivative or similar instrument to effect stock repurchase transactions, including without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, naked put options, floor transactions or other similar transactions or any combination of the foregoing transactions.

The stock repurchase program was implemented as a method to return value to our stockholders.

The timing, pricing and sizes of any repurchases will depend on a number of factors, including the market price of our common stock and general market and economic conditions.

The stock repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time.

In the first quarter of 2022, we repurchased 34,282 shares of our common stock for $ 0.2 million at an average cost of $ 4.89 per share.

As of March 31, 2022, we have $ 29.8 million available for repurchase under the stock repurchase program.

Provision for income taxes the years ended March 31, 2022 and 2021 consisted of the following (in thousands):

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 ) %

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 .

Income before provision for income taxes $ 5,637 $ 2,177

Provision for income taxes 561 141

Effective tax rate 10.0 % 6.5 %

Provision for income taxes for the three months ended March 31, 2022 and 2021 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

We continue to maintain a full valuation allowance against all of our federal and state deferred tax assets in the United States as well as federal tax assets in Canada.

As of March 31, 2022, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $ 6.3 million and applicable interest of $ 0.1 million.

The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $ 1.3 million.

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.

As of March 31, 2022, we had net deferred income tax assets of $ 2.1 million and deferred income tax liabilities of $ 0.3 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 2002 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.

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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.

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):

NET INCOME PER SHARE

Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the period.

Diluted net income 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, stock awards and ESPP.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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

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.

Weighted-average shares outstanding, basic 33,996 28,579

Shares related to outstanding options, unvested RSUs, RSAs, PSUs and ESPP 272 601

Weighted average shares outstanding, diluted 34,268 29,180

We include market condition-based performance restricted stock units 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 March 31, 2022 and 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 per share because their effect would have been anti-dilutive.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Stock options 239 14

RSUs and RSAs — 181 — 1,197

342 1,549 97 2,564

We lease our office space under lease arrangements with expiration dates on or before February 29, 2024.

Restricted stock units, restricted stock awards and market condition-based restricted stock units 55 —

We lease our office space under lease arrangements with expiration dates on or before March 31, 2024.

We recognize lease expense on a straight-line basis over the lease term.

2 unchanged sentences

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,

Below is a summary of our ROU assets and lease liabilities (in thousands):

Balance Sheets Classification March 31,

2022 December 31,

3 unchanged sentences

Total lease liabilities $ 1,425 $ 1,648

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.

The table below provides supplemental information related to operating leases during the three months ended March 31, 2022 and 2021 (in thousands except for lease term):

Three Months Ended

Cash paid within operating cash flow $ 355 $ 367

Weighted average lease terms (in years) 1.11 2.20

Weighted average discount rates 3.93 % N/A

On January 31, 2022, we entered into an agreement to lease for a 1,390 square feet of office space in Aventura, Florida (“Aventura Lease”).

We plan to use this facility for administrative functions.

This lease commenced in the first quarter of 2022 and expires in the first quarter of 2024.

We accounted for this lease as an operating lease in accordance with the provisions of ASC 842 Leases (“ASC 842”).

In the first quarter of 2022, we recorded a lease liability of $ 0.1 million, which represents the present value of the lease payments using an estimated incremental borrowing rate of 3.93 %.

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.

We also recognized right-to-use asset ("ROU") of $ 0.1 million which represents our right to use an underlying asset for the lease term.

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

1 unchanged sentence

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.

In accordance with provisions of 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.

2 unchanged sentences

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 .

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):

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

As of March 31, 2022, unamortized balance of the deferred costs are not material.

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

During the three months ended March 31, 2022 and 2021, 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 $ 210 $ 215

Sublease income ( 257 ) ( 257 )

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,

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):

Total lease cost $ ( 47 ) $ ( 42 )

Minimum future lease payments obligations as of March 31, 2022 are as follows (in thousands):

For the Years Ending December 31,

Remainder of 2021 $ 377

Total $ 1,475

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

Future lease payments from our sublease agreement as of March 31, 2022 are as follows (in thousands):

For the Years Ending December 31,

Remainder of 2021 $ 264

Total $ 1,163

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