IMMERSION CORP 10-Q

Item 1. Financial Statements IMMERSION CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) September 30, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 36,767 $ 51,490 Investments - current 96,779 86,431 Accounts and other receivables 3,343 1,970 Prepaid expenses and other current assets 7,731 13,432 Total current assets 144,620 153,323 Property and equipment, net 362 444 Investments - noncurrent 18,520 7,286 Long-term deposits 4,425 9,658 Other assets 3,290 4,809 Total assets $ 171,217 $ 175,520 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 14 $ 2 Accrued compensation 1,270 555 Deferred revenue - current 4,763 4,826 Other current liabilities 7,729 11,247 Total current liabilities 13,776 16,630 Deferred revenue - noncurrent 13,808 16,699 Other long-term liabilities 479 896 Total liabilities 28,063 34,225 Commitments and contingencies (Note 5) Stockholders’ equity: Common stock and additional paid-in capital 326,097 323,296 Accumulated other comprehensive income (loss) ( 57 ) 412 Accumulated deficit ( 89,718 ) ( 100,680 ) Treasury stock ( 93,168 ) ( 81,733 ) Total stockholders’ equity 143,154 141,295 Total liabilities and stockholders’ equity $ 171,217 $ 175,520 See accompanying Notes to Condensed Consolidated Financial Statements. 2 Table of Contents IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In thousands, except per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues: Royalty and license $ 13,931 $ 7,068 $ 29,079 $ 25,017 Development, services, and other 75 105 218 325 Total revenues 14,006 7,173 29,297 25,342 Costs and expenses: Cost of revenues — 8 4 78 Sales and marketing 282 443 986 2,743 Research and development 254 803 1,118 3,442 General and administrative 2,540 2,246 8,550 7,106 Total costs and expenses 3,076 3,500 10,658 13,369 Operating income 10,930 3,673 18,639 11,973 Interest and other income (loss), net ( 2,348 ) 438 ( 6,413 ) 162 Income before provision for income taxes 8,582 4,111 12,226 12,135 Provision for income taxes ( 877 ) ( 340 ) ( 1,264 ) ( 987 ) Net income $ 7,705 $ 3,771 $ 10,962 $ 11,148 Basic net income per share $ 0.23 $ 0.12 $ 0.33 $ 0.36 Shares used in calculating basic net income per share 33,201 32,474 33,601 30,693 Diluted net income per share $ 0.23 $ 0.12 $ 0.32 $ 0.36 Shares used in calculating diluted net income per share 33,682 32,612 34,035 31,065 Other comprehensive income, net of tax Change in unrealized gains (losses) on available-for-sale securities $ 344 $ 531 $ ( 469 ) $ 531 Total comprehensive income $ 8,049 $ 4,302 $ 10,493 $ 11,679 See accompanying Notes to Condensed Consolidated Financial Statements. 3 Table of Contents IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except number of shares) (Unaudited) Three Months Ended September 30, 2022 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 June 30, 2022 46,851,509 $ 325,351 $ ( 401 ) $ ( 97,423 ) 13,378,528 $ ( 87,790 ) $ 139,737 Net income — — — 7,705 — — 7,705 Unrealized gain on available-for-sale securities, net of taxes — — 344 — — — 344 Stock repurchases — — — — 954,247 ( 5,304 ) ( 5,304 ) Release of restricted stock units and awards, net of shares withheld 51,875 — — — 13,768 ( 74 ) ( 74 ) Issuance of stock for ESPP purchase 3,691 16 — — — — 16 Stock-based compensation — 730 — — — — 730 Balances at September 30, 2022 46,907,075 326,097 $ ( 57 ) $ ( 89,718 ) 14,346,543 $ ( 93,168 ) $ 143,154 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 purchase 9,490 61 — — — — 61 Release of restricted stock units and awards 8,407 — — — — — — Shares issued in connection with public offering, net of issuance 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 See accompanying Notes to Condensed Consolidated Financial Statements. 4 IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except number of shares) (Unaudited) Nine Months Ended September 30, 2022 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, 2021 46,534,198 $ 323,296 $ 412 $ ( 100,680 ) 12,143,433 $ ( 81,733 ) $ 141,295 Net income 10,962 10,962 Unrealized loss on available-for-sale securities, net of taxes — — ( 469 ) — — — ( 469 ) Stock repurchases 2,174,793 ( 11,281 ) ( 11,281 ) Issuance of stock for ESPP purchase 11,416 51 — — — 51 Release of restricted stock units and awards, net of shares withheld for employee taxes 344,944 — — — 28,317 ( 154 ) ( 154 ) Shares issued to an employee in lieu of cash compensation 16,517 84 — — — — 84 Shares issued in connection with public offering, net of issuance costs — 5 — — — — 5 Stock-based compensation 2,661 — — — — 2,661 Balances at September 30, 2022 46,907,075 $ 326,097 $ ( 57 ) $ ( 89,718 ) 14,346,543 $ ( 93,168 ) 143,154 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 — — 531 — — — 531 Exercise of stock options, net of shares withheld for employee taxes 325,737 2,864 — — — — 2,864 Issuance of stock for ESPP purchase 25,033 150 — — — — 150 Release of restricted stock units and awards 448,772 — — — — — — Shares issued in connection with public offering, net of issuance 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 See accompanying Notes to Condensed Consolidated Financial Statements. 5 IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 Cash flows provided by (used in) operating activities: Net income $ 10,962 $ 11,148 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Depreciation of property and equipment 95 75 Reduction in carrying value of right of use assets 524 500 Stock-based compensation 2,661 1,997 Net (gain) loss on investment in marketable securities 13,288 ( 490 ) Net (gain) on derivative instruments ( 3,393 ) — Foreign currency remeasurement losses 161 612 Shares issued to an employee in lieu of cash compensation 84 — Shares withheld to cover payroll taxes ( 154 ) — Other ( 29 ) 68 Changes in operating assets and liabilities: Accounts and other receivables ( 1,373 ) ( 1,953 ) Prepaid expenses and other current assets 5,702 870 Long-term deposits 1,114 33 Other assets 5,084 2,097 Accounts payable 16 ( 30 ) Accrued compensation 715 ( 272 ) Other current liabilities 527 917 Deferred revenue ( 2,954 ) ( 3,734 ) Other long-term liabilities ( 950 ) ( 1,116 ) Net cash and cash equivalents provided by operating activities 32,080 10,722 Cash flows provided by (used in) investing activities: Purchases of marketable securities and other investments ( 131,100 ) ( 34,443 ) Proceeds from sale or maturities of marketable securities and other investments 95,225 — Proceeds from sale of derivative instruments 11,170 1,757 Payments for settlement of derivative instruments ( 10,844 ) — Purchases of property and equipment ( 29 ) ( 89 ) Net cash and cash equivalents used in investing activities ( 35,578 ) ( 32,775 ) Cash flows provided by (used in) financing activities: Payment for purchases of treasury stock ( 11,281 ) — Proceeds from issuance of common stock, net of issuance costs 5 50,118 Proceeds from issuance of common stock under employee stock purchase plan 51 150 Proceeds from stock options exercises — 2,864 Net cash and cash equivalents provided by (used in) financing activities ( 11,225 ) 53,132 Net increase (decrease) in cash and cash equivalents ( 14,723 ) 31,079 Cash and cash equivalents: Beginning of period 51,490 59,522 End of period $ 36,767 $ 90,601 See accompanying Notes to Condensed Consolidated Financial Statements. 6 IMMERSION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 662 $ 88 Supplemental disclosure of non-cash investing, and financing activities: Release of restricted stock units and awards under company stock plan $ 1,836 $ 4,081 Leased assets obtained in exchange for new operating lease liabilities $ 120 $ — 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 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, but have since lifted our travel restriction and our employees now work both from the office and from home. 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 recognized $ 0.3 million in government subsidies as a reduction to operating expenses in the Condensed Consolidated Statements of Income and Comprehensive Income . We did not recognize for any government subsidy during the nine months ended September 30, 2022. 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, 2021. 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. Certain prior year amounts have been reclassified to conform with the current year presentation. 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, 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, 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’ sense of touch when operating digital devices. We focus on the following target application areas: mobile devices, wearables, consumer, mobile 8 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. Certificates of Deposit Certificate of deposits are reported at fair value on the Condensed Consolidated Balance Sheets based on their initial and remaining maturity days. Initial or Remaining Maturity Days Balance Sheets Classification 90 days or less Cash and cash equivalents Between 91 days and 1 year Investments - current Greater than 1 year Investments - noncurrent Recently Adopted Accounting Pronouncements 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. 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, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Fixed fee license revenue $ 7,662 $ 1,247 $ 10,653 $ 4,346 Per-unit royalty revenue 6,269 5,821 18,426 20,671 Total royalty and license revenue 13,931 7,068 29,079 25,017 Development, services, and other revenue 75 105 218 325 Total revenues $ 14,006 $ 7,173 $ 29,297 $ 25,342 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, 9 2022, we recorded adjustments of $ 0.2 million to decrease royalty revenue. We recorded adjustments of $ 0.5 million to decrease royalty revenue during the three months ended September 30, 2021. Contract Assets As of September 30, 2022, we had contract assets of $ 6.9 million included within Prepaid expenses and other current asset s, and $ 0.7 million included within Other assets 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 on the Condensed Consolidated Balance Sheets . Contract assets decreased by $ 6.5 million from January 1, 2022 to September 30, 2022, primarily due to actual royalties billed and the reduction in contact assets balance following our settlement agreement with Marquardt GmbH. 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. 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, 2022, we expect to recognize $ 18.6 million in revenue related to Performance Obligation B under our fixed fee license agreements, which are satisfied over time, including $ 12.2 million over one to three years and $ 6.4 million over more than three years. Total deferred revenue was $ 21.5 million as of December 31, 2021, of which $ 3.7 million was recognized during the nine months ended September 30, 2022. 3. INVESTMENTS AND FAIR VALUE MEASUREMENTS Marketable Securities 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. Our investments in marketable debt securities, including U.S. treasury securities and corporate bonds are classified and accounted for as available-for-sale. The marketable debt securities are classified either short-term or long-term based on each instrument’s underlying contractual maturity date. As of September 30, 2022 and December 31, 2021, we reported $ 40.6 million and $ 7.3 million of investments in debt securities as Investments - noncurrent 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 marketable debt securities are measured at fair value with realized gains 10 and losses reported as Interest and other income (loss), net on our Condensed Consolidated Statements of Income and Comprehensive Income . Unrealized gains and losses on marketable debt securities are reported as Accumulative Other Comprehensive Income (loss) on our Statements of Stockholders' Equity. 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 Income and Comprehensive Income . 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. Marketable securities as of September 30, 2022 and December 31, 2021 consisted of following (in thousands): September 30, 2022 Cost or Amortized Cost Unrealized Gains Unrealized Losses Fair Value Mutual funds $ 30,400 $ — $ ( 3,265 ) $ 27,135 U.S. treasury securities 25,640 19 ( 24 ) 25,635 Corporate bonds 15,095 277 ( 457 ) 14,915 Equity securities 54,813 1,002 ( 13,468 ) 42,347 $ 125,948 $ 1,298 $ ( 17,214 ) $ 110,032 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 11 As of September 30, 2022 and December 31, 2021, marketable securities are as follows (in thousands): September 30, 2022 Marketable Equity Securities Marketable Debt Securities Total Mutual funds $ 27,135 $ — $ 27,135 U.S. treasury securities — 25,635 25,635 Equity securities 42,347 — 42,347 Corporate bonds — 14,915 14,915 $ 69,482 $ 40,550 $ 110,032 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 September 30, 2022 (in thousands) are as follows: September 30, 2022 Amortized Cost Fair Value Less than 1 year $ — $ — 1 to 5 years 35,707 35,575 More than 5 years 5,028 4,975 Total $ 40,735 $ 40,550 Derivative Financial Instruments 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 Other current liabilities 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 , on our Condensed Consolidated Statements of Income and Comprehensive Income . 12 Our derivative instruments 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 September 30, 2022 and December 31, 2021 (in thousands): September 30, 2022 Cost Unrealized Losses Fair Value Derivative instruments $ 2,606 $ 593 $ 3,199 $ 2,606 $ 593 $ 3,199 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, 2022 2021 2022 2021 Net unrealized gains (losses) recognized on marketable equity securities $ ( 9,278 ) $ 490 $ ( 14,062 ) $ 490 Net realized gains (losses) recognized on marketable equity securities ( 555 ) — 218 — Net unrealized gains ( losses) recognized on derivative instruments 3,907 ( 2 ) ( 696 ) ( 2 ) Net realized gains recognized on derivative instruments 2,214 9 4,089 9 Net realized gains recognized on marketable debt securities 188 — 556 — Total net gains (losses) recognized in interest and other income (loss), net $ ( 3,524 ) $ 497 $ ( 9,895 ) $ 497 Fair Value Measurements 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. We did not hold Level 3 financial instruments as of September 30, 2022 and December 31, 2021. 13 Financial instruments measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 are classified based on the valuation technique in the table below (in thousands): September 30, 2022 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: Certificates of deposit $ — $ 21,061 $ — $ 21,061 U.S. treasury securities — 25,635 — 25,635 Mutual funds 27,135 — — 27,135 Equity securities 42,347 — — 42,347 Corporate bonds — 14,915 — 14,915 Total assets at fair value $ 69,482 $ 61,611 $ — $ 131,093 Liabilities Derivative instruments $ — $ 3,199 $ — $ 3,199 Total liabilities at fair value $ — $ 3,199 $ — $ 3,199 December 31, 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: 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 Liabilities Derivative instruments $ — $ 6,267 $ — $ 6,267 Total liabilities at fair value $ — $ 6,267 $ — $ 6,267 14 4. BALANCE SHEETS DETAILS Cash and Cash Equivalents Cash and cash equivalents were as follow (in thousands): September 30, 2022 December 31, 2021 Cash $ 15,567 $ 51,490 Certificates of deposit (1) 15,794 — Money market funds 5,406 — Cash and cash equivalents $ 36,767 $ 51,490 (1) Represents certificates of deposit with initial or remaining maturity days of 90 days or less. Investments - Current Investments - current were as follows (in thousands): September 30, 2022 December 31, 2021 Certificates of deposit (2) $ 5,267 $ — U.S. treasury securities 22,030 — Marketable securities 69,482 86,431 Short-term investments $ 96,779 $ 86,431 (2) Represents investments with remaining maturity days between 91 days and one year. Accounts and Other Receivables Accounts and other receivables were as follows (in thousands): September 30, 2022 December 31, 2021 Trade accounts receivables $ 2,016 $ 1,235 Other receivables 1,327 735 Accounts and other receivables $ 3,343 $ 1,970 Allowance for credit losses as of September 30, 2022 and December 31, 2021 were not material. 15 Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets were as follows (in thousands): September 30, 2022 December 31, 2021 Prepaid expenses $ 675 $ 798 Contract assets - current 6,913 12,448 Other current assets 143 186 Prepaid expenses and other current assets $ 7,731 $ 13,432 Investments - noncurrent Investments- noncurrent are as follows (in thousands): September 30, 2022 December 31, 2021 U.S. treasury securities $ 3,605 $ — Marketable debt securities 14,915 7,286 Investments- noncurrent $ 18,520 $ 7,286 Other Assets Other assets are as follows (in thousands): September 30, 2022 December 31, 2021 Contract assets - long-term 653 1,746 Lease right-of-use assets 507 912 Deferred tax assets 2,116 2,115 Other assets 14 36 Total other assets $ 3,290 $ 4,809 Other Current Liabilities Other current liabilities are as follows (in thousands): September 30, 2022 December 31, 2021 Derivative instruments $ 3,199 $ 6,267 Lease liabilities - current 715 1,098 Other current liabilities 3,815 3,882 Total other current liabilities $ 7,729 $ 11,247 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. 16 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 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. Samsung was 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 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. 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 17 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 were also 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 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 Income and Comprehensive Income, 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 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 occurred on July 7, 2022. A thirteenth hearing occurred on October 27, 2022. A final hearing is scheduled for November 24, 2022. The Court has indicated that it expects to render a decision on this matter by December 31, 2022. 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. 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 had arisen out of that certain Amended and Restated Patent License Agreement (the “Marquardt License”), effective as of January 1, 2018, between 18 us as licensor and Marquardt, as licensee. Pursuant to the arbitration demand, we demanded that Marquardt cure its breach of the Marquardt License and pay all royalties currently owed under the Marquardt License. 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. 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. On May 20, 2022, the parties submitted a stipulation of dismissal to the AAA dismissing with prejudice all claims brought by us against Marquardt in the arbitration. Immersion Corporation vs. Meta Platforms, Inc., f/k/a Facebook, Inc. On May 26, 2022, we filed a complaint against Meta Platforms, Inc. (formerly known as Facebook, Inc.) (“Meta”) in the United States District Court for the Western District of Texas. The complaint alleges that Meta’s augmented and virtual reality (“AR/VR”) systems, including the Meta Quest 2, infringe six of our patents that cover various uses of haptic effects in connection with such AR/VR systems. We are seeking to enjoin Meta from further infringement and to recover a reasonable royalty for such infringement. The complaint against Meta asserts infringement of the following patents: • U.S. Patent No. 8,469,806: “System and method for providing complex haptic stimulation during input of control gestures, and relating to control of virtual equipment” • U.S. Patent No. 8,896,524: “Context-dependent haptic confirmation system” • U.S. Patent No. 9,727,217: “Haptically enhanced interactivity with interactive content” • U.S. Patent No. 10,248,298: “Haptically enhanced interactivity with interactive content” • U.S. Patent No. 10,269,222: “System with wearable device and haptic output device” • U.S. Patent No. 10,664,143: “Haptically enhanced interactivity with interactive content” Meta responded to our complaint on August 1, 2022. On September 12, 2022, Meta filed a motion to transfer the lawsuit to the Northern District of California or, in the alternative, to the Austin Division of the Western District of Texas. Meta’s motion remains pending during venue discovery. Our response is due December 5, 2022. 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 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. 19 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 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 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 September 30, 2022 is as follows (in thousands): Common stock shares available for grant 1,873 Stock options outstanding 143 RSUs outstanding 541 RSAs outstanding 119 PSUs outstanding 617 Time-Based Stock Options The following summarizes activities for the time-based stock options for the nine months ended September 30, 2022: Number of Shares Underlying Stock Options (in thousands) Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 242 $ 8.04 4.44 $ — Granted — — Exercised — — Canceled or expired ( 99 ) 8.47 Outstanding as of September 30, 2022 143 $ 7.74 4.21 $ — Vested and expected to vest at September 30, 2022 137 $ 7.74 4.21 $ — Exercisable at September 30, 2022 96 $ 7.77 4.17 $ — 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 in the nine months ended September 30, 2022. 20 Restricted Stock Units The following summarizes RSU activities for the nine months ended September 30, 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 ( 221 ) 5.90 Forfeited ( 62 ) 5.90 Outstanding at September 30, 2022 541 $ 4.95 2.11 $ 2,972 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, 2022: Number of Restricted Stock Awards (in thousands) Weighted Average Grant Date Fair Value Per Share Weighted Average Remaining Recognition Period (Years) Outstanding at December 31, 2021 — $ — 0.00 Granted 233 5.13 Released ( 114 ) 4.78 Forfeited — — Outstanding at September 30, 2022 119 $ 5.47 0.64 Market Condition-Based Restricted Stock Units In the first quarter of 2022, we granted 600,000 shares of PSUs to certain 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 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. 21 The following summarizes PSU activities for the nine months ended September 30, 2022: Number of Market Condition-Based Restricted Stock Units (in thousands) Weighted Average Grant Date Fair Value Per Share Weighted Average Remaining Recognition Period (Years) Outstanding at December 31, 2021 67 $ 6.20 1.49 Granted 600 3.63 Released ( 9 ) 6.20 Forfeited ( 41 ) 6.20 Outstanding at September 30, 2022 617 $ 3.70 1.24 The assumptions used to value market condition-based restricted stock units granted during the nine months ended September 30, 2022 under our equity incentive program are as follows: Nine Months Ended September 30, 2022 Expected life (in years) 1.2 Volatility 58 % Interest rate 1.7 % Dividend yield — Employee Stock Purchase Plan 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, 2022, 11,416 shares were purchased under the ESPP. As of September 30, 2022, 194,432 shares were available for future purchase under the ESPP. 22 Stock-based Compensation Expense 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 three and nine months ended September 30, 2022 and 2021 is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Stock options $ 53 $ 123 $ 67 $ 317 RSUs, RSAs and PSUs 678 286 2,593 1,635 ESPP ( 1 ) 6 1 45 Total $ 730 $ 415 $ 2,661 $ 1,997 Sales and marketing $ 19 $ 141 $ 20 $ 678 Research and development 18 118 96 653 General and administrative 693 156 2,545 666 Total $ 730 $ 415 $ 2,661 $ 1,997 As of September 30, 2022, there was $ 5.6 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 1.6 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. 7. STOCKHOLDERS’ EQUITY 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 February 23, 2022, our Board of Directors approved a stock repurchase program of up to $ 30.0 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 23 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 three months ended September 30, 2022, we repurchased 954,247 shares of our common stock for $ 5.3 million at an average purchase price of $ 5.55 per share. In the nine months ended September 30, 2022, we repurchased 1,270,294 shares of our common stock for $ 7.0 million at an average purchase price of $ 5.50 per share. As of September 30, 2022, we have $ 23.0 million available for repurchase under the stock repurchase program. 8. INCOME TAXES Provision for income taxes the three and nine months ended September 30, 2022 and 2021 consisted of the following (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Income before provision for income taxes $ 8,582 $ 4,111 $ 12,226 $ 12,135 Provision for income taxes ( 877 ) ( 340 ) ( 1,264 ) ( 987 ) Effective tax rate ( 10.2 ) % ( 8.3 ) % ( 10.3 ) % ( 8.1 ) % Provision for income taxes for the three and nine months ended September 30, 2022 and 2021 resulted primarily from estimated domestic and 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 September 30, 2022, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $ 6.4 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, 2022, we had net deferred income tax assets of $ 2.0 million and deferred income tax liabilities of $ 0.2 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 maintain a valuation allowance 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 24 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 (loss) per share (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Denominator: Weighted-average shares outstanding, basic 33,201 32,474 33,601 30,693 Shares related to outstanding options, unvested RSUs, RSAs, PSUs and ESPP 481 138 434 372 Weighted average shares outstanding, diluted 33,682 32,612 34,035 31,065 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 and nine months ended September 30, 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, 2022 2021 2022 2021 Stock options 145 342 197 97 Restricted stock units, restricted stock awards and market condition-based restricted stock units 15 — 27 — Total 160 342 224 97 10. LEASES 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. 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 ROU assets and lease liabilities (in thousands): Balance Sheets Classification September 30 2022 December 31, 2021 Assets Right-of-use assets Other assets $ 507 $ 912 Liabilities Operating lease liabilities - current Other current liabilities 715 1,098 Operating lease liabilities - long-term Other long-term liabilities 102 550 Total lease liabilities $ 817 $ 1,648 25 The table below provides supplemental information related to operating leases during the nine months ended September 30, 2022 and 2021 (in thousands except for lease term): Nine Months Ended September 30, 2022 2021 Cash paid within operating cash flow $ 982 $ 1,115 Weighted average lease terms (in years) 0.88 1.60 Weighted average discount rates 3.93 % N/A On June 6, 2022, we entered into a sublease agreement with Innovobot Fund LLP (“Innovobot”) for our facility located in Montreal Canada (the "Montreal Facility"). This sublease commenced on June 8, 2022 and ends on February 27, 2024 which approximates the lease termination date of the original Montreal Facility 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 Montreal 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 $ 23,000 . These deferred costs will be amortized over the term of the sublease payments. 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 use this facility as our principal executive offices and for general 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 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. (“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, 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 term of the sublease payments. As of September 30, 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 and nine months ended September 30, 2022 and 2021, our net operating lease expenses are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating lease cost $ 236 $ 209 $ 672 $ 623 Sublease income ( 306 ) ( 257 ) ( 837 ) ( 772 ) Total lease cost (income) $ ( 70 ) $ ( 48 ) $ ( 165 ) $ ( 149 ) 26 Minimum future lease payments obligations as of September 30, 2022 are as follows (in thousands): For the Years Ending December 31, 2022 $ 310 2023 585 2024 38 Total lease payments 933 Less: Interest 116 Total lease liability $ 817 Future cash receipts from our sublease agreements as of September 30, 2022 are as follows (in thousands): For the Years Ending December 31, 2022 $ 321 2023 548 2024 33 Total $ 902 11. SUBSEQUENT EVENT On November 14, 2022, our Board of Directors declared a quarterly dividend. The first dividend, in the amount of $ 0.03 per share, will be payable, subject to any revocation, on January 30, 2023, to stockholders of record on January 15, 2023. Future dividends will be subject to further review and approval by the Board in accordance with applicable law. The Board reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews the capital allocation strategy from time-to-time. 27