UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2021
OR
 
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-27969001-38334
IMMERSION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware94-3180138
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
50 Rio Robles,330 Townsend Street, Suite 234, San Jose, California 95134Francisco, CA 94107
(Address of principal executive offices)(Zip (Zip Code)
(408) 467-1900
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)


Securities Registered Pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 par valueIMMRThe NASDAQ Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý☒     No  ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý☒    No  ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer¨☐Accelerated filerý☐
Non-accelerated filer
¨☒(Do not check if a smaller reporting company)
Smaller Reporting Company¨☒
Emerging Growth Company¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨☐    No  ý☒

Number of shares of common stock outstanding at October 27, 2017: 29,251,243.April 30, 2021 was 30,885,541.


Table of Contents
IMMERSION CORPORATION
INDEX
Page
Item 1.
34
45
6
57
68
Item 2.
2021
Item 3.
Quantitative and Qualitative Disclosures about Market Risk4.
Item 4.
Controls and Procedures
2730
Item 1.
2831
Item 1A.
33
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds6.
52
Item 6.
ExhibitsSIGNATURES
4553
SIGNATURES
46



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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS


IMMERSION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 September 30, 2017 December 31, 2016March 31,
2021		December 31,
2020
ASSETS    ASSETS
Current assets:    Current assets:
Cash and cash equivalents $19,263
 $56,865
Cash and cash equivalents$102,624 $59,522 
Short-term investments 28,860
 32,907
Accounts and other receivables (net of allowances for doubtful accounts of $0) 6,478
 1,382
Accounts and other receivablesAccounts and other receivables2,034 2,218 
Prepaid expenses and other current assets 978
 2,876
Prepaid expenses and other current assets11,213 12,610 
Total current assets 55,579
 94,030
Total current assets115,871 74,350 
Property and equipment, net 3,405
 4,016
Property and equipment, net254 209 
Deferred income tax assets 437
 359
Prepaid income taxes —
 4,997
Intangibles and other assets, net 351
 365
Long-term depositsLong-term deposits12,296 12,571 
Other assetsOther assets7,987 9,000 
Total assets $59,772
 $103,767
Total assets$136,408 $96,130 
LIABILITIES AND STOCKHOLDERS’ EQUITY    LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:    Current liabilities:
Accounts payable $4,835
 $5,951
Accounts payable$469 $149 
Accrued compensation 1,916
 4,753
Accrued compensation933 1,001 
Other current liabilities 4,015
 4,409
Other current liabilities2,718 2,457 
Deferred revenue 4,885
 5,909
Deferred revenue5,098 5,173 
Total current liabilities 15,651
 21,022
Total current liabilities9,218 8,780 
Long-term deferred revenue 23,335
 26,393
Long-term deferred revenue20,183 21,334 
Other long-term liabilities 937
 1,012
Other long-term liabilities1,709 2,035 
Total liabilities 39,923
 48,427
Total liabilities31,110 32,149 
Contingencies (Note 12) 
 
Contingencies (Note 5)Contingencies (Note 5)00
Stockholders’ equity:    Stockholders’ equity:
Common stock and additional paid-in capital — $0.001 par value; 100,000,000 shares authorized; 35,921,267 and 35,555,562 shares issued, respectively; 29,234,577 and 28,917,559 shares outstanding, respectively 225,942
 221,098
Common stock and additional paid-in capital — $0.001 par value; 100,000,000 shares authorized; 43,020,610 and 39,161,214 shares issued, respectively; 30,877,177 and 27,017,781 shares outstanding, respectivelyCommon stock and additional paid-in capital — $0.001 par value; 100,000,000 shares authorized; 43,020,610 and 39,161,214 shares issued, respectively; 30,877,177 and 27,017,781 shares outstanding, respectively298,037 258,756 
Accumulated other comprehensive income 101
 115
Accumulated other comprehensive income122 122 
Accumulated deficit (159,322) (119,329)Accumulated deficit(111,128)(113,164)
Treasury stock at cost: 6,686,690 and 6,638,003 shares, respectively (46,872) (46,544)
Treasury stock at cost: 12,143,433 and 12,143,433 shares, respectivelyTreasury stock at cost: 12,143,433 and 12,143,433 shares, respectively(81,733)(81,733)
Total stockholders’ equity 19,849
 55,340
Total stockholders’ equity105,298 63,981 
Total liabilities and stockholders’ equity $59,772
 $103,767
Total liabilities and stockholders’ equity$136,408 $96,130 
See accompanying Notes to Condensed Consolidated Financial Statements.



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IMMERSION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended
March 31,
 2017 2016 2017 2016 20212020
Revenues:        Revenues:
Royalty and license $11,636
 $26,049
 $27,427
 $47,112
Royalty and license$7,068 $6,182 
Development, services, and other 227
 257
 690
 681
Development, services, and other91 75 
Total revenues 11,863
 26,306
 28,117
 47,793
Total revenues7,159 6,257 
Costs and expenses:        Costs and expenses:
Cost of revenues 61
 52
 158
 139
Cost of revenues29 44 
Sales and marketing 3,376
 3,535
 10,142
 10,735
Sales and marketing1,106 1,716 
Research and development 3,116
 2,951
 9,138
 10,229
Research and development1,307 1,689 
General and administrative 10,753
 9,654
 41,885
 30,745
General and administrative2,224 7,356 
Total costs and expenses 17,306
 16,192
 61,323
 51,848
Total costs and expenses4,666 10,805 
Operating income (loss) (5,443) 10,114
 (33,206) (4,055)Operating income (loss)2,493 (4,548)
Interest and other income 200
 664
 504
 909
Income (loss) from continuing operations before benefit (provision) for income taxes (5,243) 10,778
 (32,702) (3,146)
Benefit (provision) for income taxes (44) (3,760) (295) 1,264
Income (loss) from continuing operations (5,287) 7,018
 (32,997) (1,882)
Income from discontinued operations, net of tax —
 —
 —
 649
Interest and other income (loss), netInterest and other income (loss), net(316)(228)
Income (loss) before provision for income taxesIncome (loss) before provision for income taxes2,177 (4,776)
Provision for income taxesProvision for income taxes(141)(52)
Net income (loss) $(5,287) $7,018
 $(32,997) $(1,233)Net income (loss)$2,036 $(4,828)
Basic net income (loss) per share: 
 
 
 
Continuing operations (0.18) 0.24
 (1.13) (0.07)
Discontinued operations —
 —
 —
 0.02
Total $(0.18) $0.24
 $(1.13) $(0.05)
Basic net income (loss) per shareBasic net income (loss) per share$0.07 $(0.16)
Shares used in calculating basic net income (loss) per share 29,245
 28,849
 29,155
 28,726
Shares used in calculating basic net income (loss) per share28,579 31,006 
Diluted net income (loss) per share:        
Continuing operations (0.18) 0.24
 (1.13) (0.07)
Discontinued operations —
 —
 —
 0.02
Total $(0.18) $0.24
 $(1.13) $(0.05)
Diluted net income (loss) per shareDiluted net income (loss) per share$0.07 $(0.16)
Shares used in calculating diluted net income (loss) per share 29,245
 29,298
 29,155
 28,726
Shares used in calculating diluted net income (loss) per share29,180 31,006 
Other comprehensive income (loss), net of tax        
Change in unrealized gains (losses) on short-term investments 10
 (23) (14) 32
Other comprehensive income (loss)Other comprehensive income (loss)
Change in unrealized gains (loss) on short-term investmentsChange in unrealized gains (loss) on short-term investments0 (2)
Total other comprehensive income (loss) 10
 (23) (14) 32
Total other comprehensive income (loss)0 (2)
Total comprehensive income (loss) $(5,277) $6,995
 $(33,011) $(1,201)Total comprehensive income (loss)$2,036 $(4,830)
See accompanying Notes to Condensed Consolidated Financial Statements.

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IMMERSION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except number of shares)
(Unaudited)
Three Months Ended March 31, 2021
 Common Stock and
Additional Paid-In Capital		Accumulated
Other
Comprehensive
Income		Accumulated
Deficit		Treasury StockTotal
Stockholders’
Equity
 SharesAmountSharesAmount
Balances at December 31, 202039,161,214 $258,756 $122 $(113,164)12,143,433 $(81,733)$63,981 
Net income2,036 2,036 
Issuance of stock for ESPP purchases15,543 89 89 
Exercise of stock options, net of shares withheld for employee taxes306,987 2,724 2,724 
Release of restricted stock units and awards227,055 0 
Shares issued in connection with public offering, net of offering costs3,309,811 35,937 35,937 
Stock-based compensation531 531 
Balances at March 31, 202143,020,610 $298,037 $122 $(111,128)12,143,433 $(81,733)$105,298 

Three Months Ended March 31, 2020
 Common Stock and
Additional Paid-In Capital		Accumulated
Other
Comprehensive
Income		Accumulated
Deficit		Treasury StockTotal
Stockholders’
Equity
 SharesAmountSharesAmount
Balances at December 31, 201938,624,784 $253,289 $124 $(118,565)7,210,456 $(51,091)$83,757 
Net loss(4,828)(4,828)
Unrealized gain on available-for-sale securities, net of taxes(2)(2)
Repurchase of stock2,012,766 (11,975)(11,975)
Issuance of stock for ESPP purchases10,162 63 63 
Release of restricted stock units and awards189,735 0 
Stock-based compensation729 729 
Balances at March 31, 202038,824,681 $254,081 $122 $(123,393)9,223,222 $(63,066)$67,744 


See accompanying Notes to Condensed Consolidated Financial Statements.

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IMMERSION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
 20212020
Cash flows provided by (used in) operating activities:
Net income (loss)$2,036 $(4,828)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization192 1,178 
Stock-based compensation531 729 
Foreign currency remeasurement losses280 361 
Other24 34 
Changes in operating assets and liabilities:
Accounts and other receivables184 (2,202)
Prepaid expenses and other current assets1,396 4,820 
Long-term deposits0 (361)
Other assets843 339 
Accounts payable305 122 
Accrued compensation(68)(855)
Other current liabilities280 422 
Deferred revenue(1,226)(1,302)
Other long-term liabilities(367)227 
Net cash provided by (used in) operating activities4,410 (1,316)
Cash flows provided by (used in) investing activities:
Proceeds from maturities of short-term investments0 3,000 
Purchases of property and equipment(57)(21)
Net cash provided by (used in) investing activities(57)2,979 
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock, net35,937 0 
Cash paid for purchases of treasury shares0 (11,975)
Proceeds from issuance of common stock under employee stock purchase plan89 63 
Proceeds from stock options exercises2,723 0 
Net cash provided by (used in) financing activities38,749 (11,912)
Net increase (decrease) in cash and cash equivalents43,102 (10,249)
Cash and cash equivalents:
Beginning of period59,522 86,478 
End of period$102,624 $76,229 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$13 $19 
Supplemental disclosure of non-cash operating, investing, and financing activities:
Release of restricted stock units and awards under company stock plan$2,367 $1,356 
Leased assets obtained in exchange for new operating lease liabilities$0 $577 
  Nine Months Ended September 30,
  2017 2016
Cash flows provided by (used in) operating activities:    
Net loss $(32,997) $(1,233)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Depreciation and amortization of property and equipment 709
 677
Amortization of intangibles —
 6
Stock-based compensation 4,073
 4,803
Deferred income taxes (75) (1,228)
Allowance for doubtful accounts —
 2
Loss on disposal of equipment 1
 —
Income from discontinued operations

 —
 (649)
Changes in operating assets and liabilities:    
Accounts and other receivables (5,096) (2,037)
Prepaid income taxes —
 493
Prepaid expenses and other current assets (101) (205)
Intangibles and other assets (146) (258)
Accounts payable (1,116) 1,768
Accrued compensation and other current liabilities (3,209) (342)
Deferred revenue (4,082) 25,899
Other long-term liabilities (78) (173)
Net cash provided by (used in) operating activities (42,117) 27,523
Cash flows provided by investing activities:    
Purchases of short-term investments (23,807) (25,360)
Proceeds from maturities of short-term investments 28,000
 32,500
Purchases of property and equipment (121) (169)
Proceeds for discontinued operations —
 1,000
Net cash provided by investing activities 4,072
 7,971
Cash flows provided by financing activities:    
Issuance of common stock under employee stock purchase plan 328
 307
Exercise of stock options 443
 1,889
Purchases of treasury stock (328) (729)
Net cash provided by financing activities 443
 1,467
Net increase (decrease) in cash and cash equivalents (37,602) 36,961
Cash and cash equivalents:    
Beginning of period 56,865
 25,013
End of period $19,263
 $61,974
Supplemental disclosure of cash flow information    
Cash paid (received) for taxes $128
 $(427)
Supplemental disclosure of noncash operating, investing, and financing activities    
Amounts accrued for property and equipment $—
 $5
Release of Restricted Stock Units and Awards under company stock plan $2,524
 $1,945

See accompanying Notes to Condensed Consolidated Financial Statements.

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IMMERSION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017March 31, 2021
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES


Description of Business

Immersion Corporation (the “Company”"Company", "Immersion", "we" or "us") was incorporated in 1993 in California and reincorporated in Delaware in 1999. The Company focusesWe 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. The Company hasWe have adopted a “hybrid” business model under which it provides advanced tactile software, related tools, and technical assistance designed to help integrate our patented technology into our customers’ products or enhance the functionality of our patented technology to certain customers;customers, and offers licenses to the Company'sour patented intellectual property (“IP”)technology to other customers.

Impact of COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the U.S. and the world and has resulted in authorities implementing numerous measures to combat the spread of the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. The COVID-19 outbreak and related public health measures have adversely affected workforce, organizations, consumers, economies, and financial markets globally, leading to an economic downturn and increased market volatility.
Our compliance with these containment measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our customers and suppliers for an extended period of time. To support the health and well-being of our employees, customers and communities, we implemented work-from-home and restricted travel policies in the first quarter of 2020, which are expected to remain in place for the first half of 2021 and beyond. In addition, many of our customers are working remotely, which may delay the timing of some orders due to their and our compliance with frequently changing government-mandated or recommended shelter-in-place orders in jurisdictions in which we, our customers and our suppliers operate.
In response to certain anticipated impacts from the COVID-19 pandemic, we implemented a series of cost reduction initiatives in the first half of 2020 to further preserve financial flexibility. These actions include: reductions of the base salaries and cash compensation of company executives and board members; cancellation and reduction in the 2020 executive and employee bonus plans; renegotiated professional services fees from third-party services providers; relocation of certain positions to lower-cost regions; temporarily suspended company matching of our employee retirement savings plan and taking advantage of the broad-based employer relief provided by the governments.
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 three months ended March 31, 2021, we recorded $0.1 million in government subsidies as a reduction to operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Immersion Corporation and itsour wholly-owned subsidiaries: Immersion Canada Corporation; Immersion International, LLC; Immersion Medical, Inc.; Immersion Japan K.K.; Immersion Ltd.; Immersion Software Ireland Ltd.; Haptify, Inc.; Immersion (Shanghai) Science & Technology Company, Ltd.; and Immersion Technology International Ltd.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 (“GAAP”("U.S. GAAP") for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore,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 GAAP. These condensed consolidated financial statementsU.S. GAAP and should be read in conjunction with the Company’sour audited consolidated financial statements included in the Company’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2020. In the opinion of management, all adjustments consisting of only normal and recurring items necessary for the fair presentation of the financial position and results of operations for the interim periods presented have been included.


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Use of Estimates

The preparation of condensed consolidated financial statements and related disclosures requires management to make estimates and assumptions that affect the reported amounts of the condensed consolidated financial statements. Significant estimates include revenue recognition, useful lives of property and equipment, valuation of income taxes including uncertain tax provisions, stock-based compensation and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The results of operations for the three and nine months ended September 30, 2017March 31, 2021 are not necessarily indicative of the results to be expected for the full year.

Segment Information
The Company develops, licenses,
We develop, license, and supportssupport a wide range of software and IP that more fully engage users’ sensesenses of touch as they engage with products and experience thewhen operating digital world around them. The Company currently focusesdevices. We focus on the following target application areas: mobility, automotive, gaming, medicalmobile devices, wearables, consumer, mobile entertainment and mobile advertising. The Company’sother content; console gaming; automotive; medical; and commercial. We manage these application areas in 1 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 the Companyour business using information about itsour revenue and operating loss. There is only 1 segment that is reported to management.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standard Board (the "FASB") issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment is effective for public companies with fiscal years beginning after December 15, 2020; early adoption is permitted. We adopted this new guidance in the first quarter of 2021. This adoption did not have material impact on our condensed consolidated financial results as one operating and reporting segment.statements.


2. REVENUE RECOGNITION

Disaggregated Revenue Recognition

The Company recognizes revenuesfollowing table presents the disaggregation of our revenue for the three months ended March 31, 2021 and 2020 (in thousands).
Three Months Ended
March 31,
20212020
Fixed fee license revenue$1,275 $1,287 
Per-unit royalty revenue5,793 4,895 
Total royalty and license revenue7,068 6,182 
Development, services, and other revenue91 75 
Total revenue$7,159 $6,257 

Per-unit Royalty Revenue

We record per-unit royalty revenue in accordance with applicable accounting standards,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, ASC 605-10-S99, “Revenue Recognition” (“ASC 605-10-S99”); ASC 605-25, “Multiple Element Arrangements” (“ASC 605-25”)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.
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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 its licensees. We recorded $0.5 million and
$0.1 million adjustments to decrease royalty revenue during the three months ended March 31, 2021 and 2020, respectively.

Contract Assets

As of March 31, 2021, we had contract assets of $10.2 million included within Prepaid expenses and other current assets, and ASC 985-605, “Software-Revenue Recognition” (“ASC 985-605”). The Company derives its revenues$3.8 million included within Other assets on the Condensed Consolidated Balance Sheets. As of December 31, 2020, we had contract assets of $11.6 million included within Prepaid expenses and other current assets, and $4.6 million included within Other assets, on the Condensed Consolidated Balance Sheets.

Contract assets decreased by $2.3 million from December 31, 2020 to March 31, 2021, primarily due to actual royalties billed during the three months ended March 31, 2021.

Contract 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 principal sources: royalty andseparate 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 fees, and development contract and service fees. As described below, management judgments, assumptions, and estimates must be made and used in connection withagreement contains only Performance Obligation A, we recognize most or all of the revenue recognized in any accounting period. Material differences may result infrom the amountagreement at the inception of the contract. For fixed fee license agreements that contain both Performance Obligation A and timing of revenue for any periodB, we allocate the transaction price based on the judgmentsstandalone 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 estimates made by management. Specifically,B. Once the transaction price is allocated, the portion of the transaction price allocable to Performance Obligation A is recognized in connection with each transaction, the Company must evaluate whether: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii)period the feelicense agreement is fixed or determinable,signed and (iv) collectability is probable. The Company applies these criteria as discussed below.


Persuasive evidence of an arrangement exists. For a license arrangement, the Company requires a written contract, signed by both the customer andcan benefit from rights provided in the Company.
Delivery has occurred.contract. The Company delivers software electronically. Delivery occurs when the Company provides the customer access codes or “keys” that allow the customerportion allocable to take immediate possession of the software.
The feePerformance Obligation B is fixed or determinable. The Company’s arrangement fee is based on the use of standard payment terms, which are those that are generally offered to the majority of customers. For transactions involving extended payment terms, the Company deems these fees not to be fixed or determinable for revenue recognition purposes and revenue is deferred until the fees become due and payable.
Collectability is probable. To recognize revenue, the Company must judge collectability of fees, which is done on a customer-by-customer basis pursuant to the Company’s credit review policy. The Company typically sells to customers with whom there is a history of successful collection. For new customers, the Company evaluates the customer’s financial condition and ability to pay. If it is determined that collectability is not probable based upon the credit review process or the customer’s payment history, revenue is recognized when payment is received.
Royalty and license revenue — The Company licenses its patents and software to customers in a variety of industries such as mobility, gaming, automotive, and medical devices. Revenues that are derived from the sale of a licensee's products that incorporate the Company’s IP are classified as royalty revenues. The terms of the royalty agreements generally require licensees to give notification of royalties due to the Company within 30 – 45 days of the end of the quarter during which their related sales occur. As the Company is unable to reliably estimate the licensees’ sales in any given quarter to determine the royalties due to it, the Company recognizes royalty revenues based on royalties reported by licensees and when all revenue recognition criteria are met. Certain royalties could be subject to change and may result in out of period adjustments depending on the specific terms of the arrangement. The Company also enters into fixed license fee arrangements. The Company recognizes fixed license fee revenue when earned under the terms of the agreements, which generally results in recognition on a straight-line basis over the expected term of the license.
Development, services,contract term. For such contracts, a contract liability account is established and otherincluded within Deferred revenue — Development, services, and other revenue are composed of engineering services (engineering services and/or development contracts), and in limited cases, post contract customer support (“PCS”). Engineering services revenues are recognized under the proportional performance accounting method based on the completion ofCondensed Consolidated Balance Sheets. As the work to be performed or completed performance method. A provision for lossesrights 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 is made, if necessary,signed and payments received as of March 31, 2021, we expect to recognize $25.2 million in the period in which the loss becomes probable and can be reasonably estimated. Revisions in estimates are reflected in the period in which the conditions become known. To date, such losses have not been significant. Revenue from PCS is typically recognized over the period of the ongoing obligation, which is generally consistent with the contractual term.
Multiple element arrangements — The Company enters into multiple element arrangements in which customers purchase time-based non-exclusive licenses that cannot be resold to others, which include a combination of software and/or IP licenses, engineering services, and in limited cases PCS. For arrangements that are software based with an engineering services component, the services are generally not essential to the functionality of the software, and customers may purchase engineering services from the Company to facilitate the adoption of the Company’s technology, but they may choose to use their own resources or appoint other engineering service organizations to perform these services. For arrangements that are in substance subscription arrangements, the entire arrangement fee is recognized ratably over the contract term, subject to any limitationsrevenue related to extended payment terms. For arrangements involving upfront fees for services and royalties earned by the Company based on units sold or sales volumes of the respective licensed products, and the services are performed ratably over the arrangement or are front-end loaded, the upfront fees are recognized ratably over the contract term, and royalties based on units sold or sales volume are recognized when they become fixed and determinable. As the Company is unable to reliably estimate the licensees’ sales in any given quarter to determine the royalties due to it, the Company recognizes per unit or sales volume driven royalty revenues based on royalties reported by licensees and when all revenue recognition criteria are met.
Recent Accounting Pronouncements
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-09 “Stock Compensation: Scope of Modification Accounting”. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accountingPerformance Obligation B under ASC 718. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2017. The Company will adopt the standard in the first quarter of fiscal 2018, but does not expect the adoption of ASU 2016-19 will have a material impact on its condensed consolidated financial statements.
In December 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-19 “Technical Corrections and Improvements”. The amendments in this update affect a wide variety of topics in the

Accounting Standards Codification. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods in the annual period beginning after December 15, 2018. The Company will adopt the standard in the first quarter of fiscal 2018, but does not expect the adoption of ASU 2016-19 will have a material impact on its condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 “Leases: Topic 842” (“ASU 2016-02”), which supersedes the existing guidance for lease accounting in Topic 840, Leases. The FASB issued the ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for all leases. Lessor accounting remains largely unchanged. This ASU is effective for periods beginning after December 15, 2018, with early adoption permitted. An entity will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently in the process of evaluating the impact of this standard on its condensed consolidated financial statements, but has not elected to early adopt the standard and would plan to implement the standard on January 1, 2019.
In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers: Topic 606” (“ASU 2014-09”) which will supersede the current revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Further, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers: Deferral of the Effective Date”, which deferred the effective date of ASU 2014-09 for periods beginning after December 15, 2016 to December 15, 2017, with early adoption permitted but not earlier than the original effective date. In March 2016, the FASB issued ASU 2016-08 "Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations" ("ASU 2016-08") which provides updates to revenue recognition guidance relating to considerations for reporting revenue gross versus net. In April 2016, the FASB issued ASU 2016-10 "Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing" ("ASU 2016-10"), which provides updates to revenue recognition guidance relating to performance obligations and accounting for licensing revenue. In May 2016, the FASB issued ASU 2016-12 "Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients" ("ASU 2016-12") which provides updates to revenue recognition guidance relating to scope and practical expedients for revenue recognition. In December 2016, the FASB issued ASU 2016-20 "Technical Corrections and Improvements to Topic 606" ("ASU 2016-20") which further provides updates to certain aspects of the revenue recognition guidance. Accordingly, ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20 amends certain aspects of the new revenue standard in ASU 2014-09. The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company currently anticipates adopting the standard using the modified retrospective method rather than full retrospective method. The Company has not elected for early adoption of the new standard and will adopt it as of January 1, 2018.
The Company has substantially completed its evaluation of the impact this ASU and related amendments and interpretations will have on its current revenue recognition model and condensed consolidated financial statements. The Company's revenue is primarily comprised of per-unit royalty revenue andour fixed fee license revenue. Based on its evaluation,agreements, which is satisfied over time, including $13.2 million over one to three years and $12.0 million over more than three years.

Capitalized Contract Costs

During the Company expects a shift in the method and timing by which it recognizes per-unit royalty revenue. In accordance with current GAAP, the Company records this revenue when royalty reports are received from its customers (typically one quarter in arrears); however, under thethree months ended March 31, 2021, we capitalized $0.1 million of incremental costs incurred to obtain new standard, the Company will be required to estimate the amount of this revenue in the quarter when the sales occur. As a result, there will be variances between the estimated per-unit royalty revenue and that based on the actual sales reported by its customers. The Company will adjust the estimate in the following quarter to reflect the actual sales reported by its customers.
The Company also expects changes in the way it accounts for fixed fee license revenue. In accordance with current GAAP, fixed fee license revenue has been historically recognized when earned, which generally results in recognition on a straight-line basis over the term of the license. The Company applied the new standard to its existing contracts with fixed license fee arrangements, and concluded that fixed fee license revenue would be recognized at a point in time when the Company satisfies its performance obligations, which typically occurs when the license is granted to the existing licensees. Consequently, the Company expects that deferred revenue will be substantially reduced upon adoption of the new standard as a result of the aforementioned conclusion on fixed-fee licenses. The Company is in the process of validating the quantitative impact of this change on its financial statements upon adoption.customers.
The Company acknowledges that the conclusions are drawn from the specific facts and circumstances pertaining to its existing contracts. With the Company’s continuous evolution of technologies and its increasing ability to quantify the value of its innovations to licensees over the life of contract, the Company will need to assess the application of the ASU for each new


contract entered after adoption, and determine the appropriate revenue recognition on a case-by-case, industry-by-industry basis.
The Company is currently preparing for the conversion and implementation of the new standard to account for revenue transactions. Remaining implementation matters include establishing new policies, procedures, and controls, finalizing appropriate presentation and disclosure changes, and quantifying any adoption date adjustments. The Company expects to complete these remaining implementation efforts by the end of 2017.

2.3. FAIR VALUE MEASUREMENTS

Cash and Cash Equivalents and Short-term Investments
The
Our financial instruments of the Company measured at fair value on a recurring basis are cash equivalents and short-term investments.
The Company’s fixed income available-for-sale securities consistconsisted of high quality, investment grade securities. The Company valuesmoney market funds. We value these securities based on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1) or inputs other than quoted prices thatassets.

Financial instruments are observable either directly or indirectly (Level 2) in determining fair value.
The types of instruments valued based on quoted market prices in active markets include mostly money market accounts.securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.
The types
9
Table of instrumentsContents

Instruments valued based on quoted prices in markets that are less active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency are generally classified within Level 2 of the fair value hierarchy and include U.S. treasury securities. We had no Level 2 instruments at March 31, 2021 and December 31, 2020.
The types of instruments
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. The Company had no Level 3 instruments asAs of September 30, 2017March 31, 2021 and December 31, 2016.2020, we did not hold any Level 3 instruments.

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

Financial instruments measured at fair value on a recurring basis as of September 30, 2017March 31, 2021 and December 31, 20162020 are classified based on the valuation technique in the table below:below (in thousands):

 September 30, 2017  
 Fair value measurements using   March 31, 2021 
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 TotalFair Value Measurements Using
 (In thousands)Quoted Prices
 in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Assets:        Assets:
U.S. Treasury securities $—
 $28,860
 $—
 $28,860
Money market accounts 6,114
 —
 —
 6,114
Money market accounts$70,616 $0 $0 $70,616 
Total assets at fair value $6,114
 $28,860
 $—
 $34,974
Total assets at fair value (1)
Total assets at fair value (1)
$70,616 $0 $0 $70,616 
(1) The above table excludes $13.1$32.0 million of cash held in banks.


 December 31, 2020 
Fair Value Measurements Using
Quoted Prices 
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Assets:
Money market accounts45,614 $0 $0 $45,614 
Total assets at fair value (2)
$45,614 $0 $0 0$45,614 
  December 31, 2016  
  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
  (In thousands)
Assets:        
U.S. Treasury securities $—
 $32,907
 $—
 $32,907
Money market accounts 32,031
 —
 —
 32,031
Total assets at fair value $32,031
 $32,907
 $—
 $64,938
(2) The above table excludes $24.8$13.9 million of cash held in banks.
U.S. Treasury securities are classified
4. BALANCE SHEETS DETAILS

Cash and Cash Equivalents

Our cash and cash equivalent balances were as short-term investments,follows (in thousands):
 March 31,
2021		December 31,
2020
Cash$32,008 $13,908 
Money market funds70,616 45,614 
Cash and cash equivalents$102,624 $59,522 

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Table of Contents
Accounts and money market accounts are classified as cash equivalents on the Company’s condensed consolidated balance sheets.Other Receivables
Short-term Investments
  September 30, 2017
  
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
  (In thousands)
U.S. Treasury securities $28,881
 $—
 $(21) $28,860
Total $28,881
 $—
 $(21) $28,860

  December 31, 2016
  
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
  (In thousands)
U.S. Treasury securities $32,914
 $—
 $(7) $32,907
Total $32,914
 $—
 $(7) $32,907
The contractual maturitiesAccounts and other receivables consisted of the short-term investments (classifiedfollowing (in thousands):
March 31,
2021		December 31,
2020
Trade accounts receivable$1,402 $1,618 
Other receivables632 600 
Accounts and other receivables$2,034 $2,218 

Allowance for credit losses as available-for-sale securities) on September 30, 2017of March 31, 2021 and December 31, 20162020 were all due within one year. There were no transfers of instruments between Level 1not material.

Prepaid Expenses and 2 during the three and nine months ended September 30, 2017 and the year ended December 31, 2016.Other Current Assets


3.    ACCOUNTS AND OTHER RECEIVABLES
  September 30, 2017 December 31, 2016
  (In thousands)
Trade accounts receivable $5,994
 $1,084
Receivables from vendors and other 484
 298
Accounts and other receivables $6,478
 $1,382


4.    PROPERTY AND EQUIPMENT
  September 30, 2017 December 31, 2016
  (In thousands)
Computer equipment and purchased software $3,199
 $3,489
Machinery and equipment 838
 882
Furniture and fixtures 1,287
 1,290
Leasehold improvements 3,962
 3,917
Total 9,286
 9,578
Less accumulated depreciation (5,881) (5,562)
Property and equipment, net $3,405
 $4,016

5.    INTANGIBLES AND OTHER ASSETS
  September 30, 2017 December 31, 2016
  (In thousands)
Purchased patents and other purchased intangible assets $4,605
 $4,605
Less: Accumulated amortization of purchased patents and other purchased intangibles (4,605) (4,605)
Purchased patents and other purchased intangible assets, net —
 —
Other assets 351
 365
Intangibles and other assets, net $351
 $365
The Company amortizes its intangible assets related to purchased patents over their estimated useful lives, generally 10 years from the purchase date. The Company recorded no amortization of purchased patents during the three and nine months ended September 30, 2017 as the purchased patents were fully amortized in 2016. The Company recorded $1,000 and $6,000 in amortization of purchased patents during the three and nine months ended September 30, 2016, respectively.

6.    OTHER CURRENT LIABILITIES
  September 30, 2017 December 31, 2016
  (In thousands)
Accrued legal $2,611
 $3,096
Accrued services 417
 473
Income taxes payable 276
 164
Other current liabilities 711
 676
Total other current liabilities $4,015
 $4,409

7.    STOCK-BASED COMPENSATION
Stock Options and Awards
The Company’s equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for talented employees, consultants, officers, and directors and to align stockholder and employee interests. The Company may grant time based options, market condition based options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares, performance units,Prepaid expenses and other stock-based or cash-based 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. These options generally vest over four years and expire from seven to ten years from the date of grant. In addition to time based vesting, market condition based options are subject to a market condition: the closing price of the Company stock must exceed a certain level for a number of trading days within a specified timeframe or the options will be cancelled before the expiration of the options. On June 2, 2017, the Company's stockholders approved an increase to the number of shares reserved for issuance by 3,476,850 shares. Restricted stock generally vests over one year.

RSUs generally vest over three years. Awards granted other than an option or stock appreciation right reduce the common stock shares available for grant under the program by 1.75 shares for each share issued.
September 30, 2017
Common stock shares available for grant2,867,585
Standard and market condition stock options outstanding3,815,784
Restricted stock awards outstanding44,538
RSU's outstanding627,454
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (“ESPP”). Under the 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 the Company’s 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 1,000,000 shares of common stock has been reserved for issuance under the ESPP. As of September 30, 2017, 698,133 shares had been purchased since the inception of the ESPP in 1999. Under ASC 718-10, the ESPP is considered a compensatory plan and the Company is required to recognize compensation cost related to the fair value of the award purchased under the ESPP. Shares purchased under the ESPP for the nine months ended September 30, 2017 are listed below. Shares purchased under the ESPP for the nine months ended September 30, 2016 are 45,825. The intrinsic value listed below is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.
  
 Nine Months Ended September 30, 2017
Shares purchased under ESPP48,750
Average price of shares purchased under ESPP$6.74
Intrinsic value of shares purchased under ESPP$136,000
Summary of Standard Stock Options
The following table sets forth the summary of activity with respect to standard stock options granted under the Company’s stock option plans for the nine months ended September 30, 2017:
  Nine Months Ended September 30, 2017
Beginning outstanding balance 3,421,121
Granted 326,978
Exercised (58,023)
Forfeited (70,306)
Expired (149,816)
Ending outstanding balance 3,469,954
Aggregate intrinsic value of options exercised $134,000
Weighted average fair value of options granted 3.96

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the exercise price of the Company’s common stock for the options that were in-the-money.
Information regarding these standard stock options outstanding at September 30, 2017 is summarized below:

  
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (years)
 
Aggregate
Intrinsic
Value
(in millions)
September 30, 2017        
Options outstanding 3,469,954
 $8.21
 3.62 $3.4
Options vested and expected to vest using estimated forfeiture rates 3,314,281
 8.18
 3.52 3.3
Options exercisable 2,417,385
 7.94
 2.86 3.2
Summary of Market Condition Based Stock Options
The following table sets forth activity with respect to market condition based stock options granted under the Company’s stock option plans for the nine months ended September 30, 2017:
Nine Months Ended September 30, 2017
Beginning outstanding balance225,000
Granted120,830
Exercised—
Canceled—
Ending outstanding balance345,830
Aggregate intrinsic value of options exercised$—
Information regarding these market condition based stock options outstanding at September 30, 2017 is summarized below:
  
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (years)
 
Aggregate
Intrinsic
Value
(in millions)
September 30, 2017        
Options outstanding 345,830
 $8.48
 5.42 $—
Options vested and expected to vest using estimated forfeiture rates 324,033
 8.47
 5.38 —
Options exercisable 93,750
 8.09
 4.42 —
Summary of Restricted Stock Units
RSU activity for the nine months ended September 30, 2017 was as follows:
  Nine Months Ended September 30, 2017
Beginning outstanding balance 427,192
Awarded 433,015
Released (181,392)
Forfeited (51,361)
Ending outstanding balance 627,454
Weighted average fair value on grant date of RSUs $8.46
Total fair value of RSUs released 1,853,000
Information regarding RSUs outstanding at September 30, 2017 is summarized below:

  
Number of
Shares
 
Weighted
Average
Remaining
Contractual
Life (years)
 
Aggregate
Intrinsic
Value
(in millions)
September 30, 2017      
RSUs outstanding 627,454
 1.40 $5.1
RSUs vested and expected to vest using estimated forfeiture rates 507,542
 1.28 4.1
Summary of Restricted Stock Awards
Restricted stock award activity for the nine months ended September 30, 2017 was as follows:
  Nine Months Ended September 30, 2017
Beginning outstanding balance 77,540
Awarded 44,538
Released (77,540)
Forfeited —
Ending outstanding balance 44,538
Weighted average grant date fair value of restricted stock awarded $8.65
Total fair value of restricted stock awards released 671,000
Stock Plan Assumptions
The assumptions used to value option grants under the Company’s stock plans were as follows:
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Standard Stock Options        
Expected life (in years) 4.6
 4.5
 4.5
 4.5
Volatility 53% 55% 53% 55%
Interest rate 1.7% 0.8% 1.7% 1.1%
Dividend yield N/A
 N/A
 N/A
 N/A

  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Market Condition Based Stock Options        
Expected life (in years) N/A N/A 7.0
 7.0
Volatility N/A N/A 55% 59%
Interest rate N/A N/A 2.0% 1.6%
Dividend yield N/A N/A N/A
 N/A

  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Employee Stock Purchase Plan        
Expected life (in years) 0.5
 0.5
 0.5
 0.5
Volatility 46% 53% 48% 53%
Interest rate 1.1% 0.4% 0.9% 0.4%
Dividend yield N/A
 N/A
 N/A
 N/A
Compensation Costs
Total stock-based compensation recognized in the condensed consolidated statements of operations and comprehensive income (loss) is as follows:
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
  (In thousands)
Statement of Operations Classifications        
Sales and marketing $317
 $335
 $808
 $895
Research and development 231
 257
 780
 1,041
General and administrative 790
 622
 2,485
 2,867
Total $1,338
 $1,214
 $4,073
 $4,803

As of September 30, 2017, there was $7.3 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options, restricted stock awards and RSUs granted to the Company’s employees and directors. This cost will be recognized over an estimated weighted-average period of approximately 2.27 years for standard options, 2.33 years for market condition based options, 2.37 years for RSUs, and 0.67 years for restricted stock awards. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

8.    STOCKHOLDERS’ EQUITY
Accumulated Other Comprehensive Income
The changes in accumulated other comprehensive income are included in the table below.
  Nine Months Ended September 30, 2017
  
Unrealized Gains
and Losses on
Short-term Investments
 
Foreign
Currency
Items
 Total
  (In thousands)
Beginning balance $(7) $122
 $115
Other comprehensive income before reclassifications (14) —
 (14)
Amounts reclassified from accumulated other comprehensive income —
 —
 —
Net current period other comprehensive income (14) —
 (14)
Ending Balance $(21) $122
 $101
Stock Repurchase Program
On November 1, 2007, the Company announced its Board of Directors (the "Board")’ authorized the repurchase of up to $50.0 million of the Company’s common stock (“Stock Repurchase Program”). In addition, on October 22, 2014, the Board authorized another $30.0 million under the share repurchase program. The Company may repurchase its common stock for cash

in the open market in accordance with applicable securities laws. The timing and amount of any stock repurchase will depend on share price, corporate and regulatory requirements, economic and market conditions, and other factors. The stock repurchase authorization has no expiration date, does not require the Company to repurchase a specific number of shares, and may be modified, suspended, or discontinued at any time.
During the three months and nine months ended September 30, 2017, the Company repurchased 48,687 shares for $328,000 at an average cost of $6.73 per share, net of transaction costs through open market repurchases. During the three months and nine months ended September 30, 2016, the Company repurchased 105,750 shares for $729,000 at an average cost of $6.90 per share, net of transaction costs through open market repurchases. These amounts repurchased are classified as treasury stock on the Company’s condensed consolidated balance sheet. As of September 30, 2017, the Stock Repurchase Program remains available with approximately $33.4 million that may yet be purchased under the program.

9.    DISCONTINUED OPERATIONS

During the year ended December 31, 2009, the Company sold its 3D product line including inventory, fixedcurrent assets and intangibles and recorded gains on the sale of discontinued operations of $187,000 at the time of the sales. Total consideration initially negotiated for the sales was $2.7 million which comprised $320,000 in cash paid in the year ended December 31, 2009 and notes receivable of $2.4 million which were payable through the year ended December 31, 2013. Given the inherent uncertainty relative to the credit worthiness of the buyers, the Company concluded that they would recognize income from the notes receivable as proceeds were received. The operations of the 3D product line were classified as discontinued operations in the period of the initial sales transactions. In the second fiscal quarter of 2016, a final settlement payment of $1.0 million was received relative to these sales resulting in $649,000 of income from discontinued operations, net of tax of $351,000. There were no discontinued operations for the three and nine months ended September 30, 2017.

10.    INCOME TAXES
Income tax provisions consisted of the following:following (in thousands):
March 31,
2021		December 31,
2020
Prepaid expenses846 816 
Contract assets - current10,172 11,623 
Other current assets195 171 
Prepaid expenses and other current assets11,213 12,610 
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
  (In thousands)
Income (loss) from continuing operations before benefit (provision) for income taxes

 $(5,243) $10,778
 $(32,702) $(3,146)
Benefit (provision) for income taxes

 (44) (3,760) (295) 1,264
Effective tax rate (0.8)% 34.9% (0.9)% 40.2%

The provision for income tax for the three and nine months ended September 30, 2017 resulted primarily from estimated foreign taxes and foreign withholding tax expense. The Company continues to carry a full valuation allowance on its federal deferred tax assets.  As a result, no benefit for U.S. sourced losses was included in the calculation of the effective tax rate, the primary reason for the difference between the statutory tax rate and effective tax rate. The provision for income tax for the three months and the benefit for income tax for the nine months ended September 30, 2016 resulted primarily from the Company’s federal and foreign tax recognized at statutory rates, adjusted for the tax impact of nondeductible permanent items including stock-based compensation and foreign withholding taxes. It also includes non-cash tax expense on intercompany profit that resulted from the sale of certain IP rights to one of the Company's foreign subsidiaries as part of the Company's reorganization of its international operations during the second half of 2015. Discrete items recognized for the nine months ended September 30, 2016 include a tax refund related to the settlement with a taxing authority and the release of certain reserves and related accrued interest.Other Assets
In October 2016, the FASB issued ASU 2016-16 “Income Taxes: Topic 740, Intra-Entity Transfers of Assets
Other Than Inventory” (“ASU 2016-16”) which simplifies certain aspects of the income tax accounting for Intra-Entity Transfers of Assets. Under current GAAP, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recovered through use. This is an exception to the principle in ASC 740, Income Taxes, that generally requires comprehensive recognition of current and deferred income taxes. ASU 2016-16 allows a reporting entity to recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. The standard will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted only in the first interim period of 2017. The Company elected to early adopt ASU 2016-16 at the beginning of the first quarter of

2017 for the benefit of simplifying its accounting for intra-entity asset transfers. As required by the FASB in adopting the new standard, the company applied the ASU on a modified retrospective basis which resulted in a cumulative-effect adjustment to the accumulated deficit as of January 1, 2017 for the recognition of the income tax consequences of intra-entity transfers that occurred prior to January 1, 2017. As such, previously issued balance sheets have not been retrospectively adjusted. The adoption resulted in the decrease of $7.0 million in the Company’s short-term and long-term prepaid income taxes and a corresponding increase to the accumulated deficit on the Company’s condensed consolidated balance sheet as of January 1, 2017.
In March 2016, the FASB issued ASU 2016-09 “Compensation - Stock Compensation: Topic 718” (“ASU 2016-09”) which simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. The standard is effective for periods beginning after December 15, 2016, with early adoption permitted. The Company elected to adopt ASU 2016-09 on a prospective basis beginning in the first quarter of 2017. Upon adoption, the “without” basis NOL deferred tax asset was adjusted for historical excess benefits to match the “with” basis NOL deferred tax asset, offset by the full valuation allowance. Subsequent to the adoption, all stock option activities will be accounted for discretely in the quarter that occur. However, due to the full valuation allowance on our federal deferred tax assets no excess benefits have been reported discretely. As permitted by the ASU, the Company will continue to use an estimated forfeiture rate in calculating stock based compensation expense.
On July 27, 2015, a U.S. Tax Court opinion (Altera Corporation et. al v. Commissioner) concerning the treatment of stock-based compensation expense in an intercompany cost sharing arrangement was issued. In its opinion, the U.S. Tax Court accepted Altera's position of excluding stock-based compensation from its intercompany cost sharing arrangement. On February 19, 2016, the IRS appealed the ruling to the U.S. Court of Appeals for the Ninth Circuit. Although the IRS has appealed the decision, based on the findings of the U.S. Tax Court, the Company has concluded that it is more likely than not that the decision will be upheld and accordingly has excluded stock-based compensation from intercompany charges during the period. The Company will continue to monitor ongoing developments and potential impacts to its condensed consolidated financial statements.

As of September 30, 2017, the Company had unrecognized tax benefits under ASC 740 “Income Taxes” of approximately $6.3 million and applicable interest of $8,000. The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate, if recognized, was $97,000. The Company’s 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, 2017, the Company had net deferred income tax assets of $437,000 consisting primarily of foreign net operating loss carryforwards, and deferred income tax liabilities of $36,000. Because the Company had net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state, and foreign taxing authorities may examine the Company’s tax returns for all years from 1998 through the current period.
The Company maintains a valuation allowance of $42.3 million against certain of its deferred tax assets, including all federal, state, and certain foreign deferred tax assets as a result 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. In the event that the Company determines the deferred tax assets are realizable based on its assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made. The valuation allowance does not impact the Company’s ability to utilize the underlying net operating loss carryforwards.

11.    NET INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per share is computed using the weighted average number of common shares outstanding for the period, excluding unvested restricted stock and RSUs. The following is a reconciliation of the numerators and denominators used in computing basic and diluted net loss per share for both continuing and discontinued operations:

  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
  
(in thousands, except
per share amounts)
Numerator:        
     Income (loss) from continuing operations
 $(5,287) $7,018
 $(32,997) $(1,882)
Income from discontinued operations, net of tax —
 —
 —
 649
Net income (loss) $(5,287) $7,018
 $(32,997) $(1,233)
Denominator:        
Shares used in computation of basic net income (loss) per share (weighted average common shares outstanding) 29,245
 28,849
 29,155
 28,726
Dilutive potential common shares:        
Stock options, ESPP, restricted Stock and RSUs —
 449
 —
 —
Shares used in computation of diluted net income (loss) per share 29,245
 29,298
 29,155
 28,726
Basic net income (loss) per share:        
Continuing operations (0.18) 0.24
 (1.13) (0.07)
Discontinued operations —
 —
 —
 0.02
Total $(0.18) $0.24
 $(1.13) $(0.05)
Diluted net income (loss) per share:        
Continuing operations $(0.18) $0.24
 $(1.13) $(0.07)
Discontinued operations $—
 —
 —
 $0.02
Total $(0.18) $0.24
 $(1.13) $(0.05)
The Company includes the underlying market condition stock options in the calculation of diluted earnings per share if the performance condition has been satisfied as of the end of the reporting period and excludes such options if the performance condition has not been met.

For the three months ended September 30, 2016, standard stock options to purchase approximately 2.7 million shares of common stock, with exercise prices greater than the average fair market value of the Company’s stock of $7.41 per share, were not included in the calculation because the effect would have been anti-dilutive.
As of September 30, 2017 and 2016, the Company had securities outstanding that could potentially dilute basic earnings per share in the future, but these were excluded from the computation of diluted net loss per share for the three months ended September 30, 2017 and nine months ended September 30, 2017 and 2016, since their effect would have been anti-dilutive. These outstanding securities consisted of the following:following (in thousands):
March 31,
2021		December 31,
2020
Contract assets - long-term$3,776 $4,596 
Right-of-use ("ROU") assets1,439 1,607 
Deferred tax assets2,659 2,659 
Other assets113 138 
Total other assets$7,987 $9,000 

Other Current Liabilities

Other current liabilities are as follows (in thousands):
March 31,
2021		December 31,
2020
Lease liabilities - current1,365 1,382 
Other current liabilities1,353 1,075 
Total other current liabilities$2,718 $2,457 

11
  September 30,
  2017 2016
Standard and market condition stock options outstanding 3,815,784
 3,661,163
Restricted stock awards outstanding 44,538
 77,540
RSUs outstanding 627,454
 527,410
ESPP 10,152
 11,441
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5. CONTINGENCIES

12.    CONTINGENCIES
From time to time, the Company receiveswe receive claims from third parties asserting that the Company’sour technologies, or those of itsour licensees, infringe on the other parties’ IP rights. Management believes that these claims are without merit. Additionally, periodically, the Company iswe are involved in routine legal matters and contractual disputes incidental to itsour normal operations. In

management’s opinion, unless we disclosed otherwise, the resolution of such matters will not have a material adverse effect on the Company’s condensedour consolidated financial condition, results of operations, or liquidity.

In the normal course of business, the Company provideswe 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 the Company iswe 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 Corporation and Immersion Software Ireland Limited (collectively, “Immersion”) received a letter from Samsung Electronics Co. (“Samsung”) requesting that Immersionwe 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 indicated that a final decision is expected on May 28, 2021, but reserved the right to delay the date of the decision.

On September 29, 2017, Samsung filed an arbitration demand with the International Chamber of Commerce against Immersionus demanding that Immersionwe reimburse Samsung for the imposed tax and penalties that Samsung paid to the Korean tax authorities. Samsung is requesting that Immersionwe pay Samsung the amount of KRW 7,841,324,165 (approximately $6.3$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 believesto pay Samsung KRW 7,841,324,165 (approximately $6.9 million as of March 31, 2019) which we paid on April 22, 2019 and recorded in Long-term deposit on our Condensed Consolidated Balance Sheets. The award also denied Samsung’s claim for interest from and after May 2, 2017 and ordered Immersion to pay Samsung’s cost of the arbitration in the amount of approximately $871,454, which was paid in 2019.

We believe that there are valid defenses to all of the claims from the Korean tax authorities and that Samsung’s claims are without merit. Immersion intendsauthorities. We intend to vigorously defend against thesethe claims andfrom 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 result, Immersion has concluded that the likelihood of a material charge resulting from this claim is remote.deposit included in Long-term deposits on our Condensed Consolidated Balance Sheets. In the event Samsung were tothat we do not ultimately prevail in the arbitration in advance of the conclusion of theour appeal with the Korea Tax Tribunal, Immersion could be required to make a payment to Samsung even though it would later be reimbursed should Immersion prevail in the appeal.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.

LGE Korean Withholding Tax Matter

On October 16, 2017, Immersionwe received a letter from LG Electronics Inc. (“LGE”) requesting that Immersionwe 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 Statement of Operations and Comprehensive Loss, in the period in which we do not ultimately prevail.

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On or before November 6,3, 2017, Immersion will fileon behalf of LGE, we filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes. Immersion believesThe 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 is scheduled for June 24, 2021.

We believe that there are valid defenses to the claims raised by the Korean tax authorities and that LG’sLGE’s claims are without merit. The Company intendsWe intend to vigorously defend itselfourselves against these claims 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 Statement of Operationsand Comprehensive Income (Loss), in the period in which we do not ultimately prevail.


6. STOCK-BASED COMPENSATION

Stock Options and Awards

Our equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for employees, consultants, officers, and directors and to align stockholder and employee interests. We may grant time-based options, market condition-based options, stock appreciation rights, restricted stock (“RSAs”), restricted stock units (“RSUs”), performance shares, market condition-based performance restricted stock units (“PSUs”), and other stock-based equity awards to employees, officers, directors, and consultants. Under this program, stock options may be granted at prices not less than the fair market value on the date of grant for stock options. Stock options generally vest over four years and expire seven years from the grant date. Market condition-based options are subject to a market condition whereby the closing price of our common stock must exceed a certain level for a number of trading days within a specified time frame or the options will be canceled before the expiration of the options. RSAs generally vest over one year. RSUs generally vest over three years. Awards granted other than a stock option or stock appreciation right shall reduce the common stock shares available for grant by 1.75 shares for every share issued.

A summary of our equity incentive program is as follows (in thousands):
March 31,
2021
Common stock shares available for grant3,271 
Stock options outstanding521 
PSUs outstanding250 
RSUs outstanding565 
RSAs outstanding130 

Time-Based Stock Options

The following summarizes activities for the time-based stock options for the three months ended March 31, 2021 (in thousands except for weighted average exercise price per share and weighted average remaining contractual life data):
Number of Shares
Underlying Stock Options		Weighted Average
Exercise Price
Per Share		Weighted Average
Remaining Contractual Life
(Years)		Aggregate
Intrinsic Value
Outstanding at December 31, 2020828 $8.16 4.36$2,628 
Granted0 $0 
Exercised(307)$8.87 
Canceled or expired0 $0 
Outstanding at March 31, 2021521 $7.74 5.21$1,020 
Vested and expected to vest at March 31, 2021447 $7.76 5.18$866 
Exercisable at March 31, 2021129 $8.32 4.69$212 

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

Restricted Stock Units

The following summarizes RSU activities for the three months ended March 31, 2021 (in thousands except for weighted average grant date fair value and weighted average remaining contractual life data):
Number of Restricted Stock UnitsWeighted Average Grant Date Fair ValueWeighted Average
Remaining Contractual Life
(Years)		Aggregate
Intrinsic Value
Outstanding at December 31, 2020802 $6.98 1.00$9,057 
Granted0 $0 
Released(227)$7.49 
Forfeited(10)$6.74 
Outstanding at March 31, 2021565 $6.78 1.08$5,415 

Restricted Stock Awards

The following summarizes RSA activities for the three months ended March 31, 2021 (in thousands except for weighted average grant date fair value and weighted average remaining recognition period):
Number of Restricted Stock AwardsWeighted Average Grant Date Fair ValueWeighted Average Remaining Recognition Period
(Years)
Outstanding at December 31, 2020130 $6.53 0.45
Granted0 $0 
Released0 $0 
Forfeited0 $0 
Outstanding at March 31, 2021130 $6.53 0.20

Market Condition-Based Restricted Stock Units

In the fourth quarter of 2020, we granted 250,000 shares of PSUs to our executives. Each PSU represents the right to one share of our common stock. These equity awards will vest if the volume-weighted closing price of our common stock exceeds certain levels for a number of trading days within a specified time frame. These awards vest over four years, with 25% eligible for vesting on the first anniversary of the grant date and remaining shares vesting on quarterly basis over the following three years. We have 250,000 shares of PSUs outstanding as of March 31, 2021.

Employee Stock Purchase Plan

Under our 1999 Employee Stock Purchase Plan ("ESPP"), eligible employees may purchase common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of our common stock at the beginning of the offering period or the purchase date. Participants may not purchase more than 2,000 shares in a six months offering period or purchase stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period. A total of 1.0 million shares of common stock has been reserved for issuance under the ESPP. During the three months ended March 31, 2021, 15,543 shares were purchased under the ESPP. As of March 31, 2021, 215,338 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 months ended March 31, 2021 and 2020 (in thousands):
 Three Months Ended
March 31,
 20212020
Stock options$15 $255 
RSUs and RSAs497 462 
Employee stock purchase plan19 12 
Total$531 $729 
Sales and marketing$224 $45 
Research and development318 168 
General and administrative(11)516 
Total$531 $729 

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.

The assumptions used to value options granted under our equity incentive program are as follows:
Three Months Ended
March 31,
2021 (1)
2020
Expected life (in years)N/A4.2
VolatilityN/A52 %
Interest rateN/A1.0 %
Dividend yieldN/A0 %
    (1) There were 0 stock option grants in the three months ended March 31, 2021

As of March 31, 2021, there were $5.3 million of unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested stock options, RSAs and RSUs. This unrecognized compensation cost will be recognized over an estimated weighted-average period of approximately 1.8 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.


7. STOCKHOLDERS’ EQUITY

Stock Offering

On February 3, 2021, we filed an universal shelf registration statement on Form S-3 with the Securities and Exchange Commission which provided us with the financial flexibility to raise up to $250 million of capital. 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 ("Distribution Agreement") with an investment banking firm to issue and sell shares of our common stock having an aggregated offering price of up to $50 million. Under the terms of the Distribution Agreement, we are obligated to pay 2.25% commission on the gross sales proceeds from common stock sold and customary indemnification rights and the reimbursement of legal fees and disbursements. The Distribution Agreement may be terminated by either party upon prior written notice to the other party, or at any time under certain circumstances. We are not obligated to sell any shares under the Distribution Agreement.

During the first quarter of 2021, we sold 3.3 million shares of our common stock pursuant to the 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 Distribution Agreement on March 5, 2021.

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

During the first quarter of 2020, we repurchased approximately 2.0 million shares for approximately $12.0 million at an average cost of $5.95 per share.

8. INCOME TAXES

Income tax provision consisted of the following (in thousands, except for effective tax rate percentage):
Three Months Ended
March 31,
 20212020
Income (loss) before provision for income taxes2,177 (4,776)
Provision for income taxes141 52 
Effective tax rate6.5 %(1.1)%

The provision for income tax for the three months ended March 31, 2021 and 2020, respectively, resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate. We continue to carry a full valuation allowance on our U.S. federal and State as well as Canada federal deferred tax assets. The effective tax rate is lower than statutory tax rate is mainly due to the benefit recorded on deferred tax assets utilized in current year for the U.S. federal and state jurisdictions.

As of March 31, 2021, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $4.5 million and applicable interest of $0. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $0. Our policy is to account for interest and penalties related to uncertain tax positions as a component of income tax provision. We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months.
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As of March 31, 2021, we had net deferred income tax assets of $2.7 million and deferred income tax liabilities of $0.4 million. Because we have net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state, and foreign taxing authorities may examine our tax returns for all years from 2001 through the current period. Currently we are under examination by the Internal Revenue Services for tax year 2018 and California Franchise Tax Board for tax years 2017 to 2019.

We maintain a valuation allowance of $28.5 million against certain of our deferred tax assets, including all federal, state, and certain foreign deferred tax assets because of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and uncertainty regarding near term projected results. If we determine the deferred tax assets are realizable based on our assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made.


9. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of shares of common stock, adjusted for any dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method, includes stock options, RSUs, RSAs and ESPP.

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income (loss) per share (in thousands, except per share amounts):
Three Months Ended
March 31,
 20212020
Numerator:
Net income (loss)$2,036 $(4,828)
Denominator:
Weighted-average common stock outstanding, basic28,579 31,006 
  Dilutive effect of potential common shares:
  Stock options, stock awards and ESPP601 0 
Total shares, diluted29,180 31,006 
Basic net income (loss) per share$0.07 $(0.16)
Diluted net income (loss) per share$0.07 $(0.16)


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

For the three months ended March 31, 2021, we had stock options, RSUs, PSUs and RSAs outstanding that could potentially dilute basic earnings per share in the future, but these were excluded from the computation of diluted net income (loss) per share because their effect would have been anti-dilutive. These outstanding securities consisted of the following (in thousands):

Three Months Ended
March 31,
20212020
Stock options141,370
RSUs and RSAs01,263
142,633

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10. LEASES

We lease our office space under lease arrangements with expiration dates on or before February 29, 2024. We recognize lease expense on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets. We combine lease and non-lease components for new and reassessed leases. We apply discount rates to operating leases using a portfolio approach.

Below is a summary of our right-of-use assets (“ROU”) assets and lease liabilities as of March 31, 2021 and December 31, 2020, respectively (in thousands):
Balance Sheets ClassificationMarch 31,
2021		December 31, 2020
Assets
Right-of-use assetsOther assets$1,439 $1,607 
Liabilities
  Operating lease liabilities - currentOther current liabilities1,365 1,382 
  Operating lease liabilities - long-termOther long-term liabilities1,351 1,677 
Total lease liabilities$2,716 $3,059 


On January 31, 2020, we entered into an agreement to lease approximately 5,000 square feet of office space in San Francisco, California (“SF Facility”). This facility is used for administrative functions. The lease commenced in the first quarter of 2020 and expires in 2022. In the first quarter of 2020, we recorded a lease liability of $0.6 million, which represents the present value of the lease payments using an estimated incremental borrowing rate of 3.50%. We also recognized ROU of $0.6 million which represents our right to use an underlying asset for the lease term. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

As a result of COVID-19, we implemented work-from-home policy in the first quarter of 2020. Our San Francisco office has concluded thatbeen closed since the likelihoodfirst 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. In the fourth quarter of 2020, we recorded $0.3 million impairment charge to the SF Facility ROU asset.

On November 12, 2014, we entered into an amendment to the lease of approximately 42,000 square feet office space in San Jose, California facilities (“SJ Facility”). The lease commenced in May 2015 and expires as of April 2023.

On March 12, 2020, we entered into a sublease agreement with Neato Robotics, Inc. (“Neato”) for the SJ Facility. This sublease commenced in June 2020 and ends on April 30, 2023 which is the lease termination date of the original SJ Facility lease. In accordance with provisions of ASC 842 Leases (“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 material charge resultingSale-Type or Direct Financing lease.

At the commencement date of the sublease, we recognized initial direct costs of $0.3 million. These deferred costs will be amortized over the terms of the sublease payments. As of March 31, 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.
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We recognize operating lease expense and lease payments from the claimsublease, on a straight-line basis, in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) over the lease terms. During the three months ended March 31, 2021, and 2020, our net operating lease expenses are as follows (in thousands):
Three Months Ended
March 31,
20212020
Operating lease cost$215 $273 
Sublease income(257)0 
Net lease cost (income)$(42)$273 


The table below provides supplemental information related to operating leases for the three months ended March 31, 2021 and 2020 (in thousands except for lease term):

Three Months Ended
March 31,
20212020
Cash paid within operating cash flow$367 $349 
Weighted average lease terms2.22.9
Weighted average discount rateN/A3.5 %


Minimum future lease payment obligations for our operating leases as of March 31, 2021 are as follows (in thousands):
For the Years Ending December 31,
Remainder of 2021$1,131 
20221,225 
2023462 
202425 
Total$2,843 


Future lease payments as of March 31, 2021 from LG to be remote.our sublease agreement are as follows (in thousands):

For the Years Ending December 31,
Remainder of 2021$789 
20221,077 
2023351 
Total$2,217 



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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-QManagement’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements within the meaning of Section 27A of the Securities Act, of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements involve risks and uncertainties. Forward-looking statements are identified by words such as “anticipates,” “believes,” “expects,” “intends,” “may,” “will,” "places,"“anticipates”, “believes”, “expects”, “intends”, “may”, “can”, “will”, “places”, “estimates”, and other similar expressions. However, these words are not the only way we identify forward-looking statements. In addition,Examples of forward-looking statements include any statements, which refer to expectations, projections, or other characterizations of future events, or circumstances, and include statements regarding: the impact of COVID-19 on our business, including as to revenue, and potential cost reduction measures, and the impact of COVID-19 on our customers, suppliers, and on the economy in general; our strategy and our ability to execute our business plan; our competition and the market in which we operate; our customers and suppliers; our revenue and the recognition and components thereof; our costs and expenses; including capital expenditures; seasonality and demand; our investment in research and technology development; changes to general and administrative expenses; our foreign operations and the reinvestment of our earnings related thereto; our investment in and protection of our IP; our employees; capital expenditures and the sufficiency of our capital resources; unrecognized tax benefit and tax liabilities; the impact of changes in interest rates and foreign exchange rates, as well as our plans with respect to foreign currency hedging in general; changes in laws and regulations; including with respect to taxes; our plans related to and the impact of current and future litigation; our sublease and the timing and income related thereto; our shelf S-3 registration statement and our plans with respect thereto, including anticipated use of proceeds; and our stock repurchase and equity distribution programs.

Because forward-looking statements relate to the future, they are forward-looking statements.subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Actual results could differ materially from those projected in the forward-looking statements, as a result of a number of factors, including those set forth below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors”, those described elsewhere in this report, and those described in our other reports filed with the SEC. Wetherefore we caution you not to place undue reliance on these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: the effects of the COVID-19 global pandemic on us and our business, and on the business of our suppliers and customers; unanticipated changes in the markets in which we operate; the effects of the current macroeconomic climate (especially in light of the ongoing adverse effects of the COVID-19 global pandemic); delay in or failure to achieve adoption of or commercial demand for our products or third party products incorporating our technologies; the inability of Immersion to renew existing licensing arrangements, or enter into new licensing arrangements for our patents and other technologies on favorable terms; the loss of a major customer; the ability of Immersion to protect and enforce our intellectual property rights; unanticipated difficulties and challenges in developing or acquiring successful innovations and our ability to patent those innovations; changes in patent law; confusion as to our licensing model or agreement terms; the ability of Immersion to return to consistent profitability in the future; the inability of Immersion to retain or recruit necessary personnel; the commencement, by others or by us, of legal or administrative action; risks related to our international operations and other factors.

Any forward-looking statements made by us in this report speak only as of the date of this report, and we undertake no obligationdo not intend to update these forward-looking statements after the filing of this report.report, unless required to do so by applicable law. You are urged to review carefully and consider our various disclosures in this report and in our other reports publicly disclosed or filed with the SEC that attempt to advise you of the risks and factors that may affect our business.


OVERVIEW

We are a premier licensing company focused on the creation, design, development, and licensing of innovative haptic technologies that allow people to use their sense of touch more fully as theyto engage with products and experience the digital world around them. Our mission isWe are one of the leading experts in haptics, and our focus on innovation allows us to innovate touchdeliver world-class intellectual property (“IP”) and technology that informs, humanizes, and excites while working with customers and partners to bring these tactile experiences to consumers.enables the creation of products that delight end users. Our technologies are designed to facilitate the creation of high-quality haptic experiences, enable their widespread distribution, and ensure that their playback is optimized for end users.optimized. Our primary business is currently in the mobility, gaming, automotive and medicalautomotive markets, but we believe our technology is broadly applicable and see opportunities in evolving new markets, including entertainment, social and advertising content, virtual and augmented reality, sexual wellness and wearables.wearables, as well as residential, commercial, and industrial Internet of Things. In recent years, we have seen a trend towards broad market adoption of haptic technology. As other companies follow our leadership in recognizing how important tactile feedback can be in people’s digital lives, we expect the opportunity to license our IP and technologies will continue to expand.

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We have adopted a hybrid business model under which we provide advanced tactile software, related tools and technical assistance designed to help integrate our patented technology into our customers’ products or enhance the functionality of our patented technology, and offer licenses ofto our patented technology to our customers. Our licenses allowenable our customers to deploy haptically-enabled devices, content and other offerings, which they typically sell under their own brand names. We and our wholly-owned subsidiaries hold more than 2,6001,800 issued or pending patents worldwide coveringas of March 31, 2021. Our patents cover a wide range of digital technologies and including many of the ways in which touch-related technology can be incorporated into and between hardware products and components, systems software, application software, and digital content. We believe that our IP is relevant to many of the most important and cutting-edge ways in which haptic technology is and can be deployed, including in connection with mobile interfaces and user interactions, in association with pressure and other sensing technologies, as part of video and interactive content offerings, as related to virtual and augmented reality experiences, and in connection with advanced actuation technologies and techniques.

We were incorporated in 1993 in California and reincorporated in Delaware in 1999.

CRITICAL ACCOUNTING POLICIESPOLICES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, stock-based compensation, short-term investments, leases, income taxes contingencies, and litigation.contingencies. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.


Our critical accounting policies and estimates are importantDue to the portrayalCOVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our financial condition and results of operations, andestimates or judgments or require us to make judgmentsrevise the carrying value of our assets or liabilities as of May 6, 2021, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates about matters that are inherently uncertain. There have been no material changes during the nine months ended September 30, 2017under different assumptions or conditions.

Please refer to the items we disclosed as our critical accounting policies and estimates in our ManagementManagement's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2020 filed with the SEC on March 5, 2021, for a complete discussion of our other critical accounting policies and estimates.



RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
Overview
OVERVIEW

Total revenue decreased by $14.4 million, or 55%, for the three months ended September 30, 2017March 31, 2021 was $7.2 million, an increase of $0.9 million, or 14%, compared to the three months ended September 30, 2016. The decrease in total revenue was primarily caused by a one-time fee of $19.0 million from Samsung recognized as license revenue during the quarter ended September 30, 2016, partially offset by increased license fees from our new and existing licensees that we recognized during the quarter ended September 30, 2017.
Total revenue decreased by $19.7 million, or 41%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease in total revenue was primarily related to the one-time fee of $19.0 million from Samsung recognized as license revenue during the nine months ended September 30, 2016.
Net loss was $5.3$6.3 million for the three months ended September 30, 2017March 31, 2020 primarily driven by a $0.9 million or 18%, increased in per-unit royalty revenue.

Net income for the three months ended March 31, 2021 was $2.0 million, an increase of $6.9 million, or 142%, as compared to a net incomeloss of $7.0$4.8 million for the three months ended September 30, 2016.March 31, 2020. The $12.3 million change primarily resulted from decreased total revenue of $14.4 million and increased operating expenses of $1.1 million, partially offset by a decrease of $3.7 millionincrease in net income tax provision.
Net loss was $33.0 million for the nine months ended September 30, 2017 comparedmainly attributable to a net loss of $1.2 million for the nine months ended September 30, 2016. The $31.8$0.9 million increase in net loss primarily resulted fromtotal revenue and a $6.1 million decrease of $19.7 million in total revenue, an increase of $9.5 million in operating expenses mainly driven by higher legal expenses from our continuing efforts to protect and preserve our IP including litigation against Apple and AT&T Mobility, a change of $1.6 million from $1.3 million income tax benefit for the nine months ended September 30, 2016 to $295,000 income tax provision for the nine months ended September 30, 2017, and a decrease of $649,000 in income from discontinued operations related to a transaction recognized during the first nine months of 2016 that did not recur in 2017.expenses.


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  September 30, Change % Change
REVENUES 2017 2016    
  (In thousands)    
Three months ended:        
Royalty and license $11,636
 $26,049
 $(14,413) (55)%
Development, services, and other 227
 257
 (30) (12)%
Total Revenues $11,863
 $26,306
 $(14,443) (55)%
Nine months ended:        
Royalty and license $27,427
 $47,112
 $(19,685) (42)%
Development, services, and other 690
 681
 9
 1 %
Total Revenues $28,117
 $47,793
 $(19,676) (41)%


The following table sets forth our Condensed Consolidated Statements of Operations data as a percentage of total revenue:
Total Revenues - Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
Royalty
Three Months Ended
March 31,
20212020
Revenues:
Fixed fee license revenue18 %21 %
Per-unit royalty revenue81 78 
Total royalty and license revenue99 99 
Development, services, and other revenue1 1 
Total revenues100 100 
Costs and expenses:
Cost of revenues— 1 
Sales and marketing15 27 
Research and development18 27 
General and administrative32 118 
Total costs and expenses65 173 
Operating income (loss)35 (73)
Interest and other income(5)(4)
Income (loss) before provision for income taxes30 (76)
Provision for income taxes(2)(1)
Net income (loss)28 %(77)%

REVENUES

Our revenue is primarily derived from fixed fee license agreements and licenseper-unit royalty agreements, along with less significant revenue — earned from development, services and other revenue. Royalty and license revenue isare composed of variableper-unit royalties earned based on usage or net sales by licensees and fixed payment license fees charged for our IP and software.

A revenue summary for the three months ended March 31, 2021 and 2020 are as follows (in thousands, except for percentages):
 Three Months Ended
March 31,
 20212020$ Change% Change
Revenues:
Fixed fee license revenue$1,275 $1,287 $(12)(1)%
Per-unit royalty revenue5,793 4,895 898 18 %
Total royalty and license revenue7,068 6,182 886 14 %
Development, services, and other revenue91 75 16 21 %
Total revenues$7,159 $6,257 $902 14 %


Royalty and license revenue — Royalty and license revenue for the three months ended September 30, 2017 was $11.6 million, a decrease of $14.4March 31, 2021 increased $0.9 million, or 55%14%, compared to $26.0from $6.2 million for the three months ended September 30, 2016.
Variable royalty revenue decreased by $521,000, or 10%, from $5.3March 31, 2020 to $7.1 million for the three months ended September 30, 2016 to $4.7March 31, 2021.

Per-unit royalty revenue increased by $0.9 million, foror 18%, in the three months ended September 30, 2017. The decrease was primarily caused by expired contracts with certain mobility OEMs partially offset by increased volume from our gaming customers.
Fixed payment license revenue decreased by $13.9 million, or 67%, from $20.8 million for the three months ended September 30, 2016 to $6.9 million for the three months ended September 30, 2017. The decrease was mainly derived from decreased mobility license revenue, which was primarily caused by a one-time fee of $19.0 million from Samsung recognized as license revenue during the quarter ended September 30, 2016, partially offset by increased license fees from our new and existing mobility OEM customers that we recognized during the quarter ended September 30, 2017. License fees from gaming customers decreased to a lesser extent due to expired contracts with certain gaming customers, partially offset by license revenue recognized from new gaming customers.

Royalty and license revenue from mobility customers decreased by 64% primarily due to a one-time fee of $19.0 million from Samsung recognized for the quarter ended September 30, 2016 and decreased royalties from our mobility OEM customers, partially offset by increased license fees from our new and existing mobility OEM customers that we recognized during the quarter ended September 30, 2017. We anticipate that our mobility business will continue to be a primary revenue stream, but it will fluctuate as a result of the outcomes of various ongoing litigations and may in the future institute to enforce our IP rights, the timing of introducing new products with our technology into the market, and the recognition by mobile OEMs of the relevance of our IP. See Part II, Item 1. Legal Proceedings.
Royalty and license revenue from gaming customers decreased by 15% due to decreased license fees, partially offset by increased royalty revenue from our gaming customers. Revenue from gaming customers can fluctuate based upon the shift of consumer preferences, the timing of introductions of new gaming console systems, the timing of new products from third party peripheral makers that are our licensees, and the recognition by gaming customers of the relevance of our IP.
Royalty and license revenue from automotive customers was flat for the three months ended September 30, 2017March 31, 2021 compared to the three months ended September 30, 2016.March 31, 2020, primarily caused by a $0.7 million increase in royalties from our gaming licensees.
Royalty and
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Fixed fee license revenue from medical customers decreased by 27%, primarily duewas relatively flat in the three months ended March 31, 2021 compared to decreased license fees from certain medical license contracts that expired.the same period in 2020.

We expect royalty and license revenue to continue to be a major component of our future revenue as our technology is included in products and we succeed in our efforts to monetize our IP. Our fixed fee license revenue could fluctuate depending upon the timing of execution of new fixed license fee arrangements. We typically experience seasonally higher royalty revenue from our gaming and mobility customers due to the reporting of holiday sales in the first calendar quarter compared to other calendar quarters. Wealso anticipate that our gaming royalty and license revenue will continuefluctuate relative to decline until we are successful in provingour customers’ unit shipments.

Development, services and other revenue — Development, services, and other revenue was $91,000 for the relevance of our IP. We anticipate a continuous reduction in royalty and license revenue inthree months ended March 31, 2021 as compared to the future from our medical customers as a percentage of our consolidated royalty and license revenue, as this line of business is a less significant portion of our overall business focus. For a discussion of$75,000 the impact of the adoption of the new revenue recognition standard ASU 2014-09, “Revenue from Contracts with Customers: Topic 606”, see the section entitled “Recent Accounting Pronouncements”, within Part I Item 1, Note 1. “Significant Accounting Policies.three months ended March 31, 2020.

Geographically, revenues generated in Asia, North America, Europe, and AsiaEurope for the three months ended September 30, 2017March 31, 2021 represented 9%74%, 12%19%, and 79%7%, respectively, of our total revenue as compared to 12%79%, 4%17%, and 84%4%, respectively, for the three months ended September 30, 2016. Revenue attributable to North America asMarch 31, 2020.


OPERATING EXPENSES

The following tables set forth a percentagesummary of total revenue decreased due primarily to reduced royalty and license revenue from gaming, medical, and mobility customers. Revenue attributable to Europe as a percentage of total revenue increased primarily due to higher royalty revenue from medical and gaming customers. Revenue attributable to Asia as a percentage of total revenue decreased primarily due to lower license revenue from mobility customers, partially offset by increased license revenue from gaming.
Total Revenues - Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Royalty and license revenue — Royalty and license revenueour operating expenses for the ninethree months ended September 30, 2017 was $27.4 million, a decrease of $19.7 million, or 42%, compared to $47.1 million for the nine months ended September 30, 2016.March 31, 2021 and 2020 (in thousands):
Variable royalty revenue decreased by $3.2 million, or 16%, from $19.5 million for the nine months ended September 30, 2016 to $16.3 million for the nine months ended September 30, 2017. The decrease was primarily caused by lower volume reported by our mobility OEMs and gaming customers.
 Three Months Ended
March 31,
20212020Change% Change
Sales and marketing$1,106 $1,716 $(610)(36)%
% of total revenue15 %27 %
Research and development$1,307 $1,689 $(382)(23)%
% of total revenue18 %27 %
General and administrative$2,224 $7,356 $(5,132)(70)%
% of total revenue31 %118 %
Fixed payment license revenue decreased by $16.5 million, or 60%, from $27.7 million for the nine months ended September 30, 2016 to $11.2 million for the nine months ended September 30, 2017. The decrease was primarily due to a one-time fee of $19.0 million from Samsung recognized as license revenue during the 3rd quarter of 2016 and a non-recurring medical license fee of $3.0 million recognized during the first quarter of 2016. These decreases were partially offset by increased license fees from our new and existing mobility OEM customers and increased license fees from our automotive customers recognized during the nine months ended September 30, 2017.
Royalty and license revenue from mobility customers decreased by 52%, primarily due to a one-time license fee of $19.0 million from Samsung and decreased royalties from our mobility OEM customers, partially offset by increased license fees from our new and existing mobility OEM customers that we recognized in the current year.
Royalty and license revenue from gaming customers decreased by 17%, primarily due to the absence of revenue from Sony, partially offset by license revenue recognized from new gaming customers.

Royalty and license revenue from automotive customers increased by 25%, primarily attributable to increased license fees from new customers along with increased royalties as higher volume of royalty bearing automotive components was incorporated in the products sold by our licensees.
Royalty and license revenue from medical customers decreased by 68%, primarily due to a non-recurring license fee of $3.0 million from a medical customer recognized during the nine months ended September 30, 2016, combined with other decreased license fees and royalties from medical customers.
Geographically, revenues generated in North America, Europe, and Asia for the nine months ended September 30, 2017 represented 23%, 13%, and 64%, respectively, of our total revenue as compared to 30%, 6%, and 64%, respectively, for the nine months ended September 30, 2016. Revenue attributable to North America as a percentage of total revenue decreased largely due to the aforementioned non-recurring license fee of $3.0 million from a medical customer that we recognized during the first quarter of 2016, along with decreased royalty and license revenue from gaming. Revenue attributable to Europe as a percentage of total revenue increased primarily due to increased royalty revenue from automotive, medical and gaming. Revenue attributable to Asia as a percentage of total revenue remained the same for both periods.

  September 30, Change % Change
OPERATING EXPENSES 2017 2016    
  (Dollars in thousands)    
Three months ended:        
Sales and marketing $3,376
 $3,535
 $(159) (4)%
% of total revenue 28% 13% 15%  
Research and development $3,116
 $2,951
 $165
 6 %
% of total revenue 26% 11% 15%  
General and administrative $10,753
 $9,654
 $1,099
 11 %
% of total revenue 91% 37% 54%  
         
Nine months ended:        
Sales and marketing $10,142
 $10,735
 $(593) (6)%
% of total revenue 36% 22% 14%  
Research and development $9,138
 $10,229
 $(1,091) (11)%
% of total revenue 32% 21% 11%  
General and administrative $41,885
 $30,745
 $11,140
 36 %
% of total revenue 149% 64% 85%  
Sales and Marketing — - Our sales and marketing expenses are composed primarily consisted of employee compensation and benefits, sales commissions, advertising, trade shows, collateral marketing materials, market development funds, travel, and an allocation ofallocated facilities costs.

Sales and marketing expenses decreased $159,000,$0.6 million, or 4%36%, forin the three months ended September 30, 2017first quarter of 2021 as compared to the three months ended September 30, 2016first quarter of 2020 primarily dueattributable to decreasesa $0.3 million decrease in depreciation expense, a $0.1 million decrease in facility costs and a $0.1 million decrease in travel costs. The decrease in depreciation expense in the first quarter of $101,000 in consulting services and $87,000 in compensation, benefits, and other related costs. Sales and marketing expenses decreased $593,000, or 6%, for the nine months ended September 30, 2017 as2021 compared to the nine months ended September 30, 2016same period in 2020 was primarily dueattributable to decreasesthe accelerated depreciation in the first quarter of $485,0002020 resulting from the shortening in compensation, benefits, and other related costs and $369,000estimated useful life of the leasehold improvements of the San Jose, California ("SJ Facility") to March 31, 2020 following our decision to exit this facility. The decrease in consulting services, partially offset by an increasefacilities expense was largely attributable to the decrease in rent expense following the sublease of $182,000the SJ Facility in the second quarter of 2020. The decrease in travel costs. We believe that continued investment in sales and marketing is criticalcosts were mainly attributable to our future success, and we expect to continue making targeted investments to expand market acceptance for our touch technologies and focus on content and media business.reduced business activities as a result of the COVID-19 pandemic.

Research and Development — Our research and development expenses are composed primarilycomprised of employee compensation and benefits, outside services and consulting fees, tooling and supplies, and an allocation of facilities costs.

Research and development expenses increased $165,000,decreased $0.4 million, or 6%23%, for the three months ended September 30, 2017 asMarch 31, 2021 compared to the three months ended September 30, 2016March 31, 2020. This decrease was primarily due to an increase of $280,000a $0.2 million decrease in consulting services reflecting redirected development efforts, partially offset by adepreciation expense and $0.1 million decrease of $94,000 in compensation, benefits, and other related costs. Research and development expenses decreased $1.1 million, or 11%, for the nine months ended September 30, 2017 as comparedfacilities expense primarily attributable to the nine months ended September 30, 2016. The decrease was primarily driven by a decrease of $1.6 million in compensation, benefits, and other related costs mainly due to rebalancing efforts during the first quarter in 2016 and headcount decrease in 2017,reasons discussed above.


partially offset by an increase of $538,000 in consulting services. We believe that continued investment in research and development is critical to our future success, and we expect to continue making targeted investments in areas of research and technology development to support future growth including our content and media business.in key markets.

General and Administrative — - Our general and administrative expenses are composed primarily consisted of employee compensation and benefits;benefits, legal and professional fees;fees, external legal costs for patents;patents, office supplies; travel;supplies, travel, and an allocationallocated facilities costs.
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General and administrative expenses increased $1.1decreased $5.1 million, or 11%70%, in the three months ended March 31, 2021 as compared to the same period in 2020 primarily due to a $2.0 million decrease in compensation, benefits and other personnel related costs, a $1.3 million decrease in legal expenses, a $0.9 million decrease in professional services and outside services, $0.5 million decrease in depreciation expense and a $0.2 million decrease in facilities costs.

The decrease in compensation, benefits and other personnel related costs was primarily due to reduced headcount, lower salaries, variable compensation driven by the transition of our Accounting, Human Resources, Finance and IT functions from San Jose, California to Montreal, Canada and the impact of the COVID-19 related cost reduction initiatives implemented during 2020. The decrease in legal expense was primarily attributable to reduced activities, as well as a decrease in patent maintenance and prosecution costs. The decrease in consulting and professional services fees was due to decreases in accounting and audit fees and consulting and other professional fees in the first quarter of 2021 compared to the same period in 2020. The decrease in depreciation expense and facilities costs were primarily attributable to the reasons discussed above.

We expect our general and administrative expenses to remain stable in the near future as we achieve targeted reductions in consulting and professional services, and other costs.


INTEREST AND OTHER INCOME (LOSS), NET

Interest and Other Income (Loss), Net — Interest and other income (loss), net consists of interest income from cash equivalents and short-term investments, translation exchange rate gains (losses) and other income.

Interest and other income (loss), net decreased $0.1 million during the three months ended March 31, 2021 compared to the same period in 2020 primarily driven by a $0.2 million decrease in investment earnings on cash and cash equivalents partially offset by a $0.2 million decrease in foreign currency exchange losses.

The decrease in investment earnings was primarily due to lower interest rates during the three months ended March 31, 2021 compared to the same periods in 2020. The decrease in the foreign exchange losses was primarily driven by the fluctuation in South Korean Won exchanges rates against the U.S. Dollar.


PROVISION FOR INCOME TAXES

The following table sets forth a summary of our provision for income taxes for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 primarily due to increases of $451,000 in legal expenses, $254,000 in in compensation, benefits,March 31, 2021 and other related costs, and $214,000 in professional and consulting services. General and administrative expenses increased $11.1 million, or 36%,2020 (in thousands except for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily due to an increase of $10.8 million in legal expenses partially offset by a decrease of $302,000 in compensation, benefits, and other related costs. The increased legal expenses were primarily due to increases of $11.2 million in litigation expense relating to ongoing proceedings including the current litigation against Apple and AT&T Mobility, $656,000 in patent-related legal, filing, and maintenance costs, and $484,000 in general legal expenditures. These increased legal expenses were partially offset by a decrease of $1.6 million in licensing-related legal expenses. Our general and administrative expenses will continue to be significant as we continue to file, maintain, license, and enforce our IP and contractual rights, including in the current litigation against Apple and AT&T Mobility, manage our business and strategic opportunities, and defend any lawsuits brought against us or that we initiate against others to enforce our IP or contractual rights.percentages):

Three Months Ended
March 31,
 20212020Change% Change
Income (loss) before provision for income taxes$2,177 $(4,776)
Provision for income taxes141 52 $89 171 %
Effective tax rate6.5 %(1.1)%

  September 30, Change % Change
BENEFIT (PROVISION) FOR TAXES 2017 2016    
  (Dollars in thousands)    
Three months ended:        
Provision for income taxes

 $(44) $(3,760) $3,716
 (99)%
Loss from continuing operations before provision for income taxes

 (5,243) 10,778
    
Effective tax rate (0.8)% 34.9%    
         
Nine months ended:        
Benefit (provision) for income taxes

 $(295) $1,264
 $(1,559) (123)%
Loss from continuing operations before benefit (provision) for income taxes

 (32,702) (3,146)    
Effective tax rate (0.9)% 40.2%    

Benefit (provision) for Income Taxes — The provisionProvision for income tax for the three and nine months ended September 30, 2017March 31, 2021 and 2020 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 foreign withholdingState as well as Canada federal deferred tax expense.assets. The effective tax rate is lower than statutory tax rate is primarily due to the benefit (provision) for incomerecorded on deferred tax assets utilized in current year for the three and nine months ended September 30, 2016 resulted primarily from our federal and foreign tax recognized at statutory rates, adjusted for the tax impact of nondeductible permanent items including stock-based compensation and foreign withholding taxes. The 2016 benefit also included non-cash tax expense on intercompany profit that resulted from the sale of certain IP rights to one of our foreign subsidiaries as part of our reorganization of our international operations during the second half of 2015. Discrete items recognized for the nine months ended September 30, 2016 also included a tax refund related to the settlement with a taxing authority and the release of certain reserves and related accrued interest.
state jurisdictions. The year-over-year change in benefit (provision)provision for income taxes resulted primarily from the change in the loss before income from continuing operations across various tax benefit (provision), the full valuation allowance on estimated federal and state taxes in the fourth quarter of 2016, the effect of the above described reorganization, including the adoption of ASU 2016-16, and the effect of discrete items described above.jurisdictions.
In 2017, we expect a limited cash income tax impact due to the valuation allowance described above. Based upon activity during the nine months ended September 30, 2017, we
We continue to maintain a valuation allowance of $32.9$28.5 million against U.S. federalcertain of our deferred tax assets, and a valuation allowance of $9.4 million against ourincluding all federal, state, and certain other foreign deferred tax assets as there was not sufficient evidencea result of uncertainties regarding the realization of the asset balance due to supporthistorical losses, the releasevariability of such valuation allowances as of September 30, 2017. The establishment of a valuation allowance has no effect on our ability to useoperating results, and uncertainty regarding near term projected results. In the event that we determine the deferred tax assets in the futureare realizable based on an assessment of relevant factors, an adjustment to reduce cash tax payments when taxable income is reported. As required by U.S. GAAP, we will continue to assess the likelihood that the

deferred tax assets will be realizable at each reporting period and the valuation allowance will be adjusted accordingly, which could materially affectmay increase income in the period such determination is made. The valuation allowance does not impact our financial position and resultsability to utilize any underlying net operating loss carryforwards.

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Table of operations.Contents
We also maintain liabilities for uncertain tax positions. As of September 30, 2017,March 31, 2021, we had unrecognized tax benefits under ASC 740 "Income Taxes" of approximately $6.3$4.5 million and applicable interest of $8,000.$0. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $97,000.$0.

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DISCONTINUED OPERATIONS

Discontinued Operations - Income from discontinued operations, netTable of taxes, of $649,000 in the nine months ended September 30, 2016 is related to a final payment received from the sales of the 3D product line that occurred in 2009. There was no income from discontinued operations in the nine months ended September 30, 2017.Contents
LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents and short-term investments consist primarily of cash and money market funds and treasury bills and government agency securities. All of our short-term investments are classified as available-for-sale.funds. The securities are stated at market value, with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) within stockholders’ equity.

On September 30, 2017,March 31, 2021, our cash and cash equivalents and short-term investments totaled $48.1$102.6 million, a decreasean increase of $41.7$43.1 million from $89.8$59.5 million on December 31, 2016.2020.
Three Months Ended
March 31,
20212020Change% Change
Net cash provided by ( used in) operating activities$4,410 $(1,316)$5,726 (435)%
Net cash provided by (used in) investing activities$(57)$2,979 $(3,036)(102)%
Net cash provided by (used in) financing activities$38,749 $(11,912)$50,661 
NM1
(1) Not meaningful.

Operating Activities

Cash provided by (used in) operating activities primarily consists of net income (loss), adjusted for certain non-cash items including depreciation and amortization; stock-based compensation expense and the effect of changes in operating assets and liabilities.  

Net cash provided by operating activities was $4.4 million during the three months ended March 31, 2021, a $5.7 million increase compared the same period in 2020. This increase in net cash provided by operating activities was primarily attributable to a $6.9 million increase in net income which was partially offset by a $1.3 million decrease in noncash items.

Investing Activities

Our investing activities primarily consist of purchases of and proceeds from maturities of short-term investments and purchases of computer equipment, furniture and leasehold improvements related to facilities expansion.

Net cash used in operating activities was $42.1 million during the nine months ended September 30, 2017 compared to $27.5 million cash provided by operatinginvesting activities during the ninethree months ended September 30, 2016. The $69.6March 31, 2021 was $0.1 million change was primarily due to $31.8 million increase in net loss, $30.0 million decrease in the year-over-year change in deferred revenueconsisting purchases of property and customer advances, and $9.2 million increase in working capital. These changes were partially offset by $1.2 million decrease in the year-over-year change in deferred income taxes which reflects the full valuation allowance established in December 2016 against our deferred tax assets. Working capital is defined as current assets (excluding cash and cash equivalents) minus current liabilities. The $9.2 million increase in working capital was mainly due to an increase of $3.1 million in the year-over-year change in accounts receivables, and decreases of $3.0 million and $2.9 million in the year-over-year change in accrued compensation and other current liabilities and accounts payable, respectively.equipment.
Cash provided by investing activities
Net cash provided by investing activities during the ninethree months ended September 30, 2017March 31, 2020 was $4.1$3.0 million a decreaseprimarily consisting of $3.9$3.0 million compared to $8.0 million cash provided by investing activities during the nine months ended September 30, 2016. Net cash provided by investing activities during the current period consisted ofproceeds from maturities of short-term investmentsinvestments.

Financing Activities

Our financing activities primarily consist of $28.0 million, partially offset bycash from issuance of common stock, proceeds from stock option exercises and stock purchases under our employee stock purchase plan and cash paid for repurchases of short-term investments of $23.8 million and purchases of property, plant, and equipment of $121,000.our common stock.
Cash provided by financing activities
Net cash provided by financing activities during the ninethree months ended September 30, 2017March 31, 2021 was $443,000, a decrease$38.7 million primarily consisting of $1.0$35.9 million compared to $1.5net proceeds from common stock issuances and $2.7 million proceeds from stock option exercises.

Net cash provided byused in financing activities during the ninethree months ended September 30, 2016. Net cash provided by financing activities during the current periodMarch 31, 2020 was $11.9 million, and primarily consisted of exercises of$12.0 million in cash paid for stock options of $443,000repurchases.

Our total cash and the issuance of common stock under our ESPP of $328,000, partially offset by a repurchase of common stock of $328,000 during the current period.
We believe that our cash, cash equivalents and short-term investments will be sufficient to meet our working capital needs for at least the next twelve months. Of our total cash, cash equivalents, and short-term investmentswere $102.6 million as of $48.1 million on September 30, 2017, 23%March 31, 2021, of which approximately 11% ($11.0 million) was held by our foreign subsidiaries and subject to repatriation tax effects. Our intent is to permanently reinvest all of our earnings from foreign operations, and current plans do not anticipate that we will need funds generated from foreign operations to fund our domestic operations.

We willmay continue to invest in, protect, and defend our extensive IP portfolio, which is expected tocan result in the continued significant use of cash. At September 30, 2017, there was $33.4cash in the event of litigation.

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On February 11, 2021, we entered into the Distribution Agreement with an investment banking firm to issue and sell shares of our common stock having an aggregate offering price of up to $50 million. In accordance with the terms of the Distribution Agreement, we are obligated to pay 2.25% commission on the gross sales proceeds from common stock sold, and to provide customary indemnification rights and the reimbursement of legal fees and disbursements. The Distribution Agreement may be terminated by either party upon prior written notice to the other party, or at any time under certain circumstances. We are not obligated to sell any shares under the Distribution Agreement.

During the first quarter of 2021, we sold 3.3 million remaining undershares of our previously-approved share repurchase program. common stock pursuant to the Distribution Agreement and we received net proceeds of approximately $35.9 million from the offering net of $1.2 million of commissions and other offering costs. We terminated the Distribution Agreement on March 5, 2021.

During the first quarter of 2020, we repurchased approximately 2.0 million shares of our common stock for approximately $12.0 million at an average cost of $5.95 per share.

We anticipate that capital expenditures for

property and equipment for the year endedending December 31, 20172021 will be less than $1.0$1 million.

While the unprecedented public health and governmental efforts to contain the spread of COVID-19 have created significant uncertainty as to general economic and capital market conditions for the first half of 2021 and beyond, as of May 6, 2021, the date of this Quarterly Report on Form 10-Q, we believe we have sufficient capital resources to meet our working capital needs for the next twelve months.

Cash from operations could also be affected by various risks and uncertainties, including but not limited to the risks detailed in Part II, Item 1A titled “Risk Factors”. Additionally, if we acquire businesses, patents, or technology, our cash or capital requirements could increase substantially. In the eventRisk Factors.


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Table of such an acquisition, or should any unanticipated circumstances arise that significantly increase our capital requirements, we may elect to raise additional capital through debt or equity financing. Any of these events could result in substantial dilution to our stockholders. There is no assurance that such additional capital will be available on terms acceptable to us, if at all.Contents
SUMMARY DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
We presented our contractual obligations in our Annual Report on Form 10-K for the year ended December 31, 2016. Our principal commitments as of September 30, 2017 consisted of obligations under operating leases. There have been no material changes in those obligations during the nine months ended September 30, 2017.
As of September 30, 2017, we had a liability for unrecognized tax benefits totaling $6.3 million including interest of $8,000, of which approximately $97,000 could be payable in cash.
RECENT ACCOUNTING PRONOUNCEMENTS

See Note 11. Significant Accounting Policies of the Notes to the Condensed Consolidated Financial Statements for information regarding the effect of new accounting pronouncements on our financial statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. Changes in these factors may cause fluctuations in our earnings and cash flows. We evaluate and manage the exposure to these market risks as follows:
Cash Equivalents and Short-term Investments — We had cash equivalents and short-term investmentsTable of $35.0 million as of September 30, 2017, which are subject to interest rate fluctuations. An increase in interest rates could adversely affect the market value of our cash equivalents and short-term investments. A hypothetical 100 basis point increase in interest rates would result in a decrease of approximately $121,000 in the fair value of our cash equivalents and short-term investments as of September 30, 2017.Contents
We limit our exposure to interest rate and credit risk by establishing and monitoring clear policies and guidelines for our cash equivalents and short-term investment portfolios. The primary objective of our policies is to preserve principal while at the same time maximizing yields, without significantly increasing risk. Our policy’s guidelines also limit exposure to loss by limiting the sums we can invest in any individual security and restricting investments to securities that meet certain defined credit ratings. We do not use derivative financial instruments in our investment portfolio to manage interest rate risk.
Foreign Currency Exchange Rates — A substantial majority of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, we do incur certain operating costs for our foreign operations in other currencies but these operations are limited in scope and thus we are not materially exposed to foreign currency fluctuations. Additionally, we have some reliance on international revenues that are subject to the risks of fluctuations in currency exchange rates. Because a substantial majority of our international revenues, as well as expenses, are typically denominated in U.S. dollars, a strengthening of the U.S. dollar could cause our products to become relatively more expensive to customers in a particular country, leading to a reduction in sales or profitability in that country. We have no foreign exchange contracts, option contracts, or other foreign currency hedging arrangements and we do not expect to have such arrangements in the foreseeable future.

ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Based on their evaluation as of September 30, 2017,March 31, 2021, our management, with the participation of our Interim Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective to ensure that the information required to be disclosed by us in this quarterly report on Form 10-Q was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our Interim Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes to internal controls over financial reporting that occurred during the quarter ended September 30, 2017March 31, 2021 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

Our management, including our Interim Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Immersion, have been detected.


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Table of Contents
PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
Immersion Corporation vs. Apple, Inc., AT&T Inc., and AT&T Mobility LLC
On February 11, 2016, we filed a complaint against Apple, Inc. ("Apple"), AT&T, Inc. ("AT&T"), and AT&T Mobility LLC ("AT&T Mobility") with the U.S. International Trade Commission (the “ITC”) and a complaint against Apple, AT&T and AT&T Mobility in the U.S. District Court for the District of Delaware alleging that the Apple iPhone 6, iPhone 6 Plus, iPhone 6s, iPhone 6s Plus, Apple Watch, Apple Watch Sport and Apple Watch Edition infringe certain of our patents that cover haptic feedback systems and methods.
In the February 2016 ITC complaint, we are seeking an exclusion order preventing the importation, sale for importation, and sale after importation of infringing Apple devices into the United States by the defendants and appropriate cease and desist orders. In the U.S. District Court suit, we are alleging infringement of the same patents.
The complaints assert infringement by the Apple iPhone 6, Apple iPhone 6 Plus, Apple iPhone 6s, Apple iPhone 6s Plus, Apple Watch, Apple Watch Sport and Apple Watch Edition of the following two Immersion patents:
U.S. Patent No. 8,619,051(the '051 patent): "Haptic Feedback System with Stored Effects"
U.S. Patent No. 8,773,356 (the ‘356 patent): "Method and Apparatus for Providing Tactile Sensations"
The complaints also assert infringement by the iPhone 6s and iPhone 6s Plus of the following Immersion patent:
U.S. Patent No. 8,659,571(the '571 patent): "Interactivity Model for Shared Feedback on Mobile Devices"
On March 14, 2016, the ITC issued a Notice of Institution of Investigation stating that the ITC instituted an investigation to investigate our allegations of infringement with respect to the '051, '356, and '571 patents and determine whether violations of section 337 of the Tariff Act of 1930 have occurred. The investigation bears the designation Inv. No. 337-TA-990 ("990 Investigation"). On April 6, 2016, the Chief Administrative Law Judge (“ALJ”) entered an order terminating Respondent AT&T from the investigation, based on the stipulation and joint motion of the parties to terminate AT&T in a manner that preserved our ability to obtain discovery and compliance with any relief the ITC may order. On April 4, 2016, Respondents Apple and AT&T Mobility served responses to the complaint denying the material allegations of the complaint and alleging affirmative defenses, including among others that the asserted patents are not infringed, invalid and unenforceable. Respondents also alleged that the ‘356 patent is unenforceable for alleged inequitable conduct before the United States Patent and Trademark Office. We will respond to the allegations of Respondents during the investigation on the procedural schedule set by the Chief ALJ. The proceedings in the ITC with respect to Apple and AT&T Mobility are ongoing, and the parties are in the process of conducting discovery.
On March 21, 2016, pursuant to 28 U.S.C. § 1659(a), the U.S. District Court entered an order staying the U.S. District Court case pending a final determination in the ITC investigation.
On May 5, 2016, we filed another complaint against Apple, AT&T and AT&T Mobility with the ITC and a complaint against Apple, AT&T and AT&T Mobility in the U.S. District Court for the District of Delaware alleging that the Apple iPhone 6s, iPhone 6s Plus, MacBook and MacBook Pro with Retina Display infringe certain of our patents, including patents covering pressure-related haptics.
In the May 2016 ITC complaint, we are seeking an exclusion order preventing the importation, sale for importation, and sale after importation of infringing Apple devices into the United States by the defendants and appropriate cease and desist orders. In the U.S. District Court suit, we are alleging infringement of the same patents.
The complaints assert against Apple, AT&T and AT&T Mobility claims of infringement by the Apple iPhone 6s and Apple iPhone 6s Plus of the following three Immersion patents:
U.S. Patent No. 8,749,507 (the '507 patent), "Systems and Methods for Adaptive Interpretation of Input from a Touch-Sensitive Input Device”;
U.S. Patent No. 7,808,488 (the '488 patent), "Method and Apparatus for Providing Tactile Sensations”
U.S. Patent No. 8,581,710 (the '710 patent), "Systems and Methods for Haptic Confirmation of Commands”
The complaints also assert against Apple claims of infringement by the Apple MacBook and Apple MacBook Pro with Retina display of Immersion’s U.S. Patent No. 7,336,260 (the '260 patent), "Method and Apparatus for Providing Tactile Sensations.”
On May 9, 2016, Immersion and AT&T entered into a stipulation to terminate AT&T as a Proposed Respondent, on the same terms to which the parties agreed to terminate AT&T from the 990 Investigation.

On June 6, 2016, the ITC issued a Notice of Institution of Investigation stating that the ITC instituted an investigation to investigate our allegations of infringement with respect to the '507, '488, '710, and '260 patents and determine whether violations of section 337 of the Tariff Act of 1930 have occurred. The investigation bears the designation Inv. No. 337-TA-1004 ("1004 Investigation"). On June 9, 2016, the Chief ALJ entered an order consolidating the 990 and 1004 Investigations. On June 15, 2016, the Chief ALJ granted a joint motion by the parties to stay the 990 Investigation deadlines until a new procedural schedule is entered in the consolidated Investigation.
On June 16, 2016, pursuant to 28 U.S.C. § 1659(a), the U.S. District Court entered an order staying the U.S. District Court case pending a final determination in the ITC investigation.
On June 27, 2016, Respondents Apple and AT&T Mobility served responses to the complaint denying the material allegations of the complaint and alleging affirmative defenses, including among others that the asserted patents are not infringed, invalid and unenforceable. Respondents also alleged that the '710 patent is unenforceable for alleged inequitable conduct before the United States Patent Office. We responded to the allegations of Respondents during the investigation on the procedural schedule set by the Chief ALJ. On June 29, 2016, the Chief ALJ entered an order setting the Markman hearing in the consolidated case for October 18, 2016, and the evidentiary hearing for April 27-May 5, 2017. On July 12, 2016, the Chief ALJ entered the procedural schedule in the consolidated Investigation.
The procedural schedule in the Investigation includes, among other things, deadlines for the parties to conduct three required settlement conferences. On July 26, 2016, representatives from the Company and Respondent AT&T conducted their first settlement conference. On July 28, 2016, representatives for the Company and Respondent Apple conducted their first settlement conference. The parties did not reach an agreement to settle the dispute underlying this Investigation.
In September 2016, Respondent Apple released additional products, including the iPhone 7 and 7 plus and the Apple Watch Series 2. The Company has served discovery responses and contentions identifying these newly released products as products at issue in the Investigation.
On October 18, 2016, the Chief ALJ conducted a Markman hearing with respect to the construction of terms of the Asserted Patents. The Chief ALJ indicated at the hearing that a ruling could be expected in approximately three months.
On December 15, 2016, Respondents filed a motion for summary determination that the asserted claims 1 and 2 of the ’260 patent are invalid under 35 U.S.C. § 101 for an alleged failure to recite patentable subject matter. On December 27, 2016, the Company filed its opposition to the motion. On December 27, 2016, the Commission Investigative Staff submitted a response to the motion stating that the Staff supports the motion. On April 6, 2017, the Chief ALJ issued an order denying the motion.
On January 18, 2017, the parties participated in a one-day mediation session. The parties did not reach an agreement to resolve the dispute at the mediation.
On February 1, 2017, Respondents Apple and AT&T filed three motions for summary determination on certain issues in the Investigation. In particular, the motions requested that Chief ALJ determine:
•that prosecution history estoppel precludes Immersion from asserting that the accused products and the technical domestic industry products satisfy certain limitations of the asserted patents under the doctrine of equivalents;
•that (1) Respondents do not infringe claims 7 and 17 of the ’356 patent and claims 7, 11 and 15 of the ’051 patent; and (2) the Apple Watch products do not infringe the ’356 patent and Apple’s iPhone 6, 6 Plus and SE products do not infringe the ’051 patent; and
•that claims 2-5, 10-12, and 15-17 of the ’507 patent are invalid under 35 U.S.C. § 112 for failing to comply with the written description requirement.
On February 2, 2017, Chief ALJ Bullock issued his Markman ruling, Order No. 27 Construing the Terms of the Asserted Claims. The Chief ALJ adopted Immersion’s proposed constructions for some disputed terms. On other terms, the Chief ALJ adopted constructions that Respondents or Staff had proposed, and on other terms the Chief ALJ fashioned his own construction.
On February 3, 2017, Immersion brought an unopposed motion for partial termination of the investigation with respect to certain contentions that were no longer being pursued. These include Immersion’s allegations of infringement as to (1) claims 7 and 17 of the ’356 patent, (2) claims 7, 11, and 15 of the ’051 patent, (3) the Apple Watch products solely with respect to the ’356 patent, and (4) the Apple iPhone 6, 6 Plus, and SE products solely with respect to the ’051 patent. Immersion also stated in the motion its position that the request for termination as to the withdrawn allegations rendered Respondents motion for summary determination on these particular issues moot. On February 9, 2017 the Chief ALJ issued an order granting partial termination of the Investigation as to certain asserted claims of the ’356 patent and the ’051 patent as described above.
On February 10, 2017, Respondents filed a notice of withdrawal of their motion for summary determination as to the particular contentions under the ’356 patent and ’051 patent that had been withdrawn during the Investigation. On February 13, 2017,

Immersion filed its oppositions to those motions for summary determination that remained pending. On February 14 and 16, 2017, the Chief ALJ issued orders denying each of Respondents’ motions for summary determination.
On March 21, 2017, Immersion brought an unopposed motion for partial termination of the investigation with respect to all claims of the ’571 patent and claims 7-10 of the ’710 patent. On March 23, 2017, the Chief ALJ issued an order granting partial termination as to the ’571 patent and certain claims of the ’710 patent as described above. On March 23, 2017, the Chief ALJ also issued a notice that the evidentiary hearing would begin on April 27, 2017 and conclude on May 4, 2017 (as opposed to May 5, 2017).
The evidentiary hearing with respect to the consolidated investigation by the United States International Trade Commission bearing the designation Inv. No. 337-TA-990/1004 commenced on April 27, 2017 and concluded on May 4, 2017. On May 31, 2017, the parties and the Office of Unfair Import Investigations ("OUII") Staff submitted their initial post-hearing briefs, and on June 7, 2017, the parties and OUII Staff submitted their post-hearing reply briefs. Before submitting these briefs, we provided a notice on May 11, 2017 that we would not be pursuing in our Post-Hearing Brief claims 3, 13, and 23 of the '356 patent.
The due date for the Chief ALJ’s initial determination was scheduled for August 11, 2017. On July 13, 2017, the Chief ALJ entered an order extending the due date for the Chief ALJ's initial determination from August 11, 2017 to November 13, 2017 and extending the target date for the completion of the investigation from December 11, 2017 to March 12, 2018. On October 30, 2017, the Chief ALJ issued an order extending the final initial determination date to no later than the close of business on January 31, 2018 and the final determination date to no later than May 31, 2018.
On July 7, 2016, Apple filed in the United States Patent and Trademark Office a petition for inter partes review of the '051 patent. The petition bears Case No. IPR2016-01371. The petition challenges the patentability of certain claims of the '051 patent in light of alleged prior art references. On October 13, 2016, we filed a Patent Owner's Preliminary Response responding to the petition's challenges to patentability of claims of the '051 patent. On January 11, 2017, the Patent Trial and Appeal Board ("PTAB" or "Board") issued a decision denying the Petition and declining to institute the IPR on February 10, 2017, Apple submitted in the United States Patent and Trademark Office a second IPR petition challenging the patentability of certain claims of the ’051 patent in light of alleged prior art references. This Petition bears Case No. IPR2017-00887. We filed our Patent Owner's Preliminary Response in this IPR on May 30, 2017. On August 25, 2017, the PTAB issued a decision denying Apple's petition and declining to institute the second IPR.
On July 7, 2016, Apple filed in the United States Patent and Trademark Office a petition for inter partes review of the '571 patent. The petition bears Case No. IPR2016-01372. The petition challenges the patentability of certain claims of the '571 patent in light of alleged prior art references. On October 13, 2016, we filed a Patent Owner's Preliminary Response responding to the petition's challenges to patentability of claims of the '571 patent. On January 11, 2017, the PTAB issued its decision instituting the IPR on certain grounds raised in the Petition. The Board’s decision also declined to institute the IPR as to certain claims of the ’571 patent. The Board has set a schedule of certain due dates in the IPR. On May 31, 2017, we submitted our Patent Owner’s Response to the IPR. Apple filed its Reply to the Patent Owner's Response on August 4, 2017. On August 31, 2017, we submitted a Motion for Observation regarding the testimony of Apple's expert on cross-examination at deposition. Apple responded to these observations on September 5, 2017. On October 5, 2017, the PTAB conducted the Oral Hearing in this IPR. The matter is now submitted to the PTAB and pending decision. The PTAB's decision is due by January 11, 2018, within one year of the institution of the IPR. On or about February 12, 2017, Apple submitted in the United States Patent and Trademark Office a second IPR petition challenging the patentability of certain claims of the ’571 patent in light of alleged prior art references. This Petition bears Case No. IPR2017-00896. We filed our Patent Owner's Preliminary Response in this IPR on May 22, 2017. On August 17, 2017, the PTAB issued a decision denying Apple's petition and declining to institute the second IPR.
On July 8, 2016, Apple filed in the United States Patent and Trademark Office a petition for inter partes review of the '356 patent. The petition bears Case No. IPR2016-01381. The petition challenges the patentability of certain claims of the '356 patent in light of alleged prior art references. On October 12, 2016, we filed a Patent Owner's Preliminary Response responding to the petition's challenges to patentability of claims of the '356 patent. On January 11, 2017, the PTAB issued its decision instituting the IPR on certain grounds raised in the Petition. The Board has set a schedule of certain due dates in the IPR. On May 31, 2017, we submitted our Patent Owner's Response to the IPR. Apple filed its Reply to the Patent Owner's Response on July 28, 2017. On August 31, 2017, we submitted a Motion for Observation regarding the testimony of Apple's expert on cross-examination at deposition. Apple responded to these observations on September 5, 2017. On October 5, 2017, the PTAB conducted the Oral Hearing in this IPR. The matter is now submitted to the PTAB and pending decision. The PTAB's decision is due by January 11, 2018, within one year of the institution of the IPR. On or about February 12, 2017, Apple submitted in the United States Patent and Trademark Office a second IPR petition challenging the patentability of certain claims of the ’356 patent in light of alleged prior art references. This IPR bears Case No. 2017-00897. We filed our Patent Owner's Preliminary Response in this IPR on May 22, 2017. On August 17, 2017, the PTAB issued a decision denying Apple's petition and declining to institute the second IPR.

On August 12, 2016, Apple filed in the United States Patent and Trademark Office a petition for inter partes review of the '710 patent. The petition bears Case No. IPR2016-01603. The petition challenges the patentability of certain claims of the '710 patent in light of alleged prior art references. On November 28, 2016, we filed a Patent Owner's Preliminary Response responding to the petition’s challenges to patentability of claims of the ’710 patent. On February 23, 2017, the PTAB issued its decision instituting the IPR on certain grounds raised in the petition. The Board has set a schedule of certain due dates in the IPR. On June 28, 2017, we submitted our Patent Owner's Response in the IPR. Apple filed its Reply to the Patent Owner's Response on August 24, 2017. On October 16, 2017, we submitted a Motion for Observation regarding testimony of Apple's expert on cross-examination at deposition. The Oral Hearing in this IPR is currently scheduled for November 16, 2017. On or about May 4, 2017, Apple submitted in the United States Patent and Trademark Office a second IPR petition challenging the patentability of certain claims of the ‘710 patent in light of alleged prior art references. This IPR bears Case No. 2017-01368. We filed our Patent Owner's Preliminary Response on August 24, 2017. The PTAB's decision on whether to institute this second IPR is due within ninety days of the filing of this preliminary response.
On September 12, 2016, Apple filed in the United States Patent and Trademark Office a petition for inter partes review of the '507 patent. The petition bears Case No. IPR2016-01777. The petition challenges the patentability of certain claims of the '507 patent in light of alleged prior art references. On December 27, 2016, we filed a Patent Owner's Preliminary Response responding to the petition’s challenges to patentability of claims of the ’507 patent. On March 23, 2017, the Board issued its decision denying the Petition and declining to institute the IPR. On May 9, 2017, Apple submitted in the United States Patent and Trademark Office a second IPR petition challenging the patentability of certain claims of the ’507 patent in light of alleged prior art references. This IPR bears Case No. 2017-01310. We filed our Patent Owner's Preliminary Response on August 9, 2017. On November 2, 2017, the PTAB issued a decision denying Apple's petition and declining to institute the second IPR.
On September 23, 2016, Apple filed in the United States Patent and Trademark Office a petition for inter partes review of the '260 patent. The petition bears Case No. IPR2016-01884. The petition challenges the patentability of certain claims of the '260 patent in light of alleged prior art references. On January 4, 2017, we filed a Patent Owner's Preliminary Response responding to the petition’s challenges to patentability of claims of the ’260 patent. In response to a request of the Petitioner, the Board also authorized the parties to file Reply and Sur-Reply briefs on certain issues. Petitioner filed a Reply Brief on January 31, 2017. We filed our Patent Owner’s Sur-Reply brief on February 14, 2017. On April 3, 2017, the Board issued a decision instituting the IPR on certain grounds raised in the petition. The Board has set a schedule of certain due dates in the IPR. On July 3, 2017, we submitted our Patent Owner’s Response in the IPR. Apple filed its Reply to the Patent Owner's Response on October 10, 2017. The Oral Hearing is presently scheduled for January 10, 2018. On or about May 4, 2017, Apple submitted in the United States Patent and Trademark Office a second IPR petition challenging the patentability of certain claims of the ‘260 patent in light of alleged prior art references. This IPR bears Case No. 2017-01369. We filed our Patent Owner's Preliminary Response on August 24, 2017. The PTAB's decision on whether to institute this second IPR is due within ninety days of the filing of this preliminary response.
On September 29, 2016, Apple filed in the United States Patent and Trademark Office a petition for inter partes review of the '488 patent. The petition bears Case No. IPR2016-01907. The petition challenges the patentability of certain claims of the '488 patent in light of alleged prior art references. On January 5, 2017, we filed a Patent Owner's Preliminary Response responding to the petition’s challenges to patentability of claims of the ’488 patent. In response to a request of the Petitioner, the Board authorized the parties to file Reply and Sur-Reply briefs. Petitioner filed a Reply Brief on January 31, 2017. We filed our patent owner’s Sur-Reply brief on February 14, 2017. On April 3, 2017, the Board issued a decision instituting the IPR on certain grounds raised in the petition. The Board has set a schedule of certain due dates in the IPR. On July 3, 2017, we filed our Patent Owner's Response in the IPR. Apple filed its Reply to the Patent Owner's Response on October 10, 2017. The Oral Hearing is presently scheduled for January 10, 2018. On or about May 4, 2017, Apple submitted in the United States Patent and Trademark Office a second IPR petition challenging the patentability of certain claims of the ‘488 patent in light of alleged prior art references. This IPR bears Case No. 2017-01371. We filed our Patent Owner's Preliminary Response on August 24, 2017. The PTAB's decision on whether to institute this second IPR is due within ninety days of the filing of this preliminary response.
On October 26, 2017, we filed a patent infringement lawsuit in the Beijing High People’s Court against Apple Computer Trading (Shanghai) Co., Ltd., Apple Electronic Product Commerce (Beijing) Co., Ltd., and Apple Trading (Shanghai) Co., Ltd. alleging that the iPhone 6s, iPhone 6s Plus, iPhone 7, iPhone 7 Plus, iPhone 8 and iPhone 8 Plus infringe our Chinese patents ZL02821854.X and ZL200810008845.X. We are seeking a permanent injunction preventing the importation, sale and offering for sale of the iPhone products noted above in China as well as damages.
Although we believe we have strong claims, the outcome of litigation and the IPRs is inherently uncertain.
Furthermore, Apple and AT&T Mobility have significant resources and therefore, this litigation could be protracted.

Immersion Corporation v. FitBit and Runtong International Trade Co., Ltd. (Shanghai Intellectual Property Court)

On June 29, 2017, we filed a patent infringement lawsuit against Fitbit, Inc. (“Fitbit”) in the Shanghai Intellectual Property Court alleging that Fitbit has infringed three of our China patents. The three patents at issue are China Patent No. ZL200680041474.4, entitled “methods and systems for providing haptic messaging to handheld communication devices”; No. ZL200980127978.l, entitled “systems and methods for mapping message contents to virtual physical properties for sending vibrotactile messaging”; and No. ZL200980128008.3, entitled “systems and methods for transmitting haptic messages.” The Shanghai Intellectual Property Court accepted the case on July 7, 2017.

Immersion Corporation v. Fitbit, Inc., Case No. 5:17-cv-03886-LHK (N.D. Cal.)

On July 10, 2017, we filed a patent infringement lawsuit against Fitbit in the U.S. District Court for the Northern District of California alleging that Fitbit has infringed three of our U.S. Patents. The three patents at issue are U.S. Patent No. 8,351,299, which covers “Apparatus and Method for Providing Condition-Based Vibrotactile Feedback”; No. 8,059,105, entitled “Haptic Feedback for Touchpads and Other Touch Controls”; and No. 8,638,301, for “Systems and Methods for Transmitting Haptic Messages.” Generally, these U.S. patents cover “touch-feedback” - or haptic feedback - devices, systems and methods. Fitbit devices alleged to infringe include the Fitbit Flex, Fitbit Flex 2, Fitbit Alta, Fitbit Alta HR, Fitbit Charge, Fitbit Charge 2, Fitbit Charge HR, Fitbit Blaze and Fitbit Surge. We served Fitbit with the Complaint, among other papers, on July 11, 2017. On October 4, 2017, in lieu of answering, Fitbit filed a Motion to Dismiss pursuant to 12(b)(6) based on 35 USC § 101. The hearing on Fitbit’s Motion to Dismiss is set for February 15, 2018. The parties attended an Initial Case Management Conference on October 18, 2017. The claim construction hearing has been scheduled for May 10, 2018, and the trial date has been scheduled for May 6, 2019. On November 1, 2017, we filed our response to Fitbit’s motion to dismiss.

Immersion Corporation vs. Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc.
On August 3, 2017, we filed a complaint against Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. (collectively, “Samsung”) in the United States District Court for the Eastern District of Texas alleging that certain Samsung touchscreen phones, including those phones that Samsung had not commenced commercially producing, distributing and selling before January 1, 2016 (the “Accused Phones”), infringe certain of our patents that cover haptic feedback systems and methods. In the complaint, we are seeking to stop Samsung from further infringement as well as the recovery of damages. The complaints assert infringement by the Accused Phones of the following patents:
U.S. Patent No 6,429,846: "Haptic Feedback for Touchpads and Other Touch Controls"
U.S. Patent No 7,969,288: "Force Feedback System Including Multi-Tasking Graphical Host Environment and Interface Device"
U.S. Patent No 9,323,332: “Force Feedback System Including Multi-Tasking Graphical Host Environment”
U.S. Patent No 7,982,720: "Haptic Feedback for Touchpads and Other Touch Controls"
U.S. Patent No 8,031,181: "Haptic Feedback for Touchpads and Other Touch Controls"
Samsung filed a response to the Complaint on October 24, 2017.

Immersion Corporation vs. Motorola Mobility LLC and Motorola Mobility Holdings LLC
On August 3, 2017, we filed a complaint against Motorola Mobility LLC and Motorola Mobility Holdings LLC (collectively, “Motorola”) in the United States District Court for the District of Delaware alleging that certain Motorola touchscreen phones, including the Moto G4, Moto G4 Play, Moto G4 Plus, Moto G5, Moto G5 Plus, Moto Z, Moto Z Force and Moto Z Play (the “Accused Phones”), infringe certain of our patents that cover haptic feedback systems and methods. In the complaint, we are seeking to stop Motorola from further infringement as well as the recovery of damages. The complaints assert infringement by the Accused Phones of the following patents:
U.S. Patent No 6,429,846: "Haptic Feedback for Touchpads and Other Touch Controls"
U.S. Patent No 7,969,288: "Force Feedback System Including Multi-Tasking Graphical Host Environment and Interface Device"
U.S. Patent No 9,323,332: “Force Feedback System Including Multi-Tasking Graphical Host Environment”
U.S. Patent No 7,982,720: "Haptic Feedback for Touchpads and Other Touch Controls"
U.S. Patent No 8,031,181: "Haptic Feedback for Touchpads and Other Touch Controls"

On September 25, 2017, Motorola filed its Answer to the Complaint. The Court has set a Scheduling Conference for November 17, 2017.
Samsung Electronics Co. v. Immersion Corporation and Immersion Software Ireland Limited
On April 28, 2017, we received a letter from Samsung requesting that we reimburse Samsung with respect to withholding tax and penalties imposed on Samsung by the Korean tax authorities 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, we 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 Immersion’s 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 indicated that a final decision is expected on May 28, 2021, but reserved the right to delay the date of the decision.
On September 29, 2017, Samsung filed an arbitration demand with the International Chamber of Commerce against us demanding that we reimburse Samsung for the imposed tax and penalties that Samsung paid to the Korean tax authorities. Samsung is requesting that we pay Samsung the amount of KRW 7,841,324,165 (approximately $6.3$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, 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 Korean courts. At 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 Consolidated Statement of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.
Immersion Corporation vs. Samsung (China) Investment Co., Ltd., Huizhou Samsung Electronics Co., Ltd and Fujian Province Min Xin Household Electrical Appliances Technology Service Co., Ltd. (Fuzhou Intellectual Property Court - Case: Min 01 Min Chu No. 342 (2018))
On March 8, 2018, we filed a complaint against Samsung (China) Investment Co., Ltd. (“Samsung China”), Huizhou Samsung Electronics Co., Ltd. (“Samsung Huizhou”) (together with Samsung China, “Samsung”), and Fujian Province Min Xin Household Electrical Appliances Technology Service Co., Ltd. in the Fuzhou Intermediate Court in Fuzhou, China alleging that certain Samsung touchscreen phones, including the Galaxy S8, S8+, and Note8, infringe three Immersion Chinese patents. The three patents at issue, covering haptic feedback systems and methods in electronic devices, are Chinese Patent No. ZL02821854.X, entitled “Method and Apparatus for Providing Tactile Feedback Sensations”; Chinese Patent No. ZL201210005785.2, entitled “Method and Apparatus for Providing Tactile Feedback Sensations”; and Chinese Patent No. ZL201310253562.2, entitled “Method and Apparatus for Providing Tactile Feedback Sensations”. Immersion’s complaint seeks to stop defendants from using patented methods during manufacturing; to stop defendants from manufacturing, offering to sell, selling, or jointly selling infringing products; as well as the recovery of damages. The Fuzhou Intellectual Property Court accepted the case on March 8, 2018. Samsung China filed a jurisdictional objection on April 10, 2018 in which it asked the court to move the case to Beijing IP court. Samsung Huizhou filed a jurisdictional objection on April 10, 2018 in which it asked the court to move the case to Guangzhou IP court. On May 8, 2018, the court rejected both jurisdictional objections. Samsung Huizhou and Samsung China appealed and the pretrial conference originally scheduled for June 14-15, 2018 was postponed pending a ruling from the Fujian High Court. On September 20, 2018, the Fujian High Court rejected the jurisdictional objection appeals. Samsung China and Samsung Huizhou filed Petitions for Invalidation on April 16, 2018 with the Chinese Patent Office (“SIPO”) for all three patents. Samsung China and Samsung Huizhou supplemented their petitions in May, and we responded on June 1, 2018. A hearing on the petition for Chinese Patent No. ZL02821854.X occurred on July 18, 2018. Hearings on the petitions for Chinese Patent No. ZL201210005785.2 and Chinese Patent No. ZL201310253562.2 occurred on September 28, 2018. Trial was originally scheduled for November 12, and 14, 2018; the Fuzhou Intellectual Property Court granted Immersion's request to postpone trial but did not set revised dates. The Company and Samsung each submitted evidence for use at trial on or before October 26, 2018. The Patent Reexamination Board of SIPO issued invalidation decisions against Chinese Patent No. ZL02821854.X on November 21, 2018, against Chinese Patent No. ZL201310253562.2 on November 14, 2018, and against Chinese Patent No. ZL201210005785.2 on November 15, 2018, declaring all three Chinese patents invalid. We filed an application to withdraw our complaint from the Fuzhou Intermediate Court on December 10, 2018
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and received the ruling that allows Immersion to withdraw the case from the Fuzhou Intermediate Court on December 29, 2018. We pre-registered the appeals against the invalidation decisions with the Beijing IP Court on February 14, 2019. On April 28, 2019, we filed the appeal against the invalidation decisions with the Beijing IP court. On June 6, 2019, SIPO responded to our filing of the appeal with its counterarguments to the arguments set forth in our appeal filing. A hearing occurred on March 11, 2021. We currently anticipate no additional hearings. The Court did not indicate when a judgment would be determined.

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 as Long-term deposits on our Condensed Consolidated Balance Sheets.
On November 3, 2017, on behalf of LGE, we filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes. The Korea Tax Tribunal hearing took place on March 5, 2019. On March 19, 2019, the Korea Tax Tribunal issued its ruling in which it decided not to accept our arguments with respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on LGE. On behalf of LGE, we filed an appeal with the Korea Administrative Court on June 10, 2019. The first hearing occurred on October 15, 2019. A second hearing occurred on December 19, 2019. A third hearing occurred on February 13, 2020. A fourth hearing occurred on June 9, 2020. 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 is scheduled for June 24, 2021.
We believe that there are valid defenses to the claims raised by the Korean tax authorities and that Samsung’sLGE’s claims are without merit. We intend to vigorously defend ourselves against these claims and as a result, we have concluded that the likelihood of a material charge resulting from this claim is remote.claims. In the event Samsung were tothat we do not ultimately prevail in the arbitration in advance of the conclusion of theour appeal with the Korea Tax Tribunal, we could be required to make a payment to Samsung even though it would later be reimbursed should we prevail in the appeal.Korean courts, any payments to LGE with respect to withholding tax imposed on LGE by the Korean tax authorities as described in the previous paragraph would be recorded as additional income tax expense on our Condensed Consolidated Statement of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.

We cannot predict the ultimate outcome of the above-mentioned actions, and we are unable to estimate any potential liability we may incur. Please also refer to our disclosures in Contingencies, Note 125. Contingencies of the Note to the Condensed Consolidated Financial Statements.Statements.



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ITEM 1A. RISK FACTORS

As previously discussed, our actual results could differ materially from our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to those discussed below. to:

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


CompanyRisk Factor Summary

Our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our business strategy and affect our financial results. You should carefully consider all of the information in this report and, in particular, the following principal risks and all of the other specific factors described in Item 1A of this report, “Risk Factors,” before deciding whether to invest in our company.

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

▪ Our business could be materially and adversely affected if we are unable to enter into new and renewed licensing arrangements (or renew existing licenses) on favorable terms. In addition, a limited number of customers account for a significant portion of our revenue, and the loss of major customers could harm our operating results.

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

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

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

▪ If we are not able to attract, recruit and retain qualified personnel, we may not be able to effectively develop and deploy our technologies. In addition, we have experienced turnover in our senior management and our employee base, which could result in operational and administrative inefficiencies and could hinder the execution of our growth strategy.

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

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

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

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

▪ Our international operations subject us to risks and costs, and our failure to comply with complex U.S. or foreign laws could have a material adverse effect on our operations.

▪ We may not be able to continue to derive significant revenues from gaming peripheral makers for various reasons, including as a result of our fixed payment license with Microsoft, which could adversely affect our financial condition and operating results.
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▪ Automobiles incorporating our technologies are subject to lengthy development periods, making it difficult to predict when and whether we will receive royalties for these product types.

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

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

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

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

▪ Our business depends in part on access to third-party platforms and technologies. If such access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies change, our business and operating results could be adversely affected.

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

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

• Risks related to investing in our common stock:

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

▪ Future sales of our equity could result in significant dilution to our existing stockholders and depress the market price of our common stock. In addition, we will have broad discretion as to the use of proceeds from the “at the market” offering that we announced in February 2021, and we may not use the proceeds effectively.

▪ We may elect to purchase digital or alternative currencies as part of our capital allocation or investment strategy; and if we determine to purchase digital or alternative currencies such as bitcoin and other cryptocurrencies, our financial results and the market price of our common stock may be affected by the price of these alternative investments, which may be highly volatile.

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

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

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

▪ Our business is subject to changing regulations regarding corporate governance and other compliance areas that will increase both our costs and the risk of noncompliance. Further, provisions in our charter documents and Delaware law could prevent or delay a change in control, which could reduce the market price of our common stock.


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Company Risks

Our business, results of operations, financial condition, cash flows, and stock price can be adversely affected by catastrophic events, such as natural disasters, war, acts of terrorism, pandemics, epidemics, or other public health emergencies, such as the outbreak of COVID-19.

Our business, results of operations, financial condition, cash flows and stock price can be adversely affected by catastrophic events, such as natural disasters, war, acts of terrorism, pandemics, epidemics, or other public health emergencies, such as the outbreak of COVID-19, which has spread throughout the United States, Canada, and much of the rest of the world. The World Health Organization characterized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures, which has resulted in a significant number of layoffs or furloughs of employees, and/or other negative economic conditions in many of the countries in which we operate. While some governments around the world are easing restrictions designed to help control the spread of the virus, a resurgence of COVID-19 cases may cause governments around the world to implement or reinstitute such restrictions. The full extent to which the COVID-19 pandemic will impact our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted.

The COVID-19 pandemic and its resulting economic and other effects could result in significant adverse effects on our customers’ cash flow and their ability to manufacture, distribute and sell products incorporating our touch-enabling technologies. This in turn, may cause our customers to be less able to pay invoices for our royalties or may result in a reduction in the royalties we earn which are often based on the number of units sold or distributed by our customers, which reduction could cause adverse effects on our business, results of operations, financial condition, cash flows and stock price. In addition, any depression or recession resulting from the COVID-19 pandemic may adversely change consumer behavior and demand, including with respect to products sold by our customers, which may result in a significant reduction in our revenue, results of operations, and financial condition.

The spread of the COVID-19 virus has also caused us to modify our business practices (including implementing work-from-home policies and restricting travel by our employees) in ways that may be detrimental to our business (including working remotely and its attendant cybersecurity risks). We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees and customers. These practices may have an adverse effect on our employees’ productivity (especially with respect to our engineering and research and development efforts which may require hardware and software not available while working remotely) and morale and our ability to engage and support our current and prospective customers.

Our facilities could also be subject to a catastrophic loss such as fire, flood, earthquake, power outage, or terrorist activity. An earthquake at or near our facilities could disrupt our operations and result in large expenses to repair and replace the facility. While we believe that we maintain insurance sufficient to cover most long-term potential losses at our facilities, our existing insurance may not be adequate for all possible losses including losses due to earthquakes.

If we are unable to renew our existing licensing arrangements for our patents and other technologies on favorable terms that are consistent with our existing licensees and with additional third-parties for our touch-enabling technologies,business objectives, our royalty and license revenue may not grow and cash flow could decline.be materially and adversely affected.

Our revenue growth isand cash flow are largely dependent on our ability to enter into new and renew existing licensing arrangements. Our failureIf we are unable to enter into new or renewed licensing arrangements will cause our operating results to suffer. We face numerous risks in obtaining new orobtain renewed licenses on terms consistent with our business objectives or effectively maintain, expand, and in maintaining, expanding, and supportingsupport our relationships with our current licensees. These riskslicensees, our licensing revenue and cash flow could decline. In addition, the process of negotiating license arrangements requires significant time, effort and expense. Due to the length of time required to negotiate a license arrangement, there may be delays in the receipt of the associated revenue, which could negatively impact our revenue and cash flow.
Specific challenges that we face related to negotiations with existing licensees include:

•difficulties caused by the effects of COVID-19 on our existing licensees’ businesses;

•difficulties in persuading device manufacturersexisting customers to take a license or renew a license to our intellectual propertypatents or other technologies (including delays associated with existing customers questioning the scope, validity, or enforceability) without the expenditure of significant resources;

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•difficulties in persuading existing customers that they still need a license to the portfolioour patents as individual patents expire or become limited in scope, declared unenforceable or invalidated;

•reluctance of device manufacturersexisting customers to take a license or renew atheir license to our intellectual propertypatents or other technologies because other larger device manufacturerscompanies are not licensed;

•difficulties in entering into or renewing gaming licenses if video game console makers choose not to license third parties to make peripherals for their new consoles, if video game console makers no longer require peripherals to play video games, if video game console makers no longer utilize technology in the peripherals that are covered by our patents or if the overall market for video game consoles deteriorates substantially;
reluctance of content developers or distributors, mobile device manufacturers, and service providers to sign license agreements without a critical mass of other such inter-dependent supporters of the mobile device industry also having a license, or without enough similar devices in the market that incorporate our technologies;
•the competition we may face from third parties, and/orincluding the internal design and development teams of existing and potential licensees;
difficulties in achieving and maintaining consumer and market demand or acceptance for our products;
difficulties in persuading third parties to work with us, to rely on us for critical technology, and to disclose to us proprietary product development and other strategies;

• difficulties in persuading existing licensees who compensate us for including our software in certain of their touch-enabled products to also license and compensate us for our patents that cover other touch-enabled products of theirs that do not include our software;
challenges in demonstrating the compelling value of our technologies and challenges associated with customers’ ability to easily implement our technologies; and

• inability of current or prospective licensees to ship certain devices if they are involved in IP infringement claims by third parties that ultimately prevent them from shipping products or that impose substantial royalties on their products;products.

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

Our currentrevenue growth is largely dependent on our ability to enter into new licensing arrangements. If we are unable to obtain new licenses on terms consistent with our business objectives, our licensing revenue and cash flow could decline. In addition, the process of negotiating license arrangements requires significant time, effort and expense; due to the length of time required to negotiate a license arrangement, there may be delays in the receipt of the associated revenue, which could negatively impact our revenue and cash flow.

Specific challenges that we face related to negotiations with prospective licensees include:

•difficulties caused by the effects of COVID-19 on prospective licensees’ businesses;

•difficulties in brand awareness among prospective customers, especially in markets in which we have not traditionally participated;

•difficulties in persuading prospective customers to take a license to our patents (including delays associated with prospective customers questioning the scope, validity or enforceability of our patents) without the expenditure of significant resources;

•reluctance of prospective customers to engage in discussions with us due to our history of litigation;

•difficulties in persuading prospective customers that they need a license to our patents as individual patents expire or become limited in scope, declared unenforceable or invalidated;

•reluctance of prospective customers to license our patents or other technologies because other companies are not licensed;

•the competition we may face from third parties, including the internal design teams of prospective customers;

•difficulties in achieving and maintaining consumer and market demand or acceptance for our products;

•difficulties in persuading third parties to work with us, to rely on us for critical technology, and to disclose to us proprietary product development and other strategies; and

•challenges in demonstrating the compelling value of our technologies and challenges associated with prospective customers’ ability to easily implement our technologies.
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A limited number of customers account for a significant portion of our revenue, and the loss of major customers could harm our operating results.

A significant amount of our revenue is derived from a limited number of customers, and we expect that this will continue to be the case in the future. For example, for the three months ended March 31, 2021, Samsung accounted for a significant amount of our total revenues.

In addition, we cannot be certain that other customers that have accounted for significant revenue in past periods, individually or as a group, will continue to generate similar revenue in any future period.

If we fail to renew or lose a major customer or group of customers, or if a major customer decides that our patents no longer cover our products and stops paying us royalties, our revenue could decline if we are unable to replace the lost revenue with revenue from other sources. In addition, if potential customers or customers with expiring agreements view the loss of one of our major customers as an indicator of the value of our software and/or the strength of our intellectual property, they may choose not to take or renew a license which could adversely affect our operating results.

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

We derive a significant portion of our revenues from licenses and royalties from our haptic patents. We devote significant engineering resources to develop new haptic patents to address the evolving haptic needs of our customers and potential customers. To remain competitive, we must introduce new haptic patents in a timely manner and the market must adopt such technology. Our initiatives to develop new and enhanced haptic innovations, to obtain patents on such innovations, and to commercialize these haptic innovations may not be successful or timely. Any new or enhanced haptic innovations may not be favorably received by our licensees, potential licensees, or consumers and we may not be able to monetize such haptic innovations. If our development efforts are not successful or are significantly delayed, companies may not incorporate our haptic innovations into their products and our revenues may not grow and could decline.

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

Many of our customers report and pay royalties to us based on the number of products in their shipments that incorporate our patented technology or other technology. Our customers’ products may incorporate various electronic components, such as integrated circuits. A significant disruption in the supply of these electronic components (such as integrated circuits) could decrease the number of products that our customers sell which could reduce the amount of royalties that are payable to us.
For instance, the semiconductor industry has recently faced significant global supply chain issues as a result of the impact of the COVID-19 pandemic and the related imposition of government restrictions on staffing and facility operations, supply chain shortages, and other disruptions. Even though government restrictions have loosened, integrated circuit manufacturers continued to struggle to meet the new surge in demand. This is due to changing consumer habits fueled by the COVID-19 pandemic. If our customers experience significant shortages of electronic components that result in a reduction in our revenues, then our business, results of operations, financial condition, cash flows, and stock price may be adversely affected.

Potential patent and litigation reform legislation, potential United States Patent and Trademark Office (“USPTO”) and international patent rule changes, potential legislation affecting mechanisms for patent enforcement and available remedies, and potential changes to the intellectual property rights policies of worldwide standards bodies, as well as rulings in legal proceedings may affect our investments in research and development and our strategies for patent prosecution, licensing and enforcement and could have a material adverse effect on our licensing business as well as our business as a whole.

Potential changes to certain U.S. and international patent laws, rules and regulations may occur in the future, some or all of which may affect our research and development investments, patent prosecution costs, the scope of future patent coverage we secure, remedies that we may be entitled to in patent litigation, and attorneys’ fees or other remedies that could be sought against us, and may require us to reevaluate and modify our research and development activities and patent prosecution, licensing and enforcement strategies.

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Similarly, legislation designed to reduce the jurisdiction and remedial authority of the United States International Trade Commission (the “USITC”) has periodically been introduced in Congress. Any potential changes in the law, the IP rights policies of standards bodies or other developments that reduce the number of forums available or the type of relief available in such forums (such as injunctive relief), restrict permissible licensing practices (such as our ability to license on a worldwide portfolio basis) or that otherwise cause us to seek alternative forums (such as arbitration or state court), could make it more difficult for us to enforce our patents, whether in adversarial proceedings or in negotiations.  Because we have historically depended on the availability of certain forms of legal process to (i) enforce our patents and (ii) obtain fair and adequate compensation for our investments in research and development and for the unauthorized use of our intellectual property, developments in law and/or policy that undermine our ability to do so could have a negative impact on future licensing efforts and on revenue derived from such efforts.

Rulings of courts and administrative bodies may affect our strategies for patent prosecution, licensing and enforcement.  For example, in recent years, the USITC and U.S. courts, including the U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit, have taken actions that have been viewed as unfavorable to patentees. Decisions that occur in U.S. or in international forums may change the law applicable to various patent law issues, such as with respect to, patentability, validity, patent exhaustion, patent misuse, remedies, permissible licensing practices, claim construction, and damages in ways that could be detrimental to our ability to enforce patents in our IP portfolio and to obtain damages awards.

We continue to monitor and evaluate our strategies for prosecution, licensing and enforcement with regard to these developments in law and policy; however, any resulting change in such strategies could have a material adverse effect on our business and financial condition.

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

Our technologies are complex, and we rely upon our employees to identify new sales and business development opportunities, support and maintain positive relationships with our licensees, enhance existing technologies, and develop new technologies. Accordingly, we need to be able to attract, recruit, integrate, and retain sales, support, marketing, and research and development personnel, including individuals highly specialized in patent licensing and engineering in order to develop and deploy our technologies and to sustain revenue growth. Competition for talented candidates is intense, especially for individuals with patent licensing, engineering and haptics expertise, and we may not be successful in attracting, integrating, and continuing to motivate such qualified personnel. In this competitive recruiting environment, especially when hiring in Montreal, Canada and the greater San Francisco Bay Area, our compensation packages need to be attractive to the candidates we recruit. However, given the negative effects that COVID-19 may have on our business as well as potential volatility in our quarterly revenues, it could be difficult to craft compensation plans that will attract and retain salespeople with the skills to secure complex licensing arrangements. In Montreal, Canada, and the greater San Francisco Bay Area, candidates and employees view the stock component of compensation as an important factor in deciding both whether to accept an employment opportunity as well as whether to remain in a position at a company. Even if we are able to present robust compensation packages that enable us to attract and recruit new candidates for hire, we may not be able to retain our current executive officers and key employees if the structure of their compensation packages does not provide incentives for them to remain employed by us. For instance, our 2020 Executive Incentive Plan was cancelled and the base salaries of our executive officers were reduced by 10%.

We have experienced turnover in our senior management and our employee base, which could result in operational and administrative inefficiencies and could hinder the execution of our growth strategy.

We have experienced turnover in our senior management. For example, on November 3, 2020, Ramzi Haidamus departed as our Chief Executive Officer and a member of our board of directors, and Jared Smith, our Vice President, Worldwide Sales, was appointed as Interim Chief Executive Officer. Lack of management continuity could harm our customer relationships, delay product development processes, adversely affect our ability to successfully execute our growth strategy, result in operational and administrative inefficiencies and added costs, and could impede our ability to recruit new talented individuals to senior management positions, which could adversely impact our results of operations, stock price and customer relationships. Our success largely depends on our ability to integrate any new senior management within our organization in order to achieve our operating objectives, and changes in other key positions may affect our financial performance and results of operations as new members of management become familiar with our business. General employee turnover also presents risks discussed in this paragraph.

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We are or may become involved in litigation, arbitration and administrative proceedings to enforce or defend our intellectual property rights and to defend our licensing practices isthat are expensive, disruptive and time consuming, and will continue to be, until resolved, and regardless of whether we are ultimately successful, could adversely affect our business.
We
If we believe that a third party is required, but has declined, to license our intellectual property in order to manufacture, sell, offer for sale, import or use products, we have been in the past and are currently amay in the future commence legal or administrative action against such third party. In some cases, we have and may become party to various legal proceedings within which we are adverse to companies that have significantly greater financial resources than us to enforce or defend our intellectual property rights and to defend our licensing practices.us. For example, in 2016, we initiated patent infringement litigation against Apple and AT&T Mobility for infringement of seven patents, and Apple filed for inter partes review on each of the seven patents with the U.S. Patent Office. On August 3, 2017, we alsohad previously initiated patent infringement litigation against Samsung and Motorola claiming that they are infringing five of our US patents. Due to the inherent uncertainties of litigation and administrative proceedings, we cannot accurately predict how these proceedings will ultimately be resolved.Motorola. We anticipate that currently pending orand any future legal proceedings will continue to be costly, given the significant resources available toespecially in cases where our current adverse parties and that future legal proceedings will result in additional legal expenses, resulting in the decrease of cash available for other parts of our business, andhave access to relatively more significant resources. Since there can be no assurance that we will be successful or be able to recover the costs we incur in connection with the legal proceedings.proceedings (including outside counsel fees), as we incur additional legal costs, the cash available for other parts of our business may decrease. In addition, litigation could lead to counterclaims, adverse rulings affecting our patents, and could harm our relationship with our customers and potential customers, who may postpone licensing decisions pending the outcome of the litigation or dispute, or who may choose not to adopt our technologies. Although protecting our intellectual property is a fundamental part of our business, at times, our legal proceedings have diverted, and could continue to divert, the efforts and attention of some of our key management and personnel away from our licensing transactions and other aspects of our business. As a result, until such time as it is resolved or concluded, litigation, arbitration and administrative proceedings could cause our technology to be perceived as less valuable in the marketplace, which could reduce our sales and adversely affect our business. Further, any unfavorable outcome could adversely affect our business. For additional background on our litigation, please see Part II, Item 1, “Legal Proceedings”.
A limited number of customers account for a significant portion of our revenue, and the loss of major customers could harm our operating results.
Three customers accounted for 20%, 17% and 10% of our total revenues, respectively, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016 where Samsung Electronics and two other customers accounted for 40%, 13% and 12% of our total revenues. In the quarter ended September 30, 2016, we entered into an additional amendment to our License Agreement with Samsung pursuant to which we agreed to permit Samsung to exercise its rights to continue to sell products that were licensed under the agreement as of December 31, 2015 for the life of such products in exchange for $19 million. We have not entered into a renewal agreement with Samsung for any products released after December 31, 2015, and on August 3, 2017, we filed a patent infringement suit against Samsung in the U.S. District Court in the Eastern District of Texas. See Part II Item 1 Legal Proceedings. Because

The terms in our agreements may be construed by our licensees in a manner that is inconsistent with the rights that we have not renewed our agreement with Samsung, there is no assurancegranted to other licensees or in a manner that Samsung will continuemay require us to incur substantial costs to resolve conflicts over license terms.

In order to generate similar revenuerevenues from our patent and other technology licensing business, we regularly enter into agreements pursuant to which our licensees are granted certain rights to our patents and other technology. These rights vary in any future period;scope and even ifnature depending on the customer: for example, we weremay grant a licensee the right to renewuse our agreementtechnology in certain fields of use or with Samsung,respect to limited market sectors or product categories, and we may or may not grant a licensee exclusive rights or sublicensing rights. We refer to the license terms and restrictions in our revenue could be adversely impactedagreements, including, but not limited to, field of use definitions, market sector, and product category definitions, collectively, as “License Provisions”.

Due to the continuing evolution of market sectors, product categories, and business models and to the compromises inherent in the drafting and negotiation of License Provisions, our licensees may interpret License Provisions in their agreements in a way that is different from our interpretation of such License Provisions or in a way that is inconsistent with the rights that we have granted to other licensees. Such conflicting interpretations by recallsour licensees may lead to claims that we have granted rights to one licensee that are inconsistent with the rights that we have granted to another licensee or poorly performing mobile devices.that create a dispute as to which products are covered by the license and are thus subject to a royalty payment.
In addition, we cannot be certain that other customers that have accounted for significant revenue in past periods, individually or as a group, will continue to generate similar revenue in any future period.
If we fail to renew or lose a major customer or group of customers, or if a customer decides that our intellectual property is no longer relevant and stops paying us royalties, our revenue could decline if we are unable to replace the lost revenue with revenue from other sources. In addition, if potential customers or customers with expiring agreements view the loss of oneMany of our major customers as an indicatorreport royalties to us based on (i) the number of the value of our software and/or the strength of our intellectual property, they may choose not to take or renew a license which could adversely affect our operating results.
If we fail to protect and enforce our IP rights or if we fail to continuously develop or acquire successful innovations and obtain patents on these innovations, our ability to license our technologies and generate revenues would be impaired.
Our business depends on generating revenues by licensing our IP rights and by customers selling products in their shipments that incorporate our technologies. Wepatented technology or other technology or (ii) our customers’ revenues and their interpretation and allocation of contracted royalty rates. When assessing payments due by customers under these types of arrangements, we rely on our significant patent portfolio to protect our proprietary rights. If we are not able to protect and enforce those rights, our ability to obtain future licenses or maintain current licenses and royalty revenue could be impaired. In addition, if a court or patent office were to limitupon the scope, declare unenforceable, or invalidate anyaccuracy of our patents, current licenseescustomers’ recordkeeping and reporting, and inaccuracies or payment disputes regarding amounts our customers owe under their licensing agreements may refusenegatively impact our results of operations. The royalties that are originally reported by a customer could differ materially from those determined by either a customer-self-reported correction or from an audit we have performed on a customer’s books and records. Differing interpretations of royalty calculations may also cause disagreements during customer audits, may lead to make royalty payments,claims or they may choose to challenge one or more of our patents. It is also possible that:
our pending patent applications may not result in the issuance of patents;

our patents may not be broad enough to protect our proprietary rights;
effective patent protection may not be available in every country, particularly in Asia, where we or our licensees do business;litigation, and
our pending litigation against Apple and AT&T Mobility, Samsung, Motorola, and Fitbit may be unsuccessful or may result in one or more of the patents asserted becoming limited in scope, declared unenforceable or invalidated.
In addition, our patents will continue to expire according to their terms which may have an adverse effect on our business. For example, certainthe results of our U.S. gaming patents expired in 2015,operations. Further, although our agreements generally give us the right to audit books and as a result, Sony has ceased paying royalties for sales made in the U.S. Our failure to continuously develop or acquire successful innovationsrecords of our licensees, audits can be expensive and obtain patents on those innovations could significantly harm our business, financial condition, results of operations, or cash flows. In addition, we also rely on licenses, confidentiality agreements, other contractual agreements,time consuming and copyright, trademark, and trade secret laws to establish and protect our proprietary rights. It is possible that:
laws and contractual restrictions may not be sufficient to prevent misappropriationcost-justified based on our understanding of our technologies or deter others from developing similar technologies; and
policing unauthorized uselicensees’ businesses. Pursuant to our license compliance program, we audit certain licensees to review the accuracy of the information contained in their royalty reports in an effort to decrease the risk of our patented technologies, trademarks, and other proprietary rights would be difficult, expensive, and time-consuming, within and particularly outside of the United States.
We have in the past initiated legal proceedingsnot receiving royalty revenues to protect our intellectual property and may need to continue to do so in the future, andwhich we are currentlyentitled, but we cannot give assurances that such audits will be effective.

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In addition, after we enter into an agreement, it is possible that markets and/or products that incorporate our patented technology or other technology, or legal and/or regulatory environments, will evolve in litigation against Apple and AT&T Mobility, Samsung, Motorola, and Fitbit for patent infringement. We may need to continue to initiate legal proceedings in the future. Any legal or administrative proceeding initiated by us to protect or enforce our IP rights has, and may in the future result in substantial legal expenses and risk,an unexpected manner that could lead to counterclaims and adverse rulings affecting our patents, and may divert our management’s time and attention away from our other business operations, which could significantly harm our business.
Potential patent and litigation reform legislation, potential USPTO and international patent rule changes, potential legislation affecting mechanisms for patent enforcement and available remedies, and potential changes to the intellectual property rights (“IPR”) policies of worldwide standards bodies, as well as rulings in legal proceedings may affect our investments in research and development and our strategies for patent prosecution, licensing and enforcement and could have a material adverse effect on our licensing business as well as our business as a whole.     
Potential changes to certain U.S. and international patent laws, rules and regulations may occur in the future, some or all of which may affect our research and development investments, patent prosecution costs, the scope of future patent coverage we secure, remedies that we may be entitledour rights to in patent litigation, and attorneys’ feesroyalties under such agreement or other remedies that could be sought against us, and may require us to reevaluate and modify our research and development activities and patent prosecution, licensing and enforcement strategies.
Similarly, legislation designed to reduce the jurisdiction and remedial authority of the USITC has periodically been introduced in Congress.  Any potential changes in the law, the IPR policies of standards bodies or other developments that reduce the number of forums available or the type of relief available in such forums (such as injunctive relief), restrict permissible licensing practices (such as our ability to license on a worldwide portfolio basis) or that otherwise cause us to seek alternative forums (such as arbitration or state court), would make it more difficult for us to enforce our patents, whether in adversarial proceedings or in negotiations.  Because we have historically depended on the availability of certain forms of legal process to enforce our patents and obtain fair and adequate compensation for our investments in research and development and the unauthorized useanother one of our intellectual property, developments that undermine our ability to do so could have a negative impact on future licensing efforts. 
Rulings in our legal proceedings as well as those of third parties may affect our strategies for patent prosecution, licensing and enforcement.  For example, in recent years, the United States International Trade Commission (the “USITC”) and U.S. courts, including the U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit, have taken some actions that have been viewed as unfavorable to patentees. Decisions that occur in U.S. or in international forums may change the law applicable to various patent law issues, such as, for example, patentability, validity, patent exhaustion, patent misuse, remedies, permissible licensing practices, claim construction, and damages, in ways that are detrimental to the abilities of patentees to enforce patents and obtain damages awards.
We continue to monitor and evaluate our strategies for prosecution, licensing and enforcement with regard to these developments; however, any resulting change in such strategies may have an adverse impact on our business and financial condition.
If companies choose to implement haptics without our software or a license to our patents, we could have to expend significant resources to enforce or defend our intellectual property rights and to defend our licensing practices which may have a negative impact on our business.
To sell our software, we must win competitive selection processes, known as “design wins,” before our software haptic technologies are included in our customers’ products. These selection processes can be lengthy and can require us to incur significant design and development expenditures with no assurance that we will be selected. As a small company, we may not

have the resources to reach every company who is introducing or planning to introduce haptics into the market. In addition, as a small company, we have limited engineering resources that may make it difficult to support every type of haptic implementation with our software offerings or to introduce new technologies in a timely manner. In the instances where a potential customer is not using our software but implements unlicensed haptic capability, we may need to seek to enforce our intellectual property. If the customer is unwilling to enter into a license agreement, we may elect to pursue litigation which would harm our relationship with the customer and could harm our relationships with other licenseesagreements or our ability to gainenforce and defend the technology covered by such agreement or another one of our licensing agreements. As a result, in any agreement, we may have granted rights that will preclude or restrict our exploitation of new customers, who may postpone licensing decisions pendingopportunities that arise after the outcomeexecution of the litigationagreement.

Our licenses with semiconductor and actuator manufacturers may cause confusion as to our licensing model and may prevent us from enforcing our patents based on the patent exhaustion doctrine, the implied license doctrine, or dispute, or who may, as a result of such litigation, choose not to adopt our technologies. In addition, theseother legal proceedings could be very expensive and could have a negative impact on our financial results.doctrines.

We also license our software and/or patents to semiconductor and actuator manufacturers who incorporate certain of our less fully-featured softwaretechnologies into their integrated circuits or actuators for use in certain electronic devices. While our relationships with these semiconductor manufacturers increasesincrease our distribution channels by leveraging their sales channels, it is possiblethis could introduce confusion into our licensing model which has traditionally been focused on licensing the OEM. In addition, licensing to semiconductor and actuator manufacturers increases the risk of patent exhaustion and implied licenses such that customers may elect to implement haptics using less fully-featured software integrated circuit solutions rather than the higher-end solutions we offer directly, which mayincorrectly structured licenses could negatively impact our business and financial results. It is also possible that when a customer uses the integrated circuit, it is doing so in violation

We had an accumulated deficit of our intellectual property rights$111.1 million as of March 31, 2021, and we may seeknot maintain consistent profitability in the future.

As of March 31, 2021, we had an accumulated deficit of $111.1 million. We need to enforcegenerate significant ongoing revenues to maintain consistent profitability. Among other ongoing expenses, we may continue to incur expenses related to:

•    sales and marketing efforts;

•    research and development activities;

•    the protection and enforcement of our IP.IP; and

•    litigation.

If our revenues grow more slowly than we doanticipate or if our operating expenses exceed our expectations, we may not achieve increasedmaintain profitability.

We may incur greater tax benefits as a result of our recently implemented corporate restructuring,liability than we have provided for or have anticipated and may incur additional tax liability due to certain indemnification agreements with certain licensees, which could adversely affect our financial condition and operating results could be adversely affected.results.

We completedbegan a reorganization of our corporate organization in 2015. The purpose of this reorganization was2019 in order to more closely alignaddress changing international tax laws and to re-align our corporate structure with the internationalevolving nature of our international business activities. This corporate restructuring activity is anticipated to allow us to reduceAs a result of this reorganization, we have maintained our overall effective tax rate through changes in how we develop and use our intellectual property and changes in the structure of our international sales operations, including by entering into transfer-pricing arrangements that establish transfer prices for our intercompany transactions.
arrangements. There can be no assurance that the taxing authorities of the jurisdictions in which we operate or to which we are otherwise deemed to have sufficient tax nexus will not challenge the restructuring or the tax position that we take. From time to time, we enter into license agreements with our licensees pursuant to which we may agree to indemnify a customer for certain taxes imposed on the customer by an applicable tax authority and related expense. On April 28, 2017, we received a letter from Samsung requesting that we reimburse Samsung with respect to withholding tax and penalties imposed on Samsung by the Korean tax authorities as a result of its determination that withholding taxes should have been withheld from certain payments made from Samsung to Immersion Software Limited. On September 29, 2017, Samsung filed an arbitration demand with the International Chamber of Commerce against us demanding that we reimburse Samsung for the imposed tax and penalties that Samsung paid to the Korean tax authorities. Samsung is requesting that we pay them the amount of KRW 7,841,324,165 (approximately $6.3 million) plus interest from and after May 2, 2017 plus the cost of the arbitration including legal fees. In addition, 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. On or before November 6, 2017, Immersion will file an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes. In the event that it is determined that we are obligated to indemnify Samsung and/or LGE for such withholding taxes imposed by the Korean tax authorities, we would incur significant expenses. In addition, future changes to U.S. or non-U.S. tax laws, including legislation to reform U.S. or other countries' taxation of international business activities, could negatively impact the anticipated tax benefits of the restructuring.
Any benefits to ourOur tax rate will also dependis dependent on our ability to operate our business in a manner consistent with the reorganization of our corporate organization and applicable tax provisions, as well as on our achieving our forecasted revenue growth rates. If the intended tax treatment is not accepted by the applicable taxing authorities, changes in tax law negatively impact the structure, or we do not operate our business consistent with the intended reorganization and applicable tax provisions, we may fail to achieve the financial efficiencies that we anticipate as a result of the reorganization and our future operating results and financial condition may be negatively impacted. In addition, future changes to U.S. or non-U.S. tax laws, including legislation to reform U.S. or other countries’ taxation of the organization.

Additionally, from time to time, we enter into license agreements with our licensees pursuant to which we may agree to indemnify a customer for certain taxes imposed on the customer by an applicable tax authority and related expense. We have received requests from certain licensees requesting that we reimburse them for certain tax liabilities. For example, on April 28, 2017, we received a letter from Samsung requesting that we reimburse Samsung with respect to withholding tax and penalties imposed on Samsung by the Korean tax authorities as a result of its determination that withholding taxes should have been withheld from certain payments made from Samsung to Immersion Software Ireland Limited, a request that was arbitrated by
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a panel of the International Chamber of Commerce. On March 27, 2019, the panel issued a final award. The award ordered us to pay Samsung KRW 7,841,324,165 (approximately $6.9 million as of March 31, 2019), which we paid on April 22, 2019, denied Samsung’s claim for interest from and after May 2, 2017; and ordered us to pay Samsung’s cost of the arbitration in the amount of approximately $871,454. In the first quarter of 2019, $6.9 million was recorded as a deposit included in Long-term deposits on our Condensed Consolidated Balance Sheets. We are currently appealing in the Korean courts, on behalf of Samsung, the imposition of such withholding taxes and penalties. In the event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Long-term deposits would be recorded as additional income tax expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail. For additional background on this matter, please see Part I, Item 3 Legal Proceedings.

On October 16, 2017, we received a letter from LGE requesting that we reimburse LGE with respect to withholding tax imposed on LGE by the Korean tax authorities following an investigation where the tax authority determined that LGE failed to withhold on LGE’s royalty payments to Immersion Software Ireland from 2012 to 2014. Pursuant to an agreement reached with LGE, on April 8, 2020, we provided a provisional deposit to LGE in the amount of KRW 5,916,845,454 (approximately $5.0 million) representing the amount of such withholding tax that was imposed on LGE, which provisional deposit would be returned to us to the extent we ultimately prevail in the appeal in the Korea courts. In the second quarter of 2020, we recorded this deposit as Long-term deposits on our Condensed Consolidated Balance Sheets.
On November 3, 2017, on behalf of LGE, we filed an appeal with the Korea Tax Tribunal regarding their findings with respect to the withholding taxes. The Korea Tax Tribunal hearing took place on March 5, 2019. On March 19, 2019, the Korea Tax Tribunal issued its ruling in which it decided not to accept our arguments with respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on LGE. On behalf of LGE, we filed an appeal with the Korea Administrative Court on June 10, 2019. For additional background on this matter, please see Part I, Item 3 Legal Proceedings.
In the event that we do not ultimately prevail in our appeal in the Korean courts, any payments to LGE with respect to withholding tax imposed on LGE by the Korean tax authorities as described in the previous paragraph would be recorded as additional income tax expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), in the period in which we do not ultimately prevail.
In the event that it is determined that we are obligated to further indemnify Samsung and/or LGE for such withholding taxes imposed by the Korean tax authorities, receive further requests for reimbursement of tax liabilities from other licensees, we could incur significant expenses.

Our international operations subject us to additional risks and costs.

We currently have sales personnel and other personnel in Canada, the United Kingdom and Japan Korea,who may engage in various activities, including engaging our customers and China.prospective customers outside of the United States. International revenues accounted for approximately 77%85% of our revenue for ninetotal revenues in the first three months ended September 30, 2017.of 2021. International operations are subject to a number of difficulties, risks, and special costs, including:

•compliance with multiple, conflicting and changing governmental laws and regulations;

•laws and business practices favoring local competitors;

•foreign exchange and currency risks;


•changing import and export restrictions, duties, tariffs, quotas and other barriers;

•difficulties staffing and managing foreign operations;
difficulties and expense in establishing and enforcing IP rights;
•business risks, including fluctuations in demand for our technologies and products and the cost and effort to conduct international operations and travel abroad to promote international distribution and overall global economic conditions;

•multiple conflicting and changing tax laws and regulations;

•political and economic instability; and

•the possibility of an outbreak of hostilities or unrest in markets where major customers are located, including Korea.Korea;


•potential economic disruption based on the United Kingdom’s recent withdrawal from the European Union, commonly referred to as Brexit; and
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•the possibility of volatility in financial markets as certain market participants transition away from the London Inter-bank Offered Rate (LIBOR).

In addition, since we derive a significant portion of our revenues from licenses and royalties from our haptic patents in foreign countries, our ability to maintain and grow our revenue in foreign countries, such as China, will depend in part on our ability to obtain additional patent rights in these countries and our ability to effectively enforce such patents and contractual rights in these countries, which is uncertain. Our technology licenses with customers in foreign countries subject us to an increased risk of theft of our technology. It may be more difficult for us to protect our IP in foreign countries, and as a result foreign counterparties may be more likely to steal our know-how, reverse engineer our software, or infringe our patents.

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

We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”) and other anticorruption, anti-bribery and anti-money laundering laws in the jurisdictions in which we do business, both domestic and abroad. These laws generally prohibit us and our employees from improperly influencing government officials in order to obtain or retain business, direct business to any person or gain any improper advantage. The FCPA and other applicable anti-bribery and anti-corruption laws also may hold us liable for acts of corruption and bribery committed by our third-party business partners, representatives and agents. While we have policies and procedures to address compliance with such laws, we cannot assure you that our employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held responsible and our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in foreign jurisdictions. Any violation of such laws could result in whistleblower complaints, adverse media coverage, investigations, imposition of significant legal fees, and other consequences which may have an adverse effect on our reputation, business, results of operations and financial condition.

Our international operations could also increase our exposure to foreign and international laws and regulations, which are subject to change.regulations. If we cannot comply with foreign laws and regulations, which are often complex and subject to variation, differing or inconsistent government interpretation, and unexpected changes, we could incur unexpected costs and potential litigation. For example, the governments of foreign countries might attempt to regulate our products or levy sales or other taxes relating to our activities. In addition, foreign countries may impose tariffs, duties, price controls, or other restrictions on foreign currencies or trade barriers, any of which could make it more difficult for us to conduct our business.business internationally. Our international operations could also increase our exposure to complex international tax rules and regulations. Changes in, or interpretations of, tax rules and regulations may adversely affect our income tax provision. In addition, our operations outside the United States may be affected by changes in trade protection laws, policies and measures, and other regulatory requirements affecting trade and investment, including the U.S. Foreign Corrupt Practices Act and local laws prohibiting corrupt payments by our employees, vendors, or agents.
If we fail to successfully manage our new content and media initiative, our results of operations could be negatively impacted.
We seek to find new applications and markets for our technologies. We have invested and continue to invest significant resources in the development of technologies and software related to enhancing mobile content with haptics. For example, we have announced the introduction of haptics-enabled mobile game applications from well-known publishers and haptics-enabled advertisements and movie trailers. Market acceptance of these new technologies and software offerings will be dependent in part on our ability to show that mobile content enhanced with haptics generates greater levels of consumer engagement, improves customer acquisition and retention measures, increases monetization, improves long-term content recall and generates more positive levels of enjoyment and brand sentiment. While our early pilot and user studies are encouraging, such data is preliminary and may be inaccurate or may not be accepted by third parties. If we are unable to successfully develop these new offerings, our results of operations could be negatively impacted. In addition, if we fail to properly manage the licensing of rights in our OEM and content businesses, we may inadvertently impair our ability to monetize our technology in one of these businesses and our results of operations would be negatively impacted.
We had an accumulated deficit of $159 million as of September 30, 2017 and may not return to profitability in the future.
As of September 30, 2017, we had an accumulated deficit of $159 million. We need to generate significant ongoing revenue to return to consistent profitability. We will continue to incur expenses as we:
incur costs related to litigation;
increase our sales and marketing efforts;
engage in research and develop our technologies; and
protect and enforce our IP;
If our revenues grow more slowly than we anticipate or if our operating expenses exceed our expectations, we may not return to profitability.
The terms in our agreements may be construed by our licensees in a manner that is inconsistent with the rights that we have granted to other licensees, or in a manner that may require us to incur substantial costs to resolve conflicts over license terms.
We have entered into, and we expect to continue to enter into, agreements pursuant to which our licensees are granted rights to our technology and our IP. These rights may be granted in certain fields of use, or with respect to certain market sectors or product categories, and may include exclusive rights or sublicensing rights. We refer to the license terms and

restrictions in our agreements, including, but not limited to, field of use definitions, market sector, and product category definitions, collectively as “License Provisions.”
Due to the continuing evolution of market sectors, product categories, and licensee business models, and to the compromises inherent in the drafting and negotiation of License Provisions, our licensees may interpret License Provisions in their agreements in a way that is different from our interpretation of such License Provisions, or in a way that is in conflict with the rights that we have granted to other licensees. Such interpretations by our licensees may lead to claims that we have granted rights to one licensee that are inconsistent with the rights that we have granted to another licensee. Many of our customers report royalties to us based on their shipments or their revenues and their interpretation and allocation of contracted royalty rates. It is possible that the originally reported royalties could differ materially from those determined by either a customer self-reported correction or from an audit we have performed. These interpretations may also cause disagreements arising during customer audits, may lead to claims or litigation, and may have an adverse effect on the results of our operations. Further, although our agreements generally give us the right to audit books and records of our licensees, audits can be expensive, time consuming, and may not be cost justified based on our understanding of our licensees’ businesses. Pursuant to our license compliance program, we audit certain licensees to review the accuracy of the information contained in their royalty reports in an effort to decrease the risk of our not receiving royalty revenues to which we are entitled, but we cannot give assurances that such audits will be effective.
In addition, after we enter into an agreement, it is possible that markets and/or products, or legal and/or regulatory environments, will evolve in an unexpected manner. As a result, in any agreement, we may have granted rights that will preclude or restrict our exploitation of new opportunities that arise after the execution of the agreement.
We may not be able to continue to derive significant revenues from makers of peripherals for popular video gaming platforms.
A significant portion of our gaming royalty revenues comes from third-party peripheral makers who make licensed gaming products designed for use with popular video game console systems from Microsoft, Sony, and Nintendo. Video game console systems are closed, proprietary systems, and video game console system makers typically impose certain requirements or restrictions on third-party peripheral makers who wish to make peripherals that will be compatible with a particular video game console system. If third-party peripheral makers cannot or are not allowed to satisfy these requirements or restrictions, our gaming royalty revenues could be significantly reduced. Furthermore, should a significant video game console maker choose to omit touch-enabling capabilities from its console systems or somehow restrict or impede the ability of third parties to make touch-enabling peripherals, it could lead our gaming licensees to stop making products with touch-enabling capabilities, thereby significantly reducing our gaming royalty revenues. Also, if the gaming industry changes such that mobile or other platforms increase in popularity at the expense of traditional video game consoles, our gaming royalty revenues could be substantially reduced if we are unable to enter into replacement arrangements enabling us to license our software or IP in connection with gaming on such mobile or other platforms. Although Immersion has a significant software and IP position with respect to Virtual Reality peripherals and systems, the market may not become large enough to generate material revenues. Finally, as some of our litigated patents have expired related to video game peripherals, our gaming royalty revenues will likely decline until we are successful in proving the relevance of our IP for this market.
Because we have a fixed payment license with Microsoft, our royalty revenue from licensing in the gaming market and other consumer markets has previously declined and may further do so if Microsoft increases its volume of sales of touch-enabled products at the expense of our other licensees.
Under the terms of our present agreement with Microsoft, Microsoft receives a royalty-free, perpetual, irrevocable license (including sublicense rights) to our worldwide portfolio of patents. This license permits Microsoft to make, use, and sell hardware, software, and services, excluding specified products, covered by our patents. We will not receive any further revenues or royalties from Microsoft under our current agreement with Microsoft, including with respect to Microsoft’s Xbox One gaming product or any other haptic related product. Microsoft has a significant share of the market for touch-enabled console gaming computer peripherals and is pursuing other consumer markets such as mobile devices, tablets, personal computers, and virtual and augmented reality. Microsoft has significantly greater financial, sales, and marketing resources, as well as greater name recognition and a larger customer base than some of our other licensees. In the event that Microsoft increases its share of these markets, our royalty revenue from other licensees in these market segments may decline.
Automobiles incorporating our touch-enabling technologies are subject to lengthy product development periods, making it difficult to predict when and whether we will receive royalties for these product types.
The product development process for automobiles is very lengthy, sometimes longer than four years. We may not earn royalty revenue on our automotive device technologies unless and until products featuring our technologies are shipped to

customers, which may not occur until several years after we enter into an agreement with a manufacturer or a supplier to a manufacturer. Throughout the product development process, we face the risk that a manufacturer or supplier may delay the incorporation of, or choose not to incorporate, our technologies into its products, making it difficult for us to predict the royalties we may receive, if any. After the product launches, our royalties still depend on market acceptance of the vehicle, or the option packages if our technology is an option (for example, a navigation unit), which is likely to be determined by many factors beyond our control.
We have little or no control or influence on our licensees’ design, manufacturing, quality control, promotion, distribution, or pricing of their products incorporating our touch-enabling technologies, upon which we generate royalty revenue.
A key part of our business strategy is to license our software and IP to companies that manufacture and sell products incorporating our touch-enabling technologies. For the nine months ended September 30, 2017 and 2016, 98% and 99%, of our total revenues were royalty and license revenues, respectively. We do not control or influence the design, manufacture, quality control, promotion, distribution, or pricing of products that are manufactured and sold by our licensees, nor can we control consolidation within an industry which could either reduce the number of licensable products available or reduce royalty rates for the combined licensees. In addition, we generally do not have commitments from our licensees that they will continue to use our technologies in current or future products. As a result, products incorporating our technologies may not be brought to market, achieve commercial acceptance, or otherwise generate meaningful royalty revenue for us. For us to generate royalty and license revenue, licensees that pay us per-unit royalties must manufacture and distribute products incorporating our touch-enabling technologies in a timely fashion and generate consumer demand through marketing and other promotional activities. If our licensees’ products fail to achieve commercial success, or if their products are recalled because of quality control problems or if they do not ship products incorporating our touch-enabling technologies in a timely fashion or fail to achieve strong sales, our revenues will not grow and could decline.
Our business may suffer if third parties assert that we violate their IP rights.
Third parties have previously claimed and may in the future claim that we or our customers are infringing upon their IP rights. Even if we believe that such claims are without merit or that we are not responsible for them under the indemnification or other terms of our customer license agreements, they can be time-consuming and costly to defend against and may divert management’s attention and resources away from our business. Furthermore, third parties making such claims may be able to obtain injunctive or other equitable relief that could block our ability to further develop or commercialize some or all of our software technologies or services in the United States and abroad. Claims of IP infringement also might require us to enter into costly settlement or license agreements or pay costly damage awards. Even if we have an agreement that provides for a third party to indemnify us against such costs, the indemnifying party may be unable or unwilling to perform its contractual obligations.
We license some technologies from third parties. We must rely upon the owners of these technologies for information on the origin and ownership of the technologies. As a result, our exposure to infringement claims may increase. We generally obtain representations as to the origin and ownership of acquired or licensed technologies and indemnification to cover any breach of these representations. However, representations may not be accurate and indemnification may not provide adequate compensation for breach of the representations. If we cannot or do not license the infringed IP at all or on reasonable terms, or substitute similar technology from another source, our business, financial position, results of operations or cash flows could suffer.
Our business and operations could suffer in the event of security breaches.
Attempts by others to gain unauthorized access to our information technology systems are becoming more sophisticated. These attempts, which might be related to industrial or other espionage, include covertly introducing malware to our computers and networks and impersonating authorized users, among others. We might be unaware of an incident or its magnitude and effects. The theft, unauthorized use or publication of our intellectual property and/or confidential business information could harm our competitive position and reputation, reduce the value of our investment in research and development and other strategic initiatives or otherwise adversely affect our business. To the extent that any future security breach results in inappropriate disclosure of our customers' confidential information, we may incur liability.
In addition, our business involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. These security measures may be breached as a result of third-party action, employee error, malfeasance or otherwise, during transfer of data, and result in someone obtaining unauthorized access to our data or our customers’ data. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our data or our customers’ data. Because the techniques used to obtain unauthorized access, or to sabotage

systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our customers may authorize third party technology providers, to access their customer data. Because we do not control the transmissions between our customers and third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the complete integrity or security of such transmissions or processing. Any security breach could result in a loss of confidence in the security of our service, damage our reputation, lead to legal liability and negatively impact our future sales.
If we are unable to develop open source compliant products, our ability to license our technologies and generate revenues would be impaired.
We have seen, and believe that we will continue to see, an increase in customers requesting that we develop products that will operate in an “open source” environment. Developing open source compliant products without imperiling the IP rights upon which our licensing business depends may prove difficult under certain circumstances, thereby placing us at a competitive disadvantage for new product designs. Some of our proprietary technologies incorporate open source software that may be subject to open source licenses. These open source licenses may require that source code subject to the license be released or made available to the public. Such open source licenses may mandate that software developed based on source code that is subject to the open source license, or combined in specific ways with such open source software, become subject to the open source license. We take steps to ensure that proprietary software we do not wish to disclose is not combined with, or does not incorporate, open source software in ways that would require such proprietary software to be subject to an open source license. However, few courts have interpreted open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. We often take steps to disclose source code for which disclosure is required under an open source license, but it is possible that we have made or will make mistakes in doing so, which could negatively impact our brand or our adoption in the community, or could expose us to additional liability. In addition, we rely on multiple software programmers to design our proprietary products and technologies. Although we take steps to ensure that our programmers (both internal and outsourced) do not include open source software in products and technologies we intend to keep proprietary, we cannot be certain that open source software is not incorporated into products and technologies we intend to keep proprietary. In the event that portions of our proprietary technology are determined to be subject to an open source license, or are intentionally released under an open source license, we could be required to publicly release the relevant portions of our source code, which could reduce or eliminate our ability to commercialize our products and technologies. As a result, our revenues may not grow and could decline.
Our business depends in part on access to third-party platforms and technologies, and if the access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies change, our business and operating results could be adversely affected.
Many of our current and future software technologies are designed for use with third-party platforms and technologies. Our business relies on our access to these platforms and technologies of third parties, which can be withdrawn, denied or not be available on terms acceptable to us.
Our access to third-party platforms and technologies may require paying royalties or other amounts, which lowers our margins, or may otherwise be on terms that are not acceptable to us. In addition, the third-party platforms or technologies used to interact with our software technologies can be delayed in production or can change in ways that negatively impact the operation of our software.
If we are unable to access third-party platforms or technologies, or if our access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies are delayed or change, our business and operating results could be adversely affected.
The uncertain economic and political environment could reduce our revenues and could have an adverse effect on our financial condition and results of operations.
The current global economic conditions and political climate could materially hurt our business in a number of ways, including longer sales and renewal cycles, exchange rate volatility, delays in adoption of our products or technologies or those of our customers, increased risk of competition, higher taxes and tariffs on goods incorporating out technologies, higher overhead costs as a percentage of revenue, delays in signing or failing to sign customer agreements or signing customer agreements with reduced royalty rates. In addition, our customers, potential customers, and business partners would likely face similar challenges, which could materially and adversely affect the level of business they conduct with us or the sales volume of products that include our technology.
We might be unable to retain or recruit necessary personnel, which could slow the development and deployment of our technologies.

Our technologies are complex, and we rely upon the continued service of our existing personnel to support licensees, enhance existing technologies, and develop new technologies. Accordingly, our ability to develop and deploy our technologies and to sustain our revenue growth depends upon the continued service of our management and other key personnel, many of whom would be difficult to replace. Furthermore, we believe that there are a limited number of engineering and technical personnel that are experienced in haptics. Management and other key employees may voluntarily terminate their employment with us at any time without notice. The loss of management or key personnel could delay product development cycles or otherwise harm our business.
We believe that our future success will also depend largely on our ability to attract, integrate, and retain sales, support, marketing, and research and development personnel. Competition for such personnel is intense, and we may not be successful in attracting, integrating, and retaining such personnel. Given the protracted nature of, if, how, and when we collect royalties on new design contracts, it may be difficult to craft compensation plans that will attract and retain the level of salesmanship needed to secure these contracts. Additionally, our compensation packages need to be competitive in the Silicon Valley where the stock component of compensation is an important factor that candidates and employees consider. Some of our executive officers and key employees hold stock options with exercise prices that may be above the current market price of our common stock or that are largely vested. Each of these factors may impair our ability to retain the services of our executive officers and key employees.
Our technologies are complex and may contain undetected errors, which could harm our reputation and future sales.
Any failure to provide high quality and reliable technologies, whether caused by our own failure or failures of our suppliers or customers, could damage our reputation and reduce demand for our technologies. Our technologies have in the past contained, and may in the future contain, undetected errors or defects. Some errors in our technologies may only be discovered after a customer’s product incorporating our technologies has been shipped to customers. Any errors or defects discovered in our technologies after commercial release could result in product recalls, loss of revenue, loss of customers, and increased service and warranty costs, any of which could adversely affect our business.
Catastrophic events, such as natural disasters, war, and acts of terrorism could disrupt the business of our customers, which could harm our business and results of operations.
The production processes and operations of our customers are susceptible to the occurrence of catastrophic events, such as natural disasters, war, and acts of terrorism, all of which are outside of our control. Any such events could cause a serious business disruption to our customers’ ability to manufacture, distribute and sell products incorporating our touch-enabling technologies, which may adversely affect our business and results of operation.
If our facilities were to experience catastrophic loss, our operations would be seriously harmed.
Our facilities could be subject to a catastrophic loss such as fire, flood, earthquake, power outage, or terrorist activity. A substantial portion of our research and development activities, our corporate headquarters, and other critical business operations are located near major earthquake faults in San Jose, California, an area with a history of seismic events. An earthquake at or near our facilities could disrupt our operations and result in large expenses to repair and replace the facility. While we believe that we maintain insurance sufficient to cover most long-term potential losses at our facilities, our existing insurance may not be adequate for all possible losses including losses due to earthquakes.
If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business and our stock price.
We have in the past had material weaknesses in our internal control over financial reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Any failure on our part to remedy identified material weaknesses, or any additional delays or errors in our financial reporting controls or procedures, could cause our financial reporting to be unreliable and could have a material adverse effect on our business, results of operations, or financial condition and could have a substantial adverse impact on the trading price of our common stock.
We do not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide

absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected.

The nature of some of our products may also subject us to export control regulation by the U.S. Department of State and the Department of Commerce. Violations of these regulations can result in monetary penalties and denial of export privileges.
Our sales to customers or sales by our customers to their end customers in some areas outside the United States could be subject to government export regulations or restrictions that prohibit us or our licensees from selling to customers in some countries or that require us or our licensees to obtain licenses or approvals to export such products internationally. Delays or denial of the grant of any required license or approval, or changes to the regulations, could make it difficult or impossible to make sales to foreign customers in some countries and could adversely affect our revenue. In addition, we could be subject to fines and penalties for violation of these export regulations if we were found in violation. Such violation could result in penalties, including prohibiting us from exporting our products to one or more countries, and could materially and adversely affect our business.

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

To remain competitive in the gaming market, we must continue introduce new haptic patents in a timely manner and the market must adopt such technology. As part of our continuing efforts to bring new advanced haptic technologies to the gaming market, we seek to engage with third party gaming peripheral makers to utilize our advanced haptic technologies and expand the use of haptics across the gaming market. If our engagement efforts are not successful or are significantly delayed, we may be unsuccessful in our innovation efforts in the gaming market, which could have an adverse effect on our revenues.

In addition, while Microsoft, Sony, and Nintendo are among our licensees in the gaming market, a significant portion of our gaming royalty revenues comes from third-party peripheral makers who make licensed gaming products designed for use with popular video game console systems from such video game console makers. Video game console systems are closed,
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proprietary systems, and video game console system makers typically impose certain requirements or restrictions on third-party peripheral makers who wish to make peripherals that will be compatible with a particular video game console system. If third-party peripheral makers cannot or are not allowed to satisfy these requirements or restrictions, our gaming royalty revenues could be significantly reduced. Furthermore, should a significant video game console maker choose to omit touch-enabling capabilities from its console systems or restrict or impede the ability of third parties to make touch-enabling peripherals, it could lead our gaming licensees to stop making products with touch-enabling capabilities, thereby significantly reducing our gaming royalty revenues. Also, if the video game industry changes such that mobile or other platforms increase in popularity at the expense of traditional video game consoles, our gaming royalty revenues could be substantially reduced if we are unable to enter into replacement arrangements enabling us to license our software, patents, or other IP in connection with gaming on such mobile or other platforms. Although we have a significant software and patent position with respect to virtual reality (or VR) peripherals and systems, the market may not become large enough to generate material revenues. Finally, as some of our litigated patents related to video game peripherals have expired, our gaming royalty revenues will likely decline until we are successful in proving the relevance of our patents for this market.

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

Under the terms of our present agreement with Microsoft, Microsoft receives a royalty-free, perpetual, irrevocable license (including sublicense rights) to our worldwide portfolio of patents. This license permits Microsoft to make, use, and sell hardware, software, and services, excluding specified products, covered by our patents. We will not receive any further revenues or royalties from Microsoft under our current agreement with Microsoft, including with respect to Microsoft’s Xbox Series X gaming product or any other haptic-related product that Microsoft produces or sells. Microsoft has a significant share of the market for touch-enabled console gaming computer peripherals and is pursuing other consumer markets such as mobile devices, tablets, personal computers, and VR and augmented reality (or AR). Microsoft has significantly greater financial, sales, and marketing resources, as well as greater name recognition and a larger customer base than some of our other licensees from whom, unlike with respect to Microsoft, we are able to collect royalty payments. In the event that Microsoft increases its share of these markets relative to companies from whom we are not precluded from collecting royalty payments, our royalty revenue from other licensees in these market segments may decline.

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

The product development process for automobiles is very lengthy, sometimes longer than four years. We may not earn royalty revenue on our automotive device technologies unless and until products featuring our technologies are shipped to customers, which may not occur until several years after we enter into an agreement with a manufacturer or a supplier to a manufacturer. Throughout the product development process, we face the risk that a manufacturer or supplier may delay the incorporation of, or choose not to incorporate, our technologies into its products, making it difficult for us to predict the royalties we may receive, if any. After the product launches, our royalties still depend on market acceptance of the vehicle, or the option packages if our technology is an option (for example, a navigation unit), which is likely to be determined by many factors beyond our control.

Further, our revenues in the automotive market depend in large part on the number of haptic touch interfaces that are incorporated into vehicles. The COVID-19 pandemic, and its resulting economic and other impacts, have caused and may in the future cause significant adverse effects on our customers’ ability to manufacture, distribute and sell products incorporating our touch-enabling technologies.  While we believe that the automotive market provides opportunities for growth for us, especially if haptic touch interfaces are adopted in more mid-tier and entry-tier vehicles, we are unable to accurately predict the full impact that COVID-19 will have on the number of vehicles sold by our customers that incorporate haptic touch interfaces. However, if such opportunities fail to materialize and/or if less haptic touch interfaces are sold in the future, it may have a material and adverse effect on our business, financial position, results of operations or cash flows.

Our inability to control or influence our licensees’ design, manufacturing, quality control, promotion, distribution, or pricing of their products incorporating our touch-enabling technologies could result in diminished royalty revenue if our licensees’ efforts fail to generate consumer demand.

A key part of our business strategy is to license our software and patents (and other IP) to companies that manufacture and sell products incorporating our touch-enabling technologies. For the year ended December 31, 2020, 99% of our total revenues were royalty and license revenues, as compared to 99% for the year ended December 31, 2019. We do not control or influence the design, manufacture, quality control, promotion, distribution or pricing of products that are manufactured and sold by our
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licensees, nor can we control consolidation within an industry which could either reduce the number of licensable products available or reduce royalty rates for the combined licensees. In addition, we generally do not have commitments from our licensees that they will continue to use our technologies in current or future products. As a result, products incorporating our technologies may not be brought to market, achieve commercial acceptance or otherwise generate meaningful royalty revenue for us. For us to generate royalty and license revenue, licensees that pay us per-unit royalties must manufacture and distribute products incorporating our touch-enabling technologies in a timely fashion and generate consumer demand through marketing and other promotional activities. If our licensees’ products fail to achieve commercial success, or if their products are recalled because of quality control problems or if they do not timely ship products incorporating our touch-enabling technologies or fail to achieve strong sales, our revenues could decline.

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

Third parties have previously claimed and may in the future claim that we or our customers are infringing upon their IP rights. Even if we believe that such claims are without merit or that we are not responsible for them under the indemnification or other terms of our customer license agreements, such claims can be time-consuming and costly to defend against and may divert management’s attention and resources away from our business. Furthermore, third parties making such claims may be able to obtain injunctive or other equitable relief that could block our ability to further develop or commercialize some or all of our software technologies or services in the United States and abroad. Claims of IP infringement also might require us to enter into costly settlement or license agreements or pay costly damage awards. Even if we have an agreement that provides for a third party to indemnify us against such costs, the indemnifying party may be unable or unwilling to perform its contractual obligations.

We license some technologies from third parties and in doing so, we must rely upon the owners of these technologies for information on the origin and ownership of the technologies. As a result, our exposure to infringement claims may increase if the owners misrepresent, intentionally or unintentionally, the scope or validity of their ownership. We generally obtain representations as to the origin and ownership of acquired or licensed technologies and indemnification to cover any breach of these representations. However, representations may not be accurate, and indemnification may not provide adequate compensation for breach of the representations. If we cannot or do not license the infringed IP at all or on reasonable terms, or substitute similar technology from another source, our business, financial position, results of operations or cash flows could suffer.

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

Our business involves the storage and transmission of customers’ proprietary and confidential information, including information that may be personal information, and other data. In addition, we collect, use and maintain our own confidential and proprietary business information, including information that may be personal information, and maintain intellectual property internally on our systems. Computer malware, cyberattacks and other threats and methods used to gain unauthorized access to our information technology networks and systems have become more prevalent and sophisticated. These threats and attempts, which may be related to industrial or other espionage, could include covertly introducing malware such as viruses, worms and other malicious software programs to our computers and networks, impersonating authorized users, and fraudulently inducing employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our data or our customers’ data, among other possible methods of security breach. These threats are constantly evolving, making it increasingly difficult to successfully defend against them or implement adequate protective measures.

Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. There can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. Our security measures or those of our third-party service providers could fail, whether as a result of third-party action, employee error, malfeasance or otherwise, and could result in unauthorized access to or use of our systems or unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our intellectual property and data and data of our customers.

In addition, our customers may authorize third party technology providers to access their customer data. Because we do not control the transmissions between our customers and third-party technology providers or the processing of such data by third-party technology providers, we cannot ensure the integrity or security of such transmissions or processing.

We might be unaware of any actual or potential security breach or be delayed in detecting a security breach, or, even if we are able to identify a breach, we may be unaware of its magnitude and effects. Actual or perceived security breaches could
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result in unauthorized use of or access to our systems, system interruptions or shutdowns, unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers’ data or intellectual property, may lead to litigation, indemnity obligations, regulatory investigations and other proceedings, severe reputational damage adversely affecting customer or investor confidence and causing damage to our brand, indemnity obligations, disruption to our operations, damages for contract breach, and other liability, reduction in the value of our investment in research and development and other strategic initiatives, and adverse effects upon our revenues and operating results. Additionally, our service providers may suffer, or be perceived to suffer, data security breaches or other incidents that may compromise data stored or processed for us that may give rise to any of the foregoing.

More generally, any of the foregoing types of security breaches, or the perception that any of them have occurred, may lead to the expenditure of significant financial and other resources in efforts to investigate or correct a breach or incident and to address and eliminate vulnerabilities and to prevent future security breaches, as well as significant costs for remediation that may include liability for stolen intellectual property or other assets or information and repair of system damage that may have been caused, incentives offered to customers in an effort to maintain business relationships, and other liabilities. We have incurred and expect to incur significant expenses in an effort to prevent security breaches and other security incidents.

We cannot be certain that our insurance coverage will be adequate for data security liabilities actually incurred, will cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

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

As part of our growth plan, we intend to participate in standards-setting organizations. The rejection of our haptic technology or failure of the standards-setting organizations to develop timely commercially viable standards may negatively impact our business and financial results.

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

We have seen, and believe that we will continue to see, an increase in customers requesting that we develop products that will operate in an “open source” environment. Developing open source compliant products without imperiling the IP rights upon which our licensing business depends may prove difficult under certain circumstances, thereby placing us at a competitive disadvantage for new product designs.

Already, some of our proprietary technologies incorporate open source software that may be subject to open source licenses, which licenses may require that source code subject to the license be released or made available to the public. Such open source licenses may mandate that software developed based on source code that is subject to the open source license, or combined in specific ways with such open source software, become subject to the open source license. We take steps to ensure that proprietary software we do not wish to disclose is not combined with, or does not incorporate, open source software in ways that would require such proprietary software to be subject to an open source license. However, there is currently uncertainty in the legal landscape around open source software, as few courts have interpreted open source licenses, and the manner in which these licenses may be legally interpreted and enforced is therefore not yet clear. We often take steps to disclose source code for which disclosure is required under an open source license, but it is possible that we have made or will make mistakes in doing so, which could negatively impact our brand or the adoption of our products by our customers or prospective customers or could expose us to additional liability.

In addition, we rely on multiple software programmers to design our proprietary products and technologies and we cannot be certain that open source software is not inadvertently incorporated into products and technologies we intend to keep proprietary. In the event that portions of our proprietary technology are determined to be subject to an open source license, or are intentionally released under an open source license, we could be required to publicly release the relevant portions of our source code, which could reduce or eliminate our ability to commercialize our products and technologies. As a result, our revenues may not grow and could decline.

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

Many of our current and future software technologies are designed for use with third-party platforms and technologies. Our business relies on our access to these platforms and technologies of third parties, which can be withdrawn, denied or not be available on terms acceptable to us.

Our access to third-party platforms and technologies may require paying royalties or other amounts, which lowers our margins, or may otherwise be on terms that are not acceptable to us. In addition, the third-party platforms or technologies used to interact with our software technologies can be delayed in production or can change in ways that negatively impact the operation of our software.

If we are unable to access third-party platforms or technologies, or if our access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies are delayed or change, our business and operating results could be adversely affected.

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

The current global economic conditions and political climate could materially hurt our business in a number of ways, including longer sales and renewal cycles, exchange rate volatility, delays in adoption of our products or technologies or those of our customers, increased risk of competition, higher taxes and tariffs on goods incorporating out technologies, higher overhead costs as a percentage of revenue, delays in signing or failing to sign customer agreements or signing customer agreements with reduced royalty rates. In addition, our customers, potential customers, and business partners would likely face similar challenges, which could materially and adversely affect the level of business they conduct with us or the sales volume of products that include our technology.

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

Any failure to provide high quality and reliable technologies, whether caused by our own failure or failures of our suppliers or customers, could damage our reputation and reduce demand for our technologies. Our technologies have in the past contained, and may in the future contain, undetected errors or defects. These errors or defects may increase as our technologies are introduced into new devices, markets and applications, including the automotive market and the sexual wellness market, or as new versions are released. Some errors in our technologies may only be discovered after a customer’s product incorporating our technologies has been shipped to customers. Undiscovered vulnerabilities in our technologies or products could expose our customers to hackers or other unscrupulous third parties who develop and deploy viruses, worms and other malicious software programs that could attach to our products or technologies. Any errors or defects discovered in our technologies after commercial release could result in product recalls, loss of revenue, loss of customers, and increased service and warranty costs, any of which could adversely affect our business.

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

A wide variety of state, national, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data and other information. Evolving and changing definitions of personal data and personal information within the European Union (“EU”), the U.S., and elsewhere, especially relating to classification of IP addresses, machine identification, location data and other information, may limit or inhibit our ability to operate or expand our business. For example, it may be more difficult for us to share data with commercial partners, conduct research, or market to customers. Heightened compliance requirements may lead to increased administrative expenses. Data protection and privacy-related laws and regulations are evolving and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

For example, the EU General Data Protection Regulation (“GDPR”), which became fully effective on May 25, 2018, imposes more stringent data protection requirements than previously effective EU data protection law and provides for penalties for noncompliance of up to the greater of €20 million or four percent of worldwide annual revenues. The GDPR requires, among other things, that personal data only be transferred outside of the European Economic Area (“EEA”) to certain jurisdictions, including the United States, if steps are taken to legitimize those data transfers.We rely on the Swiss-U.S. Privacy Shield programs, and the use of Standard Contractual Clauses (“SCCs”) approved by the EU Commission, to
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legitimize these transfers. Previously, we relied on the EU-U.S. Privacy Shield framework to legitimize transfers of personal data from the EEA to the United States.However, on July 16, 2020, the Court of Justice of the European Union (“CJEU”) invalidated Decision 2016/1250 on the adequacy of the protection provided by the EU-U.S. Privacy Shield Framework. This decision may increase our costs and limit our ability to process personal data from the European Union. The same decision also cast doubt on the ability to use one of the primary alternatives to the Privacy Shield, namely, SCCs, to lawfully transfer personal data from Europe to the United States and most other countries. At present, there are few if any viable alternatives to the Privacy Shield and the SCCs. This CJEU decision or other legal challenges relating to cross-border data transfer may serve as a basis for our personal data handling practices to be challenged and may otherwise adversely impact our business, financial condition and operating results.

Further, in June 2016, the United Kingdom voted to leave the European Union, commonly referred to as “Brexit,” which could also lead to further legislative and regulatory changes. The United Kingdom ceased to be an EU Member State on January 31, 2020, but remains subject to EU law for a transition period ending on December 31, 2020. The UK Data Protection Act that substantially implements the GDPR became law in May 2018 and was further amended to more closely align to GDPR post-Brexit. It remains unclear, however, how United Kingdom data protection laws or regulations will develop in the medium to longer term and how data transfers to and from the United Kingdom will be regulated. In addition, some countries are considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services or performing research related to our technology.

In 2018, California enacted the California Consumer Privacy Act (“CCPA”), legislation that, among other things, requires covered companies to provide new disclosures to California consumers and affords such consumers new abilities to opt-out of certain sales of personal information. The CCPA has been amended on multiple occasions and is the subject of proposed regulations of the California Attorney General that were released on October 10, 2019. While the CCPA went into effect on January 1, 2020, aspects of the legislation and its interpretation remain unclear at this time. We therefore cannot fully predict the impact of the CCPA on our business or operations, but it may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. Other privacy bills have been introduced at both the state and federal levels, and certain international territories are also imposing new or expanded privacy obligations.

In addition, ballot initiatives may also impose new or expanded privacy obligations. For example, California voters appear to have passed Proposition 24, also known as the California Privacy Rights and Enforcement Act of 2020, a November 2020 ballot measure that, among other effects, expands or amends the provisions of the CCPA, allows consumers to direct businesses to not share their personal information, removes the time period in which businesses can fix violations before being penalized, and creates the California Privacy Protection Agency to enforce the state’s consumer data privacy laws.

Even the perception of privacy, data protection or information security concerns, whether or not valid, may harm our reputation, inhibit adoption of our products by current and future customers, or adversely impact our ability to hire and retain workforce talent. Our actual or perceived failure to adequately comply with applicable laws and regulations, or to protect personal data and other data we process or maintain, could result in regulatory investigations and enforcement actions against us, fines, penalties and other liabilities, imprisonment of company officials and public censure, claims for damages by customers and other affected individuals, required efforts to mitigate or otherwise respond to incidents, litigation, damage to our reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could have a material adverse effect on our operations, financial performance and business.

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

Pursuant to the Sarbanes-Oxley Act of 2002, we are required to maintain internal control over financial reporting and to assess and report on the effectiveness of our internal controls, including the disclosure of any material weaknesses that our management identifies in our internal control over financial reporting.

Our management concluded that our internal control over financial reporting was effective as of December 31, 2020. However, we have in the past had material weaknesses in our internal control over financial reporting, and there are inherent limitations on the effectiveness of internal controls. We do not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met; no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected.

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Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Any delay or failure on our part to remedy identified material weaknesses or any additional delays or errors in our financial reporting controls or procedures could cause our financial reporting to be unreliable, could have a material adverse effect on our business, results of operations, or financial condition, and could have a substantial adverse impact on the trading price of our common stock.

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

As part of our strategy, we entered the sexual wellness market. As a new market entrant, our competitors may have significant competitive advantages over us, including longer operating histories, larger and broader customer bases, more established relationships with a broader set of suppliers, and greater brand recognition. In addition, the sexual wellness market vertical is highly fragmented, which may lead to unexpected challenges and expenses in licensing our technology. These factors could cause our entrance into the sexual wellness market to negatively impact our financial results. In addition, the sexual wellness market vertical we intend to license into may subject us to obscenity or other legal claims by third parties for which our financial position and results of operations could be harmed.

General Risk Factors: Investment Risks

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

Our revenues and operating results are likely to vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control and any of which could cause the price of our common stock to decline.

These factors include:

•the impact of COVID-19

•the establishment or loss of licensing relationships;

•the timing and recognition of payments under fixed and/or up-front fee license agreements, as well as other multi-element arrangements;

•seasonality in the demand for our technologies or products or our licensees’ products;

•the timing of our expenses, including costs related to litigation, stock-based awards, acquisitions of technologies, or businesses;

•developments in and costs of pursuing or settling any pending litigation;

•the timing of introductions and market acceptance of new technologies and products and product enhancements by us, our licensees, our competitors, or their competitors;

•the timing of work performed under development agreements; and

•errors in our licensees’ royalty reports, and corrections and true-ups to royalty payments and royalty rates from prior periods.
Changes in financial accounting standards or policies may affect our reported financial condition or results of operations and, in certain cases, could cause a decline and/or fluctuations in the price of our common stock.
From time to time, financial and accounting standard setters such as the FASB and the SEC change certain guidance governing the form and content of registrants’ external financial statements, or update their previous interpretations with regard to the application of certain GAAP. Such change in GAAP or their interpretation can have a significant effect on our reported financial condition and/or results of operations. If applicable to Immersion, we would be required to apply a new or revised guidance, which may result in retrospective adjustments to our financial statements, and change the way we account for certain transaction than under the existing guidance. Changes in GAAP and reporting standards could substantially change our reporting practices in a number of areas, including revenue recognition and recording of assets and liabilities, and consequently affect our reported financial condition or results of operations.
For example, in May 2014, the FASB issued ASU 2014-09 that, once adopted by us on January 1, 2018, are expected to significantly impact the timing we recognize revenue for new and existing contracts with licensees. Under the new standard, we expect to recognize up to a substantial majority of license fees under a fixed-fee license agreement paid upfront upon entry into the agreement, as opposed to recognizing the license fees ratably over the term of the agreement, which has been the historical practice applied by many licensing companies, including Immersion.  For Immersion, this will impact the revenue recognition of potentially all of our existing fixed-fee patent license agreements, including certain fixed-fee agreements that cover both our current technologies and future technologies that are added to our portfolio during the term of the license. In addition, our current practice, which is shared by many licensing companies, of reporting revenues from per-unit based royalty agreements one quarter in arrears, will no longer be accepted under the new revenue standard. Instead we will be expected to estimate unit-based royalty revenues each quarter in order to report such revenue in the period in which the underlying sales occurred, which will require adjustments to be recorded in the next reporting period to true up royalty revenue based on the actual amounts

reported by our licensees. Such changes to our reporting practices are expected to significantly affect our reported financial condition and/or results of operations, potentially causing the amount of revenue we recognize to vary dramatically from quarter to quarter, and even year to year, depending on the timing of entry into license agreements and whether such agreements have fixed-fee or per-unit royalty terms. In addition, these changes to our reporting practices and the resulting fluctuations in our reported revenue could cause a decline and/or fluctuations in the price of our common stock.

Our business is subject to changing regulations regarding corporate governance and other compliance areas that will increase both our costs and the risk of noncompliance.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, and the rules and regulations of The NASDAQ Stock Market and other regulations that may be enacted from time-to-time. The requirements of these and other rules and regulations have increased and we expect will continue to increase our legal, accounting and financial compliance costs, will make some activities more difficult, time-consuming and costly, and may also place undue strain on our personnel, systems and resources.
Our stock price may fluctuate regardless of our performance.
The
Our stock price has experienced substantial price volatility in the past and may continue to do so in the future. Further, our business, the technology industry and the stock market hasas a whole have experienced extreme volatilitystock price and volume fluctuations that often hashave affected stock prices in ways that may have been unrelated or disproportionate to corporate operating performance. For example, in 2020 as a result of macroeconomic conditions and the performancerelated impact of particular companies. TheseCOVID-19, the stock market fluctuations may causeexperienced wide fluctuations. In the past twelve months, our stock price has fluctuated from as low as $5.67 per share in June 2020 to decline regardlessa high of $16.64 in February 2021. This significant volatility may continue to occur in the future for reasons that are unrelated to our performance.business or if our business experiences unexpected results. The market price of our common stock has been, and in the
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future could be, significantly affected by factorsour operations as well such as: actual or anticipated fluctuations in operating results; announcements of technical innovations; announcements regarding litigation in which we are involved; the acquisition or loss of customers; changes by game console manufacturers to not include touch-enabling capabilities in their products; new products or new contracts; sales or the perception in the market of possible sales of large number of shares of our common stock by insiders or others; stock repurchase activity; sale of stock by the company, changes in securities analysts’ recommendations; personnel changes; changing circumstances regarding competitors or their customers; governmental regulatory action or inaction; developments with respect to patents or proprietary rights; inclusion in or exclusion from various stock indices; increased tariffs and international trade disputes; and general market conditions. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has been initiated against that company.company, which could lead to increased litigation costs and could adversely affect our operating results and our stock price.


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

It is likely that we will need to raiseseek additional capital in the future and from time to time. If this financing is obtained through the issuance of equity securities, debt convertible into equity securities, options or warrants to acquire equity securities or similar instruments or securities, our existing stockholders will experience dilution in their ownership percentage upon the issuance, conversion or exercise of such securities and such dilution could be significant. Additionally, any new equity securities issued by us could have rights, preferences or privileges senior to those of our common stock. For example, on February 11, 2021, we entered into an Equity Distribution Agreement with Craig-Hallum Capital Group LLC (“Craig-Hallum”), pursuant to which may result in substantial dilution to our stockholders.

We may elect to or need to raise additional capital in order to ensure a sufficient supply of cash to fund our operations, make investments, or engage in acquisitions. Our plans to raise additional capital may include entering into new license agreements that require up-front license payments or debt or equity financing. We cannot be certain that additional financing will be available to us on favorable terms when required, or at all. Additional financing may require uswe were able to issue additionaland sell shares of our common or preferred stock suchhaving an aggregate offering price of up to $50 million, from time to time, through an “at the market” equity offering program under which Craig-Hallum acted as sales agent. While we terminated the Equity Distribution Agreement on March 5, 2021, the issuance and sale of shares of our common stock pursuant to that “at the market” equity offering program has had a dilutive impact on our existing stockholdersstockholders. Further, the issuance and sale of, or the perception that we may experience substantial dilution.issue and sell, additional shares of common stock pursuant to future “at the market” equity offering programs or an additional private placement could have the effect of depressing the market price of our common stock or increasing the volatility thereof. Any issuance by us or sales of our securities by our security holders, including by any of our affiliates, or the perception that such issuances or sales could occur, could negatively impact the market price of our securities.
Our
We will have broad discretion as to the use of proceeds from the “at the market” offering that we announced in February 2021, and we may not use the proceeds effectively.

We currently intend to use the net proceeds from our “at the market” offering announced in February 2021 for working capital and other general corporate purposes. We may also use a portion of the net proceeds from the offering to acquire or invest in businesses, assets or technologies. Accordingly, we will retain broad discretion over the use of proceeds. Pending application of the net proceeds as described above, we may, from time to time, invest in digital or alternative currencies such as bitcoin or other cryptocurrencies. We may also invest net proceeds in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

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

In the future, as part of our capital allocation and investment strategy, we may elect to purchase digital or alternative currencies such as bitcoin or other cryptocurrencies. The price of bitcoin and other cryptocurrencies has historically been subject to dramatic price fluctuations and is highly volatile. For example, the price of these digital or alternative currencies may be influenced by regulatory, commercial and technical factors that are highly uncertain and unrelated to our business. Any decrease in the fair value of bitcoin or other cryptocurrencies we may purchase below our carrying value for such assets at any time would require us to incur an impairment charge, and such charge could be material to our financial results for the applicable reporting period, which may create significant volatility in our reported earnings and decrease the carrying value of our assets. Any decrease in reported earnings or increased volatility of such earnings due to impairment charges related to bitcoin or other cryptocurrency holdings could have a material adverse effect on the market price of our common stock. Any future changes in GAAP that require us to change the manner in which we account for any bitcoins or other cryptocurrencies that we may purchase could have a material adverse effect on our financial results and the market price of our common stock.

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

Historically, the bitcoin market has been characterized by more price volatility, less liquidity, and lower trading volumes compared to sovereign currencies markets, as well as relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, and various other risks inherent in its entirely electronic, virtual form and decentralized network. During times of market instability, we may not be able to sell any bitcoins that we hold at reasonable prices or at all. As a result, any bitcoins that we may purchase may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. If we are unable to sell any bitcoins that we hold, or if we are forced to sell any bitcoins that we may hold at a significant loss, in order to meet our working capital requirements, our business and financial condition could be negatively impacted.

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

We may engage in the acquisition of other companies, investments, joint ventures and strategic alliances outside of our current line of business to design and develop new technologies and products, to strengthen competitiveness by scaling up expanding our operations. Such transactions, especially in new lines of business, inherently involve risk due to the difficulties in integrating operations, technologies, products and personnel. Integration issues are complex, time-consuming and expensive and, without proper planning and implementation, may adversely affect our existing business. Furthermore, we may incur significant acquisition, administrative and other costs in connection with these transactions, including costs related to integration or restructuring of acquired businesses. In addition, we may make investments in companies outside our current line of business in an attempt to broaden our business opportunities. If we determine to make these investments, they may not provide a return or lead to an increase in our operating results, and we may not obtain the benefits of these investments that we intend to recognize when making them. There can be no assurance that these transactions, if pursued or made, will be beneficial to our business or financial condition.

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

We have established stock repurchase programs in the past, and may adopt similar programs in the future. Any repurchases by us pursuant to oura stock repurchase program could affect our stock price and add volatility. There can be no assurance that any repurchases will continue to be made under theany program, nor is there any assurance that a sufficient number of shares of our common stock will be repurchased to satisfy the market’s expectations. Furthermore, there can be no assurance that any repurchases conducted under theany plan will be made at the best possible price. The existence of a stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, we are permitted to and could discontinue ourany stock repurchase program at any time and any such discontinuation could cause the market price of our stock to decline.

Changes in financial accounting standards or policies may affect our reported financial condition or results of operations and, in certain cases, could cause a decline and/or fluctuation in the price of our common stock.

From time to time, financial and accounting standard setters such as the Financial Accounting Standards Board (“FASB”) and the SEC change their guidance governing the form and content of registrants’ external financial statements or update their previous interpretations with regard to the application of certain Generally Accepted Accounting Principles (“GAAP”). Such change in GAAP or their interpretation have historically and could in the future have a significant effect on our reported financial condition and/or results of operations. If a change is applicable to us, we would be required to apply the new or revised guidance, which may result in retrospective adjustments to our financial statements and/or could change the way we account for certain transaction compared to under the existing guidance. Changes in GAAP and reporting standards could substantially change our reporting practices in a number of areas, including revenue recognition and recording of assets and liabilities, and could consequently affect our reported financial condition or results of operations.

For example, on January 1, 2018, we adopted Accounting Standard Codification 606, Revenue from Contracts with Customers, (“ASC 606”). The adoption has affected our revenue recognition model for both fixed fee license revenue and per-unit royalty revenue derived from our new and existing contracts with licensees. Under ASC 606, if a fixed fee license agreement contains both performance obligations to transfer rights to our patent portfolio as it exists when the contract is executed as well as rights to our patent portfolio as it evolves throughout the contract term, we are required to allocate the fixed fee between the two performance obligations which could result in the recognition of a substantial majority of the fixed fee as revenue upon the execution of the license agreement. Prior to the adoption, as a historical practice applied by many
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licensing companies, we recognized fixed license fees ratably over the contract term. In addition, our previous accounting practice was to recognize revenue from per-unit royalty agreements in the period in which the related royalty report was received from our licensees, generally one quarter in arrears from the period in which the underlying sales occurred (i.e. on a “quarter-lag”). Under ASC 606, we are required to 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 contractual terms on our ability to estimate such amounts. As a result of accruing per-unit royalty revenue for the quarter based on estimates, adjustments will be required in the following quarter to true up revenue to the actual amounts reported by our licensees. Such changes have significantly affected our reported financial condition and/or results of operations, causing the amount of revenue we recognize to vary dramatically from quarter to quarter, and even year to year, depending on the timing of entry into license agreements and whether such agreements have fixed-fee or per-unit royalty terms. In addition, these reporting practices and the resulting fluctuations in our reported revenue could cause a decline and/or fluctuation in the price of our common stock.

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

As a public company, we are subject to the laws, regulations and reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, the rules and regulations of the Nasdaq Stock Market, and other regulations that may be enacted from time-to-time. The requirements of these and other rules and regulations have increased, and we expect will continue to increase our legal, accounting and financial compliance costs, will make some activities more difficult, time-consuming and costly, and may also place undue strain on our personnel, systems and resources. In addition, as laws, regulations and standards continue to change, often with varying degrees of specificity and clarity, we could face uncertainty regarding best practices and compliance with such evolving regimes, which could result in higher costs from increased attention paid to disclosure and governance practices and controls.

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

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our board of directors or management, including the following:

our board of directors is classified into three classes of directors with staggered three-year terms which will be phased out over time through 2019;
•only our chairperson of the board of directors, a majority of our board of directors or stockholders of not less than 10% or greater stockholdersof all of the shares entitled to cast votes at such meeting are authorized to call a special meeting of stockholders;

•our stockholders can only take action at a meeting of stockholders and not by written consent;

•subject to the rights of a holder of any series of preferred stock, vacancies on our board of directors can be filled only by our board of directors and not by our stockholders;


•our restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; and

•advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.

In addition, certain provisions of Delaware law may discourage, delay, or prevent someone from acquiring or merging with us. These provisions could limit the price that investors might be willing to pay in the future for shares.
We may engage in acquisitions that could dilute stockholders’ interests, divert management attention, or cause integration problems.
As part of our business strategy, we have in the past and may in the future, acquire businesses or IP that we feel could complement our business, enhance our technical capabilities, or increase our IP portfolio. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.
If we consummate acquisitions through the issuance of our securities, our stockholders could suffer significant dilution. Acquisitions could also create risks for us, including:
unanticipated costs associated with the acquisitions;
use of substantial portions of our available cash to consummate the acquisitions;
diversion of management’s attention from other business concerns;
difficulties in assimilation of acquired personnel or operations;
failure to realize the anticipated benefits of acquired IP or other assets;
charges associated with amortization of acquired assets or potential charges for write-down of assets or goodwill associated with unsuccessful acquisitions;
potential IP infringement or other claims related to acquired businesses, assets, product lines, or technologies; and
potential costs associated with failed acquisition efforts.
Any acquisitions, even if successfully completed, might not generate significant additional revenue or provide any benefit to our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Below is a summary of stock repurchases for the quarter ended September 30, 2017. See Note 8 of our condensed consolidated financial statements for information regarding our stock repurchase program.


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Program/Period (1)Shares Repurchased (2) Average Price Per Share Approximate Dollar Value that May Yet Be Purchased Under the Program
Beginning approximate dollar value available to be     
repurchased as of June 30, 2017    $33,711,000
July 1 -- July 31, 2017—
 $—
  
August 1 -- August 31, 201748,687
 6.73
  
September 1 -- September 30, 2017—
 —
  
July 1 -- September 30, 201748,687
   328,000
Ending approximate dollar value available to be     
repurchased as of September 30, 2017    $33,383,000



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(1) On November 1, 2007, our Board of Directors authorized a share repurchase program of up to $50.0 million. In addition, on October 22,2014, the Board authorized another $30.0 million under the share repurchase program. This share repurchase authorization has no expiration date and does not require us to repurchase a specific number of shares. The timing and amount of any share repurchase will depend on the share price, corporate and regulatory requirements, economic and market conditions, and other factors. The repurchase authorization may be modified, suspended, or discontinued at any time.
(2) All shares were repurchased on the open market as part of the plan publicly announced on November 1, 2007. The repurchases were effected by a single broker in market transactions at prevailing market prices net of transaction costs pursuant to a trading plan designed to satisfy the conditions of Rule 10b5-1 under the Securities and Exchange Act of 1934, as amended.

ITEM 6. EXHIBITS
The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Form 10-Q.


EXHIBIT INDEX

Exhibit
Number		Exhibit DescriptionIncorporated by Reference
FormFile No.ExhibitFiling Date
3.1
8-K000-279693.1November 4,
2016
3.2
8-K000-279693.1June 7,
2017
3.3
8-K000-279693.1July 29,
2003
3.4
8-K000-279693.1December 27,
 2017
10.1
8-K001-383341.1February 11,
2021
31.1
*
31.2
*
32.1*
+
32.2*
+
101.INS*XBRL Report Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Calculation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRL Taxonomy Label Linkbase Document
101.PRE*XBRL Presentation Linkbase Document

*Filed herewith.
+Furnished herewith.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 3, 2017

IMMERSION CORPORATION
By/s/ Nancy Erba
Nancy Erba
Chief Financial Officer and Principal Accounting Officer

EXHIBIT INDEX
IMMERSION CORPORATION
Exhibit
Number
Exhibit DescriptionIncorporated by Reference
Filed
Herewith
FormFile No.Exhibit  Filing Date
31.1
Certification of Victor Viegas, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of Nancy Erba, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
32.1*
Certification of Victor Viegas, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
32.2*
Certification of Nancy Erba, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
101.INSXBRL Report Instance DocumentX
101.SCHXBRL Taxonomy Extension Schema DocumentX
101.CALXBRL Taxonomy Calculation Linkbase DocumentX
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABXBRL Taxonomy Label Linkbase DocumentX
101.PREXBRL Presentation Linkbase DocumentX

*Date:This certification is deemed not filed for purposes of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.May 6, 2021By:   /s/ AARON AKERMAN
  Aaron Akerman
Chief Financial Officer and 
Principal Accounting Officer









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