| 2015 Annual Report
immersion.com | 50 Rio Robles, San Jose, California 95134 TO OUR VALUED SHAREHOLDERS
TO OUR VALUED SHAREHOLDERS
CORPORATE DIRECTORY
CORPORATE DIRECTORY
ued to expand our haptic ecosystem with the development of new tools and the addition of new partners and customers. We
ued to expand our haptic ecosystem with the development of new tools and the addition of new partners and customers. We
ended the year with our highest revenue to date, $63.4 million, an increase of 20% from 2014, achieving strong profitability, and a healthy cash
ended the year with our highest revenue to date, $63.4 million, an increase of 20% from 2014, achieving strong profitability, and a healthy cash
balance of $64.9 million.
balance of $64.9 million.
2015 marked a year of great progress for Immersion, both in terms of technology adoption and financial performance. We contin-
2015 marked a year of great progress for Immersion, both in terms of technology adoption and financial performance. We contin-
In 2015, we focused on growing and protecting the ecosystem of our customers and partners that we established to create, deliver, and play
In 2015, we focused on growing and protecting the ecosystem of our customers and partners that we established to create, deliver, and play
back haptic experiences. We achieved key milestones that continue to validate that our product offerings and patent portfolio are well posi-
back haptic experiences. We achieved key milestones that continue to validate that our product offerings and patent portfolio are well posi-
tioned to meet the demands of the market. These milestones include:
tioned to meet the demands of the market. These milestones include:
• Collaborations with major mobile ad networks – launching our first ad campaign to a mass audience, reaching more than one million daily
• Collaborations with major mobile ad networks – launching our first ad campaign to a mass audience, reaching more than one million daily
225 W. Santa Clara St., Suite 600
225 W. Santa Clara St., Suite 600
BOARD OF DIRECTORS
BOARD OF DIRECTORS
active users on more than 250 mobile apps.
active users on more than 250 mobile apps.
San Jose, California 95113
San Jose, California 95113
CARL SCHLACHTE
CARL SCHLACHTE
Senior Vice President, Legal
Senior Vice President, Legal
Tsimshatsui, Kowloon
Tsimshatsui, Kowloon
• Promotional campaigns with Google and the launch of new and popular mobile games with haptics – showcasing two collections of
• Promotional campaigns with Google and the launch of new and popular mobile games with haptics – showcasing two collections of
“Games You Can Feel” on Google Play.
“Games You Can Feel” on Google Play.
• Launch of the first movie trailers available with tactile effects in partnership with LeEco (formerly LeTV).
• Launch of the first movie trailers available with tactile effects in partnership with LeEco (formerly LeTV).
• New licensing agreements with OEMs such as Kyocera, Gionee, Meitu and Acer, and design wins and launches with OEMs such as Gionee,
• New licensing agreements with OEMs such as Kyocera, Gionee, Meitu and Acer, and design wins and launches with OEMs such as Gionee,
Fujitsu, and Huawei.
Fujitsu, and Huawei.
• Continued development of foundational IP – resulting in the filing of 63 new patent families and the grant of 112 patents worldwide in 2015.
• Continued development of foundational IP – resulting in the filing of 63 new patent families and the grant of 112 patents worldwide in 2015.
• Settlement and license agreement with HTC Corporation, resolving the Basic Haptics patent infringement litigation brought by us against
• Settlement and license agreement with HTC Corporation, resolving the Basic Haptics patent infringement litigation brought by us against
HTC, but preserving our right to appeal the invalidity ruling affecting three of our patents.
HTC, but preserving our right to appeal the invalidity ruling affecting three of our patents.
These achievements in 2015 and our work throughout the past five years provide us with a foundation for our continued success in the years
These achievements in 2015 and our work throughout the past five years provide us with a foundation for our continued success in the years
to come. With more than 2,100 issued and pending patents worldwide, Immersion is the leading innovator in haptics. Throughout our 20-year
to come. With more than 2,100 issued and pending patents worldwide, Immersion is the leading innovator in haptics. Throughout our 20-year
history, we have evangelized the power and capabilities of haptics in different consumer markets, including console gaming, mobile UI, mobile
history, we have evangelized the power and capabilities of haptics in different consumer markets, including console gaming, mobile UI, mobile
gaming, mobile advertising and mobile video, as well as automotive HMI, and wearables. As a result of our work, haptic technology is now
gaming, mobile advertising and mobile video, as well as automotive HMI, and wearables. As a result of our work, haptic technology is now
considered a must-have feature for current digital devices as well as new and emerging platforms such as virtual and augmented reality. This
considered a must-have feature for current digital devices as well as new and emerging platforms such as virtual and augmented reality. This
market recognition validates our long held view that touch feedback strongly enhances digital experiences and underscores our success in
market recognition validates our long held view that touch feedback strongly enhances digital experiences and underscores our success in
continuing to champion the broad adoption of haptics.
continuing to champion the broad adoption of haptics.
In addition, the shift to a mobile content driven ecosystem is creating new opportunities for haptics to play a larger role in the consumer view-
In addition, the shift to a mobile content driven ecosystem is creating new opportunities for haptics to play a larger role in the consumer view-
ing experience. We have systematically laid the groundwork for building a game-changing business in content by generating and developing
ing experience. We have systematically laid the groundwork for building a game-changing business in content by generating and developing
foundational IP, creating an end-to-end content tool system, developing an ecosystem of customer and partner relationships, and launching
foundational IP, creating an end-to-end content tool system, developing an ecosystem of customer and partner relationships, and launching
pilot programs that have showcased how haptics enhances content experiences. Collectively, this significant momentum has positioned us
pilot programs that have showcased how haptics enhances content experiences. Collectively, this significant momentum has positioned us
well for maximizing the value tactile feedback can bring to advertising, extended gaming, social media, and entertainment experiences.
well for maximizing the value tactile feedback can bring to advertising, extended gaming, social media, and entertainment experiences.
Looking forward to 2016, we are excited about the new and expanded opportunities that are arising as companies deploy haptics in richer and
Looking forward to 2016, we are excited about the new and expanded opportunities that are arising as companies deploy haptics in richer and
more advanced use cases to delight end users, improve the usability of new features, and differentiate products. In order for Immersion to
more advanced use cases to delight end users, improve the usability of new features, and differentiate products. In order for Immersion to
capitalize on the adoption of haptics in the market, we need to continue to invest in, develop, and enforce our IP portfolio, as well as grow our
capitalize on the adoption of haptics in the market, we need to continue to invest in, develop, and enforce our IP portfolio, as well as grow our
product offering to expand access to our technology. As such, we expect 2016 to be a year of strategic investment focused on strengthening
product offering to expand access to our technology. As such, we expect 2016 to be a year of strategic investment focused on strengthening
our position for long-term, profitable growth.
our position for long-term, profitable growth.
In closing, I am excited by the opportunities and challenges 2016 holds for Immersion. With a strong team in place, a broad and growing port-
In closing, I am excited by the opportunities and challenges 2016 holds for Immersion. With a strong team in place, a broad and growing port-
folio of IP and products, and a resolute focus on our strategic initiatives, we believe we will continue to execute well. I’d like to thank our dedi-
folio of IP and products, and a resolute focus on our strategic initiatives, we believe we will continue to execute well. I’d like to thank our dedi-
cated employees around the world, our customers and partners, and you – our valued investors – for your ongoing support. I look forward to
cated employees around the world, our customers and partners, and you – our valued investors – for your ongoing support. I look forward to
sharing our progress with you in 2016.
sharing our progress with you in 2016.
Sincerely,
Sincerely,
Victor Viegas
Victor Viegas
CEO and Director, Immersion
CEO and Director, Immersion
CORPORATE LEGAL COUNSEL
CORPORATE LEGAL COUNSEL
ANNUAL MEETING
ANNUAL MEETING
The Immersion Corporation
The Immersion Corporation
ROB LACROIX
ROB LACROIX
Vice President,
Vice President,
IMMERSION KOREA
IMMERSION KOREA
ERW Bldg. 5FL
ERW Bldg. 5FL
Annual Meeting of Stockholders
Annual Meeting of Stockholders
Research and Development
Research and Development
1330-8 Seocho-dong
1330-8 Seocho-dong
Fenwick & West LLP
Fenwick & West LLP
801 California Street
801 California Street
Mountain View, California 94041
Mountain View, California 94041
will be held Friday, June 3, 2016,
will be held Friday, June 3, 2016,
Seocho-gu, Seoul 137-858
Seocho-gu, Seoul 137-858
USA
USA
at 9:30 a.m. Pacific Daylight Time
at 9:30 a.m. Pacific Daylight Time
JANICE PASSARELLO
JANICE PASSARELLO
Korea
Korea
at Immersion Headquarters,
at Immersion Headquarters,
Vice President,
Vice President,
T: +82.2.3472.3141
T: +82.2.3472.3141
pany’s annual reports on Form
pany’s annual reports on Form
Director, PlasmaSi
Director, PlasmaSi
CORPORATE HEADQUARTERS
CORPORATE HEADQUARTERS
IMMERSION SOFTWARE
IMMERSION SOFTWARE
INDEPENDENT REGISTERED
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Deloitte & Touche LLP
50 Rio Robles, San Jose, California
50 Rio Robles, San Jose, California
Human Resources
Human Resources
95134, USA.
95134, USA.
AMIE PETERS
AMIE PETERS
General Counsel &
General Counsel &
USA
USA
Chairman, Immersion Corporation
Chairman, Immersion Corporation
TRANSFER AGENT
TRANSFER AGENT
Ventiva, Inc.
Ventiva, Inc.
Computershare Investor Services
Computershare Investor Services
Vice President,
Vice President,
Worldwide OEM Sales
Worldwide OEM Sales
Chairman, President & CEO,
Chairman, President & CEO,
MAHESH SUNDARAM
MAHESH SUNDARAM
Company, N.A.
Company, N.A.
P.O. Box 30170
P.O. Box 30170
DAVID HABIGER
DAVID HABIGER
Director, Immersion Corporation
Director, Immersion Corporation
College Station, Texas 77842
College Station, Texas 77842
Senior Advisor, Silver
Senior Advisor, Silver
USA
USA
Lake Partners
Lake Partners
URL: www.computershare.com
URL: www.computershare.com
Venture Partner, Pritzker Group
Venture Partner, Pritzker Group
Interim CEO, Textura
Interim CEO, Textura
STOCKHOLDER INFORMATION
STOCKHOLDER INFORMATION
The Company’s financial and other
The Company’s financial and other
JACK SALTICH
JACK SALTICH
information, including the Com-
information, including the Com-
Director, Immersion Corporation
Director, Immersion Corporation
CHRIS ULLRICH
CHRIS ULLRICH
Vice President,
Vice President,
User Experience
User Experience
TODD WHITAKER
TODD WHITAKER
Vice President,
Vice President,
Marketing
Marketing
10-K, quarterly reports on Form
10-K, quarterly reports on Form
10-Q, current reports on Form 8-K,
10-Q, current reports on Form 8-K,
DAVID SUGISHITA
DAVID SUGISHITA
and amendments to these reports
and amendments to these reports
Director, Immersion Corporation
Director, Immersion Corporation
USA
USA
filed with or furnished to the Securi-
filed with or furnished to the Securi-
ties and Exchange Commission are
ties and Exchange Commission are
JOHN VESCHI
JOHN VESCHI
available on the Company’s Web
available on the Company’s Web
Director, Immersion Corporation
Director, Immersion Corporation
50 Rio Robles
50 Rio Robles
San Jose, California 95134
San Jose, California 95134
T: +1 408.467.1900
T: +1 408.467.1900
F: +1 408.467.1901
F: +1 408.467.1901
www.immersion.com
www.immersion.com
site at: www.immersion.com.
site at: www.immersion.com.
MARKET INFORMATION –
MARKET INFORMATION –
COMMON STOCK
COMMON STOCK
Chief Executive Officer,
Chief Executive Officer,
Marquis Technologies
Marquis Technologies
VICTOR VIEGAS
VICTOR VIEGAS
Montreal, Quebec H2W 2R2
Montreal, Quebec H2W 2R2
The Company’s Common Stock
The Company’s Common Stock
Chief Executive Officer & Director,
Chief Executive Officer & Director,
Canada
Canada
has been traded over-the-counter
has been traded over-the-counter
Interim Chief Financial Officer
Interim Chief Financial Officer
T: +1 514.987.9800
T: +1 514.987.9800
on the Nasdaq Global Market
on the Nasdaq Global Market
Immersion Corporation
Immersion Corporation
under the symbol “IMMR” since
under the symbol “IMMR” since
the Company’s initial public
the Company’s initial public
CORPORATE MANAGEMENT
CORPORATE MANAGEMENT
offering on November 12, 1999.
offering on November 12, 1999.
VICTOR VIEGAS
VICTOR VIEGAS
IMMERSION JAPAN K.K.
IMMERSION JAPAN K.K.
11-5, Shibuya 2-chome,
11-5, Shibuya 2-chome,
Shibuya-ku, Tokyo
Shibuya-ku, Tokyo
Chief Executive Officer & Director
Chief Executive Officer & Director
Japan
Japan
Interim Chief Financial Officer
Interim Chief Financial Officer
T: +81.3.6450.6302
T: +81.3.6450.6302
IMMERSION LIMITED
IMMERSION LIMITED
905 Silvercord, Tower 2
905 Silvercord, Tower 2
30 Canton Road
30 Canton Road
Hong Kong,
Hong Kong,
China
China
T: +1 659.815.0765
T: +1 659.815.0765
IMMERSION (SHANGHAI)
IMMERSION (SHANGHAI)
SCIENCE & TECHNOLOGY
SCIENCE & TECHNOLOGY
CO., LTD
CO., LTD
21F, Room 2105,
21F, Room 2105,
No. 2277 Longyang Road,
No. 2277 Longyang Road,
Pudong New Area,
Pudong New Area,
Shanghai, PRC
Shanghai, PRC
China
China
IRELAND LTD.
IRELAND LTD.
3rd Floor, Ulysses House,
3rd Floor, Ulysses House,
Foley Street,
Foley Street,
Dublin 1,
Dublin 1,
Ireland
Ireland
T: +353.1.888.1004
T: +353.1.888.1004
New Taipei City
New Taipei City
Zhonghe District (235)
Zhonghe District (235)
Taiwan, R.O.C.
Taiwan, R.O.C.
T: +1 866.9.3290.1330
T: +1 866.9.3290.1330
HAPTIFY, INC.
HAPTIFY, INC.
50 Rio Robles
50 Rio Robles
San Jose, California 95134
San Jose, California 95134
USA
USA
T: +1 408.467.1900
T: +1 408.467.1900
F: +1 408.467.1901
F: +1 408.467.1901
IMMERSION CANADA
IMMERSION CANADA
IMMERSION TAIWAN
IMMERSION TAIWAN
4200 St-Laurent Blvd., Suite 1105
4200 St-Laurent Blvd., Suite 1105
12F, 866-3 ZhongZheng Road
12F, 866-3 ZhongZheng Road
All statements contained herein, as well as oral statements that may be made by officers, directors, or employees of Immersion (the “Company”) acting on the Company’s behalf, that are not statements of historical fact, constitute “forward-looking
All statements contained herein, as well as oral statements that may be made by officers, directors, or employees of Immersion (the “Company”) acting on the Company’s behalf, that are not statements of historical fact, constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). Forward-looking statements are identified by words such as
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). Forward-looking statements are identified by words such as
“believes,” “anticipates,” “expects,” “intends,” “may,” “will,” and other similar expressions. However, these words are not the only way the Company identifies forward-looking statements. In addition, any statements that refer to expectations, projec-
“believes,” “anticipates,” “expects,” “intends,” “may,” “will,” and other similar expressions. However, these words are not the only way the Company identifies forward-looking statements. In addition, any statements that refer to expectations, projec-
tions, or other characterizations of future events or circumstances are forward-looking statements, including, but not limited to, our statements regarding new applications of Immersion technology, our statement regarding achievements providing
tions, or other characterizations of future events or circumstances are forward-looking statements, including, but not limited to, our statements regarding new applications of Immersion technology, our statement regarding achievements providing
a foundation for continued success, our statement that haptic technology is now a must-have feature for current digital devices and emerging platforms, our statements regarding the market recognition of haptics, our statements regarding new
a foundation for continued success, our statement that haptic technology is now a must-have feature for current digital devices and emerging platforms, our statements regarding the market recognition of haptics, our statements regarding new
opportunities for haptics to play a role in the consumer viewing experience, our statement regarding building a game-changing business in content through developing IP, creating tool systems, developing an ecosystem of partner and partner
opportunities for haptics to play a role in the consumer viewing experience, our statement regarding building a game-changing business in content through developing IP, creating tool systems, developing an ecosystem of partner and partner
relationships, and launching pilot programs, our statement regarding maximizing the value tactile feedback can bring to advertising, extended gaming, social media, and entertainment experiences, our statement regarding opportunities that are
relationships, and launching pilot programs, our statement regarding maximizing the value tactile feedback can bring to advertising, extended gaming, social media, and entertainment experiences, our statement regarding opportunities that are
arising as companies deploy haptics, improve the usability of features, and differentiate products, and our statement regarding our growing portfolio of IP and products. Immersion’s actual results might differ materially from those stated or implied
arising as companies deploy haptics, improve the usability of features, and differentiate products, and our statement regarding our growing portfolio of IP and products. Immersion’s actual results might differ materially from those stated or implied
by such forward-looking statements due to risks and uncertainties associated with Immersion’s business, which include, but are not limited to, delay in or failure to achieve commercial demand for Immersion’s or its licensees’ products; a delay in or
by such forward-looking statements due to risks and uncertainties associated with Immersion’s business, which include, but are not limited to, delay in or failure to achieve commercial demand for Immersion’s or its licensees’ products; a delay in or
failure to achieve the acceptance of force feedback as a critical user experience; unexpected difficulties in monetizing the patent portfolio; the commercial success of applications or devices into which Immersion’s technology is licensed; potentially
failure to achieve the acceptance of force feedback as a critical user experience; unexpected difficulties in monetizing the patent portfolio; the commercial success of applications or devices into which Immersion’s technology is licensed; potentially
lengthy sales cycles and design processes; unanticipated difficulties and challenges encountered in development efforts; potential restructuring charges; failure to retain key personnel; potential and actual claims and proceedings, including litiga-
lengthy sales cycles and design processes; unanticipated difficulties and challenges encountered in development efforts; potential restructuring charges; failure to retain key personnel; potential and actual claims and proceedings, including litiga-
tion; competition; the impact of global economic conditions and other factors. Many of these risks and uncertainties are beyond the control of Immersion.
tion; competition; the impact of global economic conditions and other factors. Many of these risks and uncertainties are beyond the control of Immersion.
For a more detailed discussion of these factors, and other factors that could cause actual results to vary materially, interested parties should review the risk factors listed in Immersion’s Form 10-K for 2015, which is on file with the U.S. Securities and
For a more detailed discussion of these factors, and other factors that could cause actual results to vary materially, interested parties should review the risk factors listed in Immersion’s Form 10-K for 2015, which is on file with the U.S. Securities and
Exchange Commission. The forward-looking statements in this document reflect Immersion’s beliefs and predictions as of the date of this document. Immersion disclaims any obligation to update these forward-looking statements as a result of
Exchange Commission. The forward-looking statements in this document reflect Immersion’s beliefs and predictions as of the date of this document. Immersion disclaims any obligation to update these forward-looking statements as a result of
financial, business, or any other developments occurring after the date of this document.
financial, business, or any other developments occurring after the date of this document.
©2016 Immersion Corporation. All rights reserved. Immersion, the Immersion logo and Haptify are trademarks of Immersion Corporation in the United States and other countries. All other trademarks are the property of their respective owners
©2016 Immersion Corporation. All rights reserved. Immersion, the Immersion logo and Haptify are trademarks of Immersion Corporation in the United States and other countries. All other trademarks are the property of their respective owners
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x]
[ ]
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015 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 000-27969
Immersion Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
94-3180138
(IRS Employer Identification No.)
50 Rio Robles
San Jose, California 95134
(Address of principal executive offices, zip code)
(408) 467-1900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.001 par value
Name of Each Exchange on which Registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [x]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [x]
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 [x] 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 [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ x ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Accelerated filer [x]
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [x]
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 2015, the last
business day of the registrant’s most recently completed second fiscal quarter, was $229,858,038 (based on the closing sales price
of the registrant’s common stock on that date). Shares of the registrant’s common stock held by each officer and director and each
person whom owns 5% or more of the outstanding common stock of the registrant have been excluded in that such persons may
be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
Number of shares of common stock outstanding at February 18, 2016: 28,359,860.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 2016 Annual Meeting are incorporated by reference into Part III hereof.
IMMERSION CORPORATION
2015 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
PART IV
Item 15.
Signatures
4
12
25
25
26
28
29
31
33
44
45
75
75
76
78
78
78
78
78
79
84
Forward-looking Statements
In addition to historical information this Annual Report on Form 10-K 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 frequently identified by words such
as “anticipates,” “believes,” “expects,” “intends,” “may,” “will,” and other similar expressions. However, these
words are not the only way we identify forward-looking statements. In addition, any statements which refer to
expectations, projections, or other characterizations of future events, or circumstances, are forward-looking
statements. 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,” “Risk Factors” and those described elsewhere in this report,
and those described in our other reports filed with the Securities and Exchange Commission (“SEC”). We caution
you not to place undue reliance on these forward-looking statements, which speak only as of the date of this
report, and we undertake no obligation to update these forward-looking statements after the filing of this report.
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.
3
Item 1. Business
Overview
PART I
Immersion Corporation (“Immersion”) is 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 they engage with cutting-edge products and experience the digital world around them. Our mission is to
innovate touch technology that informs, humanizes, and excites while working with customers and partners to
bring these tactile experiences to consumers. 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. Our primary business is currently in the mobility, gaming, automotive and medical 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, and wearables.
We have adopted a “hybrid” business model, under which we provide advanced tactile software, related tools
and technical assistance to certain customers, and offer licenses to our patented intellectual property (“IP”) to
other customers. Our licenses enable 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 2,100 issued or pending patents worldwide, covering 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 were incorporated in 1993 in California and reincorporated in Delaware in 1999. We consummated our
initial public offering on November 12, 1999.
Our Business Strategy
Our goal is to continue to be the technology and market leader in haptic technologies and drive the adoption
of our touch technology across markets and applications to improve user experiences in the digital realm. Key
aspects of our strategy include:
Innovate: Develop and patent our innovative technology to provide haptics in mobile, gaming, automotive,
medical, wearable, content and other products and services to transform user experiences with unique and
customizable tactile effects.
Drive Adoption: Communicate the advantages of our patented innovations and technologies to the relevant
industries and encourage their adoption through demonstrations and incorporation in the offerings of world-class
companies.
Expand Markets and Applications: Work closely with component suppliers, chip vendors, systems
integrators, content enablers and other partners to broaden the use of haptics within our current core markets and
to expand it into emerging markets, such as wearables, virtual and augmented reality, and the Internet of Things.
Monetize: License our technology to customers for use in the creation, distribution and playback of high
quality haptic experiences in various products, services and markets.
We rely on the skills and talent of our employees to successfully execute our strategy through ongoing
innovation, licensing activities, and collaboration with customers and partners to ensure that high quality tactile
experiences are brought to market. Accordingly, we seek to hire and retain employees with world class haptic
expertise, as well as the executive management and operating personnel required to successfully execute our
business strategies. In order to attract these high caliber employees, we have created an environment and culture
that fosters and supports research, development, and innovation in breakthrough technologies with significant
opportunities for broad industry adoption through licensing. We believe we have created a compelling company
for inventive and entrepreneurial technology professionals who are able to work within our supportive corporate
environment to innovate, execute on our opportunities and drive strong growth.
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We drive substantially all of our revenue from licensing of our software and patents. Parties licensed to our
IP regard that act as an investment-one which is devalued when unlicensed parties use our IP. Litigation is the
primary method by which we ensure that the value licensed parties have placed on our IP is honored and protected.
Litigation against unlicensed third parties as a strategy is a last step after all other avenues for resolution have
been exhausted. If unlicensed parties continue to ship products without fairly remunerating us, litigation is the
proper public step to protect our property as well as inform existing licensees that we are protecting their
investment. As haptics gains wider acceptance in the market. the likelihood of unlicensed use of our IP increases.
This could result in ongoing litigation as we seek to protect the investment that we and our valid licensees have
made in the technology.
Haptics and Its Benefits
While the digital world offers many advanced technologies and capabilities, it often fails to provide us with
the meaningful touch experiences that inform and enrich our real-world interactions. As we experience the
physical world in our everyday lives, we rely on our sense of touch to provide us with reassuring context and
confirmation, to bring us closer to one another through rich communications, and to enjoy entertainment, sports
and other activities through realistic engagement. Without these tactile qualities, our digital experiences can feel
flat and ineffective, pale reflections of the real world.
Immersion haptic technologies breathe life back into digital experiences, restoring the missing elements of
confirmation, realism and rich communication to the digital world:
Confirmation: Today’s touchscreens, touch pads, and other touch surfaces can lack the physical feedback that
is provided by mechanical keyboards and switches and that we need to fully understand the context of our
interactions. By providing users with intuitive and unmistakable tactile confirmation as they push virtual buttons
and scroll through lists, haptics can instill confidence, increase input speed, reduce errors and improve safety.
This is especially important in environments that involve distractions, such as automotive and commercial
applications, where audio or visual confirmation is insufficient.
Realism: Haptics can inject a sense of realism into user experiences by exciting the senses and allowing the
user to become immersed in the action and nuance of the application. For example, in haptically-enhanced videos,
mobile games and simulations that integrate audio-visual content with tactile sensations, users can literally feel
guns recoil, engines revving, and the crack of a baseball bat crushing a home run. As another example, medical
students and doctors can practice performing cardiac procedures by using simulation systems that realistically
recreate the forces that would be encountered in navigating pacing leads through a beating heart.
Rich Communications: When humans communicate through touch, they are better able to establish emotional
connections and feelings of closeness. In mobile devices and wearables, haptics can enhance voice, chat and video
applications by creating a sense of physical presence, allowing for more personal and engaging communications
between users. Moreover, haptics can offer users a discreet and unobtrusive way of exchanging meaningful
information without disruptive audio or visual feedback.
We believe these features of our haptic technology are broadly applicable to a number of markets and devices.
By continuing to enhance these features through further research and development, we believe we will serve as a
strategic partner for our customers and partners in helping them develop a more compelling user experience for
consumers.
Our Offering
We provide software, IP and haptic expertise to our customers through a variety of different offerings,
including software licenses, patent licenses, and combined licenses that cover both software and patents. In most
cases, our software licenses include services, design tools and software development kits (“SDKs”), as well as
licenses to our patents to the extent necessary to implement the licensed software, with the specific rights and
restrictions to the applicable patents described in the license agreements. When we offer patent licenses, we
provide the customer with a defined right to use our patented innovations in its own products by allowing them
to use specified aspects of our broad international patent portfolio, subject to limitations by specific field of use
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and other restrictions. In certain cases, we also provide our patent licensees with enablement tools such as
reference designs and prototypes, technical and design services as well as other assistance and support.
Our agreements are typically structured with fixed, variable or a mix of fixed and variable royalty and/or
license payments over certain defined periods, as well as, in certain cases, fees for support or other services.
Software Offerings
We generally license our software as part of Immersion TouchSense-branded offerings that are intended to
address the needs of our target markets. Our TouchSense offerings include haptic creation, deployment and
playback software, SDKs, developer and enablement tools and documentation, technical and design services, as
well as support.
TouchSense Haptic Enabling Kits: Targeted to the mobile device, wearables, and consumer electronics
markets, TouchSense Haptic Enabling Kits consist of solutions enabling the design of tactile effects used in device
interfaces and applications, and enhancing the playback of haptic content. Our toolkits enable original equipment
manufacturers (“OEMs”) and their suppliers to easily add customized haptic experiences to their own branded
devices and other products. Our offerings include TouchSense Haptic Enabling Kit for Mobile OEMs and
TouchSense Haptic Enabling Kit for Wearable OEMs.
TouchSense Haptic Development Kits: Targeted to mobile developers, platform providers, advertisers and
content creators, TouchSense Haptic Development Kits consist of design tools, integration software and effect
libraries that allow for the design, encoding and playback of tactile effects in mobile content, including games,
ads and video. TouchSense Haptic Development Kits offer high fidelity tactile effects to augment and enhance
mobile content, while ensuring quality playback within consumer devices. Our offerings include TouchSense
Haptic Development Kit for Mobile Games and TouchSense Haptic Development Kit for Mobile Videos.
TouchSense Haptic Development Kit offerings have not yet generated revenue for us as of December 31, 2015.
Patent Licenses
Through more than twenty years of innovative research, development and business activity, we have built a
far-reaching and deep portfolio of patents covering many of the foundational aspects and commercial applications
of haptic technology. We have implemented formal policies and procedures governing how we create, protect and
maintain our IP assets, and devote substantial resources to ensure that our IP coverage of the haptic landscape is
as comprehensive as possible. Our growing portfolio now includes more than 2,100 worldwide issued or pending
patents, which support our TouchSense offerings, protect our business activities and prospects, and represent an
important independent licensing and revenue channel for us. 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, related to virtual and augmented reality experiences, and in connection
with advanced actuation technologies and techniques, to name a few.
Haptic Expertise
As described above, we frequently offer our expertise to licensees to help them design and integrate touch
effects into their products. This expertise includes engineering and integration services, design kits for
prototyping, authoring tools, and application programming interfaces (“APIs”).
Engineering and Integration Services: We offer engineering assistance, including technical and design
assistance and integration services that allow our licensees to incorporate our touch-enabling solutions and
technologies into their products at a reasonable cost and within a shortened time frame, allowing them to bring
products to market quickly by using our years of haptic development and solution deployment expertise. We offer
product development solutions including software libraries, design, prototype creation, technology transfer,
actuator selection, component sourcing, SDKs, sample source code, comprehensive documentation, and other
engineering services. In addition, we help ensure a quality end-user experience by offering testing and certification
services to a number of licensees and ecosystem participants such as actuator vendors.
Design Kits for Prototyping: We offer several design kits for customers to use for technology evaluation,
internal evaluation, usability testing, and focus group testing. The kits include components and documentation
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that designers, engineers, and system integrators need for prototyping tactile effects into existing or sample
products and applications.
Authoring Tools: In addition to TouchSense Haptic Development Kits, we license authoring tools that enable
haptic designers and software developers in other markets, such as console gaming, to quickly design and
incorporate customized touch feedback into their applications. Authoring tools allow designers to create, modify,
experience, and save or restore haptic effects for a haptically-enabled device.
Application Programming Interfaces: Our APIs provide haptic-effect generation capability. This allows
designers and software programmers to focus on adding haptic effects to their applications instead of struggling
with the mechanics of programming real-time algorithms and handling communications between computers and
devices. Some of our haptic APIs are device independent (for example, they work with scroll wheels, rotary
knobs, 2D joysticks, and other devices) to allow flexibility and reusability. Others are crafted to meet the needs
of a particular customer or industry.
Platform Independent Solutions: Our software driver and API technologies have been designed to be easily
ported to a variety of operating systems including Android, Tizen, Linux, and Windows.
Markets
Mobile Communications, Wearables, and Consumer Electronics: We offer TouchSense Haptic Enabling Kits
and patent licenses, as well as haptic expertise, to OEMs in the mobile device, wearables, and consumer
electronics markets. In addition, certain of our integrated circuit partners preload their integrated circuits with
certain of our less fully-featured TouchSense software and offer these integrated circuits to OEMs in the mobile
device market.
Our licensees currently include some of the top makers of mobile devices in the world, including Fujitsu,
Gionee, HTC, Huawei, Kyocera, LG Electronics, Meizu, and Toshiba, as well as integrated circuit manufacturers
such as Texas Instruments.
In addition to working with device manufacturers, we provide our TouchSense Haptic Development Kits to
application developers, advertising networks and other content ecosystem participants to enable them to easily
incorporate tactile effects into mobile games, advertisements and other content. Our licensees have included
Bandai Namco, iDreamSky, LeTV, Opera Mediaworks, Rovio Entertainment, Slate, Showtime, and Ubisoft.
For the years ended December 31, 2015, 2014, and 2013, respectively, 62%, 60%, and 66% of our total
revenues were generated from OEMs and integrated circuit customers in the mobile communications market.
Console and PC Gaming: We have licensed our patents directly to Microsoft and Sony Computer
Entertainment for use in their console gaming products. Additionally, we have licensed our patents to third party
gaming peripheral manufacturers and distributors for use in spinning mass and force feedback devices such as
controllers, steering wheels and joysticks, to be used with PC platforms running on Microsoft Windows and other
operating systems, as well as in connection with video game consoles made by Microsoft, Sony, Nintendo and
others. Our gaming licensees include Bensussen Deutsch & Associates, Guillemot, Logitech, Mad Catz,
Microsoft, Performance Designed Products, Razer, and Sony.
For the years ended December 31, 2015, 2014, and 2013, respectively, 24%, 27%, and 21% of our total
revenues were generated from customers in the PC and console gaming markets.
Automotive: We offer patent licenses and assistance such as reference designs, prototypes and enablement
services to automotive makers and suppliers. Our current licensees include ALPS Electric Co., Continental,
Marquardt, Panasonic Automotive Systems, SMK Corporation, and Tokai Rika.
For the years ended December 31, 2015, 2014, and 2013, respectively, 7%, 5%, and 5% of our total revenues
were from automotive customers.
Medical: We offer patent licenses to the medical market. Our current licensees include CAE Healthcare,
Laerdal Medical A/S, Simbionix, Stryker Medical (formerly MAKO Surgical), and SOFAR.
For the years ended December 31, 2015, 2014, and 2013, respectively, 7%, 8%, and 8% of our total revenues
were from medical customers.
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Manufactured Products
As of December 2013, we ceased selling manufactured products and only license our patents and software.
Our 2013 product solutions, which did not represent a material part of our business, were limited to components
used for design kits. All products produced were from contracted manufacturing services.
Sales
Our sales are somewhat seasonal, with holiday shipments of our customers’ mobility and gaming products in
the fourth quarter typically generating per unit royalties in our first quarter. Seasonal fluctuations have not been
extremely significant to our overall revenue trends in the past. As we are increasingly entering into license
agreements that include recurring fixed payments to us, we anticipate that our sales may become less seasonal
over time.
We employ a consolidated direct sales force in the United States, Europe, and Asia to license our software
and patents across our target markets and augment that sales force via partnerships and licensing agreements with
component suppliers and system integrators.
Additional information about significant customers is incorporated herein by reference to Note 15 of our
consolidated financial statements and related financial information in Item 8. Financial Statements and
Supplementary Data.
Competition
Our biggest source of competition derives from decisions made by internal design groups at our OEM and
other customers, as well as potential customers. We expect that these internal design groups will continue to make
choices regarding whether to implement haptics or not, as well as whether to develop their own haptic solutions.
In the event we have granted or grant a license to our patent portfolio to a customer, its internal design group
may design technology that is less expensive to implement or that enables products with higher performance or
additional features. In some cases, the customer may elect not to include haptics in its products or other offerings
due to the higher costs associated with incorporating haptics.
In addition to licensing customers directly, we have also licensed semiconductor manufacturers to incorporate
certain of our less fully-featured software into their integrated circuits for use in certain electronic devices.
The principal competitive factors impacting our business are the strength of the patents underlying our
technology, as well as the technological expertise and design innovation and the use, reliability and cost-
effectiveness of our software solutions. We believe we compete favorably in all these areas.
Our competitive position is also impacted by the competitive positions of our licensees’ products and other
offerings. Our licensees’ markets are highly competitive. We believe that the principal competitive factors in our
licensees’ markets include price, performance, user-centric design, ease-of-use, quality, and timeliness of
products, as well as the licensee’s responsiveness, capacity, technical abilities, established customer relationships,
distribution channels and access to retail shelf space, advertising, promotional programs, and brand recognition.
Touch-related benefits in some of these markets may be viewed simply as enhancements and compete with non-
touch-enabled technologies.
Research and Development
Our success depends on our ability to invent and improve our technologies in a timely manner; to design and
develop software to meet specifications based on research and our understanding of customer needs and
expectations; to offer tools and technology that enable high-quality, end-to-end haptic experiences, from the time
of creation to the time of playback; and to collaborate with our licensees who are integrating our technologies
into theirs.
Engineering: We have assembled a multi-disciplinary team of highly skilled engineers and scientists with the
experience required for development of touch-enabling technology. The team’s experience includes skills related
to mechanical engineering, electrical engineering, embedded systems and firmware, control techniques, software,
8
quality control, haptic content design, and project and process management. This team continues to generate
patents that strengthen our IP position.
Application Engineering and Technical Support: We may provide application engineering and technical
support during integration of our touch-enabling technology into customer products and other offerings, including
content. To facilitate the validation and adoption of touch-enabling technology, we have developed various design
kits. These kits may include actuators, mounting suggestions, controller boards, software libraries, programming
examples, and documentation. Our application engineers support customer use of these design kits, including
through phone and e-mail technical support and onsite training. This team continues to generate patents that
strengthen our IP position.
Research: We have multi-disciplinary expertise in usability and multimodal user interface design, actuator
design, sensors, integration, material science, real-time simulation algorithms, control, and software development.
Our research team works with existing and potential partners to help them assess and prove the value of haptics
in their field of interest, creating main competitive differentiator and value added solutions. This team continues
to generate patents, actively contributing to the strength of our IP position.
User Experience: We have a dedicated team of user interaction specialists, focusing on user research and
design to enable new and improved applications of haptics. We have unique expertise in haptics, usability, content
creation, and interface design. Our team works with existing and potential partners to help them determine the
best implementation of haptics in their specific application. This team works on the cutting edge of new user
interface paradigms using haptics, resulting in an ongoing generation of patents, actively contributing to the
development of new IP for us.
For the years ended December 31, 2015, 2014, and 2013, research and development expenses were $14.8
million, $11.8 million, and $10.9 million respectively.
Intellectual Property
We believe that IP protection is crucial to our business. We rely on a combination of patents, copyrights, trade
secrets, trademarks, nondisclosure agreements with employees and third parties, licensing arrangements, and
other contractual agreements with third parties to protect our IP. We maintain and support an active program to
protect our IP, primarily through the filing of patent applications and the defense of issued patents against
infringement.
Our failure to obtain or maintain adequate protection for our IP rights for any reason could hurt our
competitive position. There is no guarantee that patents will be issued from the patent applications that we have
filed or may file. Our issued patents may be challenged, invalidated, or circumvented, and claims of our patents
may not be of sufficient scope or strength, or issued in the proper geographic regions, to provide meaningful
protection or any commercial advantage. Our position and revenue resulting from licensing our patents can also
be affected by the expiration of patents and our ability to persuade licensees that other patents in our portfolio
continue to be relevant.
At the end of 2015, we and our wholly owned subsidiaries had over 2,100 currently issued or pending patents
worldwide that cover various aspects of our technologies. The duration of our issued patents is determined by the
laws of the country of issuance and for the United States is typically 17 years from the date of issuance of the
patent or 20 years from the date of filing of the patent application resulting in the patent. Some of our U.S. patents
began expiring in 2007.
Financial Information about Industry Segments and Geographic Areas
We manage our operations and allocate resources as a single reporting segment. Additional information about
our business segments and geographic areas is incorporated herein by reference to Note 15 of our consolidated
financial statements and related financial information in Item 8. Financial Statements and Supplementary Data.
9
Investor Information
You can access financial and other information in the Investor Relations section of our web site at
www.immersion.com. We make available, on our Web site, free of charge, copies of our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing
such material electronically or otherwise furnishing it to the SEC.
The charters of our audit committee, our compensation committee, and our nominating/corporate governance
committee, and our Code of Business Conduct and Ethics (including code of ethics provisions that apply to our
principal executive officer, principal financial officer, controller, and senior financial officers) and our Corporate
Governance Principles are also available at our web site under “Corporate Governance.” These items are also
available to any stockholder who requests them by calling +1 408.467.1900.
The SEC maintains an Internet site that contains reports, proxy, and information statements, and other
information regarding issuers that file electronically with the SEC at www.sec.gov.
Employees
As of December 31, 2015, we had 156 full-time and part-time employees, including 75 in research and
development, 44 in sales and marketing, and 37 in legal, finance, and administration. We also use independent
contractors. None of our employees are represented by a labor union, and we consider our employee relations to
be positive.
Executive Officers
The following table sets forth information regarding our executive officers as of February 18, 2016.
Name
Victor Viegas
Paul Norris
Mahesh Sundaram
Position with the Company
Chief Executive Officer and Member of the Board of Directors
Chief Financial Officer
Vice President, Worldwide Sales and Customer Support
Age
58
53
45
Victor Viegas was named our Chief Executive Officer in April 2010, and served as our Interim Chief
Financial Officer from December 2011 until May 2012. He served as our Interim Chief Executive Officer from
October 2009 to April 2010, and has served as a member of the board of directors since October 2002. Mr. Viegas
was our Chief Executive Officer from October 2002 through April 2008, and President from February 2002
through April 2008. Mr. Viegas was also Chairman of the board of directors from October 2007 to February 2009.
Mr. Viegas also served as Chief Financial Officer until February 2005, having joined us in August 1999 as Chief
Financial Officer, Vice President, Finance. From June 1996 to August 1999, he served as Vice President, Finance
and Administration and Chief Financial Officer of Macrovision Corporation, a developer and licensor of video
and software copy protection technologies. From October 1986 to June 1996, he served as Vice President of
Finance and Chief Financial Officer of Balco Incorporated, a manufacturer of advanced automotive service
equipment. He holds a B.S. in Accounting and an M.B.A. from Santa Clara University. Mr. Viegas is also a
Certified Public Accountant in the State of California, on inactive status.
Paul Norris joined Immersion as Chief Financial Officer in May 2012. Prior to joining Immersion, Mr. Norris
served as a partner at Accanto Partners, LLC, an investment fund focusing on technology and digital media
companies from July 2011 to May 2012. Prior to that, from June 2005 to February 2011, Mr. Norris served in
various executive positions at Sonic Solutions, a digital media software and entertainment solutions provider,
acting as its Senior Vice President and General Counsel from June 2005 to February 2008, and its Executive Vice
President, Chief Financial Officer and General Counsel February 2008 until its acquisition by Rovi Corporation,
a digital entertainment technology solutions provider in February 2011. From February 2011 through June 2011,
Mr. Norris assisted Rovi in its integration activities as an Executive Advisor. Mr. Norris holds a Bachelor of Arts
from Yale University and a Juris Doctor degree from Harvard Law School.
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Mahesh Sundaram joined Immersion in October 2014. He is responsible for leading our worldwide sales and
customer support organization to support the growing opportunities of Immersion technology. Prior to joining
Immersion, Mr. Sundaram was Vice President, Asia Pacific of Dolby Laboratories, a global innovator and
developer of audio, imaging and voice technologies for cinema, home theaters, PCs, mobile phones, and games,
from October 2008 to October 2014. Mr. Sundaram also served as a Director of Consumer Electronics Market
Segment at Dolby Laboratories, from July 2006 to September 2008. From January 1996 to November 2003, he
managed product marketing for Intel, one of the largest manufacturers of semiconductors for PCs, servers, phones,
tablets, and consumer electronic devices, where he was responsible for product marketing and bringing new
products and technologies to market in the Asia Pacific region. Mr. Sundaram holds a Bachelor of Engineering in
electrical engineering from University of Mumbai.
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Item 1A. Risk Factors
You should carefully consider the following risks and uncertainties, as well as other information in this report
and our other SEC filings, in considering our business and prospects. If any of the following risks or uncertainties
actually occurs, our business, financial condition, or results of operations could be materially adversely affected.
The following risks and uncertainties are not the only ones facing us. Additional risks and uncertainties of which
we are unaware or that we currently believe are immaterial could also materially adversely affect our business,
financial condition, or results of operations. In any case, the trading price of our common stock could decline,
and you could lose all or part of your investment. See also the Forward-looking Statements discussion in Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Company Risks
If we are unable to enter into new and renewed licensing arrangements with our existing licensees and
with additional third-parties for our touch-enabling technologies, our royalty and license revenue may not
grow and could decline.
Our revenue growth is largely dependent on our ability to enter into new and renewed licensing arrangements.
Our failure to enter into new or renewed licensing arrangements will cause our operating results to suffer. We face
numerous risks in obtaining new or renewed licenses on terms consistent with our business objectives and in
maintaining, expanding, and supporting our relationships with our current licensees. These risks include:
•
the competition we may face from third parties and/or the internal design teams of existing and potential
licensees;
• 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;
• difficulties in obtaining new licensees for yet-to-be commercialized technology because their suppliers may
not be ready to meet stringent price, quality and parts availability requirements;
• difficulties in entering into or renewing gaming licenses if video console makers choose not to license third
parties to make peripherals for their new consoles, if video console makers no longer require peripherals to
play video games, if video console makers no longer utilize technology in the peripherals that are covered by
our patents or if the overall market for video 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; 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.
A limited number of customers account for a significant portion of our revenue, and the loss of major
customers could harm our operating results.
Samsung Electronics accounted for approximately 32%, 38%, and 47% of our total revenues for the years
ended December 31, 2015, 2014, and 2013, respectively. Two other customers each accounted for 18% and 14%
of our revenues in 2015 and for 17% and 12% of our revenues in 2014. We cannot be certain that 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, including Samsung whose agreement with us expired on December 31, 2015. If we
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fail to renew or lose a major customer or group of customers, 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 current or any future litigation is 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 have been in the past and are currently a party to various legal proceedings, including current litigation
we initiated against Apple, AT&T and AT&T Mobility. Due to the inherent uncertainties of litigation, we cannot
accurately predict how these cases will ultimately be resolved. We anticipate that currently pending or any future
litigation will continue to be costly, given the significant resources available to our current adverse parties, and
that future litigation will result in additional legal expenses, and there can be no assurance that we will be
successful or be able to recover the costs we incur in connection with litigation. We expense litigation costs as
incurred, and only accrue for costs that have been incurred but not paid to the vendor as of the financial statement
date. Although protecting our intellectual property is a fundamental part of our business, at times, our litigation
has diverted, and could continue to divert, the efforts and attention of some of our key management and personnel
away from our licensing transactions. As a result, until such time as it is resolved or concluded, litigation could
adversely affect our business. Further, any unfavorable outcome could adversely affect our business. For
additional background on our litigation, please see Part I, Item 3, “Legal Proceedings”.
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
that incorporate our technologies. 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 limit the scope, declare
unenforceable, or invalidate any of our patents, current licensees may refuse to make royalty payments, 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; and
•
effective patent protection may not be available in every country, particularly in Asia, where we or our
licensees do business; and
• our pending litigation against Apple, AT&T and AT&T Mobility LLC 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, including the expiration of several
gaming patents in 2015. We may experience a decrease in gaming royalty and license revenue due to expiration
of these patents. 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. In
addition, we also rely on licenses, confidentiality agreements, other contractual agreements, 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 misappropriation of our technologies or deter
others from developing similar technologies; and
• policing unauthorized use 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 proceedings to protect our intellectual property and may need to continue
to do so in the future, and we are currently in litigation against Apple, AT&T and AT&T Mobility 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 may result in substantial legal expenses and risk,
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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.
Future revenue is difficult to predict, and our failure to predict revenue accurately may cause our results
to be below our expectations or those of investors and result in our stock price declining.
Our lengthy and costly license negotiation cycle and any IP litigation that we may engage in making the
amount and/or timing of future revenue difficult to predict because we may not be successful in entering into or
renewing licenses with our customers on our estimated timelines, and we may be reliant on litigation timelines,
which are difficult to control, with unpredictable results.
Some of our license agreements provide for per-unit royalty payments and may also be subject to adjustments
based on volume. The sales volume and prices of our licensees’ products in any given period can be difficult to
predict. In addition, in certain product markets, we have entered into licensing agreements pursuant to which
customers make fixed recurring payments to us in exchange for use of our IP and technology. As a result, a portion
of the revenue we report each quarter results from the recognition of deferred revenue from fixed payments we
have received from these customers during previous quarters. If we were to experience significant decline in our
ability to renew these agreements or enter into new agreements that include fixed recurring payments, our reported
financial results might not reflect such downturns until future periods. Moreover, to the extent our business model
depends on fixed payments that we recognize over time, it may also be difficult for us to rapidly increase our
revenues through additional sales in any period, as revenue from new customers will be recognized over multiple
quarters. Additionally, if we have agreed that a customer may pay us a fixed amount for use of our IP and
technology during a given time period, we may receive lower revenues than we would have received under a per
unit royalty arrangement if the customer’s business grows or it otherwise performs better than we anticipated at
the time we entered into our licensing agreement with the customer.
In addition, a portion of our revenue comes from development and support services provided to our licensees,
or may be part of a contractual arrangement involving multiple elements. Depending upon the nature of the
services or elements, all or a portion of the revenue may be recognized ratably over time or may be deferred in
part or in whole.
All of these factors make it difficult to predict future revenue and may result in our revenue being below our
previously announced guidance or analysts’ estimates, which would likely cause our stock price to decline.
We are currently involved in appealing a judgment invalidating three of our patents; any final judgment
invalidation or limiting of the scope of these patents could harm our business.
As more fully described under Part I, Item 3, “Legal Proceedings,” we are currently appealing a judgment
invalidating three of our patents. At this time, the briefing for the appeal has been completed and we are awaiting
a hearing date with the Federal Circuit. We cannot predict the outcome of the appeal. If there is a final adverse
ruling invalidating the patents, we could be prevented from enforcing, or earning future revenues from those
patents, and the likelihood that customers will take new licenses and that current licensees will continue to agree
to pay under their existing licenses could be reduced. The resulting reduction in license fees and royalties could
harm our business, consolidated financial position, results of operations or cash flows, or the trading price of our
common stock.
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 under 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
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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.
Our international expansion efforts subject us to additional risks and costs.
We currently have sales personnel in Japan, Korea, China, and Switzerland. International operations are
subject to a number of difficulties and special costs, including:
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compliance with multiple, conflicting and changing governmental laws and regulations;
laws and business practices favoring local competitors;
foreign exchange and currency risks;
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 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 and Hong Kong.
Our international operations could also increase our exposure to international laws and 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. 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
Foreign Corrupt Practices Act and local laws prohibiting corrupt payments by our employees, vendors, or agents.
Competing technologies may harm our business.
One of our biggest sources of competition is derived from decisions made by internal design groups at our
customers and potential customers. These internal design groups typically make choices regarding whether to
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implement haptics or not, whether to use our software or other standard haptic capability (e.g., haptic capability
offered by the Android operating system), or even whether to develop their own haptic solutions. In instances
where the design team elects not to use our software but implements unlicensed haptic capability, we may seek
to enforce our IP. 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 licensees or
our ability to gain new customers, who may postpone licensing decisions pending the outcome of the litigation
or dispute, or who may, as a result of such litigation, choose not to adopt our technologies. In addition, these legal
proceedings could be very expensive and could have a negative impact on our financial results.
In our license agreements, we typically grant licenses to our patent portfolio for one or more specified fields
of use. Depending on the specific terms of our agreement with a customer, the customer’s internal design group
may be able to develop technology that is less expensive to implement or that enables products with higher
performance or additional features than our own technology and products. Many of these internal design groups
have substantially greater resources, greater financial strength and lower cost structures than we do. They also
have the inherent advantage of access to internal corporate strategies, technology roadmaps and technical
information. As a result, they may be able to bring alternative solutions to market more easily and quickly.
We also license to semiconductor manufacturers who incorporate certain of our less fully-featured software
into their integrated circuits for use in certain electronic devices. While our relationships with these semiconductor
manufacturers increases our distribution channels by leveraging their sales channels, it is possible 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 may negatively impact our financial results.
Winning business is often subject to a competitive selection process that can be lengthy and requires us to
incur significant expense, and we may not be selected.
In many cases, we must win competitive selection processes, known as “design wins,” before our 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. We may not win the competitive selection process
and may never generate any revenue despite incurring significant design and development expenditures. Because
we typically focus on only a few customers in a given product area, the loss of a design win may result in our
failure to have haptics added to new generation products in that area. This can result in lost sales and could hurt
our position in future competitive selection processes to the extent we are not perceived as being a technology
leader.
After winning a product design for one of our customers, we may still experience delays in generating
revenue as a result of lengthy customer development and design cycles. In addition, a change, delay or
cancellation of a customer’s plans could significantly adversely affect our financial results, as we may have
incurred significant expense and generated no revenue. Finally, even if a design is introduced, if our customers
fail to successfully market and sell their products, it could materially adversely affect our business, financial
condition, and results of operations.
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. Finally, as some of our
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key patents have expired related to video game peripherals, we may need to persuade our licensees that other
patents in our portfolio continue to be relevant which could result in the expenditure of significant resources
and/or failure to persuade the licensee of the relevance of the patents.
Automobiles and medical devices 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 and medical devices is very lengthy, sometimes longer
than four years. We may not earn royalty revenue on our automotive/medical 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, the option
packages if our technology is an option (for example, a navigation unit) or medical device, which is likely to be
determined by many factors beyond our control.
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 recently 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. While we do not anticipate any meaningful revenue
associated with this initiative in 2016, if we are unable to successfully establish 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 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 OEMs that manufacture and sell
products incorporating our touch-enabling technologies. For the years ended December 31, 2015, 2014, and 2013,
97%, 98%, and 97% 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.
We had an accumulated deficit of $80 million as of December 31, 2015, have only recently achieved
profitability, and may not maintain profitability in the future.
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As of December 31, 2015, we had an accumulated deficit of $80 million. We need to generate significant
ongoing revenue to maintain consistent profitability. We will continue to incur expenses as we:
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engage in research and develop our technologies;
increase our sales and marketing efforts;
attempt to expand the market for touch-enabled technologies and products;
• protect and enforce our IP;
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expand our international presence in connection with the recently implemented reorganization of our
corporate organization;
incur costs related to litigation; and
acquire IP or other assets from third-parties.
If our revenues grow more slowly than we anticipate or if our operating expenses exceed our expectations,
we may not maintain profitability.
We have limited engineering, customer service, technical support, quality assurance and operations
resources to design and meet delivery schedules and to provide support for our various technologies and, as a
result, we could fail to deliver software and services in a timely way, with sufficient levels of quality, or at all,
which may reduce our revenue.
We deploy our limited engineering, customer service, technical support, quality assurance, and operations
resources on a variety of different projects and programs intended to provide sufficient levels of quality necessary
for channels and customers. Our success in various markets may depend on timely deliveries and overall levels
of sustained quality and customer service. Our failure to provide high quality customer deliverables in a timely
fashion or at all, or our failure to maintain sufficient customer service levels, could disrupt our customer
relationships, harm our brand, and reduce our revenues.
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.
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
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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.
The market for certain touch-enabling technologies and touch-enabled products is at an early stage and
if market demand does not develop, we may not achieve or sustain revenue growth.
The market for certain of our touch-enabling technologies and certain of our licensees’ touch-enabled
products is at an early stage. If we and our licensees are unable to develop demand for our touch-enabling
technologies and products, we may not achieve or sustain revenue growth. We cannot accurately predict the
growth of the markets for these technologies and products, the timing of product introductions, or the timing or
likelihood of these products achieving widespread commercial adoption.
We expect that we will need to continue to pursue extensive and expensive marketing and sales efforts to
educate prospective licensees, component customers, and end users about the uses and benefits of our
technologies and to persuade software developers and content producers to create products that utilize our
technologies. Negative product reviews or publicity about our company, our technologies, our licensees’ products,
haptic features, or haptic technology in general could have a negative impact on market adoption, our revenue,
and/or our ability to license our technologies in the future.
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.
Changes to U.S. patent laws and proposed changes to the rules of the U.S. Patent and Trademark Office
may adversely impact our business.
Our business relies in part on the uniform and historically consistent application of U.S. patent laws and
regulations. There are numerous recent changes to the patent laws and the rules of the U.S. Patent and Trademark
Office, which may have a significant impact on our ability to protect our technology and enforce our IP rights.
For example, on September 16, 2011, President Obama signed the Leahy-Smith America Invents Act, which
codified significant changes to the U.S. patent laws, including, among other things, changing from a “first to
invent” to a “first inventor to file” system, limiting where a patentee may file a patent suit, requiring the
apportionment of patent damages, replacing interference proceedings with derivation actions and creating a post-
grant opposition process to challenge patents after they have been issued. The U.S. Patent and Trademark Office
has developed new and untested regulations and procedures to govern the full implementation of the Leahy-Smith
America Invents Act, and many of the substantive changes to patent law associated with the Leahy-Smith America
Invents Act, and in particular, the “first inventor to file” provisions. It is not clear what impact the Leahy-Smith
Act will have on the operation of our business and the protection and enforcement of our intellectual property. In
addition, in recent years, the courts have interpreted U.S. patent laws and regulations differently, and in particular
the U.S. Supreme Court has decided a number of patent cases and continues to actively review more patent cases
than it has in the past. Some of these changes or potential changes may not be advantageous for us, and may make
19
it more difficult to obtain adequate patent protection or to enforce our patents against parties using them without
a license or payment of royalties. These changes could increase the costs and uncertainties surrounding the
prosecution of our patent applications and the enforcement or defense of our patent rights, and could have a
deleterious effect on our licensing program and, therefore, the royalties we can collect.
If we fail to develop new or enhanced technologies for new applications and platforms, we may not be able
to create a market for our technologies or our technologies may become obsolete, and our ability to grow and
our results of operations might be harmed.
We derive a significant portion of our revenues from licenses and royalties from a relatively small number of
key technologies. We devote significant engineering resources to develop new technologies to address the
evolving needs of our customers and potential customers. To remain competitive, we must introduce new
technologies in a timely manner and the market must adopt them. Our initiatives to develop new and enhanced
technologies and to commercialize these technologies for new applications and new platforms may not be
successful or timely. Any new or enhanced technologies may not be favorably received by our licensees, potential
licensees, or consumers and could damage our reputation or our brand. Expanding and enhancing our technologies
could also require significant additional expenses and strain our management, financial, and operational
resources.
Moreover, technology products generally have relatively short product life cycles and our current
technologies may become obsolete in the future. Our ability to achieve revenue growth also depends on our
continuing ability to improve and reduce the cost of our technologies, to improve their ease of integration in both
hardware and software, and to introduce these technologies to the marketplace in a timely manner. If our
development efforts are not successful or are significantly delayed, companies may not incorporate our
technologies into their products and our revenues may not grow and could decline.
The higher cost of products incorporating our touch-enabling technologies may inhibit or prevent their
widespread adoption.
Mobile devices, tablets, touchscreens, personal computer and console gaming peripherals, and automotive,
medical, and industrial controls incorporating our touch-enabling technologies can be more expensive than similar
competitive products that are not touch-enabled. Although many OEMs have licensed our technologies, there is
generally no commitment on their part to use our technologies in their devices. The greater expense of
development and production of products containing our touch-enabling technologies, together with the higher
price to the end customer, may be a significant barrier to their widespread adoption and sale.
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
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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.
The uncertain economic 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 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, 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.
If we do not achieve increased tax benefits as a result of our recently implemented corporate restructuring,
our financial condition and operating results could be adversely affected.
We have recently completed a reorganization of our corporate organization. The purpose of this
reorganization was to more closely align our corporate structure with the international nature of our business
activities. This corporate restructuring activity is anticipated to allow us to reduce our overall effective tax rate
through changes in how we develop and use our intellectual property and the structure of our international sales
operations, including by entering into transfer-pricing arrangements that establish transfer prices for our
intercompany transactions.
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. 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 our tax rate will also depend on our ability to operate our business in a manner consistent
with the reorganization of our corporate organization and applicable taxing 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.
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Product liability claims could be time-consuming and costly to defend and could expose us to loss.
Our products or our licensees’ products may have flaws or other defects that may lead to personal or other
injury claims. If products that we or our licensees sell cause personal injury, property damage, financial loss, or
other injury to our or our licensees’ customers, the customers or our licensees may seek damages or other recovery
from us. In addition, even though we have transitioned from the medical products line of business, we could face
product liability claims for products that we have sold or that our successors have sold or may sell in the future.
Defending any claims against us, regardless of merit, would be time-consuming, expensive, and distracting to
management, and could result in damages and injure our reputation, the reputation of our technology, services, or
products, or the reputation of our licensees or their products. This damage could limit the market for our and our
licensees’ products and harm our results of operations. In addition, if our business liability insurance coverage
proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, operating results
and financial condition could be adversely affected.
In the past, manufacturers of peripheral products, including certain gaming products such as joysticks,
wheels, or gamepads, have been subject to claims alleging that use of their products has caused or contributed to
various types of repetitive stress injuries, including carpal tunnel syndrome. While we have not experienced any
product liability claims to date, we could face such claims in the future, which could harm our business and
reputation. Although our license agreements typically contain provisions designed to limit our exposure to product
liability claims, existing or future laws or unfavorable judicial decisions could limit or invalidate the provisions.
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.
Our customers may have difficulties obtaining the components necessary to manufacture haptic-based
products, which could harm our business and results of operations.
In order to manufacture haptic-based products, our OEM customers require components such as actuators
and amplifiers. The inability of suppliers to deliver adequate supplies of these components could disrupt our OEM
customers’ production processes, which would harm our business and results of operations. In addition, if our
OEM customers choose to use lower quality actuators as a cost-saving measure, the technical performance of our
software may be adversely affected which could also harm our business and results of operations. Certain of our
newer products require new types of components that we expect will be developed and sold by our ecosystem
partners. Failure of our ecosystem partners to bring these products to market in a timely and quality fashion at
attractive prices may negatively affect our ability to secure customers for these newer products which could harm
our business and results of operations. Component suppliers to customers could also be affected by natural
disasters and other similar events, including losses due to earthquakes.
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
22
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.
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 establishment or loss of licensing relationships;
the timing and recognition of payments under fixed and/or up-front 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;
23
•
•
•
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, policies or practices may have adverse, unexpected financial
reporting implications and affect our reported results of operations.
A change in accounting standards, policies, or practices, such as the new revenue accounting standard that
will become effective for us in our fiscal year ending December 31, 2018, Accounting Standards Update (“ASU”)
No. 2014-09 “Revenue from Contracts with Customers: Topic 606”, can have a significant effect on our reported
results and may even affect our reporting of transactions completed before the change is effective. New accounting
pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the
future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial
results or the way we conduct our business.
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. 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 stock market has experienced extreme volatility that often has been unrelated or disproportionate to the
performance of particular companies. These market fluctuations may cause our stock price to decline regardless
of our performance. The market price of our common stock has been, and in the future could be, significantly
affected by factors 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; 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; 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.
Our stock repurchase program could affect our stock price and add volatility.
Any repurchases pursuant to our 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 the 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 the 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 our stock repurchase program at any time
and any such discontinuation could cause the market price of our stock to decline.
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;
24
• only our chairperson of the board of directors, a majority of our board of directors or 10% or greater
stockholders 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;
• 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 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease a facility in San Jose, California of approximately 42,000 square feet, which serves as our corporate
headquarters and includes our sales, marketing, administration, and research and development functions. The
lease for this facility expires in April 2023 and we have an option to renew through April 2028.
25
We lease a facility in Montreal, Quebec, Canada of approximately 10,000 square feet, for our subsidiary,
Immersion Canada Corporation. The facility is used for research and development and administration functions.
The lease for this property expires in December 2018.
We also lease office space in Seocho-gu, Seoul, Korea; Shanghai, China; Beijing, China; Zhonghe City,
Taipei, Taiwan; Tokyo, Japan; Mriehel, Birkirkara, Malta; and Dublin, Ireland.
We believe that our existing facilities are adequate to meet our current needs.
Item 3. 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 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 and are seeking
to stop further infringement by the defendants, and to recover damages.
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: "Haptic Feedback System with Stored Effects"
U.S. Patent No. 8,773,356: "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: "Interactivity Model for Shared Feedback on Mobile Devices"
Although we believe we have strong claims, this litigation is at its early stages and the outcome of litigation
is inherently uncertain. Furthermore, Apple and AT&T have significant resources and therefore, this litigation
could be protracted.
Immersion Corporation vs. Motorola Mobility, Inc., Motorola Mobility Holdings, Inc., HTC Corporation,
HTC America Holding, Inc., HTC America, Inc., HTC (B.V.I.) Corporation, Exedea, Inc., Brightstar Corporation,
and Brightpoint, Inc.
On February 7, 2012, we filed a complaint against Motorola with the U.S. International Trade Commission
(the “ITC”) alleging that certain Motorola mobile electronic devices, including smartphones and cellular phones,
infringe six of our patents that cover various uses of haptic effects in connection with touchscreens (the “ITC
Complaint”). We amended the ITC Complaint on March 2, 2012 to add the following parties: HTC Corporation,
HTC America Holding, Inc., HTC America, Inc., HTC (B.V.I.) Corporation, Exedea, Inc., Brightstar Corporation
and Brightpoint, Inc. We subsequently withdrew HTC America Holding, Inc., HTC (B.V.I.) Corporation, Exedea,
Brightstar, and Brightpoint from the ITC Complaint. The ITC instituted an investigation against Motorola
Mobility, Inc., Motorola Mobility Holdings, Inc., HTC Corporation, and HTC America, Inc. on April 2, 2012.
On March 2, 2012, we filed a complaint against HTC Corporation, HTC America Holding, Inc., HTC
America, Inc., HTC (B.V.I.) Corporation, Exedea, Inc., Brightstar Corporation and Brightpoint, Inc. (collectively,
“HTC”) in the U.S. District Court for the District of Delaware (the “HTC Delaware Complaint”) alleging that
certain of HTC’s mobile electronic devices, including smartphones and cellular phones, infringed six of our
patents that cover various uses of haptic effects. The HTC Delaware Complaint covered the same patents as the
26
ITC Complaint. The HTC Delaware Complaint sought damages and injunctive relief. The parties stipulated to
stay the case pending the completion of the ITC investigation.
The HTC Delaware Complaint asserted infringement of the following patents:
U.S. Patent No 6,429,846 (the ‘846 patent): “Haptic Feedback for Touchpads and Other Touch Controls”
U.S. Patent No 7,969,288 (the ‘288 patent): “Force Feedback System Including Multi-Tasking Graphical Host
Environment and Interface Device”
U.S. Patent No 7,982,720 (the ‘720 patent): “Haptic Feedback for Touchpads and Other Touch Controls”
U.S. Patent No 8,031,181 (the ‘181 patent): “Haptic Feedback for Touchpads and Other Touch Controls”
U.S. Patent No 8,059,105 (the ‘105 patent): “Haptic Feedback for Touchpads and Other Touch Controls”
HTC asserted that the patents are not infringed, are invalid, and are unenforceable.
On November 21, 2012, we entered into a confidential settlement agreement with Motorola. On January 15,
2013, the Administrative Law Judge issued an Initial Determination terminating the ITC investigation as to
Motorola. On March 15, 2013, we dismissed the Motorola Delaware Complaint.
On March 12, 2013, we filed motions to suspend the procedural schedule and to terminate the ITC
investigation against HTC. The Administrative Law Judge issued an order granting the motion to suspend the
procedural schedule on March 19, 2013 and issued an Initial Determination terminating the ITC investigation as
to HTC on March 27, 2013. The decision became final on April 26, 2013.
We requested that the U.S. District Court for the District of Delaware re-open the case against HTC filed in
that Court, and the case was reopened on May 1, 2013. We filed an amended complaint on May 3, 2013. HTC
answered the amended complaint on June 28, 2013, stating affirmative defenses of (1) non-infringement,
(2) invalidity, (3) prosecution history estoppel, (4) equitable estoppel, exhaustion, license, and/or waiver,
(5) intervening rights, (6) unclean hands, (7) patent misuse, (8) inequitable conduct based on ’720 patent
reexamination, (9) inequitable conduct (’846 patent family), (10) inequitable conduct (’288 patent), (11) double
patenting, (12) failure to comply with 35 U.S.C. § 120, and (13) failure to mark / failure to mitigate.
On October 3, 2014, HTC filed five motions with the Court: (1) motion to exclude the testimony of
Immersion’s damages expert; (2) motion for partial summary judgment shortening the damages period for U.S.
Patent Nos. 7,969,288; 7,982,720, and 8,031,18; (3) motion for summary judgment of invalidity of U.S. Patent
Nos. 8,059,105; 8,031,181; and 7,982,720; (4) motion for summary judgment of non-infringement of U.S. Patent
No. 7,969,288, and; (5) motion for summary judgment of non-infringement of U.S. Patent Nos. 6,429,846;
7,982,720; 8,031,181; and 8,059,105. A hearing on claim construction and the latter three motions was held on
November 25, 2014. A hearing on the first motion was held on January 30, 2015. On February 11, 2015, the Court
issued rulings on claim construction and on four of HTC’s five motions. The Court denied the motion for summary
judgment of non-infringement of the ’288 patent (because the Court found the ’720 and ’181 patents invalid as
anticipated, it did not address HTC’s arguments with regard to these patents); granted in part the motion for
summary judgment of non-infringement of the ’846, ’720, ’181, and ’105 patents, finding that the HTC’s products
do not literally infringe the ’846, and ’105 patents; and granted the motions for partial summary judgment
shortening the damages period of the ’288 patent, and for summary judgment of invalidity of the ’105, ’181, and
’720 patents. On February 24, 2015 the Court denied in part and granted in part the first motion, ruling that our
damages expert may testify about reasonable royalties but not about lost profits.
Trial was scheduled to begin on March 23, 2015. On March 23, 2015, we announced that we agreed to enter
into a settlement and license agreement with HTC, resolving the patent infringement litigation, but preserving our
right to appeal the invalidity ruling affecting three of our patents. Under the settlement and license agreement,
HTC will pay an undisclosed amount of compensation for prior shipments of its devices containing Basic Haptics
and an additional undisclosed amount of compensation for a license to continue to manufacture and sell devices
with Basic Haptics. On March 31, 2015 the Court entered a Final Judgment providing that HTC does not infringe
the ‘105, ‘181, and ‘720 patents solely because the Court ordered that HTC prevailed on its affirmative defense
27
of invalidity, and dismissing our claims of infringement of the ‘846 and ‘288 patents pursuant to the settlement
and license agreement. On April 21, 2015, we filed a Notice of Appeal to the United States Court of Appeals for
the Federal Circuit. The appeal has been docketed as Case No. 15-1574.
In the U.S. Patent Office, HTC filed requests for ex-parte reexamination of three of our patents: the ‘288,
‘999, and ‘720 patents. Reexamination of the ’288 patent was requested on July 30, 2012. The U.S. Patent Office
granted the request on October 24, 2012. Reexamination of the ’999 patent was requested on September 6, 2012.
The U.S. Patent Office granted the request on November 26, 2012. Reexamination of the ’720 patent was
requested on September 10, 2012. The U.S. Patent Office granted the request on November 28, 2012. On July 24,
2013, the U.S. Patent Office issued a Reexamination Certificate for the ’999 patent, after certain claims were
cancelled and other claims were amended. On February 18, 2014, the U.S. Patent Office issued a Reexamination
Certificate for the ’720 patent after certain claims were cancelled and other claims were amended. On
February 10, 2014 the U.S. Patent Office issued a Reexamination Certificate for the ‘288 patent after certain
claims were cancelled and claim 18 was amended.
We cannot predict the ultimate outcome of the above-mentioned federal actions, and we are unable to estimate
any potential liability we may incur.
Item 4. Mine Safety Disclosures
Not applicable.
28
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock is traded on the Nasdaq Global Market under the symbol “IMMR.” The following table
sets forth, for the periods indicated, the high and low sales prices for our common stock on such market.
Fiscal year ended December 31, 2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal year ended December 31, 2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$
$
$
$
$
$
$
$
14.45
13.90
13.03
10.32
9.62
14.72
12.79
12.60
$
$
$
$
$
$
$
$
10.71
10.37
8.87
7.72
7.20
8.51
10.00
9.69
On February 18, 2016, the closing price was $8.01 per share and there were 88 holders of record of our
common stock. Because many of such shares are held by brokers and other institutions on behalf of stockholders,
we are unable to estimate the total number of stockholders represented by these record holders.
Dividend Policy
We have never declared or paid any cash dividends on our common stock and we do not anticipate paying
cash dividends in the foreseeable future. We currently intend to retain any earnings to fund future growth, product
development, and operations.
Company Stock Performance Graph
The information contained in the Performance Graph shall not be deemed to be “soliciting material” or
“filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, as amended, except to the
extent that we specifically incorporate it by reference into a document filed under the Securities Act, as amended,
or the Exchange Act.
The graph below depicts a five-year comparison of cumulative total shareholder returns for Immersion
common stock, the NASDAQ Composite Index, and the RDG Technology Composite Index. The graph assumes
an investment of $100 for the five-year period commencing on December 31, 2010 and ending on December 31,
2015, in Immersion’s common stock, and in the NASDAQ Composite and the RDG Technology Composite
indices, and reinvestment of dividends, if any.
The comparison below is based on historical data, and Immersion cautions that the stock price performance
shown in the graph is not indicative of, nor intended to forecast, the potential future performance of Immersion’s
common stock. Information used in the graph was obtained from a source believed to be reliable, but Immersion
is not responsible for any errors or omissions in such information.
29
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Immersion Corporation, the NASDAQ Composite Index,
and the RDG Technology Composite Index
*
$250
$200
$150
$100
$50
$0
12/10
12/11
12/12
12/13
12/14
12/15
Immersion Corporation
NASDAQ Composite
RDG Technology Composite
*$100 invested on 12/31/10 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Immersion Corporation
NASDAQ Composite
RDG Technology Composite
2010
2011
2012
2013
2014
2015
$
$
100
100
100
$
77
101
101
102 $
117
115
155 $
166
153
141 $
189
178
174
200
181
December 31,
Securities Authorized for Issuance under Equity Compensation Plans
The information concerning our equity compensation plans is incorporated by reference herein to Note 9 to
the notes to our consolidated financial statements.
30
Item 6. Selected Financial Data
The following selected consolidated financial data is qualified in its entirety by, and should be read in
conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-
K. The selected consolidated financial data for each of the years ended December 31, 2015, 2014 and 2013 are
derived from our audited consolidated financial statements, and accompanying notes, included in this Annual
Report on Form 10-K. The selected consolidated statement of operations data for each of the years ended
December 31, 2012 and 2011 and the consolidated balance sheet data as of December 31, 2013, 2012 and 2011
are derived from our audited consolidated financial statements which are not included in this report.
31
2015
Years Ended December 31,
2013
2014
(In thousands, except per share data)
2012
2011
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues
Costs and expenses
Operating income (loss)
Income tax benefit (provision) from
continuing operations
Income (loss) from continuing operations
Gain from discontinued operations (net of tax)
Net income (loss)
Basic net income (loss) per share:
Continuing operations
Discontinued operations
Total
Shares used in calculating basic net income
(loss) per share
Diluted net income (loss) per share:
Continuing operations
Discontinued operations
Total
$
63,393 $
58,674
4,719
52,937 $
46,970
5,967
47,470 $ 32,169 $
43,866
3,604
38,897
(6,728)
30,635
32,514
(1,879)
(1,591)
(2,196)
2,858
—
2,858
4,123
—
4,123
36,483
40,155
—
40,155
(792)
(1,816)
(7,350)
153
(3,491)
61
(7,197)
(3,430)
0.10 $
0.15 $
—
—
0.10 $
0.15 $
1.42 $
—
1.42 $
(0.27) $
0.01
(0.26) $
(0.12)
—
(0.12)
28,097
28,246
28,190
27,735
28,564
0.10 $
0.14 $
—
—
0.10 $
0.14 $
1.37 $
—
1.37 $
(0.27) $
0.01
(0.26) $
(0.12)
—
(0.12)
$
$
$
$
Shares used in calculating diluted net income
(loss) per share
29,015
29,144
29,338
27,735
28,564
2015
2014
December 31,
2013
(In thousands)
2012
2011
CONSOLIDATED BALANCE SHEET
DATA:
Cash, cash equivalents, and short-term
investments
Working capital
Total assets
Total stockholders’ equity
$
64,931 $
57,361 $
53,749
105,415
86,615
58,025
97,521
76,603
32
71,112
64,249
110,575
80,671
$ 43,546
$
56,285
38,378
48,011
29,278
49,245
60,794
37,891
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and notes
thereto.
This Management’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, as amended, and Section 21E
of the Exchange Act, as amended. The forward-looking statements involve risks and uncertainties. Forward-
looking statements are frequently identified by words such as “anticipates,” “believes,” “expects,” “intends,”
“may,” “will,” and other similar expressions. However, these words are not the only way we identify forward-
looking statements. In addition, any statements, which refer to expectations, projections, or other
characterizations of future events or circumstances, are forward-looking statements. 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 in Item 1A, “Risk Factors,” those described elsewhere in this report, and those described in our
other reports filed with the SEC. We caution you not to place undue reliance on these forward-looking statements,
which speak only as of the date of this report, and we undertake no obligation to release the results of any revisions
to these forward-looking statements that could occur after the filing of this report.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). The preparation of these 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, patents and intangible assets, income taxes, contingencies, and litigation. 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.
We believe the following are our most critical accounting policies as they require our significant judgments
and estimates in the preparation of our consolidated financial statements:
Revenue Recognition
We recognize revenues in accordance with applicable accounting standards, including Accounting Standards
Codification (“ASC”) 605-10-S99, “Revenue Recognition” (“ASC 605-10-S99”); ASC 605-25, “Multiple
Element Arrangements” (“ASC 605-25”); and ASC 985-605, “Software-Revenue Recognition” (“ASC 985-
605”). We derive our revenues from two principal sources: royalty and license fees, and development contract
and service fees. As described below, management judgments and estimates must be made and used in connection
with the revenue recognized in any accounting period. Material differences may result in the amount and timing
of our revenue for any period based on the judgments and estimates made by our management. Specifically, in
connection with each transaction, we must evaluate whether: (i) persuasive evidence of an arrangement exists,
(ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectibility is probable. We apply these
criteria as discussed below.
• Persuasive evidence of an arrangement exists. For a license arrangement, we require a written
contract, signed by both the customer and us.
• Delivery has occurred. We deliver software to our customers physically and also electronically.
For electronic deliveries, delivery occurs when we provide the customer access codes or “keys”
that allow the customer to take immediate possession of the software.
• The fee is fixed or determinable. Our 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, we deem these fees not to be fixed or determinable for
revenue recognition purposes and revenue is deferred until the fees become due and payable.
33
• Collectibility is probable. To recognize revenue, we must judge collectibility of fees, which we do
on a customer-by-customer basis pursuant to our credit review policy. We typically sell to
customers with whom we have a history of successful collection. For new customers, we evaluate
the customer’s financial condition and ability to pay. If we determine that collectibility is not
probable based upon our credit review process or the customer’s payment history, we recognize
revenue when payment is received.
Royalty and license revenue — We license our patents and software to customers in a variety of
industries such as mobility, gaming, automotive, and medical devices. Certain of these are variable fee
arrangements where the royalties earned by us are based on unit or sales volumes of the respective licensees. We
also enter into fixed license fee arrangements. The terms of the royalty agreements generally require licensees to
give notification of royalties due to us within 30 – 45 days of the end of the quarter during which their related
sales occur. As we are unable to reliably estimate the licensees’ sales in any given quarter to determine the
royalties due to us, we recognize royalty revenues based on royalties reported by licensees and when all revenue
recognition criteria are met. Certain royalties are based upon customer shipments or revenues and could be subject
to change and may result in out of period adjustments. We recognize fixed license fee revenue for licenses 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, and other 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 physical completion of the work to be performed or completed performance method.
A provision for losses on contracts is made, if necessary, 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 — We enter 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 and include software and engineering services, the services are generally not essential to the functionality
of the software, and customers may purchase engineering services to facilitate the adoption of our technology, but
they may also decide 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 limitations related to extended payment terms. For
arrangements involving upfront fees for services and royalties earned by us based on unit or sales volumes of the
respective licensees, 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 unit or sales volume are
recognized when they become fixed and determinable. As we are unable to reliably estimate the licensees’ sales
in any given quarter to determine the royalties due to us, we recognize per unit or sales volume driven royalty
revenues based on royalties reported by licensees and when all revenue recognition criteria are met.
Stock-based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.
Valuation and amortization methods — We use the Black-Scholes-Merton option pricing model
(“Black-Scholes model”), single-option approach to determine the fair value of standard stock options and
Employee Stock Purchase Plan (“ESPP”) shares. 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. Stock-based
compensation expense recognized at fair value includes the impact of estimated forfeitures. We estimate future
forfeitures at the date of grant and revise the estimates if necessary, in subsequent periods if actual forfeitures
differ from these estimates. The determination of the fair value of stock-based payment 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
34
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 dividends.
We use the Monte-Carlo Simulation model to value our stock options with a market condition. Valuation
techniques such as the Monte-Carlo Simulation model have been developed to value path-dependent awards. The
Monte-Carlo Simulation model is a generally accepted statistical technique used, in this instance, to simulate a
range of our future stock prices.
The Black-Scholes model was developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable, characteristics not present in our option grants and ESPP shares.
Existing valuation models, including the Black-Scholes model and the Monte-Carlo Simulation, may not provide
reliable measures of the fair values of our stock-based compensation. Consequently, there is a risk that our
estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance
to the actual values realized upon the exercise, expiration, early termination, or forfeiture of those stock-based
payments in the future. Certain stock-based payments, such as employee stock options, may expire and be
worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the
grant date and reported in our financial statements. Alternatively, value may be realized from these instruments
that are significantly higher than the fair values originally estimated on the grant date and reported in our financial
statements. There currently is no market-based mechanism or other practical application to verify the reliability
and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust
the estimates to actual values.
If factors change and we employ different assumptions for estimating stock-based compensation expense in
future periods, or if we decide to use a different valuation model, the future periods may differ significantly from
what we have recorded in the current period and could materially affect our operating results.
See Note 9 to the consolidated financial statements for further information regarding stock-based
compensation.
Accounting for Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, income tax expense
is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets
and liabilities are recognized for the expected future tax consequences of temporary differences between the
financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized and are reversed at such time that realization is believed to be more likely than not.
Our judgments, assumptions, and estimates relative to the current provision for income tax take into account
current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits
conducted by foreign and domestic tax authorities. We have established reserves for income taxes to address
potential exposures involving tax positions that could be challenged by tax authorities. Although we believe our
judgments, assumptions, and estimates are reasonable, changes in tax laws or our interpretation of tax laws and
any future tax audits could significantly impact the amounts provided for income taxes in our consolidated
financial statements.
Our assumptions, judgments, and estimates relative to the value of a deferred tax asset take into account
predictions of the amount and category of future taxable income, such as income from operations or capital gains
income. Actual operating results and the underlying amount and category of income in future years could render
inaccurate our current assumptions, judgments, and estimates of recoverable net deferred tax assets. Any of the
assumptions, judgments, and estimates mentioned above could cause our actual income tax obligations to differ
from our estimates, thus materially impacting our financial position and results of operations.
We are a United States-based multinational company subject to tax in multiple U.S. and foreign tax
jurisdictions. Certain portions of our foreign earnings for the current fiscal year were earned by our Irish
subsidiaries. In addition to providing for U.S. income taxes on earnings from the U.S., we provide for U.S. income
35
taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered permanently
reinvested outside the U.S. While we do not anticipate changing our intention regarding permanently reinvested
earnings, if certain foreign earnings previously treated as permanently reinvested are repatriated, the related U.S.
tax liability may be reduced by any foreign income taxes paid on these earnings but only to the extent that we
generate sufficient United States based income.
Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax
rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned, by
changes in, our estimates related to, or our interpretation of, tax rules and regulations in the jurisdictions in which
we do business, by unanticipated decreases in the amount of earnings in countries with low statutory tax rates, or
by changes in the valuation of our deferred tax assets and liabilities. The United States, countries in the European
Union and other countries where we do business have been considering changes in relevant tax, accounting and
other laws, regulations and interpretations, including changes to tax laws applicable to corporate multinationals.
These potential changes could adversely affect our effective tax rates or result in other costs to us.
In November 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-17 “Balance
Sheet Classification of Deferred Taxes” (“ASU 2015-17”) that requires companies to classify all deferred tax
assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and
noncurrent amounts. In addition, companies will no longer allocate valuation allowances between current and
noncurrent deferred tax assets because those allowances also will be classified as noncurrent. ASU 2015-17 is
effective for reporting periods beginning after December 15, 2016 with early adoption permitted for any interim
or annual periods that have not been issued. We have decided to adopt ASU 2015-17 prospectively as of December
31, 2015 and as such, prior balance sheets were not retrospectively adjusted. We believe that this change in
principle will provide more useful information as deferred assets and liabilities will be classified in one area on
the balance sheet, while the prior method of classifying deferred taxes separately into current and noncurrent
amounts generally would not always reflect when the related temporary difference would reverse and become a
taxable or deductible item. In addition, this change will reduce complexity as we will no longer need to allocate
valuation allowances between current and noncurrent.
See Note 11 to the consolidated financial statements for further information concerning income taxes.
The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases,
the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for
management’s judgment in its application. There are also areas in which management’s judgment in selecting any
available alternative would not produce a materially different result.
Results of Operations
Overview of 2015
We continued to invest in research, development, sales, and marketing in our key lines of business. Key
events in the year were as follows:
• We increased our royalty and license revenue by 19% and our overall revenue by 20% for the year ended
December 31, 2015 compared to 2014. The increase in royalty and license revenue was driven mainly
by our mobility licensees and, to a lesser extent, by increases from our automotive, gaming, and medical
licensees.
• Our net income was $2.9 million for the year ended December 31, 2015 compared to net income of $4.1
million for the year ended December 31, 2014. The decrease in net income of $1.2 million was primarily
due to increased expenses of $11.7 million which primarily consisted of increased compensation,
benefits, and other related costs of $7.2 million from increased headcount, increased legal and
professional fees of $2.7 million, and increased consulting and outside services fees of $863,000. The
impact of these increased expenses was partially offset by an increase in gross profit of $10.5 million
primarily due to additional royalty and license revenue and a decrease in tax provision of $605,000. See
Note 11 to the consolidated financial statements for additional information on our income taxes.
36
In 2016, we expect royalty and license revenue, mainly from our mobility business, to be the major
component of our revenue as our technology continues to be included in our licensees’ products and as we
continue to execute our patent licensing program in mobility. Our gaming royalty and license revenue could be
adversely impacted in 2016 by the expiration of several gaming patents in 2015. Revenue may also decrease due
to timing and an uncertainty of contract renewals. IP litigation, including our pending litigation with Apple and
AT&T, may cause us to expend significant financial resources in the future and may have an adverse effect on the
results of our operations. Additionally, our success could be limited by various factors, including global economic
conditions, foreign currency exchange rates, the timely release of our new products and our licensees’ products,
continued market acceptance of our products and technology, and the introduction of new products by existing or
new competitors and adverse rulings affecting our patents. For a further discussion of these and other risk factors,
see Item 1A, “Risk Factors.”
The following table sets forth our consolidated statements of income data as a percentage of total revenues:
Revenues:
Royalty and license
Product sales
Development, services, and other
Total revenues
Costs and expenses:
Cost of revenues (exclusive of amortization of intangibles shown
separately below)
Sales and marketing
Research and development
General and administrative
Amortization of intangibles
Total costs and expenses
Operating income
Interest and other income
Other expense
Income before provision for income taxes
Benefit (provision) for income taxes
Net income
Revenues
Years Ended December 31,
2015
2014
2013
97.3%
—
2.7
100.0
97.9%
—
2.1
100.0
97.2%
0.2
2.6
100.0
0.7
23.2
23.3
45.4
—
92.6
7.4
0.3
(0.7)
7.0
(2.5)
4.5%
0.9
20.6
22.3
44.9
0.1
88.8
11.2
1.1
(0.4)
11.9
(4.1)
7.8%
1.0
19.7
22.9
48.6
0.2
92.4
7.6
0.3
(0.2)
7.7
76.9
84.6%
Royalty and license
Product sales
Development, services, and
other
Total revenue
2015
Change
$ 61,677 $ 9,873
—
—
Percent
Change
2014
Percent
Change Change
2013
($ in thousands)
19% $ 51,804 $ 5,650
(105)
—
—%
12 % $ 46,154
105
(100 )%
1,716
583
51%
1,133
(78)
(6 )%
1,211
$ 63,393
$ 10,456
20% $ 52,937 $ 5,467
12 % $ 47,470
37
2015 Compared to 2014
Royalty and license revenue — Royalty and license revenue is comprised of royalties earned on sales by our
licensees and license fees charged for our technology. The increase in royalty and license revenue was driven
primarily by increases from our mobility licensees and, to a lesser extent, by increases from our automotive,
gaming, and medical licensees.
Variable royalty revenue based on shipping volumes and per unit prices increased to $29.8 million for the
year ended December 31, 2015 from $21.6 million for the year ended December 31, 2014. The increase in 2015
variable royalty revenue was primarily due to increased volume from our mobility customers and, to a lesser
extent, due to higher royalty rates and timing of revenue recognition. Fixed payment license revenue increased to
$31.9 million for the year ended December 31, 2015 from $30.2 million for the year ended December 31, 2014,
mainly due to a non-recurring license fee from a completed contract of $2.0 million.
Royalty and license revenue from mobility customers increased by 23% primarily due to a non-recurring
license fee from a completed contract of $2.0 million and to a lesser extent increased volume from our new and
existing customers. We anticipate that our mobility business will continue to be of primary importance.
Royalty and license revenue from automotive customers increased by 53%, primarily due to our technology
being incorporated in an increased volume of vehicles sold by existing licensees and to a lesser extent the timing
of revenue recognition.
Royalty and license revenue from gaming customers increased by 5%, primarily due to increased sales by
our licensees of products containing our technology. Revenue from gaming customers can fluctuate based upon
consumer gaming 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 also increased by 14% for medical customers primarily due to increased sales
volumes from our licensees and timing of revenue recognition; partially offset by decreased license fees.
We expect royalty and license revenue to be the major component of our future revenue as our technology
continues to be included in products and as we continue our efforts to monetize our IP. We typically experience
seasonally higher revenue from our gaming and mobility customers due to the reporting of holiday sales in the
first calendar quarter compared to other calendar quarters. Our gaming royalty and license revenue could be
adversely impacted in 2016 by the expiration of several gaming patents in 2015. Revenue may also decrease due
to timing and an uncertainty of contract renewals.
Development, services, and other revenue — Development, services, and other revenue is comprised
primarily of development work, implementation support, and other contract engineering services provided to
customers. Development, services, and other revenue increased mainly due to a non-recurring service fee from a
completed contract of $0.6 million. We continue to focus our engineering resources on development efforts that
leverage our existing sales and channel distribution capabilities. Accordingly, we do not expect development,
services, and other revenue to be a significant part of total revenues in the future.
For 2015 revenues generated in North America, Europe, and Asia represented 28%, 5%, and 67%,
respectively, compared to 29%, 3%, and 68%, respectively, for 2014. The slight shift in revenues among regions
was mainly due to an increase in royalty and license revenue in Asia primarily due to an increase in royalty
revenue from our mobility and automotive licensees. The increase in royalty and license revenue in North America
was primarily due to increased revenue from our mobility and gaming customers. The increase in royalty and
license revenue in Europe was primarily due to increased revenue from our automotive, gaming, and medical
customers. The increases in royalty and license revenue in Asia and North America were relatively less than the
increase in Europe, resulting in the decreases in these regions as a percentage of revenues.
38
2014 Compared to 2013
Royalty and license revenue — The increase in royalty and license revenue was driven primarily by increases
from our gaming licensees and, to a lesser extent, by increases from our automotive, mobility, and medical
licensees.
Variable royalty revenue based on shipping volumes and per unit prices increased to $21.6 million for the
year ended December 31, 2014 from $19.5 million for the year ended December 31, 2013. The increase in 2014
variable royalty revenue was primarily from our gaming and automotive customers. This increase was partially
offset by lower variable royalty revenue from our mobile customers as 2013 included approximately $2 million
from the overlapping receipt of both contract completion or tail period revenue and new revenue under an
agreement that expired and was subsequently renewed during 2013, an event that did not recur in 2014. Fixed
payment license revenue increased to $30.2 million for the year ended December 31, 2014 from $26.7 million for
the year ended December 31, 2013, due to increased license fees from gaming and mobility licensees and, to a
lesser extent, by increases from our medical and automotive licensees.
Royalty and license revenue from gaming customers increased by 50%, primarily due to license fees and the
sale of gaming console products, including the Sony PlayStation 4.
Royalty and license revenue from automotive customers increased by 13%, primarily due to a new customer
contract in Europe, as well as our technology being incorporated in an increased volume of vehicles sold by our
licensees.
Royalty and license revenue from mobility customers increased by 2%, primarily due to increased license
revenue from our licensees in Asia; partially offset by the fact that 2013 revenue included approximately $2
million from the overlapping receipt of both tail period revenue and new revenue under an agreement that expired
and was subsequently renewed during 2013, an event that did not recur in 2014.
Royalty and license revenue also increased by 1% for medical customers, primarily due to increased license
fees, partially offset by a decreased level of sales by licensees.
For 2014 revenues generated in North America, Europe, and Asia represented 29%, 3%, and 68%,
respectively, compared to 28%, 4%, and 68%, respectively, for 2013. There was no significant shift in revenues
among regions as royalty and license revenues in each region increased at relatively consistent rates. The increase
in royalty and license revenue in North America was primarily due to an increase in royalty and license revenue
from our gaming, mobility, and medical licensees. The increase in royalty and license revenue in Europe from
our automotive customers was relatively less than the overall increase in North America, resulting in a decrease
in the percentage of revenue attributed to Europe as a part of total revenue.
Expenses
Sales and marketing
Research and
development
General and
administrative
Amortization of
intangibles
2015
Change
Percent
Change
2014
($ in thousands)
Percent
Change
Change
($ in thousands)
2013
$ 14,674 $
3,778
35 % $ 10,896 $
1,558
14,785
2,992
25 %
11,793
28,755
5,001
21 %
23,754
910
650
17 % $ 9,338
8 %
10,883
3 %
23,104
20
(47)
(70 )%
67
(12)
(15 )%
79
Sales and Marketing — Our sales and marketing expenses are composed primarily of employee
compensation and benefits, sales commissions, advertising, trade shows, collateral marketing materials, market
39
development funds, travel, and an allocation of facilities costs. The increase in sales and marketing expense for
2015 as compared to 2014 was primarily due to increased compensation, benefits, and other related costs of $2.8
million, mainly due to increased headcount and benefits; increased marketing and advertising expenses of
$551,000 mainly due to marketing initiatives and tradeshows; and increased consulting and outside services of
$254,000 due to tradeshows and sales initiatives in 2015. We expect that sales and marketing expenses will
increase in 2016 as we continue to invest in sales and marketing to further market acceptance for our touch
technologies and expanding our focus on the content and media business.
The increase in sales and marketing expense for 2014 as compared to 2013 was primarily due to increased
compensation, benefits, and other related costs of $1.1 million, mainly due to increased headcount and stock
compensation expense; increased travel expenses of $265,000 mainly due to increased headcount and an increased
number of tradeshows attended in 2014; and increased consulting and outside services expense of $260,000 due
to current marketing initiatives and preparation for tradeshows.
Research and Development — Our research and development expenses are composed primarily of employee
compensation and benefits, consulting fees, tooling and supplies, and an allocation of facilities costs. The increase
in research and development expenses for 2015 as compared to 2014 was primarily due to increased
compensation, benefits, and other related costs of $2.1 million, mainly due to increased headcount and benefits;
and increased consulting and outside services expense of $609,000, related to our investment in projects to
continue inventing and improving our haptic technologies. We believe that continued investment in research and
development is critical to our future success, and we expect to continue to make investments in areas of research
and development to support future growth including our content and media business.
The increase in research and development expenses for 2014 as compared to 2013 was primarily due to
increased compensation, benefits, and other related costs of $487,000, mainly due to increased headcount,
benefits, and stock compensation expense; increased travel expenses of $219,000, mainly due to increased
headcount; increased lab and office expense of $121,000, primarily due to increased software licenses for software
development tools; and increased consulting and outside services expense of $69,000, in part related to our
investment in our content and media initiative.
General and Administrative — Our general and administrative expenses are primarily composed of employee
compensation and benefits, legal and professional fees, external legal costs for patents, office supplies, travel, and
an allocation of facilities costs. The increase in general and administrative expenses for 2015 as compared to 2014
was primarily due to increased legal and professional expenses of $2.7 million and increased compensation,
benefits, and other related costs of $2.3 million. The increased legal and professional expenses were primarily
due to increased professional services and license fee expenses of $4.3 million, partially offset by decreased
litigation expenses of $1.6 million relating to ongoing and completed litigation. The increased compensation,
benefits, and other related costs were mainly due to increased headcount, benefits, and stock compensation
expense. Our general and administrative expenses will continue to be significant as we manage our business and
strategic opportunities and continue to file, maintain, license, and enforce our IP and contractual rights, including
in the current litigation against Apple, AT&T and AT&T Mobility, and defend any lawsuits brought against us or
that we initiate against others to enforce our IP or contractual rights.
The increase in general and administrative expenses for 2014 as compared to 2013 was primarily due to
increased legal and professional expenses of $1.7 million and increased foreign exchange transaction expense of
$53,000; partially offset by decreased compensation, benefits, and other related costs of $1.1 million. The
increased legal and professional expenses were primarily due to increased patent related legal costs of $1.2
million, increased other professional services and license fee expenses of $974,000, partially offset by decreased
litigation expenses of $495,000 relating to ongoing and completed litigation. The decreased compensation,
benefits, and other related costs were mainly due to decreased facilities overhead and other compensation costs.
40
Interest and Other Income
Other Expense
2015
Percent
Change
2014
Change
($ in thousands)
Percent
Change
2013
Change
($ in thousands)
Interest and other income $
$
Other expense
177 $ (403)
(447) $ (219)
(69 )% $
580 $
96 % $
(228) $
401
(117)
224% $ 179
105% $ (111)
Interest and Other Income — Interest and other income consists primarily of interest income from cash and
cash equivalents and short-term investments, interest on notes receivable, translation exchange rate gains and
other income. Interest and other income decreased in 2015 compared to 2014 and increased in 2014 compared to
2013 as a result of a non-recurring gain of $344,000 in 2014 that did not reoccur in 2015.
Other Expense — Other expense consist primarily of translation exchange rate losses. Other expense
increased in 2015 compared to 2014 and in 2014 compared to 2013 as a result of exchange rate losses from our
foreign subsidiaries.
Benefit (provision) for Taxes
2015
Percent
Change
Change
($ in thousands)
2014
Change
Percent
Change
($ in thousands)
2013
(1,591) $
605
(28 )% $ (2,196) $ (38,679)
(106 )% $ 36,483
4,449
35.8%
6,319
34.8%
3,672
(993.5 )%
Benefit (provision)
for income taxes $
Income before
provision for
income taxes
Effective tax rate
During the year ended December 31, 2015, we commenced and completed a reorganization of our
international operations. The purpose of this reorganization is to more closely align our corporate structure and
income tax profile with the international nature of our business activities. Steps taken to achieve the reorganization
included making changes to our legal entity structure, transferring certain IP rights to one of our foreign
subsidiaries, and the implementation of contractual agreements, including research and development cost-sharing
arrangements, between the U.S. entity and its wholly owned foreign subsidiaries. There were no other expenses
incurred, in relation to the reorganization described above, outside of those related to income taxes.
We expect that this reorganization will result in a lower percentage of pre-tax income being subject to U.S.
federal statutory tax rate. However, our ability to realize the expected tax benefits of this reorganization is
contingent upon numerous factors, including our ability to achieve our projected revenue and earnings both
domestically and in the various countries in which the reorganization took place and the judgments of tax
authorities in several jurisdictions. A change in these factors in future periods relative to our current assumptions
may result in additional income tax expense being recorded in future filings.
For 2015 we recorded a provision for income taxes of $1.6 million yielding an effective tax rate of 35.8%
The 2015 provision includes the tax impact of nondeductible permanent items, including stock-based
compensation and foreign withholding taxes, incurred for the period. The provision for income tax for 2015 also
41
includes tax expense on intercompany profits resulting from the sale of certain IP rights to one of our foreign
subsidiaries as part of the reorganization described above. The change in tax provision results primarily from the
effects of the above described reorganization, including an increase to the valuation allowance against certain
deferred tax assets and, to a lesser extent, the change in income before provision for income taxes for each tax
jurisdiction.
In 2016, we expect to use a 35% tax rate to record the federal portion of our income tax provision expense,
but expect there to be a limited cash impact as we will use our net operating losses and other deferred tax assets
that have been carried forward to reduce taxes paid in cash. Although we expect to reduce taxes paid in cash, our
effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected to the extent
actual earnings are lower than anticipated in countries that have lower statutory rates and higher in countries that
have higher statutory rates. Based upon activity during the year ended December 31, 2015, we continue to
maintain a valuation allowance of $1.5 million against U.S. federal deferred tax assets based on our conclusion
that it was not more likely than not that they would be utilized. We also maintain a valuation allowance of $6.6
million against our state and certain other foreign deferred tax assets, as there was not sufficient evidence to
support the release of such valuation allowance as of December 31, 2015.
For 2014, we recorded a provision for income taxes of $2.2 million, yielding an effective tax rate of 34.8%.
The 2014 tax provision resulted primarily from the decrease in deferred tax assets and foreign withholding tax
expense.
For 2013, we recorded a benefit for income taxes of $36.5 million yielding an effective tax rate of (993.5)%.
The 2013 tax benefit is primarily reflective of the partial release of our deferred income tax asset valuation
allowance.
Prior to December 31, 2013, we maintained a valuation allowance against all of our 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 limited visibility into our near term projected results. This valuation allowance was
maintained since the likelihood of the realization of those assets had not become “more likely than not” based on
our assessment of available evidence. We completed a full evaluation of the realizability of deferred tax assets
during the fourth quarter of 2013. The process of evaluating the need to continue with a valuation allowance
against deferred tax assets was highly subjective and required significant judgment at many points during the
analysis. Based on our analysis and a review of all positive and negative evidence related to historical operations,
future projections of taxable income which include fixed fees to be recognized under existing non-cancelable
license agreements, and tax planning strategies, we determined that it was more likely than not that certain of our
federal deferred tax assets would be realizable. For the year ended December 31, 2013, we released the valuation
allowance against certain of our U.S. federal and foreign deferred tax assets which resulted in a tax benefit of
$36.8 million. We concluded that it was not more likely than not that certain other U.S. federal deferred tax assets
would be utilized and, accordingly, maintained a valuation allowance of $1.1 million against these deferred tax
assets. We also determined there was not sufficient evidence to support the release of the valuation allowance
against our state and certain other foreign deferred tax assets. Accordingly, we maintained a valuation allowance
of $6.0 million against these deferred tax assets.
Liquidity and Capital Resources
Our cash, cash equivalents, and short-term investments consist primarily of money market funds and U.S.
treasury bills and government agency securities. All of our short-term investments are classified as available-for-
sale. The securities are stated at market value, with unrealized gains and losses reported as a component of
accumulated other comprehensive income, within stockholders’ equity.
As of December 31, 2015, our cash, cash equivalents, and short-term investments totaled $64.9 million, an
increase of $7.5 million from $57.4 million on December 31, 2014, primarily due to cash receipts from our
customers.
Cash provided by (used in) operating activities — Net cash provided by operating activities during 2015 was
$10.0 million compared to $291,000 provided by operating activities in 2014, an increase of $9.7 million. Cash
42
provided by operating activities during 2015 was primarily the result of our net income of $2.9 million, an increase
of $9.9 million due to a change in deferred income taxes used to reduce tax obligations, an increase of $3.8 million
due to a change in accrued compensation and other current liabilities mainly from an increase in accruals for
compensation and benefit related items, and an increase of $1.8 million due to a change in accounts receivable
arising from the timing of invoices and cash collections. These increases were partially offset by a decrease of
$7.0 million due to additional prepaid income taxes, a decrease of $6.4 million due to the recognition of revenue
from customers that previously had been deferred, and a decrease of $1.9 million due to a change in prepaid
expenses and other current assets. Cash provided by operating activities during 2015 was also affected by noncash
charges of $6.5 million, including $5.5 million of noncash stock-based compensation and $1.0 million in
depreciation and amortization.
Net cash provided by operating activities during 2014 was $291,000 compared to $21.2 million provided by
operating activities in 2013, a decrease of $20.9 million. Cash provided by operating activities during 2014 was
primarily the result of our net income of $4.1 million, and an increase of $1.9 million due to a change in deferred
income taxes due to their use to reduce tax payments. These increases were partially offset by a decrease of $6.8
million due to the recognition of revenue from customers that previously had been deferred, a decrease of $2.4
million due to a change in accounts receivable arising from the timing of invoices and cash collections, and a
decrease of $2.2 million due to a change in accrued compensation and other current liabilities mainly from a
decrease in accruals for compensation and benefit related items. Cash provided by operating activities during
2014 was also affected by noncash charges of $5.9 million, including $5.3 million of noncash stock-based
compensation and $567,000 in depreciation and amortization.
Cash provided by (used in) investing activities — Net cash used in investing activities during 2015 was $1.3
million, compared to the $13.3 million provided by investing activities during 2014, an increase in cash used of
$14.6 million. Net cash used in investing activities during 2015 consisted of purchases of short-term investments
of $44.9 million and purchases of property, plant, and equipment of $4.4 million. This was partially offset by
maturities of short-term investments of $48.0 million. Net cash provided by investing activities during 2014 was
$13.3 million, compared to the $18.2 million used in investing activities during 2013, an increase in cash provided
of $31.5 million. Net cash provided by investing activities during 2014 consisted of maturities of short-term
investments of $57.0 million. This was partially offset by purchases of short-term investments of $43.0 million
and purchases of property, plant, and equipment of $779,000.
Cash provided by (used in) financing activities — Net cash provided by financing activities during 2015 was
$1.9 million compared to $13.3 million used in financing activities during 2014, an increase in cash provided of
$15.2 million. Net cash provided by financing activities during 2015 consisted primarily of exercises of stock
options and the issuance of common stock under the ESPP of $1.9 million. Net cash used in financing activities
during 2014 was $13.3 million compared to $6.6 million provided by financing activities during 2013, or a
decrease in cash provided of $19.9 million. Net cash used in financing activities during 2014 consisted primarily
of repurchases of common stock of $15.0 million, partially offset by the exercises of stock options and the
issuance of common stock under the ESPP of $1.7 million.
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 investments
of $64.9 million as of December 31, 2015, less than 15% 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 will continue to invest in, protect, and defend our extensive IP portfolio, which is expected to
result in the continued use of cash. On November 1, 2007, our board of directors authorized a share repurchase
program of $50 million. In addition, on October 22, 2014, our board of directors authorized another $30 million
under the share repurchase program. $34.4 million remains under the share repurchase program as of
December 31, 2015. We anticipate that capital expenditures for property and equipment for the year ended
December 31, 2016 will be less than $1.0 million. Cash from operations could also be affected by various risks
and uncertainties, including, but not limited to the risks detailed in Part I, Item 1A, “Risk Factors.” Additionally,
if we acquire businesses, patents, or technology, our cash or capital requirements could increase substantially. In
the event 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
43
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.
Summary Disclosures about Contractual Obligations and Commercial Commitments
The following table reflects a summary of our contractual cash obligations and other commercial
commitments as of December 31, 2015 (in thousands):
Contractual Obligations
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
Operating Leases
$
6,557
$
934
$
1,788 $
1,711
$
2,124
At December 31, 2015, we had a liability for unrecognized tax benefits totaling $6.3 million including interest
of $82,000, of which approximately $407,000 could be payable in cash. We did not have any other significant
non-cancellable purchase commitments as of December 31, 2015.
Recent Accounting Pronouncements
See Note 1 to the consolidated financial statements for information regarding the effect of new accounting
pronouncements on our financial statements.
Item 7A. 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 investments of
$54.0 million as of December 31, 2015, 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 approximate $197,000 in the fair value of our
cash equivalents and short-term investments as of December 31, 2015.
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 licenses
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.
44
Item 8. Financial Statements and Supplementary Data
IMMERSION CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31,
2015, 2014, and 2013
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2015, 2014, and
2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014, and 2013
Notes to Consolidated Financial Statements
Page
46
47
48
49
50
51
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Immersion Corporation
San Jose, California
We have audited the accompanying consolidated balance sheets of Immersion Corporation and subsidiaries
(the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of income and
comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2015. Our audits also included the financial statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Immersion Corporation and subsidiaries as of December 31, 2015 and 2014, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2015, based on the
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 26, 2016 expressed an unqualified
opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 26, 2016
46
IMMERSION CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts and other receivables (net of allowances for doubtful accounts of: $15
and $28, respectively)
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Deferred income tax assets
Prepaid income taxes
Intangibles and other assets, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued compensation
Other current liabilities
Deferred revenue
Total current liabilities
Long-term deferred revenue
Other long-term liabilities
Total liabilities
Commitments and contingencies (Notes 8 and 14)
Stockholders’ equity:
Common stock and additional paid-in capital – $0.001 par value; 100,000,000
shares authorized; 34,845,310 and 34,225,778 shares issued, respectively;
28,329,416 and 27,715,387 shares outstanding, respectively
Accumulated other comprehensive income
Accumulated deficit
Treasury stock at cost: 6,515,894 and 6,510,391 shares, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
December 31,
2015
2014
$
25,013 $
39,918
14,380
42,981
1,213
—
2,790
68,934
4,589
24,633
6,995
264
$ 105,415 $
$
650 $
4,840
2,999
6,696
15,185
2,516
1,099
18,800
3,021
9,377
845
70,604
1,207
25,419
—
291
97,521
669
1,906
2,225
7,779
12,579
7,827
512
20,918
212,115
86
(79,948)
(45,638)
86,615
$ 105,415 $
204,876
102
(82,806)
(45,569)
76,603
97,521
47
IMMERSION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Revenues:
Royalty and license
Product sales
Development, services, and other
Total revenues
Costs and expenses:
Cost of revenues (exclusive of amortization of intangibles shown
separately below)
Sales and marketing
Research and development
General and administrative
Amortization of intangibles
Total costs and expenses
Operating income
Interest and other income
Other expense
Income before provision for income taxes
Benefit (provision) for income taxes
Net income
Basic net income per share:
Shares used in calculating basic net income per share
Diluted net income per share:
Shares used in calculating diluted net income per share
Other comprehensive income (loss), net of tax
Change in unrealized gains (losses) on short-term investments
Total other comprehensive income (loss)
Total comprehensive income
Years Ended December 31,
2015
2014
2013
61,677 $
—
1,716
63,393
51,804 $
—
1,133
52,937
46,154
105
1,211
47,470
440
14,674
14,785
28,755
20
58,674
4,719
177
(447)
4,449
(1,591)
2,858 $
0.10 $
28,097
0.10 $
29,015
460
10,896
11,793
23,754
67
46,970
5,967
580
(228)
6,319
(2,196)
4,123 $
0.15 $
28,246
0.14 $
29,144
462
9,338
10,883
23,104
79
43,866
3,604
179
(111)
3,672
36,483
40,155
1.42
28,190
1.37
29,338
(16)
(10)
3
(16)
2,842 $
(10)
4,113 $
3
40,158
$
$
$
$
$
See notes to consolidated financial statements.
48
Treasury Stock
Amount
Shares
4,982,744 $ (30,569) $
Total
Stockholders’
Equity
IMMERSION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
Common Stock and
Additional Paid-
In Capital
Shares
Amount
32,278,330 $ 186,822
Accumulated
Other
Comprehensive
Income (Loss)
109
$
Accumulated
Deficit
$
(127,084)
40,155
3
36,921
956,633
198
6,393
347,882
3,482
Balances at January 1, 2013
Net income
Unrealized gain (loss) on
available-for-sale securities,
net of taxes
Issuance of stock for ESPP
purchase
Exercise of stock options
Release of restricted stock
units and awards, including
related stock compensation
Stock based compensation for
stock options
1,162
Balances at December 31,
2013
Net income
Unrealized gain (loss) on
available-for-sale securities,
net of taxes
Repurchase of stock
Issuance of stock for ESPP
purchase
Exercise of stock options
Release of restricted stock
units and awards, including
related stock compensation
Tax benefit/(deficiency) from
the stock incentive plans
Stock based compensation for
stock options
Balances at December 31,
2014
Net income
Unrealized gain (loss) on
available-for-sale securities,
net of taxes
Repurchase of stock
Issuance of stock for ESPP
purchase
Exercise of stock options
Release of restricted stock
units and awards, including
related stock compensation
Tax benefit/(deficiency) from
the stock incentive plans
Stock based compensation for
stock options
Balances at December 31,
2015
33,619,766
$ 198,057
$
112
$
4,982,744
$ (30,569) $
(86,929)
4,123
(10)
1,527,647
(15,000)
38,298
205,744
381
1,304
361,970
3,976
(161)
1,319
34,225,778
$ 204,876
$
102
$
6,510,391
$ (45,569) $
(82,806)
2,858
(16)
—
—
5,503
(69)
45,820
239,071
367
1,630
334,641
3,059
(228)
2,411
29,278
40,155
3
198
6,393
3,482
1,162
80,671
4,123
(10)
(15,000)
381
1,304
3,976
(161)
1,319
76,603
2,858
(16)
—
367
1,561
3,059
(228)
2,411
34,845,310
$ 212,115
$
86
$
(79,948)
6,515,894
$ (45,638) $
86,615
See notes to consolidated financial statements.
49
IMMERSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property and equipment
Amortization of intangibles
Stock-based compensation
Allowance for doubtful accounts
Loss on disposal of equipment
Changes in operating assets and liabilities:
Accounts and other receivables
Inventories
Deferred income taxes
Prepaid income taxes
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued compensation and other current liabilities
Deferred revenue
Other long-term liabilities
Net cash provided by operating activities
Cash flows provided by (used in) investing activities:
Purchases of short-term investments
Proceeds from maturities of short-term investments
Purchases of property and equipment
Net cash provided by (used in) investing activities
Cash flows provided by (used in) financing activities:
Issuance of common stock under employee stock purchase plan
Exercise of stock options
Purchases of treasury stock
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents:
Beginning of year
End of year
Supplemental disclosure of cash flow information:
Cash paid for taxes
Supplemental disclosure of noncash operating, investing, and financing
activities:
Amounts accrued for property and equipment
Cashless option exercise under company stock plan
Release of Restricted Stock Units and Awards under company stock
plan
Years Ended December 31,
2015
2014
2013
$
2,858 $
4,123 $
40,155
996
20
5,470
(6)
10
1,814
—
9,935
(6,995)
(1,945)
(36)
(19)
3,750
(6,394)
587
10,045
(44,910)
48,000
(4,430)
(1,340)
367
1,561
—
1,928
10,633
500
67
5,295
16
52
(2,439)
—
1,893
—
(155)
(39)
(10)
(2,241)
(6,755)
(16)
291
(42,953)
57,000
(779)
13,268
381
1,304
(15,000)
(13,315)
244
584
79
4,644
8
11
1,272
141
(36,850)
—
16
(152)
341
2,788
8,206
(91)
21,152
(94,931)
77,000
(234)
(18,165)
198
6,393
—
6,591
9,578
14,380
25,013 $
14,136
14,380 $
4,558
14,136
156 $
47 $
18 $
69 $
60 $
— $
18
24
—
3,059 $
3,976
$
3,482
$
$
$
$
$
See notes to consolidated financial statements.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Description of Business
Immersion Corporation (the “Company”) was incorporated in 1993 in California and reincorporated in
Delaware in 1999. The company focuses 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 cutting-edge products
and experience the digital world around them. The Company has adopted a “hybrid” business model, under which
it provides advanced tactile software, related tools, and technical assistance to certain customers; and offers
licenses to the Company's patented intellectual property (“IP”) to other customers.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Immersion Corporation and its 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. All intercompany accounts,
transactions, and balances have been eliminated in consolidation. The Company has prepared the accompanying
consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America (“GAAP”).
Cash Equivalents
The Company considers all highly liquid instruments purchased with an original or remaining maturity of
less than three months at the date of purchase to be cash equivalents.
Short-term Investments
The Company’s short-term investments consist primarily of U.S treasury bills and government agency
securities purchased with an original or remaining maturity of greater than 90 days on the date of purchase. The
Company classifies debt securities with readily determinable market values as “available-for-sale.” Even though
the stated maturity dates of these debt securities may be one year or more beyond the balance sheet date, the
Company has classified all debt securities as short-term investments as they are reasonably expected to be realized
in cash or sold within one year. These investments are carried at fair market value with unrealized gains and losses
considered to be temporary in nature reported as a separate component of other comprehensive income (loss)
within stockholders’ equity.
The Company recognizes an impairment charge in the consolidated statement of income when a decline in
value is judged to be other than temporary based on the specific identification method. Other-than-temporary
impairment charges may exist when the Company has the intent to sell the security, will more likely than not be
required to sell the security, or does not expect to recover the principal.
Property and Equipment
Property is stated at cost and is depreciated using the straight-line method over the estimated useful life of
the related asset. The estimated useful lives are typically as follows:
Computer equipment and purchased software
Machinery and equipment
Furniture and fixtures
3 years
3-5 years
5 years
Leasehold improvements are amortized over the shorter of the lease term or their estimated useful life.
51
Long-lived Assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of that asset may not be recoverable. An impairment loss would be recognized
when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. Measurement of an impairment loss for long-lived assets and certain
identifiable intangible assets that management expects to hold and use is based on the fair value of the asset.
Revenue Recognition
The Company recognizes revenues in accordance with applicable accounting standards, including ASC 605-
10-S99, “Revenue Recognition” (“ASC 605-10-S99”); ASC 605-25, “Multiple Element Arrangements” (“ASC
605-25”); and ASC 985-605, “Software-Revenue Recognition” (“ASC 985-605”). The Company derives its
revenues from two principal sources: royalty and license fees, and development contract and service fees. As
described below, management judgments, assumptions, and estimates must be made and used in connection with
the revenue recognized in any accounting period. Material differences may result in the amount and timing of
revenue for any period based on the judgments and estimates made by management. Specifically, in connection
with each transaction, the Company must evaluate whether: (i) persuasive evidence of an arrangement exists,
(ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectibility 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 and the Company.
• Delivery has occurred. The Company delivers software and product to customers physically and
also delivers software electronically. For electronic deliveries, delivery occurs when the Company
provides the customer access codes or “keys” that allow the customer to take immediate
possession of the software.
• The fee 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.
• Collectibility is probable. To recognize revenue, the Company must judge collectibility 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 collectibility 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. Certain of these are variable fee
arrangements where the royalties earned by the Company are based on unit or sales volumes of the respective
licensees. The Company also enters into fixed license fee arrangements. 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 are based upon
customer shipments or revenues and could be subject to change and may result in out of period adjustments. The
Company recognizes fixed license fee revenue for licenses 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, and other 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 physical completion of the work to be performed or completed performance method.
A provision for losses on contracts is made, if necessary, in the period in which the loss becomes probable and
52
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 and include software and engineering services, the services are generally not essential to the
functionality of the software, and customers may purchase engineering services to facilitate the adoption of the
Company’s technology, but they may also decide 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 limitations related to extended
payment terms. For arrangements involving upfront fees for services and royalties earned by the Company based
on unit or sales volumes of the respective licensees, 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 unit
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.
Advertising
Advertising costs (including obligations under cooperative marketing programs) are expensed as incurred
and included in sales and marketing expense. Advertising expense was as follows:
Advertising expense
$
Research and Development
2015
Year ended December 31,
2014
(In thousands)
$
344
$
265
2013
322
Research and development costs are expensed as incurred. The Company has sometimes generated revenues
from development contracts with commercial customers that have enabled it to accelerate its own product
development efforts. Such development revenues have only partially funded the Company’s product development
activities, and the Company generally retains ownership of the products developed under these arrangements. As
a result, the Company classifies all development costs related to these contracts as research and development
expenses.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, income
tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred
tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between
the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized and are reversed at such time that realization is believed to be more likely than not.
Software Development Costs
Costs for the development of new software products and substantial enhancements to existing software
products are expensed as incurred until technological feasibility has been established, at which time any additional
costs would be capitalized. The Company considers technological feasibility to be established upon completion
of a working model of the software. Because the Company believes its current process for developing software
is essentially completed concurrently with the establishment of technological feasibility, no costs have been
capitalized to date.
53
Stock-based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. See
Note 9 for further information regarding the Company’s stock-based compensation assumptions and expenses.
Comprehensive Income
Comprehensive income includes net income as well as other items of comprehensive income or loss. The
Company’s other comprehensive income (loss) consists of foreign currency translation adjustments and
unrealized gains and losses on short term investments, net of tax.
Use of Estimates
The preparation of consolidated financial statements and related disclosures in accordance with GAAP and
pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant estimates include valuation of short-
term investments, income taxes including uncertain tax provisions, revenue recognition, stock-based
compensation, contingent liabilities from litigation, and accruals for other liabilities. Actual results may differ
materially from those estimates.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to a concentration of credit risk principally consist
of cash, cash equivalents, short term investments, and accounts receivable. The Company invests primarily in
money market accounts and highly liquid debt instruments purchased with an original or remaining maturity of
greater than 90 days on the date of purchase. Deposits held with banks may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed upon demand. The Company licenses
technology primarily to companies in North America, Europe, and Asia. To reduce credit risk, management
performs periodic credit evaluations of its customers’ financial condition. The Company maintains reserves for
estimated potential credit losses, but historically has not experienced any significant losses related to individual
customers or groups of customers in any particular industry or geographic area.
Certain Significant Risks and Uncertainties
The Company operates in multiple industries and, accordingly, can be affected by a variety of factors. For
example, management of the Company believes that changes in any of the following areas could have a negative
effect on the Company in terms of its future financial position and results of operations: the mix of revenues; the
loss of significant customers; fundamental changes in the technologies underlying the Company’s and its
licensees’ products; market acceptance of the Company’s and its licensees’ products under development;
development of sales channels; litigation or other claims in which the Company is involved; the ability to
successfully assert its patent rights against others; the impact of changing economic conditions; the hiring,
training, and retention of key employees; successful and timely completion of product and technology
development efforts; and new product or technology introductions by competitors.
Fair Value of Financial Instruments
Financial instruments consist primarily of cash equivalents, short-term investments, accounts receivable and
accounts payable. Cash equivalents and short term investments are stated at fair value based on quoted market
prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
The recorded cost of accounts receivable and accounts payable approximate the fair value of the respective assets
and liabilities.
54
Foreign Currency Translation
The functional currency of the Company’s foreign subsidiaries is U. S. dollars. Accordingly, gains and losses
from the translation of the financial statements of the foreign subsidiaries and foreign currency transaction gains
and losses are included in earnings.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-9 “Revenue from Contracts with Customers: Topic 606” (“ASU 2014-9”), which will
supersede the current revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-
specific guidance. The core principle of ASU 2014-9 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 No. 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. Accordingly, ASU 2014-09 is effective for the Company and is expected to be adopted in
the first quarter of fiscal 2018. The standard permits companies to either apply the requirements retrospectively
to all prior periods presented, or apply the requirements in the year of adoption through a cumulative adjustment,
and the Company is in the process of determining the method of adoption and evaluating the impact on its
consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17 “Balance Sheet Classification of Deferred Taxes”
(“ASU 2015-17”) that requires companies to classify all deferred tax assets and liabilities as noncurrent on the
balance sheet instead of separating deferred taxes into current and noncurrent amounts. In addition, companies
will no longer allocate valuation allowances between current and noncurrent deferred tax assets because those
allowances also will be classified as noncurrent. ASU 2015-17 is effective for reporting periods beginning after
December 15, 2016 with early adoption permitted for any interim or annual periods that have not been issued.
The Company has decided to adopt ASU 2015-17 prospectively for the fourth quarter of fiscal year 2015 and as
such, previously issued balance sheets were not retrospectively adjusted. The adoption resulted in a $2.9 million
classification from current deferred income taxes to noncurrent.
2. Fair Value Disclosures
Cash Equivalents and Short-term Investments
The 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 consist of high quality, investment grade securities.
The Company values 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 that 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 most money market
securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.
The types of 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 most U.S. treasury securities and most investment-grade
corporate commercial paper.
55
The types of 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.
Financial instruments measured at fair value on a recurring basis as of December 31, 2015 and December 31,
2014 are classified based on the valuation technique in the table below:
December 31, 2015
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
Money market funds
Total assets at fair value
$
$
—
14,032
14,032
$
$
39,918
—
39,918
$
$
—
—
—
$
$
39,918
14,032
53,950
The above table excludes $11.0 million of cash held in banks.
December 31, 2014
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
Money market funds
Total assets at fair value
$
$
—
11,524
11,524
$
$
42,981
—
42,981
$
$
—
—
—
$
$
42,981
11,524
54,505
The above table excludes $2.9 million of cash held in banks.
U.S. Treasury securities are classified as short-term investments, and money market accounts are
classified as cash equivalents on the Company’s consolidated balance sheets.
56
Short-term Investments
December 31, 2015
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Amortized
Cost
Fair Value
U.S. Treasury securities
Total
$
$
39,933
39,933
$
$
(In thousands)
$
$
—
—
(15)
(15)
$
$
39,918
39,918
December 31, 2014
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Amortized
Cost
Fair Value
U.S. Treasury securities
Total
$
$
42,980
42,980
$
$
(In thousands)
1
1
$
$
—
—
$
$
42,981
42,981
The contractual maturities of the Company’s available-for-sale securities on December 31, 2015 and
December 31, 2014 were all due within one year. There were no transfers of instruments between Level 1 and 2
during the years ended December 31, 2015 and 2014.
3. Accounts and Other Receivables
December 31,
2015
2014
(In thousands)
935
$
278
1,213
2,708
313
3,021
$
Trade accounts receivable
Receivables from vendors and other
Accounts and other receivables
$
$
57
4. Property and Equipment
Computer equipment and purchased software
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Total
Less accumulated depreciation
Property and equipment, net
5. Intangibles and Other Assets
Purchased patents and other purchased intangible assets
Less: Accumulated amortization of purchased patents and other purchased
intangibles
Purchased patents and other purchased intangible assets, net
Other assets
Intangibles and other assets, net
$
$
$
$
December 31,
2015
2014
(In thousands)
3,564
$
923
1,361
3,838
9,686
(5,097)
4,589
3,418
688
852
1,295
6,253
(5,046)
1,207
$
December 31,
2015
2014
(In thousands)
4,605
$
4,605
(4,599)
6
258
264
$
(4,579)
26
265
291
The Company amortizes its intangible assets related to purchased patents over their estimated useful lives,
generally 10 years from the purchase date. Amortization of intangibles was as follows:
Amortization of intangibles
$
2015
Year Ended December 31,
2014
(In thousands)
$
$
67
20
2013
79
The table below includes estimated remaining annual amortization expense for purchased patents as of
December 31, 2015.
2016
Total
Estimated
Amortization
Expense
(In thousands)
6
6
$
$
58
6. Other Current Liabilities
Accrued legal
Accrued services
Income taxes payable
Other current liabilities
Total other current liabilities
7. Long-term Deferred Revenue
Long-term deferred revenue consisted of the following:
Deferred revenue for Sony Computer Entertainment
Other deferred revenue
Long-term deferred revenue
December 31,
2015
2014
(In thousands)
1,458 $
849
129
563
2,999 $
1,065
518
69
573
2,225
$
$
December 31,
2015
2014
(In thousands)
1,263 $
1,253
2,516 $
7,051
776
7,827
$
$
Deferred revenue for Sony Computer Entertainment represents deferred license revenue where payments
have been received in advance of revenue recognition.
8. Commitments
The Company leases several of its facilities under noncancelable operating lease arrangements that expire at
various dates through 2023.
On November 12, 2014, the Company entered into an amendment to the lease of its primary facilities. The
amendment terminated the prior lease of a San Jose, California facility of approximately 33,000 square feet as of
May 2015, which had been scheduled to expire in December 2016. It also began the current lease of a San Jose,
California facility of approximately 42,000 square feet as of February 2015. The lease contains provisions for
leasehold improvement incentives and expires as of April 2023 and can be extended to April 2028. Minimum
future lease payments obligations are as follows:
2016
2017
2018
2019
2020
Thereafter
Total
Rent expense was as follows:
59
Operating Leases
(In thousands)
934
841
947
843
868
2,124
6,557
$
Rent expense
$
1,291 $
2015
Year ended December 31,
2014
(In thousands)
2013
549
742 $
9. Stock-based Compensation
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 options, stock appreciation rights, restricted stock, restricted stock
units (“RSUs”), performance shares, performance units, and other stock-based or cash-based awards to
employees, officers, directors, and consultants. Under these programs, 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 4 years
and expire from 5 to 10 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 their expiration.
Restricted stock generally vests over one year. RSUs generally vest over 3 years. Awards granted other than an
option or stock appreciation right shall reduce the common stock shares available for grant by 1.75 shares for
every share issued.
Common stock shares available for grant
Standard and market condition based stock options outstanding
Restricted stock awards outstanding
Restricted stock units outstanding
Employee Stock Purchase Plan
December 31,
2015
1,322,579
3,796,533
21,356
487,423
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 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 have been reserved for issuance under the ESPP. As of December 31, 2015, 603,558 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 year ended December 31, 2015 are
listed below. Shares purchased under the ESPP for the year ended December 31, 2014 are 38,298. 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.
Shares purchased under ESPP
Average price of shares purchased under ESPP
Intrinsic value of shares purchased under ESPP
Year Ended
December 31, 2015
45,820
8.00
160,000
$
$
60
Summary of Standard Stock Options
The following table sets forth the summary of standard stock option activity under the Company’s stock
option plans for the years ended December 31, 2015, 2014, and 2013:
Weighted
Average
Fair Value
Of Options
Granted
Aggregate
Intrinsic
Value
of Options
Exercised
(In thousands)
5.63
$
5,774
4.93
4.56
1,125
1,186
Number
of Shares
Weighted
Average
Exercise Price
3,155,631 $
1,058,700
(956,633)
(10,531)
(20,000)
3,227,167
604,620
(205,744)
(102,454)
(37,432)
3,486,157
525,840
(239,071)
(116,425)
(59,968)
3,596,533
6.65
10.20 $
6.68
8.24
9.01
7.78
10.32
6.34
7.20
10.19
8.30
10.15
6.82
12.38
13.75
8.45
Outstanding at January 1, 2013
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2013
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2014
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2015
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying
awards and the quoted price of the Company’s common stock for the options that were in-the-money.
61
Information regarding standard stock options outstanding at December 31, 2015, 2014, and 2013 is
summarized below:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(In millions)
Number of
Shares
December 31, 2013
Options outstanding
Options vested and expected to vest using
estimated forfeiture rates
Options exercisable
December 31, 2014
Options outstanding
Options vested and expected to vest using
estimated forfeiture rates
Options exercisable
December 31, 2015
Options outstanding
Options vested and expected to vest using
estimated forfeiture rates
Options exercisable
3,227,167 $
2,994,044
1,774,546
3,486,157 $
3,319,308
2,023,024
3,596,533 $
3,452,487
2,252,744
7.78
7.61
6.67
8.30
8.21
7.18
8.45
8.36
7.59
5.46 $
5.41
4.95
4.85 $
4.80
4.26
4.23 $
4.16
3.56
9.9
9.6
7.5
6.6
6.6
6.0
12.5
12.3
9.9
Additional information regarding standard options outstanding as of December 31, 2015 is as follows:
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
Number
Outstanding
17,938
600,000
493,241
410,349
440,433
44,300
810,000
392,427
287,845
100,000
3,596,533
3.19
3.87
2.92
5.35
4.35
2.54
4.18
5.48
5.08
1.74
4.23
$
$
2.75
3.85
5.94
7.52
8.90
9.20
9.53
11.50
13.16
16.57
8.45
Weighted
Average
Exercise
Price
$
$
2.75
3.85
5.93
6.85
8.85
9.20
9.53
11.49
14.32
16.57
7.59
Number
Exercisable
17,938
600,000
464,786
167,009
236,822
44,300
384,374
138,690
98,825
100,000
2,252,744
Range of
Exercise
Prices
$2.70 - $3.72
3.85 - 3.85
4.24 - 6.12
6.23 - 8.09
8.18 - 9.19
9.20 - 9.20
9.53 - 9.53
9.65 - 12.20
12.22 - 15.12
16.57 - 16.57
$2.70 - $16.57
62
Summary of Market Condition Based Stock Options
In 2014, the Company began granting options that are subject to both time-based vesting and a market
condition. For these options, 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 seven year life of the options.
The following table sets forth the summary of the market condition based option activity under the Company’s
stock option plans for the years ended December 31, 2015 and 2014:
Weighted
Average
Exercise
Price
Weighted
Average
Fair Value
Of Options
Granted
Aggregate
Intrinsic
Value
of Options
Exercised
(In thousands)
5.71
3.64
$
—
—
—
11.94
—
—
—
11.94
8.09
—
—
—
9.05
Number
of Shares
— $
50,000
—
—
—
50,000
150,000
—
—
—
200,000
Outstanding at January 1, 2014
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2014
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2015
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying
awards and the quoted price of the Company’s common stock for the options that were in-the-money.
Information regarding these market condition based stock options outstanding at December 31, 2015 and
2014 is summarized below:
December 31, 2014
Options outstanding
Options vested and expected to vest using
estimated forfeiture rates
Options exercisable
December 31, 2015
Options outstanding
Options vested and expected to vest using
estimated forfeiture rates
Options exercisable
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(In millions)
Number
of Shares
50,000 $
11.94
6.15 $
45,430
—
200,000 $
184,125
—
11.94
—
9.05
9.12
—
6.15
—
5.92 $
5.90
—
—
—
—
0.5
0.5
—
63
Additional information regarding market condition based stock options outstanding as of December 31, 2015
is as follows:
Options Outstanding
Options Exercisable
Range of
Exercise
Prices
$8.09 - $11.94
Number
Outstanding
200,000
Summary of Restricted Stock Units
Weighted
Average
Remaining
Contractual
Life (Years)
5.92 $
Weighted
Average
Exercise
Price
9.05
Weighted
Average
Exercise
Price
Number
Exercisable
— $
—
RSU activity for the years ended December 31, 2015, 2014, and 2013 was as follows:
Outstanding at January 1, 2013
Awarded
Released
Forfeited
Outstanding at December 31, 2013
Awarded
Released
Forfeited
Outstanding at December 31, 2014
Awarded
Released
Forfeited
Outstanding at December 31, 2015
Weighted
Average
Grant Date
Fair Value
Fair Value
of Released
RSU’s
(In thousands)
Number
of Shares
708,651
294,150 $
(303,882)
(30,863)
668,056
265,630
(317,970)
(50,825)
564,891
281,290
(299,277)
(59,481)
487,423
7.12
$
11.35
8.16
2,806
3,491
2,626
Information regarding RSU’s at December 31, 2015, 2014, and 2013 is summarized below:
64
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(In millions)
Number of
Shares
Fair Value
(In millions)
December 31, 2013
RSUs outstanding
RSUs vested and expected to vest
using estimated forfeiture rates
December 31, 2014
RSUs outstanding
RSUs vested and expected to vest
using estimated forfeiture rates
December 31, 2015
RSUs outstanding
RSUs vested and expected to vest
using estimated forfeiture rates
668,056
583,711
564,891
502,411
487,423
414,934
0.91 $
6.9
$
6.9
0.89
6.1
0.84 $
5.3
$
5.3
0.80
4.8
0.90 $
5.7
$
5.7
0.87
4.8
The aggregate intrinsic value is calculated as the market value as of the end of the reporting period.
Summary of Restricted Stock Awards
Restricted stock award activity for the years ended December 31, 2015, 2014, and 2013 was as follows:
Total
Fair
Value of
Awards
Released
(In thousands)
$
676
Weighted
Average
Grant Date
Fair Value
5.34
14.09
5.34
14.09
10.97
14.09
10.97
12.26
10.97
12.26
483
434
Number
of Shares
44,000 $
44,000
(44,000)
—
44,000
35,364
(44,000)
—
35,364
21,356
(35,364)
—
21,356
Outstanding at January 1, 2013
Awarded
Released
Forfeited
Outstanding at December 31, 2013
Awarded
Released
Forfeited
Outstanding at December 31, 2014
Awarded
Released
Forfeited
Outstanding at December 31, 2015
Stock-based Compensation
Valuation and amortization methods — The Company uses the Black-Scholes-Merton option pricing
model (“Black-Scholes model”), single-option approach to determine the fair value of standard stock options and
ESPP shares. 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. Stock-based compensation expense recognized at
65
fair value includes the impact of estimated forfeitures. The Company estimates future forfeitures at the date of
grant and revises the estimates if necessary, in subsequent periods if actual forfeitures differ from these estimates.
The determination of the fair value of share-based payment awards on the date of grant using an option pricing
model is affected by the Company’s 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, the Company’s expected stock price volatility over the term of the awards, risk-free
interest rate, and expected dividends.
Expected term — The Company estimates the expected term of options granted by calculating the
average term from the Company’s historical stock option exercise experience. The expected term of ESPP shares
is the length of the offering period. The Company used the simplified method approved by the SEC to determine
the expected term for options granted prior to December 31, 2007.
Expected volatility — The Company estimates the volatility of its common stock taking into
consideration its historical stock price movement and its expected future stock price trends based on known or
anticipated events.
Risk-free interest rate — The Company bases the risk-free interest rate that it uses in the option
pricing model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the
options.
Expected dividend — The Company does not anticipate paying any cash dividends in the foreseeable
future and therefore uses an expected dividend yield of zero in the option-pricing model.
Forfeitures — The Company is required to estimate future forfeitures at the time of grant and revise
those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses
historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for
those awards that are expected to vest.
The Company uses the Monte-Carlo Simulation model to value the stock options with a market
condition. Valuation techniques such as a Monte-Carlo Simulation model have been developed to value path-
dependent awards. The Monte-Carlo Simulation model is a generally accepted statistical technique used, in this
instance, to simulate a range of future stock prices for the Company.
The assumptions used to value option grants under the Company’s stock plans are as follows:
Expected life (in years)
Interest rate
Volatility
Dividend yield
Expected life (in years)
Interest rate
Volatility
Dividend yield
Standard Stock Options
2015
4.7
1.4%
56%
—%
2014
4.7
1.4%
57%
—%
2013
4.9
0.8%
70%
—%
Market Condition Based Stock Options
2015
2014
7.0
1.9%
65%
—%
7.0
2.2%
66%
—%
66
Expected life (in years)
Interest rate
Volatility
Dividend yield
2014
Employee Stock Purchase Plan
2013
2015
0.5
0.1%
67%
—%
0.5
0.1 %
43 %
— %
0.5
0.1%
48%
—%
Total stock-based compensation recognized in the consolidated statements of income is as follows:
Year Ended December 31,
2015
2014
2013
Income Statement Classifications
Sales and marketing
Research and development
General and administrative
Total
$
$
1,116
1,303
3,051
5,470
$
(In thousands)
1,117
1,267
2,911
5,295
$
$
$
747
1,040
2,857
4,644
As of December 31, 2015, there was $6.7 million of unrecognized compensation cost, adjusted for estimated
forfeitures, related to non-vested stock options, restricted stock awards and RSU’s granted to the Company’s
employees and directors. This cost will be recognized over an estimated weighted-average period of
approximately 2.45 years for standard options, 2.92 years for market condition based options, 0.43 years for
restricted stock awards and 1.59 years for RSU’s. Total unrecognized compensation cost will be adjusted for
future changes in estimated forfeitures.
10. Stockholders’ Equity
Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) are included in the table below.
Year Ended December 31, 2015
Unrealized Gains
and Losses on
Available-for Sale
Securities
Foreign
Currency
Items
Total
Beginning balance
$
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
Net current period other comprehensive
income (loss)
Ending Balance
$
Stock Repurchase Program
1
(16)
—
(16)
(15)
(In thousands)
101
$
$
—
—
$
—
101
$
102
(16)
—
(16)
86
On November 1, 2007, the Company announced its board of directors’ authorized the repurchase of up to
$50 million of the Company’s common stock. In addition, on October 22, 2014, the board of directors authorized
another $30 million under the share repurchase program. The Company may repurchase its stock for cash in the
67
open market in accordance with applicable securities laws. The timing of 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.
There were no stock repurchases in 2015 under this stock repurchase program. During the year ended
December 31, 2014, the Company repurchased 1,527,647 shares for $15,000,000 at an average cost of $9.82 net
of transaction costs through open market repurchases. There were no stock repurchases in 2013 under this stock
repurchase program. These amounts are classified as treasury stock on the Company’s consolidated balance sheet.
As of December 31, 2015, the program remains available with approximately $34.4 million that may yet be
purchased under it.
11. Income Taxes
Income tax benefit (provisions) consisted of the following:
2015
Income before provision for income taxes
Benefit (provision) for income taxes
$
Year Ended December 31,
2014
(In thousands)
6,319
(2,196)
$
$
4,449
(1,591)
2013
3,672
36,483
(993.5 )%
Effective tax rate
35.8%
34.8%
The 2015 provision for income tax 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. The 2015 provision for income tax also includes non-cash tax
expense based 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 period, and
also includes an increase to the valuation allowance against certain of the Company's deferred tax assets. The
2014 provision for income tax resulted primarily from the decrease in deferred tax assets and foreign withholding
tax expense. The 2013 benefit for income tax resulted primarily from the partial release of the Company's
valuation allowance.
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. Based on the findings of the U.S. Tax Court, the Company has concluded
that it is more likely than not that the Internal Revenue Service will uphold the U.S. Tax Court ruling 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 consolidated financial statements.
The Company reported pre-tax book income of:
Domestic
Foreign
Total
$
$
2015
Year Ended December 31,
2014
(In thousands)
5,867
452
6,319
$
$
$
$
21,160
(16,711)
4,449
2013
3,349
323
3,672
The benefit (provision) for income taxes consisted of the following:
68
Current:
United States federal
State and local
Foreign
Total current
Deferred:
United States federal
State and local
Foreign
Total deferred
2015
Year Ended December 31,
2014
(In thousands)
2013
$
$
$
(1,426) $
(12)
(389)
(1,827)
$
585
—
(349)
236
(1,591)
$
(218) $
(12)
(75)
(305) $
(2,137)
—
246
(1,891)
(2,196) $
(300)
(12)
(55)
(367)
36,190
—
660
36,850
36,483
In 2015, 2014, and 2013 the Company’s income tax payable was not decreased by the tax benefit related to
stock options. The Company includes only the direct tax effects of employee stock incentive plans in calculating
this benefit, which is recorded to additional paid-in capital.
Deferred tax assets and liabilities are recognized for the temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, tax losses,
and credit carryforwards. Significant components of the net deferred tax assets and liabilities consisted of:
Deferred tax assets:
Net operating loss carryforwards
State income taxes
Deferred revenue
Research and development and other credits
Reserves and accruals recognized in different periods
Basis difference in investment
Capitalized R&D expenses
Depreciation and amortization
Deferred rent
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
December 31,
2015
2014
(In thousands)
6,824 $
1
2,505
10,626
6,395
967
4,654
523
243
14
32,752
(8,119)
24,633 $
20,627
1
4,723
8,898
4,803
968
1,576
783
83
(3)
42,459
(7,663)
34,796
$
$
The Company accounts for deferred taxes under ASC Topic 740, “Income Taxes” (“ASC 740”) which
involves weighing positive and negative evidence concerning the realizability of the Company’s deferred tax
assets in each jurisdiction. As of December 31, 2015, based on its assessment of the realizability of its deferred
tax assets, the Company maintains a partial valuation allowance against certain of its U.S. federal, state, and
foreign deferred tax assets in each jurisdiction. The valuation allowance increased by $456,000.
69
In November 2015, the FASB issued Accounting Standards Update ASU No. 2015-17 “Balance Sheet
Classification of Deferred Taxes” that requires companies to classify all deferred tax assets and liabilities as
noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. In
addition, companies will no longer allocate valuation allowances between current and noncurrent deferred tax
assets because those allowances also will be classified as noncurrent. ASU 2015-17 is effective for reporting
periods beginning after December 15, 2016 with early adoption permitted for any interim or annual periods that
have not been issued. The Company has decided to adopt ASU2015-17 prospectively for the fourth quarter of
fiscal year 2015 and as such, previously issued balance sheets were not retrospectively adjusted. The adoption
resulted in a $2.9 million classification from current deferred income taxes to noncurrent.
As of December 31, 2015, the net operating loss carryforwards for federal and state income tax purposes
were approximately $31.9 million and $52.3 million, respectively. The federal net operating losses expire
between 2028 and 2033 and the state net operating losses begin to expire in 2028. $9.6 million of the Company’s
net operating losses are associated with excess benefits related to stock compensation, when realized the amount
will be an increase to additional paid in capital. The Company also has net operating loss carryforwards from
Ireland of $3.0 million that can be carried forward indefinitely and do not expire. As of December 31, 2015, the
Company had federal and state tax credit carryforwards of approximately $9.8 million and $1.4 million,
respectively, available to offset future taxable income. The federal credit carryforwards will expire between 2016
and 2035 and the California tax credits will carryforward indefinitely. In addition, as of December 31, 2015, the
Company has Canadian research and development credit carryforwards of $1.6 million, which will expire at
various dates through 2035. These operating losses and credit carryforwards have not been reviewed by the
relevant tax authorities and could be subject to adjustment upon examinations.
Section 382 of the Internal Revenue Code (“IRC Section 382”) imposes limitations on a corporation’s ability
to utilize its net operating losses and credit carryforwards if it experiences an “ownership change” as defined by
IRC Section 382. Utilization of a portion of the Company’s federal net operating loss carryforward was limited
in accordance with IRC Section 382, due to an ownership change that occurred during 1999. This limitation has
fully lapsed as of December 31, 2010. As of December 31, 2015, the Company conducted an IRC Section 382
analysis with respect to its net operating loss and credit carryforwards and determined there was no limitation.
There can be no assurance that future issuances of the Company’s securities will not trigger limitations under IRC
Section 382 which could limit utilization of these tax attributes.
For purposes of the reconciliation between the benefit (provision) for income taxes at the statutory rate and
the effective tax rate, a national U.S. 35% rate is applied as follows:
Federal statutory tax rate
State taxes, net of federal benefit
Sale of IP rights to foreign subsidiary
Benefit from foreign losses
Foreign withholding
Stock compensation expense
Meals & entertainment
Foreign rate differential
Prior year true-up items
Tax reserves
Loss on foreign share transfer
Credits
Other
Valuation allowance
Effective tax rate
2015
2014
35.0 %
— %
22.5 %
7.8 %
0.5 %
5.8 %
0.1 %
(24.0 )%
1.7 %
3.9 %
5.9 %
(35.5 )%
3.9 %
8.2 %
35.8 %
35.0 %
— %
— %
— %
3.5 %
3.8 %
0.1 %
(1.1 )%
(0.2 )%
0.8 %
— %
(5.7 )%
(1.4 )%
— %
34.8 %
2013
35.0 %
0.1 %
— %
— %
8.2 %
2.5 %
0.3 %
(1.7 )%
0.1 %
1.3 %
— %
(11.0 )%
— %
(1,028.3 )%
(993.5 )%
70
Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and
accordingly, no provision for federal and state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject
to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries.
The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment
and estimation and are continuously monitored by management based on the best information available, including
changes in tax regulations, the outcome of relevant court cases, and other information. A reconciliation of the
beginning and ending amount of gross unrecognized tax benefits is as follows:
2015
2014
2013
Balance at beginning of year
Gross increases for tax positions of prior years
Gross decreases for tax positions of prior years
Gross increases for tax positions of current year
Settlements
Lapse of statute of limitations
Balance at end of year
$
$
1,744
141
(15)
4,415
—
—
6,285
$
1,634
—
(4)
114
—
—
1,744
$
$
628
896
—
110
—
—
1,634
(In thousands)
$
In July 2013, the FASB ratified ASU 2013-11, “Presenting an Unrecognized Tax Benefit (“UTB”) When a
Net Operating Loss Carryforward Exists” (“ASU 2013-11”). ASU 2013-2 provides that an UTB, or a portion
thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating
loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any
additional income taxes that would result from disallowance of a tax position, or the tax law does not require the
entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized
tax benefit should be presented as a liability. ASU 2013-11 was effective for reporting periods beginning after
December 15, 2013, and may be applied retrospectively. The impact was not significant on the Company’s
consolidated results of operations and financial condition.
The unrecognized tax benefits relate primarily to federal and state research and development credits and
intercompany profit on the transfer of certain IP rights to one of the Company’s foreign subsidiaries as part of the
Company’s tax reorganization described above. The Company’s policy is to account for interest and penalties
related to uncertain tax positions as a component of income tax expense. As of December 31, 2015, the Company
accrued interest or penalties related to uncertain tax positions in the amount of $82,000. The Company expects to
release reserves and record a tax benefit in the amount of $282,000 due to the expiration of statutes of limitations
during the next 12 months. As of December 31, 2015, the total amount of unrecognized tax benefits that would
affect the Company’s effective tax rate, if recognized, is $2.3 million.
Because the Company has 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.
12. Net Income Per Share
Basic net income per share is computed using the weighted average number of common shares outstanding
for the period, excluding unvested restricted stock and RSUs. Diluted net income per share is computed using the
weighted average common shares outstanding for the period plus dilutive potential shares including assumed
release of unvested restricted stock and RSUs, assumed exercise of stock options, and assumed issuance of
common stock under ESPP using the treasury stock method. The following is a reconciliation of the numerators
and denominators used in computing basic and diluted net income per share:
71
Years Ended December 31,
2014
(In thousands, except per share amounts)
2015
2013
Numerator:
Net income
Denominator:
$
2,858
$
4,123
$
40,155
Shares used in computation of basic net income per share
(weighted average common shares outstanding)
Dilutive potential common shares:
Stock options, ESPP, Restricted Stock and RSUs
Shares used in computation of diluted net income per share
Basic net income per share:
Diluted net income per share:
28,097
28,246
28,190
918
29,015
0.10
0.10
$
$
898
29,144
0.15
0.14
$
$
1,148
29,338
1.42
1.37
$
$
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 year ended December 31, 2015, options to purchase approximately 1.2 million shares of common
stock with an exercise price greater than the average fair market value of the Company’s stock of $11.16 per share
were not included in the calculation because the effect would have been anti-dilutive.
For the year ended December 31, 2014, options to purchase approximately 1.6 million shares of common
stock with an exercise price greater than the average fair market value of the Company’s stock of $10.46 per share
were not included in the calculation because the effect would have been anti-dilutive.
For the year ended December 31, 2013, options to purchase approximately 979,521 shares of common stock
with an exercise price greater than the average fair market value of the Company’s stock of $11.72 per share were
not included in the calculation because the effect would have been anti-dilutive.
13. Employee Benefit Plan
The Company has a 401(k) tax-deferred savings plan under which eligible employees may elect to have a
portion of their salary deferred and contributed to the 401(k) plan. Contributions may be made by the Company
at its discretion. Beginning in January 2008, the Company matched 25% of the employee’s contribution up to
$2,000 for the year.
Company contribution to 401 (k) plan
14. Contingencies
2015
Year ended December 31,
2014
(In thousands)
2013
$
127
$
106
$
91
From time to time, the Company receives claims from third parties asserting that the Company’s technologies,
or those of its licensees, infringe on the other parties’ IP rights. Management believes that these claims are without
merit. Additionally, periodically, the Company is involved in routine legal matters and contractual disputes
72
incidental to its normal operations. In management’s opinion, the resolution of such matters will not have a
material adverse effect on the Company’s consolidated financial condition, results of operations, or liquidity.
In the normal course of business, the Company provides indemnifications of varying scope to customers
against claims of IP infringement made by third parties arising from the use of the Company’s IP, technology, or
products. Historically, costs related to these guarantees have not been significant, and the Company is unable to
estimate the maximum potential impact of these guarantees on its future results of operations.
15. Segment Reporting, Geographic Information, and Significant Customers
Segment Information
The Company develops, licenses, and supports a wide range of software and IP that more fully engage users’
sense of touch when operating digital devices. The Company focuses on the following target application areas:
mobile devices, wearables, consumer, mobile entertainment and other content; console gaming; automotive;
medical; and commercial. The Company manages these application areas in one operating and reporting segment
with only one set of management, development, and administrative personnel.
The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer. The CODM
approves budgets and allocates resources to and assesses the performance of the Company using information
about its revenue and operating loss. There is only one segment that is reported to management.
Revenue by Market Area
The following is a summary of revenues by market areas. Revenue as a percentage of total revenues by
market was as follows:
Mobile, Wearables, and Consumer
Gaming Devices
Automotive
Medical
Total
Revenue by Region
Years Ended December 31,
2015
2014
2013
62%
24%
7%
7%
100%
60%
27%
5%
8%
100%
66%
21%
5%
8%
100%
The following is a summary of revenues by geographic areas. Revenues are broken out geographically by
the location of the customer. Geographic revenue as a percentage of total revenues by region was as follows:
North America
Europe
Asia
Total
Years Ended December 31,
2015
2014
2013
28%
5%
67%
100%
29%
3%
68%
100%
28%
4%
68%
100%
73
Geographic revenue as a percentage of total revenues by country was as follows:
United States of America
Korea
Japan
Countries of which none are more than 10% in a year
Total
Long-lived Assets by Country
Years Ended December 31,
2015
2014
2013
27%
46%
14%
13%
27%
51%
10%
12%
26%
58%
7%
9%
100%
100%
100%
The following is a summary of long-lived assets by country. Long-lived assets include net property and
equipment, intangibles, and other assets. Geographic long-lived assets as a percentage of total long-lived assets
by country were as follows:
United States of America
Canada
Rest of World
Total
Significant Customers
December 31,
2015
2014
88%
8%
4%
100%
57%
23%
20%
100%
Customers comprising 10% or greater of the Company’s net revenues are summarized as follows:
Samsung Electronics
Customer B
Customer C
Customer D
Customer E
Customer F
Total
Years Ended December 31,
2015
2014
2013
32%
18%
14%
*
*
*
64%
38%
17%
12%
*
*
*
67%
47%
*
*
*
*
*
47%
* Revenue derived from customer represented less than 10% for the period.
Customers comprising 10% or greater of the Company’s outstanding accounts and other receivable are
summarized as follows:
Customer C
Customer D
Customer E
Customer F
December 31,
2015
2014
2013
*
*
35%
24%
66%
*
16%
*
*
11%
28%
*
74
* Represents less than 10% of the Company’s outstanding accounts and other receivables.
16. Quarterly Results of Operations (Unaudited)
The following table presents certain consolidated statement of income data for the Company’s eight most
recent quarters:
Dec 31,
2015
Sept 30,
2015
June 30, Mar 31,
Dec 31,
Sept 30,
June 30, Mar 31,
2015
2015
2014
2014
2014
2014
(In thousands, except per share data)
Revenues (1)
Gross profit
Operating income (Loss)
Income (loss) before provision
for taxes
Benefit (provision) for income
taxes
Net income (loss)
Basic net income (loss) per
share (2)
Shares used in calculating basic
net income (loss) per share
Diluted net income (loss) per
share (2)
Shares used in calculating
diluted net income (loss) per
share
$ 16,223
$ 16,287
$
13,619
$ 16,570
16,477
1,289
1,082
56
1,138
$ 14,313
14,196
1,283
1,199
(1,015)
184
16,108
2,217
2,263
(668)
1,595
16,172
(70)
(95)
36
(59)
$ 12,051 $ 11,831 $ 15,436
15,316
11,947
1,702
11,730
117
2,954
13,484
1,194
1,439
1,672
261
2,947
(422)
1,017
(599)
1,073
(92)
169
(1,083)
1,864
$
0.04
$
0.01
$
0.06
$
— $
0.04
$
0.04
$
0.01
$
0.07
28,305
28,190
28,070
27,818
27,733
28,505
28,383
28,370
$
0.04
$
0.01
$
0.06
$
— $
0.04
$
0.04
$
0.01
$
0.06
29,322
29,134
28,906
27,818
28,430
29,351
29,210
29,382
(1) The Company typically experiences seasonally higher revenue in the first calendar quarter due to the reporting
of holiday sales from some of our customers.
(2) The quarterly earnings per share information is calculated separately for each period. Therefore, the sum of
such quarterly per share amounts may differ from the total for the year.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Control and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-
15(e) under the Exchange Act, as amended) as of December 31, 2015, our management, with the participation of
our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this report for the purpose of ensuring that the
information required to be disclosed by us in this Annual Report on Form 10-K is made known to them by others
on a timely basis, and that the information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, in order to allow timely decisions regarding required
disclosure, and that such information is recorded, processed, summarized, and reported by us within the time
periods specified in the SEC’s rules and instructions for Form 10-K.
Our management, including our 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.
75
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.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is a
process designed by, or under the supervision of, our Chief Executive Officer and our Chief Financial Officer and
affected by our board of directors and management to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31,
2015. Management’s assessment of internal control over financial reporting was conducted using the criteria in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). In performing the assessment, our management concluded that, as of
December 31, 2015, our internal control over financial reporting is effective based on these criteria.
Deloitte and Touche LLP, the independent registered public accounting firm that audited our financial
statements included in this Annual Report on Form 10-K, has issued an attestation report on our internal control
over financial reporting, which is included herein.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the three months ended
December 31, 2015 that have materially affected or are reasonably likely to materially affect, our internal control
over financial reporting.
Item 9B. Other Information
None.
76
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Immersion Corporation
San Jose, California
We have audited the internal control over financial reporting of Immersion Corporation and subsidiaries (the
“Company”) as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s
management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of,
the company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2015, based on the criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements and financial statement schedule as of and for the year ended
December 31, 2015 of the Company and our report dated February 26, 2016 expressed an unqualified opinion on
those financial statements and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 26, 2016
77
PART III
The SEC allows us to include information required in this report by referring to other documents or reports
we have already or will soon be filing. This is called “Incorporation by Reference.” We intend to file our definitive
proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by
this report, and certain information therein is incorporated in this report by reference.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 with respect to executive officers is set forth in Part I of this Annual
Report on Form 10-K and the remaining information required by Item 10 is incorporated by reference from the
sections entitled “Election of Directors,” “Corporate Governance,” “Ownership of Our Equity Securities,”
“Section 16(a) Beneficial Ownership Reporting Compliance,” and “Audit Committee Report” in Immersion’s
definitive Proxy Statement for its 2016 annual stockholders’ meeting.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from the sections entitled “Election of
Directors,” “Director Compensation,” “Corporate Governance,” “Compensation Discussion and Analysis,”
“Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,” and
“Executive Compensation” in Immersion’s definitive Proxy Statement for its 2016 annual stockholders’ meeting.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by Item 12 is incorporated by reference from the section entitled “Ownership of
Our Equity Securities” and “Equity Compensation Plan Information” in Immersion’s definitive Proxy Statement
for its 2016 annual stockholders’ meeting.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is incorporated by reference from the section entitled “Corporate
Governance” and “Related Person Transactions” in Immersion’s definitive Proxy Statement for its 2016 annual
stockholders’ meeting.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 is incorporated by reference from the section entitled “Ratification of
Appointment of Independent Registered Public Accounting Firm” in Immersion’s definitive Proxy Statement for
its 2016 annual stockholders’ meeting.
78
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Form:
PART IV
1
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
46
47
48
49
50
51
2
Financial Statement Schedules
The following financial statement schedule of Immersion Corporation for the years ended
December 31, 2015, 2014, and 2013 is filed as part of this Annual Report and should be read in conjunction with
the Consolidated Financial Statements of Immersion Corporation.
Schedule II—Valuation and Qualifying Accounts
Page 85
Schedules not listed above have been omitted because the information required to be set forth therein
is not applicable or is shown in the consolidated financial statements or notes herein.
3
Exhibits:
The following exhibits are filed herewith:
Exhibit
Number
3.1
3.2
3.3
10.1*
10.2*
10.3*
10.4#
10.5#
Exhibit Description
Amended and Restated Bylaws,
dated October 31, 2007.
Amended and Restated
Certificate of Incorporation.
Certificate of Designation of the
Powers, Preferences and Rights
of Series A Redeemable
Convertible Preferred Stock.
1997 Stock Option Plan and
form of Incentive Stock Option
Agreement and form of
Nonqualified Stock Option
Agreement.
1999 Employee Stock Purchase
Plan and form of subscription
agreement thereunder.
Immersion Corporation 2000 HT
Non-Officer Nonstatutory Stock
Option Plan.
Settlement Agreement dated
July 25, 2003 by and between
Microsoft Corporation and
Immersion Corporation.
License Agreement dated July
25, 2003 by and between
Microsoft Corporation and
Immersion Corporation.
Incorporated by Reference
Form
8-K
File No.
Exhibit
Filing Date
000-27969
3.4 November 1, 2007
Filed
Herewith
10-Q
000-27969
3.1
August 14, 2000
8-K
000-27969
3.1
July 29, 2003
S-1/A
333-86361
10.2 November 5, 1999
S-1/A
333-86361
10.21
October 5, 1999
8-K
000-27969
2.4
October 13, 2000
S-3
333-108607
10.3
September 8, 2003
S-3/A
333-108607
10.4
February 13, 2004
79
Exhibit
Number
10.6
10.7*
10.8#
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
Exhibit Description
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Filed
Herewith
Letter Agreement dated March
18, 2004 by and between
Microsoft Corporation and
Immersion Corporation.
Form of Indemnity Agreement.
Agreement by and among Sony
Computer Entertainment America
Inc., Sony Computer
Entertainment Inc., and
Immersion Corporation dated
March 1, 2007.
2007 Equity Incentive Plan.
Form of Stock Option Agreement
(U.S. Participant) for 2007 Equity
Incentive Plan.
Form of Stock Option Agreement
(Non-U.S. Participant) for 2007
Equity Incentive Plan.
The Immersion Corporation 2008
Employment Inducement Award
Plan dated April 30, 2008.
Form of Stock Option Agreement
for Immersion Corporation 2008
Employment Inducement Award
Plan.
Settlement Agreement dated
August 25, 2008 by and between
Microsoft Corporation and
Immersion Corporation.
Form of RSU Agreement for
Immersion Corporation 2008
Employment Inducement Award
Plan.
Employment Agreement dated
October 21, 2009 by and between
Immersion Corporation and
Victor Viegas.
Form of 2010 Executive
Incentive Plan.
2011 Equity Incentive Plan.
Form of Stock Option Award
Agreement for Immersion
Corporation 2011 Equity
Incentive Plan.
Form of Award Agreement
(Restricted Stock Units) to the
Immersion Corporation 2011
Equity Incentive Plan.
S-3/A 333-108607
10.10
March 25, 2004
S-3/A 333-108607
000-27969
10-Q
10.11
10.37
March 25, 2004
May 10, 2007
8-K
8-K
000-27969
000-27969
99.1
99.4
June 12, 2007
June 12, 2007
8-K
000-27969
99.5
June 12, 2007
10-Q
000-27969
10.38
August 8, 2008
10-Q
000-27969
10.39
August 8, 2008
10-Q
000-27969
10.45 November 7, 2008
8-K
000-27969
99.01
March 4, 2009
10-K
000-27969
10.42
March 30, 2010
10-Q
000-27969
May 7, 2010
10-Q
10-Q
000-27969
000-27969
10.1
10.2
August 5, 2011
August 5, 2011
10-Q
000-27969
10.3
August 5, 2011
80
10.21*
10.22
Form of Restricted Stock
Agreement for Immersion
Corporation 2011 Equity
Incentive Plan.
Office Lease between Carr NP
Properties, L.L.C., and
Immersion Corporation dated
September 15, 2011.
10-Q
000-27969
10.4
August 5, 2011
10-Q
000-27969
10.2 November 7, 2011
81
Exhibit
Number
10.23*
10.24*
10.25
10.26
10.27*
10.28
10.29
10.30*
Exhibit Description
Offer Letter dated April 27, 2012
by and between Immersion
Corporation and Paul Norris.
Retention and Ownership Change
Event Agreement dated May 11,
2012 by and between Immersion
Corporation and Paul Norris.
Amendment No. 1, Effective as
of August 1, 2013, to Amended
and Restated License Agreement
by and between Immersion
Software Ireland Limited,
Immersion Corporation, and
Samsung Electronics Co., Ltd.
Entered into as of January 1,
2013.
Amendment No. 2, Effective as
of January 1, 2013, to Amended
and Restated License Agreement
by and between Immersion
Software Ireland Limited,
Immersion Corporation, and
Samsung Electronics Co., Ltd.
Entered into as of March 19,
2014.
2011 Equity Incentive Plan
(incorporated by reference to
Annex A of Schedule 14A, File
No. 000-27969, filed on April 22,
2014).
Amendment No. 3, Effective as
of January 1, 2013, to Amended
and Restated License Agreement
by and between Immersion
Software Ireland Limited,
Immersion Corporation, and
Samsung Electronics Co., Ltd.
entered into as of August 14,
2014.
First Amendment to Office Lease
dated November 12, 2014 by and
between Immersion Corporation
and BSREP Rio Robles LLC
Offer Letter dated December 19,
2013 by and between Immersion
Corporation and Jason Patton.
Incorporated by Reference
Form
8-K
File No.
Exhibit
Filing Date
000-27969
10.2
May 3, 2012
Filed
Herewith
10-Q
000-27969
10.2
August 7, 2012
10-Q
000-27969
10.1
November 6, 2013
10-Q
000-27969
10.1
May 6, 2014
10-Q
000-27969
10.1
August 1, 2014
10-Q
000-27969
10.1
October 31, 2014
8-K
000-27969
10.1 November 14, 2014
10-K
000-27969
10.33
February 27, 2015
82
Exhibit
Number
10.33*
21.1
23.1
31.1
31.2
32.1+
32.2+
Exhibit Description
Offer Letter dated November 24,
2014 by and between Immersion
Corporation and Mahesh
Sundaram.
Subsidiaries of Immersion
Corporation.
Consent of Independent
Registered Public Accounting
Firm.
Certification of Victor Viegas,
Chief Executive Officer, pursuant
to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of Paul Norris,
Chief Financial Officer, pursuant
to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of Victor Viegas,
Chief Executive Officer, pursuant
to Section 906 of the Sarbanes-
Oxley Act of 2002.
Certification of Paul Norris,
Chief Financial Officer, pursuant
to Section 906 of the Sarbanes-
Oxley Act of 2002.
101.INS
101.SCH
XBRL Report Instance Document
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
Incorporated by Reference
Form
10-K
File No.
Exhibit
Filing Date
000-27969
10.34
February 27, 2015
Filed
Herewith
X
X
X
X
X
X
X
X
X
X
X
X
#
*
+
Certain information has been omitted and filed separately with the Commission. Confidential treatment
has been granted with respect to the omitted portions.
Constitutes a management contract or compensatory plan.
This certification is deemed not filed for purposes of section 18 of the Exchange Act, as amended, or
otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into
any filing under the Securities Act, as amended, or the Exchange Act, as amended.
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: February 26, 2016
IMMERSION CORPORATION
By
/s/ PAUL NORRIS
Paul Norris
Chief Financial Officer and
Principal Accounting Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Victor Viegas and Paul Norris, jointly and severally, his or her attorney-in-fact, each with
the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report
on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or
his or her substitute or substitutes, may do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has
been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Name
Title
Date
/S/ VICTOR VIEGAS
Victor Viegas
/S/ PAUL NORRIS
Paul Norris
/s/ CARL SCHLACHTE
Carl Schlachte
/S/ JACK SALTICH
Jack Saltich
/S/ DAVID HABIGER
David Habiger
/S/ DAVID SUGISHITA
David Sugishita
/S/ JOHN VESCHI
John Veschi
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Director
Director
Director
Director
Director
84
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Deductions/
Write-offs
(Recoveries)
Balance at
End of
Period
Year ended December 31, 2015
Allowance for doubtful accounts
Year ended December 31, 2014
Allowance for doubtful accounts
Year ended December 31, 2013
Allowance for doubtful accounts
$
$
$
28
9
134
$
$
$
(In thousands)
(6)
16
8
$
$
$
7
(3)
133
$
$
$
15
28
9
85
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TO OUR VALUED SHAREHOLDERS
TO OUR VALUED SHAREHOLDERS
CORPORATE DIRECTORY
CORPORATE DIRECTORY
2015 marked a year of great progress for Immersion, both in terms of technology adoption and financial performance. We contin-
2015 marked a year of great progress for Immersion, both in terms of technology adoption and financial performance. We contin-
ued to expand our haptic ecosystem with the development of new tools and the addition of new partners and customers. We
ued to expand our haptic ecosystem with the development of new tools and the addition of new partners and customers. We
ended the year with our highest revenue to date, $63.4 million, an increase of 20% from 2014, achieving strong profitability, and a healthy cash
ended the year with our highest revenue to date, $63.4 million, an increase of 20% from 2014, achieving strong profitability, and a healthy cash
balance of $64.9 million.
balance of $64.9 million.
In 2015, we focused on growing and protecting the ecosystem of our customers and partners that we established to create, deliver, and play
In 2015, we focused on growing and protecting the ecosystem of our customers and partners that we established to create, deliver, and play
back haptic experiences. We achieved key milestones that continue to validate that our product offerings and patent portfolio are well posi-
back haptic experiences. We achieved key milestones that continue to validate that our product offerings and patent portfolio are well posi-
tioned to meet the demands of the market. These milestones include:
tioned to meet the demands of the market. These milestones include:
• Collaborations with major mobile ad networks – launching our first ad campaign to a mass audience, reaching more than one million daily
• Collaborations with major mobile ad networks – launching our first ad campaign to a mass audience, reaching more than one million daily
active users on more than 250 mobile apps.
active users on more than 250 mobile apps.
“Games You Can Feel” on Google Play.
“Games You Can Feel” on Google Play.
• Promotional campaigns with Google and the launch of new and popular mobile games with haptics – showcasing two collections of
• Promotional campaigns with Google and the launch of new and popular mobile games with haptics – showcasing two collections of
• Launch of the first movie trailers available with tactile effects in partnership with LeEco (formerly LeTV).
• Launch of the first movie trailers available with tactile effects in partnership with LeEco (formerly LeTV).
• New licensing agreements with OEMs such as Kyocera, Gionee, Meitu and Acer, and design wins and launches with OEMs such as Gionee,
• New licensing agreements with OEMs such as Kyocera, Gionee, Meitu and Acer, and design wins and launches with OEMs such as Gionee,
Fujitsu, and Huawei.
Fujitsu, and Huawei.
• Continued development of foundational IP – resulting in the filing of 63 new patent families and the grant of 112 patents worldwide in 2015.
• Continued development of foundational IP – resulting in the filing of 63 new patent families and the grant of 112 patents worldwide in 2015.
• Settlement and license agreement with HTC Corporation, resolving the Basic Haptics patent infringement litigation brought by us against
• Settlement and license agreement with HTC Corporation, resolving the Basic Haptics patent infringement litigation brought by us against
HTC, but preserving our right to appeal the invalidity ruling affecting three of our patents.
HTC, but preserving our right to appeal the invalidity ruling affecting three of our patents.
These achievements in 2015 and our work throughout the past five years provide us with a foundation for our continued success in the years
These achievements in 2015 and our work throughout the past five years provide us with a foundation for our continued success in the years
to come. With more than 2,100 issued and pending patents worldwide, Immersion is the leading innovator in haptics. Throughout our 20-year
to come. With more than 2,100 issued and pending patents worldwide, Immersion is the leading innovator in haptics. Throughout our 20-year
history, we have evangelized the power and capabilities of haptics in different consumer markets, including console gaming, mobile UI, mobile
history, we have evangelized the power and capabilities of haptics in different consumer markets, including console gaming, mobile UI, mobile
gaming, mobile advertising and mobile video, as well as automotive HMI, and wearables. As a result of our work, haptic technology is now
gaming, mobile advertising and mobile video, as well as automotive HMI, and wearables. As a result of our work, haptic technology is now
considered a must-have feature for current digital devices as well as new and emerging platforms such as virtual and augmented reality. This
considered a must-have feature for current digital devices as well as new and emerging platforms such as virtual and augmented reality. This
market recognition validates our long held view that touch feedback strongly enhances digital experiences and underscores our success in
market recognition validates our long held view that touch feedback strongly enhances digital experiences and underscores our success in
continuing to champion the broad adoption of haptics.
continuing to champion the broad adoption of haptics.
In addition, the shift to a mobile content driven ecosystem is creating new opportunities for haptics to play a larger role in the consumer view-
In addition, the shift to a mobile content driven ecosystem is creating new opportunities for haptics to play a larger role in the consumer view-
ing experience. We have systematically laid the groundwork for building a game-changing business in content by generating and developing
ing experience. We have systematically laid the groundwork for building a game-changing business in content by generating and developing
foundational IP, creating an end-to-end content tool system, developing an ecosystem of customer and partner relationships, and launching
foundational IP, creating an end-to-end content tool system, developing an ecosystem of customer and partner relationships, and launching
pilot programs that have showcased how haptics enhances content experiences. Collectively, this significant momentum has positioned us
pilot programs that have showcased how haptics enhances content experiences. Collectively, this significant momentum has positioned us
well for maximizing the value tactile feedback can bring to advertising, extended gaming, social media, and entertainment experiences.
well for maximizing the value tactile feedback can bring to advertising, extended gaming, social media, and entertainment experiences.
Looking forward to 2016, we are excited about the new and expanded opportunities that are arising as companies deploy haptics in richer and
Looking forward to 2016, we are excited about the new and expanded opportunities that are arising as companies deploy haptics in richer and
more advanced use cases to delight end users, improve the usability of new features, and differentiate products. In order for Immersion to
more advanced use cases to delight end users, improve the usability of new features, and differentiate products. In order for Immersion to
capitalize on the adoption of haptics in the market, we need to continue to invest in, develop, and enforce our IP portfolio, as well as grow our
capitalize on the adoption of haptics in the market, we need to continue to invest in, develop, and enforce our IP portfolio, as well as grow our
product offering to expand access to our technology. As such, we expect 2016 to be a year of strategic investment focused on strengthening
product offering to expand access to our technology. As such, we expect 2016 to be a year of strategic investment focused on strengthening
our position for long-term, profitable growth.
our position for long-term, profitable growth.
In closing, I am excited by the opportunities and challenges 2016 holds for Immersion. With a strong team in place, a broad and growing port-
In closing, I am excited by the opportunities and challenges 2016 holds for Immersion. With a strong team in place, a broad and growing port-
folio of IP and products, and a resolute focus on our strategic initiatives, we believe we will continue to execute well. I’d like to thank our dedi-
folio of IP and products, and a resolute focus on our strategic initiatives, we believe we will continue to execute well. I’d like to thank our dedi-
cated employees around the world, our customers and partners, and you – our valued investors – for your ongoing support. I look forward to
cated employees around the world, our customers and partners, and you – our valued investors – for your ongoing support. I look forward to
sharing our progress with you in 2016.
sharing our progress with you in 2016.
Sincerely,
Sincerely,
Victor Viegas
Victor Viegas
CEO and Director, Immersion
CEO and Director, Immersion
CORPORATE LEGAL COUNSEL
CORPORATE LEGAL COUNSEL
Fenwick & West LLP
Fenwick & West LLP
801 California Street
801 California Street
Mountain View, California 94041
Mountain View, California 94041
USA
USA
INDEPENDENT REGISTERED
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Deloitte & Touche LLP
225 W. Santa Clara St., Suite 600
225 W. Santa Clara St., Suite 600
San Jose, California 95113
San Jose, California 95113
USA
USA
TRANSFER AGENT
TRANSFER AGENT
Computershare Investor Services
Computershare Investor Services
Company, N.A.
Company, N.A.
P.O. Box 30170
P.O. Box 30170
College Station, Texas 77842
College Station, Texas 77842
USA
USA
URL: www.computershare.com
URL: www.computershare.com
STOCKHOLDER INFORMATION
STOCKHOLDER INFORMATION
The Company’s financial and other
The Company’s financial and other
information, including the Com-
information, including the Com-
pany’s annual reports on Form
pany’s annual reports on Form
10-K, quarterly reports on Form
10-K, quarterly reports on Form
10-Q, current reports on Form 8-K,
10-Q, current reports on Form 8-K,
and amendments to these reports
and amendments to these reports
filed with or furnished to the Securi-
filed with or furnished to the Securi-
ties and Exchange Commission are
ties and Exchange Commission are
available on the Company’s Web
available on the Company’s Web
site at: www.immersion.com.
site at: www.immersion.com.
MARKET INFORMATION –
MARKET INFORMATION –
COMMON STOCK
COMMON STOCK
The Company’s Common Stock
The Company’s Common Stock
has been traded over-the-counter
has been traded over-the-counter
on the Nasdaq Global Market
on the Nasdaq Global Market
under the symbol “IMMR” since
under the symbol “IMMR” since
the Company’s initial public
the Company’s initial public
offering on November 12, 1999.
offering on November 12, 1999.
ANNUAL MEETING
ANNUAL MEETING
The Immersion Corporation
The Immersion Corporation
Annual Meeting of Stockholders
Annual Meeting of Stockholders
will be held Friday, June 3, 2016,
will be held Friday, June 3, 2016,
at 9:30 a.m. Pacific Daylight Time
at 9:30 a.m. Pacific Daylight Time
at Immersion Headquarters,
at Immersion Headquarters,
50 Rio Robles, San Jose, California
50 Rio Robles, San Jose, California
95134, USA.
95134, USA.
BOARD OF DIRECTORS
BOARD OF DIRECTORS
CARL SCHLACHTE
CARL SCHLACHTE
Chairman, Immersion Corporation
Chairman, Immersion Corporation
Chairman, President & CEO,
Chairman, President & CEO,
Ventiva, Inc.
Ventiva, Inc.
DAVID HABIGER
DAVID HABIGER
Director, Immersion Corporation
Director, Immersion Corporation
Senior Advisor, Silver
Senior Advisor, Silver
Lake Partners
Lake Partners
Venture Partner, Pritzker Group
Venture Partner, Pritzker Group
Interim CEO, Textura
Interim CEO, Textura
JACK SALTICH
JACK SALTICH
Director, Immersion Corporation
Director, Immersion Corporation
Director, PlasmaSi
Director, PlasmaSi
DAVID SUGISHITA
DAVID SUGISHITA
Director, Immersion Corporation
Director, Immersion Corporation
JOHN VESCHI
JOHN VESCHI
Director, Immersion Corporation
Director, Immersion Corporation
Chief Executive Officer,
Chief Executive Officer,
Marquis Technologies
Marquis Technologies
VICTOR VIEGAS
VICTOR VIEGAS
Chief Executive Officer & Director,
Chief Executive Officer & Director,
Interim Chief Financial Officer
Interim Chief Financial Officer
Immersion Corporation
Immersion Corporation
CORPORATE MANAGEMENT
CORPORATE MANAGEMENT
VICTOR VIEGAS
VICTOR VIEGAS
Chief Executive Officer & Director
Chief Executive Officer & Director
Interim Chief Financial Officer
Interim Chief Financial Officer
ROB LACROIX
ROB LACROIX
Vice President,
Vice President,
Research and Development
Research and Development
JANICE PASSARELLO
JANICE PASSARELLO
Vice President,
Vice President,
Human Resources
Human Resources
AMIE PETERS
AMIE PETERS
General Counsel &
General Counsel &
Senior Vice President, Legal
Senior Vice President, Legal
MAHESH SUNDARAM
MAHESH SUNDARAM
Vice President,
Vice President,
Worldwide OEM Sales
Worldwide OEM Sales
CHRIS ULLRICH
CHRIS ULLRICH
Vice President,
Vice President,
User Experience
User Experience
TODD WHITAKER
TODD WHITAKER
Vice President,
Vice President,
Marketing
Marketing
CORPORATE HEADQUARTERS
CORPORATE HEADQUARTERS
50 Rio Robles
50 Rio Robles
San Jose, California 95134
San Jose, California 95134
USA
USA
T: +1 408.467.1900
T: +1 408.467.1900
F: +1 408.467.1901
F: +1 408.467.1901
www.immersion.com
www.immersion.com
IMMERSION CANADA
IMMERSION CANADA
4200 St-Laurent Blvd., Suite 1105
4200 St-Laurent Blvd., Suite 1105
Montreal, Quebec H2W 2R2
Montreal, Quebec H2W 2R2
Canada
Canada
T: +1 514.987.9800
T: +1 514.987.9800
IMMERSION JAPAN K.K.
IMMERSION JAPAN K.K.
11-5, Shibuya 2-chome,
11-5, Shibuya 2-chome,
Shibuya-ku, Tokyo
Shibuya-ku, Tokyo
Japan
Japan
T: +81.3.6450.6302
T: +81.3.6450.6302
IMMERSION KOREA
IMMERSION KOREA
ERW Bldg. 5FL
ERW Bldg. 5FL
1330-8 Seocho-dong
1330-8 Seocho-dong
Seocho-gu, Seoul 137-858
Seocho-gu, Seoul 137-858
Korea
Korea
T: +82.2.3472.3141
T: +82.2.3472.3141
IMMERSION LIMITED
IMMERSION LIMITED
905 Silvercord, Tower 2
905 Silvercord, Tower 2
30 Canton Road
30 Canton Road
Tsimshatsui, Kowloon
Tsimshatsui, Kowloon
Hong Kong,
Hong Kong,
China
China
T: +1 659.815.0765
T: +1 659.815.0765
IMMERSION (SHANGHAI)
IMMERSION (SHANGHAI)
SCIENCE & TECHNOLOGY
SCIENCE & TECHNOLOGY
CO., LTD
CO., LTD
21F, Room 2105,
21F, Room 2105,
No. 2277 Longyang Road,
No. 2277 Longyang Road,
Pudong New Area,
Pudong New Area,
Shanghai, PRC
Shanghai, PRC
China
China
IMMERSION SOFTWARE
IMMERSION SOFTWARE
IRELAND LTD.
IRELAND LTD.
3rd Floor, Ulysses House,
3rd Floor, Ulysses House,
Foley Street,
Foley Street,
Dublin 1,
Dublin 1,
Ireland
Ireland
T: +353.1.888.1004
T: +353.1.888.1004
IMMERSION TAIWAN
IMMERSION TAIWAN
12F, 866-3 ZhongZheng Road
12F, 866-3 ZhongZheng Road
New Taipei City
New Taipei City
Zhonghe District (235)
Zhonghe District (235)
Taiwan, R.O.C.
Taiwan, R.O.C.
T: +1 866.9.3290.1330
T: +1 866.9.3290.1330
HAPTIFY, INC.
HAPTIFY, INC.
50 Rio Robles
50 Rio Robles
San Jose, California 95134
San Jose, California 95134
USA
USA
T: +1 408.467.1900
T: +1 408.467.1900
F: +1 408.467.1901
F: +1 408.467.1901
All statements contained herein, as well as oral statements that may be made by officers, directors, or employees of Immersion (the “Company”) acting on the Company’s behalf, that are not statements of historical fact, constitute “forward-looking
All statements contained herein, as well as oral statements that may be made by officers, directors, or employees of Immersion (the “Company”) acting on the Company’s behalf, that are not statements of historical fact, constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). Forward-looking statements are identified by words such as
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). Forward-looking statements are identified by words such as
“believes,” “anticipates,” “expects,” “intends,” “may,” “will,” and other similar expressions. However, these words are not the only way the Company identifies forward-looking statements. In addition, any statements that refer to expectations, projec-
“believes,” “anticipates,” “expects,” “intends,” “may,” “will,” and other similar expressions. However, these words are not the only way the Company identifies forward-looking statements. In addition, any statements that refer to expectations, projec-
tions, or other characterizations of future events or circumstances are forward-looking statements, including, but not limited to, our statements regarding new applications of Immersion technology, our statement regarding achievements providing
tions, or other characterizations of future events or circumstances are forward-looking statements, including, but not limited to, our statements regarding new applications of Immersion technology, our statement regarding achievements providing
a foundation for continued success, our statement that haptic technology is now a must-have feature for current digital devices and emerging platforms, our statements regarding the market recognition of haptics, our statements regarding new
a foundation for continued success, our statement that haptic technology is now a must-have feature for current digital devices and emerging platforms, our statements regarding the market recognition of haptics, our statements regarding new
opportunities for haptics to play a role in the consumer viewing experience, our statement regarding building a game-changing business in content through developing IP, creating tool systems, developing an ecosystem of partner and partner
opportunities for haptics to play a role in the consumer viewing experience, our statement regarding building a game-changing business in content through developing IP, creating tool systems, developing an ecosystem of partner and partner
relationships, and launching pilot programs, our statement regarding maximizing the value tactile feedback can bring to advertising, extended gaming, social media, and entertainment experiences, our statement regarding opportunities that are
relationships, and launching pilot programs, our statement regarding maximizing the value tactile feedback can bring to advertising, extended gaming, social media, and entertainment experiences, our statement regarding opportunities that are
arising as companies deploy haptics, improve the usability of features, and differentiate products, and our statement regarding our growing portfolio of IP and products. Immersion’s actual results might differ materially from those stated or implied
arising as companies deploy haptics, improve the usability of features, and differentiate products, and our statement regarding our growing portfolio of IP and products. Immersion’s actual results might differ materially from those stated or implied
by such forward-looking statements due to risks and uncertainties associated with Immersion’s business, which include, but are not limited to, delay in or failure to achieve commercial demand for Immersion’s or its licensees’ products; a delay in or
by such forward-looking statements due to risks and uncertainties associated with Immersion’s business, which include, but are not limited to, delay in or failure to achieve commercial demand for Immersion’s or its licensees’ products; a delay in or
failure to achieve the acceptance of force feedback as a critical user experience; unexpected difficulties in monetizing the patent portfolio; the commercial success of applications or devices into which Immersion’s technology is licensed; potentially
failure to achieve the acceptance of force feedback as a critical user experience; unexpected difficulties in monetizing the patent portfolio; the commercial success of applications or devices into which Immersion’s technology is licensed; potentially
lengthy sales cycles and design processes; unanticipated difficulties and challenges encountered in development efforts; potential restructuring charges; failure to retain key personnel; potential and actual claims and proceedings, including litiga-
lengthy sales cycles and design processes; unanticipated difficulties and challenges encountered in development efforts; potential restructuring charges; failure to retain key personnel; potential and actual claims and proceedings, including litiga-
tion; competition; the impact of global economic conditions and other factors. Many of these risks and uncertainties are beyond the control of Immersion.
tion; competition; the impact of global economic conditions and other factors. Many of these risks and uncertainties are beyond the control of Immersion.
For a more detailed discussion of these factors, and other factors that could cause actual results to vary materially, interested parties should review the risk factors listed in Immersion’s Form 10-K for 2015, which is on file with the U.S. Securities and
For a more detailed discussion of these factors, and other factors that could cause actual results to vary materially, interested parties should review the risk factors listed in Immersion’s Form 10-K for 2015, which is on file with the U.S. Securities and
Exchange Commission. The forward-looking statements in this document reflect Immersion’s beliefs and predictions as of the date of this document. Immersion disclaims any obligation to update these forward-looking statements as a result of
Exchange Commission. The forward-looking statements in this document reflect Immersion’s beliefs and predictions as of the date of this document. Immersion disclaims any obligation to update these forward-looking statements as a result of
financial, business, or any other developments occurring after the date of this document.
financial, business, or any other developments occurring after the date of this document.
©2016 Immersion Corporation. All rights reserved. Immersion, the Immersion logo and Haptify are trademarks of Immersion Corporation in the United States and other countries. All other trademarks are the property of their respective owners
©2016 Immersion Corporation. All rights reserved. Immersion, the Immersion logo and Haptify are trademarks of Immersion Corporation in the United States and other countries. All other trademarks are the property of their respective owners
| 2015 Annual Report
immersion.com | 50 Rio Robles, San Jose, California 95134