UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021 or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-38334
Immersion Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
94-3180138
(I.R.S. Employer
Identification No.)
2999 N.E. 191st Street, Suite 610, Aventura, FL, 33180
(Address of principal executive offices, zip code)
(408) 467-1900
(Registrant’s telephone number, including area code)
330 Townsend Street, Suite 234, San Francisco, CA 94107
(Former name or former address, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Common Stock, $0.001 par value
Series B Junior Participating Preferred
Stock Purchase Rights
IMMR
IMMR
Name of each exchange on which
registered
NASDAQ Global Market
NASDAQ Global Market
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 every Interactive Data File required to be
submitted 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 such files). Yes [x] No [ ]
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.
Large accelerated filer
Non-accelerated filer
[ ]
[X ]
Accelerated filer
Smaller reporting company
Emerging Growth Company
[ ]
[X ]
[ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report.
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, 2021, the
last business day of the registrant’s most recently completed second fiscal quarter, was $230,817,516 (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 who 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 on February 18, 2022 is 33,522,918.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10 (as to directors and executive officers, and Delinquent Section 16(a) Reports (if any)), 11, 12 (as to Beneficial
Ownership), 13 and 14 of Part III of this Annual Report on Form 10-K incorporate by reference portions of the Registrant’s
definitive Proxy Statement for the 2022 Annual Meeting of Stockholders.
IMMERSION CORPORATION
2021 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
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Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Item 4.
Item 5.
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits, Financial Statement Schedules
10-K Summary
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
3
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,” “can,” “will,” “places,” “estimates,” and other similar expressions. However, these words are not the only way we
identify forward-looking statements. Examples of forward-looking statements include any expectations, projections, or other
characterizations of future events, or circumstances, and include statements regarding: the impact of COVID-19 on our
business, including as to revenue, and potential cost reduction measures, and the impact of COVID-19 on our customers,
suppliers, and on the economy in general; our strategy and our ability to execute our business plan; our competition and the
market in which we operate; our customers and suppliers; our revenue and the recognition and components thereof; our costs
and expenses; including capital expenditures; our investment of surplus funds and sales of marketable debt securities
seasonality and demand; our investment in research and technology development; changes to general and administrative
expenses; our foreign operations and the reinvestment of our earnings related thereto; our investment in and protection of our
IP; our employees; capital expenditures and the sufficiency of our capital resources; unrecognized tax benefit and tax
liabilities; the impact of changes in interest rates and foreign exchange rates, as well as our plans with respect to foreign
currency hedging in general; changes in laws and regulations; including with respect to taxes; our plans related to and the
impact of current and future litigation and arbitration; our sublease and the timing and income related thereto; our shelf S-3
registration statement and our plans with respect thereto, including anticipated use of proceed and our stock repurchase and
equity distribution programs.
Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in
circumstances that are difficult to predict and many of which are outside of our control. Actual results could differ materially
from those projected in the forward-looking statements, therefore we caution you not to place undue reliance on these forward-
looking statements. Important factors that could cause our actual results and financial condition to differ materially from those
indicated in the forward-looking statements include, among others, the risk factors contained below under Part I, Item 1A,
“Risk Factors.”
Any forward-looking statements made by us in this report speak only as of the date of this report, and we do not intend to
update these forward-looking statements after the filing of this report, unless required to do so by applicable law. You are
urged to review carefully and consider our various disclosures in this report and in our other reports publicly disclosed or filed
with the SEC that attempt to advise you of the risks and factors that may affect our business.
4
Risk Factor Summary
Our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our
business strategy and affect our financial results. You should carefully consider all of the information in this report and, in
particular, the following principal risks and all of the other specific factors described in Item 1A of this report, “Risk Factors,”
before deciding whether to invest in our company.
•
Risks related to our business:
▪ Our business, results of operations, financial condition, cash flows, and stock price can be adversely affected by
catastrophic events, such as pandemics, or other public health emergencies, such as COVID-19, or by the
uncertain economic and political environment in geographies in which we operate.
▪ Our business could be materially and adversely affected if we are unable to enter into new licensing
arrangements (or renew existing licenses) on favorable terms. In addition, a limited number of customers
account for a significant portion of our revenue, and the loss of major customers could harm our operating
results. Moreover, if our customers discontinue product lines that incorporate our technology, our operating
results may be negatively impacted.
•
Our failure to develop or acquire successful innovations and obtain patents on those innovations could
significantly harm our business.
• Shortages of electronic components may cause a decrease in production and sales of our customers’ products
which could result in lower royalties payable to us.
• Our licenses with component manufacturers may cause confusion as to our licensing model and may prevent us
from enforcing our patents based on the patent exhaustion doctrine, or other legal doctrines.
• We are or may become involved in litigation to enforce our IP rights (or defend against assertions that we
violate a third party’s IP), or resolve conflicts over license terms in our license agreements, and the costs thereof
could adversely affect our business.
▪ If we fail to protect and enforce our patent rights and other IP rights (or if there are adverse changes in patent
and litigation legislation or enforcement), our ability to license our technologies and generate revenues could be
impaired.
▪ If we are not able to attract, recruit and retain qualified personnel, we may not be able to effectively develop
and deploy our technologies. In addition, we have experienced turnover in our senior management and our
employee base, which could result in operational and administrative inefficiencies and could hinder the
execution of our growth strategy.
▪ We may not return to consistent profitability in the future.
▪ Our international operations subject us to risks and costs, and our failure to comply with complex U.S. or
foreign laws could have a material adverse effect on our operations.
▪ We may incur greater tax liability than anticipated which could adversely affect our financial condition and
operating results.
▪ We may not be able to continue to innovate in the gaming market or continue to derive significant revenues
from third party gaming peripheral makers for video gaming platforms.
5
▪ We may not be able to continue to derive significant revenues from gaming peripheral makers for various
reasons, including as a result of our fixed payment license with Microsoft, which could adversely affect our
financial condition and operating results.
▪ Automobiles incorporating our technologies are subject to lengthy development periods, making it difficult to
predict when and whether we will receive royalties for these product types.
▪ If our licensees’ efforts fail to generate consumer demand, our revenue may be adversely affected.
▪ The rejection of our haptic technology by standards-setting organizations, or failure of the standards-setting
organization to develop timely commercially viable standards may negatively impact our business.
▪ Our business and operations could suffer in the event of any actual or perceived security breaches, including
breaches that compromise personal information.
▪ If we are unable to develop open-source compliant products (or our products contain undetected errors), our
ability to license our technologies and generate revenues may be impaired.
▪ Our business depends in part on access to third-party platforms and technologies. If such access is withdrawn,
denied, or is not available on terms acceptable to us, or if the platforms or technologies change, our business
and operating results could be adversely affected.
▪ If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate
financial statements on a timely basis could be impaired, which would adversely affect our business and our
stock price.
• Risks related to investing in our common stock:
▪ Our quarterly revenues and operating results are volatile, and if our future results are below expectations, the
price of our common stock is likely to decline. Our stock price may fluctuate regardless of our performance.
▪ Future sales of our equity could result in significant dilution to our existing stockholders and depress the market
price of our common stock. In addition, we will have broad discretion as to the use of proceeds from the “at the
market” offerings that we announced in February 2021 and July 2021, and we may not use the proceeds
effectively.
▪ We may elect to purchase marketable securities, or digital or alternative currencies, as part of our capital
allocation or investment strategy; and if we determine to purchase marketable securities, or digital or alternative
currencies (such as bitcoin and other cryptocurrencies,), our financial results and the market price of our
common stock may be affected by the price of these alternative investments, which may be highly volatile.
▪ We may engage in the acquisition of other companies or other investments outside of our current line of
business, which may have an adverse material effect on our existing business.
▪ Any stock repurchase program could affect our stock price and add volatility.
▪ Changes in financial accounting standards or policies may affect our reported financial condition or results of
operations.
▪ Our business is subject to changing regulations regarding corporate governance and other compliance areas that
will increase both our costs and the risk of noncompliance. Further, provisions in our charter documents and
Delaware law could prevent or delay a change in control, which could reduce the market price of our common
stock.
6
• Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax
purposes may be limited.
7
Item 1. Business
Overview
PART I
Immersion Corporation (the “Company”, “Immersion”, “we”, or “us”) is a premier licensing company focused on the
invention, acceleration, and scaling, through licensing, of innovative haptic technologies that allow people to use their sense of
touch to engage with products and experience the digital world around them. We are one of the leading experts in haptics, and
our focus on innovation allows us to deliver world-class intellectual property (“IP”) and technology that enables the creation of
products that delight end users. Our technologies are designed to facilitate the creation of high-quality haptic experiences,
enable their widespread distribution, and ensure that their playback is optimized. Our primary business is currently in the
mobility, gaming, and automotive markets, but we believe our technology is broadly applicable and see opportunities in
evolving new markets, including entertainment, social content, virtual and augmented reality, and wearables, as well as
residential, commercial, and industrial Internet of Things. In recent years, we have seen a trend towards broad market adoption
of haptic technology. As other companies follow our leadership in recognizing how important tactile feedback can be in
people’s digital lives, we expect the opportunity to license our IP and technologies will continue to expand.
We have adopted a business model under which we provide advanced tactile software, related tools and technical
assistance designed to integrate our patented technology into our customers’ products or enhance the functionality of our
patented technology, and offer licenses to our patented technology to our 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 1,600 issued or pending patents worldwide as of December 31, 2021. Our
patents cover a wide range of digital technologies and ways in which touch-related technology can be incorporated into and
between hardware products and components, systems software, application software, and digital content. We believe that our IP
is relevant to many of the most important and cutting-edge ways in which haptic technology is and can be deployed, including
in connection with mobile interfaces and user interactions, in association with pressure and other sensing technologies, as part
of video and interactive content offerings, as related to virtual and augmented reality experiences, and in connection with
advanced actuation technologies and techniques. Our portfolio includes numerous patents and patent applications that we
believe may become essential to emerging standards in development by Standards Development Organizations (“SDOs”)
including media standards in development by ISO/IEC Moving Picture Expert Group (MPEG) and software and system
standards in development at IEEE-SA.
We were incorporated in 1993 in California and reincorporated in Delaware in 1999.
Our Business Strategy
Our goals are to maximize our profitable licensing opportunities to increase stockholder value, continue to play a leading
role in the haptics industry, and to drive the adoption of our touch technology across markets and applications to improve user
experiences in the digital realm. Our strategy is founded upon the ability to:
Innovate: Develop and patent our innovative technology, in a targeted and cost-efficient manner, to provide haptics in
mobile, gaming, automotive, wearable, virtual and augmented reality, and other products and services to transform user
experiences with unique and customizable tactile effects.
Foster Haptic Standards: We intend to lead and participate in the creation of ecosystem wide standards that will enable
accelerated adoption of haptic technologies across our core markets. Additionally, we will provide technical leadership within
the haptics ecosystem and align supply side haptics solution providers on consistent specifications to reduce friction related to
the integration of haptics into license bearing products through participation in industry bodies and targeted standards setting
organizations (“SSOs”).
Drive Adoption: Communicate the advantages of our patented innovations and technologies to the relevant customers in
target end-markets and encourage their adoption through demonstrations, incorporation in the offerings of world-class
companies and participation in SSOs.
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.
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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 virtual and augmented reality.
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 enhances digital experiences, restoring the missing elements of confirmation, realism and
rich communication to the digital world and help realize our vision: “With touch, we make people’s digital lives more personal,
vivid, and meaningful”.
Confirmation: Today’s touchscreen, touch pad, and other touch surfaces often lack the physical feedback that is provided
by mechanical keyboards, buttons, and switches 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 help 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 feel guns recoil, engines revving, and the crack
of a baseball bat crushing a home run.
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 Offerings
We provide enabling technology, IP and haptic expertise to our customers through a variety of different offerings,
including technology licenses, patent licenses, and combined licenses that cover both technology and patents. In most cases, we
provide patent licenses to our customers, and also offer technology licenses which may include services, reference designs, and/
or software development kits (“SDKs”), with the specific rights and restrictions to the applicable patents described in the
license agreements. When we offer patent licenses, we generally provide the customer with a defined right to use our patented
innovations in its own products, subject to limitations by specific field of use and other restrictions.
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.
Patent Licenses
Through more than 26 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 we invest
resources judiciously and in a cost-efficient manner in our patent portfolio with the goal of improving return on investment for
our stockholders . We continue to pursue intellectual property that aligns with our business strategy while efficiently managing
our patent prosecution and maintenance costs. Our portfolio includes more than 1,600 worldwide issued or pending as of
December 31, 2021, which support our technology 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
9
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, related to virtual and augmented reality experiences, and in
connection with advanced actuation technologies and techniques.
Technology and Engineering Offerings
In addition to licensing our patents to customers, we offer licenses to our other technology through integrated licensing kit
offerings that may include tools, software, firmware, reference designs, and related documentation to enable development and
deployment of advanced haptic experiences in consumer devices and applications. Our offerings include:
Reference Designs and reference technology: We offer reference designs for customers to use for technology evaluation
and product development purposes. Our designs include documentation and materials that designers, engineers, and system
integrators may utilize to integrate advanced haptics into existing or new products and applications. Our reference technologies
include source code for host and embedded product development and are intended to accelerate adoption of licensed
technologies by our licensees.
Software and firmware: We offer software and firmware for OEMs and supply chain partners to integrated advanced haptic
capabilities and optimize system performance. Our SDKs consist of tools, integration software and effect libraries that allow for
the design, encoding and playback of tactile effects. The SDKs offer high-fidelity tactile effects to augment and enhance
content, while ensuring quality playback within consumer devices. Our reference firmware is designed to optimize control and
performance of haptic system hardware.
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 work closely with qualified engineering service providers to assist
customers in integration activities
Markets
Mobile Communications, Wearables, and Consumer Electronics: We offer haptic expertise to Original Equipment
Manufacturers (‘OEM”) in the mobile, gaming, and related consumer electronics markets.
Our licensees currently include some of the top makers of mobile devices in the world, including Samsung, Google, Sony,
Panasonic, as well as integrated circuit manufacturers such as Awinic.
Revenue generated from OEMs and integrated circuit customers in the mobile communications market, as a percentage of
our total revenue, in 2021 and 2020, were 60% and 69%, respectively, of our total revenue.
Gaming and VR: We have licensed our patents directly to Microsoft, Sony and Nintendo for use in their console gaming
products. We have also licensed our patents to Sony for use in VR 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 PC gaming licensees
include Guillemot and Microsoft. We will not receive any further royalties from Microsoft under our current agreement with
Microsoft, including with respect to Microsoft’s gaming products or any other haptic-related product that Microsoft produces or
sells.
Revenue generated from customers in the gaming and VR market, as a percentage of our total revenue, in 2021 and 2020,
were 21% and 15%, respectively.
10
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 Alpine, Continental, Preh, Panasonic Automotive
Systems, Mobase Electronics (formerly Seoyon Electronics) and Tokai Rika.
Revenue generated from automotive customers, as a percentage of our total revenue, in 2021 and 2020, were 19% and
15%, respectively.
Other: We offer patent licenses to other markets. Our current licensees include Stanley, Point Mobile, Lexmark, and others.
Revenue generated from other customers, as a percentage of our total revenue, in 2021 and 2020 were not material.
We expect the mix of our total revenue from our markets to remain fairly consistent. However, certain markets may
fluctuate significantly from quarter to quarter based upon the terms in our technology licenses, our revenue recognition policies
and the seasonality of our licensee’s shipments.
Sales
Our revenue fluctuates quarterly and is generally higher in the third quarter of our fiscal year due to increased shipments by
our customers of licensed products in preparation for the holiday season. However, significant fluctuations in the timing of our
revenue are driven by the terms of our licensing agreements, the period in which such agreements become effective and our
revenue recognition policies.
We employ a consolidated direct sales force in the United States and Asia to license our patents and other technology
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 12. Segment Reporting,
Geographic Information, and Significant Customers of the Notes to Consolidated Financial Statement 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, haptic integrated
circuit manufacturer, and other customers, as well as potential customers. Our strong patent position generally makes us unique
in the market in that we may lose a software licensing opportunity, for example, to a competitor or in-house team but still
secure a patent license when haptics are used.
We expect that these internal design groups will continue to make choices regarding whether to implement haptics or not,
as well as the extent of their haptic investment and whether to develop their own haptic solutions.
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 marginal enhancements and may compete with non-touch-enabled technologies and price elasticity may be a
significant factor in whether these markets incorporate haptic technologies.
Research and Development
Our success, in part, depends on ensuring that our patents and other intellectual property continues to be relevant in our
core markets in a manner that aligns with our business strategy while efficiently managing our costs. For the years ended
December 31, 2021, and 2020, our research and development expenses were $4.2 million and $5.0 million, respectively.
We have multi-disciplinary expertise in usability and multimodal user interface design, actuator design, sensors,
integration, real-time simulation algorithms, control, and software development. Our R&D team works with existing and
11
potential partners to help them assess and prove the value of haptics in their field of interest, creating competitive differentiators
and value-added solutions.
Intellectual Property
Protection of our IP portfolio 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. Parties who license our IP make an
investment in our technology, and that investment gets devalued when unlicensed parties use our IP. Litigation against
unlicensed third parties is a last step after all other avenues for resolution have been exhausted. If unlicensed parties continue to
ship products that use our IP without fairly remunerating us, litigation may be a proper step to protect our IP and assets, as well
as protecting the investments of our existing licensees. As haptics gains wider acceptance in the market, the likelihood of
unlicensed use of our IP increases. This could result in ongoing dispute resolution and litigation efforts, as we seek to protect
the investment that we and our valid licensees have made in our technology.
As of December 31, 2021, we and our wholly owned subsidiaries had more than 1,600 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 is typically 20 years from the effective date of filing of the patent application resulting in the patent.
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,
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), our Corporate Governance Principles and our Stock
Ownership Policy 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 a website 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, 2021, we had 26 full-time equivalent employees located in 4 countries. Of these, 22, or 85%, were
located in the United States and Canada.
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 retain employees with world class haptic expertise, as well as the executive management and
operating personnel required to successfully execute our business strategies. To retain these high caliber employees, we strive to
create an environment and culture that fosters and supports the continued adoption of our technology in our core markets where
we see further licensing opportunities.
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Item 1A. Risk Factors
As previously discussed, our actual results could differ materially from our forward-looking statements. Factors that might
cause or contribute to such differences include, but are not limited to:
These and many other factors described in this report could adversely affect our operations, performance and financial
condition.
Company Risks
Our business, results of operations, financial condition, cash flows, and stock price can be adversely affected by
catastrophic events, such as natural disasters, war, acts of terrorism, pandemics, epidemics, or other public health
emergencies, such as the outbreak of COVID-19.
Our business, results of operations, financial condition, cash flows and stock price can be adversely affected by
catastrophic events, such as natural disasters, war, acts of terrorism, pandemics, epidemics, or other public health emergencies,
such as the outbreak of COVID-19. The outbreak resulted in governments around the world repeatedly implementing stringent
measures to help control the spread of the virus, including quarantines, travel restrictions, business curtailments, school
closures, and other measures, which has resulted in a significant number of layoffs or furloughs of employees, and/or other
negative economic conditions in many of the countries in which we operate. Increasing case numbers and new variants of
COVID-19, such as the Delta and Omicron variants, could cause governments around the world to implement or reinstitute
such restrictions. The full extent to which the COVID-19 pandemic will impact our business and operating results will depend
on future developments that are highly uncertain and cannot be accurately predicted.
The COVID-19 pandemic and its resulting economic and other effects could result in significant adverse effects on our
customers’ cash flow and their ability to manufacture, distribute and sell products incorporating our touch-enabling
technologies. This in turn, may cause our customers to be less able to pay invoices for our royalties or may result in a reduction
in the royalties we earn which are often based on the number of units sold or distributed by our customers, which reduction
could cause adverse effects on our business, results of operations, financial condition, cash flows and stock price. In addition,
any depression or recession resulting from the COVID-19 pandemic may adversely change consumer behavior and demand,
including with respect to products sold by our customers, which may result in a significant reduction in our revenue, results of
operations, and financial condition.
The COVID-19 pandemic has also caused us to modify our business practices (including implementing work-from-home
policies and restricting travel by our employees) in ways that may be detrimental to our business (including working remotely
and its attendant cybersecurity risks). We may take further actions as may be required by government authorities or that we
determine are in the best interests of our employees and customers. These practices may have an adverse effect on our
employees’ productivity (especially with respect to our engineering and research and development efforts which may require
hardware and software not available while working remotely) and morale and our ability to engage and support our current and
prospective customers.
Our facilities could also be subject to a catastrophic loss such as fire, flood, earthquake, power outage, or terrorist activity.
An earthquake at or near our facilities could disrupt our operations and result in large expenses to repair and replace the facility.
While we believe that we maintain insurance sufficient to cover most long-term potential losses at our facilities, our existing
insurance may not be adequate for all possible losses including losses due to earthquakes.
If we are unable to renew our existing licensing arrangements for our patents and other technologies on favorable
terms that are consistent with our business objectives, our royalty and license revenue and cash flow could be materially and
adversely affected.
Our revenues and cash flows are largely dependent on our ability to renew existing licensing arrangements. If we are
unable to obtain renewed licenses on terms consistent with our business objectives or effectively maintain, expand, and support
our relationships with our licensees, our licensing revenue and cash flow could decline. In addition, the process of negotiating
license arrangements requires significant time, effort and expense. Due to the length of time required to negotiate a license
arrangement, there may be delays in the receipt of the associated revenue, which could negatively impact our revenue and cash
flow.
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Specific challenges that we face related to negotiations with existing licensees include:
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difficulties caused by the effects of COVID-19 on our existing licensees’ businesses;
difficulties in persuading existing customers to renew a license to our patents or other technologies (including delays
associated with existing customers questioning the scope, validity, or enforceability) without the expenditure of
significant resources;
difficulties in persuading existing customers that they need a license to our patents as individual patents expire or
become limited in scope, declared unenforceable or invalidated;
reluctance of existing customers to renew their license to our patents or other technologies because other companies
are not licensed;
difficulties in renewing gaming licenses if video game console makers choose not to license third parties to make
peripherals for their new consoles, if video game console makers no longer require peripherals to play video games, if
video game console makers no longer utilize technology in the peripherals that are covered by our patents or if the
overall market for video game consoles deteriorates substantially;
the competition we may face from third parties, including the internal design and development teams of existing
licensees;
• 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; and
• inability of current 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.
If we are unable to enter into new licensing arrangements for our patents or other technologies (including reference
designs, firmware/software or other products) on favorable terms that are consistent with our business objectives, our royalty
and license revenue and cash flow could be materially adversely affected.
Our revenue growth is largely dependent on our ability to enter into new licensing arrangements. If we are unable to
obtain new licenses on terms consistent with our business objectives, our licensing revenue and cash flow could decline. In
addition, the process of negotiating license arrangements requires significant time, effort and expense; due to the length of time
required to negotiate a license arrangement, there may be delays in the receipt of the associated revenue, which could negatively
impact our revenues and cash flows.
Specific challenges that we face related to negotiations with prospective licensees include:
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difficulties caused by the effects of COVID-19 on prospective licensees’ businesses;
difficulties in brand awareness among prospective customers, especially in markets in which we have not traditionally
participated;
difficulties in persuading prospective customers to take a license to our patents (including delays associated with
prospective customers questioning the scope, validity or enforceability of our patents) without the expenditure of
significant resources;
reluctance of prospective customers to engage in discussions with us due to our history of litigation;
difficulties in persuading prospective customers that they need a license to our patents as individual patents expire or
become limited in scope, declared unenforceable or invalidated;
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reluctance of prospective customers to license our patents or other technologies because other companies are not
licensed;
the competition we may face from third parties, including the internal design teams of prospective customers;
difficulties in achieving and maintaining consumer and market demand or acceptance for our products;
difficulties in persuading third parties to work with us, to rely on us for critical technology, and to disclose to us
proprietary product development and other strategies; and
challenges in demonstrating the compelling value of our technologies and challenges associated with prospective
customers’ ability to easily implement our technologies.
A limited number of customers account for a significant portion of our revenue, and the loss of major customers could
harm our operating results.
A significant amount of our revenue is derived from a limited number of customers, and we expect that this will continue
to be the case in the future. For example, for the year ended December 31, 2021, Samsung accounted for a significant amount of
our total revenues.
In addition, we cannot be certain that other customers that have accounted for significant revenue in past periods,
individually or as a group, will continue to generate similar revenue in any future period.
If we fail to renew or lose a major customer or group of customers, or if a major customer decides that our patents no
longer cover our products and stops paying us royalties, our revenue could decline if we are unable to replace the lost revenue
with revenue from other sources. In addition, if potential customers or customers with expiring agreements view the loss of one
of our major customers as an indicator of the value of our software and/or the strength of our intellectual property, they may
choose not to take or renew a license which could adversely affect our operating results.
If our customers discontinue product lines that incorporate our technology, our operating results may be negatively
impacted.
Our royalties from licenses and therefore the growth of our business, are dependent, in part, on the success of our
customers’ products that incorporate our haptic innovations. Many of the industries we license into are highly competitive.
Our existing customers may decide to exit these industries and focus their resources on industries we do not license into or
where we have achieved less market penetration. The discontinuation of such product lines by our customers would result in
lower shipments of products that incorporate our haptic innovations which in turn may have a material adverse effect on our
business, financial condition and results of operations. For example, on April 5, 2021, LGE announced that it would wind
down and close its mobile business unit by July 31, 2021.
Our failure to continuously develop or acquire successful innovations and obtain patents on those innovations could
significantly harm our business, financial condition, results of operations or cash flows.
We derive a significant portion of our revenues from licenses and royalties from our haptic patents. To remain competitive,
the market must adopt our newer technology. Our initiatives to develop industry standards, foster adoption of new haptic
innovations, obtain patents on such innovations, and to commercialize these haptic innovations may not be successful or timely.
Any new or enhanced haptic innovations may not be favorably received by our licensees, potential licensees, or consumers and
we may not be able to monetize such haptic innovations. If our development efforts are not successful or are significantly
delayed, companies may not incorporate our haptic innovations into their products and our revenues may not grow and could
decline.
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Shortages of electronic components (such as integrated circuits) that may be integral to the manufacturing of our
customers’ products may cause a decrease in production and sales of our customers’ products which could result in lower
royalties payable to us.
Many of our customers report and pay royalties to us based on the number of products in their shipments that incorporate
our patented technology or other technology. Our customers’ products may incorporate various electronic components, such as
integrated circuits. A significant disruption in the supply of these electronic components (such as integrated circuits) could
decrease the number of products that our customers sell which could reduce the amount of royalties that are payable to us.
For instance, the semiconductor industry has recently faced significant global supply chain issues as a result of the impact
of the COVID-19 pandemic and the related imposition of government restrictions on staffing and facility operations, supply
chain shortages, and other disruptions. Even though government restrictions have loosened, integrated circuit manufacturers
continued to struggle to meet the new surge in demand. This is due to changing consumer habits fueled by the COVID-19
pandemic. If our customers experience significant shortages of electronic components that result in a reduction in our revenues,
then our business, results of operations, financial condition, cash flows, and stock price may be adversely affected.
We are or may become involved in litigation, arbitration and administrative proceedings to enforce or defend our
intellectual property rights and to defend our licensing practices that are expensive, disruptive and time consuming, and will
continue to be, until resolved, and regardless of whether we are ultimately successful, could adversely affect our business.
If we believe that a third party is required, but has declined, to license our intellectual property in order to manufacture,
sell, offer for sale, import or use products, we have in the past and may in the future commence legal or administrative action
against such third party. In some cases, we have and may become party to legal proceedings in which we are adverse to
companies that have significantly greater financial resources than us. For example, we had previously initiated patent
infringement litigation against Samsung and Motorola. We anticipate that currently pending and any future legal proceedings
will continue to be costly, especially in cases where our adverse parties have access to relatively more significant resources.
Since there can be no assurance that we will be successful or be able to recover the costs we incur in connection with the legal
proceedings (including outside counsel fees), as we incur additional legal costs, the cash available for other parts of our
business may decrease. In addition, litigation could lead to counterclaims, adverse rulings affecting our patents, and could harm
our relationship with our customers and potential customers, who may postpone licensing decisions pending the outcome of the
litigation or dispute, or who may choose not to adopt our technologies. Although protecting our intellectual property is a
fundamental part of our business, at times, our legal proceedings have diverted, and could continue to divert, the efforts and
attention of some of our key management and personnel away from our licensing transactions and other aspects of our business.
As a result, until such time as it is resolved or concluded, litigation, arbitration and administrative proceedings could cause our
technology to be perceived as less valuable in the marketplace, which could reduce our sales and adversely affect our business.
Further, any unfavorable outcome could adversely affect our business. For additional background on our litigation, please see
Part I Item 3 Legal Proceedings.
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.
In order to generate revenues from our patent and other technology licensing business, we regularly enter into agreements
pursuant to which our licensees are granted certain rights to our patents and other technology. These rights vary in scope and
nature depending on the customer: for example, we may grant a licensee the right to use our technology in certain fields of use
or with respect to limited market sectors or product categories, and we may or may not grant a licensee exclusive rights or
sublicensing rights. We refer to the license terms and restrictions in our 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 business models and to the compromises
inherent in the drafting and negotiation of License Provisions, our licensees may interpret License Provisions in their
agreements in a way that is different from our interpretation of such License Provisions or in a way that is inconsistent with the
rights that we have granted to other licensees. Such conflicting interpretations by 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 or that create a
dispute as to which products are covered by the license and are thus subject to a royalty payment. For example, on August 3,
2021, we filed an arbitration demand with the American Arbitration Association against Marquardt GmbH ("Marquardt"), one
of our licensees in the automotive market. Pursuant to the arbitration demand, we are demanding that Marquardt cure its
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breach of the Amended and Restated Patent License Agreement we entered into with Marquardt and pay all royalties currently
owed to us under that license. For additional background on our litigation, please see Part I Item 3 Legal Proceedings.
Many of our customers report royalties to us based on (i) the number of products in their shipments that incorporate our
patented technology or other technology or (ii) our customers’ revenues and their interpretation and allocation of contracted
royalty rates. When assessing payments due by customers under these types of arrangements, we rely upon the accuracy of our
customers’ recordkeeping and reporting, and inaccuracies or payment disputes regarding amounts our customers owe under
their licensing agreements may negatively impact our results of operations. The royalties that are originally reported by a
customer could differ materially from those determined by either a customer-self-reported correction or from an audit we have
performed on a customer’s books and records. Differing interpretations of royalty calculations may also cause disagreements
during customer audits, may lead to 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
and 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 that incorporate our patented
technology or other technology, or legal and/or regulatory environments, will evolve in an unexpected manner that could affect
the scope of our rights to royalties under such agreement or another one of our licensing agreements or our ability to enforce
and defend the technology covered by such agreement or another one of our licensing agreements. As a result, in any
agreement, we may have granted rights that will preclude or restrict our exploitation of new opportunities that arise after the
execution of the agreement.
Our licenses with semiconductor and actuator manufacturers may cause confusion as to our licensing model and may
prevent us from enforcing our patents based on the patent exhaustion doctrine, the implied license doctrine, or other legal
doctrines.
We also license our software and/or patents to semiconductor and actuator manufacturers who incorporate our technologies
into their integrated circuits or actuators for use in certain electronic devices. While our relationships with these manufacturers
increase our distribution channels by leveraging their sales channels, this could introduce confusion into our licensing model
which has traditionally been focused on licensing the OEM. In addition, licensing to semiconductor and actuator manufacturers
increases the risk of patent exhaustion and implied licenses such that incorrectly structured licenses could negatively impact our
business and financial results.
Potential patent and litigation reform legislation, potential United States Patent and Trademark Office (“USPTO”) and
international patent rule changes, potential legislation affecting mechanisms for patent enforcement and available remedies,
and potential changes to the intellectual property rights policies of worldwide standards bodies, as well as rulings in legal
proceedings may affect our investments in research and development and our strategies for patent prosecution, licensing
and enforcement and could have a material adverse effect on our licensing business as well as our business as a whole.
Potential changes to certain U.S. and international patent laws, rules and regulations may occur in the future, some or all of
which may affect our research and development investments, patent prosecution costs, the scope of future patent coverage we
secure, remedies that we may be entitled to in patent litigation, and attorneys’ fees or other remedies that could be sought
against us, and may require us to reevaluate and modify our research and development activities and patent prosecution,
licensing and enforcement strategies.
Similarly, legislation designed to reduce the jurisdiction and remedial authority of the United States International Trade
Commission (the “USITC”) has periodically been introduced in Congress. Any potential changes in the law, the IP rights
policies of standards bodies or other developments that reduce the number of forums available or the type of relief available in
such forums (such as injunctive relief), restrict permissible licensing practices (such as our ability to license on a worldwide
portfolio basis) or that otherwise cause us to seek alternative forums (such as arbitration or state court), could make it more
difficult for us to enforce our patents, whether in adversarial proceedings or in negotiations. Because we have historically
depended on the availability of certain forms of legal process to (i) enforce our patents and (ii) obtain fair and adequate
compensation for our investments in research and development and for the unauthorized use of our intellectual property,
developments in law and/or policy that undermine our ability to do so could have a negative impact on future licensing efforts
and on revenue derived from such efforts.
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Rulings of courts and administrative bodies may affect our strategies for patent prosecution, licensing and enforcement.
For example, in recent years, the USITC and U.S. courts, including the U.S. Supreme Court and the U.S. Court of Appeals for
the Federal Circuit, have taken actions that have been viewed as unfavorable to patentees. Decisions that occur in U.S. or in
international forums may change the law applicable to various patent law issues, such as with respect to, patentability, validity,
patent exhaustion, patent misuse, remedies, permissible licensing practices, claim construction, and damages in ways that could
be detrimental to our ability to enforce patents in our IP portfolio and to obtain damages awards.
We continue to monitor and evaluate our strategies for prosecution, licensing and enforcement with regard to these
developments in law and policy; however, any resulting change in such strategies could have a material adverse effect on our
business and financial condition.
If we are not able to attract, recruit and retain qualified personnel, we may not be able to effectively develop and deploy
our technologies.
Our technologies are complex, and we rely upon our employees to identify new sales and business development
opportunities, support and maintain positive relationships with our licensees, enhance existing technologies, and develop new
technologies. Accordingly, we need to be able to attract, recruit, integrate, and retain sales, support, marketing, and research and
development personnel, including individuals highly specialized in patent licensing and engineering in order to develop and
deploy our technologies and to sustain revenue growth. Competition for talented candidates is intense, especially for
individuals with patent licensing, engineering and haptics expertise, and we may not be successful in attracting, integrating, and
continuing to motivate such qualified personnel. In this competitive recruiting environment, especially when hiring in Montreal,
Canada, and the greater San Francisco Bay Area, our compensation packages need to be attractive to the candidates we recruit.
However, given the negative effects that COVID-19 may have on our business as well as potential volatility in our quarterly
revenues, it could be difficult to craft compensation plans that will attract and retain salespeople with the skills to secure
complex licensing arrangements. In Montreal, Canada, and the greater San Francisco Bay Area, candidates and employees view
the stock component of compensation as an important factor in deciding both whether to accept an employment opportunity as
well as whether to remain in a position at a company. Even if we are able to present robust compensation packages that enable
us to attract and recruit new candidates for hire, we may not be able to retain our current executive officers and key employees
if the structure of their compensation packages does not provide incentives for them to remain employed by us. For instance, in
August 2021, our 2021 Executive Incentive Plan was cancelled and in June 2020, our 2020 Executive Incentive Plan was
cancelled and the base salaries of our executive officers were reduced by 10%.
We have experienced turnover in our senior management and our employee base, which could result in operational and
administrative inefficiencies and could hinder the execution of our growth strategy.
We have experienced turnover in our senior management. For example, in August 2020 Eric Singer was appointed as
Executive Chairman, in November 2020, Ramzi Haidamus departed as our Chief Executive Officer and a member of our board
of directors, and Jared Smith was appointed as Interim Chief Executive Officer. In August 2021, Mr. Smith resigned as Interim
Chief Executive Officer and Francis Jose, who had replaced Mike Okada as General Counsel in May 2021, was appointed the
Chief Executive Officer. In addition, in December 2021, William Martin was appointed as Chief Strategy Officer. Lack of
management continuity could harm our customer relationships, delay product development processes, adversely affect our
ability to successfully execute our growth strategy, result in operational and administrative inefficiencies and added costs, and
could impede our ability to recruit new talented individuals to senior management positions, which could adversely impact our
results of operations, stock price and customer relationships. Our success largely depends on our ability to integrate any new
senior management within our organization in order to achieve our operating objectives, and changes in other key positions
may affect our financial performance and results of operations as new members of management become familiar with our
business. General employee turnover also presents risks discussed in this paragraph.
We had an accumulated deficit of $100.7 million as of December 31, 2021, and we may not maintain consistent
profitability in the future.
As of December 31, 2021, we had an accumulated deficit of $100.7 million. We need to generate significant ongoing
revenues to maintain consistent profitability. Among other ongoing expenses, we may continue to incur expenses related to:
• sales and marketing efforts;
• research and development activities;
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• the protection and enforcement of our IP; and
• litigation.
If our revenues grow more slowly than we anticipate or if our operating expenses exceed our expectations, we may not
maintain profitability.
We may incur greater tax liability than we have provided for or have anticipated and may incur additional tax liability
due to certain indemnification agreements with certain licensees, which could adversely affect our financial condition and
operating results.
We began a reorganization of our corporate organization in 2019 in order to address changing international tax laws and to
re-align our corporate structure with the evolving nature of our international business activities. As a result of this
reorganization, we have maintained our overall effective tax rate through changes in how we develop and use our intellectual
property and changes in the structure of our international sales operations, including by entering into intercompany
arrangements. There can be no assurance that the taxing authorities of the jurisdictions in which we operate or to which we are
otherwise deemed to have sufficient tax nexus will not challenge the restructuring or the tax position that we take.
Our tax rate is dependent on our ability to operate our business in a manner consistent with the reorganization of our
corporate organization and applicable tax provisions, as well as on our achieving our forecasted revenue growth rates. If the
intended tax treatment is not accepted by the applicable taxing authorities, changes in tax law negatively impact the structure, or
we do not operate our business consistent with the intended reorganization and applicable tax provisions, we may fail to achieve
the financial efficiencies that we anticipate as a result of the reorganization and our future operating results and financial
condition may be negatively impacted. In addition, future changes to U.S. or non-U.S. tax laws, including legislation to reform
U.S. or other countries’ taxation of the organization.
Additionally, from time to time, we enter into license agreements with our licensees pursuant to which we may agree to
indemnify a customer for certain taxes imposed on the customer by an applicable tax authority and related expense. We have
received requests from certain licensees requesting that we reimburse them for certain tax liabilities. For example, on April 28,
2017, we received a letter from Samsung requesting that we reimburse Samsung with respect to withholding tax and penalties
imposed on Samsung by the Korean tax authorities as a result of its determination that withholding taxes should have been
withheld from certain payments made from Samsung to Immersion Software Ireland Limited, a request that was arbitrated by a
panel of the International Chamber of Commerce. On March 27, 2019, the panel issued a final award. The award ordered us to
pay Samsung KRW 7,841,324,165 (approximately $6.9 million as of March 31, 2019), which we paid on April 22, 2019,
denied Samsung’s claim for interest from and after May 2, 2017; and ordered us to pay Samsung’s cost of the arbitration in the
amount of approximately $871,454. In the first quarter of 2019, $6.9 million was recorded as a deposit included in Long-term
deposits on our Condensed Consolidated Balance Sheets. For additional background on this matter, please see Part I, Item 3
Legal Proceedings.
On October 16, 2017, we received a letter from LGE requesting that we reimburse LGE with respect to withholding tax
imposed on LGE by the Korean tax authorities following an investigation where the tax authority determined that LGE failed to
withhold on LGE’s royalty payments to Immersion Software Ireland from 2012 to 2014. Pursuant to an agreement reached
with LGE, on April 8, 2020, we provided a provisional deposit to LGE in the amount of KRW 5,916,845,454 (approximately
$5.0 million) representing the amount of such withholding tax that was imposed on LGE, which provisional deposit would be
returned to us to the extent we ultimately prevail in the appeal in the Korea courts. In the second quarter of 2020, we recorded
this deposit as Long-term deposits on our Condensed Consolidated Balance Sheets.
On November 3, 2017, on behalf of LGE, we filed an appeal with the Korea Tax Tribunal regarding their findings with
respect to the withholding taxes. The Korea Tax Tribunal hearing took place on March 5, 2019. On March 19, 2019, the Korea
Tax Tribunal issued its ruling in which it decided not to accept our arguments with respect to the Korean tax authorities’
assessment of withholding tax and penalties imposed on LGE. On behalf of LGE, we filed an appeal with the Korea
Administrative Court on June 10, 2019. For additional background on this matter, please see Part I, Item 3 Legal Proceedings.
Based on the developments in these cases, we regularly reassess the likelihood that we will prevail in the claims from the
Korean tax authorities with respect to the LGE case. To the extent that we determine that it is more likely than not that we will
prevail against the claims from the Korean tax authorities, then no additional tax expense is provided for in our Consolidated
Statements of Income and Comprehensive Income. In the event that we determine that it is more likely than not that we will not
prevail against the claims from the Korean tax authorities, or a portion thereof, then we would estimate the anticipated
additional tax expense associated with that outcome and record it as additional income tax expense in our Consolidated
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Statements of Income and Comprehensive Income in the period of the new determination. If the additional income tax expense
was related to the periods assessed by Korean tax authorities and for which we recorded a Long-term deposit on our
Consolidated Balance Sheets, then the additional income tax expense would be recorded as an impairment to the Long-term
deposit. If the additional income tax expense was not related to the periods assessed by Korean tax authorities and for a which
we recorded a Long-term deposit on our Consolidated Balance Sheets, then the additional income tax expense would be
accrued as an Other current liabilities.
To the extent that we do not ultimately prevail in our appeal in the Korean courts with respect to the LGE case, the
applicable deposits included in Long-term deposits would be recorded as additional income tax expense on our Consolidated
Statements of Income and Comprehensive Income, in the period in which we do not ultimately prevail.
In the event that it is determined that we are obligated to further indemnify Samsung and/or LGE for withholding taxes
imposed by the Korean tax authorities, receive further requests for reimbursement of tax liabilities from other licensees, we
could incur significant expenses.
Our international operations subject us to additional risks and costs.
We currently have sales personnel and other personnel in Canada, the United Kingdom and Japan who may engage in
various activities, including engaging our customers and prospective customers outside of the United States. International
revenues accounted for approximately 88% of our total revenues in 2021. International operations are subject to a number of
difficulties, risks, 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;
changing import and export restrictions, duties, tariffs, quotas and other barriers;
difficulties staffing and managing foreign operations;
business risks, including fluctuations in demand for our technologies and products and the cost and effort to conduct
international operations and travel abroad to promote international distribution and overall global economic conditions;
• multiple conflicting and changing tax laws and regulations;
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political and economic instability;
the possibility of an outbreak of hostilities or unrest in markets where major customers are located, including Korea;
potential economic disruption based on the United Kingdom’s recent withdrawal from the European Union, commonly
referred to as Brexit; and
the possibility of volatility in financial markets as certain market participants transition away from the London Inter-
bank Offered Rate (LIBOR).
In addition, since we derive a significant portion of our revenues from licenses and royalties from our haptic patents in
foreign countries, our ability to maintain and grow our revenue in foreign countries, such as China, will depend in part on our
ability to obtain additional patent rights in these countries and our ability to effectively enforce such patents and contractual
rights in these countries, which is uncertain. Our technology licenses with customers in foreign countries subject us to an
increased risk of theft of our technology. It may be more difficult for us to protect our IP in foreign countries, and as a result
foreign counterparties may be more likely to steal our know-how, reverse engineer our software, or infringe our patents.
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Our failure to comply with complex U.S. and foreign laws and regulations could have a material adverse effect on our
operations.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”) and other anticorruption, anti-
bribery and anti-money laundering laws in the jurisdictions in which we do business, both domestic and abroad. These laws
generally prohibit us and our employees from improperly influencing government officials in order to obtain or retain business,
direct business to any person or gain any improper advantage. The FCPA and other applicable anti-bribery and anti-corruption
laws also may hold us liable for acts of corruption and bribery committed by our third-party business partners, representatives
and agents. While we have policies and procedures to address compliance with such laws, we cannot assure you that our
employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held
responsible and our exposure for violating these laws increases as our international presence expands and as we increase sales
and operations in foreign jurisdictions. Any violation of such laws could result in whistleblower complaints, adverse media
coverage, investigations, imposition of significant legal fees, and other consequences which may have an adverse effect on our
reputation, business, results of operations and financial condition.
Our international operations could also increase our exposure to foreign and international laws and regulations. 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 internationally. Our international operations could also
increase our exposure to complex international tax rules and regulations. Changes in, or interpretations of, tax rules and
regulations may adversely affect our income tax provision. In addition, our operations outside the United States may be affected
by changes in trade protection laws, policies and measures, and other regulatory requirements affecting trade and investment,
including the U.S. Foreign Corrupt Practices Act and local laws prohibiting corrupt payments by our employees, vendors, or
agents.
Our sales to customers or sales by our customers to their end customers in some areas outside the United States could be
subject to government export regulations or restrictions that prohibit us or our licensees from selling to customers in some
countries or that require us or our licensees to obtain licenses or approvals to export such products internationally. Delays or
denial of the grant of any required license or approval, or changes to the regulations, could make it difficult or impossible to
make sales to foreign customers in some countries and could adversely affect our revenue. In addition, we could be subject to
fines and penalties for violation of these export regulations if we were found in violation. Such violation could result in
penalties, including prohibiting us from exporting our products to one or more countries, and could materially and adversely
affect our business.
We may not be able to continue to innovate in the gaming market or continue to derive significant revenues from third
party gaming peripheral makers for video gaming platforms.
To remain competitive in the gaming market, we must continue introduce new haptic patents in a timely manner and the
market must adopt such technology. As part of our continuing efforts to bring new advanced haptic technologies to the gaming
market, we seek to engage with third party gaming peripheral makers to utilize our advanced haptic technologies and expand
the use of haptics across the gaming market. If our engagement efforts are not successful or are significantly delayed, we may
be unsuccessful in our innovation efforts in the gaming market, which could have an adverse effect on our revenues.
In addition, while Microsoft, Sony, and Nintendo are among our licensees in the gaming market, a significant portion of
our gaming royalty revenues comes from third-party peripheral makers who make licensed gaming products designed for use
with popular video game console systems from such video game console makers. Video game console systems are closed,
proprietary systems, and video game console system makers typically impose certain requirements or restrictions on third-party
peripheral makers who wish to make peripherals that will be compatible with a particular video game console system. If third-
party peripheral makers cannot or are not allowed to satisfy these requirements or restrictions, our gaming royalty revenues
could be significantly reduced. Furthermore, should a significant video game console maker choose to omit touch-enabling
capabilities from its console systems or restrict or impede the ability of third parties to make touch-enabling peripherals, it
could lead our gaming licensees to stop making products with touch-enabling capabilities, thereby significantly reducing our
gaming royalty revenues. Also, if the video game industry changes such that mobile or other platforms increase in popularity at
the expense of traditional video game consoles, our gaming royalty revenues could be substantially reduced if we are unable to
enter into replacement arrangements enabling us to license our software, patents, or other IP in connection with gaming on such
mobile or other platforms. Although we have a significant software and patent position with respect to virtual reality (or VR)
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peripherals and systems, the market may not become large enough to generate material revenues. Finally, as some of our
litigated patents related to video game peripherals have expired, our gaming royalty revenues will likely decline until we are
successful in proving the relevance of our patents for this market.
Because we have a fixed payment license with Microsoft, our royalty revenue from licensing in the gaming market and
other consumer markets has previously declined and may further do so if Microsoft increases its volume of sales of touch-
enabled products at the expense of our other licensees.
Under the terms of our present agreement with Microsoft, Microsoft receives a royalty-free, perpetual, irrevocable license
(including sublicense rights) to our worldwide portfolio of patents. This license permits Microsoft to make, use, and sell
hardware, software, and services, excluding specified products, covered by our patents. We will not receive any further
revenues or royalties from Microsoft under our current agreement with Microsoft, including with respect to Microsoft’s Xbox
Series X gaming product or any other haptic-related product that Microsoft produces or sells. Microsoft has a significant share
of the market for touch-enabled console gaming computer peripherals and is pursuing other consumer markets such as mobile
devices, tablets, personal computers, and VR and augmented reality (or AR). Microsoft has significantly greater financial, sales,
and marketing resources, as well as greater name recognition and a larger customer base than some of our other licensees from
whom, unlike with respect to Microsoft, we are able to collect royalty payments. In the event that Microsoft increases its share
of these markets relative to companies from whom we are not precluded from collecting royalty payments, our royalty revenue
from other licensees in these market segments may decline.
Automobiles incorporating our touch-enabling technologies are subject to lengthy product development periods, making
it difficult to predict when and whether we will receive royalties for these product types.
The product development process for automobiles is very lengthy, sometimes longer than four years. We may not earn
royalty revenue on our automotive device technologies unless and until products featuring our technologies are shipped to
customers, which may not occur until several years after we enter into an agreement with a manufacturer or a supplier to a
manufacturer. Throughout the product development process, we face the risk that a manufacturer or supplier may delay the
incorporation of, or choose not to incorporate, our technologies into its products, making it difficult for us to predict the
royalties we may receive, if any. After the product launches, our royalties still depend on market acceptance of the vehicle, or
the option packages if our technology is an option (for example, a navigation unit), which is likely to be determined by many
factors beyond our control.
Further, our revenues in the automotive market depend in large part on the number of haptic touch interfaces that are
incorporated into vehicles. The COVID-19 pandemic, and its resulting economic and other impacts, have caused and may in the
future cause significant adverse effects on our customers’ ability to manufacture, distribute and sell products incorporating our
touch-enabling technologies. While we believe that the automotive market provides opportunities for growth for us, especially
if haptic touch interfaces are adopted in more mid-tier and entry-tier vehicles, we are unable to accurately predict the full impact
that COVID-19 will have on the number of vehicles sold by our customers that incorporate haptic touch interfaces. However, if
such opportunities fail to materialize and/or if less haptic touch interfaces are sold in the future, it may have a material and
adverse effect on our business, financial position, results of operations or cash flows.
Our inability to control or influence our licensees’ design, manufacturing, quality control, promotion, distribution, or
pricing of their products incorporating our touch-enabling technologies could result in diminished royalty revenue if our
licensees’ efforts fail to generate consumer demand.
A key part of our business strategy is to license our software and patents (and other IP) to companies that manufacture and
sell products incorporating our touch-enabling technologies. For the year ended December 31, 2021, 99% of our total revenues
were royalty and license revenues, as compared to 99% for the year ended December 31, 2020. 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 timely ship products incorporating our touch-enabling technologies or fail
to achieve strong sales, our revenues could decline.
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The rejection of our haptic technology by standards-setting organizations, or failure of the standards-setting
organization to develop timely commercially viable standards may negatively impact our business.
As part of our growth plan, we intend to participate in standards-setting organizations. The rejection of our haptic
technology or failure of the standards-setting organizations to develop timely commercially viable standards may negatively
impact our business and financial results.
Our business may suffer if third parties assert that we violate their IP rights.
Third parties have previously claimed and may in the future claim that we or our customers are infringing upon their IP
rights. Even if we believe that such claims are without merit or that we are not responsible for them under the indemnification
or other terms of our customer license agreements, such claims can be time-consuming and costly to defend against and may
divert management’s attention and resources away from our business. Furthermore, third parties making such claims may be
able to obtain injunctive or other equitable relief that could block our ability to further develop or commercialize some or all of
our software technologies or services in the United States and abroad. Claims of IP infringement also might require us to enter
into costly settlement or license agreements or pay costly damage awards. Even if we have an agreement that provides for a
third party to indemnify us against such costs, the indemnifying party may be unable or unwilling to perform its contractual
obligations.
We license some technologies from third parties and in doing so, we must rely upon the owners of these technologies for
information on the origin and ownership of the technologies. As a result, our exposure to infringement claims may increase if
the owners misrepresent, intentionally or unintentionally, the scope or validity of their ownership. We generally obtain
representations as to the origin and ownership of acquired or licensed technologies and indemnification to cover any breach of
these representations. However, representations may not be accurate, and indemnification may not provide adequate
compensation for breach of the representations. If we cannot or do not license the infringed IP at all or on reasonable terms, or
substitute similar technology from another source, our business, financial position, results of operations or cash flows could
suffer.
Our business and operations could suffer in the event of any actual or perceived security breaches.
Our business involves the storage and transmission of customers’ proprietary and confidential information, including
information that may be personal information, and other data. In addition, we collect, use and maintain our own confidential
and proprietary business information, including information that may be personal information, and maintain intellectual
property internally on our systems. Computer malware, ransomware, cyberattacks and other threats and methods used to gain
unauthorized access to our information technology networks and systems have become more prevalent and sophisticated. These
threats and attempts, which may be related to industrial or other espionage, could include covertly introducing malware such as
viruses, worms and other malicious software programs to our computers and networks, impersonating authorized users, and
fraudulently inducing employees or customers into disclosing sensitive information such as user names, passwords or other
information in order to gain access to our data or our customers’ data, among other possible methods of security breach. These
threats are constantly evolving, making it increasingly difficult to successfully defend against them or implement adequate
protective measures.
Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not
recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures. There can be no assurance that any security measures that we or our third-party service providers have
implemented will be effective against current or future security threats. Our security measures or those of our third-party service
providers could fail, whether as a result of third-party action, employee error, malfeasance or otherwise, and could result in
unauthorized access to or use of our systems or unauthorized, accidental, or unlawful access to, or disclosure, modification,
misuse, loss or destruction of, our intellectual property and data and data of our customers.
In addition, our customers may authorize third party technology providers to access their customer data. Because we do not
control the transmissions between our customers and third-party technology providers or the processing of such data by third-
party technology providers, we cannot ensure the integrity or security of such transmissions or processing.
We might be unaware of any actual or potential security breach or be delayed in detecting a security breach, or, even if we
are able to identify a breach, we may be unaware of its magnitude and effects. Actual or perceived security breaches could
result in unauthorized use of or access to our systems, system interruptions or shutdowns, unauthorized, accidental, or unlawful
access to, or disclosure, modification, misuse, loss or destruction of, our or our customers’ data or intellectual property, may
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lead to litigation, indemnity obligations, regulatory investigations and other proceedings, severe reputational damage adversely
affecting customer or investor confidence and causing damage to our brand, indemnity obligations, disruption to our operations,
damages for contract breach, and other liability, reduction in the value of our investment in research and development and other
strategic initiatives, and adverse effects upon our revenues and operating results. Additionally, our service providers may suffer,
or be perceived to suffer, data security breaches or other incidents that may compromise data stored or processed for us that
may give rise to any of the foregoing.
More generally, any of the foregoing types of security breaches, or the perception that any of them have occurred, may lead
to the expenditure of significant financial and other resources in efforts to investigate or correct a breach or incident and to
address and eliminate vulnerabilities and to prevent future security breaches, as well as significant costs for remediation that
may include liability for stolen intellectual property or other assets or information and repair of system damage that may have
been caused, incentives offered to customers in an effort to maintain business relationships, and other liabilities. We have
incurred and expect to incur significant expenses in an effort to prevent security breaches and other security incidents.
We cannot be certain that our insurance coverage will be adequate for data security liabilities actually incurred, will cover
any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically
reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or
more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies,
including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse
effect on our business, including our financial condition, operating results, and reputation.
If we are unable to develop open source compliant products, our ability to license our technologies and generate
revenues may be impaired.
We have seen, and believe that we will continue to see, an increase in customers requesting that we develop products that
will operate in an “open source” environment. Developing open source compliant products without imperiling the IP rights
upon which our licensing business depends may prove difficult under certain circumstances, thereby placing us at a competitive
disadvantage for new product designs.
Already, some of our proprietary technologies incorporate open source software that may be subject to open source
licenses, which licenses may require that source code subject to the license be released or made available to the public. Such
open source licenses may mandate that software developed based on source code that is subject to the open source license, or
combined in specific ways with such open source software, become subject to the open source license. We take steps to ensure
that proprietary software we do not wish to disclose is not combined with, or does not incorporate, open source software in
ways that would require such proprietary software to be subject to an open source license. However, there is currently
uncertainty in the legal landscape around open source software, as few courts have interpreted open source licenses, and the
manner in which these licenses may be legally interpreted and enforced is therefore not yet clear. We often take steps to
disclose source code for which disclosure is required under an open source license, but it is possible that we have made or will
make mistakes in doing so, which could negatively impact our brand or the adoption of our products by our customers or
prospective customers or could expose us to additional liability.
In addition, we rely on multiple software programmers to design our proprietary products and technologies and we cannot
be certain that open source software is not inadvertently incorporated into products and technologies we intend to keep
proprietary. In the event that portions of our proprietary technology are determined to be subject to an open source license, or
are intentionally released under an open source license, we could be required to publicly release the relevant portions of our
source code, which could reduce or eliminate our ability to commercialize our products and technologies. As a result, our
revenues may not grow and could decline.
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Our business depends in part on access to third-party platforms and technologies. If such access is withdrawn, denied,
or is not available on terms acceptable to us, or if the platforms or technologies change, our business and operating results
could be adversely affected.
Many of our current and future technologies are designed for use with third-party platforms and technologies. Our business
relies on our access to these platforms and technologies of third parties, which can be withdrawn, denied or not be available on
terms acceptable to us.
Our access to third-party platforms and technologies may require paying royalties or other amounts, which lowers our
margins, or may otherwise be on terms that are not acceptable to us. In addition, the third-party platforms or technologies used
to interact with our software technologies can be delayed in production or can change in ways that negatively impact the
operation of our software.
If we are unable to access third-party platforms or technologies, or if our access is withdrawn, denied, or is not available on
terms acceptable to us, or if the platforms or technologies are delayed or change, our business and operating results could be
adversely affected.
The uncertain economic and political environment could reduce our revenues and could have an adverse effect on our
financial condition and results of operations.
The current global economic conditions and political climate could materially hurt our business in a number of ways,
including longer sales and renewal cycles, exchange rate volatility, delays in adoption of our products or technologies or those
of our customers, increased risk of competition, higher taxes and tariffs on goods incorporating out technologies, higher
overhead costs as a percentage of revenue, delays in signing or failing to sign customer agreements or signing customer
agreements with reduced royalty rates. In addition, our customers, potential customers, and business partners would likely face
similar challenges, which could materially and adversely affect the level of business they conduct with us or the sales volume of
products that include our technology.
Our technologies are complex and may contain undetected errors, which could harm our reputation and future sales.
Any failure to provide high quality and reliable technologies, whether caused by our own failure or failures of our suppliers
or customers, could damage our reputation and reduce demand for our technologies. Our technologies have in the past
contained, and may in the future contain, undetected errors or defects. These errors or defects may increase as our technologies
are introduced into new devices, markets and applications, including the automotive market and the sexual wellness market, or
as new versions are released. Some errors in our technologies may only be discovered after a customer’s product incorporating
our technologies has been shipped to customers. Undiscovered vulnerabilities in our technologies or products could expose our
customers to hackers or other unscrupulous third parties who develop and deploy viruses, worms and other malicious software
programs that could attach to our products or technologies. Any errors or defects discovered in our technologies after
commercial release could result in product recalls, loss of revenue, loss of customers, and increased service and warranty costs,
any of which could adversely affect our business.
If we fail to adequately protect personal information or other information we process or maintain, our business,
financial condition and operating results could be adversely affected.
A wide variety of state, national, and international laws and regulations apply to the collection, use, retention, protection,
disclosure, transfer and other processing of personal data and other information. Evolving and changing definitions of personal
data and personal information within the European Union (“EU”), the U.S., and elsewhere, especially relating to classification
of IP addresses, machine identification, location data and other information, may limit or inhibit our ability to operate or expand
our business. For example, it may be more difficult for us to share data with commercial partners, conduct research, or market
to customers. Heightened compliance requirements may lead to increased administrative expenses. Data protection and privacy-
related laws and regulations are evolving and may result in ever-increasing regulatory and public scrutiny and escalating levels
of enforcement and sanctions.
For example, the EU General Data Protection Regulation (“GDPR”), which became fully effective on May 25, 2018,
imposes more stringent data protection requirements than previously effective EU data protection law and provides for penalties
for noncompliance of up to the greater of €20 million or four percent of worldwide annual revenues. The GDPR requires,
among other things, that personal data only be transferred outside of the European Economic Area (“EEA”) to certain
jurisdictions, including the United States, if steps are taken to legitimize those data transfers. We rely on the Swiss-U.S.
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Privacy Shield programs, and the use of Standard Contractual Clauses (“SCCs”) approved by the EU Commission, to legitimize
these transfers. Previously, we relied on the EU-U.S. Privacy Shield framework to legitimize transfers of personal data from the
EEA to the United States. However, on July 16, 2020, the Court of Justice of the European Union (“CJEU”) invalidated
Decision 2016/1250 on the adequacy of the protection provided by the EU-U.S. Privacy Shield Framework. This decision may
increase our costs and limit our ability to process personal data from the European Union. The same decision also cast doubt on
the ability to use one of the primary alternatives to the Privacy Shield, namely, SCCs, to lawfully transfer personal data from
Europe to the United States and most other countries. At present, there are few if any viable alternatives to the Privacy Shield
and the SCCs. This CJEU decision or other legal challenges relating to cross-border data transfer may serve as a basis for our
personal data handling practices to be challenged and may otherwise adversely impact our business, financial condition and
operating results.
Further, in June 2016, the United Kingdom voted to leave the European Union, commonly referred to as “Brexit,” and on
January 31, 2020, the United Kingdom ceased to be an EU Member State. The UK Data Protection Act that substantially
implements the GDPR became law in May 2018 and was further amended to more closely align to GDPR post-Brexit. It
remains unclear, however, how United Kingdom data protection laws or regulations will develop in the medium to longer term
and how data transfers to and from the United Kingdom will be regulated. In addition, some countries are considering or have
enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our
services or performing research related to our technology.
In 2018, California enacted the California Consumer Privacy Act (“CCPA”), legislation that, among other things, requires
covered companies to provide new disclosures to California consumers and affords such consumers new abilities to opt-out of
certain sales of personal information. The CCPA has been amended on multiple occasions and is the subject of proposed
regulations of the California Attorney General that were released on October 10, 2019. While the CCPA went into effect on
January 1, 2020, aspects of the legislation and its interpretation remain unclear at this time. We therefore cannot fully predict
the impact of the CCPA on our business or operations, but it may require us to modify our data processing practices and
policies and to incur substantial costs and expenses in an effort to comply. Other privacy bills have been introduced at both the
state and federal levels, and certain international territories are also imposing new or expanded privacy obligations.
In addition, ballot initiatives may also impose new or expanded privacy obligations. For example, on November 3, 2020,
California voters passed Proposition 24, also known as the California Privacy Rights and Enforcement Act of 2020, a
November 2020 ballot measure that, among other effects, expanded or amended the provisions of the CCPA, allowed
consumers to direct businesses to not share their personal information, removed the time period in which businesses can fix
violations before being penalized, and created the California Privacy Protection Agency to enforce the state’s consumer data
privacy laws.
Even the perception of privacy, data protection or information security concerns, whether or not valid, may harm our
reputation, inhibit adoption of our products by current and future customers, or adversely impact our ability to hire and retain
workforce talent. Our actual or perceived failure to adequately comply with applicable laws and regulations, or to protect
personal data and other data we process or maintain, could result in regulatory investigations and enforcement actions against
us, fines, penalties and other liabilities, imprisonment of company officials and public censure, claims for damages by
customers and other affected individuals, required efforts to mitigate or otherwise respond to incidents, litigation, damage to our
reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could have a
material adverse effect on our operations, financial performance and business.
If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial
statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability
to operate our business and our stock price.
Pursuant to the Sarbanes-Oxley Act of 2002, we are required to maintain internal control over financial reporting and to
assess and report on the effectiveness of our internal controls, including the disclosure of any material weaknesses that our
management identifies in our internal control over financial reporting.
Our management concluded that our internal control over financial reporting was effective as of December 31, 2021.
However, we have in the past had material weaknesses in our internal control over financial reporting, and there are inherent
limitations on the effectiveness of internal controls. We do not expect that our internal control over financial reporting will
prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system’s objectives will be met; no evaluation of controls can provide
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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.
Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate
financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Any delay
or failure on our part to remedy identified material weaknesses or any additional delays or errors in our financial reporting
controls or procedures could cause our financial reporting to be unreliable, could have a material adverse effect on our business,
results of operations, or financial condition, and could have a substantial adverse impact on the trading price of our common
stock.
Increasing attention on environmental, social and governance (ESG) matters may have a negative impact on our
business, impose additional costs on us, and expose us to additional risks.
Companies are facing increasing attention from investors, customers, partners, consumers and other stakeholders relating
to ESG matters, including environmental stewardship, social responsibility, diversity and inclusion, racial justice and workplace
conduct. In addition, organizations that provide information to investors on corporate governance and related matters have
developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some
investors to inform their investment and voting decisions. Unfavorable ESG ratings may lead to negative investor sentiment
toward the Company, which could have a negative impact on our stock price and our access to and costs of capital.
We have established corporate social responsibility programs aligned with sound environmental, social and governance
principles. These programs reflect our current initiatives, and are not guarantees that we will be able to achieve them. Our
ability to successfully execute these initiatives and accurately report our progress presents numerous operational, financial,
legal, reputational and other risks, many of which are outside our control, and all of which could have a material negative
impact on our business. Additionally, the implementation of these initiatives impose additional costs on us. If our ESG
initiatives fail to satisfy investors, customers, partners and our other stakeholders, our reputation, our ability to sell products and
services to customers, our ability to attract or retain employees, and our attractiveness as an investment, business partner or
acquiror could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our goals, targets and
objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative
impacts and expose us to government enforcement actions and private litigation.
General Risk Factors: Investment Risks
Our quarterly revenues and operating results are volatile, and if our future results are below the expectations of public
market analysts or investors, the price of our common stock is likely to decline.
Our revenues and operating results are likely to vary significantly from quarter to quarter due to a number of factors, many
of which are outside of our control and any of which could cause the price of our common stock to decline.
These factors include:
•
•
•
•
•
•
the impact of COVID-19;
the establishment or loss of licensing relationships;
the timing and recognition of payments under fixed and/or up-front fee license agreements, as well as other multi-
element arrangements;
seasonality in the demand for our technologies or products or our licensees’ products;
the timing of our expenses, including costs related to litigation, stock-based awards, acquisitions of technologies, or
businesses;
developments in and costs of pursuing or settling any pending litigation;
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•
•
•
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.
Our stock price may fluctuate regardless of our performance.
Our stock price has experienced substantial price volatility in the past and may continue to do so in the future. Further, our
business, the technology industry and the stock market as a whole have experienced extreme stock price and volume
fluctuations that have affected stock prices in ways that may have been unrelated to corporate operating performance. For
example, in 2020 as a result of macroeconomic conditions and the related impact of COVID-19, the stock market experienced
wide fluctuations. In the past twenty-four months, our stock price has fluctuated from as low as $4.23 per share in March 2020
to a high of $16.64 in February 2021. This significant volatility may continue to occur in the future for reasons that are
unrelated to our business or if our business experiences unexpected results. The market price of our common stock has been,
and in the future could be, significantly affected by our operations as well such as: actual or anticipated fluctuations in operating
results; announcements of technical innovations; announcements regarding litigation in which we are involved; the acquisition
or loss of customers; changes by game console manufacturers to not include touch-enabling capabilities in their products; new
products or new contracts; sales or the perception in the market of possible sales of large number of shares of our common
stock by insiders or others; stock repurchase activity; sale of stock by the company, changes in securities analysts’
recommendations; personnel changes; changing circumstances regarding competitors or their customers; governmental
regulatory action or inaction; developments with respect to patents or proprietary rights; inclusion in or exclusion from various
stock indices; increased tariffs and international trade disputes; and general market conditions. In the past, following periods of
volatility in the market price of a company’s securities, securities class action litigation has been initiated against that company,
which could lead to increased litigation costs and could adversely affect our operating results and our stock price.
Future sales of our equity could result in significant dilution to our existing stockholders and depress the market price
of our common stock.
It is likely that we will need to seek additional capital in the future and from time to time. If this financing is obtained
through the issuance of equity securities, debt convertible into equity securities, options or warrants to acquire equity securities
or similar instruments or securities, our existing stockholders will experience dilution in their ownership percentage upon the
issuance, conversion or exercise of such securities and such dilution could be significant. Additionally, any new equity
securities issued by us could have rights, preferences or privileges senior to those of our common stock.
For example, on February 11, 2021, we entered into an equity distribution agreement with Craig-Hallum Capital Group
LLC (“Craig-Hallum”), pursuant to which we were able to issue and sell shares of our common stock having an aggregate
offering price of up to $50 million, from time to time, through an “at the market” equity offering program under which Craig-
Hallum acted as sales agent. While we terminated the Equity Distribution Agreement on March 5, 2021, the issuance and sale
of shares of our common stock pursuant to that “at the market” equity offering program has had a dilutive impact on our
existing stockholders.
On July 6, 2021, we entered into an equity distribution agreement with Craig-Hallum, pursuant to which we are able to
issue and sell shares of our common stock having an aggregate offering price of up to $60 million, from time to time, through
an “at the market” equity offering program under which Craig-Hallum is acting as sales agent. The issuance and sale of shares
of our common stock pursuant to this “at the market” equity offering program has and will continue to have a dilutive impact on
our existing stockholders.
Further, the issuance and sale of, or the perception that we may issue and sell, additional shares of common stock pursuant
to future “at the market” equity offering programs or an additional private placement could have the effect of depressing the
market price of our common stock or increasing the volatility thereof. Any issuance by us or sales of our securities by our
security holders, including by any of our affiliates, or the perception that such issuances or sales could occur, could negatively
impact the market price of our securities.
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We will have broad discretion as to the use of proceeds from the “at the market” offering that we announced in July
2021, and we may not use the proceeds effectively.
We currently intend to use the net proceeds from our “at the market” offering announced in July 2021 for working capital
and other general corporate purposes. We may also use a portion of the net proceeds from the offering to acquire or invest in
businesses, assets or technologies. Accordingly, we will retain broad discretion over the use of proceeds. Pending application
of the net proceeds as described above, we may, from time to time, invest in digital or alternative currencies such as bitcoin or
other cryptocurrencies. We may also invest net proceeds in short- and intermediate-term, interest-bearing obligations,
investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
We could recognize losses with respect to the marketable securities in which we invest.
Factors beyond our control can significantly influence the value of the marketable securities in which we invest, and can
cause potential adverse changes to the value of these marketable securities. Relevant factors include, but are not limited to,
fluctuations in market price, changes in our own analysis of the value of the security or instability in the financial markets. Any
of the foregoing factors could cause other-than-temporary impairment in future periods and result in realized losses. The
process for determining whether impairment is other-than-temporary usually requires difficult, subjective judgments about the
future financial performance of the issuer. Because of changing economic and market conditions and the financial condition of
issuers of the marketable securities, we may recognize realized and/or unrealized losses in future periods, which could have an
adverse effect on our financial condition and results of operations.
Our investments are subject to risks relating to investments in commodities, futures, options and other derivatives, the
prices of which are highly volatile and may be subject to substantial risk of loss (or cause us to be obligated to expend
substantial amounts of cash to cover a position), including if we write options. Price movements of commodities, futures and
options contracts are influenced by, among other things, interest rates, changing supply and demand relationships, trade, fiscal,
monetary and exchange control programs and policies of governments and national and international political and economic
events and policies. The value of futures and options also depends upon the price of the securities underlying them.
If we determine to purchase digital or alternative currencies as part of our capital allocation and investment strategy,
these investments would be less liquid than our existing cash and cash equivalents and may not be able to serve as a source
of liquidity for us to the same extent as cash and cash equivalents, and our financial results and the market price of our
common stock may be affected by the price of these digital or alternative currencies.
In the future, as part of our capital allocation and investment strategy, we may elect to purchase digital or alternative
currencies such as bitcoin or other cryptocurrencies. The price of bitcoin and other cryptocurrencies has historically been
subject to dramatic price fluctuations and is highly volatile. For example, the price of these digital or alternative currencies may
be influenced by regulatory, commercial and technical factors that are highly uncertain and unrelated to our business. Any
decrease in the fair value of bitcoin or other cryptocurrencies we may purchase below our carrying value for such assets at any
time would require us to incur an impairment charge, and such charge could be material to our financial results for the
applicable reporting period, which may create significant volatility in our reported earnings and decrease the carrying value of
our assets. Any decrease in reported earnings or increased volatility of such earnings due to impairment charges related to
bitcoin or other cryptocurrency holdings could have a material adverse effect on the market price of our common stock. Any
future changes in Generally Accepted Accounting Principles ("GAAP") that require us to change the manner in which we
account for any bitcoins or other cryptocurrencies that we may purchase could have a material adverse effect on our financial
results and the market price of our common stock.
Historically, the digital or alternative currency markets has been characterized by more price volatility, less liquidity, and
lower trading volumes compared to sovereign currencies markets, as well as relative anonymity, a developing regulatory
landscape, susceptibility to market abuse and manipulation, and various other risks inherent in its entirely electronic, virtual
form and decentralized network. During times of market instability, we may not be able to sell any of these currencies that we
hold at reasonable prices or at all. As a result, any digital or alternative currencies that we may purchase may not be able to
serve as a source of liquidity for us to the same extent as cash and cash equivalents. If we are unable to sell any digital or
alternative currencies that we hold, or if we are forced to sell any of these currencies that we may hold at a significant loss, in
order to meet our working capital requirements, our business and financial condition could be negatively impacted.
29
We may engage in the acquisition of other companies, investments, joint ventures and strategic alliances outside of our
current line of business, which may have an adverse material effect on our existing business.
We may engage in the acquisition of other companies, investments, joint ventures and strategic alliances outside of our
current line of business to design and develop new technologies and products, to strengthen competitiveness by scaling up
expanding our operations. Such transactions, especially in new lines of business, inherently involve risk due to the difficulties
in integrating operations, technologies, products and personnel. Integration issues are complex, time-consuming and expensive
and, without proper planning and implementation, may adversely affect our existing business. Furthermore, we may incur
significant acquisition, administrative and other costs in connection with these transactions, including costs related to
integration or restructuring of acquired businesses. In addition, we may make investments in companies outside our current line
of business in an attempt to broaden our business opportunities. If we determine to make these investments, they may not
provide a return or lead to an increase in our operating results, and we may not obtain the benefits of these investments that we
intend to recognize when making them. There can be no assurance that these transactions, if pursued or made, will be
beneficial to our business or financial condition.
Any stock repurchase program could affect our stock price and add volatility.
We have established stock repurchase programs in the past, and may adopt similar programs in the future. Any repurchases
by us pursuant to a stock repurchase program could affect our stock price and add volatility. There can be no assurance that any
repurchases will be made under any 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 any 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 any stock repurchase program at any time and any such
discontinuation could cause the market price of our stock to decline.
Changes in financial accounting standards or policies may affect our reported financial condition or results of
operations and, in certain cases, could cause a decline and/or fluctuation in the price of our common stock.
From time to time, financial and accounting standard setters such as the Financial Accounting Standards Board (“FASB”)
and the SEC change their guidance governing the form and content of registrants’ external financial statements or update their
previous interpretations with regard to the application of certain GAAP. Such change in GAAP or their interpretation have
historically and could in the future have a significant effect on our reported financial condition and/or results of operations. If a
change is applicable to us, we would be required to apply the new or revised guidance, which may result in retrospective
adjustments to our financial statements and/or could change the way we account for certain transaction compared to under the
existing guidance. Changes in GAAP and reporting standards could substantially change our reporting practices in a number of
areas, including revenue recognition and recording of assets and liabilities, and could consequently affect our reported financial
condition or results of operations.
Our business is subject to changing regulations regarding corporate governance and other compliance areas that will
increase both our costs and the risk of noncompliance.
As a public company, we are subject to the laws, regulations and reporting requirements of the Exchange Act, the
Sarbanes-Oxley Act of 2002, the rules and regulations of the Nasdaq Stock Market, and other regulations that may be enacted
from time-to-time. The requirements of these and other rules and regulations have increased, and we expect will continue to
increase our legal, accounting and financial compliance costs, will make some activities more difficult, time-consuming and
costly, and may also place undue strain on our personnel, systems and resources. In addition, as laws, regulations and standards
continue to change, often with varying degrees of specificity and clarity, we could face uncertainty regarding best practices and
compliance with such evolving regimes, which could result in higher costs from increased attention paid to disclosure and
governance practices and controls.
30
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:
•
•
•
•
•
only a majority of our board of directors or stockholders of not less than 10% of all of the shares entitled to cast votes
at such meeting are authorized to call a special meeting of stockholders;
our stockholders can only take action at a meeting of stockholders and not by written consent;
subject to the rights of a holder of any series of preferred stock, vacancies on our board of directors can be filled only
by our board of directors and not by our stockholders;
our restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established
and shares of which may be issued without stockholder approval; and
advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters
before an annual meeting of stockholders.
In addition, certain provisions of Delaware law may discourage, delay, or prevent someone from acquiring or merging with
us. These provisions could limit the price that investors might be willing to pay in the future for shares.
Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes
may be limited.
We have federal net operating loss (NOL) carryforwards that are available to offset future taxable income. We may
recognize additional NOLs in the future. Section 382 of the Internal Revenue Code of 1986, as amended (the Code) imposes an
annual limitation on the amount of taxable income that may be offset by a corporation's NOLs if the corporation experiences an
“ownership change” as defined in Section 382 of the Code. An ownership change occurs when our “five-percent
shareholders” (as defined in Section 382 of the Code) collectively increase their ownership in the Company by more than 50
percentage points (by value) over a rolling three-year period. Additionally, various states have similar limitations on the use of
state NOLs following an ownership change.
If an ownership change occurs, the amount of the taxable income for any post-change year that may be offset by a pre-
change loss is subject to an annual limitation that is cumulative to the extent it is not all utilized in a year. This limitation is
derived by multiplying the fair market value of our stock as of the ownership change by the applicable federal long-term tax-
exempt rate. To the extent that a company has a net unrealized built-in gain at the time of an ownership change, which is
realized or deemed recognized during the five-year period following the ownership change, there is an increase in the annual
limitation for each of the first five-years that is cumulative to the extent it is not all utilized in a year. If an ownership change
should occur in the future, our ability to use the NOL to offset future taxable income will be subject to an annual limitation and
will depend on the amount of taxable income generated by us in future periods. There is no assurance that we will be able to
fully utilize the NOL and we may be required to record an additional valuation allowance related to the amount of the NOL that
may not be realized, which could impact our result of operations.
As noted, we believe that these NOL carryforwards are a valuable asset for us. Consequently, we have a Section 382
Tax Benefits Preservation Plan in place, to protect our NOLs during the effective period of the rights plan. Although the Tax
Benefits Preservation Plan is intended to reduce the likelihood of an “ownership change” that could adversely affect us, there is
no assurance that the restrictions on transferability in the rights plan will prevent all transfers that could result in such an
“ownership change”. The Tax Benefits Preservation Plan could make it more difficult for a third party to acquire, or could
discourage a third party from acquiring, our Company or a large block of our common stock. A third party that acquires 4.9%
or more of our common stock could suffer substantial dilution of its ownership interest under the terms of the Tax Benefits
Preservation Plan through the issuance of common stock or common stock equivalents to all stockholders other than the
acquiring person. The foregoing provisions may adversely affect the marketability of our common stock by discouraging
potential investors from acquiring our stock. In addition, these provisions could delay or frustrate the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy contest involving us, or impede an attempt to acquire a
significant or controlling interest in us, even if such events might be beneficial to us and our stockholders.
31
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease a facility in Montreal, Quebec, Canada of approximately 10,000 square feet, for our subsidiary, Immersion
Canada Corporation. During 2019, we transitioned the majority of our research functions to our existing office in Montreal,
Quebec. In 2020, we transitioned our Accounting, Human Resources Finance and IT functions from San Jose, California to
Montreal, Canada. The lease for this property expires in February 2024.
We lease a facility in San Jose, California of approximately 42,000 square feet, which we vacated in the first quarter of
2020. On March 12, 2020, we entered into a sublease agreement with Neato Robotics, Inc. (“Neato”) for the San Jose facility.
This sublease commenced in June 2020 and ends on April 30, 2023 which is the lease termination date of the original lease.
On January 31, 2020, we entered into an agreement to lease approximately 5,000 square feet of office space in San
Francisco, California. This lease expires in February 2022. As a result of COVID-19, our San Francisco office has been closed
since the first quarter of 2020 and we expect our San Francisco-based employees to continue to work-from-home in the
foreseeable future.
On January 26, 2022, we entered into a lease agreement (the “Aventura Lease”) with COFE CIX Aventura, LLC, pursuant
to which we lease approximately 1,390 square feet located at Aventura View Office Building, Suite 610, 2999 N.E. 191st Street,
Aventura, Florida. The term of the Aventura Lease commences upon the on the earlier of the following dates: (i) March 1,
2022; and (ii) the date on which we occupy the premises and begin conducting business from the premises, and ends on the last
day of the 25th full calendar month from the commencement date. The monthly base rent is $3,359.17 for the first 12 months,
$3,459.94 for the following 12 months, and $3,564.19 for the 25th month. On February 22, 2022, our Board approved this
office as our corporate headquarters.
See Note 10. Leases of the Notes to Consolidated Financial Statements in Part II Item 8. Financial Statements and
Supplementary Data of this annual report on Form 10-K for more information on our lease obligations.
Item 3. Legal Proceedings
Samsung Electronics Co. v. Immersion Corporation and Immersion Software Ireland Limited
On April 28, 2017, we received a letter from Samsung requesting that we reimburse Samsung with respect to withholding
tax and penalties imposed on Samsung by the Korean tax authorities following an investigation where the tax authority
determined that Samsung failed to withhold taxes on Samsung’s royalty payments to Immersion Software Ireland from 2012 to
2016. On July 12, 2017, on behalf of Samsung, we filed an appeal with the Korea Tax Tribunal regarding their findings with
respect to the withholding taxes and penalties. On October 18, 2018, the Korea Tax Tribunal held a hearing and on November
19, 2018, the Korea Tax Tribunal issued its ruling in which it decided not to accept Immersion’s arguments with respect to the
Korean tax authorities’ assessment of withholding tax and penalties imposed on Samsung. On behalf of Samsung, we filed an
appeal with the Korea Administrative Court on February 15, 2019. On July 16, 2020, the Korea Administrative Court issued its
ruling in which it ruled that the withholding taxes and penalties which were imposed by the Korean tax authorities on Samsung
should be cancelled with some litigation costs to be borne by the Korean tax authorities.
On August 1, 2020, the Korean tax authorities filed an appeal with the Korea High Court. The first hearing in the Korea
High Court occurred on November 11, 2020. A second hearing occurred on January 13, 2021. A third hearing occurred on
March 21, 2021. The Korea High Court had indicated that a final decision was originally expected on May 28, 2021, but
instead, decided to hold a fourth hearing on July 9, 2021. On October 1, 2021, the Korea High Court issued its ruling in which it
ruled that withholding taxes and penalties totaling approximately KRW 6,186,218,586 (approximately $5.2 million) in national-
level withholding tax and local withholding taxes imposed by the Korean tax authorities on Samsung for royalties paid to
Immersion during the period of 2012 – 2014 be cancelled on the basis that the Korea tax authorities wrongfully engaged in a
duplicative audit with respect to such time period. The Korea High Court also ruled that approximately KRW 1,655,105,584
(approximately $1.4 million) of national-level withholding tax and local withholding taxes imposed by the Korean tax
authorities on Samsung for royalties paid to Immersion during 2015 and 2016 be upheld in part on the basis that Immersion
Software Ireland Limited did not have sufficient economic substance to be considered the beneficial owner of the royalties paid
by Samsung to Immersion Software Ireland Limited. On or about October 22, 2021, the Korean tax authorities filed an appeal
32
with the Korea Supreme Court with respect to certain portions of the Korea High Court decision and we filed an appeal with the
Korea Supreme Court with respect to certain portions of the Korea High Court decision.
On December 1, 2021, the Korean tax authorities submitted its brief to the Korea Supreme Court challenging the
cancellation by the Korea High Court of a portion of the withholding tax imposed by the Korean tax authorities. On December
3, 2021, we submitted our own brief to the Korea Supreme Court providing arguments in support of our position that
Immersion Software Ireland Limited has sufficient economic substance to be considered the beneficial owner of the royalties
paid by Samsung to Immersion Software Ireland Limited. Such brief also provided arguments challenging the calculation of
the imposed withholding tax upheld by the Korea High Court. On December 20, the Korean tax authorities filed a rebuttal brief
relating to our brief filed on December 3, 2021. On December 29, 2021, we filed our rebuttal brief relating to the Korean tax
authorities’ brief filed on December 1, 2021. On February 24, 2022, the Korea Supreme Court issued a decision affirming the
rulings of the Korea High Court. We believe that any impairment in the Long-term deposits associated with the rulings of the
Korea High Court is appropriately reflected in the Consolidated Balance Sheets.
On September 29, 2017, Samsung filed an arbitration demand with the International Chamber of Commerce against us
demanding that we reimburse Samsung for the imposed tax and penalties that Samsung paid to the Korean tax authorities.
Samsung is requesting that we pay Samsung the amount of KRW 7,841,324,165 (approximately $6.9 million) plus interest from
and after May 2, 2017, plus the cost of the arbitration including legal fees. On March 27, 2019, we received the final award.
The award ordered Immersion to pay Samsung KRW 7,841,324,165 (approximately $6.9 million as of March 31, 2019), which
we paid on April 22, 2019, denied Samsung’s claim for interest from and after May 2, 2017; and ordered Immersion to pay
Samsung’s cost of the arbitration in the amount of approximately $871,454, which was paid in 2019.
We expect to be reimbursed by Samsung for the amount that was cancelled by the Korea High Court, as affirmed by the
Korea Supreme Court.
Immersion Corporation vs. Samsung (China) Investment Co., Ltd., Huizhou Samsung Electronics Co., Ltd and Fujian
Province Min Xin Household Electrical Appliances Technology Service Co., Ltd. (Fuzhou Intellectual Property Court - Case:
Min 01 Min Chu No. 342 (2018))
On March 8, 2018, we filed a complaint against Samsung (China) Investment Co., Ltd. (“Samsung China”), Huizhou
Samsung Electronics Co., Ltd. (“Samsung Huizhou”) (together with Samsung China, “Samsung”), and Fujian Province Min
Xin Household Electrical Appliances Technology Service Co., Ltd. in the Fuzhou Intermediate Court in Fuzhou, China alleging
that certain Samsung touchscreen phones, including the Galaxy S8, S8+, and Note8, infringe three Immersion Chinese patents.
The three patents at issue, covering haptic feedback systems and methods in electronic devices, are Chinese Patent No.
ZL02821854.X, entitled “Method and Apparatus for Providing Tactile Feedback Sensations”; Chinese Patent No.
ZL201210005785.2, entitled “Method and Apparatus for Providing Tactile Feedback Sensations”; and Chinese Patent No.
ZL201310253562.2, entitled “Method and Apparatus for Providing Tactile Feedback Sensations”. Immersion’s complaint
seeks to stop defendants from using patented methods during manufacturing; to stop defendants from manufacturing, offering
to sell, selling, or jointly selling infringing products; as well as the recovery of damages. The Fuzhou Intellectual Property
Court accepted the case on March 8, 2018. Samsung China filed a jurisdictional objection on April 10, 2018 in which it asked
the court to move the case to Beijing IP court. Samsung Huizhou filed a jurisdictional objection on April 10, 2018 in which it
asked the court to move the case to Guangzhou IP court. On May 8, 2018, the court rejected both jurisdictional objections.
Samsung Huizhou and Samsung China appealed and the pretrial conference originally scheduled for June 14-15, 2018 was
postponed pending a ruling from the Fujian High Court. On September 20, 2018, the Fujian High Court rejected the
jurisdictional objection appeals. Samsung China and Samsung Huizhou filed Petitions for Invalidation on April 16, 2018 with
the Chinese Patent Office (“SIPO”) for all three patents. Samsung China and Samsung Huizhou supplemented their petitions in
May, and we responded on June 1, 2018. A hearing on the petition for Chinese Patent No. ZL02821854.X occurred on July 18,
2018. Hearings on the petitions for Chinese Patent No. ZL201210005785.2 and Chinese Patent No. ZL201310253562.2
occurred on September 28, 2018. Trial was originally scheduled for November 12, and 14, 2018; the Fuzhou Intellectual
Property Court granted Immersion's request to postpone trial but did not set revised dates. The Company and Samsung each
submitted evidence for use at trial on or before October 26, 2018. The Patent Reexamination Board of SIPO issued invalidation
decisions against Chinese Patent No. ZL02821854.X on November 21, 2018, against Chinese Patent No. ZL201310253562.2
on November 14, 2018, and against Chinese Patent No. ZL201210005785.2 on November 15, 2018, declaring all three Chinese
patents invalid. We filed an application to withdraw our complaint from the Fuzhou Intermediate Court on December 10, 2018
and received the ruling that allows Immersion to withdraw the case from the Fuzhou Intermediate Court on December 29, 2018.
We pre-registered the appeals against the invalidation decisions with the Beijing IP Court on February 14, 2019. On April 28,
2019, we filed the appeal against the invalidation decisions with the Beijing IP court. On June 6, 2019, SIPO responded to our
filing of the appeal with its counterarguments to the arguments set forth in our appeal filing. A hearing occurred on March 11,
33
2021. On October 18, 2021, we became aware that the Court issued a judgment, which we received on November 2, 2021.
The Court upheld the invalidation decisions issued by the Patent Reexamination Board of SIPO. We did not appeal the
decisions.
.
LGE Korean Withholding Tax Matter
On October 16, 2017, we received a letter from LG Electronics Inc. (“LGE”) requesting that we reimburse LGE with
respect to withholding tax imposed on LGE by the Korean tax authorities following an investigation where the tax authority
determined that LGE failed to withhold on LGE’s royalty payments to Immersion Software Ireland from 2012 to 2014.
Pursuant to an agreement reached with LGE, on April 8, 2020, we provided a provisional deposit to LGE in the amount of
KRW 5,916,845,454 (approximately $5.0 million) representing the amount of such withholding tax that was imposed on LGE,
which provisional deposit would be returned to us to the extent we ultimately prevail in the appeal in the Korea courts. In the
second quarter of 2020, we recorded this deposit as Long-term deposits on our Condensed Consolidated Balance Sheets.
On November 3, 2017, on behalf of LGE, we filed an appeal with the Korea Tax Tribunal regarding their findings with
respect to the withholding taxes. The Korea Tax Tribunal hearing took place on March 5, 2019. On March 19, 2019, the Korea
Tax Tribunal issued its ruling in which it decided not to accept our arguments with respect to the Korean tax authorities’
assessment of withholding tax and penalties imposed on LGE. On behalf of LGE, we filed an appeal with the Korea
Administrative Court on June 10, 2019. The first hearing occurred on October 15, 2019. A second hearing occurred on
December 19, 2019. A third hearing occurred on February 13, 2020. A fourth hearing occurred on June 9, 2020. A fifth
hearing occurred on July 16, 2020. We anticipated a decision to be rendered on or about October 8, 2020, but the Korea
Administrative Court scheduled and held a sixth hearing for November 12, 2020. A seventh hearing occurred on January 14,
2021. An eighth hearing occurred on April 8, 2021. A ninth hearing occurred on June 24, 2021. A tenth hearing occurred on
September 13, 2021. An eleventh hearing occurred on November 15, 2021. A twelfth hearing occurred on December 23,
2021. The Court had indicated that it expected to render a decision on this matter by the end of February 2022. However, due
to a reshuffling of judges, another hearing has been scheduled for April 14, 2022, at which time we believe we will have a
better indication as to when the Court will render a decision on this matter.
Based on the developments in these cases, we regularly reassess the likelihood that we will prevail in some or all of the
claims from the Korean tax authorities. To the extent that we determine that it is more likely than not that we will prevail
against the claims from the Korean tax authorities, then no additional tax expense is provided for in our Consolidated
Statements of Income and Comprehensive Income. In the event that we determine that it is more likely than not that we will not
prevail against the claims from the Korean tax authorities, or a portion thereof, then we would estimate the anticipated
additional tax expense associated with that outcome and record it as additional income tax expense in our Consolidated
Statements of Income and Comprehensive Income in the period of the new determination. If the additional income tax expense
was related to the periods assessed by Korean tax authorities and for which we recorded a Long-term deposit on our
Consolidated Balance Sheets, then the additional income tax expense would be recorded as an impairment to the Long-term
deposits. If the additional income tax expense was not related to the periods assessed by Korean tax authorities and for a which
we recorded a Long-term deposits on our Consolidated Balance Sheets, then the additional income tax expense would be
accrued as an Other current liabilities.
We cannot predict the ultimate outcome of the above-mentioned actions that are pending, and we are unable to estimate
any potential liability we may incur. Please also refer to our disclosures in Note 5. Contingencies of the Note to the
Consolidated Financial Statements.
Immersion Software Ireland Limited v. Marquardt GMBH
On August 3, 2021, we filed an arbitration demand with the American Arbitration Association (the “AAA”) against
Marquardt GmbH (“Marquardt”), one of our licensees in the automotive market. The arbitration demand arises out of that
certain Amended and Restated Patent License Agreement (the “Marquardt License”), effective as of January 1, 2018, between
us as licensor and Marquardt, as licensee. Pursuant to the arbitration demand, we are demanding that Marquardt cure its breach
of the Marquardt License and pay all royalties currently owed under the Marquardt License. The last royalty report we have
received from Marquardt was for the third quarter of calendar year 2020 in which Marquardt reported approximately $0.5
million in royalties but did not pay such royalties. Further, since that date, we have not received any other royalty reports or
34
royalty payments from Marquardt. License expires by its terms on December 31, 2023. As a result of Marquardt’s breach of the
Marquardt License, per unit royalties relating to past royalty periods, and applicable interest fees, , are currently past due.
Pursuant to the terms of the Marquardt License, we requested arbitration by a single arbitrator in Madison County, New
York. On August 9, 2021, the AAA confirmed receipt of our arbitration demand dated August 3, 2021. On August 13, 2021,
the AAA conducted an administrative conference call to discuss communications, mediation, tribunal appointment, place of
arbitration, and other administrative topics. On September 15, 2021, Marquardt filed an answer to our arbitration demand with
the AAA, in which Marquardt provided general denials of our claims and asserted a counterclaim for approximately $138,000
in royalties previously paid to us under the Marquardt License. On September 30, 2021, we filed an answer to Marquardt’s
counterclaim in which we denied the allegations set forth in Marquardt’s counterclaim. An arbitrator has been chosen to
arbitrate this matter. We anticipate that the arbitrator will conduct the arbitration proceedings in New York or via a remote
platform, with the consent of the parties. A preliminary hearing occurred on December 6, 2021, during which the parties agreed
to explore mediation and the arbitrator set forth a schedule relating to the arbitration. A mediation session has been scheduled
for the period of March 14-16, 2022.
Item 4. Mine Safety Disclosures
Not applicable.
35
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
Market Information, Holders of Record and Dividends
Our common stock is traded on the Nasdaq Global Market under the symbol “IMMR”.
As of February 18, 2022, there were 65 holders of record of our common stock.
We do not anticipate paying cash dividends in the foreseeable future.
Unregistered Sales of Securities
During the period covered by this Annual Report on Form 10-K, we have not sold any equity securities that were not
registered under the Securities Act of 1933, as amended.
Purchases of Equity Securities
On November 1, 2007, our Board of Directors (the “Board”) authorized the repurchase of up to $50 million of our common
stock (the “Stock Repurchase Program”). In addition, on October 22, 2014, the Board authorized another $30 million under the
Stock Repurchase Program. We may repurchase our common stock for cash in the open market in accordance with applicable
securities laws. The timing and amount of any stock repurchase will depend on share price, corporate and regulatory
requirements, economic and market conditions, and other factors. The stock repurchase authorization has no expiration date,
does not require us to repurchase a specific number of shares, and may be modified, suspended, or discontinued at any time.
As of June 30, 2020, we have no amount available for repurchase under the Stock Repurchase Program. There were no
stock repurchases after June 30, 2020.
Item 6. Reserved
36
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.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting
principles (“GAAP”) and our discussion and analysis of its financial condition and operating results require the management to
make judgments, assumptions and estimates that affect the amounts reported. Note 1. Significant Accounting Policies of the
Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, which describes the significant accounting
policies and methods used in the preparation of our consolidated financial statements. Management bases its estimates on
historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities.
Revenue Recognition
Fixed fee license revenue
In certain contracts, we grant a fixed fee license to our existing patent portfolio at the inception of the license agreement as
well as rights to the portfolio as it evolves throughout the contract term. For such arrangements, we have two separate
performance obligations:
•
•
Performance Obligation A - Transfer rights to our patent portfolio as it exists when the contract is executed;
Performance Obligation B - Transfer rights to our patent portfolio as it evolves over the term of the contract, including
access to new patent applications that the licensee can benefit from over the term of the contract.
For fixed fee license agreements that contain both Performance Obligation A and B, we will allocate the transaction price
based on the standalone price for each of the two performance obligations. We use a number of factors primarily related to the
attributes of our patent portfolio to estimate standalone prices related to Performance Obligation A and B to perform this
allocation.
Per-unit Royalty revenue
As we generally do not receive the per-unit licensee royalty reports for sales during a given quarter within the time frame
that allows us to adequately review the reports and include the actual amounts in our quarterly results for such quarter, we
accrue the related revenue based on estimates of our licensees’ underlying sales, subject to certain constraints on our ability to
estimate such amounts. We develop such estimates based on a combination of available data including, but not limited to,
approved customer forecasts, a look back at historical royalty reporting for each of our customers, and industry information
available for the licensed products.
As a result of accruing per-unit royalty revenue for the quarter based on such estimates, adjustments will be required in the
following quarter to true up revenue to the actual amounts reported by our licensees. The true-ups represent the difference
between per-unit royalty based on actual sales reported by our licensees in a quarter-lag, and the estimate of per-unit royalty
that was reported in the same quarter the underlying sales occurred.
Income Taxes
We are subject to income taxes in the U.S. and foreign jurisdictions. The evaluation of our uncertain tax positions involves
significant judgment in the interpretation and application of GAAP and complex domestic and international tax laws, including
the Act and matters related to the allocation of international taxation rights between countries. Although management believes
our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that
which is reflected in our reserves. Reserves are adjusted considering changing facts and circumstances, such as the closing of a
tax examination or the refinement of an estimate. Resolution of these uncertainties in a manner inconsistent with management’s
expectations could have a material impact on our financial condition and operating results.
As disclosed in Note 5. Contingencies of the Notes to the Consolidated Financial Statements, we have made deposit
payments to reimburse both Samsung and LGE for withholding taxes and related penalties paid by them as a result of
37
assessments they have received from the South Korean tax authorities. These payments are recorded as Long-term deposits on
our Consolidated Balance Sheets. We expect to be reimbursed by both Samsung and LGE to the extent we ultimately prevail or
prevailed in the appeal in the Korean courts. We regularly assess the likelihood that we will prevail in these cases against the
South Korean tax authorities and consequently the likelihood that these deposits will be recoverable. In the event that we do not
ultimately prevail in our appeal in the Korean courts, the deposits included in Long-term deposits would be recorded as
additional income tax expense on our Consolidated Statements of Income and Comprehensive Income, in the period in which
we do not ultimately prevail.
Legal and Other Contingencies
We are subject to various legal proceedings and claims that arise in the ordinary course of business, the outcomes of which
are inherently uncertain. We record a liability when it is probable that a loss has been incurred and the amount is reasonably
estimable, the determination of which requires significant judgment. Resolution of legal matters in a manner inconsistent with
management’s expectations could have a material impact on our financial condition and operating results.
38
Results of Operations
Overview
Total revenues for 2021 were $35.1 million, an increase of $4.6 million, or 15%, compared to 2020.
Total cost and operating expenses were $17.3 million, a decrease of $10.9 million, or 39% compared to 2020.
In 2021, we had net income of $12.5 million, an increase of $7.1 million, or 131.1% compared to 2020.
The following table sets forth our consolidated statements of income data as a percentage of total revenues:
Revenues:
Per-Unit royalty revenue
Fixed fee license revenue
Royalty and license
Development, services, and other
Total revenues
Costs and expenses:
Cost of revenues
Sales and marketing
Research and development
General and administrative
Total costs and expenses
Operating income
Interest and other income
Other income (expense), net
Income from operations before benefits from (provision for) income taxes
Benefit from (provision for) income taxes
Net income
Years Ended December 31,
2021
2020
98.9 %
99.1 %
1.1
100.0
—
100.0
0.3
9.2
11.8
28.0
49.3
50.7
3.5
(4.9)
49.3
(13.7)
0.9
100.0
—
100.0
0.6
16.4
16.4
59.3
92.7
7.3
0.9
2.2
10.4
7.3
35.6 %
17.7 %
39
Revenues
Our revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements, along with less
significant revenue earned from development, services and other revenue. Royalty and license revenue is composed of per unit
royalties earned based on usage or net sales by licensees and fixed payment license fees charged for our IP and software.
A revenue summary for the years ended December 31, 2021 and 2020 are as follows (in thousands, except for
percentages):
Revenues:
Fixed fee license revenue
Per-unit royalty revenue
Total royalty and license revenue
Development, services, and other revenue
Total revenues
Royalty and license revenue
2021
Years Ended December 31,
$ Change
2020
% Change
$
$
5,843 $
28,846
34,689
400
35,089 $
5,472 $
24,704
30,176
280
30,456 $
371
4,142
4,513
120
4,633
7%
17%
15%
43%
15%
Per-unit royalty revenue increased by $4.1 million, or 17%, in 2021 compared to 2020, primarily caused by a $3.0 million
increase in royalties from gaming licensees and a $1.8 million increase royalties from automotive licensees partially offset by a
$0.4 million decrease in royalties from our mobility licensees.
Fixed fee license revenue increase $0.4 million or 7% in 2021 compared to 2020 primarily due to a $0.2 million increase in
mobility license revenue and a $0.2 million increase in automotive license revenue.
We expect royalty and license revenue to continue to be a major component of our future revenue as our technology is
included in products and we succeed in our efforts to monetize our IP. Our fixed fee license revenue could fluctuate depending
upon the timing of execution of new fixed license fee arrangements. We also anticipate that our royalty revenue will fluctuate
relative to our customers’ unit shipments.
Geographically, revenues generated in Asia, North America and Europe for the year ended December 31, 2021 represented
76%, 12%, and 12%, respectively, of our total revenue as compared to 76%, 16%, and 8%, respectively, for the year ended
December 31, 2020.
Operating Expenses
A summary of operating expenses for the years ended December 31, 2021 and 2020 are as follows:
Sales and marketing
Research and development
General and administrative
2021
Years Ended December 31,
$ Change
2020
% Change
$
3,241 $
4,150
9,835
4,999 $
5,014
18,055
(1,758)
(864)
(8,220)
(35) %
(17) %
(46) %
Sales and Marketing - Our sales and marketing expenses primarily consisted of employee compensation and benefits,
including stock-based compensation; sales commissions; advertising and trade shows; collateral marketing materials; market
development funds; travel; and allocated facilities costs.
40
Sales and marketing expenses decreased $1.8 million, or 35%, in 2021 as compared to 2020 primarily attributable to a $0.7
million decrease in compensation, benefits, and other related costs, a $0.3 million decrease in facilities expense, a $0.3 million
decrease in depreciation expense and a $0.2 million decrease in marketing and advertising costs.
The decrease in compensation, benefits and other personnel related costs primarily attributable to lower headcount in 2021
compared to 2020. The decrease in facilities expenses was largely attributable to lower rent expense following the sublease of
the SJ Facility in the second quarter of 2020. The decrease in depreciation expense was largely due to the accelerated
depreciation in the first quarter of 2020 resulting from the shortening in estimated useful life of the leasehold improvements of
the San Jose, California office ("SJ Facility") to March 31, 2020 following our decision to exit this facility. The decrease in
advertising and travel related costs was primarily due to reduced business activities and travel restrictions during COVID 19
pandemic.
Research and Development - Our research and development expenses primarily consisted of employee compensation and
benefits, including stock-based compensation; outside services and consulting fees; tooling and supplies; and allocated facilities
costs.
Research and development expenses decreased $0.9 million, or 17%, in 2021 compared to 2020 primarily due to a $0.2
million decrease in each of the consulting and outside services costs, facilities related costs and depreciation expense. The
decrease in consulting and outside services cost in 2021 compared 2020 was largely due to lower consultant headcount. The
decrease facilities and depreciation expenses in 2021 compared to 2020 was driven by factors discussed above.
General and Administrative - Our general and administrative expenses primarily consisted of employee compensation and
benefits including stock-based compensation; legal other professional fees; external legal costs for patents; office expense;
travel; and allocated facilities costs.
General and administrative expenses decreased $8.2 million, or 46%, in 2021 as compared to 2020 primarily due to a
$4.4 million decrease in compensation, benefits and other personnel related costs, a $1.6 million decrease in legal costs, a
$1.0 million decrease in consulting and professional services fees, a $0.5 million decrease in depreciation expense and a
$0.5 million decrease in facilities costs.
The decrease in compensation, benefits and other personnel related costs was primarily due to reduced headcount and
lower salaries driven by the transition of our Accounting, Human Resources, Finance and IT functions from San Jose,
California to Montreal, Canada and lower stock-based compensation expense. The decrease in legal expense was primarily
attributable to reduced activities, as well as a decrease in patent maintenance and prosecution costs. The decrease in consulting
and professional services fees was due to decreases in accounting and audit fees and consulting and other professional fees in
2021 compared to 2020. The decrease in depreciation expense and facilities costs were primarily driven by the factors discussed
above.
While we currently expect our general and administrative expenses to decrease in the near future as we achieve targeted
reductions in consulting and professional services, headcount, and other costs, we may be required to engage in litigation to
protect our IP, in which case our general and administrative expenses could substantially increase to reflect such litigation costs.
41
Interest and Other Income, Other Expense
A summary of interest and other income, other expense for the years ended December 31, 2021 and 2020 are as follows (in
thousands):
Interest and other income
Other income (expense), net
2021
Years Ended December 31,
$ Change
2020
% Change
$
$
1,244 $
(1,729) $
271 $
668 $
973
(2,397)
359 %
(359) %
Interest and Other Income - Interest and other income consists primarily of interest income from cash and cash equivalents
and short-term investments.
Interest and other income increased $1.0 million during 2021 compared to 2020 primarily driven by higher in interest and
dividend income from investments in marketable securities in 2021 compared to 2020.
Other Income (Expense), Net - Other income (expense), net consists primarily of realized and unrealized gains (losses) on
marketable equity securities, foreign currency transactions and translation gains (losses).
Other income (expense), net decreased $2.4 million in 2021 compared to 2020 primarily due to a $1.2 million increase in
unrealized foreign currency translation loss and $0.9 million in loss on marketable equity securities. The increase in unrealized
foreign currency translation loss was attributable to the depreciation of South Korean Won against the U.S. Dollar. The loss on
marketable securities primarily consisted of $1.6 million net unrealized loss on marketable equity securities and a $0.7 million
realized gain on marketable equity securities. The increases in unrealized losses and realized gains on marketable equity
securities was largely attributable to the commencement of investment activities in the second half of 2021.
Benefit From (Provision For) Income Taxes
A summary of benefit from (provision for) income taxes and effective tax rates for the years ended December 31, 2021 and
2020 are as follows (in thousands):
Income before benefit from (provision for) income taxes
Benefit from (provision for) income taxes
Effective tax rate
$
2021
17,290
(4,806)
27.8 %
Years Ended December 31,
$ Change
2020
% Change
$
3,159
2,242
(71.0) %
(7,048)
(314) %
In 2021, we recorded a $4.8 million provision for income taxes yielding an effective tax rate of 27.8%. The 2021 provision
reflects estimated U.S. taxes, adjustments to uncertain tax positions withholding tax reserve, foreign taxes and foreign
withholding taxes. Based on our assessment of the developments in the Samsung case (South Korea withholding taxes) in
October of 2021, we provided for an additional income tax expense of $3.3 million in the fourth quarter of 2021. Of this
amount, $2.2 million was recorded as an impairment to the Long-term deposit and $1.1 million was accrued as an Other current
liability on our Consolidated Statements Balance Sheet at December 31, 2021.
Based upon our assessment as of December 31, 2021 of the realizability of our deferred tax assets, we continue to maintain
a full valuation allowance against all of our federal and state deferred tax assets in the United States as well as federal tax assets
in Canada. As of December 31, 2021, the aggregating balance of our deferred tax assets totaled $29.0 million with a valuation
allowance of $27.2 million, resulting in a net deferred tax asset balance of $1.8 million.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was passed into law. The
42
CARES Act includes several significant business tax provisions including modification to the taxable income limitation for
utilization of net operating losses (“NOLs”) incurred in 2019 and 2020 and the ability to carry back NOLs from those years for
a period of up to five years, an increase to the limitation on deductibility of certain business interest expense, bonus
depreciation for purchases of qualified improvement property and special deductions on certain corporate charitable
contributions. We analyzed the provisions of the CARES Act and determined there was no net effect on our provision for the
year ended December 31, 2020.
In 2020, we recorded a $2.2 million benefit from income taxes yielding an effective tax rate of (71.0)%. The 2020
provision reflects estimated foreign taxes and foreign withholding tax expense and a one-time deferred tax benefit from the
release of valuation allowance from one of our foreign entities. Based upon our assessment as of December 31, 2020 of the
realizability of our deferred tax assets in the United States, we reported a full valuation allowance against all of our federal and
state and certain of our foreign net deferred tax assets. As of December 31, 2020, the aggregating balance of our deferred tax
assets totaled $30.8 million with a valuation allowance of $28.5 million, resulting in a net deferred tax asset balance of $2.6
million.
As described above, we continue to maintain a valuation allowance of $27.2 million against certain of our deferred tax
assets, including all federal, state and certain foreign deferred tax assets in the United States and Canada as a result of
uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and
uncertainty regarding near term projected results. In the event that we determine the deferred tax assets are realizable based on
an assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such
determination is made. The valuation allowance does not impact our ability to utilize the underlying net operating loss
carryforwards.
We also maintain liabilities for uncertain tax positions. As of December 31, 2021, we had unrecognized tax benefits under
ASC 740 of approximately $7.6 million and applicable interest of $0. The total amount of unrecognized tax benefits that would
affect our effective tax rate, if recognized, is $0. We account for interest and penalties related to uncertain tax positions as a
component of income tax provision. We do not expect to have any significant changes to unrecognized tax benefits during the
next twelve months.
Liquidity and Capital Resources
Our cash equivalents and short-term investments consist primarily of market funds, investment in equity marketable
securities (including mutual funds). All investments are stated at market value. Realized gains and losses on marketable equity
and debt securities are recorded in Other income (expense), net on the Consolidated Statements of Income and Other
Comprehensive Income (Loss). Unrealized gains and losses on marketable equity securities (including mutual funds) are
reported as Other income (expense), net on our Consolidated Statement of Income and Other Comprehensive Income (Loss).
Unrealized gains and losses on marketable debt securities reported as a component of Accumulated other comprehensive
income on our Consolidated Balance Sheets.
Cash, cash equivalents and short-term investments
As of December 31, 2021, our cash, cash equivalents, and short-term investments totaled $137.9 million, an increase of
$78.4 million from $59.5 million on December 31, 2020.
43
A summary of select cash flow information for the years ended December 31, 2021 and 2020 (in thousands):
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
December 31,
2021
2020
$
$
$
17,449 $
(87,684) $
62,203 $
22
2,953
(29,931)
Cash provided by operating activities - Our operating activities primarily consists of net income adjusted for certain non-
cash items including depreciation and amortization; stock-based compensation expense, deferred income taxes and the effect of
changes in operating assets and liabilities.
Net cash provided by operating activities was $17.4 million during 2021, a $17.4 million increase in 2021 compared to
2020. The increase in net cash provided by operating activities was primarily attributable to a $7.1 million increase in net
income, a $0.4 million increase resulted from changes in non cash items and a $7.2 million increase resulted from the change in
net operating assets and liabilities.
Cash provided by (used in) investing activities - Our investing activities primarily consist of purchases of marketable
securities and other investments and proceeds from disposal of marketable securities and other investments; proceeds from
issuance of derivative instruments; payments made to settle derivative instruments and purchases of computer equipment,
furniture and leasehold improvements.
Net cash used in investing activities during 2021 was $87.7 million primarily consisting of $112.2 million in purchases of
marketable securities partially offset by $20.4 million in proceeds from selling marketable securities.
Net cash provided by investing activities during 2020 was $3.0 million primarily consisting of proceeds from maturities of
short-term investments.
Cash provided by (used in) financing activities — Our financing activities primarily consist of cash proceeds from issuance
of common stock, proceeds from stock option exercises and stock purchases under our employee stock purchase plan and cash
paid for repurchases of our common stock.
Net cash provided by financing activities during 2021 was $62.2 million primarily consisting of $59.2 million net proceeds
from common stock issuances and $2.9 million proceeds from stock option exercises.
Net cash used in financing activities during 2020 was $29.9 million primarily consisting of $30.6 million in cash paid for
stock repurchases partially offset by $0.71 cash proceeds from stock option exercises and stock purchases under our employee
stock purchase plan.
Total cash, cash equivalents, and short-term investments were $137.9 million as of December 31, 2021 of which
approximately 38% ($19.7 million) was held by our foreign subsidiaries and subject to repatriation tax effects. Our intent is to
permanently reinvest a majority 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 may continue to invest in, protect, and defend our extensive IP portfolio, which can result in the use of cash in the
event of litigation.
On February 3, 2021, we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission
which provided us with the flexibility to raise up to $250 million of capital. We intend to use the net proceeds from the sale of
the securities offered by this prospectus for working capital and other general corporate purposes, and we may use a portion of
any net proceeds for investment in complementary businesses or alternative currencies.
On February 11, 2021, we entered into an equity distribution agreement (the "February 2021 Distribution Agreement")
with Craig-Hallum Capital Group LLC (“Craig-Hallum”), as sales agent to issue and sell shares of our common stock having an
44
aggregated offering price of up to $50 million. Under the terms of the February 2021 Distribution Agreement, we were
obligated to pay a 2.25% commission on the gross sales proceeds from common stock sold and customary indemnification
rights and the reimbursement of legal fees and disbursements.
During the first quarter of 2021, we sold 3.3 million shares of our common stock pursuant to the February 2021
Distribution Agreement and we received net proceeds of $35.9 million from the offering net of $1.2 million of commissions
and other offering costs. We terminated the February 2021 Distribution Agreement on March 5, 2021.
On July 6, 2021, we entered into an equity distribution agreement (the "July 2021 Distribution Agreement") with Craig-
Hallum Capital Group LLC (“Craig-Hallum”), as sales agent to issue and sell shares of our common stock having an aggregated
offering price of up to $60 million. Under the July 2021 Distribution Agreement, we will set the parameters for the sale of
shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on
the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made.
Subject to the terms and conditions of the July 2021 Distribution Agreement, the investment banker may sell the shares by
methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933,
as amended, including sales made through the Nasdaq Global Select Market or on any other existing trading market for the
common stock. We are obligated to pay 2.25% commission on the gross sales proceeds from common stock sold and customary
indemnification rights and the reimbursement of legal fees and disbursements. The July 2021 Distribution Agreement may be
terminated by either party upon prior written notice to the other party, or at any time under certain circumstances, including but
not limited to the occurrence of a material adverse change in Immersion. We are not obligated to sell any shares under the July
2021 Distribution Agreement.
During 2021, we sold 3.2 million shares of our common stock pursuant to the July 2021 Distribution Agreement and we
received net proceeds of approximately $23.3 million from the offering after deducting $0.8 million commissions and other
estimated offering expense.
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 of this Annual Report on Form 10-K.
Our principal commitments as of December 31, 2021 consisted of $1.7 million in obligations under operating leases
partially offset by $1.4 million rental payments we expect to received for the sublease of our SJ Facility.
On January 26, 2022, we entered into an agreement to lease for 1,390 square feet of office space in Aventura, Florida
(“Aventura Lease”). We plan to use this facility for administrative functions. This lease commenced in the first quarter of 2022
and expires in the first quarter of 2024. We expect to pay approximately $0.1 million in lease payments under the terms of the
Aventura Lease.
On February 14, 2022, we entered into a Common Stock Repurchase Agreement (the “Agreement”) with Invenomic
Capital Management LP (“Invenomic”). Pursuant to the Agreement, we purchased 904,499 shares of our common stock from
Invenomic at $4.725 per share, or an aggregate purchase price of $4.3 million. The closing price of our common stock on
February 14, 2022 was $4.80 per share.
On February 23, 2022, our Board of Directors approved a stock repurchase program of up to $30 million of our common
stock for a period of up to twelve months. See Note 13. Subsequent Events of the Notes to Consolidated Financial Statements in
Part II Item 8. Financial Statements and Supplementary Data of this annual report on Form 10-K for more information.
At December 31, 2021, we had a liability for unrecognized tax benefits totaling $7.6 million, none of which could be
payable in cash.
We did not have any other significant non-cancellable purchase commitments as of December 31, 2021.
We anticipate that capital expenditures for property and equipment in 2022 will be less than $1.0 million.
While the unprecedented public health and governmental efforts to contain the spread of COVID-19 have created
significant uncertainty as to general economic and capital market conditions in 2021 and beyond, as of February 25, 2022, the
date of this Annual Report on Form 10-K, we believe we have sufficient capital resources to meet our working capital needs for
the next twelve months and beyond.
45
Recent Accounting Pronouncements
See Note 1 Significant Accounting Policies of the Notes to 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
Not applicable
46
Item 8. Financial Statements and Supplementary Data
IMMERSION CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Armanino LLP, Independent Registered Public Accounting Firm (PCAOB ID 32)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2021 and
2020
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
Page
48
51
52
53
54
56
47
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Immersion Corporation
San Francisco, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Immersion Corporation and its subsidiaries (the
Company) as of December 31, 2021 and 2020, and the related consolidated statements of income and comprehensive
income, stockholders' equity, and cash flows for each of the two years ended December 31, 2021, and the related notes
(collectively referred to as the consolidated financial statements).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash
flows for each of the two years ended December 31, 2021 in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
The Company's management is responsible for these consolidated financial statements. Our responsibility is to
express an opinion on the Company's consolidated financial statements. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in
any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the
critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures
to which they relate.
Revenue Recognition — Refer to Note 1 to the Consolidated Financial Statements
Critical Audit Matter Description
As disclosed in the consolidated financial statements, the Company recognizes revenue upon transfer of control of
promised services to customers in an amount that reflects the consideration the Company expects to receive in
48
exchange for those services. The Company grants licenses or otherwise provides rights to use portions of its
intellectual property portfolio as well as rights to the portfolio as it evolves throughout the contract term. Licensees
pay a fee upon the transfer of rights to the patent portfolio. The Company also enters into sales-based royalty contracts
with customers and recognizes revenue based on estimates in the period which the associated sales by the licensee
occur. For royalty arrangements revenue is recognized when a contract exists and to the extent it is probable that a
significant reversal of cumulative revenues will not occur based on their sales incorporating or using the licensed
intellectual property. These arrangements are generally based upon fixed per-unit prices stated in the contract. If a
contract is determined to exist, management estimates and recognizes sales-based royalties on such licensed products
in the period in which the associated sales by the licensee occur, subject to certain constraints on management's ability
to estimate such royalties. Management analyzes the risk of a significant revenue reversal considering both the
likelihood and magnitude of the reversal and, if necessary, constrains the amount of estimated revenue recognized,
which may result in recognizing revenues less than amounts contractually owed to the Company.
Significant judgment is exercised by the Company in determining revenue recognition for these customer agreements,
and includes the following:
•
•
•
•
Determination of whether license arrangements are considered distinct performance obligations that should be
accounted for separately versus together.
Determination of stand-alone selling prices for each distinct performance obligation.
The pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.
Estimation of the amount to recognize for sales-based royalty arrangements.
Given these factors, the related audit effort in evaluating management's judgments in determining revenue recognition
for these customer agreements was extensive and required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the Company's revenue recognition for these customer agreements included
the following:
• We selected a sample of customer agreements and performed the following procedures:
◦
◦
◦
Obtained and read contract source documents for each selection, including master agreements, and
other documents that were part of the agreement to identify significant terms.
Tested management's
identification of distinct performance obligations and variable consideration.
Assessed the terms in the customer agreement and evaluated the appropriateness of management's
application of their accounting policies, along with their use of estimates, in the determination of
revenue recognition conclusions.
identification of significant
terms for completeness,
including
the
• We evaluated the reasonableness of management's estimate of stand-alone selling prices for each performance
obligation.
• We evaluated the reasonableness and accuracy of management's judgements and estimates used in accounting
for its sales-based royalty arrangements. This included testing management's estimate of calculating sales as
they occur and verifying future sales forecast with the operations team.
• We tested the mathematical accuracy of management's calculations of revenue and the associated timing of
recognizing the related revenue subject to any constraints in the consolidated financial statements.
Contingencies — Refer to Note 5 to the Consolidated Financial Statements
Critical Audit Matter Description
The Company is currently involved in certain legal and regulatory proceedings. As disclosed in the consolidated
financial statements, the Company is currently involved in certain legal and regulatory proceedings with Samsung
Electronics Co. (“Samsung”) and LG Electronics Inc. (“LGE”) with respect to withholdings taxes imposed on
Samsung and LGE by the Korean tax authorities for failing to withhold taxes on royalty payments. Pursuant to legal
requirements, the Company provided deposits representing the amount of such withholding tax that was imposed on
Samsung and LGE, respectively, of approximately $12.1 million. During the year ended December 31, 2021, the
49
Company recorded an impairment to these long-term deposits of approximately $2.2 million based on the recent
developments in the Samsung case.
Significant judgment is exercised by the Company and includes the following:
•
•
Assessing the recoverability of deposits for withholding taxes related to legal and regulatory proceedings.
Assessing the likelihood of an unfavorable legal decision.
Given these factors, the related audit effort in evaluating management's judgments was extensive and required a high
degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the Company's legal and regulatory proceedings included the following:
•
•
•
•
•
•
Obtained and evaluated the letters of audit inquiry with external and internal counsel.
Read relevant correspondence the Company received from taxing authorities provided by management.
Read relevant documents the Company has filed with the courts and related counterparty filings.
Evaluated the reasonableness of management's process for identifying and assessing a potential unfavorable
outcome.
Involved tax subject matter resources in considering the applicable tax laws, the pending appeal and the
current status of legal precedent relevant to the appeals.
Evaluated the sufficiency of the Company's legal and regulatory proceedings disclosures in the consolidated
financial statements.
• We evaluated the reasonableness of management’s impairment estimate and accrual of additional income tax
liability.
/s/ ArmaninoLLP
San Jose, California
February 25, 2022
We have served as the Company's auditor since 2020.
50
IMMERSION CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
ASSETS
December 31,
2021
2020
Current assets:
Cash and cash equivalents
Marketable securities
Accounts and other receivables
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Long-term deposits
Other assets, net
Total assets
Current liabilities:
Accounts payable
Accrued compensation
Other current liabilities
Deferred revenue
Total current liabilities
Long-term deferred revenue
Other long-term liabilities
Total liabilities
$
$
51,490 $
86,431
1,970
13,432
153,323
444
9,658
12,095
175,520 $
59,522
—
2,218
12,610
74,350
209
12,571
9,000
96,130
149
1,001
2,457
5,173
8,780
21,334
2,035
32,149
LIABILITIES AND STOCKHOLDERS’ EQUITY
$
2 $
555
11,247
4,826
16,630
16,699
896
34,225
Commitments and contingencies (Note 5)
Stockholders’ equity:
Common stock and additional paid-in capital – $0.001 par value; 100,000,000 shares
authorized; 46,534,198 and 39,161,214 shares issued, respectively; 34,390,765 and
27,017,781 shares outstanding, respectively
Accumulated other comprehensive income
Accumulated deficit
Treasury stock at cost: 12,143,433 and 12,143,433 shares, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to Consolidated Financial Statements.
323,296
258,756
412
(100,680)
(81,733)
141,295
175,520 $
122
(113,164)
(81,733)
63,981
96,130
$
51
IMMERSION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Revenues:
Royalty and license
Development, services, and other
Total revenues
Costs and expenses:
Cost of revenues
Sales and marketing
Research and development
General and administrative
Total costs and expenses
Operating income
Interest and other income
Other income (expense), net
Income before benefit from (provision for) income taxes
Benefit from (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, net of tax
Change in unrealized gains (losses) on available-for-sale securities
Total other comprehensive income (loss)
Total comprehensive income
Years Ended December 31,
2021
2020
$
$
$
$
$
$
34,689 $
400
35,089
88
3,241
4,150
9,835
17,314
17,775
1,244
(1,729)
17,290
(4,806)
12,484 $
0.40 $
31,459
0.39 $
31,769
290 $
290
12,774 $
30,176
280
30,456
168
4,999
5,014
18,055
28,236
2,220
271
668
3,159
2,242
5,401
0.19
28,117
0.19
28,477
(2)
(2)
5,399
See Accompanying Notes to Consolidated Financial Statements.
52
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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:
$
12,484 $
5,401
Years Ended December 31,
2021
2020
Depreciation and amortization
Stock-based compensation
Net loss on investments in marketable securities
Net loss on derivative instruments
Foreign currency remeasurement gains (losses)
Deferred income taxes
Long-term deposit impairment
Impairment of right-of-use lease asset
Other
Changes in operating assets and liabilities:
Accounts and other receivables
Prepaid expenses and other current assets
Long-term deposits
Other assets
Accounts payable
Accrued compensation
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 marketable securities
Proceeds from sale or maturities of marketable securities and other short-term
investments
Proceeds from sale of derivative instruments
Payments for settlement of derivative instruments
Purchases of property and equipment
Net cash provided by (used in) investing activities
Cash flows provided by (used in) financing activities:
Proceed from issuance of common stock
Proceeds from issuance of common stock under employee stock purchase plan
Proceeds from stock options exercises
Cash paid for purchases of treasury stock
Net cash provided by (used in) financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents:
Beginning of year
End of year
762
2,338
(479)
1,364
635
531
2,166
32
(9)
248
(823)
110
2,952
(148)
(446)
2,205
(4,982)
(1,491)
17,449
1,931
4,756
—
—
(427)
(2,483)
—
271
127
1,167
1,486
(5,077)
2,194
(660)
(1,843)
(1,253)
(4,137)
(1,431)
22
(109,408)
—
17,156
18,919
(14,016)
(335)
(87,684)
59,189
150
2,864
—
62,203
(8,032)
3,000
—
—
(47)
2,953
—
134
577
(30,642)
(29,931)
(26,956)
59,522
51,490 $
86,478
59,522
$
See Accompanying Notes to Consolidated Financial Statements.
54
IMMERSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Supplemental disclosure of non-cash operating, investing, and financing activities:
Release of restricted stock units and awards under company stock plan
Leased assets obtained in exchange for new operating lease liabilities
$
$
$
88 $
65
4,278 $
3,016
— $
577
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Immersion Corporation (the “Company”, “Immersion”, “we”, “our”, or “us”) was incorporated in 1993 in California and
reincorporated in Delaware in 1999. We focused on the invention, acceleration, and scaling, through licensing, of innovative
haptic technologies that allow people to use their sense of touch to engage with products and experience the digital world
around them. We have adopted a business model under which we provide advanced tactile software, related tools and technical
assistance designed to integrate our patented technology into our customers’ products or enhance the functionality of our
patented technology, and offer licenses to our patented technology to our customers.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread
throughout the U.S. and the world and has resulted in authorities implementing numerous measures to combat the spread of the
virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. The
COVID-19 outbreak and related public health measures have adversely affected workforce, organizations, consumers,
economies, and financial markets globally, leading to an economic downturn and increased market volatility.
In response to the COVID-19 pandemic, we implemented work-from-home and restricted travel policies in the first quarter
of 2020, which are expected to remain in place for 2022.
In response to certain anticipated impacts from the COVID-19 pandemic, we implemented a series of cost reduction
initiatives in 2020 and 2021 to preserve financial flexibility. In 2020, these actions included: reductions of the base salaries and
cash compensation of Company executives and board members; cancellation and reduction of bonus amounts in executive and
employee bonus plans; renegotiated professional services fees from third-party services providers; relocation of certain
positions to lower-cost regions; suspension of employee retirement savings plan contribution match by Immersion and
accessing broad-based employer relief provided by the governments. In 2021, additional actions included: cancellation of 2021
Executive Incentive Plan and elimination of certain positions.
In April 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) for Canadian
employers whose businesses were affected by the COVID-19 pandemic. The CEWS provides a subsidy of up to 75% of eligible
employees’ employment insurable remuneration, subject to certain criteria. We applied for the CEWS to the extent we met the
requirements to receive the subsidy. During the years ended December 31, 2021 and 2020, we recorded $0.3 million and $0.5
million, respectively, in government subsidies as a reduction to operating expenses in the Consolidated Statements of Income
and Comprehensive Income.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of Immersion Corporation and our wholly-
owned subsidiaries. All intercompany accounts, transactions, and balances have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with the generally accepted accounting principles in the
United States ("GAAP") requires estimates and assumptions that affect the amounts reported in the consolidated financial
statements and the accompanying notes. Actual results may differ materially from these estimates On an ongoing basis, we
evaluate our estimates, including those related to revenue recognition, fair value of financial instruments, property and
equipment, income taxes, contingent liabilities, long-term deposits for withholding taxes and stock-based compensation. We
base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of
which form the basis for making judgments about the carrying values of assets and liabilities.
56
Foreign Currency Translation
The functional currency of our foreign subsidiaries is U.S. dollars. Gains and losses from the remeasurement financial
statements of the foreign subsidiaries into the U.S. dollars and from foreign currency transaction are reported as Other income
(expense), net in our Consolidated Statements of Income and Other Comprehensive Income.
Significant Accounting Policies
Revenue Recognition
Our revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements, along with less
significant revenue earned from development, services and other revenue.
Fixed fee license revenue
We recognize revenue from fixed fee license agreements when our performance obligation has been satisfied, which
typically occurs upon the transfer of rights to our technology upon the execution of the license agreement. In certain contracts,
we grant a license to our existing patent portfolio at the inception of the license agreement as well as rights to the portfolio as it
evolves throughout the contract term. For such arrangements, we have two separate performance obligations:
•
•
Performance Obligation A: Transfer of rights to our patent portfolio as it exists when the contract is executed;
Performance Obligation B: Transfer of rights to our patent portfolio as it evolves over the term of the contract,
including access to new patent applications that the licensee can benefit from over the term of the contract.
If a fixed fee license agreement contains only Performance Obligation A, we will recognize most or all of the revenue from
the agreement at the inception of the contract. For fixed fee license agreements that contain both Performance Obligation A and
B, we will allocate the transaction price based on the standalone price for each of the two performance obligations. We use a
number of factors primarily related to the attributes of our patent portfolio to estimate standalone prices related to Performance
Obligation A and B. Once the transaction price is allocated, the portion of the transaction price allocable to Performance
Obligation A will be recognized in the quarter the license agreement is signed and the customer can benefit from rights
provided in the contract, and the portion allocable to Performance Obligation B will be recognized on a straight-line basis over
the contract term. For such contracts, a contract liability account will be established and included within Deferred revenue and
Long-term deferred revenue on the Consolidated Balance Sheets. As the rights and obligations in a contract are interdependent,
contract assets and contract liabilities that arise in the same contract are presented on a net basis.
Some of our license agreements contain fixed fees related to past infringements. Such fixed fees are recognized as revenue
or recorded as a deduction to our operating expense in the quarter the license agreement is signed.
Payments for fixed fee license contracts typically are due in full within 30 - 45 days from execution of the contract. From
time to time, we enter into a fixed fee license contract with payments due in a number of installments payable throughout the
contract term. In such cases, we determine if a significant financing component exists and if it does, we will recognize more or
less revenue and corresponding interest expense or income, as appropriate.
Per-unit Royalty revenue
We record per-unit royalty revenue in the same period in which the licensee’s underlying sales occur. As we generally do
not receive the per-unit licensee royalty reports for sales during a given quarter within the time frame that allows us to
adequately review the reports and include the actual amounts in our quarterly results for such quarter, we accrue the related
revenue based on estimates of our licensees’ underlying sales, subject to certain constraints on our ability to estimate such
amounts. We develop such estimates based on a combination of available data including, but not limited to, approved customer
forecasts, a look back at historical royalty reporting for each of our customers, and industry information available for the
licensed products.
As a result of accruing per-unit royalty revenue for the quarter based on such estimates, adjustments will be required in the
following quarter to true up revenue to the actual amounts reported by its licensees. In 2021, we recorded $0.5 million,
$0.5 million and $0.1 million adjustments to decrease royalty revenue in the first, third and fourth quarters, respectively. In the
second quarter of 2021, we recorded adjustments of $2.0 million to increase royalty revenue. We recorded $0.1 million and
57
$20,000 adjustments to decrease royalty revenue during the first and second quarters of 2020, respectively. We recorded
$0.3 million and $0.6 million adjustments to increase royalty revenue during the third and fourth quarter of 2020, respectively.
Certain of our per-unit royalty agreements contain minimum royalty provisions which sets forth minimum amounts to be
received by us during the contract term. Under Accounting Standard Codification 606, Revenue from Contracts with
Customers, (“ASC 606”), minimum royalties are considered a fixed transaction price to which we have an unconditional right
once all other performance obligations, if any, are satisfied. We recognize all minimum royalties as revenue at the inception of
the license agreement, or in the period in which all remaining revenue recognition criteria have been met. We account for the
unbilled minimum royalties as contract assets as Prepaid and other current assets and Other assets, net on our Consolidated
Balance Sheets, and the balance of such contract assets will be reduced by the actual royalties to be reported by the licensee
during the contract term until fully utilized, after which point any excess per-unit royalties reported are recognized as revenue.
As the rights and obligations in a contract are interdependent, contract assets and contract liabilities that arise in the same
contract are presented on a net basis.
Payments of per-unit royalties typically are due within 30 to 60 days from the end of the quarter in which the underlying
sales took place.
Development, services, and other revenue
As the performance obligation related to our development, service and other revenue is satisfied over a period of time, we
recognize such revenue evenly over the period of performance obligations, which is generally consistent with the contractual
term.
Deferred Revenue
Deferred revenue consists of amounts that have been invoiced or paid, but have not been recognized as revenue. The
amounts are primarily derived from our fixed license fee agreements under which we are obliged to transfer both rights to our
patent portfolio that exists when the contract is executed and rights to its patent portfolio as it evolves over the contract term.
Deferred revenue that will be recognizable during the succeeding 12-month period is recorded as Deferred Revenue, and
the remaining deferred revenue is recorded as Long-term deferred revenue on the Consolidated Balance Sheets.
Capitalized Contract Costs
We capitalize certain incremental costs incurred, such as commissions, in order to obtain new contracts with our customers
if we expect to recover these costs. The capitalized contract costs are amortized on a straight-line basis over the term of the
contract.
Fair Value Measurement
We measure the fair value of financial assets as the price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. We use the GAAP fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair
value hierarchy are as follows:
Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs for the asset or liability, which include assumptions market participants would use in
pricing the asset or liability.
Cash Equivalents
We consider all highly liquid instruments with an original or remaining maturity of 90 days or less at the date of purchase
to be cash equivalents.
58
Marketable Securities
Debt Securities
Debt securities primarily consist of investments in corporate bonds. We classify our debt securities as available-for-sale at
the time of purchase and reevaluate such classification as of each balance sheet date. Investment in debt securities are classified
either short-term or long-term based on each instrument’s underlying contractual maturity date and the management's intention.
Unrealized gains and losses on marketable debt securities classified as available-for-sale are recognized as Other
comprehensive income (loss) on the Consolidated Statements of Income and Comprehensive Income.
We may sell certain marketable debt securities prior to their stated maturities for reasons including, but not limited to,
managing liquidity, credit risk, duration and asset allocation.
If quoted prices for identical instruments are available in an active market, debt securities are classified within Level 1 of
the fair value hierarchy. If quoted prices for identical instruments in active markets are not available, fair values are estimated
using quoted prices of similar instruments and are classified within Level 2 of the fair value hierarchy. To date, all of our debt
securities can be valued using one of these two methodologies.
Equity Investments
We hold marketable equity investments over which we do not have a controlling interest or significant influence.
Marketable equity investments are included in Marketable securities on the Consolidated Balance Sheets. They are measured
using quoted prices in active markets with changes recorded in Other income (expense), net on the Consolidated Statements of
Income and Other Comprehensive Income.
Derivative Financial Instruments
We invest in derivatives that are not designated as hedging instruments and which consist of call and put options. When
we sell call and put options, the premium received is reported as Other current liabilities on our Consolidated Balance Sheets.
When we purchase put or call options, the premium paid is reported as Marketable securities current on our Consolidated
Balance Sheets. The carrying value of these options are adjusted to the fair value at the end of each reporting period until the
options expire. Gains and losses recognized from the periodic adjustments to fair value are recognized as Interest and other
income (loss), net on our Consolidated Statements of Income and Comprehensive Income. At December 31, 2021, we had
$6.3 million in derivative instruments which consisted of call and put options sold at their fair value as of the balance sheet
date. These derivative instruments are reported as Other current liabilities on our Consolidated Balance Sheets.
Our derivative financial instruments are classified within Level 2 of the fair value hierarchy because the valuation inputs
are based on quoted prices and market observable data of similar instruments in active markets.
Accounts and Other Receivables
Accounts and other receivables are primarily comprised of trade receivables that are recorded at the invoice amount, net of
an allowance for credit losses. We assess our allowance for credit losses on trade receivables by taking into consideration
forecasts of future economic conditions, information about past events, such as our historical trend of write-offs, and customer-
specific circumstances, such as bankruptcies and disputes. The allowance for credit losses on trade receivables is recorded in
operating expenses on our Consolidated Statements of Income and Comprehensive Income.
Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using straight-line
method over the estimated useful life of the related assets. Property and equipment is reviewed for impairment whenever events
59
or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
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.
Total depreciation expense for property and equipment for years ended December 31, 2021 and 2020 were $0.1 million and
$1.1 million, respectively.
Leases
We lease our office space under lease arrangements with expiration dates on or before February 29, 2024. Operating leases
are accounted for as right-of-use (“ROU”) assets and lease liability obligations in our Consolidated Balance Sheets under Other
assets, net, Other current liabilities and Other long-term liabilities, respectively. ROU assets and lease liabilities are recognized
at lease commencement date based on the present value of lease payments over the lease term. We elect to combine lease and
non-lease components and account for them as a single lease component. As our leases typically do not provide an implicit rate,
we estimate our incremental borrowing rate based on the information available at the commencement date in determining the
present value of lease payments. ROU assets also include any lease payments made and exclude lease incentives and direct
costs. Lease expense is recognized on a straight-line basis over the lease term. We elected to not present leases with an initial
term of 12 months or less on our Consolidated Balance Sheets.
Advertising
Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2021 and 2020 were
$0.2 million and $0.2 million, respectively.
Research and Development
Research and development expenses primarily consisted of personnel-related costs, including payroll and stock-based
compensation, outside consulting expenses and allocations of corporate overhead expenses. Research and development costs
are expensed as incurred.
Legal Proceedings and Litigations
We are involved in legal proceedings on an ongoing basis. If we believe that a loss arising from such matters is probable and
can be reasonably estimated, we accrue the estimated loss in our Consolidated Financial Statements. If only a range of
estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely
outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the
range.
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.
Software Development Costs
Costs for the development of new software products and substantial enhancements to existing software products associated
with the development of products for sale are expensed to research and development expense until technological feasibility has
been established, at which time any additional costs would be capitalized. We consider technological feasibility to be
60
established upon completion of a working model of the software. Because we believe our current process for developing
software is essentially completed concurrently with the establishment of technological feasibility, no costs have been
capitalized to date.
Stock-based Compensation
We recognize stock-based compensation cost for shares, net of estimated forfeiture over the requisite service period of the
award, which is the vesting period. We use the Black-Scholes Merton option pricing model to determine the fair value of stock
options and employee stock purchase plan shares. We estimate the fair value of market-performance based stock options and
restricted stock units using a Monte Carlo simulation model which requires the input of assumptions, including expected term,
stock price volatility and the risk-free rate of return. In addition, judgment is also required in estimating the number of stock-
based awards that are expected to be forfeited. Forfeitures are estimated based on historical experience at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Concentrations of Credit Risk and Significant Customers
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents,
marketable securities, and accounts and other receivables. Deposits held with banks may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed upon demand.
We are subject to a concentration of revenues given certain key licensees that contributed a significant portion of our total
revenues. See Note 12. Segment Reporting, Geographic Information and Significant Customers of the Notes to Consolidated
Financial Statements for more details on customer revenue concentration.
We license technology primarily to companies in North America, Europe, and Asia. To reduce credit risk, management
performs periodic credit evaluations of the financial conditions of our customer. We periodically evaluate potential credit losses
to ensure adequate reserves are maintained, but historically we have not experienced any significant losses related to individual
customers or groups of customers in any particular industry or geographic area. As such, our reserves for credit losses for the
years ended December 31, 2021 and December 31, 2020 were not material due to our low credit risk.
Certain Significant Risks and Uncertainties
We operate in multiple industries and our operations can be affected by a variety of factors. For example, management
believes that changes in any of the following areas could have a negative effect on our future financial position and results of
operations: the impact of COVID-19 on our business, including as to revenue, and potential cost reduction measures, and the
impact of COVID-19 on our customers, suppliers, and on the economy in general; our strategy and our ability to execute our
business plan; our competition and the market in which we operate; our customers and suppliers; our revenue and the
recognition and components thereof; our costs and expenses; including capital expenditures; our investment of surplus funds
and sales of marketable debt securities; our investment of surplus funds and sales of marketable debt securities; seasonality and
demand; our investment in research and technology development; changes to general and administrative expenses; our foreign
operations and the reinvestment of our earnings related thereto; our investment in and protection of our IP; our employees;
capital expenditures and the sufficiency of our capital resources; unrecognized tax benefit and tax liabilities; the impact of
changes in interest rates and foreign exchange rates, as well as our plans with respect to foreign currency hedging in general;
changes in laws and regulations; including with respect to taxes; our plans related to and the impact of current and future
litigation and arbitration; our sublease and the timing and income related thereto; our shelf S-3 registration statement and our
plans with respect thereto, including anticipated use of proceeds and our stock repurchase and equity distribution programs and
equity distribution programs.
Segment Information
We operate as one operating segment because our Chief Executive Officer, as our chief operating decision maker, reviews
financial information, on a consolidated basis for purposes of making decisions regarding allocating resources and assessing
performance.
Recently Issued Accounting Pronouncement
In November 2021, Financial Accounting Standard Board ("FASB") issued ASU 2021-10, Government Assistance (Topic
832), which requires annual disclosures that increase the transparency of transactions involving government grants, including
the types of transactions, the accounting for those transactions, and the effect of those transactions on an entity’s financial
61
statements. This new standard will be effective for annual periods beginning after December 15, 2021. Early adoption is
permitted. We are assessing the impact effect of this new standard on our consolidated financial statements and related
disclosures.
2. REVENUE RECOGNITION
Disaggregated Revenue
The following table presents the disaggregation of our revenue for the years ended December 31, 2021 and 2020 (in
thousands):
Fixed fee license revenue
Per-unit royalty revenue
Total royalty and license revenue
Development, services, and other revenue
Total revenues
Years Ended December 31,
2021
2020
$
5,843 $
28,846
34,689
400
$
35,089 $
5,472
24,704
30,176
280
30,456
As of December 31, 2021, we had contract assets of $12.4 million included within Prepaid expenses and other current
assets, and $1.7 million included within Other assets, net on the Consolidated Balance Sheets. As of December 31, 2020, we
had contract assets of $11.6 million included within Prepaid expenses and other current assets, and $4.6 million included
within Other assets, net on the Consolidated Balance Sheets.
Contract assets decreased by $2.0 million from January 1, 2021 to December 31, 2021, primarily due to actual royalties
billed during the year.
Contracted Revenue
Based on contracts signed and payments received as of December 31, 2021, we expect to recognize $21.5 million revenue
related to Performance Obligation B under our fixed fee license agreements, which are satisfied over time, including $13.6
million over one to three years and $7.9 million over more than three years.
Capitalized Contract Costs
We capitalized $0.2 million of incremental costs incurred to obtain new contracts with customers in each of the years ended
December 31, 2021 and 2020.
3. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Marketable Securities
We invest surplus funds in excess of operational requirements in a diversified portfolio of marketable securities, with the
objectives of delivering competitive returns, maintaining a high degree of liquidity, and seeking to avoid the permanent
impairment of principal.
Our investments in marketable debt securities are classified and accounted for as available-for-sale. The marketable debt
securities are classified either short-term or long-term based on each instrument’s underlying contractual maturity date. As of
December 31, 2021, we reported $7.3 million investment in debt securities as Other assets on our Consolidated Balance Sheets
as the management intends to hold these investment for more than 12 months from the reporting date. We did not have
marketable securities as of December 31, 2020. We may sell certain marketable debt securities prior to their stated maturities
for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.
62
Our investments in marketable equity securities are classified based on the nature of the securities and their availability for
use in current operations. The marketable equity securities are measured at fair value with gains and losses recognized in
Interest and other income (loss), net on our Consolidated Statements of Income and Comprehensive Income.
We regularly review our investment portfolio to identify and evaluate investments that have indicators of possible
impairment. Investments are considered impaired when a decline in fair value is judged to be other-than-temporary. If the cost
of an individual investment exceeds its fair value, we evaluate, among other factors, general market conditions, the duration and
extent to which the fair value is less than cost, and our intent and ability to hold the investment. Once a decline in fair value is
determined to be other-than-temporary, we will record an impairment charge and establish a new cost basis in the investment.
Marketable securities as of December 31, 2021 consisted of the following (in thousands):
Mutual funds
Equity securities
Corporate bonds
December 31, 2021
Cost or
Amortized Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
$
$
50,000 $
— $
38,100
6,996
—
290
(338) $
(1,331)
—
95,096 $
290 $
(1,669) $
49,662
36,769
7,286
93,717
As December 31, 2021, marketable securities are classified and reported on our Consolidated Balance Sheets as follows:
Mutual funds
Equity securities
Corporate bonds
Marketable
Securities
(current)
December 31, 2021
Other
Assets, Net
(non-current)
$
$
49,662 $
36,769
—
86,431 $
— $
—
7,286
7,286 $
Total
49,662
36,769
7,286
93,717
63
The amortized costs and fair value of our marketable debt securities, by contractual maturity, as of December 31, 2021 (in
thousands) are as follows:
Less than 1 year
1 to 5 years
Total
Derivative Financial Instruments
December 31, 2021
Amortized
Cost
Fair
Value
$
$
— $
6,996
6,996 $
—
7,286
7,286
We invest in derivatives that are not designated as hedging instruments and which consisted of call and put options. When
we sell call and put options, the premium received is reported as Other current liabilities on our Consolidated Balance Sheets.
When we purchase put or call options, the premium paid is reported as Marketable securities on our Consolidated Balance
Sheets. The carrying value of these options are adjusted to the fair value at the end of each reporting period until the options
expire. Gains and losses recognized from the periodic adjustments to fair value are recognized as Interest and other income, on
our Consolidated Statements of Income and Comprehensive Income. At December 31, 2021, we had $6.3 million derivative
instruments which consisted of call and put options sold at their fair value as of the balance sheet date. These derivative
instruments are reported as Other current liabilities on our Consolidated Balance Sheets.
Liabilities
Derivative instruments
Cost
Unrealized
Gains
Fair Value
$
$
6,370
6,370
$
$
(103) $
(103) $
6,267
6,267
A summary of realized and unrealized gains and losses from our equity securities and derivative instruments are as follows
(in thousands):
Net unrealized losses recognized on equity investments
Net realized gains recognized on equity investments
Net realized losses recognized on derivative instruments
Net unrealized gains recognized on derivative instruments
Total net gains (losses) recognized in interest and other income
Years Ended December 31,
2021
2020
$
$
(1,669) $
2,148
(1,467)
103
(885) $
—
—
—
—
—
Fair Value Measurements
Our financial instruments measured at fair value on a recurring basis consisted of money market funds, mutual funds,
equity securities, corporate debt securities and derivatives. Equity securities are classified within Level 1 of the fair value
hierarchy as they are valued based on quoted market price in an active market. Corporate debt securities and derivative
instruments are valued based on quoted prices in markets that are less active, broker or dealer quotations, or alternative pricing
sources with reasonable levels of price transparency are generally classified within Level 2 of the fair value hierarchy. We had
no Level 2 financial instruments at December 31, 2020.
64
Financial instruments valued based on unobservable inputs which reflect the reporting entity’s own assumptions or data
that market participants would use in valuing an instrument are generally classified within Level 3 of the fair value hierarchy.
We did not hold Level 3 financial instruments as of December 31, 2021 and 2020.
Financial instruments measured at fair value on a recurring basis as of December 31, 2021 and 2020 are classified based on
the valuation technique in the table below (in thousands):
December 31, 2021
Fair Value Measurements Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
49,662
36,769
—
86,431 $
—
7,286
7,286 $
—
—
— $
Total
49,662
36,769
7,286
93,717
— $
— $
6,267 $
6,267 $
— $
— $
6,267
6,267
Assets:
Mutual funds
Equity securities
Corporate bonds
Total assets at fair value
Liabilities
Derivative instruments
Total liabilities at fair value
$
$
$
December 31, 2020
Fair Value Measurements Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
45,614 $
45,614 $
— $
— $
— $
— $
45,614
45,614
Assets:
Money market funds
Total assets at fair value
4. BALANCE SHEETS DETAILS
Cash and Cash Equivalents
Our cash and cash equivalent balances were as follows (in thousands):
Cash
Money market funds
Cash and cash equivalents
December 31,
2021
2020
$
$
51,490 $
—
51,490 $
13,908
45,614
59,522
65
Accounts and Other Receivables
Accounts and other receivables were as follows (in thousands):
Trade accounts receivables
Other receivables
Accounts and other receivables
Allowance for credit losses as of December 31, 2021 and 2020 were not material.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets were as follows (in thousands):
Prepaid expenses
Contract assets - current
Other current assets
Other Assets, Net
Other assets, net are as follows (in thousands):
Contract assets - long-term
Lease right-of-use assets
Deferred tax assets
Marketable debt securities -non-current
Other assets
Total other assets, net
Other Current Liabilities
Other current liabilities are as follows (in thousands):
Derivative instruments
Lease liabilities - current
Other current liabilities
Total other current liabilities
66
December 31,
2021
2020
1,235 $
735
1,970 $
1,618
600
2,218
December 31,
2021
2020
798 $
12,448
186
13,432 $
816
11,623
171
12,610
$
$
$
$
December 31,
2021
2020
$
1,746 $
912
2,115
7,286
36
$
12,095 $
4,596
1,607
2,659
—
138
9,000
December 31,
2021
2020
$
$
6,267 $
1,098
3,882
11,247 $
—
1,382
1,075
2,457
5. CONTINGENCIES
From time to time, we receive claims from third parties asserting that our technologies, or those of our licensees, infringe
on the other parties’ IP rights. Management believes that these claims are without merit. Additionally, periodically, we are
involved in routine legal matters and contractual disputes incidental to our normal operations. In management’s opinion, unless
we disclosed otherwise, the resolution of such matters will not have a material adverse effect on our consolidated financial
condition, results of operations, or liquidity.
In the normal course of business, we provide indemnification of varying scope to customers, most commonly to licensees
in connection with licensing arrangements that include our IP, although these provisions can cover additional matters.
Historically, costs related to these guarantees have not been significant, and we are unable to estimate the maximum potential
impact of these guarantees on its future results of operations.
Samsung Electronics Co. v. Immersion Corporation and Immersion Software Ireland Limited
On April 28, 2017, Immersion and Immersion Software Ireland Limited (collectively referred to as “Immersion” in this
section) received a letter from Samsung Electronics Co. (“Samsung”) requesting that we reimburse Samsung with respect to
withholding tax and penalties imposed on Samsung by the Korean tax authorities following an investigation where the tax
authority determined that Samsung failed to withhold taxes on Samsung’s royalty payments to Immersion Software Ireland
from 2012 to 2016. On July 12, 2017, on behalf of Samsung, Immersion filed an appeal with the Korea Tax Tribunal regarding
their findings with respect to the withholding taxes and penalties. On October 18, 2018, the Korea Tax Tribunal held a hearing
and on November 19, 2018, the Korea Tax Tribunal issued its ruling in which it decided not to accept our arguments with
respect to the Korean tax authorities’ assessment of withholding tax and penalties imposed on Samsung. On behalf of Samsung,
we filed an appeal with the Korea Administrative Court on February 15, 2019. On July 16, 2020, the Korea Administrative
Court issued its ruling in which it ruled that the withholding taxes and penalties which were imposed by the Korean tax
authorities on Samsung should be cancelled with some litigation costs to be borne by the Korean tax authorities.
On August 1, 2020, the Korean tax authorities filed an appeal with the Korea High Court. The first hearing in the Korea
High Court occurred on November 11, 2020. A second hearing occurred on January 13, 2021. A third hearing occurred on
March 21, 2021. The Korea High Court had indicated that a final decision was originally expected on May 28, 2021, but
instead, decided to hold a fourth hearing on July 9, 2021. On October 1, 2021, the Korea High Court issued its ruling in which it
ruled that withholding taxes and penalties totaling approximately KRW 6,186,218,586 (approximately $5.2 million) in national-
level withholding tax and local withholding taxes imposed by the Korean tax authorities on Samsung for royalties paid to
Immersion during the period of 2012 – 2014 be cancelled on the basis that the Korea tax authorities wrongfully engaged in a
duplicative audit with respect to such time period. The Korea High Court also ruled that approximately KRW1,655,105,584
(approximately $1.4 million) of national-level withholding tax and local withholding taxes imposed by the Korean tax
authorities on Samsung for royalties paid to Immersion during 2015 and 2016 be upheld in part on the basis that Immersion
Software Ireland Limited did not have sufficient economic substance to be considered the beneficial owner of the royalties paid
by Samsung to Immersion Software Ireland Limited. On or about October 22, 2021, the Korean tax authorities filed an appeal
with the Korea Supreme Court with respect to certain portions of the Korea High Court decision and we filed an appeal with the
Korea Supreme Court with respect to certain portions of the Korea High Court decision.
On December 1, 2021, the Korean tax authorities submitted its brief to the Korea Supreme Court challenging the
cancellation by the Korea High Court of a portion of the withholding tax imposed by the Korean tax authorities. On December
3, 2021, we submitted our own brief to the Korea Supreme Court providing arguments in support of our position that
Immersion Software Ireland Limited has sufficient economic substance to be considered the beneficial owner of the royalties
paid by Samsung to Immersion Software Ireland Limited. Such brief also provided arguments challenging the calculation of
the imposed withholding tax upheld by the Korea High Court. On December 2021, the Korean tax authorities filed a rebuttal
brief relating to our brief filed on December 3, 2021. On December 29, 2021, we filed our rebuttal brief relating to the Korean
tax authorities’ brief filed on December 1, 2021. On February 24, 2022, the Korea Supreme Court issued a decision affirming
the rulings of the Korea High Court. We believe that any impairment in the Long-term deposits associated with the rulings of
the Korea High Court is appropriately reflected in the Consolidated Balance Sheets.
On September 29, 2017, Samsung filed an arbitration demand with the International Chamber of Commerce against us
demanding that we reimburse Samsung for the imposed tax and penalties that Samsung paid to the Korean tax authorities.
Samsung is requesting that we pay Samsung the amount of KRW 7,841,324,165 (approximately $6.9 million) plus interest from
and after May 2, 2017, plus the cost of the arbitration including legal fees. On March 27, 2019, we received the final award.
The award ordered Immersion to pay Samsung KRW 7,841,324,165 (approximately $6.9 million as of March 31, 2019) which
67
we paid on April 22, 2019 and recorded in Long-term deposits on our Condensed Consolidated Balance Sheets. The award
also denied Samsung’s claim for interest from and after May 2, 2017 and ordered Immersion to pay Samsung’s cost of the
arbitration in the amount of approximately $871,454, which was paid in 2019.
We expect to be reimbursed by Samsung for the amount that was cancelled by the Korea High Court, as affirmed by the
Korea Supreme Court.
LGE Korean Withholding Tax Matter
On October 16, 2017, we received a letter from LG Electronics Inc. (“LGE”) requesting that we reimburse LGE with
respect to withholding tax imposed on LGE by the Korean tax authorities following an investigation where the tax authority
determined that LGE failed to withhold on LGE’s royalty payments to Immersion Software Ireland from 2012 to 2014.
Pursuant to an agreement reached with LGE, on April 8, 2020, we provided a provisional deposit to LGE in the amount of
KRW 5,916,845,454 (approximately $5.0 million) representing the amount of such withholding tax that was imposed on LGE,
which provisional deposit would be returned to us to the extent we ultimately prevail in the appeal in the Korea courts. In the
second quarter of 2020, we recorded this deposit in Long-term deposits on our Condensed Consolidated Balance Sheets. In the
event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Long-term deposits would be
recorded as additional income tax expense on our Condensed Consolidated Statement of Income and Comprehensive Loss, in
the period in which we do not ultimately prevail.
On November 3, 2017, on behalf of LGE, we filed an appeal with the Korea Tax Tribunal regarding their findings with
respect to the withholding taxes. The Korea Tax Tribunal hearing took place on March 5, 2019. On March 19, 2019, the Korea
Tax Tribunal issued its ruling in which it decided not to accept our arguments with respect to the Korean tax authorities’
assessment of withholding tax and penalties imposed on LGE. On behalf of LGE, we filed an appeal with the Korea
Administrative Court on June 10, 2019. The first hearing occurred on October 15, 2019. A second hearing occurred on
December 19, 2019. A third hearing occurred on February 13, 2020. A fourth hearing occurred on June 9, 2020. A fifth
hearing occurred on July 16, 2020. We anticipated a decision to be rendered on or about October 8, 2020, but the Korea
Administrative Court scheduled and held a sixth hearing for November 12, 2020. A seventh hearing occurred on January 14,
2021. An eighth hearing occurred on April 8, 2021. A ninth hearing occurred on June 24, 2021. A tenth hearing occurred on
September 13, 2021. An eleventh hearing occurred on November 15, 2021. A twelfth hearing occurred on December 23, 2021.
The Court had indicated that it expected to render a decision on this matter by the end of February 2022. However, due to a
reshuffling of judges, another hearing has been scheduled for April 14, 2022, at which time we believe we will have a better
indication as to when the Court will render a decision on this matter.
Based on the developments in these cases, we regularly reassess the likelihood that we will prevail in the claims from the
Korean tax authorities with respect to the LGE case. To the extent that we determine that it is more likely than not that we will
prevail against the claims from the Korean tax authorities, then no additional tax expense is provided for in our Consolidated
Statements of Income and Comprehensive Income. In the event that we determine that it is more likely than not that we will not
prevail against the claims from the Korean tax authorities, or a portion thereof, then we would estimate the anticipated
additional tax expense associated with that outcome and record it as additional income tax expense in our Consolidated
Statements of Income and Comprehensive Income in the period of the new determination. If the additional income tax expense
was related to the periods assessed by Korean tax authorities and for which we recorded a Long-term deposits on our
Consolidated Balance Sheets, then the additional income tax expense would be recorded as an impairment to the Long-term
deposit. If the additional income tax expense was not related to the periods assessed by Korean tax authorities and for a which
we recorded a Long-term deposits on our Consolidated Balance Sheets, then the additional income tax expense would be
accrued as an Other current liabilities.
In the event that we do not ultimately prevail in our appeal in the Korean courts with respect to this case, the applicable
deposits included in Long-term deposits would be recorded as additional income tax expense on our Consolidated Statements of
Income and Comprehensive Income, in the period in which we do not ultimately prevail. See Note 8. Income Taxes of the Notes
to Consolidated Financial Statements for more details.
Immersion Software Ireland Limited v. Marquardt GMBH
On August 3, 2021, we filed an arbitration demand with the American Arbitration Association (the “AAA”) against
Marquardt GmbH (“Marquardt”), one of our licensees in the automotive market. The arbitration demand arises out of that
certain Amended and Restated Patent License Agreement (the “Marquardt License”), effective as of January 1, 2018, between
68
us as licensor and Marquardt, as licensee. Pursuant to the arbitration demand, we are demanding that Marquardt cure its breach
of the Marquardt License and pay all royalties currently owed under the Marquardt License. The last royalty report we have
received from Marquardt was for the third quarter of calendar year 2020 in which Marquardt reported approximately
$0.5 million in royalties but did not pay such royalties. Further, since that date, we have not received any other royalty reports
or royalty payments from Marquardt. The term of the Marquardt License expires by its terms on December 31, 2023. As a
result of Marquardt’s breach of the Marquardt License, per unit royalties relating to past royalty periods, and applicable interest
fees, are currently past due.
Pursuant to the terms of the Marquardt License, we requested arbitration by a single arbitrator in Madison County, New
York. On August 9, 2021, the AAA confirmed receipt of our arbitration demand dated August 3, 2021. On August 13, 2021,
the AAA conducted an administrative conference call to discuss communications, mediation, tribunal appointment, place of
arbitration, and other administrative topics. On September 15, 2021, Marquardt filed an answer to our arbitration demand with
the AAA, in which Marquardt provided general denials of our claims and asserted a counterclaim for approximately $138,000
in royalties previously paid to us under the Marquardt License. On September 30, 2021, we filed an answer to Marquardt’s
counterclaim in which we denied the allegations set forth in Marquardt’s counterclaim. An arbitrator has been chosen to
arbitrate this matter. We anticipate that the arbitrator will conduct the arbitration proceedings in New York or via a remote
platform, with the consent of the parties. A preliminary hearing occurred on December 6, 2021, during which the parties agreed
to explore mediation and the arbitrator set forth a schedule relating to the arbitration. A mediation session has been scheduled
for the period of March 14-16, 2022.
6. STOCK-BASED COMPENSATION
Stock Options and Awards
Our equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for
employees, consultants, officers, and directors and to align stockholder and employee interests. We may grant time-based
options, market condition-based options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units
(“RSUs”), performance shares, market condition-based performance restricted stock units (“PSUs”), and other stock-based
equity awards to employees, officers, directors, and consultants.
We granted equity awards under the 2011 Equity Incentive Plan (the "2011 Plan") from July 2011 through November
2020. The 2011 Plan expired on April 5, 2021, and the remaining 3,708,238 authorized shares were cancelled on the 2011 Plan
expiration date. On January 18, 2022, our stockholders approved the 2021 Equity Incentive Plan (the “2021” Plan), which
provides for a total number of shares reserved and available for grant and issuance equal to 3,525,119 shares plus up to an
additional 855,351 shares that are subject to stock options or other awards granted under the 2011 Plan.
Under our equity incentive plans, stock options may be granted at prices not less than the fair market value on the date of
grant for stock options. Stock options generally vest over four years and expire seven years from the grant date. Market
condition-based stock awards are subject to a market condition whereby the closing price of our common stock must exceed a
certain level for a number of trading days within a specified time frame or the awards will be canceled before expiration. RSAs
generally vests over one year. RSUs generally vest over three years. Awards granted other than a stock option or a stock
appreciation right shall reduce the common stock shares available for grant by 1.75 shares for every share issued.
69
A summary of our equity incentive program is as follows (in thousands):
Common stock shares available for grant
Stock options outstanding
RSAs outstanding
RSUs outstanding
PSUs outstanding
Time-Based Stock Options
December 31,
2021
—
242
—
224
67
The following summarizes activities for the time-based stock options for the year ended December 31, 2021:
Number of
Shares
Underlying
Stock Options
(in thousands)
Weighted
Average
Exercise Price
Per Share
Weighted
Average
Remaining
Contractual
Life
(Years)
Outstanding at December 31, 2020
Granted
Exercised
Canceled or expired
Outstanding as of December 31, 2021
Vested and expected to vest at December 31, 2021
Exercisable at December 31, 2021
828 $
—
(326)
(260)
242 $
222 $
132 $
8.16
—
8.79
7.49
8.04
8.08
8.41
Aggregate
Intrinsic Value
(in thousands)
2,628
4.36 $
4.44 $
4.40 $
4.11 $
—
—
—
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the
exercise price of our common stock for the options that were in-the-money.
We did not grant stock options during 2021. For the year ended December 31, 2020, the weighted average grant date fair
value was $2.21. For the years ended December 31, 2020, the aggregate intrinsic value of stock options exercised was
$0.1 million.
70
Restricted Stock Units
The following summarizes RSUs activities for the year ended December 31, 2021:
Outstanding at December 31, 2020
Granted
Released
Forfeited
Outstanding at December 31, 2021
Number of
Restricted
Stock Units
(in thousands)
Weighted
Average Grant
Date Fair Value
Per Share
802 $
—
(325)
(253)
224 $
6.98
—
7.48
6.66
6.66
Weighted
Average
Remaining
Contractual
Life
(Years)
Aggregate
Intrinsic Value
(in thousands)
1.00 $
9,057
0.56 $
1,280
The aggregate intrinsic value is calculated as the market value as of the end of the reporting period.
Restricted Stock Awards
The following summarizes RSA activities for the year ended December 31, 2021:
Outstanding at December 31, 2020
Granted
Released
Forfeited
Outstanding at December 31, 2021
Number of
Restricted
Stock Awards
(in thousands)
Weighted
Average Grant
Date Fair Value
Per Share
130 $
—
(130)
—
— $
6.53
—
6.53
—
—
Weighted
Average
Remaining
Recognition
Period
(Years)
0.45
0.00
Market Condition-Based Restricted Stock Units
In the fourth quarter of 2020, we granted 250,000 shares of PSUs to our executives. Each PSU represents the right to one
share of our common stock with vesting subject to: (a) the achievement of specified levels of the volume weighted average
closing prices of our common stock during any one hundred (100) day-period between November 10, 2020 and November 10,
2025, subject to certification by the Compensation Committee (“Performance Milestones”); and (b) continued employment with
us through the later of each achievement date or service vesting date, which occurs over a four (4) year-period commencing on
71
November 10, 2020. The Performance Milestones of the PSUs were fully achieved and certified by the Compensation
Committee. In the fourth quarter of 2021, 22,500 shares of the outstanding PSUs, were vested and released.
The following summarizes PSU activities for the year ended December 31, 2021 (in thousands except for weighted average
grant date fair value and weighted average remaining recognition period):
Number of
Market
Condition-
Based
Restricted
Stock Units
(in thousands)
Weighted
Average Grant
Date Fair
Value Per
Share
Weighted
Average
Remaining
Recognition
Period
(Years)
250 $
(23) $
(160) $
67 $
6.20
6.20
6.20
6.20
2.08
1.49
Outstanding at December 31, 2020
Released
Forfeited
Outstanding at December 31, 2021
Employee Stock Purchase Plan
Under the 1999 Employee Stock Purchase Plan (“ESPP”), eligible employees may purchase common stock through payroll
deductions at a purchase price of 85% of the lower of the fair market value of our common stock at the beginning of the
offering period or the purchase date. Participants may not purchase more than 2,000 shares in a six-month offering period or
purchase stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period. A
total of 1.0 million shares of common stock has been reserved for issuance under the ESPP. During the year ended December
31, 2021, 25,033 shares were purchased under the ESPP with average purchase price of $6.00. During the year ended December
31, 2020, 22,556 shares were purchased under the ESPP with average purchase price of $5.96. As of December 31, 2021,
205,848 shares were available for future purchase under the ESPP.
72
Stock-based Compensation Expense
Valuation and amortization methods
Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over
the requisite service period. Estimated forfeitures are based on historical experience at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation related to all of
our stock-based awards and ESPP for the years ended December 31, 2021 and 2020 is as follows (in thousands):
Stock options
RSUs, RSAs and PSUs
ESPP
Total
Sales and marketing
Research and development
General and administrative
Total
For the Years Ended
December 31,
2021
2020
386 $
1,894
58
2,338 $
745 $
742
851
2,338 $
1,062
3,638
56
4,756
846
870
3,040
4,756
$
$
$
$
We use the Black-Scholes-Merton option pricing model to determine the fair value of our time-based 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.
The determination of the fair value of share-based awards on the date of grant using an option pricing model is affected by
our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include actual
and projected employee stock option exercise behaviors that impact the expected term, our expected stock price volatility over
the term of the awards, risk-free interest rate, and expected dividend.
We use the Monte Carlo Simulation model to value the stock options and restricted stock units 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 our
future stock prices.
Expected term — We estimate the expected term of options granted by calculating the average term from our historical
stock option exercise experience. The expected term of ESPP shares is the length of the offering period.
Expected volatility — We estimate the volatility of our common stock taking into consideration our historical stock price
movement and our expected future stock price trends based on known or anticipated events.
Risk-free interest rate — We base the risk-free interest rate that is used 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 — We do not anticipate paying any cash dividends in the foreseeable future and therefore use an
expected dividend yield of zero in the option-pricing model.
Forfeitures — We are required to estimate future forfeitures at the time of grant and revise those estimates in subsequent
periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option and RSU
forfeitures and record stock-based compensation expense only for those awards that are expected to vest.
73
The assumptions used to value options granted during 2020 under our equity incentive program are as follows:
Time-based stock options:
Expected life (in years)
Volatility
Interest rate
Dividend yield
Market condition based restricted stock units:
Expected life (in years)
Volatility
Interest rate
Dividend yield
For the Year
Ended
December 31,
2020
4.2
52%
1.0%
—
For the Year
Ended
December 31,
2020
1.2
52%
1.0%
—
We did not grant stock options or market condition based restricted stock units during the year ended December 31, 2021.
As of December 31, 2021, there was $2.5 million of unrecognized compensation cost adjusted for estimated forfeitures
related to non-vested stock options, RSUs, RSAs and PSUs granted to our employees and directors. This unrecognized
compensation cost will be recognized over an estimated weighted-average period of approximately 1.4 years. Total
unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.
7. STOCKHOLDERS’ EQUITY
Stock Offering
On February 3, 2021, we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission
which provided us with the flexibility to raise up to $250 million of capital. We intend to use the net proceeds from the sale of
the securities offered by this prospectus for working capital and other general corporate purposes, and we may use a portion of
any net proceeds for investment in complementary businesses or alternative currencies.
On February 11, 2021, we entered into an equity distribution agreement (the "February 2021 Distribution Agreement")
with Craig-Hallum Capital Group LLC (“Craig-Hallum”), as sales agent to issue and sell shares of our common stock having an
aggregated offering price of up to $50 million. Under the terms of the February 2021 Distribution Agreement, we were
obligated to pay a 2.25% commission on the gross sales proceeds from common stock sold and customary indemnification
rights and the reimbursement of legal fees and disbursements.
During the first quarter of 2021, we sold 3.3 million shares of our common stock pursuant to the February 2021
Distribution Agreement and we received net proceeds of $35.9 million from the offering net of $1.2 million of commissions
and other offering costs. We terminated the February 2021 Distribution Agreement on March 5, 2021.
On July 6, 2021, we entered into an equity distribution agreement (the "July 2021 Distribution Agreement") with Craig-
Hallum Capital Group LLC (“Craig-Hallum”), as sales agent to issue and sell shares of our common stock having an aggregated
offering price of up to $60 million. Under the July 2021 Distribution Agreement, we will set the parameters for the sale of
shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on
the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made.
Subject to the terms and conditions of the July 2021 Distribution Agreement, the investment banker may sell the shares by
methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933,
as amended, including sales made through the Nasdaq Global Market or on any other existing trading market for the common
74
stock. We are obligated to pay 2.25% commission on the gross sales proceeds from common stock sold and the reimbursement
of legal fees and disbursements. The July 2021 Distribution Agreement may be terminated by either party upon prior written
notice to the other party, or at any time under certain circumstances, including but not limited to the occurrence of a material
adverse change in Immersion. We are not obligated to sell any minimum number of shares under the July 2021 Distribution
Agreement.
During 2021, we sold 3.2 million shares of our common stock pursuant to the July 2021 Distribution Agreement and we
received net proceeds of approximately $23.3 million from the offering after deducting $0.8 million commissions and other
offering costs.
Stock Repurchase Program
On November 1, 2007, our Board of Directors (the “Board”) authorized the repurchase of up to $50 million of our common
stock (the “Stock Repurchase Program”). In addition, on October 22, 2014, the Board authorized another $30 million under the
Stock Repurchase Program. We may repurchase our common stock for cash in the open market in accordance with applicable
securities laws. The timing and amount of any stock repurchase will depend on share price, corporate and regulatory
requirements, economic and market conditions, and other factors. The stock repurchase authorization has no expiration date,
does not require us to repurchase a specific number of shares, and may be modified, suspended, or discontinued at any time.
In 2020, we repurchased approximately 4.9 million shares of our common stock for $30.6 million at an average cost of
$6.21 per share. As of December 31, 2020, we have no amount available for repurchase under the Stock Repurchase Program.
Section 382 Tax Benefits Preservation Plan
On November 17, 2021, our Board approved and adopted a Section 382 Tax Benefits Preservation Plan, dated as of
November 17, 2021, by and between the Company and Computershare Trust Company, N.A., as rights agent (the “Rights
Agent”) (the “Section 382 Tax Benefits Preservation Plan”). Pursuant to the Section 382 Tax Benefits Preservation Plan, our
Board declared a dividend of one preferred share purchase right (each, a “Right”) for each outstanding share of common stock,
par value $0.001, of the Company (the “Common Stock”). The dividend is distributed on December 1, 2021 to stockholders of
record as of the close of business on December 1, 2021.
Our Board adopted the Section 382 Tax Benefits Preservation Plan to diminish the risk that we could experience an
“ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), which could
substantially limit or permanently eliminate our ability to utilize our net operating loss carryovers (collectively, the “NOLs”) to
reduce potential future income tax obligations. Under the Code and the regulations promulgated thereunder by the U.S.
Treasury Department, these NOLs may be “carried forward” in certain circumstances to offset any current and future taxable
income and thus reduce federal income tax liability, subject to certain requirements and restrictions. While the amount and
timing of our future taxable income cannot be predicted with any certainty and, accordingly, we cannot predict the amount of
these NOLs that will ultimately be used to reduce its income tax liability, to the extent that the NOLs do not otherwise become
limited, these NOLs could be a potentially valuable asset to us. For more information, please refer to the complete text of the
Section 382 Tax Benefits Preservation Plan, a copy of which is incorporated by reference into this Form 10-K as Exhibit 4.2.
75
8. INCOME TAXES
Income tax benefit from (provision for) the years ended December 31, 2021 and 2020 consisted of the following (in
thousands):
Income before benefit from (provision for) income taxes
Benefit from (provision for) income taxes
Effective tax rate
For the Year Ended
December 31,
2021
2020
$
$
17,290
(4,806)
27.8 %
3,159
2,242
(71.0) %
Provision for income taxes for the years ended December 31, 2021 primarily consisted of estimated U.S. taxes, adjustments
to uncertain tax positions withholding tax reserve, foreign taxes and foreign withholding taxes. Benefit for income taxes for the
year ended December 31, 2020 resulted primarily from estimated foreign taxes, foreign withholding tax expense and the release
of a $2.2 million valuation allowance from one of our foreign entities.
The components of our income before benefit from (provision for) income taxes were as follows (in thousands):
Domestic
Foreign
Total
For the Year Ended
December 31,
2021
2020
$
$
5,893 $
11,397
17,290 $
(4,602)
7,761
3,159
The benefit from (provision for) income taxes consisted of the following (in thousands):
Current:
U.S, federal
States and local
Foreign
Total current
Deferred:
U.S, federal
States and local
Foreign
Total deferred
Total benefit from (provision for) income taxes
For the Year Ended
December 31,
2021
2020
3,285 $
2
934
4,221 $
—
—
585
585
4,806 $
—
(3)
(114)
(117)
—
—
2,359
2,359
2,242
$
$
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.
76
Significant components of the net deferred tax assets and liabilities consisted of (in thousands):
Deferred tax assets:
Net operating loss carryforwards
State income taxes
Deferred revenue
Research and development and other credits
Reserve and accruals recognized in different periods
Capitalized research and development expenses
Depreciation and amortization
Lease liability
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Right of use lease assets
Foreign credits
Other deferred tax liabilities
Total deferred tax liabilities
Net deferred taxes
December 31,
2021
2020
7,638 $
1
4,502
10,493
395
3,333
2,492
339
29,193
(27,239)
1,954
(185)
—
—
(185)
1,769 $
9,239
1
5,426
8,638
1,027
3,318
3,134
351
31,134
(28,475)
2,659
(344)
(14)
—
(358)
2,301
$
$
We account for deferred taxes under ASC 740 which requires a reduction of the carrying amounts of deferred tax assets by
a valuation allowance if, based on available evidence, it is more likely than not that such assets will not be realized.
Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the ASC 740
more-likely-than-not realization ("MLTN") threshold criterion. This assessment considers matters such as future reversals of
existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent
operations. The evaluation of the recoverability of the deferred tax assets requires that we weigh all positive and negative
evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be
realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. As of
December 31, 2021, based on our assessment of the realizability of our deferred tax assets, we continued to maintain a full
valuation allowance against all of our federal and state net deferred tax assets in the U.S and Canada and certain deferred taxes.
The valuation allowance for Ireland subsidiary was released in 2020 based on the profitability analysis of the cumulative 12-
quarter actual and the projection for the next 3-year.
As of December 31, 2021, the net operating loss carryforwards for federal and state income tax purposes were
approximately $14.0 million and $53.0 million, respectively. The state net operating losses begin to expire in 2029. The federal
net operating losses for tax years after 2017 can be carried forward indefinitely. We have no net operating loss carryforward
from foreign jurisdictions. As of December 31, 2021, we had federal and state tax credit carryforwards of approximately $4.5
million and $2.5 million, respectively, available to offset future tax liabilities. The federal credit carryforwards will expire
between 2022 and 2039 and the California tax credits will carryforward indefinitely. In addition, as of December 31, 2021, we
have Canadian research and development credit carryforwards of $1.9 million, which will expire at various dates through 2040.
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 our 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,
2021, we conducted an IRC Section 382 analysis with respect to our net operating loss and credit carryforwards and determined
there was no limitation. There can be no assurance that future issuances of our securities will not trigger limitations under IRC
Section 382 which could limit utilization of these tax attributes.
77
The reconciliation between the 21.0% U.S. effective federal statutory rate and our effective tax rates are as follows:
Federal statutory rate
Foreign withholding
Stock-based compensation expense
Foreign rate differential
Prior year true-up items
Tax reserves
Other
FTC conversion true up
State taxes, net of federal benefit
Global intangible low-taxed income
Nondeductible officers compensation
Irish corporation restructure
Valuation allowance
Effective tax rate
For the Year Ended
December 31,
2021
2020
21.0 %
0.4 %
0.6 %
(7.9) %
0.1 %
(2.3) %
2.7 %
(11.1) %
— %
9.7 %
— %
— %
14.6 %
27.8 %
21.0 %
2.0 %
12.9 %
(33.0) %
1.1 %
(4.0) %
0.1 %
(10.3) %
0.1 %
21.0 %
3.5 %
(169.2) %
83.8 %
(71.0) %
Undistributed earnings of our foreign subsidiaries are considered to be indefinitely reinvested and accordingly, no
provision for applicable income taxes has been provided thereon. Upon distribution of those earnings, we are subject to
withholding taxes payable to various foreign countries. As of December 31, 2021, any foreign withholding taxes on the
undistributed earnings of our foreign subsidiaries were immaterial.
We maintain 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 (in thousands):
Balance at beginning of year
Gross increases for tax positions of prior years
Gross increases for tax positions of current year
Lapse of statute of limitations
Balance at end of year
For the Year Ended
December 31,
2021
2020
$
$
4,525 $
1
3,296
(253)
7,569 $
4,826
—
10
(311)
4,525
The unrecognized tax benefits relate primarily to federal and state research and development credits, intercompany profit
on the transfer of certain IP rights to one of our foreign subsidiaries as part of our tax reorganization completed in 2015 and
withholding tax reserve. Based on our assessment of the developments in the Samsung case (South Korea withholding taxes) in
October of 2021, we provided for an additional income tax expense of $3.3 million in the fourth quarter of 2021. Of this
amount, $2.2 million was recorded as an impairment to the Long-term deposits and $1.1 million was accrued as an Other
current liability on our Consolidated Statements Balance Sheet at December 31, 2021. The $2.2 million impairment charge is
comprised of $1.4 million and $0.8 million for Samsung and LGE litigations, respectively.
We account for interest and penalties related to uncertain tax positions as a component of income tax expense. As of
December 31, 2021, we accrued $0.1 million interest or penalties related to uncertain tax positions. As of December 31, 2021,
the total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, was $0.
Because we have net operating loss and credit carryforwards, there are open statutes of limitations in which federal,
state and foreign taxing authorities may examine our tax returns for all years from 2002 through the current period.
78
9. NET INCOME PER SHARE
Basic net income per share is computed using the weighted average number of shares of common stock outstanding during
the period. Diluted net income per share is computed using the weighted average number of shares of common stock, adjusted
for any dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method, includes
stock options, stock awards and ESPP.
The following is a reconciliation of the denominators used in computing basic and diluted net income per share (in
thousands, except per share amounts):
For the Year Ended
December 31,
2021
2020
Denominator:
Weighted-average shares outstanding, basic
Shares related to outstanding options, unvested RSUs, RSAs, PSUs and ESPP
Weighted average shares outstanding, diluted
31,459
310
31,769
28,117
360
28,477
We include the underlying market condition stock awards in the calculation of diluted earnings per share if the performance
condition has been satisfied as of the end of the reporting period and exclude stock equity awards if the performance condition
has not been met.
For the years ended December 31, 2021 and 2020, we had 0.2 million and 1.2 million stock options outstanding,
respectively, that could potentially dilute basic earnings per share in the future, but these were excluded from the computation
of diluted net income per share because their effect would have been anti-dilutive.
10. LEASES
We lease our office space under lease arrangements with expiration dates on or before February 29, 2024. We recognize
lease expense on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on
the Consolidated Balance Sheets. We combine lease and non-lease components for new and reassessed leases. We apply
discount rates to operating leases using a portfolio approach.
Below is a summary of our ROU assets and lease liabilities as of December 31, 2021 and 2020, respectively (in thousands):
Balance Sheets Classification
2021
2020
December 31,
Assets
Right-of-use assets
Liabilities
Other assets
Operating lease liabilities - current
Other current liabilities
Operating lease liabilities - long-term
Other long-term liabilities
Total lease liabilities
$
$
912 $
1,607
1,098
550
1,648 $
1,382
1,677
3,059
79
The table below provides supplemental information related to operating leases during the years ended December 31, 2021
and 2020 (in thousands except for lease term):
Cash paid within operating cash flow
Weighted average lease terms (in years)
Weighted average discount rates
For the Year Ended
December 31,
2021
2020
$
1,491 $
1,431
1.40
N/A
2.25
3.50 %
On January 31, 2020, we entered into an agreement to lease approximately 5,000 square feet of office space in San
Francisco, California (“SF Facility”). This facility is used for administrative functions. The lease commenced in the first quarter
of 2020 and expires in 2022. In the first quarter of 2020, we recorded a lease liability of $0.6 million, which represents the
present value of the lease payments using an estimated incremental borrowing rate of 3.50%. We also recognized lease right-of-
use assets (“ROU”) of $0.6 million which represents our right to use an underlying asset for the lease term. Operating lease
ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the
lease term.
As a result of COVID-19, we implemented work-from-home policy in the first quarter of 2020. Our San Francisco office
has been closed since the first quarter of 2020 and we expect our San Francisco-based employees to continue to work-from-
home in the foreseeable future. We have been actively seeking a sublease tenant for the SF Facility without success since early
2020. In the fourth quarter of 2020, we recorded $0.3 million impairment charge to the SF Facility ROU asset. In the second
quarter of 2021, we recorded an additional $32,000 impairment charge to the SF Facility ROU asset.
On November 12, 2014, we entered into an amendment to the lease of approximately 42,000 square feet office space in San
Jose, California facilities (“SJ Facility”). The lease commenced in May 2015 and expires as of April 2023.
During 2019, we began to shift general and administrative, research and development and executive functions and
employees from the SJ Facility to our San Francisco, California and Montreal, Canada offices. In the fourth quarter of 2019, we
announced our decision to exit the SJ Facility by March 31, 2020. We accelerated the amortization of our SJ Facility leasehold
improvements over their remaining estimated life. The SJ Facility leasehold improvements were fully amortized by March 31,
2020. In the fourth quarter of 2019, we recorded a $0.9 million impairment charge to the SJ Facility ROU asset.
On March 12, 2020, we entered into a sublease agreement with Neato Robotics, Inc. (“Neato”) for the SJ Facility. This
sublease commenced in June 2020 and ends on April 30, 2023 which is the lease termination date of the original SJ Facility
lease. In accordance with provisions of ASC 842 Leases (“ASC 842”), we treated the sublease as a separate lease as we were
not relieved of the primary obligation under the original lease. We continue to account for the original SJ Facility, as a lessee, in
the same manner as prior to the commencement date of the sublease. We accounted for the sublease as a lessor of the lease. We
classified the sublease as an operating lease as it did not meet the criteria of a Sale-Type or Direct Financing lease.
At the commencement date of the sublease, we recognized initial direct costs of $0.3 million. These deferred costs will be
amortized over the term of the sublease payments. As of December 31, 2021, $0.1 million was recorded in Prepaid expenses
and other current assets and $0.1 million was recorded in Other assets, net on our Consolidated Balance Sheets.
We recognize operating lease expense and lease payments from the sublease, on a straight-line basis, in our Consolidated
Statements of Income and Comprehensive Income over the lease terms. During the years ended December 31, 2021 and 2020,
our net operating lease expenses are as follows (in thousands):
Operating lease cost
Sublease income
Total lease cost
80
For the Year Ended
December 31,
2021
2020
$
$
1,226 $
(1,030)
196 $
1,139
(585)
554
Minimum future lease payments obligations as of December 31, 2021 are as follows (in thousands):
For the Years Ending December 31,
2022
2023
2024
Total
$
$
Future lease payments from our sublease agreement as of December 31, 2021 are as follows (in thousands):
For the Years Ending December 31,
2022
2023
Total
$
$
1,220
460
25
1,705
1,077
351
1,428
On January 31, 2022, we entered into an agreement to lease for 1,390 square feet of office space in Aventura, Florida
(“Aventura Lease”). We plan to use this facility for administrative functions. This lease commenced in the first quarter of 2022
and expires in the first quarter of 2024. We expect to pay approximately $0.1 million in lease payments under the terms of the
Aventura Lease.
11. EMPLOYEE BENEFITS
We have 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. Employees’ contributions may be matched at our discretion. Prior to 2020, we
matched 50% of the employees’ contribution up to $4,000. In the first quarter of 2020, as one of the COVID-19 related cost
cutting initiatives, we suspended the 401 (k) match. In 2020, we made $48,000 in 401(k) contribution.
In 2020, in conjunction with the transition of certain research and development and administration functions from San Jose,
California to Montreal, Canada, we recorded a $0.5 million one-time charge for termination benefits for the employees
impacted by this transition. We paid all the termination benefits during 2020. As of December 31, 2020, we have no accrued
termination benefits.
12. SEGMENT REPORTING, GEOGRAPHIC INFORMATION, AND SIGNIFICANT CUSTOMERS
Segment Information
We develop, license, and support a wide range of software and IP that more fully engage users’ senses of touch when
operating digital devices. We focus on the following target application areas: mobile devices, wearables, consumer, mobile
entertainment and other content; console gaming; automotive; medical; and commercial. We manage these application areas in
one operating and reporting segment with only one set of management, development, and administrative personnel.
Our chief operating decision maker (“CODM”) is the Chief Executive Officer. The CODM approves budgets and allocates
resources to and assesses our business performance using information about our revenue and operating loss. There is only one
segment that is reported to management.
81
Revenue by Market Area
The following is a summary of revenues by market areas. Revenue as a percentage of total revenues by market are as
follows:
Mobile, Wearables, and Consumer
Gaming Devices
Automotive
Other
Total
Geographic Revenue
For the Year Ended
December 31,
2021
2020
60 %
21
19
—
100 %
69 %
15
15
1
100 %
Revenues are broken out geographically by the location of the customer. A summary of revenue by region as a percentage
of total revenues are as follows:
Asia
North America
Europe
Total
A summary of revenue by country as a percentage of total revenues are as follows:
Korea
Japan
United States of America
Germany
Other countries with less than 10% in a year
Total
For the Year Ended
December 31,
2021
2020
76 %
12
12
100 %
76 %
16
8
100 %
For the Year Ended
December 31,
2021
2020
38 %
29
12
10
11
100 %
49 %
18
16
6
11
100 %
82
Property and Equipment, net by Country
Property and equipment, net by geographic areas as a percentage of total property and equipment, net are as follows:
Canada
United States of America
Total
Significant Customers
December 31,
2021
2020
89 %
11 %
100 %
68 %
32 %
100 %
During the years ended December 31, 2021, two customer accounted for 34% and 12% of our total revenues, respectively.
In 2020, one customer accounted for 40% of our total revenues.
A summary of customers with 10% or greater of our outstanding accounts and other receivables are as follows:
Customer A
Customer B
Customer C
Customer D
Customer E
Customer F
Customer G
December 31,
2021
2020
44 %
20 %
19 %
10 %
*
*
*
33 %
*
*
*
39 %
15 %
10 %
* Represents less than 10% of our total accounts and other receivables.
13. SUBSEQUENT EVENTS
On February 14, 2022, we entered into a Common Stock Repurchase Agreement (the “Agreement”) with Invenomic
Capital Management LP. (“Invenomic”). Pursuant to the Agreement, we purchased 904,499 shares of our common stock from
Invenomic at $4.725 per share, or an aggregate purchase price of $4.3 million. The closing price of our common stock on
February 14, 2022 was $4.80 per share.
We adopted a Section 382 Tax Benefits Preservation Plan on November 17, 2021 to diminish the risk we could experience
an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended, which could substantially
limit or permanently eliminate our ability to utilize its net operating loss carryovers to reduce potential future income tax
obligations. Under this plan, a person who acquires, without the approval of our Board of Directors, beneficial ownership of
4.99% or more of the outstanding common stock could be subject to significant dilution. Following the repurchase, Invenomic’s
holdings dropped to below 4.99% of the outstanding common stock.
On February 23, 2022, our Board of Directors approved a stock repurchase program of up to $30 million of our common
stock for a period of up to twelve months. Any stock repurchases may be made through open market and privately negotiated
transactions, at such times and in such amounts as management deems appropriate, including pursuant to one or more Rule
10b5-1 trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. Additionally, the Board
authorized the use of any derivative or similar instrument to effect stock repurchase transactions, including without limitation,
accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap
transactions, collar transactions, naked put options, floor transactions or other similar transactions or any combination of the
foregoing transactions. The stock repurchase program was implemented as a method to return value to our stockholders. The
timing, pricing and sizes of any repurchases will depend on a number of factors, including the market price of our common
stock and general market and economic conditions. The stock repurchase program does not obligate us to repurchase any dollar
amount or number of shares, and the program may be suspended or discontinued at any time.
83
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, 2021, 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. 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, 2021. 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, 2021, our internal control over financial reporting is effective based on these criteria.
Changes in internal control over financial reporting
There were no changes to internal controls over financial reporting that occurred during the quarter ended December 31,
2021 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
84
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 directors and executive officers is incorporated by reference from the
sections entitled “Election of Directors”, “Corporate Governance”, “Ownership of Our Equity Securities”, and “Audit
Committee Report” in Immersion’s definitive Proxy Statement for its 2022 annual stockholders’ meeting.
Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by
Section 16(a) of the Exchange Act. To the extent disclosure for delinquent reports is being made, it can be found under the
caption “Delinquent Section 16(a) Reports” in Immersion’s definitive Proxy Statement for its 2022 annual stockholders’
meeting and is incorporated herein by reference.
We have adopted a code of ethics applicable to our employees including our principal executive, financial and accounting
officers, and it is available free of charge, on our website’s investor relations page. To view the code of ethics, go to
ir.immersion.com, click on “Download Library” and click on “Governance.” Future amendments or waivers relating to the
code of ethics will be disclosed on the webpage referenced in this paragraph within 4 business days following the date of such
amendment or waiver.
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 2022 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 2022 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 2022 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 2022 annual stockholders’
meeting.
85
PART IV
Item 15. Exhibits, Financial Statement Schedules
The following documents are filed as part of this Form:
1
Financial Statements
Report of Armanino LLP, Independent Registered Public Accounting Firm (PCAOB ID 32)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31,
2021 and 2020
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021 and 2020
Consolidated Statements of Cash Consolidated Statements of Cash Flows for the Years Ended
December 31, 2021 and 2020
Notes to Consolidated Financial Statements
2
Financial Statement Schedules
Page
48
51
52
53
54
56
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.
86
3
Exhibits:
The following exhibits are filed herewith:
Exhibit
Number
3.1
3.2
3.3
3.4
4.1
4.2
Exhibit Description
Amended and Restated Bylaws of Immersion
Corporation, as adopted on October 31, 2016
Amended and Restated Certificate of
Incorporation of Immersion Corporation
Certificate of Designation of the Powers,
Preferences and Rights of Series A Redeemable
Convertible Preferred Stock
Amended and Restated Certificate of
Designations of Series B Participating Preferred
Stock of Immersion Corporation
Description of Securities
Section 382 Tax Benefits Preservation Plan,
dated as of November 17, 2021, by and between
Immersion Corporation and Computershare
Trust Company, N.A., as Rights Agent.
Incorporated by Reference
File No.
Exhibit
Form
8-K
000-27969
8-K
000-27969
8-K
000-27969
3.1
3.1
3.1
Filed
Herewith
Filing Date
November 4,
2016
June 7,
2017
July 29,
2003
8-K
000-27969
3.1
November 17,
2021
8-K
000-27969
4.1
10.1
10.2
*
#
1999 Employee Stock Purchase Plan and form
of subscription agreement thereunder
License Agreement dated as of July 25, 2003 by
and between Microsoft Corporation and
Immersion Corporation
S-1/A
333-86361
10.21
S-3/A 333-108607
10.4
10.3
* Form of Indemnity Agreement
S-3/A 333-108607
10.11
10.4
* 2007 Equity Incentive Plan
8-K
000-27969
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
Immersion Corporation 2011 Equity Incentive
Plan, as amended April 24, 2019
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.
Form of Restricted Stock Agreement for
Immersion Corporation 2011 Equity Incentive
Plan.
Form of Award Agreement (Performance-
Based Restricted Stock Units) to the Immersion
Corporation 2011 Equity Incentive Plan
8-K
000-27969
8-K
000-27969
8-K
001-38334
99.1
99.4
99.5
10.1
S-8
333-233353
4.4
10-Q
000-27969
10.3
S-8
333-233353
4.6
10-K
001-38334
10.14
November 17,
2021
October 5,
1999
February 13,
2004
March 25,
2004
June 12,
2007
June 12,
2007
June 12,
2007
June 18,
2019
August 19,
2019
August 5,
2011
August 19,
2011
March 5,
2021
Immersion Corporation 2021 Equity Incentive
Plan
DEF
14A
001-38334
APPEN
DIX A
November 17,
2021
Form of Stock Option Award Agreement for
Immersion Corporation 2021 Equity Incentive
Plan.
Form of Award Agreement (Restricted Stock
Units) to the Immersion Corporation 2021
Equity Incentive Plan.
Form of Restricted Stock Agreement for
Immersion Corporation 2021 Equity Incentive
Plan.
87
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
*
*
*
*
*
*
*
*
*
*
*
X
X
X
X
X
X
10.16
*
Form of Award Agreement (Performance-
Based Restricted Stock Units) to the Immersion
Corporation 2021 Equity Incentive Plan
10.17
10.18
10.19
#
10.20
10.21
*
10.22
*
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
*
*
*
*
*
*
Office Lease between Carr NP Properties,
L.L.C., and Immersion Corporation dated
September 15, 2011.
First Amendment to Office Lease dated
November 12, 2014 by and between Immersion
Corporation and BSREP Rio Robles LLC
Settlement and License Agreement, dated as of
January 26, 2018, by and between Immersion
Corporation and Apple Inc.
Settlement and License Agreement, dated as of
May 12, 2019, by and between Immersion
Corporation and Samsung Electronics Co. Ltd
Offer Letter, dated as of April 29, 2019, by and
between Immersion Corporation and Michael
Okada
Retention and Ownership Change Event
Agreement, effective as of May 6, 2019, by and
between Immersion Corporation and Michael
Okada
Letter Agreement, dated March 5, 2020, by and
between Immersion Corporation, a Delaware
corporation, on one hand, and VIEX Capital
Advisors, LLC, VIEX Opportunities Fund, LP -
Series One, VIEX Opportunities Fund, LP -
Series Two, VIEX GP, LLC, VIEX Special
Opportunities Fund II, LP, VIEX GP, LLC,
VIEX Special Opportunities GP II, LLC and
Eric Singer
Sublease, dated March 12, 2020, by and
between Immersion Corporation and Neato
Robotics, Inc.
First Amendment to Sublease, dated May 1,
2020, by and between Immersion Corporation
and Neato Robotics, Inc.
Office Lease, dated as of February 23, 2020,
between 330 Townsend (SF) Owner, LLC and
Immersion Corporation
Lease Agreement, dated January 26, 2022, by
and between Immersion Corporation and COFE
CIX Aventura, LLC
Offer Letter, dated as of December 2, 2019, by
and between Immersion Corporation and Aaron
Akerman
Retention and Ownership Change Event
Agreement, effective as of December 11, 2019,
by and between Immersion Corporation and
Aaron Akerman
Summary of Compensation Information of
Francis Jose, Chief Executive Officer
Summary of Compensation Information of
Aaron Akerman, Chief Financial Officer
Summary of Compensation Information of
Francis Jose, General Counsel
Retention and Ownership Change Event
Agreement, effective May 22, 2021, by and
between Immersion Corporation and Francis
Jose
10-Q
000-27969
10.2
8-K
000-27969
10.1
10-Q/
A
01-38334
10.2
10-Q
001-38334
10.1
10-Q
01-38334
10.4
10-Q
01-38334
10.5
November 7,
2011
November 14,
2014
July 31,
2018
August 14,
2019
August 14,
2019
August 14,
2019
8-K
001-38334
10.1
March 9, 2020
10-Q
001-38334
10.3
May 8, 2020
10-Q
001-38334
10.4
May 8, 2020
10-Q
001-38334
10.1
May 8, 2020
10-K
001-38334
10.21
March 6, 2020
10-K
001-38334
10.22
March 6, 2020
10-Q
001-38334
10.3
10-Q
001-38334
10.2
10-Q
001-38334
10.3
10-Q
001-38334
10.2
November 3,
2021
November 3,
2021
August 16,
2021
August 16,
2021
88
8-K
001-38334
10.1
May 17, 2021
8-K
001-38334
1.1
February 11,
2021
8-K
001-38334
1.1
July 6, 2021
10.34
*
10.35
10.36
21.1
23.1
31.1
31.2
32.1
32.2
+
+
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
+
Separation Agreement, dated May 17, 2021, by
and between Mike Okada and the Company
Equity Distribution Agreement, dated as of
February 11, 2021, by and between Immersion
Corporation and Craig-Hallum Capital Group
LLC
Equity Distribution Agreement, dated as of July
6, 2021, by and between Immersion
Corporation and Craig-Hallum Capital Group
LLC
Subsidiaries of Immersion Corporation.
Consent of Armanino LLP, Independent
Registered Public Accounting Firm, with
respect to the fiscal year ended December 31,
2021.
Certification of Francis Jose, Chief Executive
Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Aaron Akerman, Chief
Financial Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Certification of Francis Jose, Chief Executive
Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of Aaron Akerman, Chief
Financial Officer, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
XBRL Report Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Calculation Linkbase
Document
XBRL Taxonomy Extension Definition
Linkbase Document
XBRL Taxonomy Label Linkbase Document
XBRL Presentation Linkbase Document
Cover Page Interactive Data File (formatted as
inline XBRL and contained in Exhibit 101)
X
X
X
X
X
X
X
X
X
X
X
X
X
Confidential treatment has been granted for portions of this exhibit by the SEC.
#
* 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.
89
Item 16. Form 10-K Summary
None.
90
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 25, 2022
IMMERSION CORPORATION
By
/S/ AARON AKERMAN
Aaron Akerman
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Jared Smith and Aaron Akerman, jointly and severally, his or her his 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/ FRANCIS JOSE
Francis Jose
/S/ AARON AKERMAN
Aaron Akerman
/S/ ERIC SINGER
Eric Singer
/S/WILLIAM C. MARTIN
William C. Martin
/S/ SUMIT AGARWAL
Sumit Agarwal
/S/ MARY L. DOTZ
Mary L. Dotz
/S/ FREDERICK WASCH
Frederick Wasch
Chief Executive Officer and General
Counsel
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
February 25, 2022
February 25, 2022
Executive Chairman of the Board and
Director
February 25, 2022
Chief Strategy Officer and Director
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
Director
Director
Director
91