IMMERSION CORP (IMMR)

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 to the Consolidated Financial Statements, which are included in this Form 10-K in Item 8 and the information set forth in Part I, “Item 1A. Risk Factors.” The following sections include a discussion of results for the fiscal year ended April 30, 2025, compared to the calendar year ended December 31, 2023 as well as discussion of the results for the four months ended April 30, 2024. The discussion contains forward-looking statements as well as estimates regarding market an industry data, which involve risks, uncertainties, and assumptions. See discussion over “Forward-Looking Statements” for additional information.

The Company has restated its previously-issued unaudited interim financial statements for the unaudited fiscal quarterly periods ended January 31, 2025, October 31, 2024, and calendar quarter ended June 30, 2024, contained in our Quarterly Reports on Form 10-Q. Detailed restatements of the Company’s condensed consolidated quarterly financial statements are provided in “Note 20. Restatement of Quarterly Financial Information (Unaudited)” of the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K.

RESULTS OF OPERATIONS

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Immersion

The following summarizes our results of operation for the periods ended (in thousands, except for percentages):

Revenues

Immersion’s revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements. 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.

Fixed fee license revenue increased by $57.1 million for the fiscal year ended April 30, 2025, compared to the calendar year ended December 31, 2023, primarily due to $53.8 million increase in Mobile license revenue representing one time perpetual license agreements entered into during the fiscal year ended April 30, 2025.

Fixed fee license revenue primarily consisted of $38.2 million of Gaming license revenue for the four months ended April 30, 2024.

Per‑unit royalty revenue decreased by $(16.9) million, or (59)%, for the fiscal year ended April 30, 2025, compared to the calendar year ended December 31, 2023, primarily due to a general decrease in the per unit royalty licensing. This decrease was across all markets served including $(7.9) million of mobility licensees, $(4.7) million of automotive licensees, $(2.9) million of gaming licensees, and $(1.1) million of commercial licensees.

Per‑unit royalty revenue primarily consisted of $3.1 million related to mobility licensees for the four months ended April 30, 2024.

Geographically, revenues have historically been concentrated in Asia, primarily in Japan and Korea. The geographic distribution of revenues for Asia, Europe, and North America for the fiscal year ended April 30, 2025, represented 87%, 8%, and 5%, respectively, of our total revenue as compared to 74%, 17%, and 9%, respectively, for the calendar year ended December 31, 2023.

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Selling and administrative expenses

The following presents the Selling and administrative expenses for the periods ended (in thousands, except for percentages):

Immersion’s selling and administrative expenses primarily consisted of employee compensation and benefits including stock-based compensation, legal and other professional fees, external legal costs for patents, office expense, travel, and facilities costs.

Selling and administrative expenses increased $9.8 million for the fiscal year ended April 30, 2025, as compared to the calendar year ended December 31, 2023, primarily due to a $6.6 million increase in compensation, benefits, and other personnel related costs and a $4.7 million increase in legal costs related to the settlement of patent litigation. The increase in compensation, benefits and other personnel related costs is largely attributable to higher stock-based compensation expense resulting from new equity grants partially offset by a decrease in variable compensation.

Selling and administrative expenses primarily consisted of legal costs of $21.8 million and compensation, benefits and other personnel related costs of $6.8 million for the four months ended April 30, 2024.

Barnes & Noble Education

The following summarizes Barnes & Noble Education’s results of operations for the period (in thousands):

Revenues

Barnes & Noble Education primarily derives its revenues from sale of course materials, which include new, used, rental and digital textbooks. Additionally, at college and university bookstores which Barnes & Noble Education operates, it sells general merchandise, including emblematic apparel and gifts, trade books, computer products, school and dorm supplies, convenience and cafe items and graduation products. Barnes & Noble Education’s rental income is primarily derived from the rental of physical textbooks. Barnes & Noble Education also derives revenue from other sources, such as sales of bookstore management, hardware and point-of-sale software, and other services.

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Cost of sales

Barnes & Noble Education cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to Barnes & Noble Education’s college and university contracts and other facility related expenses.

Selling and administrative expenses

Barnes & Noble Education selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, and finance and accounting.

Depreciation and amortization

Barnes & Noble Education depreciation and amortization expense consisted primarily of depreciation and amortization expense for property and equipment and intangible assets.

Impairment

Barnes & Noble Education’s impairment expense did not have a material impact on operations during the period from June 10, 2024 to April 30, 2025.

The following table summarizes the consolidated Interest and other income (expense), net; Interest expense; and Income tax benefit (expense) for the periods ended (in thousands, except for percentages):

Interest and other income (expense), net

Interest and other income (expense), net consists primarily of interest and dividend income from cash and cash equivalents and marketable debt and equity securities, realized and unrealized gains (losses) on our marketable equity securities and derivative instruments, and realized gains (losses) on our marketable debt securities.

Interest and other income (expense), net decreased $(9.5) million for the fiscal year ended April 30, 2025, compared to the calendar year ended December 31, 2023, primarily driven by a $(11.4) million decrease in net gains from investments in marketable equity securities primarily due to unrealized losses on a few investments compared to appreciations in the prior period; partially offset by a $1.9 million increase in interest income.

Interest and other income (expense), net primarily consisted of $5.3 million in net gains from investments in marketable equity securities for the four months ended April 30, 2024.

Interest expense

Interest expenses primarily consisted of interest charges related to Barnes & Noble Education’s credit facility. Interest expense increased due to the consolidation of Barnes & Noble Education effective June 10, 2024. Prior to June 10, 2024, the Company had no outstanding debt obligations.

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Income tax benefit (expense)

The changes for Immersion and Barnes & Noble Education’s provision for income taxes are described below:

Immersion

Provision for income taxes for the fiscal year ended April 30, 2025, resulted primarily from estimated domestic and foreign taxes included in the calculation of the effective tax rate. We maintain no valuation allowance against our U.S. federal deferred tax assets and maintain a valuation allowance against certain our U.S. state and Canadian federal deferred tax assets. The change in the estimated effective tax rate was mainly driven by higher U.S. taxable income which was a result of higher U.S. passive income.

The year-over-year change in provision for income taxes resulted primarily from the change in income from continuing operations across various tax jurisdictions.

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 April 30, 2025, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $12.7 million, all of the $12.7 million could be payable in cash. In addition, interest and penalty of $0.6 million could also be payable in cash in relation to unrecognized tax benefits. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $13.3 million. 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.

Barnes & Noble Education

Barnes & Noble Education recorded an income tax provision of $6.4 million on pre-tax loss of $55.4 million during the period of June 10, 2024 to April 30, 2025, which represented an effective income tax rate of (11.5)%.

In assessing the realizability of the deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets would be realized. As of April 30, 2025, Barnes & Noble Education determined that it was more likely than not that it would not realize all deferred tax assets and its tax rate for the current fiscal year reflects this determination. Barnes & Noble Education will continue to evaluate this position.

LIQUIDITY AND CAPITAL RESOURCES

As discussed in Note 2. Basis of Presentation and Summary of Significant Accounting Policies, due to their nonhomogeneous operations, our Consolidated Balance Sheet at April 30, 2025, and Consolidated Statement of Operations for the fiscal year ended April 30, 2025, separately present the operating assets, liabilities, and operations of Immersion’s business from the operating assets, liabilities, and operations of Barnes & Noble Education's business.

In analyzing the Company’s ability to generate and obtain adequate amounts of cash to meet its requirements and plans for the next 12 months and separately in the long-term beyond the next 12 months it is important to highlight the two operating segments are not legally or contractually bound to each other. All of the assets of Barnes & Noble Education, reported on the Consolidated Balance Sheet, can be used only to settle obligations of Barnes & Noble Education. None of the liabilities of Barnes & Noble Education have recourse to the general credit of Immersion.

Immersion’s cash and cash equivalents, investments-current, and investments-noncurrent consist primarily of money-market funds, investments in marketable equity and debt securities, and investments in U.S. treasury securities. As of April 30, 2025, Immersion had $63.6 million in cash and cash equivalents, and less derivative instruments had $92.9 million in current and non-current investments. All marketable securities are stated at fair value. Realized gains and losses on marketable equity securities and marketable debt securities are recorded in Other income (expense), net on the Consolidated Statements of Operations. Unrealized gains and losses on marketable equity securities are reported as Other income (expense), net on our Consolidated Statement of Operations. Unrealized gains and losses on marketable debt securities reported as a component of Accumulated other comprehensive income on our Consolidated Balance Sheets.

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Barnes & Noble Education’s primary sources of cash are net cash flows from operating activities, funds available under its Credit Agreement, BNED Common stock sold under the ATM Sales Agreement, and short-term vendor financing. Barnes & Noble Education’s liquidity is highly dependent on the seasonal nature of its business, particularly with respect to course material sales, as sales are generally highest in the second and third fiscal quarters, when college students purchase textbooks for the upcoming Fall and Spring semesters, respectively. As of April 30, 2025, Barnes & Noble Education had $9.1 million of cash on hand and $19.7 million of restricted cash, including $17.3 million related to segregated funds for commission due to Lids for logo merchandise sales as per the “Lids”, and together with Fanatics relationship (“F /L Relationship”) -related agreements.

On June 10, 2024, Barnes & Noble Education completed the Transactions, which included: (i) a Private Investment; (ii) a Rights Offering; (iii) a Term Loan Debt Conversion; and (iv) a A&R Agreement, to substantially deleverage its consolidated balance sheet. These transactions also raised additional capital for repayment of indebtedness and provide additional flexibility for future working capital needs. See Long-term borrowings discussion below for additional information.

On September 19, 2024, Barnes & Noble Education entered into the September ATM Sales Agreement with BTIG under which Barnes & Noble Education sold the maximum of $40.0 million of BNED Common Stock from time to time at a weighted-average price of $10.06 per share and received $39.2 million in proceeds, net of commissions. BTIG, as the sales agent, sold the shares based upon Barnes & Noble Education’s instructions (including as to price, time or size limits or other customary parameters or conditions). Barnes & Noble Education paid BTIG a commission of 2% of the gross sales proceeds of BNED Common Stock sold under the September ATM Sales Agreement. Barnes & Noble Education was not obligated to make any sales of BNED Common Stock under the September ATM Sales Agreement.

On December 20, 2024, Barnes & Noble Education entered into the December ATM Sales Agreement, under which Barnes & Noble Education sold the maximum of $40.0 million of BNED Common Stock from time to time at a weighted-average price of $10.42 per share and received $39.2 million in proceeds, net of commissions. BTIG, as the sales agent, sold the shares based upon Barnes & Noble Education’s instructions (including as to price, time or size limits or other customary parameters or conditions). Barnes & Noble Education paid BTIG a commission of 2% of the gross sales proceeds of BNED Common Stock sold under the December ATM Sales Agreement. Barnes & Noble Education was not obligated to make any sales of BNED Common Stock under the December ATM Sales Agreement. During the third quarter of Fiscal 2025, Barnes & Noble Education issued and sold the maximum aggregate offering of $40.0 million of BNED Common Stock under the December ATM Sales Agreement, at a weighted-average price of $10.42 per share and received $39.2 million in proceeds, net of commissions.

Barnes & Noble Education believes that its future cash from operations, access to borrowings under the credit facility, and short-term vendor financing will provide adequate resources to fund its operating and financing needs for the next twelve months and beyond. To the extent that available funds are insufficient to fund its future activities, Barnes & Noble Education may need to raise additional funds through public or private financing of debt or equity. Barnes & Noble Education’s access to, and the availability of, financing in the future will be impacted by many factors, including the liquidity of the overall capital markets and the current state of the economy. There can be no assurances that Barnes & Noble Education will have access to capital markets on acceptable terms.

We will continue to protect and defend our extensive IP portfolio, which can result in the use of cash in the event of litigation.

At the date of this Annual Report on Form 10-K, the Company believes we have sufficient capital resources to meet our working capital needs for the next twelve months and beyond.

Cash and cash equivalents, Investments-current, and Restricted cash

At April 30, 2025, our cash and cash equivalents and investments-current totaled $161.4 million, a $1.0 million increase from $160.4 million at December 31, 2023. In addition, as of April 30, 2025, we had restricted cash of $19.7 million, comprised of $17.3 million in Prepaid expenses and other current assets on the Consolidated Balance Sheets primarily related to segregated funds for commission due to Lids for logo merchandise sales as per the Lids service provider merchandising agreement and $2.4 million in Other assets - noncurrent on the Consolidated Balance Sheets related to amounts held in trust for future employee benefit plan distributions.

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The following summarizes select cash flow information for the periods ended (in thousands):

Net cash provided by (used in) operating activities

Our operating activities primarily consists of net income adjusted for certain non-cash items including depreciation and amortization, stock-based compensation expense, severance expense, impairment loss, loss on disposal of property plant and equipment, deferred income taxes, net (gains) losses on investments in marketable securities, and the effect of changes in operating assets and liabilities.

Net cash provided by (used in) operating activities was $(57.6) million for the fiscal year ended April 30, 2025, a $(78.2) million decrease compared to the calendar year ended December 31, 2023. This cash decrease was primarily attributable to a $(203.0) million decrease from changes in operating assets and liabilities primarily due to the consolidation of the Barnes & Noble Education balance sheet at April 30, 2025 compared to the Immersion balance sheet at December 31, 2023, partially offset by $59.6 million increase from changes in net income and a $65.2 million increase from non-cash items.

Net cash provided by (used in) operating activities was $31.6 million for the four months ended April 30, 2024.

Net cash provided by (used in) investing activities

Our investing activities primarily represent Immersion transactions that 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; payment for business acquisitions, net of cash acquired. The purchase of property and equipment and proceeds from disposals of property and equipment were related to Barnes & Noble Education.

Net cash provided by (used in) investing activities for the fiscal year ended April 30, 2025, was $3.4 million, primarily consisting of $138.9 million in cash provided by proceeds from selling marketable securities and derivatives, partially offset by $(102.0) million in cash used to purchase marketable securities and the settlement of derivative instruments; $(31.4) million of cash used in business acquisition, net of cash acquired; and $(11.2) million in purchase of property and equipment.

Net cash provided by (used in) investing activities during the four months ended April 30, 2024 was $1.5 million primarily consisting of $65.1 million in proceeds from selling marketable securities and derivatives partially offset by a $63.6 million in cash used to purchase marketable securities and in the settlement of derivative instruments.

Net cash provided by (used in) financing activities

Our financing activities were primarily related to Barnes & Noble Education and primarily consist of cash proceeds from issuance of common stock and proceeds from and repayments of credit facility. Other financing activities related to Immersion included dividend payments, shares withheld to cover payroll taxes, and cash paid for repurchases of our common stock.

Net cash provided by (used in) financing activities for the fiscal year ended April 30, 2025, was $61.0 million primarily consisting of $836.2 million proceeds from borrowing under Barnes & Noble Education’s credit facility and $78.1 million in proceeds from sale of BNED Common Stock, net of commissions and equity issuance costs, partially offset by $(834.3) million debt repayment, $(12.9) million in dividend payments, and $(3.7) million in shares withheld for payroll taxes.

Net cash provided by (used in) financing activities during the four months April 30, 2024 was $3.6 million consisting of $3.0 million in dividend payments, and $0.6 million in shares withheld to cover payroll taxes.

Total cash, cash equivalents, and short-term investments were $161.4 million at April 30, 2025, of which approximately $22.2%, or $35.9 million, was held by our foreign subsidiaries and subject to repatriation tax effects.

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Dividend Payments

The following table summarizes the dividend payment activity for the fiscal year ended April 30, 2025, the four months ended April 30, 2024, and the calendar year ended December 31, 2023:

For the fiscal year ended April 30, 2025, the four months ended April 30, 2024, and the calendar year ended December 31, 2023, the total dividends paid were $12.9 million, $3.0 million, and $7.4 million, respectively. Future dividends will be subject to further review and approval by the Board in accordance with applicable law. The Board reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews our capital allocation strategy from time-to-time.

Immersion Stock Repurchases

On December 29, 2022, our Board approved a stock repurchase program of up to $50.0 million of our common stock for a period of up to twelve months (the “December 2022 Stock Repurchase Program”), which terminated and superseded the stock repurchase program that had been approved by the Board on February 23, 2022. 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 Exchange Act. 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 December 2022 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 December 2022 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. The program has been amended various times and the most recent amendment extended the expiration date to December 29, 2026.

During the fiscal year ended April 30, 2025, the Company repurchased 310,643 shares of our common stock for $2.4 million at an average purchase price of $7.64 per share. As of April 30, 2025, the Company has $39.4 million available for repurchase under the December 2022 Stock Repurchase Program.

Barnes & Noble Education Stock Repurchases

On December 14, 2015, Barnes & Noble Education’s Board of Directors authorized a stock repurchase program of up to $50 million, in the aggregate, of outstanding BNED Common Stock. The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). During Fiscal 2025, Barnes & Noble Education did not purchase shares under the stock repurchase program. As of April 30, 2025, approximately $26.7 million remains available under the stock repurchase program. During Fiscal 2025, Barnes & Noble Education purchased 429 shares outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

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Restated ABL Credit Facility

The following summarizes Barnes & Noble Education’s outstanding borrowings at April 30, 2025 (in thousands):

On the Closing Date, Barnes & Noble Education amended, restated, and extended the maturity of its existing asset-based credit facility with Bank of America, N.A., as administrative agent, collateral agent, and swing line lender, and other lenders from time to time party thereto (such amended and restated credit facility, the “Restated ABL Facility”). Pursuant to the Restated ABL Facility, the lenders thereunder have committed to provide a four-year asset-backed revolving credit facility in an aggregate committed principal amount of up to $325 million. The Restated ABL Facility has a maturity date of June 9, 2028. Barnes & Noble Education has interest only obligations until June 9, 2028, at which time the total principal is due and payable.

During the period from June 10, 2024 to April 30, 2025, Barnes & Noble Education borrowed $836.2 million and repaid $834.3 million under the Restated ABL Facility, with $103.1 million of outstanding borrowings under the Restated ABL Facility as of April 30, 2025. As of April 30, 2025, Barnes & Noble Education issued $0.6 million in letters of credit under the Restated ABL Facility.

As of April 30, 2025, Barnes & Noble Education was in compliance with all debt covenants under the Credit Agreement. See Note 10. Debt in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K for additional information.

Income Tax Implications on Liquidity

As of April 30, 2025, Barnes & Noble Education recognized a current income tax receivable for net operating loss carrybacks in Prepaid expenses and other current assets on the Consolidated Balance Sheet. Barnes & Noble Education received a final $2.7 million refund (including $0.3 million in interest) during the fiscal year ended April 30, 2025. See Note 16. Income Taxes in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K for additional information.

Contractual Obligations

The following summarizes Immersion’s contractual obligations as of April 30, 2025 (in millions):

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CRITICAL ACCOUNTING ESTIMATES

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements and related disclosures in conformity with U.S. GAAP and our discussion and analysis of the Company’s financial condition and operating results require management to make judgments, assumptions, and estimates that affect the amounts reported. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K, which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, marketable securities and derivative instruments, income taxes, and contingencies. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.

Business Combination

The results of a business acquired in a business combination are included in our consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date, which may be considered preliminary and subject to adjustment during the measurement period, which is up to one year from the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill

We perform valuations of assets acquired and liabilities assumed and allocate the purchase price to the respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed requires significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, royalty rates, EBITDA margins, and selection of comparable companies. We engage the assistance of third-party valuation specialists in concluding fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination. The resulting fair values and useful lives assigned to acquisition-related intangible assets impact the amount and timing of future amortization expense.

These estimates are inherently uncertain and unpredictable, and if different estimates were used the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made. In addition, unanticipated events and circumstances may occur, which may affect the accuracy or validity of such estimates, and if such events occur, we may be required to record a charge against the value ascribed to an acquired asset, an increase in the amounts recorded for assumed liabilities, or an impairment of some or all of the goodwill.

Goodwill recognized in connection with our acquisition of Barnes & Noble Education was $69.2 million. Barnes & Noble Education is a separate reporting unit, and all goodwill was allocated to this reporting unit. Goodwill is not amortized but reviewed for impairment at least annually at year-end, and when triggering events occur between annual impairment tests. See Note 8. Goodwill and Intangible Assets in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K for additional information.

The identified intangible assets arising from the Barnes & Noble acquisition were trade names and customer relationships with $95.0 million in aggregate fair value. We determined the fair values of the acquired intangible assets using an income approach with estimated indefinite useful life for the trade name and 13 years for customer relationships. The noncontrolling interest in Barnes & Noble Education was valued based on the closing price of Barnes & Noble Education’s common stock at June 10, 2024. We evaluate our intangible assets for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment analysis include significant under-performance relative to historical or projected future results of operations, significant changes in the manner of our use of the acquired assets, or the strategy for our overall business or significant negative industry or economic trends. If this evaluation indicates that the value of the intangible asset may be impaired, we assess the likelihood of recoverability of the net carrying value of the asset over its remaining useful life. If this assessment indicates that the intangible asset is not recoverable based on the estimated undiscounted future cash flows of the intangible asset over its remaining useful life, we reduce the net carrying value of the related intangible asset to an estimated fair value.

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Barnes & Noble Education

Revenue Recognition and Deferred Revenue

Product sales and rentals

The majority of Barnes & Noble Education’s revenue is derived from the sale of products through its bookstore locations, including virtual bookstores, and its bookstore affiliated e-commerce websites, and contains a single performance obligation. Revenue from sales of products is recognized at the point in time when control of the products is transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for the products. See Note 5. Revenue in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K for additional information.

Retail product revenue is recognized when the customer takes physical possession of its products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of Barnes & Noble Education’s products by customers for products ordered through its websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical textbooks at which point title passes and risk of loss is transferred to the customer. Additional revenue is recognized for shipping charges billed to customers and shipping costs are accounted for as fulfillment costs within cost of goods sold.

Revenue from the sale of digital textbooks, which contains a single performance obligation, is recognized upon the delivery of the digital content as product revenue in Barnes & Noble Education's consolidated financial statements. A software feature is embedded within the content of Barnes & Noble Education’s digital textbooks, such that upon expiration of the term the customer is no longer able to access the content. While the sale of the digital textbook allows the customer to access digital content for a fixed period of time, once the digital content is delivered to the customer, our performance obligation is complete.

Revenue from the rental of physical textbooks is deferred and recognized over the rental period based on the passage of time commencing at the point of sale, when control of the product transfers to the customer and is recognized as rental income in our consolidated financial statements. Rental periods are typically for a single semester and are always less than one year in duration. Barnes & Noble Education offers a buyout option to allow the purchase of a rented physical textbook at the end of the rental period if the customer desires to do so. It records the buyout purchase when the customer exercises and pays the buyout option price which is determined at the time of the buyout. In these instances, Barnes & Noble Education accelerates any remaining deferred rental revenue at the point of sale.

Revenue recognized for Barnes & Noble Education’s BNC First Day® offerings is consistent with Barnes & Noble Education's policies outlined above for product, digital and rental sales, net of an anticipated opt-out or return provision. Given the growth of BNC First Day® programs, the timing of cash collection from our school partners may shift to periods subsequent to when the revenue is recognized. When a school adopts our BNC First Day® affordable access to course material program offerings, cash collection from the school generally occurs after the institution's drop/add dates, which is later in the working capital cycle, particularly in Barnes & Noble Education's third quarter given the timing of the Spring Term and our quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor.

Barnes & Noble Education estimates returns based on an analysis of historical experience. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.

For sales and rentals involving third-party products, Barnes & Noble Education evaluate whether it is acting as a principal or an agent. Barnes & Noble Education’s determination is based on their evaluation of whether it controls the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether Barnes & Noble Education controls the specified goods or services prior to transferring them to the customer including whether Barnes & Noble Education has the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For those transactions where Barnes & Noble Education is the principal, it records revenue on a gross basis, and for those transactions where it is an agent to a third-party, Barnes & Noble Education records revenue on a net basis.

Barnes & Noble Education recognizes revenue commissions from logo general merchandise sales, which are fulfilled by Lids and Fanatics, on a net basis in our consolidated financial statements.

Barnes & Noble Education does not have gift cards or customer loyalty programs. Barnes & Noble Education does not treat any promotional offers as expenses. Sales tax collected from Barnes & Noble Education’s customers is excluded from reported revenues. Barnes & Noble Education's payment terms are generally 30 days and do not extend beyond one year.

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Service and other revenue

Service and other revenue is primarily derived from brand marketing services which includes promotional activities and advertisements within Barnes & Noble Education’s physical bookstores and web properties performed on behalf of third-party customers, shipping and handling, non-return rental penalty fees, and revenue from other programs.

Merchandise Inventories

Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of Barnes & Noble Education’s inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation.

Cost is determined primarily by the retail inventory method for Barnes & Noble Education’s retail business. Barnes & Noble Education’s textbook and trade book inventories, for Barnes & Noble Education’s retail and wholesale businesses, are valued using the LIFO method. During the fiscal year ended April 30, 2025, Barnes & Noble Education recorded a LIFO adjustment in the amount of $6.4 million.

Reserves for non-returnable inventory represent write-downs that reduce the cost basis of the asset. These write-downs are based on Barnes & Noble Education’s history of liquidating non-returnable inventory. Reserve calculations are sensitive to certain assumptions, including markdowns and inventory aging. Barnes & Noble Education does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the non-returnable inventory reserve. However, if assumptions based on Barnes & Noble Education’s history of liquidating non-returnable inventory are incorrect, Barnes & Noble Education may be exposed to losses or gains that could be material. A 10% change in actual non-returnable inventory would have affected pre-tax earnings by approximately $5.6 million in fiscal year 2025.

For physical bookstores, Barnes & Noble Education also estimates and accrues shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends. Barnes & Noble Education does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate shortage rates. However, if Barnes & Noble Education’s estimates regarding shortage rates are incorrect, Barnes & Noble Education may be exposed to losses or gains that could be material. A change of 10 basis points of actual shortage rates would not have a material impact on pre-tax earnings in fiscal year ended April 30, 2025.

Impairment of Long-Lived Assets

As of April 30, 2025, the Company’s long-lived assets include Property and equipment, net; Operating lease right-of-use assets; and Intangible assets, net of $95.8 million, $155.3 million, and $91.6 million, respectively, on the Consolidated Balance Sheets.

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and consider market participants in accordance with Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. We evaluate the long-lived assets of the reporting units for impairment at the lowest asset group level for which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, we first compare the carrying amount of the asset group to the estimated future undiscounted cash flows. The impairment loss calculation compares the carrying amount of the assets to the fair value based on estimated discounted future cash flows. If required, an impairment loss is recorded for that portion of the asset’s carrying value in excess of fair value.

During the fiscal year ended April 30, 2025, Barnes & Noble Education evaluated certain of its store-level long-lived assets for impairment. Based on the results of the impairment tests, Immersion’s basis in Barnes & Noble Education’s long lived recognized an impairment loss (non-cash) of $1.2 million (both pre-tax and after-tax), comprised of $0.6 million and $0.6 million of Operating lease right-of-use assets and Property and equipment, net, respectively, on the Consolidated Statement of Operations.

The fair value of the impaired long-lived assets was determined using an income approach (Level 3 input), using the Company’s best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations. See Note 6. Investments and Fair Value Measurements in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K for additional information.

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The impairment analysis process requires significant estimation to determine recoverability of each asset group and to determine the fair value of asset groups that were not recoverable, as well as the fair values of certain operating right-of-use assets included within the asset groups that were not recoverable. The significant assumptions used included annual revenue growth rates, gross margin rates and the estimated relationship of selling and administrative costs to revenue used to estimate the projected cash-flow directly related to the future operation of the stores as well as the weighted average cost of capital used to calculate the fair value. Significant assumptions used to determine the fair values of certain operating right-of-use assets included the current market rent and discount rate. These assumptions are subjective in nature and are affected by expectations about future market or economic conditions.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate long-lived asset impairment losses. However, if actual results are not consistent with estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. A 10% decrease in our estimated discounted cash flows would not have materially affected the results of our operations for the fiscal year ended April 30, 2025.

Income Taxes

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Financial Accounting Standards Board guidance on accounting for income taxes requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience and expectations of future taxable income by taxing jurisdiction, the carryforward periods available to us for tax reporting purposes and other relevant factors. The actual realization of deferred tax assets may differ significantly from the amounts we have recorded. See Note 16. Income Taxes in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K for additional information.

In applying ASC 740 to our Korean withholding tax exposure related to royalties from Samsung, management exercises significant judgment in evaluating the technical merits and sustainability of the underlying tax positions, including the interpretation of Korean domestic law and the Korea–U.S. tax treaty. The adverse Regional Tax Office Appeal decision in November 2025, and our resulting obligation to reimburse Samsung for approximately $9.7 million of withholding taxes, reflects a change in our assessment of the more‑likely‑than‑not outcome and required us to recognize the related tax expense and liability in fiscal 2026 rather than adjust our fiscal 2025 financial statements. Future developments in Korean administrative or judicial practice, or additional information about similar tax controversies, could require further adjustments to our income tax provision and related uncertain tax positions.

Recent Accounting Pronouncements

See Note 2. Basis of Presentation and Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K for additional information regarding the effect of new accounting pronouncements on our Consolidated Financial Statements.

Restatement of Quarterly (Unaudited) Financial Information

As explained further in the Explanatory Note at the beginning of this Form 10-K, the Company has restated its previously-issued unaudited interim financial statements for the unaudited fiscal quarters ended January 31, 2025 and October 31, 2024; and the calendar quarter ended June 30, 2024; contained in our Quarterly Reports on Form 10-Q. Detailed restatements of the Company’s condensed consolidated quarterly financial statements are provided in Note 20. Restatement of Quarterly Financial Information (Unaudited) of the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K.

The following unaudited quarterly statements of operations for the quarterly periods ended January 31, 2025; October 31, 2024; and June 30, 2024; have been prepared on a basis consistent with our audited annual financial statements included in this Form 10-K and include, in our opinion, all normal recurring adjustments necessary for the fair presentation of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following should be read in conjunction with our audited financial statements and the related notes included in this Form 10-K.

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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 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. See Note 1. Significant Accounting Policies of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on 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:

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 may 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.

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As disclosed in Note 5. Contingencies of the Notes to the Consolidated Financial Statements, we have made a deposit payment to reimburse LGE for withholding taxes and related penalties paid by LGE as a result of an assessment LGE have received from the South Korean tax authorities. This payment is recorded as Long-term deposits on our Consolidated Balance Sheets. We expect to be reimbursed by 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 this case against the South Korean tax authorities and consequently the likelihood that this deposit will be recoverable. In the event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Long-term deposits would be recorded as additional income tax expense on our Consolidated Statements of Income and Comprehensive Income, in the period in which we do not ultimately prevail.

Results of Operations

Overview

Total revenues in 2023 were $33.9 million, a decrease of $4.5 million, or 12%, compared to 2022.

Total operating expenses were $16.0 million, an increase of $2.0 million or 14% compared to 2022.

In 2023, we had net income of $34.0 million, an increase of $3.3 million, or 11% compared to 2022.

The following table sets forth our Consolidated Statements of Income and Comprehensive Income data as a percentage of total revenues:

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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 year ended December 31, 2023 and 2022 are as follows (in thousands, except for percentages):

Fixed fee license revenue decreased $6.7 million, or 56% in 2023 compared to 2022, primarily attributable to a $6.6 million decrease in mobility revenue, a $0.6 million decrease in automotive license revenue partially offset by a $0.5 million increase in gaming license revenue.

Per-unit royalty revenue increased by $2.3 million, or 9%, in 2023 compared to 2022, primarily caused by a $3.3 million increase in royalties from automotive licensees and a $2.2 million increase in royalties from gaming licensees. These increases were partially offset by a $2.5 million decrease in royalties from mobility licensees and a $0.6 million decrease in royalties from other licensees.

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, Europe and North America for the year ended December 31, 2023 represented 74%, 17%, and 9%, respectively, of our total revenue as compared to 62%,  10% and 28%, respectively, for the year ended December 31, 2022

Operating Expenses

A summary of operating expenses for the year ended December 31, 2023 and 2022 are as follows (in thousands, except for percentages):

Sales and Marketing - Our sales and marketing expenses primarily consisted of employee compensation and benefits, including stock-based compensation, marketing costs and allocated facilities costs.

Sales and marketing expenses increased $0.5 million, or 44%, in 2023 compared to 2022, primarily attributable to a $0.6 million increase in compensation, benefits and other personnel related costs largely due to higher variable compensation and stock-based compensation expenses.

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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 $1.1 million, or 80%, in 2023 compared to 2022, primarily attributable to a $0.8 million decrease in compensation, benefits, and other personnel related costs and a $0.2 million decrease in office expenses and allocated facilities costs. The decrease in compensation, benefits and other personnel related costs in 2023 compared to 2022 were largely attributable to lower headcount and decreases in stock-based compensation expense.

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 increased $2.5 million, or 22%, in 2023 as compared to 2022 primarily due to a $2.2 million increase in compensation, benefits and other personnel related costs and $0.3 million increase in legal fees. The increase in compensation, benefits, and other personnel related costs in 2023 compared to 2022 were largely driven by increases in variable compensation and severance costs. The increase in legal expenses in 2023 compared to 2022 was largely attributable to an increase in legal consulting costs.

We may be required to engage in litigation to protect our IP, in which case our general and administrative expenses could substantially increase reflecting such litigation costs.

Interest and Other Income (Loss)

A summary of interest and other income, other expense for the year ended December 31, 2023 and 2022 are as follows (in thousands):

Interest and Other Income (loss) - Interest and other income (loss) consists primarily of interest and dividend income from cash and cash equivalents, marketable debt and equity securities, realized and unrealized gains (losses) on our marketable equity securities and derivative instruments and realized gains (losses) on our marketable debt securities.

Interest and other income increased $22.2 million during 2023 compared to 2022 primarily driven by a $19.9 million increase in gains from investments in marketable securities and derivative instruments net and a $2.3 million increase in interest and dividend income.

Other income (expense), net increased $0.3 million in 2023 compared to 2022, primarily driven by increase in net foreign currency transaction gains.

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Income Taxes

A summary of provision for income taxes and effective tax rates for the year ended December 31, 2023 and 2022 are as follows (in thousands):

Provision for income taxes for the year ended December 31, 2023, resulted primarily from estimated domestic and foreign taxes included in the calculation of the effective tax rate. Benefit from income taxes for the year ended December 31, 2022, resulted primarily from estimated domestic and foreign taxes included in the calculation of the effective tax rate.

We provided no valuation allowance for federal assets, whose future realization is more likely than not and continue to maintain full valuation allowance for state deferred tax assets in the United States as well as federal tax assets in Canada. The year-over-year change in provision for income taxes resulted primarily from the change in income from continuing operations across various tax jurisdictions.

We continue to maintain full valuation allowance for 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, 2023 we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $7.5 million, of which $4.9 million could be payable in cash. In addition, interest and penalty $0.2 million could also be payable in cash in relation to the unrecognized tax benefits. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $4.9 million. 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, investments - current and investments - noncurrent consist primarily of money-market funds, investment in equity and debt marketable securities (including mutual funds) and certificates of deposit. All marketable securities are stated at market value. Realized gains and losses on marketable equity securities and marketable debt securities are recorded in Other income (expense), net on the Consolidated Statements of Income and Comprehensive Income. 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 Comprehensive Income. Unrealized gains and losses on marketable debt securities reported as a component of Accumulated other comprehensive income(loss) on our Consolidated Balance Sheets. Certificates of deposit are reported as Investments-current or Investments -noncurrent based on their term when purchased. Interest income from certificates of deposit are reported as Interest and other income (loss), net on the Consolidated Statement of Income and Comprehensive Income.

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Cash, cash equivalents and investments- As of December 31, 2023 our cash, cash equivalents, and investments-current totaled $160.4 million, an increase of $10.7 million from $149.7 million on December 31, 2022.

A summary of select cash flow information for the years ended December 31, 2023 and 2022 (in thousands):

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 $20.6 million in the year ended December 31, 2023 a $19.5 million decrease compared to the same period in 2022. This cash decrease was primarily attributable to a $11.2 million decrease from changes in noncash items a $11.7 million decrease from changes in net operating assets and  partially offset by a $3.3 million increase in net income.

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 provided by investing activities during the year ended December 31, 2023was $3.4 million primarily consisting of $193.7 million in proceeds from selling marketable securities and derivatives partially offset by $190.3 million used to purchase marketable securities and in the settlement of derivative instruments.

Net cash used in investing activities during the year ended December 31, 2022 was $29.4 million primarily consisting of $165.4 million of purchases marketable securities and in the settlement of derivative instrument partially offset by $136.0 million of proceeds from sale of derivative instruments.

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 used by financing activities during the year ended December 31, 2023 was $16.7 million primarily consisting of $8.3 million stock repurchases, $7.4 million in dividend payments and $1.2 million in shares withheld to cover payroll taxes.

Net cash provided by financing activities during the year ended December 31, 2022 was $13.4 million primarily consisting of cash paid for stock repurchases.

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Total cash, cash equivalents, and investments-current were $160.4 million as of December 31, 2023 of which approximately 24%, or $38.2 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 intend to 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 23, 2022, our Board approved a stock repurchase program of up to $30.0 million of our common stock for a period of up to twelve months (the “February 2022 Stock Repurchase Program”).

In the year ended December 31, 2022, we repurchased 1,637,566 shares of our common stock for $8.9 million at an average purchase price of $5.46 per share. The February 2022 Stock Repurchase Program was terminated on December 29, 2022.

On December 29, 2022, the Board
approved the December 2022 Stock Repurchase Program of up to $50 million of our common stock , which terminated
and superseded the February 2022 Stock Repurchase Program. 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 Exchange Act. 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 December 2022 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 December 2022 Stock Repurchase Program does not obligate
Immersion to repurchase any dollar amount or number of shares, and the program
may be suspended or discontinued at any time. On August 8, 2023, the Board
approved an amendment to extend the expiration date of the December 2022 Stock
Repurchase Program that was set to expire on December 29,
2023 to December 29, 2024.

In the year ended December 31, 2023 we repurchased 1,217,774 shares of our common stock for $8.3 million at an average purchase price of $6.77 per share.  As of December 31, 2023 we have $41.7 million available for future repurchase under the December 2022 Stock Repurchase Program.

On November 14, 2022, the Board declared a quarterly dividend in the amount of $0.03 per share, was paid on January 30, 2023 to stockholders of record on January 15, 2023.  In addition, on December 29, 2022, our Board declared a special dividend in the amount of $0.10 per share, which was paid on January 30, 2023 to stockholders of record on January 15, 2023.

On February 21, 2023, the Board declared a quarterly dividend, in the amount of $0.03 per share, which was paid on April 28, 2023 to stockholders of record on April 13, 2023.

On May 10, 2023, the Board declared a third quarterly dividend in the amount of $0.03 per share which was paid on July 28, 2023, to shareholders of record on July 13, 2023.

On August 11, 2023, the Board declared a quarterly dividend in the amount of $0.03 per share, which was paid on October 27, 2023 to shareholders of record on October 16, 2023.

On November 13, 2023, our Board declared a quarterly dividend in the amount of $0.045 per share, which was paid on January 25, 2024 to shareholders of record on January 14, 2024.

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Future dividends will be subject to further review and approval by the Board in accordance with applicable law. The Board reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews our capital allocation strategy from time-to-time.

In the year ended December 31, 2023, the total dividends paid was $7.4 million.

As of December 31, 2023 we had a liability for unrecognized tax benefits totaling $7.4 million, of which $4.2 million could be payable in cash. In addition, interest and penalty of $0.2 million could also be payable in cash in relation to the unrecognized tax benefits.

We did not have any other significant non-cancellable purchase commitments as of December 31, 2023

We anticipate that capital expenditures for property and equipment for 2023 will be less than $1.0 million.

As of March 11, 2024, 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.

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 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 may 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 a deposit payment to reimburse LGE for withholding taxes and related penalties paid by LGE as a result of an assessment LGE have received from the South Korean tax authorities. This payment is recorded as Long-term deposits on our Consolidated Balance

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Sheets. We expect to be reimbursed by 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 this case against the South Korean tax authorities and consequently the likelihood that this deposit will be recoverable. In the event that we do not ultimately prevail in our appeal in the Korean courts, the deposit included in Long-term deposits would be recorded as additional income tax expense on our Consolidated Statements of 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.

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Results of Operations

Overview

Total revenues in 2022 were $38.5 million, an increase of $3.4 million, or 9.6%, compared to 2021.

Total cost and operating expenses were $14.0 million, a decrease of $3.3 million or 18.9% compared to 2021.

In 2022, we had net income of $30.7 million, an increase of $18.2 million, or 145.6% compared to 2021.

The following table sets forth our Consolidated Statements of Income and Comprehensive Income data as a percentage of total revenues:

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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, 2022, and 2021 are as follows (in thousands, except for percentages):

Fixed fee license revenue increased $6.1 million, or 105% in 2022 compared to 2021, primarily attributable to a $6.4 million increase in mobility revenue partially offset by a $0.3 million decrease in other license revenue.

Per-unit royalty revenue decreased by $2.6 million, or 9%, in 2022 compared to 2021, primarily caused by a $3.1 million decrease in royalties from mobility licensees and a $1.8 million decrease in royalties from automotive licensees. These decreases were partially offset by a $1.7 million increase in royalties from other licensees and a $0.7 million increase in royalties from gaming licensees.

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, 2022, represented 62%, 28%, and 10%, of our total revenue as compared to 76%, 12%, and 12%, respectively, for the year ended December 31, 2021.

Operating Expenses

A summary of operating expenses for the years ended December 31, 2022, and 2021 are as follows (in thousands, except for percentages):

Sales and Marketing - Our sales and marketing expenses primarily consisted of employee compensation and benefits, including stock-based compensation; sales commissions; advertising; collateral marketing materials; market development funds; travel; and allocated facilities costs.

Sales and marketing expenses decreased $2.0 million, or 63%, in 2022 compared to 2021, primarily attributable to a $1.7 million decrease in compensation, benefits and other personnel related costs and a $0.2 million decrease in advertising and marketing expenses. The decrease in compensation, benefits and other personnel-related costs were due to lower headcount and decreases in variable compensation expense.

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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 $2.8 million, or 67%, in 2022 compared to 2021, primarily attributable to a $2.4 million decrease in compensation, benefits and other personnel related costs and a $0.2 million decrease in office expenses. The decrease in compensation, benefits and other personnel related costs were largely attributable to lower headcount and decreases in stock-based compensation expense and severance costs.

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 increased $1.6 million, or 16%, in 2022 as compared to 2021 primarily due to a $2.7 million increase in compensation, benefits and other personnel related costs partially offset by a $0.6 million decrease in legal costs and a $0.5 million decrease in consulting and professional services.

The increases in compensation, benefits and other personnel related costs in 2022 compared to 2021 were driven by increases in stock-based compensation expense and higher variable compensation. The decrease in legal expense in 2022 compared to 2021 was primarily attributable to reduced activities, as well as a decrease in patent maintenance and prosecution costs.

We may be required to engage in litigation to protect our IP, in which case our general and administrative expenses could substantially increase reflecting such litigation costs.

Interest and Other Income (Loss)

A summary of interest and other income, other expense for the years ended December 31, 2022, and 2021 are as follows (in thousands):

Interest and Other Income (loss) - Interest and other income (loss) consists primarily of interest and dividend income from cash and cash equivalents, marketable debt and equity securities, realized and unrealized gains (losses) on our marketable equity securities and derivative instruments and realized gains (losses) on our marketable debt securities.

Interest and other income increased $2.5 million during the 2022 compared to 2021 primarily driven by a $4.7 million increase in interest and dividend income partially offset by a $2.2 million increase in net loss from investments in marketable securities and derivative instruments.

The increase in interest and dividend income in 2022 compared to 2021 was largely attributable to higher interest and dividend income from investments as well as interest income from a Korean tax litigation settlement.

The increase in net loss from investments in marketable securities and derivative instruments in 2022 compared to 2021 primarily consisted of a $8.4 million increase in net losses on investment in marketable securities partially offset by a $6.2 million increase in net gains on derivative instruments.

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Income Taxes

A summary of provision for income taxes and effective tax rates for the year ended December 31, 2022, and 2021 are as follows (in thousands):

Benefit from income taxes for the year ended December 31, 2022, resulted primarily from estimated domestic and foreign taxes included in the calculation of the effective tax rate. 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.

We put partial valuation allowance for certain federal assets, whose future realization is not more likely than not and continue to maintain full valuation allowance for state deferred tax assets in the United States as well as federal tax assets in Canada. As a result, a benefit of $5.7 million generated from our U.S. territory was included in the calculation of the effective tax rate, which was the main reason for the difference between the statutory tax rate and actual effective tax rate. The year-over-year change in provision for income taxes resulted primarily from the change in income from continuing operations across various tax jurisdictions.

We put partial valuation allowance for certain federal assets, whose future realization is not more likely than not and continue to maintain full valuation allowance for 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, 2022, we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $7.1 million, of which $1.4 million could be payable in cash. In addition, interest and penalty $0.1 million could also be payable in cash in relation to the unrecognized tax benefits. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $1.4 million. 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, investments - current and investments - noncurrent consist primarily of money-market funds, investment in equity and debt marketable securities (including mutual funds) and certificates of deposit. All marketable securities are stated at market value. Realized gains and losses on marketable equity securities and marketable debt securities are recorded in Other income (expense), net on the Consolidated Statements of Income and Comprehensive Income. 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 Comprehensive Income. Unrealized gains and losses on marketable debt securities reported as a component of Accumulated other comprehensive income(loss) on our Consolidated Balance Sheets. Certificates of deposit are reported as Investments-current or Investments -noncurrent based on their term when purchased. Interest income from certificates of deposit are reported as Interest and other income (loss), net on the Consolidated Statement of Income and Comprehensive Income.

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Cash, cash equivalents and investments- As of December 31, 2022, our cash, cash equivalents, and investments-current totaled $149.7 million, an increase of $11.8 million from $137.9 million on December 31, 2021.

A summary of select cash flow information for the years ended December 31, 2022 and 2021 (in thousands):

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 $40.1 million in the year ended December 31, 2022, a $22.7 million increase compared to the same period in 2021. This cash increase was primarily attributable to a $18.2 million increase in net income and a $9.4 million increase from changes in net operating assets partially offset by a $5.1 million decrease from changes in non-cash items.

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 the year ended December 31, 2022,was $29.4 million primarily consisting of $165.4 million in cash used to purchase marketable securities and in the settlement of derivative instrument partially offset by $136.0 million in proceeds from selling marketable securities and derivatives.

Net cash used in investing activities during the year ended December 31, 2021 was $87.7 million primarily consisting of $123.4 million of purchases marketable securities and in the settlement of derivative instrument partially offset by $36.1 million of proceeds from sale of derivative instruments.

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 used by financing activities during the year ended December 31, 2022 was $13.4 million primarily consisting of cash paid for stock repurchases.

Net cash provided by financing activities during the year ended December 31, 2021 was $62.2 million primarily consisting of $59.2 million of net proceeds from common stock issuances and $3.0 million cash proceeds from stock option exercises and stock purchases under our employee stock purchase plan.

Total cash, cash equivalents, and investments-current were $149.7 million as of December 31, 2022 of which approximately 21%, or $31.7 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 intend to 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 23, 2022, our Board of Directors (the "Board") approved a stock repurchase program of up to $30 million of our common stock for a period of up to twelve months (the "February 2022 Stock Repurchase Program"). On December 29, 2022, the Board approved a stock repurchase program of up to $50 million of our common stock for a period of up to twelve months (the "December 2022 Stock Repurchase Program"), which terminated and superseded the stock repurchase program that

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had been approved by our Board of Directors on February 23, 2022. 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 Immersion to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time.

In the year ended December 31, 2022, we repurchased 1,637,566 shares of our common stock for $8.9 million at an average purchase price of $5.46 per share. The February 2022 Stock Repurchase Program was terminated on December 29, 2022

As of December 31, 2022, we have $50.0 million available for future repurchase under the December 2022 Stock Repurchase Program.

On November 14, 2022, our Board of Directors ("Board") declared a quarterly dividend in the amount of $0.03 per share, was paid on January 30, 2023 to stockholders of record on January 15, 2023. The Board reserves the right to adjust or withdraw our quarterly dividend in future periods as it reviews the capital allocation strategy from time-to-time.

In addition, on December 29, 2022, our Board declared a special dividend in the amount of $0.10 per share, which was paid on January 30, 2023 to stockholders of record on January 15, 2023.

Further, on February 21, 2023, our Board declared a second quarterly dividend, in the amount of $0.03 per share, which will be paid on April 28, 2023 to stockholders of record on April 13, 2023.

On December 31, 2022, we had a liability for unrecognized tax benefits totaling $7.1 million, of which $1.4 million could be payable in cash. In addition, interest and penalty of $0.1 million could also be payable in cash in relation to the unrecognized tax benefits.

We did not have any other significant non-cancellable purchase commitments as of December 31, 2022.

We anticipate that capital expenditures for property and equipment for 2023 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 2022 and beyond, as of February 22, 2023, 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.

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 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

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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.

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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:

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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):

Royalty and license revenue

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 - 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.

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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.

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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 - 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):

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

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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.

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A summary of select cash flow information for the years ended December 31, 2021 and 2020 (in thousands):

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

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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.

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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.