##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  
 IMMERSION CORPORATION
  Delaware
    
    94-3180138(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 01 Fox Lane, San Jose, California 95131
 
 (Address of principal executive offices)(Zip Code)
 (408) 467-1900
 
 (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller
 reporting company)
    
    Smaller Reporting Company o
  o þ




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##### 



IMMERSION CORPORATION
 INDEX
 PagePART I
FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets (Unaudited) as of March 31, 2009 and
December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations (Unaudited) for the
Three months Ended March 31, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three months Ended March 31, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    34PART II
OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    36Item 6. Exhibits
    
    
    51SIGNATURES
    
    
    52EX-10.37EX-10.38EX-10.39EX-31.1EX-31.2EX-32.1EX-32.2EX-99.01EX-99.02
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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 IMMERSION CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share amounts)
 (Unaudited)
 March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    36,997
    
    
    $
    64,769Short-term investments
    
    
    43,933
    
    
    
    20,974Accounts receivable (net of allowances for doubtful accounts of: March 31, 2009 
$954 and December 31, 2008  $436
    
    
    4,064
    
    
    
    6,829Inventories, net
    
    
    4,136
    
    
    
    3,396Deferred income taxes
    
    
    226
    
    
    
    226Prepaid expenses and other current assets
    
    
    3,205
    
    
    
    3,225Total current assets
    
    
    92,561
    
    
    
    99,419Property and equipment, net
    
    
    4,379
    
    
    
    3,827Intangibles and other assets, net
    
    
    10,358
    
    
    
    9,945Total assets
    
    $
    107,298
    
    
    $
    113,191LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,460
    
    
    $
    2,842Accrued compensation
    
    
    2,248
    
    
    
    3,010Other current liabilities
    
    
    3,247
    
    
    
    3,466Deferred revenue and customer advances
    
    
    5,883
    
    
    
    5,125Total current liabilities
    
    
    13,838
    
    
    
    14,443Long-term deferred revenue, less current portion
    
    
    17,685
    
    
    
    16,887Deferred income tax liabilities
    
    
    226
    
    
    
    226Other long-term liabilities
    
    
    217
    
    
    
    212Total liabilities
    
    
    31,966
    
    
    
    31,768Contingencies (Note 15)Stockholders equity:Common stock and additional paid-in capital  $0.001 par value; 100,000,000 shares
authorized; shares issued: March 31, 2009  30,733,728 and December 31, 2008 
30,674,045; shares outstanding: March 31, 2009  27,945,859 and
December 31, 2008  27,887,482
    
    
    167,337
    
    
    
    165,885Warrants
    
    
    1,724
    
    
    
    1,731Accumulated other comprehensive income
    
    
    40
    
    
    
    109Accumulated deficit
    
    
    (75,372
    )
    
    
    (67,913
    )Treasury stock at cost: March 31, 2009  2,787,869 shares and
December 31, 2008  2,786,563 shares
    
    
    (18,397
    )
    
    
    (18,389
    )Total stockholders equity
    
    
    75,332
    
    
    
    81,423Total liabilities and stockholders equity
    
    $
    107,298
    
    
    $
    113,191
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IMMERSION CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
 (Unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008Revenues:Royalty and license
    
    $
    3,781
    
    
    $
    3,461Product sales
    
    
    2,751
    
    
    
    2,669Development contracts and other
    
    
    446
    
    
    
    799Total revenues
    
    
    6,978
    
    
    
    6,929Costs and expenses:Cost of product sales (exclusive of amortization of intangibles
shown separately below)
    
    
    1,126
    
    
    
    1,683Sales and marketing
    
    
    4,760
    
    
    
    3,136Research and development
    
    
    3,904
    
    
    
    3,229General and administrative
    
    
    4,366
    
    
    
    4,263Amortization of intangibles
    
    
    376
    
    
    
    235Restructuring costs
    
    
    646
    
    
    
    Total costs and expenses
    
    
    15,178
    
    
    
    12,546Operating loss
    
    
    (8,200
    )
    
    
    (5,617
    )Interest and other income
    
    
    430
    
    
    
    1,507Loss from continuing operations before provision for income taxes
    
    
    (7,770
    )
    
    
    (4,110
    )Benefit (provision) for income taxes
    
    
    (91
    )
    
    
    1,203Loss from continuing operations
    
    
    (7,861
    )
    
    
    (2,907
    )Discontinued operations (Note 9) :Gain on sales of discontinued operations net of provision for income taxes of $0
    
    
    167
    
    
    
    Gain from discontinued operations, net of provision for
income taxes of $150 and $195
    
    
    235
    
    
    
    322Net loss
    
    $
    (7,459
    )
    
    $
    (2,585
    )Basic and diluted net loss per shareContinuing operations
    
    $
    (0.28
    )
    
    $
    (0.09
    )Discontinued operations
    
    
    0.01
    
    
    
    0.01Total
    
    $
    (0.27
    )
    
    $
    (0.08
    )Shares used in calculating basic and diluted net loss per share
    
    
    27,924
    
    
    
    30,478
  4




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IMMERSION CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (7,459
    )
    
    $
    (2,585
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    390
    
    
    
    260Amortization of intangibles
    
    
    376
    
    
    
    235Stock-based compensation
    
    
    1,241
    
    
    
    964Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    (107
    )Realized gain on short-term investments
    
    
    
    
    
    
    (81
    )Allowance for doubtful accounts
    
    
    519
    
    
    
    (12
    )Loss on disposal of equipment
    
    
    2
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    2,242
    
    
    
    2,220Inventories
    
    
    (884
    )
    
    
    (369
    )Deferred income taxes
    
    
    
    
    
    
    (251
    )Prepaid expenses and other current assets
    
    
    20
    
    
    
    (1,234
    )Other assets
    
    
    
    
    
    
    (3
    )Accounts payable
    
    
    (469
    )
    
    
    541Accrued compensation and other current liabilities
    
    
    (1,382
    )
    
    
    521Income taxes payable
    
    
    2
    
    
    
    (412
    )Deferred revenue and customer advances
    
    
    1,557
    
    
    
    1,991Other long-term liabilities
    
    
    5
    
    
    
    12Net cash provided by (used in) operating activities
    
    
    (3,840
    )
    
    
    1,690Cash flows provided by (used in) investing activities:Purchases of short-term investments
    
    
    (33,962
    )
    
    
    Maturities of short-term investments
    
    
    11,000
    
    
    
    49,657Intangibles and other assets
    
    
    (542
    )
    
    
    (508
    )Purchases of property and equipment
    
    
    (580
    )
    
    
    (280
    )Net cash provided by (used in) investing activities
    
    
    (24,084
    )
    
    
    48,869Cash flows provided by financing activities:Issuance of common stock under employee stock purchase plan
    
    
    134
    
    
    
    168Exercise of stock options and warrants
    
    
    70
    
    
    
    659Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    107Net cash provided by financing activities
    
    
    204
    
    
    
    934Effect of exchange rates on cash and cash equivalents
    
    
    (52
    )
    
    
    (5
    )Net increase in cash and cash equivalents
    
    
    (27,772
    )
    
    
    51,488Cash and cash equivalents:Beginning of the period
    
    
    64,769
    
    
    
    86,493End of the period
    
    $
    36,997
    
    
    $
    137,981Supplemental disclosure of cash flow information:Cash paid (received) for taxes
    
    $
    
    
    
    $
    761Supplemental disclosure of non-cash investing and financing activities:Amounts accrued for property and equipment, and intangibles
    
    $
    1,090
    
    
    $
    Non-cash treasury stock purchase
    
    $
    6
    
    
    $
    
  5




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IMMERSION CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2009
 (Unaudited)
  Description of Busines
  Principles of Consolidation and Basis of Presentation
    Reclassifications
  Revenue Recognition
  Royalty and license revenue 
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License revenue model
    
    Revenue recognitionPerpetual license of
intellectual property portfolio
based on per unit royalties, no
services contracted.
    
    Based on royalty reports received
from licensees. No further
obligations to licensee exist.Time-based license of
intellectual property portfolio
with up-front payments and/or
annual minimum royalty
requirements, no services
contracted. Licensees have
certain rights to updates to
the intellectual property
portfolio during the contract
period.
    
    Based on straight-line amortization
of annual minimum/up-front payment
recognized over contract period or
annual minimum period.Perpetual license of
intellectual property portfolio
or technology license along
with contract for development
work.
    
    Based on proportional performance
method over the service period or
completed performance method.License of software or
technology, no modification
necessary, no services
contracted.
    
    Up-front revenue recognition based
on SOP No. 97-2 criteria or SAB No.
104, as applicable.
  Product sales  ®
 Development contracts and other revenue
 7




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Multiple element arrangements
 Recent Accounting Pronouncements
     8




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Short-term Investments
 March 31, 2009Gross

    
    
    GrossUnrealized
    
    
    UnrealizedAmortized
    
    
    Holding
    
    
    HoldingCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Corporate commercial paper
    
    $
    9,986
    
    
    $
    1
    
    
    $
    
    
    
    $
    9,987U.S. government agency securities
    
    
    33,930
    
    
    
    16
    
    
    
    
    
    
    
    33,946Total
    
    $
    43,916
    
    
    $
    17
    
    
    $
    
    
    
    $
    43,933
 December 31, 2008Gross
    
    
    GrossUnrealized
    
    
    UnrealizedAmortized
    
    
    Holding
    
    
    HoldingCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Corporate commercial paper
    
    $
    9,980
    
    
    $
    1
    
    
    $
    
    
    
    $
    9,981U.S. government agency securities
    
    
    10,975
    
    
    
    18
    
    
    
    
    
    
    
    10,993Total
    
    $
    20,955
    
    
    $
    19
    
    
    $
    
    
    
    $
    20,974
  Cash Equivalents and Short-term Investments
  9




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Fair value measurement using
    
    
    Assets atLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    fair value(In thousands)Corporate commercial paper
    
    $
    
    
    
    $
    14,987
    
    
    $
    
    
    
    $
    14,987U.S. Government agency securities
    
    
    34,017
    
    
    
    
    
    
    
    
    
    
    
    34,017Money market accounts
    
    
    29,481
    
    
    
    
    
    
    
    
    
    
    
    29,481Total
    
    $
    63,498
    
    
    $
    14,987
    
    
    $
    
    
    
    $
    78,485
   March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Raw materials and subassemblies
    
    $
    3,276
    
    
    $
    3,119Work in process
    
    
    565
    
    
    
    209Finished goods
    
    
    295
    
    
    
    68Inventories, net
    
    $
    4,136
    
    
    $
    3,396
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March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Computer equipment and purchased software
    
    $
    4,832
    
    
    $
    4,735Machinery and equipment
    
    
    3,518
    
    
    
    3,269Furniture and fixtures
    
    
    1,443
    
    
    
    1,336Leasehold improvements
    
    
    1,631
    
    
    
    1,261Total
    
    
    11,424
    
    
    
    10,601Less accumulated depreciation
    
    
    (7,045
    )
    
    
    (6,774
    )Property and equipment, net
    
    $
    4,379
    
    
    $
    3,827
  March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Patents and technology
    
    $
    17,835
    
    
    $
    17,283Other assets
    
    
    156
    
    
    
    156Gross intangibles and other assets
    
    
    17,991
    
    
    
    17,439Accumulated amortization of patents and technology
    
    
    (7,633
    )
    
    
    (7,494
    )Intangibles and other assets, net
    
    $
    10,358
    
    
    $
    9,945
  11




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March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Accrued legal
    
    $
    447
    
    
    $
    491Income taxes payable
    
    
    11
    
    
    
    9Other current liabilities
    
    
    2,789
    
    
    
    2,966Total other current liabilities
    
    $
    3,247
    
    
    $
    3,466Deferred revenue, current
    
    $
    5,786
    
    
    $
    5,037Customer advances
    
    
    97
    
    
    
    88Total deferred revenue, current and customer advances
    
    $
    5,883
    
    
    $
    5,125
    Stock Options and Awards
  General Stock Option Information
  12




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Numberof SharesOutstanding at December 31, 2008 (4,055,180 exercisable at a
weighted average price of $9.35 per share)
    
    
    7,009,667Granted (weighted average fair value of $2.09 per share)
    
    
    1,195,433Exercised
    
    
    (25,307
    )Forfeited and Cancelled
    
    
    (853,879
    )Outstanding at March 31, 2009
    
    
    7,325,914Exercisable at March 31, 2009
    
    
    3,980,188
 Restricted Stock Units
  NumberBeginning balance at December 31, 2008
    
    
    34,500Awarded
    
    
    246,287Released
    
    
    (4,000
    )Forfeited
    
    
    (16,000
    )Ending Balance at March 31, 2009
    
    
    260,787Expected to Vest (1)
    
    
    171,362
 
 (1)
    
    RSUs expected to vest reflect estimated forfeiture rates.  Restricted Stock
  Number
    
    
    Aggregateof Shares
    
    
    Intrinsic ValueBeginning balance at December 31, 2008
    
    
    Awarded
    
    
    27,000Released
    
    
    Forfeited
    
    
    Ending Balance at March 31, 2009
    
    
    27,000
    
    
    $
    79,110
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Options
    
    Employee Stock Purchase PlanThree Months Ended
    
    Three Months EndedMarch 31,
    
    March 31,2009
    
    2008
    
    2009
    
    2008Expected life (in years)
    
    
    5.5
    
    
    
    5.5
    
    
    
    0.5
    
    
    
    0.5Interest rate
    
    
    1.8
    %
    
    
    2.5
    %
    
    
    0.4
    %
    
    
    2.2
    %Volatility
    
    
    69
    %
    
    
    62
    %
    
    
    109
    %
    
    
    73
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Three Months EndedMarch 31,2009
    
    
    2008Income Statement Classifications
    
    (In thousands)Cost of product sales
    
    $
    62
    
    
    $
    20Sales and marketing
    
    
    117
    
    
    
    229Research and development
    
    
    448
    
    
    
    286General and administrative
    
    
    614
    
    
    
    409Total
    
    $
    1,241
    
    
    $
    944
  Stock Repurchase Program
  14




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December 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    March 31,2008
    
    
    Quarter Ended March 31,
    
    
    2009Restructuring
    
    
    Add
    
    
    Deduct Cash
    
    
    Non-Cash
    
    
    RestructuringReserve
    
    
    Charges
    
    
    Payments
    
    
    Expenses
    
    
    Reserve($ in thousands)Medical workforce reductions
    
    $
    
    
    
    
    166
    
    
    
    
    
    
    
    
    
    
    $
    166Touch workforce reductions
    
    
    247
    
    
    
    481
    
    
    
    317
    
    
    
    (1
    )
    
    
    410Other
    
    
    15
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    12Total
    
    $
    262
    
    
    $
    647
    
    
    $
    320
    
    
    $
    (1
    )
    
    $
    588
    15




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16




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Three Months EndedMarch 312009
    
    
    2008Numerator:Loss from continuing operations
    
    $
    (7,861
    )
    
    $
    (2,907
    )Gains from discontinued operations
    
    
    402
    
    
    
    322Net loss
    
    $
    (7,459
    )
    
    $
    (2,585
    )Denominator:Shares used in computation, basic and diluted
(weighted average common shares outstanding)
    
    
    27,924
    
    
    
    30,478Basic and diluted net loss per share:Continuing operations
    
    $
    (0.28
    )
    
    $
    (0.09
    )Discontinued operations
    
    
    0.01
    
    
    
    0.01Total
    
    $
    (0.27
    )
    
    $
    (0.08
    )
  March 31,
    
    March 31,2009
    
    2008Outstanding stock options
    
    
    7,325,914
    
    
    
    6,840,918Restricted Stock and RSUs
    
    
    287,787
    
    
    
    Warrants
    
    
    431,243
    
    
    
    436,772
 17




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Three Months EndedMarch 31,2009
    
    
    2008(In thousands)Net income (loss)
    
    $
    (7,459
    )
    
    $
    (2,585
    )Change in unrealized losses on short-term investments
    
    
    (2
    )
    
    
    (7
    )Foreign currency translation adjustment
    
    
    (67
    )
    
    
    (12
    )Total comprehensive income (loss)
    
    $
    (7,528
    )
    
    $
    (2,604
    )
      18




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Three Months EndedMarch 312009
    
    
    2008(In thousands)Revenues:Touch
    
    $
    4,475
    
    
    $
    3,962Medical
    
    
    2,538
    
    
    
    3,008Intersegment eliminations
    
    
    (35
    )
    
    
    (41
    )Total
    
    $
    6,978
    
    
    $
    6,929Net Income (Loss):Touch
    
    $
    (4,300
    )
    
    $
    (1,410
    )Medical
    
    
    (3,158
    )
    
    
    (1,158
    )Intersegment eliminations
    
    
    (1
    )
    
    
    (17
    )Total
    
    $
    (7,459
    )
    
    $
    (2,585
    )
 March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Total Assets:Touch
    
    $
    129,079
    
    
    $
    129,674Medical
    
    
    9,223
    
    
    
    10,706Intersegment eliminations
    
    
    (31,004
    )
    
    
    (27,189
    )Total
    
    $
    107,298
    
    
    $
    113,191
  In re Immersion Corporation
 In re Immersion
Corporation Initial Public Offering Securities Litigation
  19




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Other Contingencies
    
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  20




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Revenue Recognition
  21




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Royalty and license revenue
  License revenue model
    
    Revenue recognitionPerpetual license of
intellectual property portfolio
based on per unit royalties, no
services contracted.
    
    Based on royalty reports received
from licensees. No further
obligations to licensee exist.Time-based license of
intellectual property portfolio
with up-front payments and/or
annual minimum royalty
requirements, no services
contracted. Licensees have
certain rights to updates to
the intellectual property
portfolio during the contract
period.
    
    Based on straight-line amortization
of annual minimum/up-front payment
recognized over contract period or
annual minimum period.Perpetual license of
intellectual property portfolio
or technology license along
with contract for development
work.
    
    Based on proportional performance
method over the service period or
completed performance method.License of software or
technology, no modification
necessary, no services
contracted.
    
    Up-front revenue recognition based
on SOP No. 97-2 criteria or SAB No.
104, as applicable.
  Product sales
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Development contracts and other revenue
 Multiple element arrangements
  Stock-based Compensation
  Valuation and amortization method
 Expected term
 Expected volatility
 Risk-free interest rate
 Expected dividend
 Forfeitures
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Accounting for Income Taxes
    Short-term Investments
  24




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Recovery of Accounts Receivable
  25




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Inventory Reserves
  Product Return and Warranty Reserves
  Intangible Assets
  Restructuring Costs
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Overview
   March 31,REVENUES
    
    2009
    
    
    2008
    
    
    Change($ In thousands)Three months ended:Royalty and license
    
    $
    3,781
    
    
    $
    3,461
    
    
    
    9
    %Product sales
    
    
    2,751
    
    
    
    2,669
    
    
    
    3
    %Development contracts and other
    
    
    446
    
    
    
    799
    
    
    
    (44
    )%Total Revenue
    
    $
    6,978
    
    
    $
    6,929
    
    
    
    1
    %
 Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
 Total Revenue
 Royalty and license revenue
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Product sales
 Development contract and other revenue
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March 31,
    
    ChangeCOST OF PRODUCT SALES
    
    2009
    
    2008($ In thousands)Three months ended:Cost of product sales
    
    $
    1,126
    
    
    $
    1,683
    
    
    
    (33
    )%% of total product revenue
    
    
    41
    %
    
    
    63
    %
 Cost of Product Sales
 March 31,
    
    ChangeOPERATING EXPENSES AND OTHER
    
    2009
    
    2008($ In thousands)Three months ended:Sales and marketing
    
    $
    4,760
    
    
    $
    3,136
    
    
    
    52
    %% of total revenue
    
    
    68
    %
    
    
    45
    %Research and development
    
    $
    3,904
    
    
    $
    3,229
    
    
    
    21
    %% of total revenue
    
    
    56
    %
    
    
    47
    %General and administrative
    
    $
    4,366
    
    
    $
    4,263
    
    
    
    2
    %% of total revenue
    
    
    63
    %
    
    
    62
    %Amortization of intangibles
    
    $
    376
    
    
    $
    235
    
    
    
    60
    %% of total revenue
    
    
    5
    %
    
    
    3
    %Restructuring Costs
    
    $
    646
    
    
    $
    
    
    
    
    *
    %% of total revenue
    
    
    9
    %
    
    
    *
    %
 
 *
    
    Not meaningful Sales and Marketing
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Research and Development
 General and Administrative
 Amortization of Intangibles
 Restructuring
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Interest and Other Income
 Provision for Income Taxes
 Discontinued Operations
  Three Months EndedMarch 31,2009
    
    
    2008(In thousands)Revenues:Touch
    
    $
    4,475
    
    
    $
    3,962Medical
    
    
    2,538
    
    
    
    3,008Intersegment eliminations
    
    
    (35
    )
    
    
    (41
    )Total
    
    $
    6,978
    
    
    $
    6,929Net Income (Loss):Touch
    
    $
    (4,300
    )
    
    $
    (1,410
    )Medical
    
    
    (3,158
    )
    
    
    (1,158
    )Intersegment eliminations
    
    
    (1
    )
    
    
    (17
    )Total
    
    $
    (7,459
    )
    
    $
    (2,585
    )
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*
    
    Note: Segment information may not be indicative of the financial position or results of
operations that would have been achieved had these segments operated as unaffiliated entities. Touch segment
 Medical segment
      32




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2010 and
    
    
    2012 andContractual Obligations
    
    Total
    
    
    2009
    
    
    2011
    
    
    2013
    
    
    2014(In thousands)Operating leases
    
    $
    3,555
    
    
    $
    928
    
    
    $
    1,250
    
    
    $
    1,094
    
    
    $
    283
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Cash Equivalents and Short-term Investments
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Foreign Currency Exchange Rates
 
 ITEM 4. CONTROLS AND PROCEDURES
       34




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PART II
 OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 In re Immersion Corporation
 In re Immersion Corporation
Initial Public Offering Securities Litigation
    Immersion Corporation v. Mentice AB, Mentice SA, Simbionix USA Corp., and Simbionix Ltd.
  35




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ITEM 1A. RISK FACTORS
 Company Risks
     
    
    continue to develop our technologies;
    
    increase our sales and marketing efforts;
    
    attempt to expand the market for touch-enabled technologies and products and change our business;
    
    protect and enforce our intellectual property;
    
    pursue strategic relationships;
    
    acquire intellectual property or other assets from third-parties; and
    
    invest in systems and processes to manage our business.
  .
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
    
    the lengthy and expensive process of building a relationship with potential licensees;
    
    the competition we may face with the internal design teams of existing and potential licensees;
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
    
    difficulties in persuading product manufacturers to work with us, to rely on us for critical
technology, and to disclose to us proprietary product development and other strategies;
    
    difficulties with persuading potential licensees who may have developed their own intellectual
property or licensed intellectual property from other parties in
areas related to ours to license our technology versus continuing to develop their own or license from other parties;
    
    challenges in demonstrating the compelling value of our technologies in new applications like
mobile phones, portable devices, and touchscreens;
    
    difficulties in persuading existing and potential licensees to bear the development costs and
risks necessary to incorporate our technologies into their products;
    
    difficulties in obtaining new licensees for yet-to-be commercialized technology because their
suppliers may not be ready to meet stringent quality and parts availability requirements;
    
    inability to sign new gaming licenses if the video console
makers choose not to license third parties to make peripherals for their new consoles; and
    
    reluctance of content developers, mobile phone manufacturers, and service providers to sign
license agreements without a critical mass of other such inter-dependent supporters of the
mobile phone industry also having a license, or without enough phones
in the market that incorporate our technologies.
     39




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41




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
    
    our pending patent applications may not result in the issuance of patents;
    
    our patents may not be broad enough to protect our proprietary rights; and
    
    effective patent protection may not be available in every country in
which we or our licensees do business.
  
    
    laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technologies or deter others from developing
similar technologies; and
    
    policing unauthorized use of our patented technologies, trademarks,
and other proprietary rights would be difficult, expensive, and
time-consuming, within and particularly outside of the United States
of America.
     
    
    we fail to develop new technologies or products;
    
    the technologies we develop infringe on third-party patents or other third-party rights;
    
    our new technologies fail to gain market acceptance; or
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
    
    our current products become obsolete or no longer meet new regulatory requirements.
          44




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
    
    compliance with multiple, conflicting and changing governmental laws and regulations;
    
    laws and business practices favoring local competitors;
    
    foreign exchange and currency risks;
    
    difficulty in collecting accounts receivable or longer payment cycles;
    
    import and export restrictions and tariffs;
    
    difficulties staffing and managing foreign operations;
    
    difficulties and expense in enforcing intellectual property rights;
    
    business risks, including fluctuations in demand for our products and
the cost and effort to conduct international operations and travel
abroad to promote international distribution and overall global
economic conditions;
    
    multiple conflicting tax laws and regulations; and
    
    political and economic instability.
      47




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Investment Risks
    
    
    the establishment or loss of licensing relationships;
    
    the timing and recognition of payments under fixed and/or up-front license agreements;
    
    the timing of work performed under development agreements;
    
    the timing of our expenses, including costs related to litigation, stock-based
awards, acquisitions of technologies, or businesses, dispositions and restructurings;
    
    the timing of introductions and market acceptance of new products and product
enhancements by us, our licensees, our competitors, or their competitors;
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
    
    our ability to develop and improve our technologies;
    
    our ability to attract, integrate, and retain qualified personnel;
    
    seasonality in the demand for our products or our licensees products; and
    
    our ability to build or ship products on a timely basis.
     
    
    our board of directors is classified into three classes of directors with staggered
three-year terms;
    
    only our chairperson of the board of directors, a majority of our board of directors,
or 10% or greater stockholders are authorized to call a special meeting of stockholders;
    
    our stockholders can only take action at a meeting of stockholders and not by written
consent;
    
    vacancies on our board of directors can be filled only by our board of directors and
not by our stockholders;
    
    our restated certificate of incorporation authorizes undesignated preferred stock, the
terms of which may be established and shares of which may be issued without stockholder
approval; and
    
    advance notice procedures apply for stockholders to nominate candidates for election as
directors or to bring matters before an annual meeting of stockholders.
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
    
    unanticipated costs associated with the acquisitions;
    
    use of substantial portions of our available cash to consummate the acquisitions;
    
    diversion of managements attention from other business concerns;
    
    difficulties in assimilation of acquired personnel or operations;
    
    failure to realize the anticipated benefits of acquired intellectual property or other assets;
    
    charges associated with amortization of acquired assets or potential charges for write-down of
assets associated with unsuccessful acquisitions;
    
    potential intellectual property infringement claims related to newly-acquired product lines; and
    
    potential costs associated with failed acquisition efforts.
     Controls and Procedures
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ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description10.37
    
    Form of 2009 Executive Incentive Plan10.38
    
    Amended and Restated Retention and Ownership Agreement dated April 20, 2009
between Immersion Corporation and Clent Richardson10.39
    
    Amended and Restated Retention and Ownership Agreement dated April 23, 2009
between Immersion Corporation and Stephen Ambler31.1
    
    Certification of Clent Richardson, President and Chief Executive Officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Stephen Ambler, Chief Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Clent Richardson, President and Chief Executive Officer, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Stephen Ambler, Chief Financial Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.99.01
    
    Form of Restricted Stock Agreement99.02
    
    Form of Notice of Grant of Restricted Stock
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SIGNATURES
   IMMERSION CORPORATIONBy
    /s/ Stephen AmblerStephen AmblerChief Financial Officer 52




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EXHIBIT INDEX
 ExhibitNumber
    
    Description10.37
    
    Form of 2009 Executive Incentive Plan10.38
    
    Amended and Restated Retention and Ownership Agreement dated April 20, 2009
between Immersion Corporation and Clent Richardson10.39
    
    Amended and Restated Retention and Ownership Agreement dated April 23, 2009
between Immersion Corporation and Stephen Ambler31.1
    
    Certification of Clent Richardson, President and Chief Executive Officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Stephen Ambler, Chief Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Clent Richardson, President and Chief Executive Officer, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Stephen Ambler, Chief Financial Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.99.01
    
    Form of Restricted Stock Agreement99.02
    
    Form of Notice of Grant of Restricted Stock