Immersion Corporation Reports Third Quarter 2006 Financial Results

SAN JOSE, Calif.—(BUSINESS WIRE)—November 2, 2006— Immersion Corporation, (Nasdaq: IMMR), a leading developer and licensor of touch feedback technology, today announced its third quarter 2006 financial results. Revenues were $6.6 million for the quarter ended September 30, 2006 compared to revenues of $5.4 million for the third quarter of 2005. Net loss on a Generally Accepted Accounting Principles (GAAP) basis for the third quarter of 2006 was $3.2 million, or $0.13 per share, down 24 percent compared to a net loss on a GAAP basis of $4.2 million, or $0.17 per share, for the third quarter of 2005. Net loss for the three months ended September 30, 2006 included stock-based compensation expense of $724,000, equal to $0.03 loss per share. Net loss for the three months ended September 30, 2005 did not include any stock-based compensation expense. As of September 30, 2006, Immersion had cash and cash equivalents totaling $29.0 million as compared to $30.9 million as of June 30, 2006.

Revenues were $19.2 million for the nine months ended September 30, 2006 compared to revenues of $17.4 million for the first nine months of 2005. Net loss on a GAAP basis for the first nine months of 2006 was $8.4 million, or $0.34 per share, down 17 percent compared to a net loss on a GAAP basis of $10.1 million, or $0.42 per share, for the first nine months of 2005.

"The third quarter revenue increase was led by 35 percent growth in non-gaming revenues, notably from medical and touch interface products," said Victor Viegas, Immersion CEO and president. "Gaming revenues from our third-party peripheral licensees declined 28 percent, as expected. Our overall 22 percent revenue growth over revenues in the third quarter last year demonstrates increasing demand for our haptics technology for many diverse applications.

"Medical simulation continues to gain wider acceptance as an effective training tool, which is driving interest in the acquisition of our simulation systems by teaching institutions and medical device manufacturers. In response, Immersion Medical has broadened its sales coverage, increased its distribution reach, and maintained its strong relationship with Medtronic, Inc. In addition, the new strategic relationship with Laerdal Medical A/S, announced in August, has expanded the distribution channel for vascular access products worldwide and is already contributing to our revenue growth. Medical revenue increased 64 percent compared to the year ago quarter and 41 percent year-to-date compared to the same period in 2005.

"We continue to gain support for our VibeTonz(R) technology in Korea, an early adoption proving ground for mobile technologies. We now have relationships with the top three handset makers and the top two operators or their content aggregators in Korea. Recently we established an important new affiliation with Korea Telecom Freetel (KTF), the second largest operator in Korea with 13 million subscribers. Through an Immersion agreement with content aggregator GeoTel, KTF subscribers will now have access to VibeTonz-enabled games, music, video, messaging, and other content and services. Earlier in the third quarter, we announced that our licensee SK Telecom, Korea's number one mobile operator with 20 million subscribers, launched an exclusive VibeTonz category for downloadable ringtones. These companies along with leading content providers are using our VibeTonz technology and tools to create compelling content that we believe can generate a new source of revenue for their business."

Immersion will host a conference call with company management on Thursday, November 2, 2006, at 5:00 p.m. Eastern time to discuss operating results for the third quarter ended September 30, 2006. A question and answer session will follow. To listen to the call, dial +1 800.374.2366 approximately five minutes prior to the start of the call and enter confirmation number 2398254. The call will be archived and available for replay until November 9, 2006, by dialing +1 800.642.1687 and entering confirmation number 2398254. The call will also be simulcast on the Internet through Immersion Corporation's Web site, An audio replay of the call will be archived and available at for replay until November 2, 2007.

About Immersion (

Founded in 1993, Immersion Corporation is a recognized leader in developing, licensing, and marketing digital touch technology and products. Using Immersion's advanced touch feedback technology, electronic user interfaces can be made more productive, compelling, entertaining, or safer. Immersion technologies are deployed across automotive, entertainment, industrial controls, medical training, mobility, and three-dimensional simulation markets. Immersion's patent portfolio includes over 600 issued or pending patents in the U.S. and other countries.

Forward-Looking Statements

This press release contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of Immersion Corporation and its consolidated subsidiaries to differ materially from those expressed or implied by such forward-looking statements.

All statements, other than the statements of historical fact, are statements that may be deemed forward-looking statements, including any projections of earnings, revenues, or other financial matters; any statements of the plans, strategies, and objectives of management for future operations; any statements concerning consumer or market acceptance of simulator products for medical training, continuing education or evaluation; adoption and market acceptance of touch-enabled mobile phones or consumer and market acceptance of force feedback products in general; future development of force feedback products; proposed products or services; any statements regarding future economic conditions or performance; and statements of belief or assumptions underlying any of the foregoing. Immersion's actual results might differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with Immersion's business which include, but are not limited to, delay in or failure to achieve commercial demand for Immersion's expanded technology offerings; a delay in or failure to achieve the acceptance of force feedback as a critical user experience in new and existing markets for our business segments; and risks and uncertainties associated with ongoing litigation.

For a more detailed discussion of these factors, and other factors that could cause Immersion's actual results to vary materially, interested parties should review the risk factors listed in Immersion's most current Form 10-Q, which is on file with the U.S. Securities and Exchange Commission. The forward-looking statements in this press release reflect Immersion's beliefs and predictions as of the date of this release. Immersion disclaims any obligation to update these forward-looking statements as a result of financial, business, or any other developments occurring after the date of this release.

Immersion, the Immersion logo, and VibeTonz are trademarks of Immersion Corporation in the U.S. and other countries. All other trademarks are the property of their respective owners.
                        Immersion Corporation
                Condensed Consolidated Balance Sheets
                            (In thousands)

                                            September 30, December 31,
                                                2006         2005
                                             (Unaudited)      (1)
                                            ------------- ------------
  Cash and cash equivalents                 $     29,037  $    28,171
  Accounts receivable, net                         5,458        4,650
  Inventories, net                                 2,419        2,655
  Prepaid expenses and other current assets          857        1,131
                                                                -------------  ------------
                    Total  current  assets                                        37,771              36,607

    Property  and  equipment,  net                                            1,724                1,366
    Intangibles  and  other  assets,  net                                7,243                6,787
                                                                                        -------------  ------------

TOTAL  ASSETS                                                                $          46,738    $        44,760
                                                                                        =============  ============

    Accounts  payable                                                    $            1,234    $          2,179
    Accrued  compensation                                                          1,272                1,193
    Other  accrued  liabilities                                                1,988                1,604
    Deferred  revenue  and  customer  advances                      2,179                2,741
    Current  portion  of  long-term  debt                                        -                        5
                                                                                        -------------  ------------
                    Total  current  liabilities                                6,673                7,722

    Long-term  debt                                                                    17,964              17,490
    Long-term  liabilities  and  deferred
      revenue                                                                                29,389              21,343
    Long-term  customer  advance  from  Microsoft              15,000              15,000
                                                                                        -------------  ------------
                    Total  liabilities                                              69,026              61,555

STOCKHOLDERS'  DEFICIT                                                        (22,288)          (16,795)
                                                                                        -------------  ------------

STOCKHOLDERS'  DEFICIT                                              $          46,738    $        44,760
                                                                                        =============  ============

            (1)  Derived  from  Immersion's  annual  audited  consolidated
              financial  statements.

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