Immersion Corp (IMMR) 2004 Q1 法說會逐字稿

Good afternoon. My name is Marcus and I will be your conference facilitator today. At this time I would like to welcome everyone to the Immersion Corporation quarterly results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). Thank you. Mr. Viegas, you may begin your conference.

Thank you, Marcus, and good afternoon, ladies and gentlemen. I'm pleased to welcome you to this discussion of Immersion's results for the first-quarter of 2004.

Joining me on today's call is Immersion's Vice President and Corporate Controller, Mary Beth Faust, who will take you through our financials.

By now, you should have seen this quarter's earnings release that was distributed following the close of market today. If you have not, it is available on our website at, www.immersion.com. A replay of today's call may be accessed until April 30, 2004, by dialing 800-642-1687 and entering reservation number 457-2176. A replay of this call will also be archived and available on our website for one year.

During the course of our comments today, we will be making forward-looking statements. Our actual results could differ materially from these current expectations. Factors that could cause actual results or developments to differ include risk factors listed in today's news release, the Company's SEC filings, our annual report to shareholders, as well as those factors mentioned during our discussions today.

Before turning the call over to Mary Beth, who will provide you with a comprehensive review of our financials, and briefly describe the Microsoft conversion of preferred stock to common stock of Immersion, I would like to provide you with an overview of this quarter's financial performance, give you an update on each of our business segments, discuss the status of our litigation with Sony and conclude with a review of our patent portfolio.

Beginning with our financial performance -- we're pleased with this quarter's 43 percent year-over-year revenue growth, which was driven largely by the efforts of our new sales and marketing team.

Not only were revenues significantly higher than the first quarter of 2003, they were higher across all revenue categories and across each of our businesses. The investments that we have been making in the sales and marketing area are already demonstrating value through improved performance and our ability to penetrate new and existing markets in a smarter, more effective way, to build greater market acceptance for our touch technology.

We expect continued revenue growth from all of our business segments for the full year of 2004 -- and therefore expect 2004 revenues will be higher than the $20 million recorded in 2003.

Litigation expenses associated with the lawsuit against Sony Entertainment continued to burden our bottom-line performance. However, we will continue to protect and defend our intellectual property.

As stated in today's release, our first-quarter litigation expenses were $3.2 million or $2.4 million higher than the first quarter a year ago. Although our net loss in the first quarter was $6.2 million, it is important to note that in addition to the $3.2 million in litigation expenses, the loss included approximately $600,000 in preferred stock accretion and accrued dividends.

Expense items that will go away after the first quarter because of Microsoft's conversion of preferred stock to common stock of immersion. Our loss also included approximately $500,000 in non-cash intangible and deferred stock compensation amortization.

A look at our balance sheet shows that we finished quarter with $18.8 million in cash. Subsequent to quarter end, we extended an existing prepayment arrangement with a licensee, whereby we received an additional $5 million in cash in return for a discount on future royalties due from this licensee pursuant to our existing license agreement. This $5 million in cash will be recorded on the balance sheet in the second quarter of 2004 -- the period when the cash was received. I would now like to give you an update on our four business segments.

Beginning with the Medical business, and under the new leadership of Richard Vogel, we introduced our new AccuTouch Endovascular Simulation System in March for the training of Endovascular interventions -- including coronary angioplasty and stenting.

According to the American Heart Association, nearly 1 million balloon angioplasty's are performed each year in the U.S. alone. This procedure, a much less invasive alternative to some coronary artery bypass surgeries, requires a very practiced technique. Our AccuTouch Endovascular Simulation System provides a realistic environment for risk-free training of this lifesaving procedure.

Medtronic, the world's leading medical technology Company, partnered Immersion, to develop the simulator, and Medtronic also uses the device in its training programs.

A second medical product, previously released as a beta product and will be formally introduced the to the market in May, was our Historoscapy (ph) training simulator -- one of the first commercial training simulator's that can increase doctor's competence levels using a Historoscope (ph) to conduct diagnostic and operative gynecological procedures, such as myomectomy that are safe, beneficial and more comfortable for the patient.

Uterine fibroids (ph) are the most common indication for hysterectomy in the age group of 35 to 54 years old -- accounting for approximately 30 percent of the more than 600,000 hysterectomies performed in the U.S., and 1.5 million performed worldwide each year.

As an alternative to certain hysterectomies, myomectomy avoids organ loss and life-changing effects, and can be performed in outpatient setting -- a much less costly facility than the operating room.

These new products, as well as our other simulations systems, address a growing trend within the medical community -- and that is the use of complex, minimally invasive medical procedures. The use of these procedures continues to rise, due to the many benefits that such procedures bring -- such as reduced hospital stays, reduced postprocedure pain, shorter recoveries and reduced costs.

However, most such procedures require advanced surgical skills. So training products that contribute to the improvement of patient outcomes, and reduce costs, are likely to be increasingly valued by the marketplace.

A training regimen utilizing simulation allows medical professionals to experience the sight, sounds, and touch sensations of a variety of medical situations. It can provide a means for motor skills and cognitive abilities to be acquired, maintained, measured, and certified.

We are excited about these new opportunities in Medical, which promote patient safety and reduced hospital risk -- as well as training time and costs. We're working on several other initiatives that offer compelling ROI -- return on investment -- that we will be telling you more about later this year.

To capitalize on these new and existing opportunities, I would like to highlight the recent hiring of Richard Vogel, as Senior Vice President and General Manager of Immersion Medical in Gaithersburg, Maryland, which continues Immersion's investment in its human capital.

Richard has a proven track record of commercializing products, building distribution channels, and strategic alliances, and expanding international sales. Over his 25 year career, Richard has profitably grown startups, as well as the businesses of public Companies, in the medical device, durable medical equipment, and capital equipment industries -- such as Kinetic Concepts in American Cyanamid.

In addition to Richard, we have hired two Senior Managers in the sales and marketing area of our Medical business. Over the past nine months, we have substantially upgraded our Medical sales and marketing team, and believe we are well positioned to execute on our 2004 market development and sales strategy.

Turning to the Mobility business, as we have previously described, Immersion's Vibe Tones technology can deliver a better cell phone user experience, and create new revenue-generating opportunities for our partners in several different applications, such as ring tones, gaming, and messaging. Let me give you some metrics in each of these three areas.

In the first application area, ring tones, businessweek.com reports that in 2003, ring tones sales produce $3.5 billion in revenue. Personalizing a phone with ring tones enhances the user experience. We believe vibe-tones ringers can heighten the satisfaction by adding synchronized vibrations to the melodies you hear.

Secondly, in a messaging field, an estimated 20 billion short messaging service transmissions are sent each month worldwide on cell phones. The vibe-tones system can add tactile sensations to messages that reflect your mood, like a hug or laughter, thereby enhancing these transmissions.

And in the third area, cell phone gaming, IDC predicts that in the U.S. alone, the number of mobile gamers will jump from 70 million in 2002 to 71 million in 2007 -- and that U.S. mobile gaming revenue will jump from $130 million in 2000 $4 billion in 2007. Using vibe tones technology to deliver a shudder of a machine gun blast, the shock and impact of an explosion, or the thump of a foot kicking a ball, can enhance the mobile gaming experience comparable to that in PC and consul games.

Immersion's vibe-tones technology benefits four partner constituents in the cell phone area -- OEM handset makers, operating system providers, mobile operators, and content developers. We continue to meet, demonstrate and discuss the use of Immersion's vibe-tones technology with many of the major players in these four areas. Let me give you some of the industry trends in these partner areas.

In the OEM area of handset makers, including Companies like Samsung, with whom we have signed a multiyear licensing agreement, preliminary estimates by IDC are that there were 533 million mobile phone shipments worldwide in 2003. Samsung has a 10 percent share of this market, and in the fourth quarter of last year, set a new internal shipment record producing year-over-year growth of 26 percent, driven by strong demand for high-end handsets with imaging capabilities. We believe vibe-tones capabilities can help handset manufacturers like Samsung and others drive demand for replacement phones.

Operating system providers are the basic building block and cornerstone of mobility software, onto which other layers -- such as user interface and the actual applications -- can be stacked. OS providers also offer a high degree of commonality between phones, from different vendors, that serve to broaden the addressable market for application developers.

Easier to use phones may also drive the handset replacement cycle and the increase in utility -- from voice, to data, to touch sensations -- may also have positive implication for average handset selling prices.

In addition, standardized software solutions also minimize duplication in R&D investment, accelerating time to market, allowing greater differentiation, and a more compelling user experience. Vibe-tones enables mobile operators to sell additional content, such as vibe-tones enabled ring tones and games, as well as offer more compelling services -- such as vibe-tones enabled messaging, text messaging. The more engaging a user finds Immersion's vibe-tones features, the more likely they will be to seek operators who offer the capability -- thereby helping attract new customers and reduce churn.

In the content developer area, vibe-tones can be used to deliver better games and more features. At last month's Game Developers conference in San Jose, Immersion demonstrated its cell phone technology, including our developer tools. The feedback we received was very positive. These GDC attendees represented the technical, creative and business talent behind the software and hardware, and services that create the applications which entertain over 100 million people.

We're more encouraged than ever by the cell phone and PDA market opportunity, and continue to view this area as one of the next growth catalysts for Immersion.

In the Industrial Business group, we continue to make progress in the automotive sector, with new development contracts and increased interest in new user interfaces, such as programmable rotary controls and Haptic Touch Panels. Recently, completed testing conducted by a major OEM on our Haptic Touch Panel technology resulted in very positive user reaction. We will continue to develop our Touch Panel technology -- as we believe it will be an ideal solution in mainstream vehicles, as well as in other business applications.

Turning now to the gaming area, Microsoft's recent exit of the PC gaming peripherals market has benefited some of our third party licensees by increasing their market share.

In addition, many of our licensees are now enjoying the benefits of a strong year of consul sales in 2003, and have also rolled out new products in the consul gaming area. The combination of these three factors led to year-over-year growth in our gaming revenues.

Others factors influencing our gaming business include the Sony litigation. We recently announced that the U.S. District Court for the Northern District of California held a pretrial conference on April 13th, at which time Judge Wilken (ph) indicated that she had a scheduling conflict with another case on the courts docket, and that the trial to hear the case between Immersion and Sony would not commence on April 19th as previously scheduled.

Judge Wilken tentatively rescheduled the trial date to May 24, 2004, with a tentative back up date of August 16, 2004. Both dates are subject to the court's calendar.

While we would prefer to get the trial under way as soon as possible, this delay is beyond anyone's control -- and most importantly, has nothing at all to do with the merits of the case. In fact, we're encouraged by the merits of our case as demonstrated by recent events.

For example, on March 2, 2004, the court issued a written ruling on the summary judgment motions filed earlier this year. The court denied Sony's motion for summary judgment of invalidity, and granted all but one of Immersion's motions and dismissed several Sony defenses.

In wrapping up, I would also like to mention that we now own more than 230 patents in our worldwide intellectual property portfolio -- with more than 250 pending applications.

With that, I would now like to turn the call over to Mary Beth, who will review our financial performance for the quarter. Mary Beth?

Thanks, Vic. Let me begin by briefly reviewing each of our businesses.

Revenue from our Medical business in the first quarter of 2004 was $2 million, a 20 percent increase over the comparable quarter in 2003. Increases in royalty and development contract revenue more than offset lower product sales.

Our Industrial group includes our automotive business as well as our 3-D and Professional businesses. Revenue from our Industrial group increased 51 percent on a year-over-year comparison. All revenue categories contributed to the significant year-over-year increase.

Revenue from Gaming grew 81 percent year-over-year, driven mainly by increased royalty revenue from our licensees on both PC and consul gaming products.

Turning now to the income statement -- as stated in today's earnings release, revenue for the first quarter of 2004 were $5.4 million compared to $3.7 million in the first quarter of 2003.

Royalties from patents and technology licensing in the first quarter of this year represented 34 percent of total revenue, or $1.8 million -- approximately $1 million higher than the same quarter last year.

Product sales accounted for 46 percent of total revenue, at $2.4 million, compared to $2.1 million in the first quarter a year ago. And development contract revenue for the quarter represented 20 percent of total revenue, or $1.1 million -- compared to $755,000 in the first quarter of 2003.

On a GAAP basis, net loss was $6.2 million or 30 cents per share -- compared to a net loss of $3.7 million or 18 cents per share for the first quarter of 2003. This quarter's net loss includes approximately $1 million or 5 cents per share in non-cash charges relating to amortization, for stock-based compensation, and intangible assets, and accretion on our Series A Redeemable Convertible Preferred Stock. This compares to non-cash charges of approximately 600,000 or 3 cents per share attributable to amortization for stock-based compensation and intangible assets in the same quarter last year.

First quarter 2004 operating expenses were $9.2 million compared to $5.6 million in the first quarter of 2003. The higher operating expenses are related to the legal expenses associated with the patent infringement litigation that Vic discussed earlier.

As previously mentioned, we have completed our preparation for the trial that was scheduled to begin this month. Going forward, we expect our legal expenses to be lower until the trial begins.

We have taken actions to reduce other costs in areas that are unrelated to protecting our intellectual property portfolio or driving new business initiatives. For example, in March, we renegotiated terms relating to the rent for our San Jose headquarters. We expect this action will generate approximately $400,000 in savings over a 15 month period.

Gross margins were 77 percent in the quarter -- first quarter of 2004 -- compared to 70 percent for the first quarter of 2003, due to the higher contribution from royalties in the revenue mix.

Interest and other expense was $558,000 higher in the first quarter of 2004 than the comparable quarter a year ago. During the first quarter of 2004, we recorded both accretion expense of 500,000 and dividend expense of 99,000 on our Series A Redeemable Convertible Preferred Stock.

On April 2, 2004, Microsoft converted 2,185,792 shares of Immersion Series A Redeemable Convertible Preferred Stock into the same number of shares of Immersion common stock. These shares represent all of Microsoft's investment in Immersion securities. When we sold the preferred stock in July 2003, we also agreed to file an S-3 registration statement with the SEC to register the common shares that would result from a Preferred Stock Conversion. Therefore, the registration statement registers 6.5 million shares, which is approximately 2.7 million shares issuable upon the conversion of preferred stock and dividends on the preferred stock if (ph) paid in additional shares, plus approximately 3.8 million shares issuable upon the conversion of all debentures -- which could be sold -- and interest on those debentures if paid in additional shares.

Since we paid dividends in cash, and we have not sold any debentures, only 2.2 million shares were available to be converted at this time.

Immersion and Microsoft worked together with the SEC to get the S-3 declared effective on a timely basis. And when the process took longer than expected, Microsoft waived any right it had to receive penalties, as well as its right to receive dividends that would have otherwise accrued after the registration statement became effective -- which took place on March 26, 2004.

We view this action by Microsoft as very positive event for Immersion, because it eliminates certain obligations -- such as the mandatory redemption buyback provision, the obligation to make dividend payments, and it removes certain operational limitations.

Going forward, we will no longer be recording accretion and dividend expense on the Series A Redeemable Convertible Preferred Stock due to the conversion into Immersion Common stock.

On our balance sheet, as of March 31, 2004, we had cash and cash equivalents of $18.8 million. As Vic mentioned previously, we received 5 million from a licensee after quarter-end, and hence our cash balance at March 31, 2004, does not reflect that prepayment.

This concludes the review of our financial results, and I will now turn the call back over to Vic.

Thanks, Mary Beth. In closing, I would like to briefly mention -- we're focused on achieving profitability, and believe that on an operating basis, we are making progress towards this goal. That means that with continued traction in our existing markets -- such as Medical, Gaming, Industrial, plus the potential to derive revenue from new markets, such as mobility, Immersion is closer to attaining its goal of profitability once the litigation issue is resolved.

While we cannot predict when this will occur, we're moving in the right direction, and our first quarter results demonstrate that.

Before discussing any questions you may have, let me mention that we remain interested in meeting with current and potential institutional investors wanting to know more about Immersion. If you are interested in scheduling a follow-up call, or would be interested in meeting with us, please call me at 408-467-1900. I will now turn the call back to Marcus for your questions. Marcus?

(Operator Instructions). Robert Katz (ph), Sunvest International (ph).

I have a few questions. How many shares are going to be outstanding after the Microsoft conversion -- fully diluted?

After Microsoft converts, we will have 23.2 million shares outstanding.

Thanks. And what is the breakeven level in revenues?

Robert, the breakeven is obviously going to be a function of revenue growth and the operating expenses -- which, up till now, have been dominated by the litigation fees. So it makes the assumption that the majority of the litigation fees have been incurred, as we approach the trial. And moving forward, we would expect litigation fees to drop off substantially.

With that in mind, I believe our current run rate would give us a breakeven point somewhere in the $8 million per quarter level.

Right. And postlitigation -- once you get the Sony litigation behind you -- what do you think litigation goes down to on a quarterly basis? Or what -- legal fees, I guess?

Well, we do have legal fees associated with the filing and the maintenance of our IP portfolio. There are in-house legal counsel that manage a good portion of that, as well as our licensing initiatives. There are external legal fees related to corporate activities that are typical with being a public Company.

From a litigation standpoint, obviously, this is the major item that we're dealing with. It is difficult to predict in the future what other activities might go on. But, I would expect that there -- to be a significant reduction in the litigation fees once we have got this Sony lawsuit behind us.

Sure. And, lastly, what would guidance be for the upcoming quarter -- what is your visibility? Could you give any more structure on that?

No. I do not yet want to give guidance. I am seeing substantial growth in all the business segments, as we said earlier. So, I think it's safe to say that we're going to exceed our 2003 revenue. But at this point, I would prefer not to give guidance -- only because there are still a number of events that will need to happen in the mobility space -- for one -- a strong gaming season here at the end of 2004 -- new product rollouts in the Medical space. So it gets a little difficult to predict the revenue growth from some of those types of items.

I will step back in the queue.

(Operator Instructions). Kirk Meyer, Lehman Brothers.

Hi, Vic. Three questions -- number one, the technologies or the abilities you have developed with Medtronic -- I know that originally we were talking about ideally showing them or selling those abilities to other firms. Where are we at this point in time with those efforts?

Kirk, as you know, the relationship we have with Medtronic is a very strong and an important one. They have keen interest in providing the best training tools to their customers. And, as a result, they work with us very closely, not only funding certain development programs, but also assisting us in some of the data and information and parameters that we use in the simulation system.

As a result, we develop simulation systems with them, and then they become a customer for those simulation systems as they deploy these systems throughout their training programs.

So, not only do we get funding from them, but we also sell products to them. And then, we conduct an effort to generalize those simulation systems by taking out proprietary content that is provided by Medtronic. And we're then able to sell these as generic simulators to the various different customer bases that we sell into -- namely medical schools, teaching hospitals, and others.

So, one of the products that I mentioned in the call today is a new Endovascular Simulation System that was the core of some technical development work that we conducted with Medtronic, and we will be rolling out a generic trainer to the open marketplace soon.

Okay. Does that imply that some of the other competitors to Medtronic are not looking at this? Or are you engaged in dialogue with those business opportunities beyond just the mad schools and the teaching hospitals?

Well, Medtronic's competitors obviously are able to see the type of training systems that Medtronic is rolling out. So they are aware of those simulation systems.

In terms of trying to develop relationships with those Companies and at what level, that is really not something I am at liberty to discuss right now.

Okay. Relative to the Samsung phone contract, you have now dealt with them for a number of months. Can you perhaps give us a better sense of time that we may be able to go into a local retailer and see one of these devices?

And -- I don't know if it's possible to bracket -- well this is the best case, this is the worst case, and this is really kind of what we expect it to -- to see? I don't know if you're at liberty to do that?

Well, our technology is at a very advanced state. And we have ported the technology over to a few platforms with Samsung -- a few different phone models. We are continuing to fine-tune some of the applications, and we're currently moving towards, or into, let's say, a user testing phase -- where, now that there are beta phones, let's say, available for testing, we are doing -- conducting some internal testing. And we're also seeing some of the OEMs, as well as carriers, beginning to conduct some usability studies. And these studies are able to help us determine which effects are most readily recognized. We are able to test certain demographic information, pricing models, we are able to test which effects people remember and which ones they associate with different emotions. Let's say, for text messaging. So there's a lot of application level user testing being conducted right now.

In terms of when a phone might be made available to the market, it's really a decision that will be made by Samsung and their carrier partners. It is our hope that we would see a phone in the marketplace sometime during 2004.

Thanks for that Clarity. That was great. And last but not least, relative to the -- I think it was within the automotive space -- you were talking about new development contracts with panels -- Haptic panels? Could you maybe explain that a little bit better? And I was wondering, is that you developed and showed some of the OEMs? Or did they come back to you and say -- we have seen what you have done with the BMW effort -- can you do this type of thing? How did that idea come about?

Sure. There's really two basic ways that we plan to engage the automotive industry. One is input devices -- whether those are rotary controls, which you would be familiar with -- the iDrive with BMW. So these are rotary controls that are programmable.

We also have for input devices touch panel technology. Haptic touch panels that provide a vibration, or an effect, when you input data using a touchscreen. So, you can imagine if you had a small screen, as you push a button on that screen -- it's a flat-panel -- you get a vibration such that it feels as if you have depressed a button. And it allows you to input information without actually looking at the screen. And you get that confirmation back in the form of a Haptic pop -- Haptic event.

So those are kind of two different types of input technologies that we have developed. We have developed that touch panel technology a number of years ago, and are refining it for new applications.

So, recently, I think we have spoken a little bit about Haptic touch panels, and we're beginning to demonstrate that capability, and we're seeing some real interest in the automotive space -- especially for the mainstream vehicles. So, that would be one key area.

The second key area happens to be x-by-wire which we have referred to in the past, and that is simply using programmable Haptic effects to give you the same feeling that you would -- whether you are shifting, breaking, accelerating, or steering by-wire. And when you say x-by-wire it refers to eliminating the linkages between that object that you're controlling -- a steering wheel -- and let's say your tires. You can replace all of the mechanical linkages and fluids, and you can instead use small motors and sensors in the onboard computer to control these motors. But one of the things that you lose by eliminating that linkage is your feel of the road -- which we can bring back through the use of Haptic technology.

I appreciate the time. Thank you very much.

Robert Katz.

On the automotive side, how many vehicles have you shipped into (ph)and how is that program going with the iDrive? In terms of new adoption?

And are there any other type of iDrive devices -- I think some of the Asian car Companies were looking at other type of control knobs that had sort of Haptic -- a (indiscernible).

Well, we obviously have -- the iDrive is shipping the 7 Series BMW. They -- late last year -- they introduced it on their 5 and their 6 Series. I believe it is a standard feature on the high-end vehicle, and it is an option on the lower-end vehicle.

The actual numbers of units shipped is not something that we track. But, we have had significant success with BMW. BMW continues to refine the technology, and continues to work on improving the user interface -- which has been, in some reviews, has been criticized to some degree. So they continue to refine that and come up with new versions. And we continue to work with them on future generations of the technology.

In terms of other vehicles, it is currently shipping in the Rolls-Royce one in the front seat, one in the back seat, controller -- it's also on the high-end Volkswagen, the Phaeton. I believe you're referring to a demonstration vehicle that has been shown by Nissan, has shown a Haptic control in the steering column.

Okay. That's not shipping yet, that's just a Demo?

That was just a demonstration -- right -- a concept car

You know when Nissan would be planning on bringing this to market?

No. This was something that I believe that they showed some time ago, I believe late 2002. And, again, the product plans and the rollout launch plans are -- they are not something that we have any influence in.

And, you get most of your revenues on a royalty basis from this product? Or do you actually ship product?

From the automotive sector, we generate revenue from some early stage development work that we do to create solutions, or to develop demonstration units for different Companies. And then we also generate royalties once a controller is put into a vehicle.

The BMW controller is produced by a third party supplier. They produce the product under license by Immersion. They shipped to BMW, and that generates a royalty event, and that then becomes an additional item that is reported on a royalty report.

And do they prepay for this license for a certain number of units, or is there a threshold where you start (indiscernible) into a new phase of the royalty payments?

We're generating royalties on the sale of the iDrive module to BMW.

So on a per unit basis?

On a per unit basis, that's right.

Very good. And your Medical business -- is that a breakeven -- is that a profitable business for you now?

For 2003 it was slightly profitable. And at this point, for the year, we expect it to also be profitable.

In any given quarter, there could be investment in a particular area, whether it is R&D or sales and marketing. So it may not be profitable all four quarters, or in any one of the four quarters. But overall, we anticipate for 2004 that Medical will be slightly profitable.

Sure. And how many people do you have employed so far?

Employed in the Company?

Yes.

We have about 139.

How many are in Medical?

There are about -- a little over 50 -- around 55 employees at Medical.

Thanks.

Rich Logan, Private Investor.

I'm wondering if you're at liberty to indicate -- what are the odds of winning the Sony lawsuit are?

I'm not at liberty to discuss any odds. It would be simply a guess, or forecast, not something that I can do. It is, as you can imagine, a challenging event. But we're not really at liberty to talk about the merits of the case, other than to say we still feel very strongly about our position.

Okay. I thank you.

Lay Butchler, Private Investor.

This also is related to the litigation. And, I guess I will be asking you to speculate just a here. Under the assumption that at some future date when this thing is completed, you might prevail, do you know, or has your legal team advised you, whether or not you should expect compensation during what would be an expected appellate cycle that would follow thereupon?

As you said, it would require some speculation. I believe you said that for this exercise, we would assume that we succeeded at court (multiple speakers)

Yes, assume you prevail, and then Sony, of course, moves into the appellate cycle.

My guess is that they would appeal the verdict. Maybe I would highlight that the lawsuit simply covers the past damages for prior shipments of the product. It does not cover any future shipments -- does not provide them with any rights. That would have to be subject to a separate negotiation and discussion.

So, the trial is simply covering past damages for prior shipments of infringing products.

I believe if we were successful at trial, then it would most likely be appealed by Sony. And then, obviously, we have legal efforts that we would attempt -- such as an injunction or something similar. I am sure that they would appeal that as well, and it would require too much guesswork -- too much speculation -- to determine how successful or unsuccessful that we or Sony would be.

But, I would assume that in appeals, my assumption is that we would not be paid for any past damages or for any continuing shipments of products.

Until the appellate cycle was complete?

That is my operating assumption, that is right.

Very well. Thank you.

At this time, there are no further questions. Mr. Viegas, are there any closing remarks or you may proceed with the presentation.

Thank you very much for your participation on today's call. We appreciate your continued interest in Immersion and hope to see you at our annual meeting of stockholders on Wednesday, June 2, 2004. Thank you and good afternoon.

This concludes today's Immersion Corporation quarterly results conference call. You may now disconnect.