Immersion Corp (IMMR) 2007 Q3 法說會逐字稿

Good evening, my name is Keena and I will be your conference operator today. At this time I would like to welcome everyone to the third quarter 2007 Immersion financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. (OPERATOR INSTRUCTIONS) Mr. Viegas, you may begin your conference.

Thank you Keena. Good afternoon and thank you for joining us today. I am pleased to welcome you to this discussion of Immersion's results for the third quarter of 2007. Stephen Ambler, CFO and Vice President of Finance is currently traveling to the Imperial Capital 2007 Global Opportunities Conference that takes place in New York tomorrow, and is unable to participate in this call today.

By now you may 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. Instructions on how to replay this call are also included in the release.

During the course of our comments today I will be making forward-looking statements. These forward-looking statements include management's current analysis of certain aspects of Immersion's future business. Forward-looking statements are based on current information that is, by its nature, dynamic and subject to rapid, and even abrupt, changes. My forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied in my statements. Factors that could cause actual results or developments to differ include the risk factors mentioned in today's news release, in Immersion's SEC filings, and in our annual report to shareholders, as well as any factors mentioned during our discussions today.

During today's call I will provide a summary of Immersion's third quarter results and an update on our recently completed strategic plan and resulting initiatives. Immersion's third quarter performance was good. Highlights of the third quarter include; number one, strong revenue growth of 49% over the third quarter of 2006, achieving a record $9.8 million in revenue. This revenue level sets a new quarterly record, surpassing our previous revenue record by $1.2 million.

Profitability for each of the last three quarters; our net income for the third quarter was $0.02 of earnings per diluted share, compared to a loss of $0.13 per share in the third quarter of 2006. Medical revenue growth of 39% to $5.2 million, compared to the third quarter of last year. We continue to expand our product offering, recently launching two new software modules for our LapVR platform.

The fourth item is the substantial mobility revenue growth to $930,000 in the third quarter reflecting the new license agreement with Nokia, more phones in the market from Samsung and LG, and non-recurring engineering projects.

Number five is the shipment of the first significant quantity of fully qualified actuators for tactile touch screens to 3M Touch Systems.

And number six, completion of a strategic plan to define the vision, strategy and objectives for the company.

I would like to now tell you more about our vision strategy and the resulting market initiatives, financial plans, and organizational changes. Our vision is to improve the user experience with electronic devices by making haptics as common as sight and sound. We believe we are the number one company in haptics, and the demand and market opportunities for our products and technology are substantial. We believe that through execution of our strategy, we can increase revenue, profitability, and shareholder value.

As I mentioned in our August 2 conference call, the management team, members of the board of directors, and a number of consultants, conducted an extensive analysis of strategic opportunities for substantially growing Immersion's revenue and shareholder value. We initially cast a wide net and considered growth strategies for existing markets, entering into new markets, potential acquisitions, and financial strategies. Through market research, interviews with key industry participants and further analysis, we narrowed the focus to a smaller number of key initiatives.

We continue to see large opportunities in the three areas we've been investing in for the past several years; medical, mobile devices and tactile feedback for touch screen. The recent strategic analysis has helped us widen our perspective and identify additional opportunities in these segments. We now have the financial means to pursue a broader set of objectives in these markets.

First in the medical simulation market, our strategic initiatives include; number one, expanding international sales; number two, working with medical device manufacturers to help them speed their new product launches and increase their market share; number three, introducing new product solutions; and number four, influencing accelerators of growth. I'll explain more about each area.

First, expanding international sales; we are making plans to expand our reach into international markets for medical simulators by establishing a presence in Europe and Asia in 2008. This presence will include general management, sales, marketing, and technical support functions to service the local customers. Since historically most of Immersion's medical revenues have been from U.S. sales, expansion into global markets provides an attractive growth opportunity. The medical simulation markets in Europe and Asia are each roughly equivalent to the size of the U.S. market, presenting a substantial opportunity for increased revenues from existing products and technology.

Our second medical growth initiative is to use simulators as a sales tool for medical device manufacturers. We have historically focused primarily on selling medical simulators to hospitals for clinician training, and secondarily, to medical device manufacturers for the same purpose. An exciting new area for us is to focus on helping medical device manufacturers enhance their own sales efforts through simulation of their new products. Industry research suggests that physician adoption of new technologies is influenced by the availability of information, including how much training would be required to master a new technique. We believe there is a compelling return on investment for medical device companies to use virtual reality simulators to accelerate the adoption and market penetration of their new products.

Simulators may also be used to collect data for improving product designs or performance. We will be adding sales and marketing resources to aggressively pursue the medical device sales and training market. In addition to our current simulation platform product line, we are working on simulation software and portable devices that will help medical device sales reps demonstrate new products in a meaningful and memorable way. While these types of simulators cannot be used for true physician training, they would be effective and affordable sales tools.

Our third medical growth initiative is to introduce new products solutions. We plan to increase our product development efforts in response to the market demand we are seeing. We have an aggressive plan to introduce a multitude of new products, including new simulation platforms as well as new software modules across all platforms. In particular, adding software modules leverages investment in existing simulation platforms. Software modules can be cost effectively sold to current users of a hardware platform, as well as to new customers.

For example, two new modules for our LapVR system were recently released. Our new OB/GYN module trains three important procedures, while another module trains the procedure needed to examine the small intestine during trauma, general, OB/GYN, bariatric, and colorectal surgery. More LapVR modules are currently in development.

And finally our fourth medical growth initiative is to influence accelerators of growth. Longer term strategies include creating demand for medical training simulators through insurance companies, hospital certification programs, and FDA mandated training requirements.

Now turning to the second focus area, mobile devices. Our goal in the mobility business is to deploy hundreds of millions of VibeTonz enabled phones and to work closely with wireless operators and content developers to achieve revenue sharing agreements for haptics enabled content, media, and messaging. To achieve this goal we must now focus on three main strategic initiatives; the first is to influence wireless operators to specify the VibeTonz system in millions of phones. The second is to support handset licensees as they incorporate the VibeTonz platform in their phones. And the third is to promote haptics enabled content, media and messaging to the wireless operators and their content development community.

To explain in more detail, first our initiative to influence wireless operators. Wireless carriers are seeing their voice revenues flatten. We believe there is a large revenue opportunity using our VibeTonz technology to enhance their growing data services such as messaging and alert. According to industry analysts, messaging is the number one non-voice revenue generator at approximately $100 billion worldwide, and is a highly profitable service for operators. Without significant network modifications, carriers can implement premium data services with Vietcong's powered Haptic alert, hapticons to relay meaning and emotion, and attention grabbing mobile advertising.

Haptic alerts can be used to convey sender information, message arrival, instant messaging buddy presence, message priority, and event notification. We are hiring additional staff in the U.S. and Europe to focus on developing closer business relationships with large carriers. In addition, we are rolling out a marketing campaign directed at carriers in the U.S. and Europe to increase awareness of the VibeTonz platform and to educate them on the impact the technology can have on their revenue. Carriers must specifically require the VibeTonz platform in their phones to assure the critical mass required for launching successful premium data services, and to support downloadable VibeTonz enhanced content.

Next is our initiative to support handset licensees. As you likely know we now have license agreements with three of the world's top five handset makers, Nokia, Samsung and LG, and we are continuing to pursue others. We have a growing staff in Korea for the support of Samsung and LG, and have a substantial number of phones in the pipeline. We are working closely with Nokia, engaged in both technical and business efforts. We are providing them with on site technical personnel to assist in incorporating VibeTonz technology into upcoming phone models and across product platforms.

In addition we are in the process of hiring permanent local staff in Finland to better support Nokia in our long term relationship. We will have the relationships and the support staff in place at our handset licensees to respond when carriers increase their orders for VibeTonz enabled phones.

And finally our initiative to support content, media and messaging services. We have ongoing efforts to improve our powerful development tools. We evangelize and provide support to our handset licensees' internal application development teams as well as third party development communities as they add tactile feedback to their application.

Moving on to the third area of focus, tactile touch screen, our strategic initiatives include; number one, continue work with 3M Touch Systems to build market share in casino gaming and bar top amusement markets; number two, sign additional automotive licensees and achieve design wins; and number three, expand our technology solutions for touch screens and touch surfaces.

First, building market share in casino gaming. We continue to work closely with 3M Touch Systems as support their efforts with customers to incorporate tactile feedback touch screens in product design. We expect some of those customers to show their tactile touch screen gaming products at Global Gaming Expo, November 13 through 15, and at the Combined Amusement Trades Exhibition International and the International Casino Exhibition to be held in London January 22-24, 2008.

Our second tactile touch screen growth initiative is licensing to the automotive market. In the automotive industry interest in tactile touch screens and touch surfaces has grown considerably over the past year. During late 2006 and early 2007 we hired experienced automotive sales people in Detroit and Germany, along with field application engineers. This move substantially increased our market presence, and led to an increase in our project pipeline. We are currently working on development programs with several OEMs and leading automotive suppliers. Existing licensees are also in the design process to include tactile touch screens in their navigation system. Navigation devices using our TouchSense technology were introduced recently in Korea from a company named CTT-Net.

Another licensee, SMK, continues to introduce products for automotive and industrial markets. The longer-term opportunity for implementation of haptics systems and vehicles remains substantial. And third is the initiative to expand our technology solutions for touch screens and touch surfaces.

We are extending our tactile feedback technology in response to customer demand for tactile confirmation in touch screens and touch surfaces. We are actively engaged with customers from a number of markets to match our solutions to their needs.

First, touch screen, because of reduced cost, greater flexibility and ease of use, touch screens are proliferating into more and more types of devices, for both consumer and business markets. Venture Development Corporation, an independent firm that researches industrial markets, found that the global market for touch screen displays and sensors exceeded $4.9 billion in 2006 and is expected to grow at a compounded annual rate of nearly 11% through 2010.

Products that now have touch screens for user input include many consumer electronics devices, such as personal navigation devices, home and office automation products and a wide range of industrial and medical devices, including test and measurement equipment, patient monitoring systems and data capture products. Our broad technology portfolio enables us to offer customers a range of solutions to meet their price performance requirements.

The second area of interest is touch surfaces. More products, such as appliances, exercise equipment, toys and even automotive interiors are incorporating what we call touch surfaces. Sensors are placed behind an outer surface, enabling it to become a control input. Touching the surface triggers the sensor, which generates an input signal to the system. Virtually any surface, such as plastic, glass, metal or even wood can become a touch control providing better aesthetics, higher reliability and improved [ceiling] compared to traditional electromechanical switches.

However, the loss of tactile feedback in touch surfaces is a significant drawback, leading many companies to consider use of our touch sense technology to remedy the problem. The market for touch surfaces is a promising one for Immersion, over the medium and long-term.

In addition to the market initiatives I've just described, the financial part of our strategic plans includes using or reserving cash for the following activities.

Number one, investment in our market growth initiatives; for many years, Immersion has invested in growth opportunities in advance of significant revenue, such as in our mobility and touch interface products groups. We followed a path of measured investment as we developed technology solution and engaged with customers to gain their adoption. Now that we have substantial opportunities in our three focus areas, we will step up our investment by adding staff and investing in marketing programs in key areas and expanding international presence to grow our businesses. We have established business milestones and will adjust investment as necessary, according to the rate of customer adoption of our solutions and market condition.

The second use or reservation of cash is possible litigation as plaintiff or to defend ourselves against claims such as the Microsoft claim.

The third area is the potential intellectual property acquisitions. The fourth is potential company acquisitions and the fifth is a share repurchase program. Earlier today, we announced that the board of directors authorized a repurchase of up to $50 million of the company's common stock. This program will complement our growth initiatives, while maintaining the required financial flexibility and strength to continue to invest in business opportunities.

Moving on to the third area of the strategic plan implementation is organizational changes. Over the past several years, we have invested in development of technology for specific markets and defended our intellectual property. Today, we strongly believe that haptics, as an enabling technology, is a key ingredient that can be as ubiquitous as sight and sound in electronic user interfaces. We now see numerous market indications that the value of haptics is being increasingly recognized and we are very well positioned to achieve the big upside potential in these growing markets.

Successfully executing our market initiatives and financial plan requires the right skill set and the right organization. The strategic planning process analyzed our skills and organizations, relative to moving to the next phase of growth and shareholder value.

In its next phase, Immersion requires stronger sales and marketing skills and more experience in our focused industries, both on the board of directors and within the management team. As a result, I have three organizational changes to announce today. Number one, the board of directors has decided to strengthen its experience in our focus area of mobility by adding a new board member. We are conducting a search for candidates with sales and marketing experience in the wireless operator and mobile phone market.

Number two, during the strategic planning process, I reached the conclusion that to aggressively pursue our longer-term goals and objectives, Immersion would benefit not only from new market initiatives and financial plans, but also from new management skills and expertise. Effective October 31, 2007, the board elected me Chairman of the Board. I will remain CEO and President while the Immersion board of directors conducts an open search for a new CEO.

We are looking for a new CEO with a strong sales and marketing background and a proven record of taking technology companies to greater levels of growth and profitability. The change will allow me to focus my expertise on key areas for Immersion, such as licensing, defense of an intellectual property and business negotiation.

The third item is also effective October 31st, 2007. Jack Saltich, who has served on the board of directors since January 2002, was elected lead independent director in accordance with corporate governance best practices.

I am confident that the combination of these market initiatives, financial plans and organizational changes, will allow Immersion to achieve its vision and generate substantial increases in revenue profitability, and shareholder value.

That concludes the discussion of our strategic initiatives. Before discussing more details of our financial performance for the quarter, I'd like to personally thank Jon Rubenstein for his eight years of service on the Immersion Board of Directors. John now plans to devote more time to his new role as Executive Chairman of the Board of Palm Inc., lead its product development effort.

Earlier today, we filed an 8K announcing John's resignation of his position as Immersion Chairman of the Board, effective October 30th, 2007. I appreciate his many years of service to the company and his valuable support and guidance during his tenure.

Now, on to the overview of our quarterly financial performance. For the third quarter of 2007, our revenues were $9.8 million, compared to $6.6 million in the third quarter of 2006, an increase of 49%. Our year-to-date revenue was $24.8 million, compared to $19.2 million in 2006, an increase of 29%.

Our net income for the quarter was $493,000, or $0.02 of earnings per diluted share, compared to a loss of $3.2 million, or $0.13 loss per share in the third quarter of 2006. I would like to discuss each section of our income statement in order, starting with revenue.

Compared to the year ago quarter, we saw growth in revenue from all of our businesses, with the exception of our 3D business, where we saw flat performance. Looking at each of these businesses in turn, revenue from our Medical business, which comprised 53% of total company revenue, grew 39% to $5.2 million, from $3.8 million in the year ago quarter. Medical product sales grew 33% over the year ago quarter and Medical product sales comprised 77% of total Medical revenue in the quarter.

Gaming business revenue increased 101%, from $817,000 in the year ago quarter to $1.6 million in the third quarter of 2007. Gaming revenue accounted for 17% of total revenue.

Our Touch Interface product revenue grew 7% to $961,000 from $900,000 in the year ago quarter. Revenue from Touch Interface products accounted for 10% of the total revenue for the quarter. Revenue from royalties and product sales increased while development contracts decreased. Revenue from our 3D products represented 11% of the quarter's total revenue, and totaled $1 million, essentially flat from the year ago quarter.

Our Mobility revenue totaled $930,000 for the quarter, compared to $35,000 a year ago. Mobility revenue comprised 9% of the quarter's total revenue. A number of phones with our haptic capability have been announced or released recently. A Windows Mobile touch screen phone, the Samsung SGHI710, was released recently in Europe and India got its first tactile touch screen phone with the Samsung SCHW3339. Sprint launched the LG music LX570 and Verizon launched the LG Chocolate 2 phone, the VX8550.

Carriers have announced the impending launch of a number of high profile VibeTonz enabled phones during the upcoming holiday season, aimed at competing with the Apple iPhone. Verizon announced two LG touch screen phones with VibeTonz, the Venus VX8800 and the Voyager VX10,0000. While Vodaphone recently announced they will begin selling the Samsung Ultra Smart F700.

LG's KU990 Viewty phone was recently released into the open market in Europe. Georgio Armani announced a Samsung SGHP 520 at the Milan Fashion Week as the, "Armani Phone," and continues the trend started by Prada and LG, where the world's top fashion houses collaborate with handset OEMs on design and branding of their flagship haptically enabled touch screen phones.

Analyzing our third quarter revenue by category, total product sales revenue grew 27% from the previous year's quarter and accounted for 55% of total revenue, with 75% of product sales coming from Medical and 18% from 3D.

Royalties from patent and technology licensing represented 30% of total revenue, up 117% from the year ago quarter, attributable to gaming and mobility. Development contract and other revenue for the quarter grew 54% from the previous year's quarter, mostly due to development work performed at Medical, and represented 15% of total revenue.

For the quarter, our gross margin was 74%, compared to 70% in the third quarter of 2006. This increase is as a result of a revenue mix change and in line with our expectation. Third quarter 2007 operating expenses, pre-litigation conclusions, totaled $8.3 million compared to $7.7 million in the year ago quarter. The increase in expense was primarily due to an additional $588,000 spent in research and development expense.

We incurred non cash stock-based compensation charges of $699,000 in the quarter, of which $667,000 is included in operating expenses. This compares to $724,000 in the year ago period, of which $707,000 was included in operating expenses.

Interest and other income totaled $1.9 million for the quarter, while interest expense and accretion totaled $211,000 in the period, for a net total of $1.6 million in income. Interest expense comprised interest and accretion expenses on our convertible debenture for July 1 though July [22nd]. In the comparative period, interest income/expense, was a net expense of $340,000.

During the quarter, we accounted for a tax charge of $61,000. In the comparable period of a year ago, our tax charge was $44,000. Our diluted earnings per share for the quarter were $0.02 per share and the shares outstanding used for this calculation were 31.4 million shares.

Year-to-date diluted earnings per share were $3.93. Earnings per share calculations are performed using the treasury stock method.

Moving to the balance sheet, on September 30, 2007 we had cash, cash equivalents and short term investments totaling $137.2 million, up from $135.5 million on June 30, 2007. Our accounts receivable at September 30, 2007 totaled $5.3 million compared to $6.7 million at June 30, 2007. Our day's sales outstanding, or DSOs, on September 30, 2007 was 49. As of September 30, 2007 we had 30 million shares of common stock outstanding, and we also had 150 employees. During the third quarter $18.6 million of Immersion's $20 million debentures were converted to Immersion common stock. Immersion issues 2.7 million new shares of common stock upon this conversion. The remaining $1.4 million of debentures were redeemed.

We will be attending and presenting at the Imperial Capital 2007 Global Opportunities Conference at the W Hotel in New York tomorrow, November 2, and a the AEA Classic Financial Conference on November 6-7 in Monterrey, California. If you are planning to attend either event, we look forward to meeting you there.

In closing, I am confident that Immersion is well positioned for its next stage of growth. We have a strong foundation of intellectual property and increasingly valued products and technology. We have a strategic plan for developing our substantial opportunities, and the financial strength to implement our plan. We are making measured investments in our focus areas to achieve business milestones in our growth strategy. We are bringing in more sales and marketing management and board expertise, as well as hiring more sales and marketing staff to accelerate the licensing of our technology and the sale of our products in markets where the demand for haptics is increasing.

2007 has been a very exciting year for Immersion. While my role at Immersion will change, I remain committed to driving our growth plans forward to increase shareholder value. I feel confident of the company's future, and I look forward to helping the company realize its potential.

Keena, please open the call for questions.

(OPERATOR INSTRUCTIONS)

Your first question comes from Mark Argento.

Hi Mark.

Hi Vick. I apologize; I hopped on a little late, so if you already talked about this, I apologize for the duplication. But a few questions in particular, it sounds like Sony is putting the technology that they license from you into the PlayStation 3, I think starting in international markets and then working its way back into the states. Do you anticipate in '08 being able to generate any meaningful revenue from third party peripheral guys in terms of licensing that technology to the Pelicans, Logitech's of the world?

Well I can say that we have licensed most of the major third party peripheral manufacturers, so we have agreements in place with them. It really will depend on Sony's willingness or strategy to license or allow third parties to provide peripherals. But from early indications I believe there will be some third party products. How much we'll be able to recognize in revenue really is going to be a function of how open the platform will be from Sony's perspective.

And in the quarter you guys had over $1 million in terms of development contract revenue. What was that in reference to? Was that part of the Nokia relationship?

From the contract side, a large portion of that I think was from our medical business. We have a number of ongoing development programs for our corporate partners. So I think a large portion of the development contract work was from our medical business. I also believe that there were some non-recurring engineering fees and other fees that we did recognize from Nokia.

And going forward I think you said you have people on the ground in Finland and in Korea, are the costs borne for the engineers by you guys, or are they basically being covered by the handset guys?

In Korea the costs are definitely being paid by Immersion, it facilitates the effective integration of our technology into more handsets. We also work closely with the development community to incorporate our technology into their content. So it's a very profitable operation, if you will, the revenue derived from the phone sales, and offsetting that is the cost for the support team there.

In terms of other areas, particularly in Finland, it's a combination; some of those costs are paid by Immersion. We believe it's important to invest in the success of our partner there, and so we will continue to staff accordingly, and I'm happy to say that there are a lot of activities and things are going quite well. In some cases some of the development work in Finland is compensated or offset by payments from Nokia.

Last question for you, was there in the quarter, I know you guys converted over the convertible debt you had outstanding. Were there any one time charges that were taken in the quarter that we should know about regarding that conversion?

Yes, I think there was a very modest amount, I think something in the neighborhood of $100,000.

And lastly, congratulations on your new role, and I just wanted to say good job navigating this company through some difficult times, and I'm glad to know, or it's good to hear that you're going to be staying in an operating role as the Chairman.

You're welcome Mark, I appreciate the comments. It's very satisfying for me to, at this stage, with no vacation plans and no other employment plans, focus my skills and talents at helping the company and bringing on board some new talent and some new skills with some industry experience. I think it's a great opportunity for the company and for the shareholders as well.

Thanks Vick.

You're welcome, Mark.

Your next question comes from B. T. Montgomery.

Hi Vick. I just wanted to reiterate some of the previous comments and thank you from a bunch of the long term shareholders that have been with this company for the last three or four years as investors and think that your personal contribution and integrity as our CEO have been exemplary, and I really appreciate everything you've done for the company.

Thank you very much. I hope I can do even more from my position as Chairman.

Are you planning to stay on then as a consultant, or just function out of the Chairman capacity, or what exactly will your role be?

Well let's say initially, I'll continue as President and CEO for as long as it takes. And then sometime afterward, when we find the right candidate, no matter how long that takes, then I'll assume the full time role as Chairman. And as I mentioned to Mark, right now I have no vacation plans, no travel plans, I don't have any other employment plans. My entire focus and attention really is on Immersion.

It was my decision and I went to the board and I communicated my interest in beefing up the board and going out and looking for a great candidate. So I expect to be close to full time for quite some time, and look forward to that opportunity.

Great. Specifically regarding some of the sales related to the medical division, can you give us any kind of granularity as to how well the LapVR equipment is selling? Is that something that's being well received by customers?

Absolutely. I think we launched it later in the quarter of Q2, so we had a full quarter in Q3 of revenue. It's doing well; it's received well in the marketplace. What's key for us is to continue to extend the platform by launching new modules. Recently we launched, I think two additional modules. We have quite a number in queue that over the next quarters and years we'll be launching new modules, which really extends the capability of the platform. So I'm very happy with that platform. I think across the board all the platforms are doing quite well, and we're excited to add to those platforms with new product areas and continuing to enhance and improve the capability of what our current product line is.

Did you have any target metrics for the numbers of those that you're trying to sell per quarter? Do you have any idea how many of those we sold in the third quarter?

I really don't have that kind of detailed information with me. It's not something I think we'll want to communicate, but again across the product line I'm confident, felt comfortable, we had a good quarter across the board and we're seeing significant growth. And I'd also like to highlight that beyond just the hospital market, which is our primary focus in the past, the corporate market opportunity is also very exciting. So new platforms targeted to corporate accounts and corporate customers I think should help us grow the business substantially.

Regarding the phone business, do you have any idea whether we're having any conversations about the rumored Google phone? The press is stating that that's coming from LG more than likely and I'm wondering if our relationship with LG has progressed to the point where they might be including that in their phone.

I'm really not in a position to comment on Google's plans, whether they're entering the market or not. We have a terrific relationship with LG, we have all the license rights and we have the application engineering support in place in Korea to help them launch all their models, no matter whether they're first party or third party. So we have everything in place to take advantage of any new devices that are launched. I can say there are a lot of exciting initiatives underway, as you can imagine, with mobile devices adding touch screen capability, adding content onto the phones, and haptics is just a natural value and improves the user interface and the experience dramatically.

So we're well aware of those design efforts from many different companies, and we're actively engaged in adding haptics wherever we possibly can.

Great. Thanks again and great job in the quarter.

Thanks B.T.

Thank you.

Your next question comes from [Alfredo Genaro].

Hi, how are you?

I'm fine, thank you.

Good. I'm standing in for Kevin Hunt from Thomas Weisel.

Okay.

Just a couple of questions. First off, it looks like the mobility division and category did very well. But I wanted to get some feedback on Nokia revenue numbers; it looks like some of that was recognized this quarter, and if you could also give some color on the 50 million phones initiative that you've mentioned in past conference calls as well.

Sure. During the quarter we did recognize revenue from Nokia, and beyond that, the specific details, as I've mentioned before, we won't be able to provide any additional color or details. It's something that they're quite sensitive and we want to respect their thoughts.

In terms of the initiative to generate 50 million phones in the market, that's just a start. We want to go well beyond that. I think the last time I looked I think we were north of 6 million phones in the market and growing rapidly. The number of phones that are under current development is at an all time high. I think there are more than 50 models that are currently in development. So our queue of phones have never been bigger, and the relationships that we've built with the three parties primarily, Nokia, Samsung and LG, those relationships are going well and we continue to expect them to deploy high volume and we expect to exceed 50 million phones.

The timing of that is obviously to be determined, but right now we're quite confident we're going to get there.

Thanks. And then also you mentioned for the touch interface category, in prior conference calls, 3M Touch Systems, your partner, was doing well in the casino gaming and bar top. Can you give any color, any more explanation on how that's going and if you're going to be recognizing any revenue for the next quarter as well as if there's any in this quarter that was recognized?

Sure. Our relationship with 3M covers a number of different areas. We continue to do development work and work on designs and improvements with them. But during this quarter we shipped our first commercial batch of actuators, which is the product that we sell, and we sold them to 3M, a relatively high volume I consider. We're talking about the ability to install in thousands of systems. And I'm happy to say that they're pleased with the products and are working with their partners. I think you should see some activity at the G2E show here in November where some of their partners will be showing new products.

And then the last one was, an update on any of the Sony litigation that was happening that you mentioned last conference call?

There's no ongoing Sony litigation that was resolved some time ago. But there is currently a pending Microsoft litigation. I believe we're essentially at the early phases of discovery. I think that we're about to schedule some court ordered mediation will occur here sometimes in the near future. No trial date has yet been set, but we continue to fight that, because we believe we do not owe them money under the contract.

Thank you.

You're welcome. Thank you.

Your next question comes from Michael Kim.

Hi Michael. Michael?

Can you guys hear me?

Yes, now I can hear you.

Hi Vick, looking forward to hosting Stephen at our conference tomorrow.

He's on his way.

We were looking forward to having you there as well, but now we know.

I apologize, I had my hands full here the last few days.

Not at all, not at all. Just to follow up a couple of more items on the quarter. The mobility side, it was a nice lift sequentially. I just wanted to make sure; did you say that LG and Samsung were both up in the quarter?

Yes.

Okay and I assume that Nokia would be the balance of that, minus the growth?

Yes, that's right. New phones from Samsung and LG, so their revenues grew, we booked revenue from Nokia; we had some non-recurring engineering fees in the quarter, so everything contributed to a great quarter.

Then regarding 3M Touch System at the G2E show coming up in a couple of quarters, can you shed a little light on what we might expect to see at the show? Should we expect to see some new products from any of the vendors, or 3M I assume will be having a presence there?

Yes, absolutely. It's probably the largest show for their Touch Systems group. There are also, the following shows in London early in January of '08. Right now a number of their customers are working on integrating the product into their new products. What exactly will be shown publicly versus privately, and when you're working with engineering design efforts and product launches sometimes it's hard to predict just what will be shown and launched.

So we know of a number of different products, we're excited about what's happening in that space, we're pleased with the relationship with 3M and we hope to see lots of products on the show floor and lots of enthusiasm from the casino operators.

And just from that industry standpoint, do they normally start to ship pretty aggressively in the first quarter or would you expect to see a stronger ramp in the second quarter of next year? Assuming there are initial order flows coming out of G2E.

My understanding is a number of the orders actually are placed at the show. So I would guess that the early sales by Immersion have really been to fulfill early product development and production efforts. But the final end customer order is most likely to occur at or after the show. And then you're talking about their strategy in terms of deploying the product in the casinos, what type of regulatory requirements are required, and approvals. It may take some time. But clearly this is the very early stages and we would expect those orders to begin coming in, in earnest, in 2008.

Okay, great. Terrific. And then just turning to the medical side, LapVRs, your obviously newest platform, and you also mentioned bringing on more software modules. Should we expect to see a shift in the business model for that segment where software becomes a larger margin component for the medical business, and the hardware becomes more of the razor approach?

I think that's an accurate assessment, primarily in the hospital market. However with our growth initiatives in Europe and Asia, as well as our efforts to work with corporate partners, I think there's still significant upside in hardware sales in these new areas. But I do think that we will begin deploying more modules, more software, more content, higher margin products to the platforms that are already in place. But it would be hard for me to predict the mix between module sales versus platform sales, only because the upside potential is so great.

Okay, wonderful. And then just lastly, can you explain how far along you are in the CEO search? Have you hired an executive search firm, or what the current progress is on that?

Sure. We have retained an executive search firm. We've put together the specifications; we've got unanimous support at the board level. We're at the very early stages, so I would say the calls will probably begin taking place later today and going forward. We're aware of a few candidates that have a lot of appeal and we excited in the process. But yes, it's being adequately managed by an executive recruiting firm.

Terrific. Well we'll be keeping Stephen busy tomorrow at the conference, but nice quarter, and looking forward to more of the same.

Okay Michael, thank you for your support.

Great, thanks.

Your next question comes from Chris Little.

Hi Chris.

Hi Vick, congratulations on a great quarter.

Thank you.

I have several questions, and they're sort of all over the place. So let me start with my first one, the last I heard Immersion had approximately 600 plus patents in the haptic field. My first question is, what number are we at right now, and what types of patents do we see having the highest growth going forward?

The answer to your first question, I believe we've actually exceeded 700, so we've got over 700 patents issued or pending right now.

Okay.

And I'm sorry, I didn't get the last part of your question.

Just in terms of the type of patents in like particular areas. Where do we see the highest growth occurring in terms of patents in a particular area being filed?

That's awfully difficult to answer. Our engineers are quite inventive, and there are a lot of innovative activities going on in the touch screen area, the mobile market. Probably those are two that would be more active than in the medical simulation space, only because we have such early and fundamental patents there. But a lot of innovations occurring across the company in those areas and in new markets. So that would be a really difficult question. We feel like we've got great growth in the patent portfolio and good strong patents.

Great, I know it was kind of a hard question to answer, I just kind of wanted to get a feel, but I think you've answered by question there. My other question is you mentioned three of the top five mobile vendors, I was just wondering, what types of barriers are you seeing with the other two vendors? Is it just a question of them not seeing value in the technology, or they have their own solutions, can you shed some light on that?

Sure. I think in some of the other companies there have been transitions in management and so it at times can be a little difficult communicating the value proposition in a consistent way throughout an organization and then working toward business negotiation. So sometimes we're faced with that problem. I think the value is clear to all of the OEMs and they see the benefits not only to improve user interface, but to their content. So there's a lot of support.

In some cases they have home baked solutions that I think they're trying, in other cases there may be other distractions within an organization that might slow them down in assessing the need for this. In some cases they probably want to see how successful the other competitors are before they make their decision.

But we've been actively engaged with virtually every major OEM. They know the value proposition, a lot of prototypes working their way through management at those other firms. And we're hoping that over time they'll realize that Immersion has innovative technology and a way to make their products better. So we would love to work with everybody out there.

Absolutely, absolutely. It will be great to see a lot more phones from LG and Samsung that are hitting the market. I'm sure that tactile feedback is going to be definitely a differentiator on those phones.

My last question is a year from now what do you see the revenue mix like? Could you give me a breakdown in terms of where we possibly see the breakdown of revenue a year from now?

Well we expect growth really across the board, in all our areas. In terms of growth the medical group has historically been our fastest growing segment. We think that the success we're seeing in the mobility market will dramatically increase their revenue, and again, very excited here in Q3 to begin shipping our commercial grade actuators, so we know those opportunities are going to start kicking up.

It would be hard for me to speculate what the mix is in terms of business area or whether its revenue versus products. I'm just optimistic and excited about the growth potential in all areas, so it would be hard for me to speculate at this stage.

Okay, thanks.

Your next question comes from Mark Kabesh.

Hi Mark.

How are you Vick?

I'm doing fine, thank you.

I would say. Congratulations on a boffo quarter and your guidance, I'm going to echo what everyone else has suggested, that you've done an amazing job and I'm thrilled to be a long term shareholder.

Thank you.

VibeTonz, I've noticed some of the phones that I believe, like the Chocolate II through the Verizon store, has the same feel as my current phone that has VibeTonz in the menu. Are all the VibeTonz enabled phones going to have the phraseology VibeTonz in the menu?

I would say that for right now, no. We obviously look for branding and attribution, but we're also respective of what the OEMs and carriers, how they want to promote and market. So some actually identify on menus VibeTonz, or a category of content, in other areas it's not as obvious or clear. So we continue to push for the VibeTonz moniker and the brand attribution, but right now it probably won't be consistently across all phones and all markets for all customers.

Understood. Of the 50 models that you suggested are in the pipeline, do you have any idea of the current three that we have licensing our technology, what number of phones do they put out on an annual basis?

Oh boy, that's a good question. You know I really don't know the answer to that. I know that in the past Samsung and LG, you're talking about dozens of phones that are launched in a given year. But I don't know the actual number, and I definitely don't know the number of models that Nokia launches.

And the 50 models in the pipeline, that's slated for 2008 you figure?

Again some of those we've learned in the past that some don't make it to market, some get out sooner than we expect, some take longer. So I think those are targeted for either '07 or '08. In the case of Verizon I think they pre-announced a number of their top models actually will be VibeTonz enabled, which we're happy to see. We've had a lot of success, they've had a lot of success in selling phones with VibeTonz, so we know they're going to be launched before the holiday season upcoming, but I would say the bulk of those 50 will probably be in the 2008 timeframe.

And Verizon does benefit from the downloads of the games that are haptically enabled utilizing the VibeTonz technology, is that correct?

Yes when the downloads occur, they benefit, yes.

And speaking of downloads, you suggested there were roughly about 6 million handsets currently, did you have any number of potential downloads that have taken place with those handsets?

I've got some information, but unfortunately I need to keep it confidential. It's spotty because the way we track this is from multiple sources, so I don't have accurate by quarter just yet, but it's something we're working on as the numbers increase and grow.

Understood. The PlayStation 3 that was suggested working with the third party controller manufacturers are you to say that that is the advanced haptics technology?

This is not what Immersion would call our next generation technology, no. This would be something that Sony has internally developed and would be launching on their own.

With regard to the Xbox 360, do they have to embed the technology, the haptics methodology, in their console to enable the third party controllers to have advanced haptics?

I believe that to add the next generation, we're talking about next generation technology, right?

Yes sir.

I believe that that can be done via the SDK and the download of the information to the console. The console is capable of processing that and then obviously would need next generation controllers.

Right. Back to the VibeTonz, do we have a number of games that are haptically enabled, the software titles?

At this point I'm not aware, I think we track that on our website, but I don't know the actual number.

So if I may, a handset controller is VibeTonz enabled, and the EA Tiger Woods Golf game was used on our system and it was compliant to our methodology, we would feel, using the game, we would feel the sweet spot hit or shank on a club swing. Is that correct?

Well I think the answer is yes, we would have to provide them with our SDK and the appropriate license rights to imbed in their content. And once they've done that, then that game would, on a compliant haptically enabled phone, you would get that rich experience.

Is there any other system that competes with this and can provide the same type of feel for that environment?

Not to the degree that we provide, no.

And that is all protected by patents, obviously?

Yes, it is.

Excellent; and lastly, the Nintendo DS; you had an interview recently regarding the capability of, I believe it would be the VibeTonz that would go into the Nintendo DS, if they so choose? Or would that be the Touch Sense technology?

Well, I think I was specifically referring to the Touch Sense, so we could touch enable the screen. But there's also value in adding the VibeTonz so that you'd have a mobile device much like you would in a cell phone. You could have the haptic experience as they played games and interacted with the device.

Okay. I said lastly, I apologize; one more. In the BMW, I seem to have read somewhere online regarding the BMW's iController and the CPO processing -- the consumption of CPO processing power with the controller that we provide. Did I read that correctly? Or are we still in the iDrive?

Yes, the iDrive's still under license from Immersion. I'd say, if there's any confusion, it may be to what extent and to what degree is it fully implemented and there may be compromises in terms of the actual implementation. But that product, as far as I know, that is covered under our license and is currently being paid.

Fantastic, and again, thank you very much for your services. It's been greatly rewarding following you, Vick and I continue to do so.

Thanks, Mark. I appreciate your support over the years.

You bet, sir. Take care.

Your next question comes from Rick [Schotenfeld].

Hi, Vick. Congratulations on the great quarter. I've seen Apple filing a lot of patent applications lately in the area of haptics. I know that when you look at the iPhone it seems like a natural for you guys to be in and a lot of those have been hoping that that deal would be forthcoming. Do you think that these patent applications by Apple make it less likely that you might have a relationship with them in the future? Or do they need to sign a license with you to do some of the things that they're patenting?

And then, in a broader sense, in the smart phone arena, there's a lot of talk about opportunities for you in that space. There're rumors in the marketplace of a touch screen RIM phone, things like that. Do you see a lot of opportunities that are on your plate in the smart phone area?

A couple of good questions, Rick. In terms of Apple, I think you're looking, probably, at patent applications. So, these are patents that have been filed but haven't necessarily been issued. In some cases, they think that the haptic references would be dependent on the appropriate rights from Immersion.

So, if you'd look at those specific applications, you don't think that they can do the things they've applied for without a license from you?

I'm not an attorney so we haven't done the analysis. But I think we're very sensitive and very conscious of what occurs in the marketplace with regards to haptics and IP filing. As I said, I think our general -- my general response would be that these are patent applications. They've been filed but have not yet been issued. And in many cases, the reference to haptics is simply referencing the haptics capability but may not be the fundamental crux of the patent that Apple's filing.

So, they would require rights to use the haptic capability and Immersion obviously has a very and rich patent portfolio.

In terms of smart phones, I think the answer is that there are a lot of players that are looking at improving the user interface and improving their portable devices. And Touchscreens is a natural trend in the design phase. People want smaller devices with larger screens and once you move to Touchscreens without mechanical buttons or even complemented with mechanical buttons, haptics is a tremendous improvement over that user interface.

So, I think smart phones is a great opportunity for Immersion and an area that I would expect us to have significant penetration in bringing haptic capability to smart phones.

Do you have any relationship with Research In Motion at this time?

At this time, no.

And do you expect to sign other phone licensing agreements before the end of the year?

Yes.

All right; thanks, Vick. Great job.

Thanks, Rick.

Your next question comes from Eric [Boswell].

Hi, Eric.

Hi Vick; a couple questions. Do you see us as being profitable from here on out?

I believe that we need to balance investment in the business as I've kind of articulated in the conference call. We've got a number of opportunities to pursue. Almost every one of them has either an immediate or a substantial revenue increase associated with the investment. But there will need to be a balance of that investment and the timing of the revenue.

So, it could be possible that there might be a quarter or two where, because of the timing seasonality on the revenue side or delays in revenue and investments on the operating side that could make it challenging. And we could end up in a loss position.

But on a year-over-year basis, you see us positive from here on out?

That is our goal. That is our goal and that's what we're working towards.

You describe the company in the last conference as having three legs, each worth $100 million. According to my calculations, we're only 13% there. When do you see them each earning $100 million?

For each of the three primary growth areas, I believe revenue can exceed $100 million in each area. So, that's true.

In terms of timing, we don't provide guidance. It's difficult to gauge the adopt rates and the actual growth rates in each area but that's what we're focused on doing, is growing the businesses to get to that level and higher.

What about Nintendo? Any comments on them as to whether they're using our technology or not?

No further comments on that particular topic. As I've mentioned before and continue to say, we would love to work with them and are actively trying to engage them in various discussions and ways to work together. But right now we have nothing to talk about.

One last question; besides what Sony paid us as part of the resolution of the lawsuit, have we received other of Sony's money?

There are the payments, under the judgment, plus interest. There were compulsory license payments made, which was all covered under litigation. Separately, there is a license that provides rights to the non-litigated IP and products. And those rights are currently being paid over a three-year period. And we are collecting those monies.

Nothing beyond that?

Currently, that's what we're collecting from them.

Okay. Thank you, Vick.

You're welcome, Eric.

Your next question comes from Alec Berman.

Hi, Alec.

Hey Vick, congratulations and just, again, echoing what everyone else has said about good luck with your new approach in terms of what you're going to be doing and being Chairman of the Board. And it just seems like every call you have, it seems like there are more exciting things going on, so we're real excited about that.

Thank you.

Just a couple quick questions; some of these medical things you talked about seem like a real potential expansion of the [Tam] clearly. Any sense about -- you know, do these things take a long time to the rolling out? I mean, like, let's say getting Medical (inaudible) sales people involved in some of these initiatives? Or can they actually kick in reasonably quickly (inaudible) to the international opportunity? You know, give me a sense of what do you think about that.

Well, a lot of what we do is capital equipment sale. And so there's always a pipeline of candidates and prospects that are qualified. And so we go into every quarter with some number of opportunities and our job is to close those.

As you mentioned, the growth in Europe and Asia, we think that having feet on the street and local technical capabilities to provide presentations, a quote and work with the medical community there, we'll have -- probably, we would expect, short-term and near-term opportunities. So, we would expect that to generate revenue quite rapidly.

As we move towards corporate accounts, I think it's a more long-term and more fruitful relationship. If you look at the Medtronic relationship that we have, it's a combination of selling products, development initiatives for their own particular training needs, so there's an ongoing revenue stream and a way to get our technology showcased at trade shows and in front of leading physicians and teaching institutions. So I think those efforts can move quickly to revenue. Some of the efforts I talked about in terms of influencing the revenue, I guess we call them revenue influencers, the FDA, the insurance industry, the governing bodies, those definitely will take time to generate revenue, those take years of relationships and effort.

But the other efforts, the international expansion, new products, and going to the corporate community, I think those can generate pretty near term revenue opportunities.

Fantastic. And another question, just in general, I guess historically your business actually had sort of a, it seems like you've always had these big December quarters, and maybe you were more gaming sensitive in the past, and I guess I'm just kind of curious, in a general sense, would we see that sort of general seasonal pattern, or just not quite as big as in the past because of that, or would it still be a pretty good kind of seasonal December?

It's hard to predict just what's going to happen in a quarter. The gaming business, as you probably remember, had been down for us. It's picked up a little bit and so we're happy to see some of our licensees doing well in the marketplace. Gaming revenue is now, a large component of that, is the monies recognized from the Sony payment. So I think you won't see nearly as much seasonality in the quarter.

Okay, fantastic. That's my last question, thanks.

Thanks Alec.

Your next question comes from Andy [Shelfer].

Hi Andy.

Hi, congratulations as well, and thank you very much.

Thank you.

My question is on the resignation of Jon Rubinstein. That's one of the reasons why I got involved with the stock a year ago, and I was right for some of the wrong reasons, and wrong for some of the right reasons. But I would've thought his involvement with the company, especially given his experience at Apple and now is joining Palm, would definitely have given you insight into some of the strategic aspects of how each of those companies would be moving forward.

So, I guess my question that you might be able to answer is, since he, the term was resigned. Was that driven by a mandate from Palm? Or is it truly a personal decision? I guess I mean to try to infer some things around that, based on whether or not anything other develops with Apple or whether anything develops with Palm? So, maybe you can dive into some more of what drove his resignation; if it's truly a personal decision or a mandate from Palm?

You know, Andy, I don't really know a lot of the details. I know that I very much enjoyed working with Jon. He was terrific on our board. He gave us great insight into the consumer marketplace.

I think his efforts and the time that's required at Palm is such that he wants to devote 100% of his attention to Palm. I don't know if there's a conflict of interest that was raised, either by him or anyone at their company. But Jon was extremely productive and happy with us on our board. But I think it was really a matter of just too much to do and too little time for one person.

What's your level of interest in another massive litigation on the offensive?

Well, I think it's important that we defend our IP and I wouldn't say that I welcome the opportunity. We would much rather negotiate and promote the value of our technology and work through the business aspects of that. But unfortunately, as a licensing, it's usually, or sometimes, a necessary part of the business.

So, I have -- I'm not shy about saying we will defend our patents against anybody. It was rather amazing on one day to sue two of the largest companies in the world. And I'd say we still have the same attitude. We want to be, and will be, a very big company. Haptics is a key ingredient in the interface with digital devices and we want to be the company that brings this to the marketplace. So, we will defend wherever we need to. And I think this transition may allow a CEO with less distractions and focus on sales and marketing initiatives and allow me to help the company in any way, including, as I said earlier, defending our IP.

Then, I read, at least a glimpse of the (inaudible) Sullivan report in the medical division and, obviously a glowing endorsement of the ROI on your products in that marketplace. I'm trying to catch up myself on understanding the medical field and what drives adoption and not. But, just from reading that report, I would assume, like, it's a no-brainer. But when do you think the obvious-ness of the ROI becomes an inflection point driver for the medical business?

I think it's when the FDA, the insurance industry and the governing bodies step up and recognize the improved healthcare that can be provided by physicians that have better training. I think that's the -- we call it the transforming event, when those come together.

In terms of the ROI, it is very compelling to the hospitals but, again, they still have budgets to manage and they need to find funding for the equipment. And, as a result, we have success in a lot of areas, but it's not a slam-dunk yet. And so, I think when you get more pressure from insurance, FDA and the governing bodies, when they recognize the effectiveness of this as a training tool, I think that's when you'll see significant growth.

And the last question is on the buyback. Obviously, you've been in a strategic review for a number of months now. Is the current stock price, and trading at $17.00 after hours, is that reflective of where you're interested in starting to use the buyback amounts? Or, any insights into when that was determined as the right use of cash? And when do you think you'll start to be active in whatever degree?

The board was clear that we felt that we had adequate funding for our operations and that we wanted to make available the stock repurchase plan as a way to reduce our cash balances. In terms of specifics on the timing and the number and the pricing, we have pretty much the maximum flexibility here. We're not limited to timeframe pricing and it really will be a discussion that I have ongoing with the board. And we'll just have to leave it at that for now.

Thanks so much.

All right, Andy. Thank you.

Your next question comes from Rick Schotenfeld.

Hi, Rick.

Actually, I already asked my question but, since it came back to me again, I just wanted to say also that I've sat in a lot of meetings with you and you've gotten beaten up over whether or not you didn't authorize this buyback or not. And I just want to thank you for listening to your shareholders in doing so.

And I appreciate your efforts, Rick. They were quite helpful in helping us make the right decision here.

All right, well, good job and I don't have another question now.

Thanks.

All right.

Your next question comes from Alec Berman.

Hi, Alec.

Hey, Vick, I was going to echo the comments about the buyback. Also, something we've talked about before, many times, is this whole portable navigation opportunity. You mentioned the win in Korea, which was fantastic. I'm just curious whether you think you can make any progress on what's on for the bigger guys yet? Or do you think maybe that'll be a focus for when you make some of these new hires and so forth that becomes like a major focus, going forward? Sort of how do you see that going these days?

I think it's safe to say most of the large suppliers of navigation devices are aware of our technology. I think we need to add resources at the source, which is primarily in Taiwan. So, we need people there and I need to increase the sales presence and effort. But everybody's aware of what we have to offer. We're in discussions with a number of companies and we do look at it as a nice growth area. But I think we need to do a better job at closing our sales.

Yes, I think it's just a matter of time on that one. Thanks, Vick.

Your next question comes from Mark Kabesh.

Sorry, Vick. I had to come back and ask you one more question.

Okay.

Pertaining to another item I had read, there are some congressmen that are considering putting bills up to become law, which have to do with medical training and utilizing simulation devices in the school systems once the doctors become full fledged practicing doctors in the hospital communities. Does Immersion practice, currently, or will they in the future, practice any type of lobbying activities for that type of mandate?

We're aware of some initiatives and efforts. We're doing what we think we can, in terms of promoting and conducting validation studies and so on and making sure that the results are known.

In terms specifically, the marketing programs, whether lobbying efforts or those types of initiatives, I wouldn't want to go into those details. But we're aware of those efforts. We support the goals and we continue to work hard at trying to bring this about, because we really do believe it is a difference in healthcare.

I think it's a staggering difference. Pertaining to that subject, the -- if it were to become a mandate, how many of our products are unique and do not have any peers? And, do we have any protection in patents with regards to those specific products?

Well, we do have some very strong, fundamental patents in this space. So, I'm not sure I can categorize by platform or procedure, let's say, but we have some pretty fundamental and strong patents there. So, in terms of competition, you could argue that a textbook is competition, because it provides the training. But in terms of the type of training, simulation environment that we provide, with the haptics feedback, we think we're the only company that's providing this in the U.S. with the [fidelity and] level that we do.

If it were to become law, how quickly could we ramp up in order to fill the, what could be, pending cascade of orders?

Well, thanks for the softball there, Mark. I mean, I don't want to burst your bubble but we can't rely on the government to do all the heavy lifting. So, we obviously will ramp up as fast as the demand is there. But these things do take time, as you know. We've been in business promoting our capabilities in areas for quite some time.

We're happy with the progress; we see a bright future. But I don't want to basically highlight the type of near-term growth potential that you're implying just yet.

Okay and please extend my best to Mr. Vogel and team. They've done a phenomenal job and they keep up a staggering pace.

I will. Thank you.

Take care, sir.

There are no further questions. Do you have any closing remarks?

Yes. Thank you, Keena. So, thank you everyone for your participation on today's call. We appreciate your continued interest and support of Immersion. Thank you and good afternoon.

This concludes today's conference call. You may now disconnect.