10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number: 001-34108

DIGIMARC CORPORATION

(Exact name of registrant as specified in its charter)

Oregon	26-2828185
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

9405 SW Gemini Drive, Beaverton, Oregon 97008

(Address of principal executive offices) (Zip Code)

(503) 469-4800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).    Yes  o    No   x

As of July 22, 2016, there were 9,090,258 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

Table of Contents

PART I FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):	3
	Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015	4
	Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2016 and 2015	5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	30
SIGNATURES		31

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DIGIMARC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(UNAUDITED)

	June 30, 2016			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	9,557		$	3,160
Marketable securities		22,378			33,027
Trade accounts receivable, net		2,477			4,616
Other current assets		1,435			1,487
Total current assets		35,847			42,290
Marketable securities		-			2,999
Property and equipment, net		3,154			3,010
Intangibles, net		6,469			6,613
Goodwill		1,114			1,114
Other assets		302			338
Total assets	$	46,886		$	56,364
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	1,490		$	1,657
Deferred revenue		2,158			3,023
Total current liabilities		3,648			4,680
Deferred rent and other long-term liabilities		511			226
Total liabilities		4,159			4,906
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares issued and    outstanding at June 30, 2016 and December 31, 2015)		50			50
Common stock (par value $0.001 per share, 50,000 authorized, 9,085 and 8,919 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively)		9			9
Additional paid-in capital		79,426			77,439
Accumulated deficit		(36,758	)		(26,040	)
Total shareholders’ equity		42,727			51,458
Total liabilities and shareholders’ equity	$	46,886		$	56,364

The accompanying notes are an integral part of these consolidated financial statements.

3

DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(UNAUDITED)

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Revenue:
Service	$	3,148		$	3,235		$	6,398		$	6,736
Subscription		1,494			1,670			2,957			3,386
License		815			893			1,682			1,665
Total revenue		5,457			5,798			11,037			11,787
Cost of revenue:
Service		1,401			1,497			2,833			3,075
Subscription		594			866			1,256			1,620
License		99			86			195			170
Total cost of revenue		2,094			2,449			4,284			4,865
Gross profit		3,363			3,349			6,753			6,922
Operating expenses:
Sales and marketing		2,856			2,098			5,811			4,188
Research, development and engineering		3,379			3,025			6,684			6,109
General and administrative		1,976			1,980			4,146			4,186
Intellectual property		462			291			896			658
Total operating expenses		8,673			7,394			17,537			15,141
Operating loss		(5,310	)		(4,045	)		(10,784	)		(8,219	)
Other income, net		42			32			88			55
Loss before income taxes		(5,268	)		(4,013	)		(10,696	)		(8,164	)
(Provision) benefit for income taxes		(15	)		1			(22	)		2
Net loss	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Earnings (loss) per common share:
Loss per common share—basic	$	(0.62	)	$	(0.50	)	$	(1.25	)	$	(1.02	)
Loss per common share—diluted	$	(0.62	)	$	(0.50	)	$	(1.25	)	$	(1.02	)
Weighted average common shares outstanding—basic		8,587			8,029			8,560			7,995
Weighted average common shares outstanding—diluted		8,587			8,029			8,560			7,995

The accompanying notes are an integral part of these consolidated financial statements.

4

DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(UNAUDITED)

										Additional						Total
	Preferred Stock				Common Stock					Paid-in			Accumulated			Shareholders'
	Shares		Amount		Shares			Amount		Capital			Deficit			Equity
BALANCE AT DECEMBER 31, 2014		10	$	50		8,427		$	8	$	60,222		$	(8,106	)	$	52,174
Exercise of stock options		—		—		71			1		1,128			—			1,129
Issuance of restricted common stock		—		—		119			—		—			—			—
Forfeiture of restricted common stock		—		—		(28	)		—		—			—			—
Purchase and retirement of common stock		—		—		(36	)		—		(1,035	)		—			(1,035	)
Stock-based compensation		—		—		—			—		2,571			—			2,571
Net loss		—		—		—			—		—			(8,162	)		(8,162	)
BALANCE AT JUNE 30, 2015		10	$	50		8,553		$	9	$	62,886		$	(16,268	)	$	46,677
BALANCE AT DECEMBER 31, 2015		10	$	50		8,919		$	9	$	77,439		$	(26,040	)	$	51,458
Exercise of stock options		—		—		32			—		309			—			309
Issuance of restricted common stock		—		—		177			—		—			—			—
Forfeiture of restricted common stock		—		—		(3	)		—		—			—			—
Purchase and retirement of common stock		—		—		(40	)		—		(1,104	)		—			(1,104	)
Stock-based compensation		—		—		—			—		2,782			—			2,782
Net loss		—		—		—			—		—			(10,718	)		(10,718	)
BALANCE AT JUNE 30, 2016		10	$	50		9,085		$	9	$	79,426		$	(36,758	)	$	42,727

The accompanying notes are an integral part of these consolidated financial statements.

5

DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)

	Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Cash flows from operating activities:
Net loss	$	(10,718	)	$	(8,162	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and write-off of property and equipment		688			604
Amortization and write-off of intangibles		639			520
Changes in allowance for doubtful accounts		—			16
Stock-based compensation		2,707			2,480
Changes in operating assets and liabilities:
Trade accounts receivable		2,139			1,509
Other current assets		52			36
Other assets		36			74
Accounts payable and other accrued liabilities		109			(160	)
Deferred revenue		(917	)		(1,285	)
Net cash used in operating activities		(5,265	)		(4,368	)
Cash flows from investing activities:
Purchase of property and equipment		(755	)		(324	)
Capitalized patent costs		(436	)		(428	)
Maturity of marketable securities		22,467			15,363
Purchase of marketable securities		(8,819	)		(12,412	)
Net cash provided by investing activities		12,457			2,199
Cash flows from financing activities:
Exercise of stock options	309				1,129
Purchase of common stock		(1,104	)		(1,035	)
Net cash provided by (used in) financing activities		(795	)		94
Net increase (decrease) in cash and cash equivalents		6,397			(2,075	)
Cash and cash equivalents at beginning of period		3,160			6,122
Cash and cash equivalents at end of period	$	9,557		$	4,047
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	$	14		$	2
Supplemental schedule of non-cash investing activities:
Property and equipment and patent costs in accounts payable	$	273		$	99
Stock-based compensation capitalized to software and patent costs	$	75		$	91

The accompanying notes are an integral part of these consolidated financial statements.

6

DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(UNAUDITED)

1. Description of Business and Significant Accounting Policies

Description of Business

Digimarc Corporation (“Digimarc” or the “Company”), an Oregon corporation, enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize and to which they can react. The Company has developed the Digimarc Discover^® and Digimarc Barcode Intuitive Computing Platform that are designed to optimize the identification of all consumer brand impressions, wherever and whenever they may appear, facilitating modern mobile-centric shopping. The platform includes means to embed “Digimarc Barcodes,” invisible and inaudible barcode-like information that is recognizable by smartphones, tablets, industrial scanners, and other computer interfaces into virtually all forms of media content, including consumer product packaging. Digimarc Barcodes have many applications, including facilitating remarkably faster scanning of products at retail checkout as well as improved engagement with smartphone-equipped consumers. The Digimarc Barcode is robust yet imperceptible by people in ordinary use, allowing for reliable, efficient, economical, globally scalable automatic identification of media without visible computer codes like traditional barcodes.

Interim Consolidated Financial Statements

The Company has adhered to the accounting policies set forth in its Annual Report on Form 10-K for the year ended December 31, 2015 in preparing the accompanying interim consolidated financial statements.

The accompanying interim consolidated financial statements have been prepared from the Company’s records without audit and, in management’s opinion, include all adjustments (consisting of only normal recurring adjustments) necessary to fairly reflect the financial condition and the results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on February 25, 2016. The results of operations for the interim periods presented in these consolidated financial statements are not necessarily indicative of the results for the full year.

Reclassifications

Certain prior period amounts in the accompanying consolidated financial statements and notes thereto have been reclassified to conform to current period presentation. These reclassifications had no material effect on the results of operations or financial position for any period presented.

Contingencies

The Company evaluates all pending or threatened contingencies or commitments, if any, that are reasonably likely to have a material adverse effect on the Company’s operations or financial position. The Company assesses the probability of an adverse outcome and determines if it is remote, reasonably possible or probable as defined in accordance with the provisions of ASC 450 “Contingencies.” If information available prior to the issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and the amount of the loss, or the range of probable loss can be reasonably estimated, then the loss is accrued and charged to operations. If no accrual is made for a loss contingency because one or both of the conditions pursuant to ASC 450 are not met, but the probability of an adverse outcome is at least reasonably possible, the Company will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss, or state that such an estimate cannot be made.

Goodwill

The Company tests goodwill for impairment annually in June and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Such reviews assess the fair value of the Company’s assets compared to their carrying value.

7

The Company operates as a single reporting unit. The Company estimated the fair value of its single reporting unit using a market approach, which takes into account the Company’s market capitalization plus an estimated control premium.

In connection with the Company’s annual impairment test of goodwill as of June 30, 2016 and 2015, it was concluded that there was no impairment as the estimated fair value of the Company’s reporting unit substantially exceeded the carrying value.

Accounting Pronouncements Issued But Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU No. 2014-09 provides specific guidance to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of the new revenue standard for public entities by one year to annual reporting periods beginning after December 31, 2017, and interim periods beginning in the first interim period within the year of adoption. The amendments in this update permit the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method and is currently assessing the potential future impact of this standard on its financial condition, results of operations and disclosures.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which supersedes Topic 840, Leases. ASU No. 2016-02 increases the transparency and comparability of organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance requires that operating leases recognize a right-of-use asset and a lease liability measured at the present value of the lease payments in the statement of financial position, recognize a single lease cost allocated over the lease term on a generally straight-line basis, and classify all cash payments within operating activities in the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 31, 2018, and interim periods beginning in the first interim period within the year of adoption. Early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach which includes a number of optional practical expedients that entities may elect to apply. The Company is currently assessing the potential future impact of this standard on its financial condition, results of operations, cash flows and disclosures.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting (Topic 718).” ASU No. 2016-09 simplifies the accounting for share-based payment transactions, including accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification in the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 31, 2016, and interim periods beginning in the first interim period within the year of adoption. Early adoption is permitted. Any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently assessing the potential future impact of this standard on its financial condition, results of operations, cash flows and disclosures.

8

2. Fair Value of Financial Instruments

The estimated fair values of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate their carrying values due to the short-term nature of these instruments. The Company records marketable securities at amortized cost, which approximates fair value.

The Company’s fair value hierarchy for its cash equivalents and marketable securities as of June 30, 2016 and December 31, 2015, respectively, was as follows:

June 30, 2016	Level 1		Level 2		Level 3		Total
Money market securities	$	2,774	$	—	$	—	$	2,774
Federal agency notes		—		8,765		—		8,765
U.S. treasuries		—		7,556		—		7,556
Pre-refunded municipal bonds (1)		—		4,286		—		4,286
Corporate notes		—		4,050		—		4,050
Commercial paper		—		3,498		—		3,498
Certificates of deposits		—		136		—		136
Total	$	2,774	$	28,291	$	—	$	31,065

December 31, 2015	Level 1		Level 2		Level 3		Total
Money market securities	$	2,001	$	—	$	—	$	2,001
Federal agency notes		—		11,722		—		11,722
U.S. treasuries		—		7,059		—		7,059
Corporate notes		—		6,884		—		6,884
Pre-refunded municipal bonds (1)		—		4,747		—		4,747
Commercial paper		—		3,794		—		3,794
Certificates of deposits		—		2,220		—		2,220
Total	$	2,001	$	36,426	$	—	$	38,427

(1) Pre-refunded municipal bonds are collateralized by U.S. treasuries.

The fair value maturities of the Company’s cash equivalents and marketable securities as of June 30, 2016 are as follows:

	Maturities by Period
	Total		Lessthan 1 year		1-5 years		5 - 10 years		More than 10 years
Cash equivalents and marketable securities	$	31,065	$	31,065	$	—	$	—	$	—

The Company considers all highly liquid marketable securities with original maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include money market funds and certificates of deposit totaling $8,687 and $2,401 at June 30, 2016 and December 31, 2015, respectively. Cash equivalents are carried at cost or amortized cost, which approximates fair value.

3. Revenue Recognition

The Company derives its revenue primarily from professional services, subscriptions and licensing of its intellectual property:

· Service revenue consists primarily of software development and consulting services. The majority of service revenue arrangements are structured as time and materials consulting agreements.

· Subscription revenue includes Digimarc Discover, Digimarc Barcode and Guardian products and services, is generally recurring, paid in advance and recognized over the term of the subscription.

· License revenue originates primarily from licensing the Company’s intellectual property, where the Company receives license fees and/or royalties as its income stream.

9

Revenue is recognized in accordance with ASC 605 “Revenue Recognition” and ASC 985 “Software” when the following four criteria are met:

(i) persuasive evidence of an arrangement exists,

(ii) delivery has occurred,

(iii) the fee is fixed or determinable, and

(iv) collection is reasonably assured or probable.

Some customer arrangements encompass multiple deliverables, such as professional services, software licenses, and maintenance and support fees. For arrangements that include multiple deliverables, the Company identifies separate units of accounting at inception based on the consensus reached under ASC 605-25 “Multiple-Element Arrangements,” which provides that revenue arrangements with multiple deliverables should be divided into separate units of accounting if certain criteria are met. The Company applies ASC 985 to software deliverables when relevant. The consideration for the arrangements under ASC 605-25 is allocated to the separate units of accounting using the relative selling price method.

The relative selling price method allocates the consideration based on the Company’s specific assumptions rather than assumptions of a marketplace participant, and any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price.

Applicable revenue recognition criteria are considered separately for each separate unit of accounting as follows:

· Service revenue is generally determined based on time and materials. Revenue for development and consulting services is recognized as the services are performed. Billing for services rendered generally occurs within one month after the services are provided.

· Subscription revenue, which includes revenue from the sale of Digimarc Discover, Digimarc Barcode and Guardian products and services, is generally paid in advance and recognized over the term of the subscription, which is generally one to three years.

· License revenue is recognized when amounts owed to the Company have been earned, are fixed or determinable (within the Company’s normal 30 to 60 day payment terms), and collection is reasonably assured. If the payment terms extend beyond the normal 30 to 60 days, the fee may not be considered to be fixed or determinable, and the revenue would then be recognized when installments are due.

· The Company records revenue from certain license agreements upon cash receipt as a result of collectability not being reasonably assured.

· The Company’s standard payment terms for license arrangements are 30 to 60 days. Extended payment terms on patent license arrangements are not considered to be fixed or determinable if payments are due beyond the Company’s standard payment terms, primarily because of the risk of substantial modification present in the Company’s patent licensing business. As such, revenue on license arrangements with extended payment terms is recognized as fees become fixed or determinable.

Deferred revenue consists of billings in advance for professional services, subscriptions and licenses for which revenue has not been earned.

4. Segment Information

Geographic Information

The Company derives its revenue from a single reporting segment: media management solutions. Revenue is generated in this segment through development services, subscriptions and licensing of intellectual property. The Company markets its products in the U.S. and in non-U.S. countries through its sales and licensing personnel.

10

Revenue by geographic area, based upon the “bill-to” location, was as follows:

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Domestic	$	1,151	$	1,758	$	2,284	$	3,445
International (1)		4,306		4,040		8,753		8,342
Total	$	5,457	$	5,798	$	11,037	$	11,787

(1) Revenue from the Central Banks, consisting of a consortium of central banks around the world, is classified as international revenue. Reporting revenue by country for this customer is not practicable.

Major Customers

Customers who accounted for 10% or more of the Company’s revenue are as follows:

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Central Banks		63	%		54	%		63	%		57	%

Long-lived assets by geographical area

The Company’s long-lived assets are all domestic, domiciled in the U.S.

5. Stock-Based Compensation

Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include option grants and restricted stock awards.

Stock-based compensation expense related to internal labor is capitalized to software and patents based on direct labor hours charged to capitalized software and patent costs.

Determining Fair Value

Stock Options

The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The fair value of stock options is determined on the date of the grant (measurement date), and is recognized over the vesting period of the option using the straight-line method.

There were no stock options granted during the three and six months ended June 30, 2016 and 2015.

The Company records stock-based compensation expense for stock option awards only for those awards that are expected to vest.

Restricted Stock

The fair value of restricted stock awarded is based on the fair market value of the Company’s common stock on the date of the grant (measurement date), and is recognized over the vesting period of the award using the straight-line method.

The Company records stock-based compensation expense for restricted stock awards only for those awards that are expected to vest.

11

Stock-based Compensation

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Stock-based compensation:
Cost of revenue	$	184	$	213	$	357	$	398
Sales and marketing		238		175		450		334
Research, development and engineering		379		328		704		615
General and administrative		544		484		1,045		1,002
Intellectual property		79		63		151		131
Stock-based compensation expense		1,424		1,263		2,707		2,480
Capitalized to software and patent costs		43		54		75		91
Total stock-based compensation expense	$	1,467	$	1,317	$	2,782	$	2,571

The following table sets forth total unrecognized compensation cost related to non-vested stock-based awards granted under all equity compensation plans, including stock options and restricted stock:

	As of June 30, 2016		As of December 31, 2015
Total unrecognized compensation costs	$	11,746	$	9,549

Total unrecognized compensation costs will be adjusted for any future changes in estimated forfeitures.

The Company expects to recognize the unrecognized compensation costs as of June 30, 2016 for stock options and restricted stock over weighted average periods through June 2020 as follows:

	Stock Options	Restricted Stock
Weighted average period	0.0 years	1.4 years

As of June 30, 2016, under all of the Company’s stock-based compensation plans, equity awards to purchase an additional 1,307 shares were authorized for future grants under the plans. The Company issues new shares upon option exercises.

Stock Option Activity

The following table reconciles the outstanding balance of stock options:

Three months ended June 30, 2016:	Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at March 31, 2016		475		$	17.98	$	8.76
Options granted		—			—		—
Options exercised		(17	)		9.64		8.15
Options forfeited or expired		—			—		—
Outstanding at June 30, 2016		458		$	18.29	$	8.79	$	6,260

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Six months ended June 30, 2016:	Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at December 31, 2015		490		$	17.73	$	8.69
Granted		—			—		—
Exercised		(32	)		9.64		7.28
Forfeited or expired		—			—		—
Outstanding at June 30, 2016		458		$	18.29	$	8.79	$	6,260
Exercisable at June 30, 2016		458		$	18.29			$	6,260

The aggregate intrinsic value is based on the closing price of $31.96 per share of Digimarc common stock on June 30, 2016, which would have been received by the optionees had all of the options with exercise prices less than $31.96 per share been exercised on that date.

Restricted Stock Activity

The following table reconciles the unvested balance of restricted stock:

Three months ended June 30, 2016:	Numberof Shares			Weighted Average Grant Date Fair Value
Unvested balance, March 31, 2016		525		$	25.56
Granted		15		$	29.53
Vested		(68	)	$	25.96
Forfeited		(2	)	$	33.16
Unvested balance, June 30, 2016		470		$	25.59

Six months ended June 30, 2016:	Numberof Shares			Weighted Average Grant Date Fair Value
Unvested balance, December 31, 2015		408		$	24.30
Granted		177		$	28.63
Vested		(112	)	$	25.52
Forfeited		(3	)	$	32.31
Unvested balance, June 30, 2016		470		$	25.59

The following table indicates the fair value of all restricted stock awards that vested during the three and six months ended June 30, 2016 and 2015:

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Fair value of restricted stock awards vested	$	1,839	$	1,666	$	3,117	$	2,879

6. Earnings Per Common Share

The Company calculates basic and diluted earnings per common share in accordance with ASC 260 “Earnings Per Share,” using the two-class method because the Company’s unvested restricted stock is a participating security since these awards contain non-forfeitable rights to receive dividends. Under the two-class method, earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed.

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Basic earnings per common share excludes dilution and is calculated by dividing earnings to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing earnings to common shares by the weighted-average number of common shares, as adjusted for the potentially dilutive effect of stock options.

The following table reconciles earnings (loss) per common share for the three and six months ended June 30, 2016 and 2015:

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Basic Earnings (Loss) per Common Share:
Numerator:
Net loss	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Distributed earnings to common shares		—			—			—			—
Distributed earnings to participating securities		—			—			—			—
Total distributed earnings		—			—			—			—
Undistributed loss allocable to common shares		(5,283	)		(4,012	)		(10,718	)		(8,162	)
Undistributed earnings allocable to participating securities		—			—			—			—
Total undistributed loss		(5,283	)		(4,012	)		(10,718	)		(8,162	)
Loss to common shares—basic	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Denominator
Weighted average common shares outstanding—basic		8,587			8,029			8,560			7,995
Basic earnings (loss) per common share	$	(0.62	)	$	(0.50	)	$	(1.25	)	$	(1.02	)

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Diluted Earnings (Loss) per Common Share:
Numerator:
Loss to common shares—basic	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Undistributed earnings allocated to participating securities		—			—			—			—
Undistributed earnings reallocated to participating securities		—			—			—			—
Loss to common shares—diluted	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Denominator
Weighted average common shares outstanding—basic		8,587			8,029			8,560			7,995
Dilutive effect of stock options		—			—			—			—
Weighted average common shares outstanding—dilutive		8,587			8,029			8,560			7,995
Diluted earnings (loss) per common share	$	(0.62	)	$	(0.50	)	$	(1.25	)	$	(1.02	)

There were 75 and 0 common stock equivalents related to stock options that were anti-dilutive and excluded from diluted earnings per common share calculations for the three and six months ended June 30, 2016, respectively, because their exercise prices were higher than the average market price of the underlying common stock for the period.

There were 75 and 175 common stock equivalents related to stock options that were anti-dilutive and excluded from diluted earnings per common share calculations for the three and six months ended June 30, 2015, respectively, because their exercise prices were higher than the average market price of the underlying common stock for the period.

There were 169 and 188 common stock equivalents related to stock options that were anti-dilutive and excluded from diluted earnings per common share for the three and six months ended June 30, 2016, respectively, as the Company incurred a net loss for the periods.

There were 216 and 214 common stock equivalents related to stock options that were anti-dilutive and excluded from diluted earnings per common share for the three and six months ended June 30, 2015, respectively, as the Company incurred a net loss for the periods.

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7. Trade Accounts Receivable

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount.

	June 30, 2016			December 31, 2015
Trade accounts receivable	$	2,492		$	4,631
Allowance for doubtful accounts		(15	)		(15	)
Trade accounts receivable, net	$	2,477		$	4,616
Unpaid deferred revenue included in trade accounts receivable	$	544		$	2,012

Allowance for doubtful accounts

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing trade accounts receivable. The Company determines the allowance based on historical write-off experience and current information. The Company reviews its allowance for doubtful accounts each reporting period. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Unpaid deferred revenue

The unpaid deferred revenue that is included in trade accounts receivable is billed in accordance with the provisions of the contracts with the Company’s customers. Unpaid deferred revenue from the Company’s cash-basis customers is not included in trade accounts receivable nor deferred revenue.

Major customers

Customers who accounted for 10% or more of trade accounts receivable, net are as follows:

	June 30, 2016			December 31, 2015
Central Banks		41	%		62	%

8. Property and Equipment

Property and equipment are stated at cost. Repairs and maintenance are charged to expense when incurred.

Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, generally two to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the lease term.

	June 30, 2016			December 31, 2015
Office furniture and fixtures	$	1,123		$	1,068
Software		1,799			1,748
Equipment		3,568			3,416
Leasehold improvements		1,609			1,276
Gross property and equipment		8,099			7,508
Less accumulated depreciation and amortization		(4,945	)		(4,498	)
Property and equipment, net	$	3,154		$	3,010

9. Intangibles

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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Amortization of capitalized patent costs associated with the application and award of patents in the U.S. and various other countries are capitalized and amortized on a straight-line basis over the term of the patents as determined at the award date, which varies depending on the pendency period of the application, generally approximating seventeen years.

Amortization of intangible assets acquired is calculated using the straight-line method over the estimated useful lives of the assets.

	June 30, 2016			December 31, 2015
Capitalized patent costs	$	6,971		$	6,779
Intangible assets acquired:
Purchased patents and intellectual property		250			250
Existing technology		1,560			1,560
Customer relationships		290			290
Backlog		760			760
Tradenames		290			290
Non-solicitation agreements		120			120
Gross intangible assets		10,241			10,049
Accumulated amortization		(3,772	)		(3,436	)
Intangibles, net	$	6,469		$	6,613

10. Joint Ventures and Related Party Transactions

In March 2012, Digimarc and Nielsen reduced the investments in their two joint ventures, TVaura LLC (in which Digimarc holds a 51% ownership interest) and TVaura Mobile LLC (in which Digimarc holds a 49% ownership interest), to minimal levels while assessing alternative approaches to achieving each of their goals in the emerging market opportunity of synchronized second screen television.

In October 2015, Digimarc and Nielsen reactivated the TVaura Mobile LLC joint venture to allow it to provide solutions to programmers and advertisers for engaging with consumers on second screens and otherwise provide enhanced flexibility to brand strategies targeting modern consumers. The enhanced cooperation represents another building block in developing the market for Digimarc Discover and Digimarc Barcode. Neither Digimarc nor Nielsen contributed any capital to the joint venture upon reactivation.

As of June 30, 2016, both Digimarc and Nielsen continued to assess the market opportunities of TVaura LLC joint venture.

Summarized financial information for the joint ventures has not been provided because the disclosures are immaterial to the Company’s filing. TVaura LLC and TVaura Mobile LLC had no revenue or expenses for the three and six months ended June 30, 2016 and 2015.

The Company’s investment in each joint venture was $0 as of June 30, 2016 and December 31, 2015.

11. Income Taxes

The (provision) benefit for income taxes for the six months ended June 30, 2016 and 2015 reflects current taxes, deferred taxes, and withholding taxes in certain foreign jurisdictions. The effective tax rate for the six months ended June 30, 2016 and 2015 was 0% and 0%, respectively. The valuation allowance against net deferred tax assets as of June 30, 2016 was $20,023, an increase of $4,603 from $15,420 as of December 31, 2015.

12. Commitments and Contingencies

Certain of the Company’s product license and services agreements include an indemnification provision for claims from third parties relating to the Company’s intellectual property. These indemnification provisions are accounted for in accordance with ASC 450 “Contingencies.” To date, there have been no claims made under such indemnification provisions.

The Company is subject from time to time to other legal proceedings and claims arising in the ordinary course of business.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements relating to future events or the future financial performance of Digimarc that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements. Please see the discussion regarding forward-looking statements included in this Quarterly Report on Form 10-Q under the caption “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.”

The following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. Readers are also urged to carefully review and consider the disclosures made in Part II, Item 1A (Risk Factors) of this Quarterly Report on Form 10-Q and in the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed on  February 25, 2016  (our “2015 Annual Report”), and other reports and filings made with the U.S. Securities and Exchange Commission (“SEC”).

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “Digimarc,” “we,” “our” and “us” refer to Digimarc Corporation.

All dollar amounts are in thousands except per share amounts or unless otherwise noted. Percentages within the following tables may not foot due to rounding.

Digimarc, Digimarc Discover and Guardian are registered trademarks of Digimarc Corporation. This Quarterly Report on Form 10-Q also includes trademarks and trade names owned by other parties, and all other such trademarks and trade names mentioned in this Quarterly Report on Form 10-Q are the property of their respective owners.

Overview

Digimarc Corporation enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize and to which they can react. We have developed the Digimarc Discover^® and Digimarc Barcode Intuitive Computing Platform that are designed to optimize the identification of all consumer brand impressions, wherever and whenever they may appear, facilitating modern mobile-centric shopping. The platform includes means to embed “Digimarc Barcodes,” invisible and inaudible barcode-like information that is recognizable by smartphones, tablets, industrial scanners, and other computer interfaces into virtually all forms of media content, including consumer product packaging. Digimarc Barcodes have many applications, including facilitating remarkably faster scanning of products at retail checkout as well as improved engagement with smartphone-equipped consumers. The Digimarc Barcode is robust yet imperceptible by people in ordinary use, allowing for reliable, efficient, economical, globally scalable automatic identification of media without visible computer codes like traditional barcodes.

Our media identification and discovery innovations enable our business partners to create numerous applications across a wide range of media content, including solutions that:

· Improve the speed of retail checkout;

· Provide simple and intuitive mobile customer engagement experiences in stores;

· Quickly and reliably identify and effectively manage music, movies, television programming, digital images, e-books, documents and other printed materials, especially in light of non-linear distribution over the Internet;

· Deter counterfeiting of money, media and goods, and piracy of e-books, movies and music;

· Support new digital media distribution models and methods to monetize media content;

· Leverage the power of ubiquitous computing to instantly link consumers to a wealth of information and/or interactive experiences related to the media and objects they encounter each day;

· Provide consumers with more choice and access to media content when, where and how they want it;

· Enhance imagery and video by associating metadata or authenticating media content for government and commercial uses; and

· Better secure identity documents to enhance national security and combat identity theft and fraud.

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The Intuitive Computing Platform has a proprietary foundation in a signal processing innovation known as “digital watermarking,” which allows imperceptible digital information to be embedded in all forms of digitally designed, produced or distributed media content and many physical objects, including photographs, movies, music, television, personal identification documents, financial instruments, industrial parts and product packages. We refer to the embedded information as the Digimarc Barcode. This digital information can be detected and read by a wide range of computers, smartphones, tablets and other digital devices.

Our inventions allow our business partners and customers to provide persistent digital identities for virtually any media content that is digitally processed at some point during its lifecycle. The technology can be applied to printed materials, video, audio, and images to supply a wide range of patented consumer engagement, media management and security solutions across multiple consumer and government industry sectors. Over the years our enabling software and business processes, and associated intellectual property portfolio have grown to encompass many related technologies.

We provide solutions directly and through our business partners. Our inventions provide a powerful element of document security, giving rise to a long-term relationship with a consortium of central banks (the “Central Banks”), and many leading companies in the information technology industry. We and our business partners have successfully propagated the use of our technology in music, movies, television broadcasts, digital images, e-books and printed materials. Digimarc Barcodes have been used in these applications to improve media rights and asset management, reduce piracy and counterfeiting losses, improve marketing programs, permit more efficient and effective distribution of valuable media content and enhance consumer entertainment and commercial experiences.

Digimarc Barcodes are easily embedded into all forms of media and are imperceptible to human senses, but quickly detected by computers, networks or other digital devices like smartphones and tablets. Unlike traditional barcodes and tags, our solution does not require publishers to give up valuable visual space in magazines and newspapers; nor does it impact the overall layout or aesthetics of the publication. Digimarc Barcodes are imperceptible to people and do all that visible barcodes do, but performs better. Our Digimarc Discover platform delivers a range of rich media experiences to its readers on their smartphones or tablets across multiple media including print, audio, video and packaging. Unique to the Digimarc Discover platform is its seamless multi-model use of various content identification technologies as needed, including Digimarc Barcode when present.

We introduced Digimarc Barcodes for use in consumer product packaging in 2014. These Digimarc Barcodes can contain the same information found in traditional universal product codes (“UPC”). The UPC information is invisibly repeated multiple times over the entire package surface. We partnered with Datalogic, a global leader in Automatic Data Capture and Industrial Automation markets and producer of barcode readers, in introducing the Digimarc Barcode to the consumer product packaging market. The first retail scanner enabled was Datalogic’s Magellan^TM 9800i multi-plane imaging scanner. Since then additional scanner vendors and other channel partners have announced support for the platform. Digimarc Barcodes can also connect mobile-enabled consumers directly from packaging to engaging mobile experiences such as additional product information, special offers, recommendations, reviews, social networks and more.

Our intellectual property portfolio of patents contains many innovations in digital watermarking, pattern recognition
(sometimes referred to as “fingerprinting”), digital rights management and related fields. To protect our inventions, we have implemented an extensive intellectual property protection program that relies on a combination of patent, copyright, trademark and trade secret laws, and nondisclosure agreements and other contracts. As a result, we believe we have one of the world’s most extensive patent portfolios in digital watermarking and related fields, with approximately 1,100 U.S. and foreign patents and pending patent applications as of June 30, 2016. We continue to develop and broaden our portfolio in the fields of media identification and management technology and related applications and systems. We devote significant resources to developing and protecting our inventions and continuously seek to identify and evaluate potential licensees for our patents. The patents in our portfolio have a life of approximately 20 years from the effective filing date, and up to 17 years after the patent has been granted.

The market for patent licensing has become more challenging in recent years. As a result, we have shifted our focus from direct monetization via enforcement and licensing to:

· facilitating progress toward the realization of our vision to enrich everyday living via pervasive, intuitive computing;

· encouraging large scale adoption of our technologies by industry leaders;

· improving our financial performance by enhancing our competitive differentiation;

· increasing the scale and rate of growth of our products and services business; and

· laying a foundation for continuing innovation.

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For a discussion of activities and costs related to our research and development, read the section titled “Results of Operations –Summary – Research, development and engineering.”

Critical Accounting Policies and Estimates

Detailed information on our critical accounting policies and estimates are set forth in Part II, Item 7 of our 2015 Annual Report (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”), under the caption “Critical Accounting Policies and Estimates,” which is incorporated by reference into this Quarterly Report on Form 10-Q.

Results of Operations

The following table presents statements of operations data for the periods indicated as a percentage of total revenue. Unless otherwise indicated, all references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to the three and six month periods relate to the three and six month periods ended June 30, 2016 and all changes discussed with respect to such periods reflect changes compared to the three and six month periods ended June 30, 2015.

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Revenue:
Service		58	%		56	%		58	%		57	%
Subscription		27			29			27			29
License		15			15			15			14
Total revenue		100			100			100			100
Cost of revenue:
Service		26			26			26			26
Subscription		11			15			11			14
License		2			1			2			1
Total cost of revenue		38			42			39			41
Gross profit		62			58			61			59
Operating expenses:
Sales and marketing		52			36			53			36
Research, development and engineering		62			52			61			52
General and administrative		36			34			38			36
Intellectual property		8			5			8			6
Total operating expenses		159			128			159			128
Operating loss		(97	)		(70	)		(98	)		(70	)
Other income, net		1			1			1			0
Loss before income taxes		(97	)		(69	)		(97	)		(69	)
(Provision) benefit for income taxes		(0	)		0			(0	)		0
Net loss		(97	%)		(69	%)		(97	%)		(69	%)

Summary

Total revenue for the three and six month periods ended June 30, 2016 decreased 6% to $5.5 million and 6% to $11.0 million, respectively, compared to the corresponding three and six month periods ended June 30, 2015, primarily as a result of lower service and subscription revenue.

Total operating expenses for the three and six month periods ended June 30, 2016 increased 17% to $8.7 million and 16% to $17.5 million, respectively, compared to the corresponding three and six month periods ended June 30, 2015, primarily reflecting higher investment in sales, marketing, research, development and engineering as we address important opportunities in market development and delivery of Digimarc Discover and Digimarc Barcode.

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Revenue

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Dollar Decrease			Percent Decrease			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Dollar Increase (Decrease)			Percent Increase (Decrease)
Revenue:
Service	$	3,148		$	3,235		$	(87	)		(3	)%	$	6,398		$	6,736		$	(338	)		(5	)%
Subscription		1,494			1,670			(176	)		(11	)%		2,957			3,386			(429	)		(13	)%
License		815			893			(78	)		(9	)%		1,682			1,665			17			1	%
Total	$	5,457		$	5,798		$	(341	)		(6	)%	$	11,037		$	11,787		$	(750	)		(6	)%
Revenue (as % of total revenue):
Service		58	%		56	%								58	%		57	%
Subscription		27	%		29	%								27	%		29	%
License		15	%		15	%								15	%		14	%
Total		100	%		100	%								100	%		100	%

Service. Service revenue consists primarily of software development and consulting services. The majority of service revenue arrangements are structured as time and materials consulting agreements. Most of our service revenue is derived from contracts with the Central Banks and government agency contractors. The agreements range from several months to several years in length, and our longer term contracts are subject to work plans that are reviewed and agreed upon at least annually. These contracts generally provide for billing hours worked at predetermined rates and, to a lesser extent, reimbursement for third party costs and services. Increases or decreases in the services provided under these contracts are generally subject to both volume and price changes. The volume of work is generally negotiated at least annually and can be modified as the customer’s needs change. We also have provisions in our longer term contracts that allow for specific hourly rate price increases on an annual basis to account for cost of living variables. Contracts with government agency contractors are generally shorter term in nature, less linear in billings and less predictable than our longer term contracts because the contracts with government agency contractors are subject to government budgets and funding.

The decreases in service revenue for three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015, were primarily due to less program work with a government agency contractor and the expiration of minimum support services to Intellectual Ventures (“IV”), partially offset by more program work with the Central Banks.

Subscription. Subscription revenue includes revenue from the sale of Digimarc Discover, Digimarc Barcode and Guardian products and services, and is generally recurring in nature, paid in advance and recognized over the term of the subscription.

The decreases in subscription revenue for the three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015, were primarily due to lower software license revenue, which is recognized over the associated 12-month support period, partially offset by growth in sales of Digimarc Barcode.

License. License revenue originates primarily from licensing our intellectual property, where we receive license fees and/or royalties as our income stream.

The decrease in license revenue for the three month period ended June 30, 2016, compared to the corresponding three month period ended June 30, 2015, was primarily due to timing of revenue recognition.

License revenue for the six month period ended June 30, 2016, compared to the corresponding six month period ended June 30, 2015, was relatively flat.

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Revenue by Geography

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Dollar Increase (Decrease)			Percent Increase (Decrease)			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Dollar Increase (Decrease)			Percent Increase (Decrease)
Revenue by geography:
Domestic	$	1,151		$	1,758		$	(607	)		(35	)%	$	2,284		$	3,445		$	(1,161	)		(34	)%
International		4,306			4,040			266			7	%		8,753			8,342			411			5	%
Total	$	5,457		$	5,798		$	(341	)		(6	)%	$	11,037		$	11,787		$	(750	)		(6	)%
Revenue (as % of total revenue):
Domestic		21	%		30	%								21	%		29	%
International		79	%		70	%								79	%		71	%
Total		100	%		100	%								100	%		100	%

The decreases in domestic revenue for the three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015, were primarily the result of lower service and subscription revenue among domestic customers.

The increases in international revenue for the three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015, were primarily due to the timing and amount of program work with the Central Banks.

Cost of Revenue

Service. Cost of service revenue primarily includes costs that are allocated from research, development and engineering, sales and marketing and intellectual property that relate directly to performing services under our customer contracts and direct costs of program delivery for both personnel and operating expenses. Costs include:

· compensation, benefits, incentive compensation in the form of stock-based compensation and related costs of our software developers, quality assurance personnel, product managers, business development managers and other personnel where we bill our customers for time and materials costs;

· payments to outside contractors that are billed to customers;

· charges for equipment directly used by customers;

· depreciation and other charges for machinery, equipment and software directly used by customers;

· travel costs directly attributable to service and development contracts; and

· charges for infrastructure and centralized costs of facilities and information technology.

Subscription. Cost of subscription revenue primarily includes:

· compensation, benefits, incentive compensation in the form of stock-based compensation and related costs of operations personnel;

· cost of outside contractors that provide operational support;

· amortization of existing technology acquired in the acquisition of Attributor Corporation;

· Internet service provider connectivity charges and image search data fees to support the services offered to our subscription customers; and

· charges for infrastructure and centralized costs of facilities and information technology.

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License. Cost of license revenue primarily includes:

· amortization of capitalized patent costs and patent maintenance fees;

· license costs from third parties; and

· charges for infrastructure and centralized costs of facilities and information technology.

Gross Profit

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Dollar Increase (Decrease)			Percent Increase (Decrease)			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Dollar Decrease			Percent Decrease
Gross Profit:
Service	$	1,747		$	1,738		$	9			1	%	$	3,565		$	3,661		$	(96	)		(3	)%
Subscription		900			804			96			12	%		1,701			1,766			(65	)		(4	)%
License		716			807			(91	)		(11	)%		1,487			1,495			(8	)		(1	)%
Total	$	3,363		$	3,349		$	14			0	%	$	6,753		$	6,922		$	(169	)		(2	)%
Gross Profit (as % of related    revenue components):
Service		55	%		54	%								56	%		54	%
Subscription		60	%		48	%								58	%		52	%
License		88	%		90	%								88	%		90	%
Total		62	%		58	%								61	%		59	%

The increase in service gross profit as a percentage of service revenue was insignificant for both three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015.

The increase in subscription gross profit as a percentage of subscription revenue for both the three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015, was due primarily to lower operations and contractor costs in support of Guardian partially offset by lower subscription revenue.

The decrease in license gross profit as a percentage of license revenue was insignificant for both three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015.

Operating Expenses

We allocate certain costs of research, development and engineering, sales and marketing, and intellectual property to cost of revenue when they relate directly to our customer contracts. We record all remaining, or “residual,” costs as sales and marketing, research, development and engineering, general and administrative, and intellectual property expenses.

Sales and marketing

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Dollar Increase		Percent Increase			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Dollar Increase		Percent Increase
Sales and marketing	$	2,856		$	2,098		$	758		36	%	$	5,811		$	4,188		$	1,623		39	%
Sales and marketing    (as % of total revenue)		52	%		36	%							53	%		36	%

22

Sales and marketing expenses consist primarily of:

· compensation, benefits, incentive compensation in the form of stock-based compensation and related costs of sales and marketing employees and product managers;

· travel and market research costs, and costs associated with marketing programs, such as trade shows, public relations and new product launches;

· professional services and outside contractors for product and marketing initiatives; and

· charges for infrastructure and centralized costs of facilities and information technology.

The increase in sales and marketing expenses for the three month period ended June 30, 2016, compared to the corresponding three month period ended June 30, 2015, was due primarily to:

· increased headcount and compensation-related expenses of $0.4 million;

· increased charges for infrastructure and centralized costs of $0.1 million, primarily related to increased headcount; and

· increased travel expenses of $0.1 million.

The increase in sales and marketing expenses for the six month period ended June 30, 2016, compared to the corresponding six month period ended June 30, 2015, was due primarily to:

· increased headcount and compensation-related expenses of $1.0 million;

· increased charges for infrastructure and centralized costs of $0.2 million, primarily related to increased headcount;

· increased marketing and professional fees of $0.2 million related to market development activities; and

· increased travel expenses of $0.1 million.

Research, development and engineering

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Dollar Increase		Percent Increase			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Dollar Increase		Percent Increase
Research, development and    engineering	$	3,379		$	3,025		$	354		12	%	$	6,684		$	6,109		$	575		9	%
Research, development and    engineering (as % of total revenue)		62	%		52	%							61	%		52	%

Research, development and engineering expenses consist primarily of:

· compensation, benefits, incentive compensation in the form of stock-based compensation expense, recruiting and related costs of software and hardware developers and quality assurance personnel;

· payments to outside contractors;

· the purchase of materials and services for product development; and

· charges for infrastructure and centralized costs of facilities and information technology.

The increases in research, development and engineering expenses for the three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015, was due primarily to increased headcount and compensation-related expenses of $0.3 million and $0.5 million, respectively.

23

General and administrative

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Dollar Decrease			Percent Decrease			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Dollar Decrease			Percent Decrease
General and administrative	$	1,976		$	1,980		$	(4	)		(0	)%	$	4,146		$	4,186		$	(40	)		(1	)%
General and administrative (as %    of total revenue)		36	%		34	%								38	%		36	%

We incur general and administrative costs in the functional areas of finance, legal, human resources, executive and board of directors. Costs for facilities and information technology are also managed as part of the general and administrative processes and are allocated to this area as well as each of the areas in cost of revenue, sales and marketing, research, development and engineering and intellectual property.

General and administrative expenses consist primarily of:

· compensation, benefits and incentive compensation in the form of stock-based compensation expense and related costs of general and administrative personnel;

· third party and professional fees associated with legal, accounting and human resources;

· costs associated with being a public company; and

· charges for infrastructure and centralized costs of facilities and information technology.

General and administrative expenses for the three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015, were relatively flat.

Intellectual property

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Dollar Increase		Percent Increase			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Dollar Increase		Percent Increase
Intellectual property	$	462		$	291		$	171		59	%	$	896		$	658		$	238		36	%
Intellectual property (as %    of total revenue)		8	%		5	%							8	%		6	%

We incur intellectual property expenses that arise primarily from costs associated with documenting, applying for, and maintaining domestic and international patents and trademarks.

Gross expenditures for intellectual property costs, before reflecting the effect of capitalized patent costs, primarily consist of:

· compensation, benefits and incentive compensation in the form of stock-based compensation expense and related costs of attorneys and legal assistants;

· third party costs, including filing and governmental regulatory fees and fees for outside legal counsel and translation costs, each incurred in the patent process;

· consulting costs related to marketing our intellectual property portfolio;

· charges to write-off previously capitalized patent costs for patent assets we abandon; and

· charges for infrastructure and centralized costs of facilities and information technology.

Intellectual property expenses can vary from period to period based on the level of capitalized patent activity.

24

The increases in intellectual property expenses for the three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015, were due primarily to:

· increased compensation-related expenses of $0.1 million; and

· increased write-off of abandoned patent costs of $0.1 million.

Stock-based compensation

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Dollar Increase (Decrease)			Percent Increase (Decrease)			Six Months Ended June 30, 2016		Six Months Ended June 30, 2015		Dollar Increase (Decrease)			Percent Increase (Decrease)
Cost of revenue	$	184	$	213	$	(29	)		(14	)%	$	357	$	398	$	(41	)		(10	)%
Sales and marketing		238		175		63			36	%		450		334		116			35	%
Research, development and    engineering		379		328		51			16	%		704		615		89			14	%
General and administrative		544		484		60			12	%		1,045		1,002		43			4	%
Intellectual property		79		63		16			25	%		151		131		20			15	%
Total	$	1,424	$	1,263	$	161			13	%	$	2,707	$	2,480	$	227			9	%

The increases in stock-based compensation expense for the three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015, were due primarily to increased headcount.

We anticipate incurring an additional $11,746 in stock-based compensation expense through June 2020 for awards outstanding as of June 30, 2016.

Other income, net

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Dollar Increase		Percent Increase			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015		Dollar Increase		Percent Increase
Other income, net	$	42		$	32			10		31	%	$	88		$	55		33		60	%
Other income, net (as % of    total revenue)		1	%		1	%							1	%	*

* Less than 1%

The increases in other income, net for the three and six month periods ended June 30, 2016, compared to the corresponding three and six month periods ended June 30, 2015, were primarily due to higher interest income as a result of higher interest rates on cash and investments and changes in foreign currency.

Income Taxes

The (provision) benefit for income taxes for the six month periods ended June 30, 2016 and 2015 reflects current taxes, deferred taxes, and withholding taxes in certain foreign jurisdictions. The effective tax rate for the six month periods ended June 30, 2016 and 2015 was 0% because we have a full valuation allowance recorded against our deferred tax assets. The valuation allowance against deferred tax assets as of June 30, 2016 was $20,023, an increase of $4,603 from $15,420 as of December 31, 2015.

We continually assess the applicability of valuation allowance against our deferred tax assets. Based upon the positive and negative evidence available as of June 30, 2016, and largely due to the cumulative loss incurred by us over the last three years, which is considered a significant piece of negative evidence when assessing the realizability of deferred tax assets, a full valuation allowance is recorded against our deferred tax assets.

25

Liquidity and Capital Resources

	June 30, 2016		December 31, 2015
Working capital	$	32,199	$	37,610
Current ratio (1)	9.8:1		9.0:1
Cash, cash equivalents and short-term marketable securities	$	31,935	$	36,187
Long-term marketable securities	$	-	$	2,999
Total cash, cash equivalents and all marketable securities	$	31,935	$	39,186

(1) The current ratio is calculated by dividing total current assets by total current liabilities.

The $7.3 million decrease in cash, cash equivalents and marketable securities resulted primarily from:

· cash used in operations;

· purchases of property and equipment and capitalized patent costs; and

· purchases of common stock related to the vesting of restricted stock; partially offset by

· proceeds from stock option exercises.

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, and trade accounts receivable. We place our cash and cash equivalents with major banks and financial institutions and at times deposits may exceed insured limits. Marketable securities primarily include federal agency notes, U.S. treasuries, pre-refunded municipal bonds, corporate notes, commercial paper and certificates of deposits. Our investment policy requires the portfolio to be invested to ensure that the greater of $3 million or 7% of the invested funds will be available within 30 days’ notice.

Other than cash used for operating needs, which may include short-term marketable securities, our investment policy limits our credit exposure to any one financial institution or type of financial instrument by limiting the maximum of 5% of our cash and cash equivalents and marketable securities or $1 million, whichever is greater, to be invested in any one issuer except for the U.S. government, U.S. federal agencies and U.S. backed securities, which have no limits, at the time of purchase. Our investment policy also limits our credit exposure by limiting to a maximum of 40% of our cash and cash equivalents and marketable securities, or $15 million, whichever is greater, to be invested in any one industry category (e.g., financial or energy industries) at the time of purchase. As a result, we believe our credit risk associated with cash and investments to be minimal. A decline in the market value of any security below cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value. To determine whether an impairment is other-than-temporary, we consider whether we have the ability and intent to hold the investment until a market price recovery and evidence indicating that the cost of the investment is recoverable outweighs evidence to the contrary. There have been no other-than-temporary impairments identified or recorded by us in the three and six month periods ended June 30, 2016 and 2015.

Operating Cash Flow

The components of operating cash flows were:

	Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Dollar Increase (Decrease)			Percent Increase (Decrease)
Net loss	$	(10,718	)	$	(8,162	)	$	(2,556	)		(31	)%
Non-cash items		4,034			3,620			414			11	%
Changes in operating assets and liabilities		1,419			174			1,245			716	%
Net cash used in operating activities	$	(5,265	)	$	(4,368	)	$	(897	)		21	%

Cash flows used in operating activities for the six month period ended June 30, 2016, compared to the corresponding six month period ended June 30, 2015, increased by $0.9 million, primarily as the result of a higher net loss, partially offset by changes in operating assets and liabilities. The higher net loss was primarily due to higher operating expenses. The increase from changes in operating assets and liabilities for the six month period was primarily due to higher collections of accounts receivable.

26

Cash flows provided by investing activities for the six month period ended June 30, 2016, compared to the corresponding six month period ended June 30, 2015, increased by $10.3 million from $2.2 million to $12.5 million, primarily as a result of higher net maturities of marketable securities.

Cash flows from financing activities for the six month period ended June 30, 2016, compared to the corresponding six month period ended June 30, 2015, decreased by $0.9 million from $0.1 million provided to $0.8 million used, primarily as a result of lower stock option exercises.

Future Cash Expectations

We believe that our current cash, cash equivalents, and short-term marketable securities balances will satisfy our projected working capital and capital expenditure requirements for at least the next 12 months. We have a $100 million shelf registration statement in place, of which $30 million was allocated for sales of shares of our common stock under an Equity Distribution Agreement with Wells Fargo Securities, LLC. There are no shares remaining to be sold under the Equity Distribution Agreement. We may use similar or other financing means to raise working capital in the future, if necessary, to support continued investment in our growth initiatives. We may also raise capital in the future to fund acquisitions and/or investments in complementary businesses, technologies or product lines. If it becomes necessary to obtain additional financing, we may not be able to do so, or if these funds are available, they may not be available on satisfactory terms.

Off-Balance Sheet Arrangements

Other than the contractual obligations disclosed in our 2015 Annual Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Words such as “may,” “should,” “could,” “expect,” “anticipate,” “believe,” “project,” “estimate,” “continue,” variations of such terms or similar expressions are intended to identify such forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us, and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements, and investors are cautioned not to place undue reliance on such statements. Forward-looking statements include but are not limited to statements relating to:

· concentration of revenue with few customers comprising a large majority of the revenue;

· revenue trends and expectations;

· our future level of investment in our business, including investment in research, development and engineering of products and technology, development and protection of our intellectual property, sales growth initiatives and development of new market opportunities;

· our ability to improve margins;

· anticipated expenses, costs, margins, provision for income taxes and investment activities in the foreseeable future;

· anticipated revenue to be generated from current contracts and as a result of new programs;

· variability of contracted arrangements;

· our profitability in future periods;

· business opportunities that could require that we seek additional financing;

· the size and growth of our markets;

· the existence of international growth opportunities and our future investment in such opportunities;

· the sources of our future revenue;

· our expected short-term and long-term liquidity positions;

27

· our capital expenditure and working capital requirements and our ability to fund our capital expenditure and working capital needs through cash flow from operations; 

· capital market conditions, interest rate volatility and other limitations on the availability of capital, which could have an impact on our cost of capital and our ability to access the capital markets;

· our use of cash, cash equivalents and marketable securities in upcoming quarters;

· anticipated levels of backlog in future periods;

· the success of Digimarc Discover and Digimarc Barcode;

· protection, development and monetization of our intellectual property portfolio;

· our plans and intentions with respect to our joint ventures; and

· the risks detailed in our filings with the U.S. Securities and Exchange Commission, including the risk factors set forth in Part I, Item 1A of our 2015 Annual Report.

We believe that the risk factors specified above and the risk factors identified in Part I, Item 1A of our 2015 Annual Report, among others, could affect our future performance and the liquidity and value of our securities and cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us or on our behalf. Investors should understand that it is not possible to predict or identify all risk factors and that there may be other factors that may cause our actual results to differ materially from the forward-looking statements. All forward-looking statements made by us or by persons acting on our behalf apply only as of the date of this Quarterly Report on Form 10-Q. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of the filing of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The market risk disclosures as set forth in Part II, Item 7A of our 2015 Annual Report have not changed materially.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”)), under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Controls

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the three month period ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

28

PART II. OTHER INFORMATION.

Item 1. Legal Proceedings.

We are subject from time to time to legal proceedings and claims arising in the ordinary course of business.

Item 1A. Risk Factors

Our business, financial condition, results of operations and cash flows may be affected by a number of factors. Detailed information about risk factors that may affect Digimarc’s actual results are set forth in Part I, Item 1A of our 2015 Annual Report. The risks and uncertainties described in our 2015 Annual Report are those risks of which we are aware and that we consider to be material to our business. If any of the risks and uncertainties develops into actual events, our business, financial condition, results of operations, or cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline. As of June 30, 2016, there have been no material changes to the risk factors set forth in our 2015 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

We withhold (repurchase) shares of common stock in connection with the vesting of restricted shares.

The following table sets forth information regarding purchases of our equity securities during the three month period ended June 30, 2016:

Period	(a) Total number of shares purchased (1)		(b) Average price paid per share (1)		(c) Total number of shares purchased as part of publicly announced plans or programs		(d) Approximate dollar value) of shares that may yet be purchased under the plans or programs
Month 1
April 1, 2016 to April 30, 2016		—	$	—		—	$	—
Month 2
May 1, 2016 to May 31, 2016		21,456	$	27.23		—	$	—
Month 3
June 1, 2016 to June 30, 2016		—	$	—		—	$	—
Total		21,456	$	27.23		—	$	—

(1) Fully vested shares of common stock withheld (purchased) by us in satisfaction of required withholding tax liability upon vesting of restricted stock.

29

Item 6. Exhibits. 

Exhibit Number	Exhibit Description
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

30

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: July 26, 2016	DIGIMARC CORPORATION
	By:	/s/ CHARLES BECK
		CHARLES BECK
		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial and Accounting Officer)

31

EX-31.1

Exhibit 31.1

DIGIMARC CORPORATION

CERTIFICATION

I, Bruce Davis, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Digimarc Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 26, 2016

By:	/S/ BRUCE DAVIS
	BRUCE DAVIS Chief Executive Officer

EX-31.2

Exhibit 31.2

DIGIMARC CORPORATION

CERTIFICATION

I, Charles Beck, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Digimarc Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 26, 2016

By:	/S/ CHARLES BECK
	CHARLES BECK Chief Financial Officer

EX-32.1

Exhibit 32.1

DIGIMARC CORPORATION

CERTIFICATION

In connection with the periodic report of Digimarc Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, Bruce Davis, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the U.S. Code, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: July 26, 2016

By:	/S/ Bruce Davis
	Bruce Davis Chief Executive Officer

EX-32.2

Exhibit 32.2

DIGIMARC CORPORATION

CERTIFICATION

In connection with the periodic report of Digimarc Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, Charles Beck, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the U.S. Code, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: July 26, 2016

By:	/S/ CHARLES BECK
	CHARLES BECK Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Jul. 22, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Trading Symbol	DMRC
Entity Registrant Name	Digimarc CORP
Entity Central Index Key	0001438231
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		9,090,258

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 9,557	$ 3,160
Marketable securities	22,378	33,027
Trade accounts receivable, net	2,477	4,616
Other current assets	1,435	1,487
Total current assets	35,847	42,290
Marketable securities		2,999
Property and equipment, net	3,154	3,010
Intangibles, net	6,469	6,613
Goodwill	1,114	1,114
Other assets	302	338
Total assets	46,886	56,364
Current liabilities:
Accounts payable and other accrued liabilities	1,490	1,657
Deferred revenue	2,158	3,023
Total current liabilities	3,648	4,680
Deferred rent and other long-term liabilities	511	226
Total liabilities	4,159	4,906
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares issued and outstanding at June 30, 2016 and December 31, 2015)	50	50
Common stock (par value $0.001 per share, 50,000 authorized, 9,085 and 8,919 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively)	9	9
Additional paid-in capital	79,426	77,439
Accumulated deficit	(36,758)	(26,040)
Total shareholders’ equity	42,727	51,458
Total liabilities and shareholders’ equity	$ 46,886	$ 56,364

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Consolidated Balance Sheets (Parenthetical) - $ / shares shares in Thousands	Jun. 30, 2016	Dec. 31, 2015
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	2,500	2,500
Preferred stock, shares issued	10	10
Preferred stock, shares outstanding	10	10
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	50,000	50,000
Common stock, shares issued	9,085	8,919
Common stock, shares outstanding	9,085	8,919

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Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenue:
Service	$ 3,148	$ 3,235	$ 6,398	$ 6,736
Subscription	1,494	1,670	2,957	3,386
License	815	893	1,682	1,665
Total revenue	5,457	5,798	11,037	11,787
Cost of revenue:
Service	1,401	1,497	2,833	3,075
Subscription	594	866	1,256	1,620
License	99	86	195	170
Total cost of revenue	2,094	2,449	4,284	4,865
Gross profit	3,363	3,349	6,753	6,922
Operating expenses:
Sales and marketing	2,856	2,098	5,811	4,188
Research, development and engineering	3,379	3,025	6,684	6,109
General and administrative	1,976	1,980	4,146	4,186
Intellectual property	462	291	896	658
Total operating expenses	8,673	7,394	17,537	15,141
Operating loss	(5,310)	(4,045)	(10,784)	(8,219)
Other income, net	42	32	88	55
Loss before income taxes	(5,268)	(4,013)	(10,696)	(8,164)
(Provision) benefit for income taxes	(15)	1	(22)	2
Net loss	$ (5,283)	$ (4,012)	$ (10,718)	$ (8,162)
Earnings (loss) per common share:
Loss per common share—basic	$ (0.62)	$ (0.50)	$ (1.25)	$ (1.02)
Loss per common share—diluted	$ (0.62)	$ (0.50)	$ (1.25)	$ (1.02)
Weighted average common shares outstanding—basic	8,587	8,029	8,560	7,995
Weighted average common shares outstanding—diluted	8,587	8,029	8,560	7,995

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Consolidated Statements of Shareholders' Equity - USD ($) shares in Thousands, $ in Thousands	Total	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]
Balance at Dec. 31, 2014	$ 52,174	$ 50	$ 8	$ 60,222	$ (8,106)
Balance, shares at Dec. 31, 2014		10	8,427
Exercise of stock options	1,129		$ 1	1,128
Exercise of stock options, shares			71
Issuance of restricted common stock, shares			119
Forfeiture of restricted common stock, shares			(28)
Purchase and retirement of common stock	(1,035)			(1,035)
Purchase and retirement of common stock, shares			(36)
Stock-based compensation	2,571			2,571
Net loss	(8,162)				(8,162)
Balance at Jun. 30, 2015	46,677	$ 50	$ 9	62,886	(16,268)
Balance, shares at Jun. 30, 2015		10	8,553
Balance at Dec. 31, 2015	51,458	$ 50	$ 9	77,439	(26,040)
Balance, shares at Dec. 31, 2015		10	8,919
Exercise of stock options	$ 309			309
Exercise of stock options, shares	32		32
Issuance of restricted common stock, shares			177
Forfeiture of restricted common stock, shares			(3)
Purchase and retirement of common stock	$ (1,104)			(1,104)
Purchase and retirement of common stock, shares			(40)
Stock-based compensation	2,782			2,782
Net loss	(10,718)				(10,718)
Balance at Jun. 30, 2016	$ 42,727	$ 50	$ 9	$ 79,426	$ (36,758)
Balance, shares at Jun. 30, 2016		10	9,085

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities:
Net loss	$ (10,718)	$ (8,162)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and write-off of property and equipment	688	604
Amortization and write-off of intangibles	639	520
Changes in allowance for doubtful accounts		16
Stock-based compensation	2,707	2,480
Changes in operating assets and liabilities:
Trade accounts receivable	2,139	1,509
Other current assets	52	36
Other assets	36	74
Accounts payable and other accrued liabilities	109	(160)
Deferred revenue	(917)	(1,285)
Net cash used in operating activities	(5,265)	(4,368)
Cash flows from investing activities:
Purchase of property and equipment	(755)	(324)
Capitalized patent costs	(436)	(428)
Maturity of marketable securities	22,467	15,363
Purchase of marketable securities	(8,819)	(12,412)
Net cash provided by investing activities	12,457	2,199
Cash flows from financing activities:
Exercise of stock options	309	1,129
Purchase of common stock	(1,104)	(1,035)
Net cash provided by (used in) financing activities	(795)	94
Net increase (decrease) in cash and cash equivalents	6,397	(2,075)
Cash and cash equivalents at beginning of period	3,160	6,122
Cash and cash equivalents at end of period	9,557	4,047
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	14	2
Supplemental schedule of non-cash investing activities:
Property and equipment and patent costs in accounts payable	273	99
Stock-based compensation capitalized to software and patent costs	$ 75	$ 91

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Description of Business and Significant Accounting Policies

6 Months Ended

Jun. 30, 2016

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Description of Business and Significant Accounting Policies

1. Description of Business and Significant Accounting Policies

Description of Business

Digimarc Corporation (“Digimarc” or the “Company”), an Oregon corporation, enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize and to which they can react. The Company has developed the Digimarc Discover^® and Digimarc Barcode Intuitive Computing Platform that are designed to optimize the identification of all consumer brand impressions, wherever and whenever they may appear, facilitating modern mobile-centric shopping. The platform includes means to embed “Digimarc Barcodes,” invisible and inaudible barcode-like information that is recognizable by smartphones, tablets, industrial scanners, and other computer interfaces into virtually all forms of media content, including consumer product packaging. Digimarc Barcodes have many applications, including facilitating remarkably faster scanning of products at retail checkout as well as improved engagement with smartphone-equipped consumers. The Digimarc Barcode is robust yet imperceptible by people in ordinary use, allowing for reliable, efficient, economical, globally scalable automatic identification of media without visible computer codes like traditional barcodes.

Interim Consolidated Financial Statements

The Company has adhered to the accounting policies set forth in its Annual Report on Form 10-K for the year ended December 31, 2015 in preparing the accompanying interim consolidated financial statements.

The accompanying interim consolidated financial statements have been prepared from the Company’s records without audit and, in management’s opinion, include all adjustments (consisting of only normal recurring adjustments) necessary to fairly reflect the financial condition and the results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on February 25, 2016. The results of operations for the interim periods presented in these consolidated financial statements are not necessarily indicative of the results for the full year.

Reclassifications

Certain prior period amounts in the accompanying consolidated financial statements and notes thereto have been reclassified to conform to current period presentation. These reclassifications had no material effect on the results of operations or financial position for any period presented.

Contingencies

The Company evaluates all pending or threatened contingencies or commitments, if any, that are reasonably likely to have a material adverse effect on the Company’s operations or financial position. The Company assesses the probability of an adverse outcome and determines if it is remote, reasonably possible or probable as defined in accordance with the provisions of ASC 450 “Contingencies.” If information available prior to the issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and the amount of the loss, or the range of probable loss can be reasonably estimated, then the loss is accrued and charged to operations. If no accrual is made for a loss contingency because one or both of the conditions pursuant to ASC 450 are not met, but the probability of an adverse outcome is at least reasonably possible, the Company will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss, or state that such an estimate cannot be made.

Goodwill

The Company tests goodwill for impairment annually in June and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Such reviews assess the fair value of the Company’s assets compared to their carrying value. The Company operates as a single reporting unit. The Company estimated the fair value of its single reporting unit using a market approach, which takes into account the Company’s market capitalization plus an estimated control premium.

In connection with the Company’s annual impairment test of goodwill as of June 30, 2016 and 2015, it was concluded that there was no impairment as the estimated fair value of the Company’s reporting unit substantially exceeded the carrying value.

Accounting Pronouncements Issued But Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU No. 2014-09 provides specific guidance to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of the new revenue standard for public entities by one year to annual reporting periods beginning after December 31, 2017, and interim periods beginning in the first interim period within the year of adoption. The amendments in this update permit the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method and is currently assessing the potential future impact of this standard on its financial condition, results of operations and disclosures.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which supersedes Topic 840, Leases. ASU No. 2016-02 increases the transparency and comparability of organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance requires that operating leases recognize a right-of-use asset and a lease liability measured at the present value of the lease payments in the statement of financial position, recognize a single lease cost allocated over the lease term on a generally straight-line basis, and classify all cash payments within operating activities in the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 31, 2018, and interim periods beginning in the first interim period within the year of adoption. Early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach which includes a number of optional practical expedients that entities may elect to apply. The Company is currently assessing the potential future impact of this standard on its financial condition, results of operations, cash flows and disclosures.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting (Topic 718).” ASU No. 2016-09 simplifies the accounting for share-based payment transactions, including accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification in the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 31, 2016, and interim periods beginning in the first interim period within the year of adoption. Early adoption is permitted. Any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently assessing the potential future impact of this standard on its financial condition, results of operations, cash flows and disclosures.

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

2. Fair Value of Financial Instruments

The estimated fair values of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate their carrying values due to the short-term nature of these instruments. The Company records marketable securities at amortized cost, which approximates fair value.

The Company’s fair value hierarchy for its cash equivalents and marketable securities as of June 30, 2016 and December 31, 2015, respectively, was as follows:

June 30, 2016	Level 1		Level 2		Level 3		Total
Money market securities	$	2,774	$	—	$	—	$	2,774
Federal agency notes		—		8,765		—		8,765
U.S. treasuries		—		7,556		—		7,556
Pre-refunded municipal bonds (1)		—		4,286		—		4,286
Corporate notes		—		4,050		—		4,050
Commercial paper		—		3,498		—		3,498
Certificates of deposits		—		136		—		136
Total	$	2,774	$	28,291	$	—	$	31,065

December 31, 2015	Level 1		Level 2		Level 3		Total
Money market securities	$	2,001	$	—	$	—	$	2,001
Federal agency notes		—		11,722		—		11,722
U.S. treasuries		—		7,059		—		7,059
Corporate notes		—		6,884		—		6,884
Pre-refunded municipal bonds (1)		—		4,747		—		4,747
Commercial paper		—		3,794		—		3,794
Certificates of deposits		—		2,220		—		2,220
Total	$	2,001	$	36,426	$	—	$	38,427

(1) Pre-refunded municipal bonds are collateralized by U.S. treasuries.

The fair value maturities of the Company’s cash equivalents and marketable securities as of June 30, 2016 are as follows:

	Maturities by Period
	Total		Lessthan 1 year		1-5 years		5 - 10 years		More than 10 years
Cash equivalents and marketable securities	$	31,065	$	31,065	$	—	$	—	$	—

The Company considers all highly liquid marketable securities with original maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include money market funds and certificates of deposit totaling $8,687 and $2,401 at June 30, 2016 and December 31, 2015, respectively. Cash equivalents are carried at cost or amortized cost, which approximates fair value.

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Revenue Recognition

6 Months Ended

Jun. 30, 2016

Revenue Recognition [Abstract]

Revenue Recognition

3. Revenue Recognition

The Company derives its revenue primarily from professional services, subscriptions and licensing of its intellectual property:

· Service revenue consists primarily of software development and consulting services. The majority of service revenue arrangements are structured as time and materials consulting agreements.

· Subscription revenue includes Digimarc Discover, Digimarc Barcode and Guardian products and services, is generally recurring, paid in advance and recognized over the term of the subscription.

· License revenue originates primarily from licensing the Company’s intellectual property, where the Company receives license fees and/or royalties as its income stream.

Revenue is recognized in accordance with ASC 605 “Revenue Recognition” and ASC 985 “Software” when the following four criteria are met:

(i) persuasive evidence of an arrangement exists,

(ii) delivery has occurred,

(iii) the fee is fixed or determinable, and

(iv) collection is reasonably assured or probable.

Some customer arrangements encompass multiple deliverables, such as professional services, software licenses, and maintenance and support fees. For arrangements that include multiple deliverables, the Company identifies separate units of accounting at inception based on the consensus reached under ASC 605-25 “Multiple-Element Arrangements,” which provides that revenue arrangements with multiple deliverables should be divided into separate units of accounting if certain criteria are met. The Company applies ASC 985 to software deliverables when relevant. The consideration for the arrangements under ASC 605-25 is allocated to the separate units of accounting using the relative selling price method.

The relative selling price method allocates the consideration based on the Company’s specific assumptions rather than assumptions of a marketplace participant, and any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price.

Applicable revenue recognition criteria are considered separately for each separate unit of accounting as follows:

· Service revenue is generally determined based on time and materials. Revenue for development and consulting services is recognized as the services are performed. Billing for services rendered generally occurs within one month after the services are provided.

· Subscription revenue, which includes revenue from the sale of Digimarc Discover, Digimarc Barcode and Guardian products and services, is generally paid in advance and recognized over the term of the subscription, which is generally one to three years.

· License revenue is recognized when amounts owed to the Company have been earned, are fixed or determinable (within the Company’s normal 30 to 60 day payment terms), and collection is reasonably assured. If the payment terms extend beyond the normal 30 to 60 days, the fee may not be considered to be fixed or determinable, and the revenue would then be recognized when installments are due.

· The Company records revenue from certain license agreements upon cash receipt as a result of collectability not being reasonably assured.

· The Company’s standard payment terms for license arrangements are 30 to 60 days. Extended payment terms on patent license arrangements are not considered to be fixed or determinable if payments are due beyond the Company’s standard payment terms, primarily because of the risk of substantial modification present in the Company’s patent licensing business. As such, revenue on license arrangements with extended payment terms is recognized as fees become fixed or determinable.

Deferred revenue consists of billings in advance for professional services, subscriptions and licenses for which revenue has not been earned.

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Segment Information

6 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

Segment Information

4. Segment Information

Geographic Information

The Company derives its revenue from a single reporting segment: media management solutions. Revenue is generated in this segment through development services, subscriptions and licensing of intellectual property. The Company markets its products in the U.S. and in non-U.S. countries through its sales and licensing personnel.

Revenue by geographic area, based upon the “bill-to” location, was as follows:

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Domestic	$	1,151	$	1,758	$	2,284	$	3,445
International (1)		4,306		4,040		8,753		8,342
Total	$	5,457	$	5,798	$	11,037	$	11,787

(1) Revenue from the Central Banks, consisting of a consortium of central banks around the world, is classified as international revenue. Reporting revenue by country for this customer is not practicable.

Major Customers

Customers who accounted for 10% or more of the Company’s revenue are as follows:

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Central Banks		63	%		54	%		63	%		57	%

Long-lived assets by geographical area

The Company’s long-lived assets are all domestic, domiciled in the U.S.

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

5. Stock-Based Compensation

Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include option grants and restricted stock awards.

Stock-based compensation expense related to internal labor is capitalized to software and patents based on direct labor hours charged to capitalized software and patent costs.

Determining Fair Value

Stock Options

The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The fair value of stock options is determined on the date of the grant (measurement date), and is recognized over the vesting period of the option using the straight-line method.

There were no stock options granted during the three and six months ended June 30, 2016 and 2015.

The Company records stock-based compensation expense for stock option awards only for those awards that are expected to vest.

Restricted Stock

The fair value of restricted stock awarded is based on the fair market value of the Company’s common stock on the date of the grant (measurement date), and is recognized over the vesting period of the award using the straight-line method.

The Company records stock-based compensation expense for restricted stock awards only for those awards that are expected to vest.

Stock-based Compensation

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Stock-based compensation:
Cost of revenue	$	184	$	213	$	357	$	398
Sales and marketing		238		175		450		334
Research, development and engineering		379		328		704		615
General and administrative		544		484		1,045		1,002
Intellectual property		79		63		151		131
Stock-based compensation expense		1,424		1,263		2,707		2,480
Capitalized to software and patent costs		43		54		75		91
Total stock-based compensation expense	$	1,467	$	1,317	$	2,782	$	2,571

The following table sets forth total unrecognized compensation cost related to non-vested stock-based awards granted under all equity compensation plans, including stock options and restricted stock:

	As of June 30, 2016		As of December 31, 2015
Total unrecognized compensation costs	$	11,746	$	9,549

Total unrecognized compensation costs will be adjusted for any future changes in estimated forfeitures.

The Company expects to recognize the unrecognized compensation costs as of June 30, 2016 for stock options and restricted stock over weighted average periods through June 2020 as follows:

	Stock Options	Restricted Stock
Weighted average period	0.0 years	1.4 years

As of June 30, 2016, under all of the Company’s stock-based compensation plans, equity awards to purchase an additional 1,307 shares were authorized for future grants under the plans. The Company issues new shares upon option exercises.

Stock Option Activity

The following table reconciles the outstanding balance of stock options:

Three months ended June 30, 2016:	Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at March 31, 2016		475		$	17.98	$	8.76
Options granted		—			—		—
Options exercised		(17	)		9.64		8.15
Options forfeited or expired		—			—		—
Outstanding at June 30, 2016		458		$	18.29	$	8.79	$	6,260

Six months ended June 30, 2016:	Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at December 31, 2015		490		$	17.73	$	8.69
Granted		—			—		—
Exercised		(32	)		9.64		7.28
Forfeited or expired		—			—		—
Outstanding at June 30, 2016		458		$	18.29	$	8.79	$	6,260
Exercisable at June 30, 2016		458		$	18.29			$	6,260

The aggregate intrinsic value is based on the closing price of $31.96 per share of Digimarc common stock on June 30, 2016, which would have been received by the optionees had all of the options with exercise prices less than $31.96 per share been exercised on that date.

Restricted Stock Activity

The following table reconciles the unvested balance of restricted stock:

Three months ended June 30, 2016:	Numberof Shares			Weighted Average Grant Date Fair Value
Unvested balance, March 31, 2016		525		$	25.56
Granted		15		$	29.53
Vested		(68	)	$	25.96
Forfeited		(2	)	$	33.16
Unvested balance, June 30, 2016		470		$	25.59

Six months ended June 30, 2016:	Numberof Shares			Weighted Average Grant Date Fair Value
Unvested balance, December 31, 2015		408		$	24.30
Granted		177		$	28.63
Vested		(112	)	$	25.52
Forfeited		(3	)	$	32.31
Unvested balance, June 30, 2016		470		$	25.59

The following table indicates the fair value of all restricted stock awards that vested during the three and six months ended June 30, 2016 and 2015:

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Fair value of restricted stock awards vested	$	1,839	$	1,666	$	3,117	$	2,879

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Earnings Per Common Share

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Earnings Per Common Share

6. Earnings Per Common Share

The Company calculates basic and diluted earnings per common share in accordance with ASC 260 “Earnings Per Share,” using the two-class method because the Company’s unvested restricted stock is a participating security since these awards contain non-forfeitable rights to receive dividends. Under the two-class method, earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed.

Basic earnings per common share excludes dilution and is calculated by dividing earnings to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing earnings to common shares by the weighted-average number of common shares, as adjusted for the potentially dilutive effect of stock options.

The following table reconciles earnings (loss) per common share for the three and six months ended June 30, 2016 and 2015:

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Basic Earnings (Loss) per Common Share:
Numerator:
Net loss	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Distributed earnings to common shares		—			—			—			—
Distributed earnings to participating securities		—			—			—			—
Total distributed earnings		—			—			—			—
Undistributed loss allocable to common shares		(5,283	)		(4,012	)		(10,718	)		(8,162	)
Undistributed earnings allocable to participating securities		—			—			—			—
Total undistributed loss		(5,283	)		(4,012	)		(10,718	)		(8,162	)
Loss to common shares—basic	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Denominator
Weighted average common shares outstanding—basic		8,587			8,029			8,560			7,995
Basic earnings (loss) per common share	$	(0.62	)	$	(0.50	)	$	(1.25	)	$	(1.02	)

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Diluted Earnings (Loss) per Common Share:
Numerator:
Loss to common shares—basic	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Undistributed earnings allocated to participating securities		—			—			—			—
Undistributed earnings reallocated to participating securities		—			—			—			—
Loss to common shares—diluted	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Denominator
Weighted average common shares outstanding—basic		8,587			8,029			8,560			7,995
Dilutive effect of stock options		—			—			—			—
Weighted average common shares outstanding—dilutive		8,587			8,029			8,560			7,995
Diluted earnings (loss) per common share	$	(0.62	)	$	(0.50	)	$	(1.25	)	$	(1.02	)

There were 75 and 0 common stock equivalents related to stock options that were anti-dilutive and excluded from diluted earnings per common share calculations for the three and six months ended June 30, 2016, respectively, because their exercise prices were higher than the average market price of the underlying common stock for the period.

There were 75 and 175 common stock equivalents related to stock options that were anti-dilutive and excluded from diluted earnings per common share calculations for the three and six months ended June 30, 2015, respectively, because their exercise prices were higher than the average market price of the underlying common stock for the period.

There were 169 and 188 common stock equivalents related to stock options that were anti-dilutive and excluded from diluted earnings per common share for the three and six months ended June 30, 2016, respectively, as the Company incurred a net loss for the periods.

There were 216 and 214 common stock equivalents related to stock options that were anti-dilutive and excluded from diluted earnings per common share for the three and six months ended June 30, 2015, respectively, as the Company incurred a net loss for the periods.

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Trade Accounts Receivable

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Trade Accounts Receivable

7. Trade Accounts Receivable

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount.

	June 30, 2016			December 31, 2015
Trade accounts receivable	$	2,492		$	4,631
Allowance for doubtful accounts		(15	)		(15	)
Trade accounts receivable, net	$	2,477		$	4,616
Unpaid deferred revenue included in trade accounts receivable	$	544		$	2,012

Allowance for doubtful accounts

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing trade accounts receivable. The Company determines the allowance based on historical write-off experience and current information. The Company reviews its allowance for doubtful accounts each reporting period. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Unpaid deferred revenue

The unpaid deferred revenue that is included in trade accounts receivable is billed in accordance with the provisions of the contracts with the Company’s customers. Unpaid deferred revenue from the Company’s cash-basis customers is not included in trade accounts receivable nor deferred revenue.

Major customers

Customers who accounted for 10% or more of trade accounts receivable, net are as follows:

	June 30, 2016			December 31, 2015
Central Banks		41	%		62	%

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Property and Equipment

6 Months Ended

Jun. 30, 2016

Property Plant And Equipment [Abstract]

Property and Equipment

8. Property and Equipment

Property and equipment are stated at cost. Repairs and maintenance are charged to expense when incurred.

Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, generally two to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the lease term.

	June 30, 2016			December 31, 2015
Office furniture and fixtures	$	1,123		$	1,068
Software		1,799			1,748
Equipment		3,568			3,416
Leasehold improvements		1,609			1,276
Gross property and equipment		8,099			7,508
Less accumulated depreciation and amortization		(4,945	)		(4,498	)
Property and equipment, net	$	3,154		$	3,010

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Intangibles

6 Months Ended

Jun. 30, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Intangibles

9. Intangibles

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Amortization of capitalized patent costs associated with the application and award of patents in the U.S. and various other countries are capitalized and amortized on a straight-line basis over the term of the patents as determined at the award date, which varies depending on the pendency period of the application, generally approximating seventeen years.

Amortization of intangible assets acquired is calculated using the straight-line method over the estimated useful lives of the assets.

	June 30, 2016			December 31, 2015
Capitalized patent costs	$	6,971		$	6,779
Intangible assets acquired:
Purchased patents and intellectual property		250			250
Existing technology		1,560			1,560
Customer relationships		290			290
Backlog		760			760
Tradenames		290			290
Non-solicitation agreements		120			120
Gross intangible assets		10,241			10,049
Accumulated amortization		(3,772	)		(3,436	)
Intangibles, net	$	6,469		$	6,613

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Joint Ventures and Related Party Transactions

6 Months Ended

Jun. 30, 2016

Related Party Transactions [Abstract]

Joint Ventures and Related Party Transactions

10. Joint Ventures and Related Party Transactions

In March 2012, Digimarc and Nielsen reduced the investments in their two joint ventures, TVaura LLC (in which Digimarc holds a 51% ownership interest) and TVaura Mobile LLC (in which Digimarc holds a 49% ownership interest), to minimal levels while assessing alternative approaches to achieving each of their goals in the emerging market opportunity of synchronized second screen television.

In October 2015, Digimarc and Nielsen reactivated the TVaura Mobile LLC joint venture to allow it to provide solutions to programmers and advertisers for engaging with consumers on second screens and otherwise provide enhanced flexibility to brand strategies targeting modern consumers. The enhanced cooperation represents another building block in developing the market for Digimarc Discover and Digimarc Barcode. Neither Digimarc nor Nielsen contributed any capital to the joint venture upon reactivation.

As of June 30, 2016, both Digimarc and Nielsen continued to assess the market opportunities of TVaura LLC joint venture.

Summarized financial information for the joint ventures has not been provided because the disclosures are immaterial to the Company’s filing. TVaura LLC and TVaura Mobile LLC had no revenue or expenses for the three and six months ended June 30, 2016 and 2015.

The Company’s investment in each joint venture was $0 as of June 30, 2016 and December 31, 2015.

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Income Taxes

6 Months Ended

Jun. 30, 2016

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

The (provision) benefit for income taxes for the six months ended June 30, 2016 and 2015 reflects current taxes, deferred taxes, and withholding taxes in certain foreign jurisdictions. The effective tax rate for the six months ended June 30, 2016 and 2015 was 0% and 0%, respectively. The valuation allowance against net deferred tax assets as of June 30, 2016 was $20,023, an increase of $4,603 from $15,420 as of December 31, 2015.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2016

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

12. Commitments and Contingencies

Certain of the Company’s product license and services agreements include an indemnification provision for claims from third parties relating to the Company’s intellectual property. These indemnification provisions are accounted for in accordance with ASC 450 “Contingencies.” To date, there have been no claims made under such indemnification provisions.

The Company is subject from time to time to other legal proceedings and claims arising in the ordinary course of business.

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Description of Business and Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2016

Commitments And Contingencies Disclosure [Abstract]

Description of Business

Description of Business

Digimarc Corporation (“Digimarc” or the “Company”), an Oregon corporation, enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize and to which they can react. The Company has developed the Digimarc Discover^® and Digimarc Barcode Intuitive Computing Platform that are designed to optimize the identification of all consumer brand impressions, wherever and whenever they may appear, facilitating modern mobile-centric shopping. The platform includes means to embed “Digimarc Barcodes,” invisible and inaudible barcode-like information that is recognizable by smartphones, tablets, industrial scanners, and other computer interfaces into virtually all forms of media content, including consumer product packaging. Digimarc Barcodes have many applications, including facilitating remarkably faster scanning of products at retail checkout as well as improved engagement with smartphone-equipped consumers. The Digimarc Barcode is robust yet imperceptible by people in ordinary use, allowing for reliable, efficient, economical, globally scalable automatic identification of media without visible computer codes like traditional barcodes.

Interim Consolidated Financial Statements

Interim Consolidated Financial Statements

The Company has adhered to the accounting policies set forth in its Annual Report on Form 10-K for the year ended December 31, 2015 in preparing the accompanying interim consolidated financial statements.

The accompanying interim consolidated financial statements have been prepared from the Company’s records without audit and, in management’s opinion, include all adjustments (consisting of only normal recurring adjustments) necessary to fairly reflect the financial condition and the results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on February 25, 2016. The results of operations for the interim periods presented in these consolidated financial statements are not necessarily indicative of the results for the full year.

Reclassifications

Reclassifications

Certain prior period amounts in the accompanying consolidated financial statements and notes thereto have been reclassified to conform to current period presentation. These reclassifications had no material effect on the results of operations or financial position for any period presented.

Contingencies

Contingencies

The Company evaluates all pending or threatened contingencies or commitments, if any, that are reasonably likely to have a material adverse effect on the Company’s operations or financial position. The Company assesses the probability of an adverse outcome and determines if it is remote, reasonably possible or probable as defined in accordance with the provisions of ASC 450 “Contingencies.” If information available prior to the issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and the amount of the loss, or the range of probable loss can be reasonably estimated, then the loss is accrued and charged to operations. If no accrual is made for a loss contingency because one or both of the conditions pursuant to ASC 450 are not met, but the probability of an adverse outcome is at least reasonably possible, the Company will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss, or state that such an estimate cannot be made.

Goodwill

Goodwill

The Company tests goodwill for impairment annually in June and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Such reviews assess the fair value of the Company’s assets compared to their carrying value. The Company operates as a single reporting unit. The Company estimated the fair value of its single reporting unit using a market approach, which takes into account the Company’s market capitalization plus an estimated control premium.

In connection with the Company’s annual impairment test of goodwill as of June 30, 2016 and 2015, it was concluded that there was no impairment as the estimated fair value of the Company’s reporting unit substantially exceeded the carrying value.

Accounting Pronouncements Issued But Not Yet Adopted

Accounting Pronouncements Issued But Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU No. 2014-09 provides specific guidance to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of the new revenue standard for public entities by one year to annual reporting periods beginning after December 31, 2017, and interim periods beginning in the first interim period within the year of adoption. The amendments in this update permit the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method and is currently assessing the potential future impact of this standard on its financial condition, results of operations and disclosures.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which supersedes Topic 840, Leases. ASU No. 2016-02 increases the transparency and comparability of organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance requires that operating leases recognize a right-of-use asset and a lease liability measured at the present value of the lease payments in the statement of financial position, recognize a single lease cost allocated over the lease term on a generally straight-line basis, and classify all cash payments within operating activities in the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 31, 2018, and interim periods beginning in the first interim period within the year of adoption. Early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach which includes a number of optional practical expedients that entities may elect to apply. The Company is currently assessing the potential future impact of this standard on its financial condition, results of operations, cash flows and disclosures.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting (Topic 718).” ASU No. 2016-09 simplifies the accounting for share-based payment transactions, including accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification in the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 31, 2016, and interim periods beginning in the first interim period within the year of adoption. Early adoption is permitted. Any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently assessing the potential future impact of this standard on its financial condition, results of operations, cash flows and disclosures.

Earnings Per Share

The Company calculates basic and diluted earnings per common share in accordance with ASC 260 “Earnings Per Share,” using the two-class method because the Company’s unvested restricted stock is a participating security since these awards contain non-forfeitable rights to receive dividends. Under the two-class method, earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed.

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Summary of Fair Value Hierarchy for Financial Assets

The Company’s fair value hierarchy for its cash equivalents and marketable securities as of June 30, 2016 and December 31, 2015, respectively, was as follows:

June 30, 2016	Level 1		Level 2		Level 3		Total
Money market securities	$	2,774	$	—	$	—	$	2,774
Federal agency notes		—		8,765		—		8,765
U.S. treasuries		—		7,556		—		7,556
Pre-refunded municipal bonds (1)		—		4,286		—		4,286
Corporate notes		—		4,050		—		4,050
Commercial paper		—		3,498		—		3,498
Certificates of deposits		—		136		—		136
Total	$	2,774	$	28,291	$	—	$	31,065

December 31, 2015	Level 1		Level 2		Level 3		Total
Money market securities	$	2,001	$	—	$	—	$	2,001
Federal agency notes		—		11,722		—		11,722
U.S. treasuries		—		7,059		—		7,059
Corporate notes		—		6,884		—		6,884
Pre-refunded municipal bonds (1)		—		4,747		—		4,747
Commercial paper		—		3,794		—		3,794
Certificates of deposits		—		2,220		—		2,220
Total	$	2,001	$	36,426	$	—	$	38,427

(1) Pre-refunded municipal bonds are collateralized by U.S. treasuries.

Summary of Fair Value Maturities for Financial Asset

The fair value maturities of the Company’s cash equivalents and marketable securities as of June 30, 2016 are as follows:

	Maturities by Period
	Total		Lessthan 1 year		1-5 years		5 - 10 years		More than 10 years
Cash equivalents and marketable securities	$	31,065	$	31,065	$	—	$	—	$	—

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

Geographical Segment Revenue

Revenue by geographic area, based upon the “bill-to” location, was as follows:

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Domestic	$	1,151	$	1,758	$	2,284	$	3,445
International (1)		4,306		4,040		8,753		8,342
Total	$	5,457	$	5,798	$	11,037	$	11,787

(1) Revenue from the Central Banks, consisting of a consortium of central banks around the world, is classified as international revenue. Reporting revenue by country for this customer is not practicable.

Customers Who Accounted for 10% or More of Company's Revenue

Customers who accounted for 10% or more of the Company’s revenue are as follows:

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Central Banks		63	%		54	%		63	%		57	%

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Allocation of Stock-Based Compensation

Stock-based Compensation

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Stock-based compensation:
Cost of revenue	$	184	$	213	$	357	$	398
Sales and marketing		238		175		450		334
Research, development and engineering		379		328		704		615
General and administrative		544		484		1,045		1,002
Intellectual property		79		63		151		131
Stock-based compensation expense		1,424		1,263		2,707		2,480
Capitalized to software and patent costs		43		54		75		91
Total stock-based compensation expense	$	1,467	$	1,317	$	2,782	$	2,571

Unrecognized Compensation Cost Related to Non-Vested Stock-Based Awards Granted

The following table sets forth total unrecognized compensation cost related to non-vested stock-based awards granted under all equity compensation plans, including stock options and restricted stock:

	As of June 30, 2016		As of December 31, 2015
Total unrecognized compensation costs	$	11,746	$	9,549

Weighted Average Period for Recognition of Unrecognized Compensation Cost for Stock Options and Restricted Stock

The Company expects to recognize the unrecognized compensation costs as of June 30, 2016 for stock options and restricted stock over weighted average periods through June 2020 as follows:

	Stock Options	Restricted Stock
Weighted average period	0.0 years	1.4 years

Reconciliation of Outstanding Balance of Stock Options

The following table reconciles the outstanding balance of stock options:

Three months ended June 30, 2016:	Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at March 31, 2016		475		$	17.98	$	8.76
Options granted		—			—		—
Options exercised		(17	)		9.64		8.15
Options forfeited or expired		—			—		—
Outstanding at June 30, 2016		458		$	18.29	$	8.79	$	6,260

Six months ended June 30, 2016:	Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at December 31, 2015		490		$	17.73	$	8.69
Granted		—			—		—
Exercised		(32	)		9.64		7.28
Forfeited or expired		—			—		—
Outstanding at June 30, 2016		458		$	18.29	$	8.79	$	6,260
Exercisable at June 30, 2016		458		$	18.29			$	6,260

Reconciliation of Unvested Balance of Restricted Stock

The following table reconciles the unvested balance of restricted stock:

Three months ended June 30, 2016:	Numberof Shares			Weighted Average Grant Date Fair Value
Unvested balance, March 31, 2016		525		$	25.56
Granted		15		$	29.53
Vested		(68	)	$	25.96
Forfeited		(2	)	$	33.16
Unvested balance, June 30, 2016		470		$	25.59

Six months ended June 30, 2016:	Numberof Shares			Weighted Average Grant Date Fair Value
Unvested balance, December 31, 2015		408		$	24.30
Granted		177		$	28.63
Vested		(112	)	$	25.52
Forfeited		(3	)	$	32.31
Unvested balance, June 30, 2016		470		$	25.59

Fair Value of Restricted Stock Awards Vested

The following table indicates the fair value of all restricted stock awards that vested during the three and six months ended June 30, 2016 and 2015:

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
Fair value of restricted stock awards vested	$	1,839	$	1,666	$	3,117	$	2,879

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Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Summary of Reconciliation of Earnings (Loss) Per Common Share

The following table reconciles earnings (loss) per common share for the three and six months ended June 30, 2016 and 2015:

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Basic Earnings (Loss) per Common Share:
Numerator:
Net loss	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Distributed earnings to common shares		—			—			—			—
Distributed earnings to participating securities		—			—			—			—
Total distributed earnings		—			—			—			—
Undistributed loss allocable to common shares		(5,283	)		(4,012	)		(10,718	)		(8,162	)
Undistributed earnings allocable to participating securities		—			—			—			—
Total undistributed loss		(5,283	)		(4,012	)		(10,718	)		(8,162	)
Loss to common shares—basic	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Denominator
Weighted average common shares outstanding—basic		8,587			8,029			8,560			7,995
Basic earnings (loss) per common share	$	(0.62	)	$	(0.50	)	$	(1.25	)	$	(1.02	)

	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Diluted Earnings (Loss) per Common Share:
Numerator:
Loss to common shares—basic	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Undistributed earnings allocated to participating securities		—			—			—			—
Undistributed earnings reallocated to participating securities		—			—			—			—
Loss to common shares—diluted	$	(5,283	)	$	(4,012	)	$	(10,718	)	$	(8,162	)
Denominator
Weighted average common shares outstanding—basic		8,587			8,029			8,560			7,995
Dilutive effect of stock options		—			—			—			—
Weighted average common shares outstanding—dilutive		8,587			8,029			8,560			7,995
Diluted earnings (loss) per common share	$	(0.62	)	$	(0.50	)	$	(1.25	)	$	(1.02	)

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Trade Accounts Receivable (Tables)

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Summary of Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount.

	June 30, 2016			December 31, 2015
Trade accounts receivable	$	2,492		$	4,631
Allowance for doubtful accounts		(15	)		(15	)
Trade accounts receivable, net	$	2,477		$	4,616
Unpaid deferred revenue included in trade accounts receivable	$	544		$	2,012

Customers Who Accounted for 10% or More of Trade Accounts Receivable, Net

Customers who accounted for 10% or more of trade accounts receivable, net are as follows:

	June 30, 2016			December 31, 2015
Central Banks		41	%		62	%

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2016

Property Plant And Equipment [Abstract]

Depreciation and Amortization on Property and Equipment Using the Straight-Line Method

Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, generally two to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the lease term.

	June 30, 2016			December 31, 2015
Office furniture and fixtures	$	1,123		$	1,068
Software		1,799			1,748
Equipment		3,568			3,416
Leasehold improvements		1,609			1,276
Gross property and equipment		8,099			7,508
Less accumulated depreciation and amortization		(4,945	)		(4,498	)
Property and equipment, net	$	3,154		$	3,010

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Intangibles (Tables)

6 Months Ended

Jun. 30, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Amortization of Intangible Assets Acquired

Amortization of intangible assets acquired is calculated using the straight-line method over the estimated useful lives of the assets.

	June 30, 2016			December 31, 2015
Capitalized patent costs	$	6,971		$	6,779
Intangible assets acquired:
Purchased patents and intellectual property		250			250
Existing technology		1,560			1,560
Customer relationships		290			290
Backlog		760			760
Tradenames		290			290
Non-solicitation agreements		120			120
Gross intangible assets		10,241			10,049
Accumulated amortization		(3,772	)		(3,436	)
Intangibles, net	$	6,469		$	6,613

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Description of Business and Significant Accounting Policies - Additional Information (Detail) - USD ($)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Accounting Policies [Abstract]
Impairment of goodwill	$ 0	$ 0

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Fair Value of Financial Instruments - Summary of Fair Value Hierarchy for Financial Assets (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	$ 31,065
Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	31,065	$ 38,427
Fair Value, Measurements, Recurring [Member] | Pre-refunded Municipal Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	4,286	4,747
Fair Value, Measurements, Recurring [Member] | Money Market Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	2,774	2,001
Fair Value, Measurements, Recurring [Member] | Federal Agency Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	8,765	11,722
Fair Value, Measurements, Recurring [Member] | U.S. Treasuries [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	7,556	7,059
Fair Value, Measurements, Recurring [Member] | Corporate Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	4,050	6,884
Fair Value, Measurements, Recurring [Member] | Commercial Paper [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	3,498	3,794
Fair Value, Measurements, Recurring [Member] | Certificates of Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	136	2,220
Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	2,774	2,001
Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Money Market Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	2,774	2,001
Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	28,291	36,426
Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Pre-refunded Municipal Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	4,286	4,747
Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Federal Agency Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	8,765	11,722
Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Treasuries [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	7,556	7,059
Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Corporate Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	4,050	6,884
Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Commercial Paper [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	3,498	3,794
Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Certificates of Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	$ 136	$ 2,220

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Fair Value of Financial Instruments - Summary of Fair Value Maturities for Financial Asset (Detail) $ in Thousands	Jun. 30, 2016 USD ($)
Fair Value Disclosures [Abstract]
Maturities, Total	$ 31,065
Maturities, Less than 1 year	$ 31,065

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Fair Value of Financial Instruments - Additional Information (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Fair Value Disclosures [Abstract]
Highly liquid marketable securities with original maturities	90 days or less
Cash equivalents include money market funds and certificates of deposit	$ 8,687	$ 2,401

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Revenue Recognition - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2016
Revenue Recognition [Abstract]
Period of revenue from services	1 month
Subscription revenue term, minimum	1 year
Subscription revenue term, maximum	3 years
License revenue recognized payment terms, maximum	60 days
License revenue recognized payment terms, minimum	30 days

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Segment Information - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2016 Segment
Revenue, Major Customer [Line Items]
Number of reporting segment	1
Sales [Member] | Minimum [Member] | Customer Concentration Risk [Member]
Revenue, Major Customer [Line Items]
Revenue from segment	10.00%

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Segment Information - Geographical Segment Revenue (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenues from External Customers and Long-Lived Assets [Line Items]
Total	$ 5,457	$ 5,798	$ 11,037	$ 11,787
Domestic [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total	1,151	1,758	2,284	3,445
International [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total	$ 4,306	$ 4,040	$ 8,753	$ 8,342

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Segment Information - Customers Who Accounted for 10% or More of Company's Revenue (Detail)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Customer Concentration Risk [Member] | Sales [Member] | Central Banks [Member]
Revenue, Major Customer [Line Items]
Entity wide revenue major customers percentage	63.00%	54.00%	63.00%	57.00%

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Stock-Based Compensation - Additional Information (Detail) - $ / shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options granted	0	0	0	0
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation plans, shares authorized for future grants			1,307
Closing price per share of Digimarc common stock	$ 31.96		$ 31.96

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Stock-Based Compensation - Allocation of Stock-Based Compensation (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 1,424	$ 1,263	$ 2,707	$ 2,480
Capitalized to software and patent costs	43	54	75	91
Total stock-based compensation expense	1,467	1,317	2,782	2,571
Cost of Revenue [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	184	213	357	398
Sales and Marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	238	175	450	334
Research, Development and Engineering [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	379	328	704	615
General and Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	544	484	1,045	1,002
Intellectual Property [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 79	$ 63	$ 151	$ 131

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Stock-Based Compensation - Unrecognized Compensation Cost Related to Non-Vested Stock-Based Awards Granted (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Total unrecognized compensation costs	$ 11,746	$ 9,549

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Stock-Based Compensation - Weighted Average Period for Recognition of Unrecognized Compensation Cost for Stock Options and Restricted Stock (Detail)	6 Months Ended
	Jun. 30, 2016
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average period	0 years
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average period	1 year 4 months 24 days

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Stock-Based Compensation - Reconciliation of Outstanding Balance of Stock Options (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Options, Outstanding at beginning	475		490
Options granted	0	0	0	0
Options exercised	(17)		(32)
Options forfeited or expired	0		0
Options, Outstanding at ending	458		458
Options, Exercisable at ending	458		458
Weighted Average Exercise Price, Outstanding at beginning	$ 17.98		$ 17.73
Weighted Average Exercise Price, Granted	0		0
Weighted Average Exercise Price, Exercised	9.64		9.64
Weighted Average Exercise Price, Forfeited or expired	0		0
Weighted Average Exercise Price, Outstanding at ending	18.29		18.29
Weighted Average Exercise Price, Exercisable at ending	18.29		18.29
Weighted Average Grant Date Fair Value, Outstanding at beginning	8.76		8.69
Weighted Average Grant Date Fair Value, Granted	0		0
Weighted Average Grant Date Fair Value, Exercised	8.15		7.28
Weighted Average Grant Date Fair Value, Forfeited or expired	0		0
Weighted Average Grant Date Fair Value, Outstanding at ending	$ 8.79		$ 8.79
Aggregate Intrinsic Value, Outstanding	$ 6,260		$ 6,260
Aggregate Intrinsic Value, Exercisable	$ 6,260		$ 6,260

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Stock-Based Compensation - Reconciliation of Unvested Balance of Restricted Stock (Detail) - Restricted Stock [Member] - $ / shares shares in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2016
Number of Shares
Unvested, beginning balance	525	408
Granted	15	177
Vested	(68)	(112)
Forfeited	(2)	(3)
Unvested, ending balance	470	470
Weighted Average Grant Date Fair Value
Unvested, beginning balance	$ 25.56	$ 24.30
Granted	29.53	28.63
Vested	25.96	25.52
Forfeited	33.16	32.31
Unvested, ending balance	$ 25.59	$ 25.59

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Stock-Based Compensation - Fair Value of Restricted Stock Awards Vested (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair value of restricted stock awards vested	$ 1,839	$ 1,666	$ 3,117	$ 2,879

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Earnings Per Common Share - Summary of Reconciliation of Earnings (Loss) Per Common Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Basic Earnings (Loss) per Common Share:
Net loss	$ (5,283)	$ (4,012)	$ (10,718)	$ (8,162)
Distributed earnings to common shares	0	0	0	0
Distributed earnings to participating securities	0	0	0	0
Total distributed earnings	0	0	0	0
Undistributed loss allocable to common shares	(5,283)	(4,012)	(10,718)	(8,162)
Undistributed earnings allocable to participating securities	0	0	0	0
Total undistributed loss	(5,283)	(4,012)	(10,718)	(8,162)
Loss to common shares—basic	$ (5,283)	$ (4,012)	$ (10,718)	$ (8,162)
Weighted average common shares outstanding—basic	8,587	8,029	8,560	7,995
Basic earnings (loss) per common share	$ (0.62)	$ (0.50)	$ (1.25)	$ (1.02)
Diluted Earnings (Loss) per Common Share:
Loss to common shares—basic	$ (5,283)	$ (4,012)	$ (10,718)	$ (8,162)
Undistributed earnings allocated to participating securities	0	0	0	0
Undistributed earnings reallocated to participating securities	0	0	0	0
Loss to common shares—diluted	$ (5,283)	$ (4,012)	$ (10,718)	$ (8,162)
Weighted average common shares outstanding—basic	8,587	8,029	8,560	7,995
Dilutive effect of stock options	0	0	0	0
Weighted average common shares outstanding—dilutive	8,587	8,029	8,560	7,995
Diluted earnings (loss) per common share	$ (0.62)	$ (0.50)	$ (1.25)	$ (1.02)

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Earnings Per Common Share - Additional Information (Detail) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents related to stock options that were anti-dilutive and excluded from diluted net income per share	169	216	188	214
Higher Than Average Market Price [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents related to stock options that were anti-dilutive and excluded from diluted net income per share	75	75	0	175

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Trade Accounts Receivable - Summary of Trade Accounts Receivable (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Accounts Receivable Net Current [Abstract]
Trade accounts receivable	$ 2,492	$ 4,631
Allowance for doubtful accounts	(15)	(15)
Trade accounts receivable, net	2,477	4,616
Unpaid deferred revenue included in trade accounts receivable	$ 544	$ 2,012

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Trade Accounts Receivable - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2016
Accounts Receivable [Member] | Minimum [Member] | Credit Concentration Risk [Member]
Concentration Risk [Line Items]
Percentage of trade accounts receivable of major customers	10.00%

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Trade Accounts Receivable - Customers Who Accounted for 10% or More of Trade Accounts Receivable, Net (Detail)	Jun. 30, 2016	Dec. 31, 2015
Accounts Receivable [Member] | Credit Concentration Risk [Member] | Central Banks [Member]
Concentration Risk [Line Items]
Percentage of trade accounts receivable of major customers	41.00%	62.00%

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Property and Equipment - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2016
Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of the assets	2 years
Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of the assets	7 years

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Property and Equipment - Depreciation and Amortization on Property and Equipment Using the Straight-Line Method (Detail) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Property Plant And Equipment [Abstract]
Office furniture and fixtures	$ 1,123	$ 1,068
Software	1,799	1,748
Equipment	3,568	3,416
Leasehold improvements	1,609	1,276
Gross property and equipment	8,099	7,508
Less accumulated depreciation and amortization	(4,945)	(4,498)
Property and equipment, net	$ 3,154	$ 3,010

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Intangibles - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2016
Capitalized Patent Costs [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	17 years

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Intangibles - Amortization of Intangible Assets Acquired (Detail) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Capitalized patent costs	$ 6,971	$ 6,779
Intangible assets acquired:
Gross intangible assets	10,241	10,049
Accumulated amortization	(3,772)	(3,436)
Intangibles, net	6,469	6,613
Purchased Patents and Intellectual Property [Member]
Intangible assets acquired:
Intangible assets amount	250	250
Existing Technology [Member]
Intangible assets acquired:
Intangible assets amount	1,560	1,560
Customer Relationships [Member]
Intangible assets acquired:
Intangible assets amount	290	290
Backlog [Member]
Intangible assets acquired:
Intangible assets amount	760	760
Tradenames [Member]
Intangible assets acquired:
Intangible assets amount	290	290
Non-solicitation Agreements [Member]
Intangible assets acquired:
Intangible assets amount	$ 120	$ 120

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Joint Ventures and Related Party Transactions - Additional Information (Detail) $ in Thousands	1 Months Ended
	Mar. 31, 2012 JointVenture	Jun. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)
Related Party Transaction [Line Items]
Number of joint venture agreements | JointVenture	2
TVaura LLC [Member]
Related Party Transaction [Line Items]
Equity method investment, ownership percentage	51.00%
Investment in joint venture		$ 0	$ 0
TVaura Mobile LLC [Member]
Related Party Transaction [Line Items]
Equity method investment, ownership percentage	49.00%
Investment in joint venture		$ 0	$ 0

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Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Deferred tax assets, valuation allowance	$ 20,023		$ 15,420
Effective tax rate	0.00%	0.00%
Change in valuation allowance	$ 4,603