0001564590-19-026072.txt : 20190725 0001564590-19-026072.hdr.sgml : 20190725 20190725140223 ACCESSION NUMBER: 0001564590-19-026072 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 77 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190725 DATE AS OF CHANGE: 20190725 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Digimarc CORP CENTRAL INDEX KEY: 0001438231 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 262828185 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-34108 FILM NUMBER: 19973767 BUSINESS ADDRESS: STREET 1: 9405 SW GEMINI DRIVE CITY: BEAVERTON STATE: OR ZIP: 97008 BUSINESS PHONE: 503-469-4618 MAIL ADDRESS: STREET 1: 9405 SW GEMINI DRIVE CITY: BEAVERTON STATE: OR ZIP: 97008 FORMER COMPANY: FORMER CONFORMED NAME: DMRC CORP DATE OF NAME CHANGE: 20080620 10-Q 1 dmrc-10q_20190630.htm 10-Q dmrc-10q_20190630.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from                      to                      

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)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock, $0.001 Par Value Per Share

 

DMRC

 

The NASDAQ Stock Market LLC

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

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

As of July 19, 2019, there were 12,433,246 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, 2019 and December 31, 2018

3

 

Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018

4

 

Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2019 and 2018

5

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

6

 

Notes to Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 4.

Controls and Procedures

31

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 5.

Other Information

32

Item 6.

Exhibits

33

SIGNATURES

34

 

 

 

2


 

PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements.

DIGIMARC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(UNAUDITED)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

33,166

 

 

$

27,278

 

Marketable securities

 

 

16,792

 

 

 

16,378

 

Trade accounts receivable, net

 

 

4,239

 

 

 

3,888

 

Other current assets

 

 

2,140

 

 

 

2,100

 

Total current assets

 

 

56,337

 

 

 

49,644

 

Property and equipment, net

 

 

3,632

 

 

 

3,955

 

Intangibles, net

 

 

6,699

 

 

 

6,649

 

Goodwill

 

 

1,114

 

 

 

1,114

 

Other assets

 

 

3,057

 

 

 

425

 

Total assets

 

$

70,839

 

 

$

61,787

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

2,660

 

 

$

1,092

 

Deferred revenue

 

 

2,824

 

 

 

3,226

 

Total current liabilities

 

 

5,484

 

 

 

4,318

 

Lease liability and other long-term liabilities

 

 

2,953

 

 

 

854

 

Total liabilities

 

 

8,437

 

 

 

5,172

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares

   issued and outstanding at June 30, 2019 and December 31, 2018)

 

 

50

 

 

 

50

 

Common stock (par value $0.001 per share, 50,000 authorized, 12,433 and

   11,891 shares issued and outstanding at June 30, 2019 and December 31, 2018,

   respectively)

 

 

12

 

 

 

12

 

Additional paid-in capital

 

 

184,611

 

 

 

162,428

 

Accumulated deficit

 

 

(122,271

)

 

 

(105,875

)

Total shareholders’ equity

 

 

62,402

 

 

 

56,615

 

Total liabilities and shareholders’ equity

 

$

70,839

 

 

$

61,787

 

 

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

 

 

Three

 

 

Six

 

 

Six

 

 

 

 

Months

 

 

Months

 

 

Months

 

 

Months

 

 

 

 

Ended

 

 

Ended

 

 

Ended

 

 

Ended

 

 

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

3,529

 

 

$

3,336

 

 

$

7,164

 

 

$

6,843

 

 

Subscription

 

 

2,088

 

 

 

1,444

 

 

 

3,651

 

 

 

3,022

 

 

License

 

 

563

 

 

 

658

 

 

 

1,025

 

 

 

1,186

 

 

Total revenue

 

 

6,180

 

 

 

5,438

 

 

 

11,840

 

 

 

11,051

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

 

1,553

 

 

 

1,548

 

 

 

3,084

 

 

 

3,111

 

 

Subscription

 

 

465

 

 

 

508

 

 

 

910

 

 

 

990

 

 

License

 

 

167

 

 

 

149

 

 

 

325

 

 

 

289

 

 

Total cost of revenue

 

 

2,185

 

 

 

2,205

 

 

 

4,319

 

 

 

4,390

 

 

Gross profit

 

 

3,995

 

 

 

3,233

 

 

 

7,521

 

 

 

6,661

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

5,087

 

 

 

4,757

 

 

 

10,037

 

 

 

9,644

 

 

Research, development and engineering

 

 

3,981

 

 

 

4,058

 

 

 

8,019

 

 

 

8,005

 

 

General and administrative

 

 

2,686

 

 

 

2,416

 

 

 

5,538

 

 

 

5,048

 

 

Intellectual property

 

 

393

 

 

 

305

 

 

 

751

 

 

 

620

 

 

Total operating expenses

 

 

12,147

 

 

 

11,536

 

 

 

24,345

 

 

 

23,317

 

 

Operating loss

 

 

(8,152

)

 

 

(8,303

)

 

 

(16,824

)

 

 

(16,656

)

 

Other income, net

 

 

231

 

 

 

274

 

 

 

468

 

 

 

526

 

 

Loss before income taxes

 

 

(7,921

)

 

 

(8,029

)

 

 

(16,356

)

 

 

(16,130

)

 

Provision for income taxes

 

 

(12

)

 

 

(9

)

 

 

(40

)

 

 

(20

)

 

Net loss

 

$

(7,933

)

 

$

(8,038

)

 

$

(16,396

)

 

$

(16,150

)

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share — basic

 

$

(0.68

)

 

$

(0.71

)

 

$

(1.42

)

 

$

(1.43

)

 

Loss per common share — diluted

 

$

(0.68

)

 

$

(0.71

)

 

$

(1.42

)

 

$

(1.43

)

 

Weighted average common shares outstanding — basic

 

 

11,665

 

 

 

11,337

 

 

 

11,576

 

 

 

11,302

 

 

Weighted average common shares outstanding — diluted

 

 

11,665

 

 

 

11,337

 

 

 

11,576

 

 

 

11,302

 

 

 

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

 

Three months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT MARCH 31, 2018

 

 

10

 

 

$

50

 

 

 

11,847

 

 

$

12

 

 

$

157,540

 

 

$

(81,481

)

 

$

76,121

 

Exercise of stock options

 

 

 

 

 

 

 

 

26

 

 

 

 

 

 

354

 

 

 

 

 

 

354

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(20

)

 

 

 

 

 

(592

)

 

 

 

 

 

(592

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,858

 

 

 

 

 

 

1,858

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,038

)

 

 

(8,038

)

BALANCE AT JUNE 30, 2018

 

 

10

 

 

$

50

 

 

 

11,876

 

 

$

12

 

 

$

159,160

 

 

$

(89,519

)

 

$

69,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2017

 

 

10

 

 

$

50

 

 

 

11,651

 

 

$

12

 

 

$

155,793

 

 

$

(73,508

)

 

$

82,347

 

Exercise of stock options

 

 

 

 

 

 

 

 

72

 

 

 

 

 

 

914

 

 

 

 

 

 

914

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

210

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(19

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

 

(1,120

)

 

 

 

 

 

(1,120

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,573

 

 

 

 

 

 

3,573

 

Cumulative effect of the adoption of the new revenue standard, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139

 

 

 

139

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,150

)

 

 

(16,150

)

BALANCE AT JUNE 30, 2018

 

 

10

 

 

$

50

 

 

 

11,876

 

 

$

12

 

 

$

159,160

 

 

$

(89,519

)

 

$

69,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT MARCH 31, 2019

 

 

10

 

 

$

50

 

 

 

12,135

 

 

$

12

 

 

$

164,119

 

 

$

(114,338

)

 

$

49,843

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

 

336

 

 

 

 

 

 

19,615

 

 

 

 

 

 

19,615

 

Exercise of stock options

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

194

 

 

 

 

 

 

194

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(45

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

(1,382

)

 

 

 

 

 

(1,382

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,065

 

 

 

 

 

 

2,065

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,933

)

 

 

(7,933

)

BALANCE AT JUNE 30, 2019

 

 

10

 

 

$

50

 

 

 

12,433

 

 

$

12

 

 

$

184,611

 

 

$

(122,271

)

 

$

62,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2018

 

 

10

 

 

$

50

 

 

 

11,891

 

 

$

12

 

 

$

162,428

 

 

$

(105,875

)

 

$

56,615

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

 

336

 

 

 

 

 

 

19,615

 

 

 

 

 

 

19,615

 

Exercise of stock options

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

293

 

 

 

 

 

 

293

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

273

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(46

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(44

)

 

 

 

 

 

(1,868

)

 

 

 

 

 

(1,868

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,143

 

 

 

 

 

 

4,143

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,396

)

 

 

(16,396

)

BALANCE AT JUNE 30, 2019

 

 

10

 

 

$

50

 

 

 

12,433

 

 

$

12

 

 

$

184,611

 

 

$

(122,271

)

 

$

62,402

 

 

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

 

 

5


 

DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)

 

 

 

Six

 

 

Six

 

 

 

Months

 

 

Months

 

 

 

Ended

 

 

Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(16,396

)

 

$

(16,150

)

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

Depreciation, amortization and write-off of property and equipment

 

 

747

 

 

 

764

 

Amortization and write-off of intangibles

 

 

372

 

 

 

287

 

Stock-based compensation

 

 

4,053

 

 

 

3,480

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(351

)

 

 

2,561

 

Other current assets

 

 

(40

)

 

 

210

 

Other assets

 

 

77

 

 

 

(35

)

Accounts payable and other accrued liabilities

 

 

1,132

 

 

 

(227

)

Deferred revenue

 

 

(244

)

 

 

(658

)

Lease liability and other long-term liabilities

 

 

(325

)

 

 

(21

)

Net cash used in operating activities

 

 

(10,975

)

 

 

(9,789

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(404

)

 

 

(557

)

Capitalized patent costs

 

 

(359

)

 

 

(402

)

Maturity of marketable securities

 

 

14,671

 

 

 

20,839

 

Purchase of marketable securities

 

 

(15,085

)

 

 

(15,637

)

Net cash provided by (used in) investing activities

 

 

(1,177

)

 

 

4,243

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock, net of issuance costs

 

 

19,615

 

 

 

 

Exercise of stock options

 

 

293

 

 

 

914

 

Purchase of common stock

 

 

(1,868

)

 

 

(1,120

)

Net cash provided by (used in) financing activities

 

 

18,040

 

 

 

(206

)

Net increase (decrease) in cash and cash equivalents

 

 

5,888

 

 

 

(5,752

)

Cash and cash equivalents at beginning of period

 

 

27,278

 

 

 

40,823

 

Cash and cash equivalents at end of period

 

$

33,166

 

 

$

35,071

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash received for income taxes, net

 

$

93

 

 

$

98

 

Supplemental schedule of non-cash activities:

 

 

 

 

 

 

 

 

Property and equipment and patent costs in accounts payable

 

$

(7

)

 

$

8

 

Stock-based compensation capitalized to software and patent costs

 

$

90

 

 

$

93

 

Right of use assets obtained in exchange for lease obligations

 

$

2,709

 

 

$

 

 

 

 

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, banks, retailers, consumer brands and other businesses around the world to automatically and reliably identify and interact with virtually any form of media. The Company has pioneered the Digimarc Intuitive Computing Platform (“ICP”), a comprehensive set of technologies for identifying, discovering and interacting with digitally-enhanced media. The platform includes Digimarc Barcode, a proprietary method for imperceptibly enhancing packaging, print, images, thermal labels, audio and other objects with data that is detected by enabled devices, such as smart phones, computers, barcode scanners and machine-vision equipment. Digimarc Discover software enables an ecosystem of connected devices to easily identify content or materials and deliver information.

Interim Consolidated Financial Statements

Our significant accounting policies are detailed in “Note 1: Description of Business and Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2018. Significant changes to our accounting policies as a result of adopting Accounting Standards Codification (“ASC”) 842, “Leases,” effective January 1, 2019, are discussed in Note 11 below.

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, 2018, which was filed with the SEC on February 22, 2019. 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 exceed the fair value. The Company operates as a single reporting unit. The Company estimates 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, 2019 and 2018, it was concluded that there was no impairment to goodwill as the estimated fair value of the Company’s reporting unit substantially exceeded the carrying value.

7


 

Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (ASC 842),” which supersedes, Leases (ASC 840).” 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 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. In July 2018, the FASB issued ASU No. 2018-11, “