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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 September 30, 2020

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)

(503469-4800

(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 October 23, 2020, there were 15,315,663 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 September 30, 2020 and December 31, 2019

3

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019

4

 

Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2020 and 2019

5

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

6

 

Notes to Consolidated Financial Statements

7

Item 2.

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

20

Item 4.

Controls and Procedures

33

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 6.

Exhibits

36

SIGNATURES

37

 

 

 

2


 

PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements.

DIGIMARC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(UNAUDITED)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,461

 

 

$

11,213

 

Marketable securities

 

 

17,194

 

 

 

25,604

 

Trade accounts receivable, net

 

 

3,022

 

 

 

4,021

 

Other current assets

 

 

2,396

 

 

 

2,456

 

Total current assets

 

 

68,073

 

 

 

43,294

 

Property and equipment, net

 

 

3,361

 

 

 

3,650

 

Intangibles, net

 

 

6,604

 

 

 

6,670

 

Goodwill

 

 

1,114

 

 

 

1,114

 

Other assets

 

 

2,353

 

 

 

2,660

 

Total assets

 

$

81,505

 

 

$

57,388

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

2,469

 

 

$

2,272

 

Note payable, current

 

 

3,096

 

 

 

 

Deferred revenue

 

 

2,098

 

 

 

3,172

 

Total current liabilities

 

 

7,663

 

 

 

5,444

 

Lease liability and other long-term liabilities

 

 

2,712

 

 

 

2,494

 

Note payable, long-term

 

 

1,957

 

 

 

 

Total liabilities

 

 

12,332

 

 

 

7,938

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

   outstanding at September 30, 2020 and December 31, 2019)

 

 

50

 

 

 

50

 

Common stock (par value $0.001 per share, 50,000 authorized, 15,316 and 12,446 shares

issued and outstanding at September 30, 2020 and December 31, 2019, respectively)

 

 

15

 

 

 

12

 

Additional paid-in capital

 

 

232,544

 

 

 

188,103

 

Accumulated deficit

 

 

(163,436

)

 

 

(138,715

)

Total shareholders’ equity

 

 

69,173

 

 

 

49,450

 

Total liabilities and shareholders’ equity

 

$

81,505

 

 

$

57,388

 

 

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

 

 

Nine

 

 

Nine

 

 

 

Months

 

 

Months

 

 

Months

 

 

Months

 

 

 

Ended

 

 

Ended

 

 

Ended

 

 

Ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

3,352

 

 

$

3,160

 

 

$

10,982

 

 

$

10,549

 

Subscription

 

 

2,399

 

 

 

2,668

 

 

 

7,455

 

 

 

7,119

 

Total revenue

 

 

5,751

 

 

 

5,828

 

 

 

18,437

 

 

 

17,668

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

 

1,406

 

 

 

1,409

 

 

 

4,691

 

 

 

4,730

 

Subscription

 

 

522

 

 

 

509

 

 

 

1,548

 

 

 

1,507

 

Total cost of revenue

 

 

1,928

 

 

 

1,918

 

 

 

6,239

 

 

 

6,237

 

Gross profit

 

 

3,823

 

 

 

3,910

 

 

 

12,198

 

 

 

11,431

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

4,538

 

 

 

4,839

 

 

 

14,417

 

 

 

14,876

 

Research, development and engineering

 

 

4,662

 

 

 

4,105

 

 

 

13,303

 

 

 

12,124

 

General and administrative

 

 

3,009

 

 

 

2,998

 

 

 

9,457

 

 

 

9,287

 

Total operating expenses

 

 

12,209

 

 

 

11,942

 

 

 

37,177

 

 

 

36,287

 

Operating loss

 

 

(8,386

)

 

 

(8,032

)

 

 

(24,979

)

 

 

(24,856

)

Other income, net

 

 

36

 

 

 

259

 

 

 

257

 

 

 

727

 

Loss before income taxes

 

 

(8,350

)

 

 

(7,773

)

 

 

(24,722

)

 

 

(24,129

)

Benefit (provision) for income taxes

 

 

(2

)

 

 

12

 

 

 

1

 

 

 

(28

)

Net loss

 

$

(8,352

)

 

$

(7,761

)

 

$

(24,721

)

 

$

(24,157

)

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share — basic

 

$

(0.68

)

 

$

(0.65

)

 

$

(2.04

)

 

$

(2.07

)

Loss per common share — diluted

 

$

(0.68

)

 

$

(0.65

)

 

$

(2.04

)

 

$

(2.07

)

Weighted average common shares outstanding — basic

 

 

12,241

 

 

 

11,924

 

 

 

12,129

 

 

 

11,693

 

Weighted average common shares outstanding — diluted

 

 

12,241

 

 

 

11,924

 

 

 

12,129

 

 

 

11,693

 

 

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 September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JUNE 30, 2020

 

 

10

 

 

$

50

 

 

 

12,659

 

 

$

13

 

 

$

192,298

 

 

$

(155,084

)

 

$

37,277

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

 

2,676

 

 

 

2

 

 

 

38,027

 

 

 

 

 

 

38,029

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(29

)

 

 

 

 

 

(448

)

 

 

 

 

 

(448

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,667

 

 

 

 

 

 

2,667

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,352

)

 

 

(8,352

)

BALANCE AT SEPTEMBER 30, 2020

 

 

10

 

 

$

50

 

 

 

15,316

 

 

$

15

 

 

$

232,544

 

 

$

(163,436

)

 

$

69,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JUNE 30, 2019

 

 

10

 

 

$

50

 

 

 

12,433

 

 

$

12

 

 

$

184,611

 

 

$

(122,271

)

 

$

62,402

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(22

)

 

 

 

 

 

(885

)

 

 

 

 

 

(885

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,085

 

 

 

 

 

 

2,085

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,761

)

 

 

(7,761

)

BALANCE AT SEPTEMBER 30, 2019

 

 

10

 

 

$

50

 

 

 

12,429

 

 

$

12

 

 

$

185,811

 

 

$

(130,032

)

 

$

55,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2019

 

 

10

 

 

$

50

 

 

 

12,446

 

 

$

12

 

 

$

188,103

 

 

$

(138,715

)

 

$

49,450

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

 

2,704

 

 

 

3

 

 

 

38,600

 

 

 

 

 

 

38,603

 

Exercise of stock options

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

135

 

 

 

 

 

 

135

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

242

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(77

)

 

 

 

 

 

(1,568

)

 

 

 

 

 

(1,568

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,274

 

 

 

 

 

 

7,274

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,721

)

 

 

(24,721

)

BALANCE AT SEPTEMBER 30, 2020

 

 

10

 

 

$

50

 

 

 

15,316

 

 

$

15

 

 

$

232,544

 

 

$

(163,436

)

 

$

69,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 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

 

 

 

 

 

 

 

 

292

 

 

 

 

 

 

 

 

 

 

 

 

̵