10-Q

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, 2021

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 28, 2021, there were 16,930,460 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, 2021 and December 31, 2020	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020	4
	Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2021 and 2020	5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020	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	34
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	36
SIGNATURES		37

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DIGIMARC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(UNAUDITED)

	June 30,			December 31,
	2021			2020
ASSETS
Current assets:
Cash and cash equivalents	$	21,358		$	19,696
Marketable securities		39,592			58,032
Trade accounts receivable, net		4,590			3,907
Other current assets		1,805			2,197
Total current assets		67,345			83,832
Marketable securities		157			—
Property and equipment, net		3,082			3,272
Intangibles, net		6,606			6,612
Goodwill		1,114			1,114
Other assets		2,244			2,198
Total assets	$	80,548		$	97,028
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	4,428		$	2,827
Note payable, current		5,091			3,947
Deferred revenue		2,659			3,002
Total current liabilities		12,178			9,776
Lease liability and other long-term liabilities		3,128			2,295
Note payable, long-term		—			1,118
Total liabilities		15,306			13,189
Commitments and contingencies (Note 14)
Shareholders’ equity:
Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares issued and outstanding at June 30, 2021 and December 31, 2020)		50			50
Common stock (par value $0.001 per share, 50,000 authorized, 16,943 and 16,735 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively)		17			17
Additional paid-in capital		260,071			255,024
Accumulated deficit		(194,896	)		(171,252	)
Total shareholders’ equity		65,242			83,839
Total liabilities and shareholders’ equity	$	80,548		$	97,028

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

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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,
	2021			2020			2021			2020
Revenue:
Service	$	3,791		$	3,892		$	7,575		$	7,630
Subscription		2,487			2,605			5,403			5,056
Total revenue		6,278			6,497			12,978			12,686
Cost of revenue:
Service		1,515			1,601			3,085			3,285
Subscription		534			512			1,325			1,026
Total cost of revenue		2,049			2,113			4,410			4,311
Gross profit		4,229			4,384			8,568			8,375
Operating expenses:
Sales and marketing		6,277			4,633			11,218			9,879
Research, development and engineering		4,213			4,208			8,344			8,641
General and administrative		9,175			3,081			12,668			6,448
Total operating expenses		19,665			11,922			32,230			24,968
Operating loss		(15,436	)		(7,538	)		(23,662	)		(16,593	)
Other income, net		18			79			28			221
Loss before income taxes		(15,418	)		(7,459	)		(23,634	)		(16,372	)
Benefit (provision) for income taxes		(4	)		(2	)		(10	)		3
Net loss	$	(15,422	)	$	(7,461	)	$	(23,644	)	$	(16,369	)
Earnings (loss) per common share:
Loss per common share — basic	$	(0.94	)	$	(0.62	)	$	(1.44	)	$	(1.36	)
Loss per common share — diluted	$	(0.94	)	$	(0.62	)	$	(1.44	)	$	(1.36	)
Weighted average common shares outstanding — basic		16,430			12,108			16,382			12,073
Weighted average common shares outstanding — diluted		16,430			12,108			16,382			12,073

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

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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, 2021:
BALANCE AT MARCH 31, 2021		10	$	50		16,850		$	17	$	256,200		$	(179,474	)	$	76,793
Exercise of stock options		—		—		70			—		1,075			—			1,075
Issuance of restricted common stock		—		—		44			—		—			—			—
Vesting of restricted stock units		—		—		112			—		—			—			—
Forfeiture of restricted common stock		—		—		(16	)		—		—			—			—
Purchase and retirement of common stock		—		—		(117	)		—		(3,979	)		—			(3,979	)
Stock-based compensation		—		—		—			—		6,775			—			6,775
Net loss		—		—		—			—		—			(15,422	)		(15,422	)
BALANCE AT JUNE 30, 2021		10	$	50		16,943		$	17	$	260,071		$	(194,896	)	$	65,242
Three months ended June 30, 2020:
BALANCE AT MARCH 31, 2020		10	$	50		12,645		$	13	$	190,303		$	(147,623	)	$	42,743
Issuance of restricted common stock		—		—		43			—		—			—			—
Forfeiture of restricted common stock		—		—		(4	)		—		—			—			—
Purchase and retirement of common stock		—		—		(25	)		—		(382	)		—			(382	)
Stock-based compensation		—		—		—			—		2,377			—			2,377
Net loss		—		—		—			—		—			(7,461	)		(7,461	)
BALANCE AT JUNE 30, 2020		10	$	50		12,659		$	13	$	192,298		$	(155,084	)	$	37,277
Six months ended June 30, 2021:
BALANCE AT DECEMBER 31, 2020		10	$	50		16,735		$	17	$	255,024		$	(171,252	)	$	83,839
Exercise of stock options		—		—		70			—		1,075			—			1,075
Issuance of restricted common stock		—		—		198			—		—			—			—
Vesting of restricted stock units		—		—		112			—		—			—			—
Forfeiture of restricted common stock		—		—		(35	)		—		—			—			—
Purchase and retirement of common stock		—		—		(137	)		—		(4,849	)		—			(4,849	)
Stock-based compensation		—		—		—			—		8,821			—			8,821
Net loss		—		—		—			—		—			(23,644	)		(23,644	)
BALANCE AT JUNE 30, 2021		10	$	50		16,943		$	17	$	260,071		$	(194,896	)	$	65,242
Six months ended June 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		—		—		28			1		573			—			574
Exercise of stock options		—		—		8			—		135			—			135
Issuance of restricted common stock		—		—		229			—		—			—			—
Forfeiture of restricted common stock		—		—		(4	)		—		—			—			—
Purchase and retirement of common stock		—		—		(48	)		—		(1,120	)		—			(1,120	)
Stock-based compensation		—		—		—			—		4,607			—			4,607
Net loss		—		—		—			—		—			(16,369	)		(16,369	)
BALANCE AT JUNE 30, 2020		10	$	50		12,659		$	13	$	192,298		$	(155,084	)	$	37,277

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

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DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)

	Six			Six
	Months			Months
	Ended			Ended
	June 30,			June 30,
	2021			2020
Cash flows from operating activities:
Net loss	$	(23,644	)	$	(16,369	)
Adjustments to reconcile net loss to net cash used in    operating activities:
Depreciation, amortization and write-off of property and equipment		717			745
Amortization and write-off of intangibles		345			431
Amortization of right of use assets under operating leases		240			233
Amortization of net premiums and (discounts) on marketable securities		(498	)		96
Stock-based compensation		8,747			4,522
Changes in operating assets and liabilities:
Trade accounts receivable		(950	)		445
Other current assets		392			361
Other assets		(19	)		85
Accounts payable and other accrued liabilities		1,859			(155	)
Deferred revenue		(331	)		(500	)
Lease liability and other long-term liabilities		656			24
Net cash used in operating activities		(12,486	)		(10,082	)
Cash flows from investing activities:
Purchase of property and equipment		(569	)		(456	)
Capitalized patent costs		(290	)		(311	)
Maturity of marketable securities		49,722			26,439
Purchase of marketable securities		(30,941	)		(19,490	)
Net cash provided by investing activities		17,922			6,182
Cash flows from financing activities:
Proceeds from note payable		—			5,032
Issuance of common stock, net of issuance costs		—			574
Exercise of stock options		—			135
Purchase of common stock		(3,774	)		(1,120	)
Net cash provided by (used in) financing activities		(3,774	)		4,621
Net increase in cash and cash equivalents		1,662			721
Cash and cash equivalents at beginning of period		19,696			11,213
Cash and cash equivalents at end of period	$	21,358		$	11,934
Supplemental disclosure of cash flow information:
Cash received (paid) for income taxes, net	$	(31	)	$	12
Supplemental schedule of non-cash activities:
Property and equipment and patent costs in accounts payable	$	(67	)	$	(26	)
Stock-based compensation capitalized to software and patent costs	$	74		$	85
Cashless exercise of stock options	$	1,075		$	—

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

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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, is a pioneer in the automatic identification of media, including packaging, other commercial print, digital images, audio and video. The Digimarc Platform takes industry beyond the barcode, providing innovative and comprehensive automatic identification software and services to simplify search and transform information discovery. The Digimarc Platform enables applications that benefit retailers and consumer brands, national and state government agencies, media and entertainment industries, and others.

The Digimarc Platform features three core capabilities for the identification, discovery and quality management of media.  Digimarc Barcode integrates the identification function, which is a novel data carrier encoded into media in ways that are generally imperceptible to people, permitting the carrier to be repeated many times over the surface of the enhanced media. Digimarc Discover represents the discovery function, which is software for computing devices and network interfaces that recognize and decode indicia of the identity of media. These include, but are not limited to, Digimarc Barcodes, Quick Response Codes, Universal Product Codes, certain other Global Standards One (“GS1”) approved one-dimensional codes and relevant contextual data. Digimarc Verify incorporates the quality management function, a suite of software tools used to inspect and verify that the identification and discovery of media are both accurate and effective. Together, these core capabilities enable organizations, application developers, and other solution providers to build new and improve existing automatic identification solutions.

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, 2020.

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, 2020, which was filed with the SEC on February 26, 2021. 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, including the reclassification of revenue by major target market. These reclassifications had no material effect on the results of operations or financial position for any period presented.

 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, 2021 and 2020, 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.

Accounting Pronouncements Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (ASC 740) Simplifying the Accounting for Income Taxes,” that removes certain exceptions to the general

7

principles and also improves consistent application of and simplifies U.S. GAAP. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company adopted this new standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations and disclosures.

Accounting Pronouncements Issued But Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments,” which amends the guidance on the impairment of financial instruments. The amendments in this update remove the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The guidance removes all current recognition thresholds and introduces the new current expected credit loss (“CECL”) model which will require entities to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument’s contractual life. The new CECL model is based upon expected losses rather than incurred losses. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not expect the impact of the adoption of this standard to have a material impact on its financial condition, results of operations and disclosures.

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’s marketable securities are classified as held-to-maturity and are reported at amortized cost, which approximates fair value.

The Company’s fair value hierarchy for its cash equivalents and marketable securities was as follows:

June 30, 2021	Level 1		Level 2		Level 3		Total
Money market securities	$	18,515	$	—	$	—	$	18,515
Commercial paper		—		22,287		—		22,287
Pre-refunded municipals		—		14,395		—		14,395
Corporate notes		—		3,068		—		3,068
Total	$	18,515	$	39,750	$	—	$	58,265

December 31, 2020	Level 1		Level 2		Level 3		Total
Money market securities	$	10,988	$	—	$	—	$	10,988
Commercial paper		—		36,478		—		36,478
Pre-refunded municipals		—		26,697		—		26,697
Corporate notes		—		2,437		—		2,437
Total	$	10,988	$	65,612	$	—	$	76,600

The fair value maturities of the Company’s cash equivalents and marketable securities as of June 30, 2021, were as follows:

	Maturities by Period
	Total		Less than 1 year		1-5 years		5 - 10 years		More than 10 years
Cash equivalents and marketable securities	$	58,265	$	58,108	$	157	$	—	$	—

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 securities, commercial paper and pre-refunded municipals totaling $18,516 and $18,568 at June 30, 2021, and December 31, 2020, respectively. Cash equivalents are carried at either cost or amortized cost, depending on the type of security, which approximates fair value.

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3. Revenue Recognition

The Company derives its revenue primarily from software development services and software subscriptions.  Applicable revenue recognition criteria are considered separately for each performance obligation as follows:

• Service revenue consists primarily of revenue earned from the performance of software development services. The majority of service contracts are structured as time and materials consulting agreements.  Revenue for services is generally recognized as the services are performed. Billing for services rendered generally occurs within one month after the services are provided.

• Subscription revenue consists primarily of revenue earned from the sale of software products and to a lesser extent the licensing of intellectual property. The majority of subscription contracts are recurring, paid in advance, and recognized over the term of the subscription, which is typically one to three years.

Customer arrangements may contain multiple performance obligations such as software development services, software products, and maintenance and support fees. The Company accounts for individual products and services separately if they are distinct. To determine the transaction price, the Company considers the terms of the contract and the Company’s customary business practices. Some contracts may contain variable consideration. In those cases, the Company estimates the amount of variable consideration based on the sum of probability-weighted amounts in a range of possible consideration amounts. As part of this assessment, the Company will evaluate whether any of the variable consideration is constrained and if it is the Company will not include it in the transaction price. The consideration is allocated between distinct products and services based on their stand-alone selling prices. For items that are not sold separately, the Company estimates the standalone selling price based on reasonably available information, including market conditions, specific factors affecting the Company, and information about the customer. For distinct products and services, the Company typically recognizes the revenue associated with these performance obligations as they are delivered to the customer.  Products and services that are not capable of being distinct are combined with other products or services until a distinct performance obligation is identified.

All revenue recognized in the Consolidated Statements of Operations is considered to be revenue from contracts with customers.

The following table provides information about disaggregated revenue by major target market in the Company’s single reporting segment:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Government
Service	$	3,522	$	3,713	$	7,107	$	7,365
Subscription		300		300		600		600
Total Government		3,822		4,013		7,707		7,965
Commercial
Service	$	269	$	179	$	468	$	265
Subscription		2,187		2,305		4,803		4,456
Total Commercial		2,456		2,484		5,271		4,721
Total	$	6,278	$	6,497	$	12,978	$	12,686

The Company has contract assets from contracts with customers that are classified as “trade accounts receivable.”  Financial information about trade accounts receivable is included in Note 8.  

The Company has contract liabilities from contracts with customers that are classified as “deferred revenue.”  Deferred revenue consists of billings in advance for services and subscriptions for which the performance obligation has not been satisfied.

The following table provides information about contract liabilities from contracts with customers:

	June 30,		December 31,
	2021		2020
Deferred revenue, current	$	2,659	$	3,002
Deferred revenue, long-term		42		30
Total	$	2,701	$	3,032

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The Company recognized $2,010 of revenue during the six months ended June 30, 2021, that was included in the contract liability balance as of December 31, 2020.

The aggregate amount of the transaction prices from contractual obligations that are unsatisfied or partially unsatisfied was $16,645 and $17,921 as of June 30, 2021, and December 31, 2020, respectively.

4. Segment Information

Geographic Information

The Company derives its revenue from a single reporting segment: automatic identification solutions. Revenue is generated in this segment primarily through software development services and software subscriptions. The Company markets its products in the U.S. and in non-U.S. countries through its sales personnel and partners.

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

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Domestic	$	1,640	$	1,856	$	3,362	$	3,615
International (1)		4,638		4,641		9,616		9,071
Total	$	6,278	$	6,497	$	12,978	$	12,686

(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

The following customers accounted for 10% or more of revenue:

	Three			Three			Six			Six
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
	2021			2020			2021			2020
Central Banks		61	%		62	%		59	%		63	%
Walmart Inc.		13	%		12	%		12	%		12	%

Long-Lived Assets by Geographical Area

The Company’s long-lived assets are all 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 stock option grants and restricted stock, restricted stock unit, and performance restricted stock unit awards.

Stock-based compensation expense related to internal labor is capitalized to software and patent costs 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 on the date of grant (measurement date) using the Black-Scholes option pricing model. The Company recognizes the fair value of stock option awards on a straight-line basis over the vesting period of the award.

The following inputs are used in the Black-Scholes option pricing model to estimate the fair value of stock options:

Stock Price. The stock price represents the fair market value of the Company’s common stock on the date of the grant.

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Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms and vesting schedules of the awards. Stock options granted generally vest over a service period of three years and have a contractual term of ten years.

Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the expected life of the award.

Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the expected life of the award.

Expected Dividend Yield. The expected dividend yield is derived by dividing the Company’s expected annual dividend rate over the expected term by the fair value of the Company’s common stock at the grant date.

 There were no stock options granted during the three and six months ended June 30, 2021 and 2020.

Restricted Stock

The fair value of restricted stock awards is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the vesting period of the award. Restricted stock awards granted generally vest over a service period of three to four years for employee grants and one to three years for director grants.

Restricted Stock Units

The fair value of restricted stock unit (“RSU”) awards, which vest upon meeting a service condition, is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the service period of the award, which is generally three years.

There were no RSUs granted during the three and six months ended June 30, 2021 and 2020.

Performance Restricted Stock Units

The fair value of performance restricted stock unit (“PRSU”) awards, which vest upon meeting a market condition, such as exceeding a target stock price in the future, and a service condition, is determined on the date of grant (measurement date) using the Monte Carlo valuation model. The Company recognizes the fair value of the award on a straight-line basis over the service period of the award, which is generally three years.

The following inputs are used in the Monte Carlo valuation model to estimate the fair value of PRSUs:

Stock Price. The stock price represents the fair market value of the Company’s common stock on the date of the grant.

Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the term of the award.

Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the term of the award.

There were no PRSUs granted during the three and six months ended June 30, 2021 and 2020.

On April 12, 2021, Bruce Davis notified the Company of his intention to retire as the Company’s President and Chief Executive Officer and as Chairman and a member of the Board of Directors effective April 12, 2021 (the “Transition Date”). In connection with his retirement, the Company entered into a Separation Agreement and General Release with Mr. Davis (the “Separation Agreement”), dated April 12, 2021. Pursuant to the Separation Agreement, Mr. Davis agreed to release certain claims he may have against the Company and other released parties, and Mr. Davis’s stock options, restricted stock and RSUs that vest solely based on continued service, and PRSUs that were earned and remained subject to time-based vesting, immediately vested with respect to the number of shares that would have vested if Mr. Davis’s employment had continued for an additional twenty-four months from the Transition Date, and his right to exercise vested stock options will expire on the earliest of (i) twenty-eight months from the Transition Date, (ii) the latest date the particular stock option could have expired by its original terms under any circumstances, or (iii) the tenth anniversary of the original date of grant of the particular stock option.

The terms of the Separation Agreement resulted in the acceleration of vesting for 137 stock options, 30 RSUs, and 82 PRSUs and the forfeiture of 35 stock options, 15 RSUs, and 42 PRSUs. The terms of the Separation Agreement also resulted in a modification to all outstanding stock options, as the expiration date for exercise of the options were extended beyond the original terms of the options, and 21 PRSUs were modified to provide for accelerated vesting. In accordance with ASC 718, Compensation –

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Stock Compensation, the Company calculated the fair value of the modified stock options and PRSUs and calculated the fair value of the original stock options and PRSUs immediately before the modification. The Company recorded additional stock-based compensation expense of $1,926 upon modification of these awards.

The Company incurred $3,990 of stock-based compensation expense, including the impact of the modified awards, during the three and six months ended June 30, 2021, associated with the Separation Agreement.

Stock-Based Compensation

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Stock-based compensation:
Cost of revenue	$	178	$	196	$	351	$	386
Sales and marketing		1,550		604		1,990		1,083
Research, development and engineering		405		402		801		801
General and administrative		4,604		1,125		5,605		2,252
Stock-based compensation expense		6,737		2,327		8,747		4,522
Capitalized to software and patent costs		38		50		74		85
Total stock-based compensation	$	6,775	$	2,377	$	8,821	$	4,607

The following table sets forth total unrecognized compensation costs related to non-vested stock-based awards granted under the Company’s equity compensation plan:

	As of		As of
	June 30,		December 31,
	2021		2020
Total unrecognized compensation costs	$	13,411	$	14,416

Total unrecognized compensation costs will be adjusted for any future forfeitures if and when they occur.

The Company expects to recognize the total unrecognized compensation costs as of June 30, 2021, for stock option, restricted stock, RSU, and PRSU awards over weighted average periods through June 30, 2025, as follows:

	Stock		Restricted
	Options		Stock	RSUs		PRSUs
Weighted average period		—	1.37 years		—		—

As of June 30, 2021, under the Company’s stock-based compensation plan, an additional 859 shares remained available for future grants. The Company issues new shares upon exercises of stock options, grants of restricted stock awards and vesting of RSU and PRSU awards.

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Stock Option Activity

The following table reconciles the outstanding balance of stock option awards:

				Weighted		Weighted
				Average		Average		Aggregate
	Number of			Exercise		Grant Date		Intrinsic
For the three and six months ended June 30, 2021:	Options			Price		Fair Value		Value
Outstanding at December 31, 2020 and March 31, 2021		305		$	27.94	$	12.65
Granted		—			—		—
Exercised		(70	)		15.36		10.42
Forfeited or expired		(35	)		15.36		7.36
Outstanding at June 30, 2021		200		$	34.55	$	15.43	$	395
Exercisable at June 30, 2021		200		$	34.55			$	395
Unvested at June 30, 2021		—		$	—			$	—

The aggregate intrinsic value is based on the closing price of $33.50 per share of Digimarc common stock on June 30, 2021, which would have been received by the optionees had all of the options with exercise prices less than $33.50 per share been exercised on that date.

Restricted Stock Activity

The following tables reconcile the unvested balance of restricted stock awards:

				Weighted
				Average
	Number of			Grant Date
Three months ended June 30, 2021:	Shares			Fair Value
Unvested balance, March 31, 2021		501		$	33.25
Granted		44		$	30.42
Vested		(71	)	$	26.94
Forfeited		(16	)	$	39.63
Unvested balance, June 30, 2021		458		$	33.76

				Weighted
				Average
	Number of			Grant Date
Six months ended June 30, 2021:	Shares			Fair Value
Unvested balance, December 31, 2020		416		$	28.20
Granted		198		$	40.95
Vested		(121	)	$	27.42
Forfeited		(35	)	$	30.34
Unvested balance, June 30, 2021		458		$	33.76

The following table indicates the fair value of all restricted stock awards that vested:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Fair value of restricted stock awards vested	$	2,285	$	1,260	$	4,460	$	3,071

Restricted Stock Units Activity

The following table reconciles the unvested balance of RSU awards:

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				Weighted
				Average
	Number of			Grant Date
For the three and six months ended June 30, 2021:	Units			Fair Value
Unvested balance, December 31, 2020 and March 31, 2021		45		$	15.36
Granted		—		$	—
Vested		(30	)		15.36
Forfeited		(15	)	$	15.36
Unvested balance, June 30, 2021		—		$	—

The fair value of RSUs vested was $1,050 for the three and six months ended June 30, 2021.

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Performance Restricted Stock Units Activity

The following table reconciles the unvested balance of PRSU awards:

				Weighted
				Average
	Number of			Grant Date
For the three and six months ended June 30, 2021:	Units			Fair Value
Unvested balance, December 31, 2020 and March 31, 2021		124		$	11.08
Granted		—		$	—
Vested (1)		(82	)		15.54
Forfeited		(42	)		11.08
Unvested balance, June 30, 2021		—		$	—

(1) Includes the impact of the modification of 21 PRSUs which were cancelled and reissued at a grant date fair value of $28.93.

The fair value of PRSUs vested was $2,886 for the three and six months ended June 30, 2021.

6. Shareholders’ Equity

In May 2019, the Company entered into an Equity Distribution Agreement, whereby the Company may sell from time to time through Wells Fargo Securities, LLC, as its sales agent, the Company’s common stock having an aggregate offering price of up to $30,000.

There were no shares sold for the three and six months ended June 30, 2021.

For the six months ended June 30, 2020, the Company sold 28 shares at an average price of $21.92 under the Equity Distribution Agreement totaling $611 of cash proceeds, less $14 of commissions and $23 of stock issuance costs, for net cash proceeds of $574.

As of June 30, 2021, there was $6,932 available for future issuance under the Equity Distribution Agreement.

7. 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 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, RSUs and PRSUs. The dilutive effect of stock options, RSUs and PRSUs is determined using the treasury stock method.

The following table reconciles earnings (loss) per common share:

	Three			Three			Six			Six
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
	2021			2020			2021			2020
Basic Earnings (Loss) per Common Share:
Loss to common shares — basic	$	(15,422	)	$	(7,461	)	$	(23,644	)	$	(16,369	)
Weighted average common shares outstanding — basic		16,430			12,108			16,382			12,073
Basic earnings (loss) per common share	$	(0.94	)	$	(0.62	)	$	(1.44	)	$	(1.36	)
Diluted Earnings (Loss) per Common Share:
Net loss attributable to common shares — diluted	$	(15,422	)	$	(7,461	)	$	(23,644	)	$	(16,369	)
Weighted average common shares outstanding — diluted		16,430			12,108			16,382			12,073
Diluted earnings (loss) per common share	$	(0.94	)	$	(0.62	)	$	(1.44	)	$	(1.36	)

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The following table indicates the common stock equivalents related to stock options, RSUs and PRSUs that were anti-dilutive and excluded from diluted earnings per common share calculations:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Anti-dilutive shares due to:
Exercise prices higher than the average market price		100		550		100		550
Net loss		—		—		61		—

8. Trade Accounts Receivable

Trade Accounts Receivable

Trade accounts receivable are recorded at the contractual or invoiced amount.

	June 30,			December 31,
	2021			2020
Trade accounts receivable, current	$	4,615		$	3,932
Trade accounts receivable, long-term		267			—
Allowance for doubtful accounts		(25	)		(25	)
Trade accounts receivable, net	$	4,857		$	3,907
Unpaid deferred revenue included in trade    accounts receivable	$	715		$	1,711

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.

Major Customers

The following customers accounted for 10% or more of trade accounts receivable, net:

	June 30,			December 31,
	2021			2020
Central Banks		47	%		69	%
Walmart, Inc		15	%	*

* Less than 10%

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9. 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 ten years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the lease term.

	June 30,			December 31,
	2021			2020
Office furniture and fixtures	$	1,650		$	1,650
Software		5,354			5,004
Equipment		5,131			4,967
Leasehold improvements		1,658			1,658
Gross property and equipment		13,793			13,279
Less accumulated depreciation and amortization		(10,711	)		(10,007	)
Property and equipment, net	$	3,082		$	3,272

10. 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. No impairment charges were recorded for the six months ended June 30, 2021 and 2020.

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.

	Estimated Life	June 30,			December 31,
	(years)	2021			2020
Capitalized patent costs	17-20	$	9,967		$	9,708
Intangible assets acquired:
Purchased patents and intellectual property	3-10		250			250
Existing technology	5		1,560			1,560
Customer relationships	7		290			290
Gross intangible assets			12,067			11,808
Accumulated amortization			(5,461	)		(5,196	)
Intangibles, net		$	6,606		$	6,612

11. Leases

The Company accounts for leases in accordance with ASC 842, “Leases.” The Company leases its corporate offices in Beaverton, Oregon. The term of the lease runs through March 2024, with remaining rent payments as of June 30, 2021, totaling $2,305, payable in monthly installments.

All of the Company’s leases are operating leases.  The following table provides additional details of leases presented in the Consolidated Balance Sheets:

	June 30,			December 31,
	2021			2020
Right of use assets	$	1,553		$	1,793
Lease liabilities, current	$	703		$	663
Lease liabilities, long-term	$	1,412		$	1,772
Weighted-average remaining life	2.7 years			3.2 years
Weighted-average discount rate		8	%		8	%

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The carrying value of the right of use assets is included in “Other assets” and the current and long-term lease liabilities are included in “Accounts payable and other accrued liabilities” and “Lease liability and other long-term liabilities,” respectively, in the Consolidated Balance Sheets.

Operating lease expense is included in cost of revenue and operating expenses in the Consolidated Statements of Operations and in cash flows from operating activities in the Consolidated Statements of Cash Flows.  The operating leases include variable lease payments which are not material and are included in operating lease expense.  Additional details of the Company’s operating leases are presented in the following table:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Operating lease expense	$	253	$	253	$	510	$	516
Cash paid for operating leases	$	294	$	296	$	591	$	623

The table below reconciles the cash payment obligations for the first five years and total of the remaining years for the operating lease liability recorded in the Consolidated Balance Sheet as of June 30, 2021:

	Cash
	Payment
Year ending December 31:	Obligations
Remaining in 2021	$	423
2022		862
2023		867
2024		218
2025		—
Thereafter		—
Total lease payments		2,370
Imputed interest		(255	)
Total minimum lease payments	$	2,115

12. Note Payable

Promissory Note under the Paycheck Protection Program

On April 16, 2020, the Company entered into a Promissory Note with Stearns Bank, N.A. in an aggregate principal amount of $5,032 (the “Note”), pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The Note matures two years from the disbursement date and bears interest at a rate of 1.000% per annum, with the first six months of interest deferred. Principal and interest are payable monthly commencing six months after the disbursement date and may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. The Note is subject to forgiveness to the extent proceeds are used for payroll costs, including payments required to continue group health care benefits, and certain rent, utility, and mortgage interest expenses (collectively, “Qualifying Expenses”), pursuant to the terms and limitations of the PPP. The Company believes that it used all of the proceeds from the Note for Qualifying Expenses. However, no assurance is provided that the Company will obtain forgiveness of the Note in whole or in part.

On June 29, 2020, the Company was notified by Stearns Bank, N.A. that the Note was transferred to The Loan Source, Inc., (the “Lender”) who will be responsible for servicing the Note going forward, including administering loan forgiveness.

On September 15, 2020, the Company filed its application for 100% forgiveness of the Note. The application was reviewed by the Lender and submitted to the Small Business Administration (“SBA”) for approval on December 17, 2020. The Company has not received any notification from the SBA on the status of the SBA’s review other than receiving a request for additional supporting documentation, which the Company has submitted. Principal and interest payments can be deferred until the forgiveness process is completed.

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The following table provides information about the Note:

	June 30,		December 31,
	2021		2020
Note payable	$	5,032	$	5,032
Accrued interest		59		33
Total	$	5,091	$	5,065
Note payable, current	$	5,091	$	3,947
Note payable, long-term		—		1,118
Total	$	5,091	$	5,065

13. Income Taxes

The provision for income taxes for the six months ended June 30, 2021 and 2020 reflects current taxes, deferred taxes, and withholding taxes. The effective tax rate for each of the six months ended June 30, 2021 and 2020 was 0%. The valuation allowance against net deferred tax assets as of June 30, 2021, was $61,152, an increase of $5,513 from $55,639 as of December 31, 2020.

Excess tax benefits of $3,101 and $3,897 were recognized in the provision for income taxes for the three and six months ended June 30, 2021, respectively, which were offset by $3,101 and $3,897 of valuation allowance, respectively. Excess tax deficiencies of $1,003 and $748 were recognized in the provision for income taxes for the three and six months ended June 30, 2020, respectively, which were offset by $1,003 and $748, of valuation allowance, respectively.

14. Commitments and Contingencies

Certain of the Company’s contracts include an indemnification provision for claims from third parties relating to the Company’s intellectual property. Such 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. At this time, the Company does not believe that the resolution of any such matters will have a material adverse effect on its financial position, results of operations, or cash flows.

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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. 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, 2020 filed on February 26, 2021 (our “2020 Annual Report”), and other reports and filings we have 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 “Company,” “Digimarc,” “we,” “our” and “us” refer to Digimarc Corporation.

All dollar amounts are in thousands except per share amounts or unless otherwise noted. The percentages within the tables may not sum to 100% due to rounding.

Digimarc, Digimarc Barcode and Digimarc Discover are registered trademarks of Digimarc Corporation.

Overview

Digimarc Corporation is a pioneer in the automatic identification of media, including packaging, other commercial print, digital images, audio and video. The Digimarc Platform takes industry beyond the barcode, providing innovative and comprehensive automatic identification software and services to simplify search and transform information discovery. The Digimarc Platform enables applications that benefit retailers and consumer brands, national and state government agencies, media and entertainment industries, and others.

The Digimarc Platform features three core capabilities for the identification, discovery and quality management of media. Digimarc Barcode integrates the identification function, which is a novel data carrier encoded into media in ways that are generally imperceptible to people, permitting the carrier to be repeated many times over the surface of the enhanced media. Digimarc Discover represents the discovery function, which is software for computing devices and network interfaces that recognize and decode indicia of the identity of media. These include, but are not limited to, Digimarc Barcodes, Quick Response Codes, Universal Product Codes, certain other GS1 approved one-dimensional codes and relevant contextual data.  Digimarc Verify incorporates the quality management function, a suite of software tools used to inspect and verify that the identification and discovery of media are both accurate and effective. Together, these core capabilities enable organizations, application developers, and other solution providers to build new and improve existing automatic identification solutions.

The Digimarc Platform enables customers to create digital identities for media objects and provides many benefits for connected media, including:

• Security: An imperceptible and indestructible data carrier encoded in the object provides a unique identification, whether in a digital image, video or audio file, or in graphics printed, embossed or etched on paper, cardboard, plastic, metal, or other material. Among other things, this identification supports strong authentication.

• Brand Protection: A unique identifier (“ID”) enables fraud deterrence across many use cases, from preventing “barcode swapping” and counterfeiting of currency, media, and goods to detection of use or distribution of physical products and digital images and e-publications.

• Traceability: The ID can carry serial numbers for easier tracking of individual items or entire lots. This has many uses, from ensuring product legitimacy to preventing product pirating to quickly identifying products for recall based on source provenance and sales destination.

• Sustainability: The ID can contain information specific to packaging content as an aid to broader and more efficient recycling. For example, a microscopic pattern embossed in plastic packaging can identify the materials used and their composition to aid sorting and recapture. Similarly, enhanced labels for fresh foods can be used to dynamically adjust pricing and thus reduce food waste proactively.

• Engagement: Consumers can directly interact with enhanced objects by merely scanning the item with their enabled smartphones. Brands can share additional product information online including recipes, instructions for use and recycling, information about ingredients and sources, how-to videos, coupons, and more.

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• Efficiency: Connected items, reliably scanned by machines and mobile devices, can enhance supply chain efficiencies, from parts matching in manufacturing to faster and more accurate inventory scanning and faster and easier front-of-store checkout experiences.

Our inventions provide a powerful document security element, 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-publications and printed materials. Digimarc Barcode is 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 Barcode can be used to enhance all forms of media and is generally 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 content owners to give up valuable visual space on their media content, nor does it affect their media content’s overall layout or aesthetics. Digimarc Barcode is generally imperceptible in regular use and does all that visible barcodes do, but performs better. Our Digimarc Discover software delivers a range of rich media experiences to its readers on their smartphones or tablets across multiple media formats, including print, audio and video. Unique to Digimarc Discover is its seamless multi-modal use of various content identification technologies as needed, including Digimarc Barcode, when present.

Our intellectual property contains many innovations in digital watermarking, object content recognition, 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 1,000 U.S. and foreign patents granted and applications pending as of June 30, 2021. The patents in our portfolio each have a life of approximately 20 years from the patent’s effective filing date.

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

Forging a Sustainable Future

At Digimarc, the environment is an essential stakeholder in everything we do, and we are committed to harnessing our culture of innovation to mitigate the visible and increasingly damaging effects of rising greenhouse gas emissions. We support a sustainable future by improving plastic sortation at recycling facilities to keep plastic out of landfills and oceans. Our technologies play a meaningful role in reducing food waste and educating consumers on package recyclability.

The Digimarc Platform features automatic identification software and services that help reduce food waste, increase traceability, and promote a circular economy by educating consumers on recycling options and improving plastic sortation at waste facilities. Digimarc Barcode applied to plastic packaging, labels, corrugate and other materials, can significantly help to address pressing environmental issues, such as climate change and the proliferation of plastic in our environment.

• Recycling: Digimarc works with leading consumer brands to optimize packaging for the circular economy. Digimarc Barcode enables better detection and sortation of plastics, improving the economics and efficiencies of the recycling value chain. And, as part of the Association des Industries de Marque (“AIM”) HolyGrail 2.0 project focused on pioneering the use of digital watermarks, Digimarc can better enable companies to reach their recycling and sustainability goals.

• Traceability: Product traceability across the global supply chain is increasingly essential for consumer brands and food manufacturers to promote consumer safety, mitigate risk, and gain real-time insight into product locations in warehouses and distribution centers. Using Digimarc technologies for packaging supports these business needs with batch-lot and item-level traceability by applying serialized or custom identifiers and additional data to product packaging.

Together with our customers and partners around the world, we drive positive impacts across global supply chains. Our efforts prioritize people and the planet by aiming to eliminate waste and helping our customers meet their sustainability goals. As consumption trends and behaviors evolve, we are listening to our partners, their customers and other critical stakeholders, all of whom expect us all to operate with future generations in mind. We partner with global brand leaders, retailers, packaging and print innovators, and other technology solution providers who share the same mission of building a sustainable future.

COVID-19 Pandemic

The COVID-19 pandemic poses significant risks to our business. The ongoing public health actions attempting to reduce the spread of COVID-19 created and may continue to create significant disruptions to consumer demand, customer and supplier relationships, sales and support processes, and general economic conditions. Accordingly, our management continuously evaluates our business operations, communicates with and monitors the actions of our customers and partners, and reviews our near-term financial

21

performance as we manage the Company through the uncertainty related to the COVID-19 pandemic. Some of our projects with retail customers and partners have been delayed as a result of the COVID-19 pandemic. Delays in these projects have affected the timing of closing new business. To help ensure adequate liquidity during this period and in light of uncertainties posed by the COVID-19 pandemic, we received a loan on April 16, 2020 under the Paycheck Protection Program (“PPP”). On September 15, 2020, we filed our application for 100% forgiveness of the loan. Our application was reviewed by the lender and submitted to the Small Business Administration (“SBA”) for approval on December 17, 2020. We have not received any notification from the SBA on the status of the SBA’s review other than receiving a request for additional supporting documentation, which we have submitted.

Critical Accounting Policies and Estimates

Detailed information about our critical accounting policies and estimates is set forth in Part III, Item 15 of our 2020 Annual Report (“Exhibits and Financial Statement Schedules”), in “Note 1: Description of Business and Summary of Significant Accounting Policies,” which is incorporated by reference into this Quarterly Report on Form 10-Q.

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Results of Operations

The following table presents statements of operations data for the periods indicated as a percentage of total revenue. Unless stated otherwise, all references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations relate to the three and six month periods ended June 30, 2021, and all changes discussed with respect to such periods reflect changes compared to the three and six month periods ended June 30, 2020.

	Three			Three			Six			Six
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
	2021			2020			2021			2020
Percentages are percent of total revenue
Revenue:
Service		60	%		60	%		58	%		60	%
Subscription		40			40			42			40
Total revenue		100			100			100			100
Cost of revenue:
Service		24			25			24			26
Subscription		9			8			10			8
Total cost of revenue		33			33			34			34
Gross profit		67			67			66			66
Operating expenses:
Sales and marketing		100			71			86			78
Research, development and    engineering		67			65			64			68
General and administrative		146			47			98			51
Total operating expenses		313			184			248			197
Operating loss		(246	)		(116	)		(182	)		(131	)
Other income, net		0			1			0			2
Loss before income taxes		(246	)		(115	)		(182	)		(129	)
Benefit (provision) for income taxes		(0	)		(0	)		(0	)		0
Net loss		(246	%)		(115	%)		(182	%)		(129	%)

Summary

Total revenue for the three month period ended June 30, 2021, decreased 3% to $6.3 million, compared to the corresponding three month period ended June 30, 2020, primarily as a result of lower revenue from Government services and Commercial subscriptions, partially offset by higher Commercial services revenue.

Total revenue for the six month period ended June 30, 2021, increased 2% to $13.0 million, compared to the corresponding six month period ended June 30, 2020, primarily as a result of higher revenue from Commercial subscription and services, partially offset by lower revenue from Government services.

Total operating expenses for the three month period ended June 30, 2021, increased 65% to $19.7 million, compared to the corresponding three month period ended June 30, 2020, primarily as a result of $7.5 million of non-recurring costs incurred during the three month period ended June 30, 2021. These costs were associated with the Separation Agreement and General Release (“Separation Agreement”) we entered into with our former chief executive officer, Bruce Davis, on April 12, 2021 upon his retirement, and severance costs incurred for organizational changes we made in June 2021. Excluding these non-recurring costs, operating expenses increased 2% to $12.2 million, reflecting higher consulting and legal costs, partially offset by lower recurring compensation costs.

Total operating expense for the six month period ended June 30, 2021, increased 29% to $32.2 million, compared to the corresponding six month period ended June 30, 2020, primarily as a result of the $7.5 million of non-recurring costs noted above for the three month period ended June 30, 2021. Excluding these non-recurring costs, operating expenses decreased 1% to $24.7 million, reflecting lower travel and recurring compensation costs, partially offset by higher consulting, recruiting and legal costs.

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Revenue

	Three			Three									Six			Six
	Months			Months									Months			Months
	Ended			Ended			Dollar			Percent			Ended			Ended			Dollar			Percent
	June 30,			June 30,			Increase			Increase			June 30,			June 30,			Increase			Increase
	2021			2020			(Decrease)			(Decrease)			2021			2020			(Decrease)			(Decrease)
Revenue:
Service	$	3,791		$	3,892		$	(101	)		(3	)%	$	7,575		$	7,630		$	(55	)		(1	)%
Subscription		2,487			2,605			(118	)		(5	)%		5,403			5,056			347			7	%
Total	$	6,278		$	6,497		$	(219	)		(3	)%	$	12,978		$	12,686		$	292			2	%
Revenue (as % of total revenue):
Service		60	%		60	%								58	%		60	%
Subscription		40	%		40	%								42	%		40	%
Total		100	%		100	%								100	%		100	%

Service. Service revenue consists primarily of revenue earned from the performance of software development services. The majority of service contracts are structured as time and materials agreements. Revenue for services is generally recognized as the services are performed. Billing for services rendered generally occurs within one month after the services are provided. Service contracts can range from days to several years in length. Our contract with the Central Banks, which accounts for the majority of service revenue, has a contract term through December 31, 2024 with the option to extend the term for an additional five years by mutual agreement. The contract is subject to work plans that are reviewed and agreed upon quarterly. The contract provides for predetermined billing rates, which are adjusted annually to account for cost of living variables, and provides for the reimbursement of third party costs incurred to support the work plans.

The decreases in service revenue for the three and six month periods ended June 30, 2021, compared to the corresponding three and six month periods ended June 30, 2020, were primarily due to decreases in services to the Central Banks as a result of the timing of program work, partially offset by growth in service revenue from Commercial customers.

Subscription. Subscription revenue consists primarily of revenue earned from the sale of software products and, to a lesser extent, the licensing of intellectual property. The majority of subscription contracts are recurring, paid in advance and recognized over the term of the subscription, which is typically one to three years.

The decrease in subscription revenue for the three month period ended June 30, 2021, compared to the corresponding three month period ended June 30, 2020, was primarily due to lower revenue from Commercial customers.

The increase in subscription revenue for six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to entering into a contract with a new Commercial customer. Most of the minimum contract value was recognized as revenue upon delivery of the software, instead of recognized ratably over the two-year term of the contract, because we had no continuing performance obligations after delivery.

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Revenue by geography

	Three			Three									Six			Six
	Months			Months									Months			Months
	Ended			Ended			Dollar			Percent			Ended			Ended			Dollar			Percent
	June 30,			June 30,			Increase			Increase			June 30,			June 30,			Increase			Increase
	2021			2020			(Decrease)			(Decrease)			2021			2020			(Decrease)			(Decrease)
Revenue by geography:
Domestic	$	1,640		$	1,856		$	(216	)		(12	)%	$	3,362		$	3,615		$	(253	)		(7	)%
International		4,638			4,641			(3	)		(0	)%		9,616			9,071			545			6	%
Total	$	6,278		$	6,497		$	(219	)		(3	)%	$	12,978		$	12,686		$	292			2	%
Revenue (as % of total revenue):
Domestic		26	%		29	%								26	%		28	%
International		74	%		71	%								74	%		72	%
Total		100	%		100	%								100	%		100	%

The decreases in domestic revenue for the three and six month periods ended June 30, 2021, compared to the corresponding three and six month periods ended June 30, 2020, were primarily due to lower service and subscription revenue from our domestic customers.

The decrease in international revenue for the three month period ended June 30, 2021, compared to the corresponding three month period ended June 30, 2020, was primarily due to a decrease in services to the Central Banks as a result of the timing of program work, partially offset by higher service and subscription revenue from our other international customers.

The increase in international revenue for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to entering into a contract with a new international Commercial customer. Most of the minimum contract value was recognized as revenue upon delivery of the software, instead of recognized ratably over the two-year term of the contract, because we had no continuing performance obligations after delivery.

Revenue by market

	Three		Three								Six		Six
	Months		Months								Months		Months
	Ended		Ended		Dollar			Percent			Ended		Ended		Dollar			Percent
	June 30,		June 30,		Increase			Increase			June 30,		June 30,		Increase			Increase
	2021		2020		(Decrease)			(Decrease)			2021		2020		(Decrease)			(Decrease)
Government:
Service	$	3,522	$	3,713	$	(191	)		(5	)%	$	7,107	$	7,365	$	(258	)		(4	)%
Subscription		300		300		—			—	%	$	600	$	600		—			—	%
Total Government	$	3,822	$	4,013	$	(191	)		(5	)%	$	7,707	$	7,965	$	(258	)		(3	)%
Commercial:
Service	$	269	$	179	$	90			50	%	$	468	$	265	$	203			77	%
Subscription		2,187		2,305		(118	)		(5	)%	$	4,803	$	4,456		347			8	%
Total Commercial	$	2,456	$	2,484	$	(28	)		(1	)%	$	5,271	$	4,721	$	550			12	%
Total	$	6,278	$	6,497	$	(219	)		(3	)%	$	12,978	$	12,686	$	292			2	%

The decreases in Government revenue for the three and six month periods ended June 30, 2021, compared to the corresponding three and six month periods ended June 30, 2020, were due to timing of program work with the Central Banks.

The decrease in Commercial revenue for the three month period ended June 30, 2021, compared to the corresponding three month period ended June 30, 2020, was insignificant.

The increase in Commercial revenue for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to entering into a contract with a new Commercial customer. Most of the minimum contract value was recognized as revenue upon delivery of the software, instead of recognized ratably over the two-year term of the contract, because we had no continuing performance obligations after delivery.

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Cost of revenue

Service. Cost of service revenue primarily includes:

• compensation, benefits, incentive compensation in the form of stock-based compensation and related costs of our software developers, quality assurance personnel, design professionals, 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 for machinery, equipment and software directly used by customers; and

• travel costs that are billed to customers.

Subscription. Cost of subscription revenue primarily includes:

• cost of outside contractors that provide operational support for our subscription products;

• license fees paid to technology solution providers when we sell a combined solution;

• Internet service provider connectivity charges and image search data fees to support our subscription products; and

• amortization of capitalized patent costs and patent maintenance fees.

Gross profit

	Three			Three									Six			Six
	Months			Months									Months			Months
	Ended			Ended			Dollar			Percent			Ended			Ended			Dollar		Percent
	June 30,			June 30,			Increase			Increase			June 30,			June 30,			Increase		Increase
	2021			2020			(Decrease)			(Decrease)			2021			2020			(Decrease)		(Decrease)
Gross Profit:
Service	$	2,276		$	2,291		$	(15	)		(1	)%	$	4,490		$	4,345		$	145		3	%
Subscription		1,953			2,093			(140	)		(7	)%		4,078			4,030			48		1	%
Total	$	4,229		$	4,384		$	(155	)		(4	)%	$	8,568		$	8,375		$	193		2	%
Gross Profit (as % of related revenue):
Service		60	%		59	%								59	%		57	%
Subscription		79	%		80	%								75	%		80	%
Total		67	%		67	%								66	%		66	%

The change in total gross profit for the three month period ended June 30, 2021, compared to the corresponding three month period ended June 30, 2020, was primarily due to lower revenue.

The change in total gross profit for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to higher revenue partially offset by higher costs. 

The increases in service gross profit as a percentage of service revenue for the three and six month periods ended June 30, 2021, compared to the corresponding three and six month periods ended June 30, 2020, were primarily due to lower costs on Commercial service contracts.

The decrease in subscription gross profit as a percentage of subscription revenue for the three month period ended June 30, 2021, compared to the corresponding three month period ended June 30, 2020, was primarily due to lower subscription revenue.

The decrease in subscription gross profit as a percentage of subscription revenue for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to higher license fees to a technology solution provider, partially offset by higher subscription revenue.

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Operating expenses

Sales and marketing

	Three			Three								Six			Six
	Months			Months								Months			Months
	Ended			Ended			Dollar		Percent			Ended			Ended			Dollar		Percent
	June 30,			June 30,			Increase		Increase			June 30,			June 30,			Increase		Increase
	2021			2020			(Decrease)		(Decrease)			2021			2020			(Decrease)		(Decrease)
Sales and marketing	$	6,277		$	4,633		$	1,644		35	%	$	11,218		$	9,879		$	1,339		14	%
Sales and marketing    (as % of total revenue)		100	%		71	%							86	%		78	%

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, consulting and outside contractor costs 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, 2021, compared to the corresponding three month period ended June 30, 2020, was primarily due to:

• non-recurring severance costs of $1.3 million related to organizational changes we made in June 2021;

• increased consulting costs of $0.3 million.

The increase in sales and marketing expenses for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to:

• non-recurring severance costs of $1.3 million related to organizational changes we made in June 2021;

• increased consulting costs of $0.3 million;

• increased recruiting costs of $0.1 million; partially offset by

• decreased travel costs of $0.2 million due to travel restrictions related to the COVID-19 pandemic; and

• decreased marketing costs of $0.1 million.

Research, development and engineering

	Three			Three								Six			Six
	Months			Months								Months			Months
	Ended			Ended			Dollar		Percent			Ended			Ended			Dollar			Percent
	June 30,			June 30,			Increase		Increase			June 30,			June 30,			Increase			Increase
	2021			2020			(Decrease)		(Decrease)			2021			2020			(Decrease)			(Decrease)
Research, development and    engineering	$	4,213		$	4,208		$	5		0	%	$	8,344		$	8,641		$	(297	)		(3	)%
Research, development and    engineering (as % of total revenue)		67	%		65	%							64	%		68	%

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Research, development and engineering expenses consist primarily of:

• compensation, benefits, incentive compensation in the form of stock-based compensation 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 increase in research, development and engineering expenses for the three month period ended June 30, 2021, compared to the corresponding three month period ended June 30, 2020, was insignificant.

The decrease in research, development and engineering expenses for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to decreased compensation costs of $0.3 million reflecting lower headcount.

General and administrative

	Three			Three								Six			Six
	Months			Months								Months			Months
	Ended			Ended			Dollar		Percent			Ended			Ended			Dollar		Percent
	June 30,			June 30,			Increase		Increase			June 30,			June 30,			Increase		Increase
	2021			2020			(Decrease)		(Decrease)			2021			2020			(Decrease)		(Decrease)
General and administrative	$	9,175		$	3,081		$	6,094		198	%	$	12,668		$	6,448		$	6,220		96	%
General and administrative    (as % of total revenue)		146	%		47	%							98	%		51	%

We incur general and administrative costs in the functional areas of finance, legal, human resources, intellectual property, 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 and research, development and engineering.

General and administrative expenses consist primarily of:

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

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

• costs associated with being a public company;

• third party costs, including filing and governmental regulatory fees and outside legal fees and translation costs, related to the filing and maintenance of our intellectual property;

• 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.

The increase in general and administrative expenses for the three month period ended June 30, 2021, compared to the corresponding three month period ended June 30, 2020, was primarily due to:

• non-recurring costs of $6.2 million associated with the Separation Agreement we entered into with our former chief executive officer in April 2021 upon his retirement;

• increased legal costs of $0.2 million, and

• increased consulting costs of $0.2 million; partially offset by

• decreased compensation costs of $0.5 million, reflecting lower compensation for our current chief executive officer partially offset by higher headcount; and

• decreased write-off of patent costs of $0.1 million.

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The increase in general and administrative expenses for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to:

• non-recurring costs of $6.2 million associated with the Separation Agreement we entered into with our former chief executive officer in April 2021 upon his retirement;

• increased legal costs of $0.3 million, and

• increased consulting costs of $0.2 million; partially offset by

• decreased compensation costs of $0.4 million, reflecting lower compensation for our current chief executive officer partially offset by higher headcount; and

• decreased write-off of patent costs of $0.1 million.

Stock-based compensation

	Three		Three								Six		Six
	Months		Months								Months		Months
	Ended		Ended		Dollar			Percent			Ended		Ended		Dollar			Percent
	June 30,		June 30,		Increase			Increase			June 30,		June 30,		Increase			Increase
	2021		2020		(Decrease)			(Decrease)			2021		2020		(Decrease)			(Decrease)
Cost of revenue	$	178	$	196	$	(18	)		(9	)%	$	351	$	386	$	(35	)		(9	)%
Sales and marketing		1,550		604		946			157	%		1,990		1,083		907			84	%
Research, development and engineering		405		402		3			1	%		801		801		—			—	%
General and administrative		4,604		1,125		3,479			309	%		5,605		2,252		3,353			149	%
Total	$	6,737	$	2,327	$	4,410			190	%	$	8,747	$	4,522	$	4,225			93	%

The increase in stock-based compensation expense for the three and six month periods ended June 30, 2021, compared to the corresponding three and six month periods ended June 30, 2020, was primarily due to the acceleration of stock awards associated with the Separation Agreement we entered into with our former chief executive officer in April 2021 upon his retirement, and with the organizational changes we made in June 2021, partially offset by the lower value of stock awards granted to our current chief executive officer.

We anticipate incurring an additional $13,411 in stock-based compensation expense through June 30, 2025, for awards outstanding as of June 30, 2021.

Other income, net

	Three			Three									Six			Six
	Months			Months									Months			Months
	Ended			Ended			Dollar			Percent			Ended			Ended			Dollar			Percent
	June 30,			June 30,			Increase			Increase			June 30,			June 30,			Increase			Increase
	2021			2020			(Decrease)			(Decrease)			2021			2020			(Decrease)			(Decrease)
Other income, net	$	18		$	79		$	(61	)		(77	)%	$	28		$	221		$	(193	)		(87	)%
Other income, net (as % of    total revenue)		0	%		1	%								0	%		2	%

The decreases in other income, net for the three and six month periods ended June 30, 2021, compared to the corresponding three and six month periods ended June 30, 2020, were primarily due to lower interest rates earned on investments, partially offset by higher average investment balances.

Income Taxes

The provision for income taxes reflects current taxes, deferred taxes, and withholding taxes. The effective tax rate for each of the six month periods ended June 30, 2021 and 2020 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, 2021, was $61,152, an increase of $5,513 from $55,639 as of December 31, 2020.

29

We continually assess the applicability of a valuation allowance against our deferred tax assets. Based upon the positive and negative evidence available as of June 30, 2021, and largely due to the cumulative loss incurred by us over the last several 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. We will not record tax benefits on any future losses until it is determined that those tax benefits will be realized. All future reversals of the valuation allowance would result in a tax benefit in the period recognized.

Liquidity and Capital Resources

	June 30,		December 31,
	2021		2020
Working capital	$	55,167	$	74,056
Current ratio (1)	5.5:1		8.6:1
Cash, cash equivalents and short-term    marketable securities	$	60,950	$	77,728
Long-term marketable securities	$	157	$	—
Total cash, cash equivalents and    marketable securities	$	61,107	$	77,728

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

The $16,621 decrease in cash, cash equivalents and marketable securities at June 30, 2021, from December 31, 2020, resulted primarily from:

• cash used in operations;

• purchases of common stock related to tax withholding in connection with the vesting of restricted stock, restricted stock units, performance restricted stock units and exercise of stock options; and

• purchases of property and equipment and capitalized patent costs.

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 commercial paper, pre-refunded municipals, and corporate notes. Our investment policy requires our portfolio to be invested to ensure that the greater of $3,000 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 $1,000, 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 $15,000, 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 six month periods ended June 30, 2021 and 2020.

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Operating Cash Flow

The components of cash flows used in operating activities were:

	Six			Six
	Months			Months
	Ended			Ended			Dollar			Percent
	June 30,			June 30,			Increase			Increase
	2021			2020			(Decrease)			(Decrease)
Net loss	$	(23,644	)	$	(16,369	)	$	7,275			44	%
Non-cash items		9,551			6,027			(3,524	)		(58	)%
Changes in operating assets and liabilities		1,607			260			(1,347	)		(518	)%
Net cash used in operating activities	$	(12,486	)	$	(10,082	)	$	2,404			24	%

Cash flows used in operating activities for the six month period ended June 30, 2021, increased by $2,404, compared to the corresponding six month period ended June 30, 2020, primarily as a result of a higher net loss partially offset by an increase in non-cash items and changes in operating assets and liabilities. The increase in non-cash items was primarily due to higher stock-based compensation related to the acceleration of stock awards associated with the Separation Agreement we entered into with our former chief executive officer in April 2021, and with the organizational changes we made in June 2021, partially offset by higher amortization of net discounts on marketable securities. The changes in operating assets and liabilities was largely due to timing of receipts from customers and payments to vendors.

Cash flows provided by investing activities for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, increased by $11,740, from $6,182 to $17,922, primarily as a result of higher net maturities of marketable securities.

Cash flows from financing activities for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, decreased by $8,395, from $4,621 provided to $3,774 used, primarily as a result of proceeds from the note payable issued under the Paycheck Protection Program in 2020, higher purchases of common stock in satisfaction of required withholding tax lability, and no issuances of common stock.

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 continuously review our liquidity and anticipated capital requirements in light of the uncertainty created by the COVID-19 pandemic.

TCM Strategic Partners Transaction

On September 29, 2020, we entered into a Subscription Agreement with TCM Strategic Partners L.P. in a private placement to issue and sell 2,542 shares of our common stock and 17 shares of our newly designated Series B Convertible Preferred Stock (which subsequently converted into 1,198 shares of our common stock) for an aggregate purchase price of $53,500. We paid a total of $272 in stock issuance costs.

Paycheck Protection Program Loan

On April 16, 2020, we entered into a Promissory Note with an aggregate principal amount of $5,032 (the “Note”) with Steans Bank, N.A. pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The proceeds gave us more time to observe financial market trends and assess the effects of the COVID-19 pandemic on the Company to determine the best course of action concerning financing the business. The Note matures two years from the disbursement date and bears interest at a rate of 1.000% per annum, with the first six months of interest deferred. Principal and interest are payable monthly commencing six months after the disbursement date and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Subject to the terms and limitations of the PPP, the Note may be forgiven in whole or in part.

On June 29, 2020, we were notified by Stearns Bank, N.A. that the Note was transferred to The Loan Source Inc. (“the Lender”), who will be responsible for servicing the Note going forward, including administering loan forgiveness. We believe that we have used the entire amount of the Note to fund expenses eligible for forgiveness under the PPP, and on September 15, 2020, we filed our application for 100% forgiveness of the Note. Our application was reviewed by the Lender and submitted to the Small Business Administration (“SBA”) for approval on December 17, 2020. We have not received any notification from the SBA on the status of the SBA’s review other than receiving a request for additional supporting documentation, which we have submitted. Principal and interest payments can be deferred until the forgiveness process is completed as no payments would be required if the Note is forgiven.

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Equity Distribution Agreement

On May 16, 2019, we entered into an Equity Distribution Agreement, whereby we may sell from time to time through Wells Fargo Securities, LLC, as our sales agent, our common stock having an aggregate offering price of up to $30,000. Wells Fargo Securities, LLC will receive from us a commission equal to 2.50% of the gross sales price per share of common stock for shares having an aggregate offering price of up to $10,000, and a commission of 2.25% of the gross sales price per share of common stock thereafter, for shares sold under the Equity Distribution Agreement. As of June 30, 2021, we had sold 498 shares at an average price of $46.36 under this Equity Distribution Agreement, totaling $23,067 of cash proceeds, less $544 of commissions and $645 of stock issuance costs. As of June 30, 2021, there is $6,932 available for future issuance under the Equity Distribution Agreement.

Shelf Registration

On June 5, 2020, we filed a new shelf registration statement on Form S-3 that included $49,265 of unsold securities from our prior shelf registration statement filed on May 26, 2017 that expired in June 2020. Under the new shelf registration statement, we may sell securities in one or more offerings up to $100,000. As of June 30, 2021, there is $97,892 available under the shelf registration. The new shelf registration statement will expire in July 2023.

We may sell shares under the shelf registration and/or 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. The COVID-19 pandemic has created substantial uncertainty and volatility in the stock market, particularly in the small cap sector in which our stock is traded, and has negatively impacted our share price. These factors may inhibit our near-term ability to obtain financing.

Off-Balance Sheet Arrangements

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 is material to investors.

We are party to an operating lease for our facility in Beaverton, Oregon. The term of the lease runs through March 2024, with remaining rent payments as of June 30, 2021, totaling $2,305, payable in monthly installments.

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, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933. Words such as “may,” “might,” “plan,” “should,” “could,” “expect,” “anticipate,” “intend,” “believe,” “project,” “forecast,” “estimate,” “continue,” and 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. We believe that the following factors, among others (including those described in Item 1A. “Risk Factors” of our 2020 Annual Report), 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. Forward-looking statements include but are not limited to statements relating to:

• our beliefs regarding the possible effects of the COVID-19 pandemic on general economic conditions, public health, and consumer demand, and the Company’s results of operations, liquidity, capital resources, and general performance in the future;

• the possible impact of COVID-19 on our ability to obtain financing through our Equity Distribution Agreement and the availability of any alternative sources of financing;

• the timing and potential for forgiveness of the Note under the terms of the PPP and the possible impact of any audit or review related to the Note;

• the potential impact of COVID-19 on projects with our Commercial customers and partners;

• the concentration of most of our revenue among few customers;

• and the trends and sources of future revenue;

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• anticipated successful advocacy of our technology by our partners;

• our belief regarding the global deployment of our products;

• our beliefs regarding potential outcomes of participating in the AIM HolyGrail 2.0 initiative;

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

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

• our assumptions and expectations related to stock awards;

• our belief that we have one of the world’s most extensive patent portfolios in digital watermarking and related fields;

• anticipated effect of our adoption of accounting pronouncements;

• our beliefs regarding our critical accounting policies;

• our expectations regarding the impact of accounting pronouncements issued but not yet adopted;

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

• our estimates, judgments and assumptions related to impairment testing;

• variability of contracted arrangements in response to changes in circumstances underlying the original contractual arrangements;

• business opportunities that could require that we seek additional financing and our ability to do so;

• the size and growth of our markets and our assumptions and beliefs related to those markets;

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

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

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

• the effect of computerized trading on our stock price;

• capital market conditions, our expectations regarding credit risk exposure, 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 and the possibility that our deposits of cash and cash equivalents with major banks and financial institutions may exceed insured limits;

• the strength of our competitive position and our ability to innovate and enhance our competitive differentiation;

• our beliefs related to our existing facilities;

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

• our beliefs related to our relationship with our employees and the effect of increasing diversity within our workforce;

• our beliefs regarding cybersecurity incidents;

• our beliefs related to certain provisions in our bylaws and articles of incorporation; and

• our beliefs related to legal proceedings and claims arising in the ordinary course of business.

We believe that the risk factors specified above and the risk factors contained in Part I, Item 1A. “Risk Factors” of our 2020 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.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation (pursuant to Rule 13a-15(b) of 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 our 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 by us in reports that we file or submit 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 our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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

Changes in Controls

There were no changes 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, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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. At this time, we do not believe that the resolution of any such matters will have a material adverse effect on our financial position, results of operations or cash flows.

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: “Risk Factors” of our 2020 Annual Report. The risks and uncertainties described in our 2020 Annual Report are those risks of which we are aware and that we consider to be material to our business. If any of those risks and uncertainties develop 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, 2021, there have been no material changes to the risk factors previously disclosed in our 2020 Annual Report.

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

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchases

We repurchase shares of common stock in satisfaction of required withholding tax liability 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, 2021:

							(d)
					(c)		Approximate
					Total number		dollar value
					of shares		of shares that
	(a)		(b)		purchased as		may yet be
	Total number		Average price		part of publicly		purchased
	of shares		paid per		announced plans		under the plans
Period	purchased (1)		share (1)		or programs		or programs
Month 1
April 1, 2021 to April 30, 2021		53,356	$	35.00		—	$	—
Month 2
May 1, 2021 to May 31, 2021		18,635	$	30.50		—	$	—
Month 3
June 1, 2021 to June 30, 2021		13,799	$	33.89		—	$	—
Total		85,790	$	33.85		—	$	—

(1) Stock option shares and fully vested shares of common stock withheld (purchased) by us in satisfaction of required withholding tax liability upon stock option exercise, and vesting of restricted stock, including restricted stock units and performance restricted stock units, respectively.

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Item 6. Exhibits.

Exhibit Number	Exhibit Description
10.1	Separation Agreement and General Release, effective as of April 12, 2021, between Digimarc Corporation and Bruce Davis (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on April 29, 2021 (File No. 001-34108))
10.2	Employment Agreement, effective as of April 12, 2021, between Digimarc Corporation and Riley McCormack (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on April 29, 2021 (File No. 001-34108))
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	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

* Certain identified portions of this exhibit have been omitted in accordance with Item 601(b)(10)(iv) of Regulation S-K.

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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: August 5, 2021	DIGIMARC CORPORATION
	By:	/s/ CHARLES BECK
		CHARLES BECK
		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial and Accounting Officer)

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EX-10.1

Exhibit 10.1

SEPARATION AGREEMENT AND GENERAL RELEASE

ThisSEPARATIONAGREEMENTANDGENERALRELEASE(this

“Agreement”) is entered into between Bruce Davis (the “Executive”) and Digimarc Corporation (“Digimarc,” or the “Company”), and is effective as of April 12, 2021. The Company and Executive shall each be referred to in this Agreement as a “Party,” and collectively as the “Parties.”

WHEREAS, Executive has been employed by the Company as Chief Executive Officer pursuant to that certain Employment Agreement effective as of August 10, 2020 (the “Employment Agreement”);

WHEREAS, Executive has communicated to the Board of Directors of the Company (the “Board”) his intention to resign his employment and the Board has determined to accept such resignation;

WHEREAS, Executive holds 171,668 unvested options to purchase shares of the Company’s common stock subject to the terms of the Company’s 2018 Incentive Plan (the “Options”), 45,000 unvested restricted share units subject to the terms of the Company’s 2018 Incentive Plan (the “RSUs”), and 123,669 unvested performance-based restricted stock units subject to the terms of the Company’s 2018 Incentive Plan (the “PRSUs”);

WHEREAS, the Company wishes to express its appreciation for Executive’s service and provide certain separation benefits in exchange for Executive’s promises and covenants set forth herein; and

WHEREAS, the Executive and the Company wish to resolve all matters related to Executive’s employment with the Company and the cessation thereof, on the terms and conditions expressed in this Agreement.

NOW THEREFORE, in consideration of the mutual promises contained herein, the Parties, intending to be legally bound, agree as follows:

1.Resignation; Consulting Services. Executive’s resignation of his employment with Digimarc shall be effective on April 12, 2021 (the “Separation Date”). Effective on the Separation Date, Executive shall be deemed to have resigned from all positions, roles, titles or offices held by Executive, including, without limitation, Executive’s position as a Director and Chairman of the Board, and Executive shall cooperate with any reasonable requests from the Company to effectuate or document the same. In consideration of payments and benefits provided for in this Agreement, from the time commencing upon SeparationDateandconcludingonAugust10,2023,Executiveagreesthatheshallprovide advisory and consulting services as the Company may request from time to time, without additional compensation, it being understood that such services shall generally not exceed ten (10) hours per month and that the consideration provided under this Agreement is adequate compensation for all such services (the “Consulting Services”). Executive may beprovidedwithconfidentialand/orproprietaryinformationoftheCompanyinthecourse

of providing the Consulting Services and agrees that, notwithstanding the termination of hisemployment,heshallbeboundtotreatanyconfidentialand/orproprietaryinformation of the Company that he may learn in the course of providing the Consulting Services as strictlyconfidentialinaccordancewiththetermssetforthinSection9oftheEmployment Agreement. In connection with the Consulting Services, Executive’s sole point of contact at the Company will be its Chief Executive Officer (or their designee). Subject to the exceptions set forth in Section 14, Executive will not discuss substantive business matters of Digimarc with anyone other than the Chief Executive Officer (or their designee) unless expresslyrequestedbytheChiefExecutiveOfficer(ortheirdesignee);provided,however, that the Parties recognize that Executive’s son is employed by the Company and it shall not be a breach of this obligation if Executive discusses his son’s career with his son or others. For the avoidance of doubt, the Company and Executive agree that Executiveshall not be required to perform the Consulting Services in a manner which would result in Executive not incurring a “separation from service” within the meaning of Section 409A of the Internal Revenue Code on the SeparationDate.

2.Unconditional Obligations. The Company and Executive acknowledge that, regardlessofwhetherheacceptsthisAgreement,Executiveshallbepaidhissalarythrough the Separation Date and he shall be entitled to reimbursement of any business expenses through the Separation Date, if any, that shall be submitted and paid in accordance with Digimarc business expense reimbursement policies. Executive acknowledges that he is not entitled to FTO payout under Digimarc’s applicable policies. Executive further acknowledges that he shall receive notice under separate cover concerning his right to continue his insurance coverage pursuant to COBRA and that he is solely responsible for electing or declining such coverage and paying the applicable premiums to secure such coverage.

3.Consideration to Executive. Provided that Executive accepts and executes this Agreement, complies with its terms, and executes and does not revoke the Supplemental ReleaseattachedheretoasExhibitA(the“SupplementalRelease”)withinthetimeperiods specified therein, the Company will provide Executive with the following payments and benefits:

a) a series of severance payments in the total gross amount of One Million Eight- Hundred Thirty-One Thousand Six-Hundred Sixty-Seven Dollars ($1,831,667.00), less required withholdings and deductions, payable in equal installmentsoverthecourseoftheperiodbeginningontheSeparationDateand concluding on August 10, 2023, on the Company’s regular payroll dates following the Separation Date; provided, however, that the first such payment shall be made on the first administratively practicable payroll date following the Effective Date of the Supplemental Release and shall include all amounts payableduringtheperiodaftertheSeparationDateandthroughthedateofsuch firstpayment;

b) provided that Executive timely and properly elects continuation coverage (for himself and his spouse) under the Company’s group health plan(s) pursuant to COBRA,theCompanyshallreimburseExecutiveforhispaymentofpremiums

2

 

for such coverage for a period of twenty-four (24) months followingthe SeparationDateoruntilExecutiveisnolongerentitledtoCOBRAcontinuation coverage under Digimarc’s group health plan(s), whichever period is shorter; provided,however,thatExecutiveacknowledgesandagreesthattheelectionof COBRA continuation coverage and the payment of any premiums due with respect to such COBRA continuation coverage shall remain Executive’s sole responsibility,andtheCompanyshallassumenoobligationforpaymentofany such premiums relating to such COBRA continuation coverage, unless otherwise required under applicablelaw;

c) to the extent that Executive has secured COBRA coverage following the Separation Date but becomes ineligible to participate in COBRA continuation coverage prior to the second anniversary of the Separation Date, the Company shallmakeaseriesofmonthlypaymentstoExecutivefromthedateofcessation of such coverage through the second anniversary of the Separation Date, each of which shall be in the gross amount of the last monthly COBRA premium reimbursed by the Company, less applicable taxes and withholdings, without any requirement that Executive secure other insurancecoverage;

d) provided that Executive, no later than January 31 immediately following the end of the calendar year in which Executive pays the applicable premium, requests reimbursement and provides Digimarc with evidence reasonably satisfactory to Digimarc of the amount of the premium and the fact of his paymentofthesame,theCompanyshallreimburseExecutiveforpremiumsfor coverageunderhisexistingtermlifeinsurancepolicy(withadeathbenefitof

$3,000,000)or,ifsuchcoverageisunavailable,forothercoverageobtainedby Executive with equivalent premiums, through August 10, 2023, it being understood that any tax withholding obligations that may arise out of such reimbursementshallbedeductedfromExecutive’sseverancepaymentspayable under this Agreement;and

e) notwithstandinghisresignationofemployment,136,668oftheOptions,30,000 of the RSUs, and 82,446 of the PRSUs shall vest and become exercisable on the Effective Date of the Supplemental Release; for the avoidance of doubt, all other unvested Options, unvested RSUs, unvested PRSUs and any other unvested awards shall be forfeited in connection with Executive’s resignation; fortheavoidanceofdoubt,Executive’svestedOptions,vestedRSUsandvested PRSUs are unaffected by this Agreement, except as set forth in Section 3(f) below;and

f) Executive’s right to exercise vested stock options will expire on the earliestof

(i)August 10, 2023, (ii) the latest date the particular option could haveexpired by its original terms under any circumstances, and (iii) the tenth anniversaryof the original date of grant of the particularoption.

Executive acknowledges that all payments to him pursuant to this Agreement shall be subject to all applicable taxes and withholdings and reported on a Form W-2. With

3

 

respect to required tax withholding for RSUs, PRSUs and options, the Company may withhold appropriate amounts from Executive’s severance payments under this Agreement, require Executive to pay to the Company such amounts, or withhold a number of shares with a value equal to the tax withholding amount, which value will (a) for purposes of RSUs and PRSUs be based on the closing price of the Company’s shares on the Effective Date of the Supplemental Release, and (b) for purposes of options, be based on the Fair Market Value (as defined in the Company’s 2018 Incentive Plan) of a share on the exercise date. For the avoidance of doubt, and without limiting any other remedy that may be available to the Company, Executive acknowledges that if he breaches any of his obligations set forth in Sections 1, 9, 10, 11, 12 or 13 of this Agreement, the Company’s obligation to provide the payments and benefits set forth above shall cease immediately and Executive shall not be entitled to receive any payments or benefits not already paid to him.

4.Exercise of Options. Executive agrees that his exercise of any vested options in the Company’s shares hereafter shall be effected on a net share settlement basis, such that the number of shares issued to Executive in connection with his exercise of the particular option will be reduced by the Company’s retention of a portion of such shares and Executive will receive a net number of shares that is equal to (x) the number of shares as to which the particular option is being exercised minus (y) the quotient (rounded down to the nearest whole number) of the aggregate exercise price of the shares being exercised divided by the Fair Market Value (as defined in the Company’s 2018 Incentive Plan) of one share on the exercise date. Further, the number of shares covered by clause (y) willbe retained by the Company and not delivered to Executive, no fractional shares will be created as a result of such exercise, and Executive must contemporaneously pay for any portion of the aggregate exercise price that is not covered by the shares retained by the Company under clause (y) and all applicable withholding taxes. For the avoidance of doubt,anyexerciseofoptionsshallremainsubjecttotheothertermsandconditionsofthe governing plan document, including those provisions addressing tax withholding obligations.

5.AffirmationbyEmployee.ExecutiveaffirmsthatasofthedateofthisAgreement, he has been paid and/or has received all leave (paid or unpaid); compensation, wages, bonuses, and/or commissions, including for all hours of work, including any and all overtimehoursworked;and/orbenefitstowhichhemaybeentitled,andthatnootherleave (paid or unpaid), compensation, wages, bonuses, commissions and/or benefits are due to Executive, except as provided in this Agreement. Executive further affirms that he hasno known workplace injuries or occupational diseases and has been provided and/or has not beendeniedanyleavetowhichExecutivewasentitledundertheFamilyandMedicalLeave Act or related state or local laws. Executive further affirms that he has not been retaliated against for reporting any allegations of wrongdoing by the Company or its officers, including any allegations of corporate fraud. Executive further affirms that he has not raised any claim the factual foundation for which involvesdiscrimination.

6.No Initiated Claims. Executive represents that he has not filed any claims or charges against Digimarc with any court or with the Equal Employment Opportunity Commission,theNationalLaborRelationsBoard,theOccupationalSafetyandHealth

4

 

Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). Executive further representshehasnotassignedtoanythirdpartytherighttobringaclaimorchargeagainst DigimarcwithanyGovernmentalAgenciesorcourt.Executivewaivesanyrighttorecover damages from any claims or litigation asserted by any third party as consideration for the Separation Pay and other benefits provided in this Agreement. This Agreement does not prohibit Executive from filing for unemployment benefits nor does it interfere with Executive’s rights under Sections 7 and 8 of the National Labor Relations Act. Nothing in this Agreement shall be construed to prohibit Executive from filing a charge with or participating in any investigation or proceeding conducted by any Government Agencies, including providing documents or other information without notice to Digimarc. This Agreement does not limit Executive’s right to receive an award for information provided to any GovernmentAgencies.

7.Release of Claims. Executive waives any legal rights and releases and forever discharges Digimarc, and all affiliated and/or related entities of Digimarc, including, but not limited to, each of Digimarc’s shareholders, directors, officers, agents, trustees, employees, attorneys, successors, and assigns (“Digimarc Releasees”), from any and all liability, demands, claims, suits, actions, charges, damages, judgments, levies or executions, damages, whether known or unknown, liquidated, fixed, contingent, direct or indirect,whichhavebeen,couldhavebeenorcouldberaisedorbroughtbyExecutivethat related to any matter whatsoever at any time before, and including, the execution of this Agreement (“Claims”). This release includes, but is not limited to, any and all Claims arising out of or related to Executive’s employment with, or separation of employment from, Digimarc; all contractual rights and obligations, including, without limitation, any Claims under the Employment Agreement; all Claims arising under any state or federal law,including,withoutlimitation,anyClaimspertainingtodiscriminationinemployment, wageandhour,ORSChapter659and659A,TitleVIIoftheCivilRightsActof1964,the Americans with Disabilities Act of 1990, the Post Civil War Civil Rights Acts (42 USC Sections 1981-1988), the Rehabilitation Act of 1973, the Equal Pay Act of 1963, the Fair Labor Standards Act, ORS Chapters 652 and 653, Oregon Family Medical Leave Act, the federal Family  Medical  Leave  Act,  the  National  Labor  Relations  Act,  the  EmployeeRetirementIncomeSecurityAct,allasamended,andanyregulationsundersuch authorities; and any Claim arising under any tort or other common law theories, including Claims related to Digimarc’s negligence. Notwithstanding anything in this Agreement to the contrary, Executive does not waive any rights Executive may have (i) underCOBRA;

(i)to Executive’s own vested accrued employee benefits under the Company’s health, welfare,orretirementbenefitplansasofthelastdateofemployment;(iii)tobenefitsand/or the right to seek benefits under applicable workers’ compensation and/or unemployment compensation statutes; (iv) to pursue claims which by law cannot be waived by signing this Agreement and/or which may arise after the execution of this Agreement; and/or (v) to enforce this Agreement or to enforce his rights related to his stock, options, RSUs, or PRSUs consistent with this Agreement. In signing this Agreement, Executive acknowledges and intends that it shall be effective as a bar to each and every one of the Claims hereinabove mentioned or implied. Executive expressly consents that this Agreementshallbegivenfullforceandeffectaccordingtoeachandallofitsexpressterms andprovisions,includingthoserelatingtounknownandunsuspectedclaims

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(notwithstanding any state or local statute that expressly limits the effectiveness of an agreement of unknown, unsuspected and unanticipated claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied. Executive acknowledges that he may hereafter discover claims or facts in addition to or different than those which henowknowsorbelievestoexistwithrespecttothesubjectmatterofthereleasesetforth above and which, if known or suspected at the time of entering into this Agreement, may have materially affected this Agreement and his decision to enter into it. Executive acknowledges and agrees that this waiver is an essential and material term of this AgreementandthatwithoutsuchwaivertheCompanywouldnothaveagreedtotheterms of thisAgreement.

8.No Admissions; Continuation of D&O Coverage. This Agreement shall not be construed as an admission by Digimarc or any Digimarc Releasees that they acted wrongfully with respect to Executive or as an admission by Executive of any misconduct or impropriety. It simply reflects the Parties’ desire to end their employment relationship in a business-like fashion. The Company represents and warrants that the Board is not aware of any facts or circumstances that would give rise to any claims against Executive. Digimarc agrees to maintain Directors and Officers insurance for Executive, in substantially the same form provided for current directors and officers, for any and all claims that have arisen or may arise out of related in any way to Executive’semployment, termination of employment (including but not limited to this Separation Agreement and the Supplemental Release) or service as an officer or director ofDigimarc.

9.Return of Property. Executive agrees that, within three (3) business days of a written request from the Company’s Chief Executive Officer, he shall return all of the Company’s property in his possession, including, without limitation, electronically-stored information or data, reports, customer lists, files, memoranda, records, credit cards, keys, passwords, computers, software, telecommunication equipment, and other physical or personal property that Executive received, prepared, or helped prepare in connection with Executive’s employment. Executive agrees that, in the event that Executive subsequently discovers any Company property in Executive’s possession, Executive will promptly return such property to the Company (or its designee). Notwithstanding the foregoing, Executive shall be permitted to retain the computer monitors and computer docking equipment in his possession together with his cellular phone and its phone number (after complying with any reasonable procedures directed by the Company to remove company data), with any tax withholding obligation arising out of his retention of such property to bewithheldfromtheseverancepaymentspayabletohimunderthisAgreement;provided, however,fortheavoidanceofdoubt,thatExecutiveshallreturnhisCompanylaptoptothe Company within three (3) business days of a written request from the Company’s Chief Executive Officer, while preserving all Company informationtherein.

10.Cooperation. Executive agrees to make himself reasonably available to, and to cooperatewiththeCompanyin,anyinternalinvestigationoradministrative,regulatory,or judicialinquiry,investigation,proceedingorarbitration.Executiveunderstandsandagrees that his reasonable cooperation includes, but is not limited to, making himself available to the Company upon reasonable notice for interviews and factual investigations; appearing attheCompany’srequesttogivetestimonywithoutrequiringserviceofasubpoenaor

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other legal process; volunteering to the Company pertinent information; and turning over allrelevantdocumentswhichareormaycomeintohispossession.Theterm“cooperation” does not mean that Executive must provide information that is favorable to the Company; it means only that Executive will provide truthful information within his knowledge and possessionuponrequestoftheCompany.Executiveunderstandsthat,iftheCompanyasks for his cooperation in accordance with this provision, or he is required to participate in an administrative or legal proceeding or arbitration related to matters within the scope of his employment at the Company, the Company will reimburse him for reasonable travel expenses provided that Executive submits to the Company appropriate documentation of such expenses within thirty (30) calendar days after such expenses are incurred (provided that such proceeding was not initiated by Executive and does not otherwise concern any claims by Executive against the Company or any DigimarcReleasees).

11.Reaffirmation of Confidentiality Obligations and Restrictive Covenants. Executive reaffirms his obligations under the Section 8 of the Employment Agreement, including his obligations of confidentiality and non-competition, represents and warrants that he has not breached the same, and understands that such obligations continue after terminationofemploymentandexecutionofthisAgreement.ThePartiesincorporatesuch obligations into this Agreement as if fully set forth herein and acknowledge that Executive’s breach of those obligations shall constitute a breach of thisAgreement.

12.Intellectual Property. Executive reaffirms his obligations under that certain Proprietary Information Agreement between Executive and the Company, and represents andwarrantsthathehasnotbreachedthesame.ConsistentwithExecutive’scommitments thereunder, Executive agrees to cooperate with the Company to execute documents or otherwise provide any reasonable assistance requested by the Company to perfect his assignment of any intellectual property rights in favor of theCompany.

13.Non-Disparagement. Subject to the exceptions set forth in Section 14 of this Agreement, Executive agrees that he will not make any statement to any third party thatis intended to or is reasonably likely to disparage, slander or otherwise damage the business reputation of the Company or any of the Digimarc Releasees. The Company agrees that it shall instruct its directors and officers not to make any statements concerning Executive that are intended to or are reasonably likely to disparage, slander or otherwise damage the business reputation of the Executive, other than statements to any Government Agencies. Nothing in this section shall prevent any person from testifying truthfully in response to a subpoena, in response to a request from a government agency, or as otherwise requiredby law.

14.Exceptions. Executive acknowledges and agrees that nothing in this Agreementor in any agreement between him and the Company prohibits or limits him (or his attorney) frominitiatingcommunicationsdirectlywith,respondingtoanyinquiryfrom,volunteering information to, or providing testimony before the Securities and Exchange Commission (SEC), the Department of Justice, any regulatory or self-regulatory organization, or any other governmental, law enforcement, or regulatory authority, regarding this Agreement and its underlying facts and circumstances, or any reporting of, investigation into, or proceedingregardingsuspectedviolationsoflaw,andthatheisnotrequiredtoadviseor

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seekpermissionfromtheCompanybeforeengaginginanysuchactivity.Executivefurther acknowledges that, in connection with any such activity, he must inform such authority of the confidential nature of any confidential information that he provides, and that he is not permitted to disclose any information that is protected by the attorney-client privilege or anyotherprivilegebelongingtotheCompany,astheCompanydoesnotwaiveandintends to preserve such privileges. Executive is hereby notified that, pursuant to federal law (the DefendTradeSecretsAct),anindividual,shallnotbeheldcriminallyorcivillyliableunder any federal or state trade secret law for the disclosure of a trade secret that is (i) made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney solely for the purpose of reporting or investigating a suspected violation of law;or(ii)madeinacomplaintorotherdocumentfiledinalawsuitorotherproceedingif suchfilingismadeunderseal.Further,nothinginthisAgreementshallrestrictExecutive’s communications with his immediate family members, tax and financial advisors, and/or attorneys.

15.Voluntary Agreement. Executive acknowledges that Executive is signing voluntarilyafterhavingreadallthecontentsofthisAgreementandhashadtheopportunity to consult with and be represented by Executive’s attorney. Executive further acknowledges that Executive understands the terms and conditions of thisAgreement.

16.Governing Law. This Agreement is governed in all respects by the internal, substantive laws of the State of Oregon, without regard to choice of lawprinciples.

17.Arbitration/Waiver of Jury Trial. Digimarc and Executive agree that any disputesarisingoutoforrelatingtothisAgreementshallberesolvedsolelyandexclusively by final, binding and confidential arbitration in Washington County, Oregon, before a singlearbitratorpursuanttotherulesoftheAmericanArbitrationAssociationandthatsuch claims shall not be brought in court. Notwithstanding the foregoing, the following claims shall not be subject to this arbitration agreement: claims for workers’ compensation benefits, claims for unemployment insurance benefits, claims by the Company for temporary injunctive relief, and any claims that are not arbitrable pursuant to any statute, rule or regulation forbidding pre-dispute arbitration agreements with respect tosuch claims. The costs of arbitration shall be borne equally by each party to the dispute and each party shall be responsible for their own legal and professional fees and expenses incurred during such dispute; provided, however, that if the Company ceases or withholds payments under this Agreement claiming a breach of Executive’s non-disparagement obligations under Section 13 of this Agreement and, after Executive initiates a claim for such payments, the arbitrator determines, in a reasoned award, that Executive did not breachsuchobligationsandisotherwiseentitledtosuchpayments,thenthearbitratorshall award Executive his reasonable attorneys’ fees and costs incurred in recovering such payments. To the extent applicable, each party hereby consents to the jurisdiction of the statecourtsof,andthefederalcourtsencompassing,WashingtonCounty,Oregon,andeach partywaivestherighttoatrialbyjuryforanyaction,suitorproceedingbroughttoenforce this agreement or an arbitration award rendered pursuant to this arbitrationclause.

18.Section 409A. Digimarc makes no representations or warranties to Executivewith respect to any tax, economic or legal consequences of this Agreement or any paymentsor

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otherbenefitsprovidedhereunder,includingwithoutlimitationunderCodeSection409A, andnoprovisionoftheAgreementshallbeinterpretedorconstruedtotransferanyliability for failure to comply with Code Section 409A from Executive or any other individual to Digimarcoranyofitsaffiliates.Executive,byexecutingthisAgreement,shallbedeemed to have waived any claim against Digimarc and its affiliates with respect to any such tax, economic or legal consequences. However, the parties intend that this Agreement and the paymentsandotherbenefitsprovidedhereunderbeexemptfromtherequirementsofCode Section409Atothemaximumextentpossible,whetherpursuanttotheshort-termdeferral exception described in Treasury Regulation Section 1.409A-1(b)(4), the involuntary separation pay plan exception described in Treasury Regulation Section 1.409A- 1(b)(9)(iii),orotherwise.TotheextentCodeSection409AisapplicabletothisAgreement (and such payments and benefits), the parties intend that this Agreement (and such payments and benefits) comply with the deferral, payout and other limitations and restrictions imposed under Code Section 409A. Notwithstanding any provision of this Agreementtothecontrary,thisAgreementshallbeinterpreted,operatedandadministered in a manner consistent with such intentions. Without limiting the generality of the foregoing, and notwithstanding any provision of this Agreement to the contrary, with respect to any payments and benefits under this Agreement to which Code Section 409A applies, all references in this Agreement to the termination of Executive's employmentare intended to mean Executive's "separation from service," within the meaning of Code Section 409A(a)(2)(A)(i). In addition, if Executive is a "specified employee," within the meaning of Code Section 409A(a)(2)(B)(i), at the time of his "separation from service," withinthemeaningofCodeSection409A(a)(2)(A)(i),thentotheextentnecessarytoavoid subjecting Executive to the imposition of any additional tax under Code Section 409A, amounts that would otherwise be payable under this Agreement during the six-month period immediately following Executive's "separation from service," shall not be paid to Executive during such period, but shall instead be accumulated and paid to Executive (or, in the event of Executive's death, Executive's estate) in a lump sum on the first business day  following  the  date  that  is  six  months  after  Executive's  separation  from   service.Moreover, the parties intend that this Agreement be deemed to be amended to the extent necessary to comply with the requirements of Code Section 409A and to avoid or mitigate the imposition of additional taxes under Code Section 409A, while preserving to the maximum extent possible the essential economics of Executive's rights under the Agreement. For purposes of Section 409A, the right to a series of installment payments underthisAgreementshallbetreatedasarighttoaseriesofseparateanddistinctpayments

19.Severability. If any portion of this Agreement is held to be invalid or unenforceableforanyreason,theremainingcovenantsshallremaininfullforceandeffect to the maximum extent permitted bylaw.

20.Complete Agreement. This Agreement represents and contains the entire understanding between the Parties in connection with its subject matter. Executive acknowledges that in signing this Agreement, Executive has not relied upon any representationorstatementnotsetforthinthisAgreementmadebyDigimarcoranyofits representatives. The Company makes no representations regarding its relationship with or obligations to Executive, or as to the tax consequences of Employee’s entering into this Agreement,andnoneitmayhavemadeinthepastsurvive,exceptasexpresslysetforthin

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this Agreement. Employee expressly agrees that the Company shall have no liability to him for any tax or penalty imposed on him as a result of this Agreement. This Agreement supersedesanypriorwrittenororalagreementsorunderstandings,exceptthatExecutive’s obligations under Section 9 of the Employment Agreement survive and are incorporated herein, as described in Section 11 of thisAgreement.

21.Modification. This Agreement may not be modified or discharged, in whole or in part,andnoprovisionhereofmaybewaived,exceptinwriting.Nowaiverofanyprovision on a particular occasion will affect the enforceability of such provision on subsequent occasions, and no waiver of any particular provision will affect the enforceability of any other provision.

IN WITNESS WHEREOF, the parties have executed this Separation Agreement and General Release on this 12th day of April, 2021.

DIGIMARC CORPORATION

    /s/ Robert Chamness

By: Robert P. Chamness

Title: EVP, Chief Legal Officer and Secretary

BRUCE DAVIS

    /s/ Bruce Davis

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EXHIBIT A

SUPPLEMENTAL RELEASE

Byhissignaturebelow,BruceDavis(“Executive”)herebyreleasesandforeverdischarges asofthedatehereofDigimarcCorporationandtheDigimarcReleaseesassetforthherein. Capitalized undefined terms used in this Supplemental Release shall have the meaning ascribedtothemintheSeparationAgreementandGeneralReleasebetweenExecutiveand the Company (the “Separation Agreement”). The Digimarc Releasees are intended to be third-partybeneficiariesofthisSupplementalRelease,andthisSupplementalReleasemay be enforced by each of them in accordance with the terms hereof in respect of the rights granted to such Digimarc Releasees hereunder. Executive agrees asfollows:

1.Executive understands that the payments or benefits to be paid or granted to him under the Separation Agreement represent, in part, consideration for signing this Supplemental Release, and are not salary, wages or benefits to which he was already entitled. Executive understands and agrees that he will not be eligible to receive any payments specified in Section 3 of the Separation Agreement unless he executes this SupplementalReleaseaftertheSeparationDateandonorbeforeMay4,2021,anddoes not revoke this Supplemental Release (as describedherein).

2.By his signature below, Executive waives any legal rights and releases and forever discharges Digimarc and the Digimarc Releasees, from any and all liability, demands, claims, suits, actions, charges, damages, judgments, levies or executions, damages, whether known or unknown, liquidated, fixed, contingent, direct or indirect, which have been, could have been or could be raised or brought by Executive that related to any matter whatsoever at any time before, and including, the execution of this Supplemental Release (“Claims”). This release includes, but is not limited to, any and all Claims arising out of or related to Executive’s employment with, or separation of employment from, Digimarc; all contractual rights and obligations, including, without limitation, any Claims under the Employment Agreement; all Claims arising under any state or federal law, including, without limitation, any Claims pertaining to discrimination in employment, wage and hour, ORS Chapter 659 and 659A, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Post Civil War Civil Rights Acts(42USCSections1981-1988),theAgeDiscriminationinEmploymentAct,theOlder WorkersBenefitProtectionAct,theRehabilitationActof1973,theEqualPayActof1963, the Fair Labor Standards Act, ORS Chapters 652 and 653, Oregon Family Medical Leave Act, the federal Family Medical Leave Act, the National Labor Relations Act, the EmployeeRetirementIncomeSecurityAct,allasamended,andanyregulationsundersuch authorities; and any Claim arising under any tort or other common law theories, including Claims related to Digimarc’snegligence.

3.Notwithstanding anything in this Supplemental Release to the contrary, Executive does not waive any rights Executive may have (i) under COBRA; (ii) to Executive’s own vested accrued employee benefits under the Company’s health, welfare, or retirement benefit plans as of the last date of employment; (iii) to benefits and/or the right to seek benefits under applicable workers’ compensation and/orunemployment

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compensation statutes; (iv) to pursue claims which by law cannot be waived by signing thisSupplementalReleaseand/orwhichmayariseaftertheexecutionofthisSupplemental Release; (v) to enforce the Separation Agreement or to enforce his rights related to his stock, options, RSUs, or PRSUs consistent with the Separation Agreement; and/or (vi) to challenge the validity of this SupplementalRelease.

4.In accordance with the Age Discrimination in Employment Act (the “ADEA”), as amended by the Older Worker’s Benefit ProtectionAct:

(a) ExecutiveacknowledgesandagreesthattheSeparationAgreementandthis Supplemental Release is written in a manner that is understandable to him andthathehascarefullyreadandfullyunderstandstheprovisionsandterms of the Separation Agreement and this Supplemental Release and agrees to such provisions andterms;

(b) Executive has been advised and hereby is advised in writing thatExecutive should consult with an attorney prior to executing this Supplemental Release, and Executive has obtained independent legal advice from an attorney of his own choice with respect to this Supplemental Release, or Executive has knowingly and voluntarily chosen not to doso;

(c) Executive is not waiving rights or claims that may arise after the date that this Supplemental Release is executed byExecutive;

(d) Executive knowingly and voluntarily waives any and all rights and claims, including,butnotlimitedtorightsundertheADEAandthoselawslistedin Paragraph 2above;

(e) As consideration for executing this Supplemental Release, Executive will receive compensation of value to which Executive would not otherwise be entitled;and

(f) No promise or inducement has been offered to Executive, except as expresslysetforthintheAgreement,andExecutiveisnotrelyinguponany such promise or inducement in entering into this SupplementalRelease.

5.In signing this Supplemental Release, Executive acknowledges andintends thatitshallbeeffectiveasabartoeachandeveryoneoftheClaimshereinabovementioned or implied. Executive expressly consents that this Supplemental Release shall be given fullforceandeffectaccordingtoeachandallofitsexpresstermsandprovisions,including those relating to unknown and unsuspected claims (notwithstanding any state or local statute that expressly limits the effectiveness of an agreement of unknown, unsuspected andunanticipatedclaims),ifany,aswellasthoserelatingtoanyotherClaimshereinabove mentioned or implied. Executive acknowledges that he may hereafter discover claims or facts in addition to or different than those which he now knows or believes to exist with respecttothesubjectmatterofthereleasesetforthaboveandwhich,ifknownorsuspected at the time of entering into this Supplemental Release, may have materially affected this SupplementalReleaseandhisdecisiontoenterintoit.Executiveacknowledgesandagrees that this waiver is an essential and material term of this Supplemental Release and that withoutsuchwaivertheCompanywouldnothaveagreedtothetermsoftheSeparation

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Agreement. Nothing in this Supplemental Release waives or releases claims by Executive that arise after the date the Executive signs this Supplemental Release.

6.Executive acknowledges that this Supplemental Release, together with the SeparationAgreement,representsthesettlementofanyandallclaimsandpotentialclaims that Executive may have against the Digimarc Releasees through the date Executive signs this Supplemental Release. Executive accepts the Separation Agreement and this Supplemental Release as being in full and complete accord, satisfaction, compromise,and settlementofanyandallsuchclaimsorpotentialclaimsandexpresslyagreesthatheisnot entitled to and shall not receive any further payment or recovery of any kind from the Company,andthattheCompanyshallhavenofurthermonetaryorotherobligationofany kind to Executive, including any further obligation for any costs, expenses, and attorneys’ fees, except as provided in the SeparationAgreement.

7.Revocation Right. After Executive executes this Supplemental Release, Executive shall have a period of seven (7) days from the date immediately following the date of execution of this Agreement in which Executive may revoke this Supplemental Release at Executive’s sole election by notifying Digimarc in writing. Any revocation within this period must state “I do hereby revoke my agreement to the Supplemental Release.”Thewrittenrevocationmustbeeitherpersonallydeliveredorpostmarkedwithin seven(7)calendardaysofExecutive’sexecutionofthisAgreementtoCindyMarple,Vice PresidentofHumanResources,DigimarcCorporation,9405SWGeminiDrive,Beaverton, OR 97008-7192. In the event Executive does not exercise his right to revokethis Supplemental Release, this Supplemental Release shall become effective on the date immediately following the seven-day revocation period described above (the “Effective Date”).

BY SIGNING THIS SUPPLEMENTAL RELEASE, I REPRESENT AND AGREE THAT:

• I HAVE READ ITCAREFULLY;

• I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990;AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED;

• I VOLUNTARILY CONSENT TO EVERYTHING IN IT;

• I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I HAVE DONE SO OR, AFTER CAREFUL READINGAND CONSIDERATION, I HAVE CHOSEN NOT TO DO SO OF MY OWNVOLITION;

• I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS SUPPLEMENTAL RELEASE TO CONSIDERIT;

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• I UNDERSTAND THAT I HAVE SEVEN (7) DAYS AFTER THE EXECUTIONOF THIS SUPPLEMENTAL RELEASE TO REVOKE IT AND THAT THIS SUPPLEMENTAL RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HASEXPIRED;

• I HAVE SIGNED THIS SUPPLEMENTAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINEDTO ADVISE ME WITH RESPECT TO IT; AND

• I AGREE THAT THE PROVISIONS OF THIS SUPPLEMENTAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZEDREPRESENTATIVE OF THE COMPANY AND BYME.

SIGNED: DATE: BRUCEDAVIS

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into effective as of April 12, 2021 (the “Effective Date”) at Beaverton, Oregon between DIGIMARC CORPORATION, an Oregon corporation (“Digimarc”) with offices at 9405 SW Gemini Drive, Beaverton, Oregon 97008, and Riley McCormack (“Executive”).

WITNESSETH:

WHEREAS, Executive is currently a member of the Board of Directors of Digimarc; WHEREAS, Digimarc has determined that Executive should succeed its ChiefExecutive

Officer, Bruce Davis, who is resigning from Digimarc, and wishes to employ Executive in the capacity of Chief Executive Officer;

WHEREAS, Digimarc and Executive wish to memorialize the terms of Executive’s employment in a written agreement; and

WHEREAS, this Agreement shall replace and supersede Executive’s remuneration arrangementspursuanttoDigimarc’sDirectorCompensationProgram,whichshallceaseasofthe Effective Date and as described further in thisAgreement.

NOW,THEREFORE,inconsiderationoftheforegoingandinconsiderationofthemutual promises and agreements contained herein, the parties hereto agree asfollows:

1. Definitions.

For purposes of this Agreement, the following terms shall have the following meanings:

(a)“Affiliate” shall mean any person or entity that directly or indirectly controls, is controlled by, or is under common control withDigimarc.

(b)“Code” shall mean the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgatedthereunder.

(c)“Section 280G” shall mean Code Section 280G and the Treasury regulations promulgated thereunder or any similar or successorprovision.

2. Period ofEmployment.

Digimarc agrees to employ Executive, and Executive agrees to be so employed, on the terms and conditions set forth herein for the period beginning on the Effective Date and ending upon the termination of Executive’s employment as set forth herein (“Term”).

3. Duties and Responsibilities.

(a)Position. Executive will serve as Chief Executive Officer of Digimarc in conformity with general management policies, guidelines and directions issued by the Board of Directors of Digimarc (the “Board”), and shall perform all services appropriate to that positionas

152258709.1

designated from time to time by the Board. Executive will report directly to the Board, and will have general charge and supervision of those functions and such other responsibilities as are customary for his position. As long as Executive serves as Chief Executive Officer, it is the intention of Digimarc that he will continue to be nominated to serve on the Board; provided, however, that the foregoing statement of intent shall in no way derogate from the Board’s right and power to act as it deems appropriate in the future.

(b)Duties. Executive will work exclusively for Digimarc on a full-time basis, devoting all of his time and attention during normal business hours to Digimarc’s business. Executive will perform his duties and responsibilities hereunder diligently, faithfully and loyally in order to facilitate the proper, efficient and successful operation of Digimarc’sbusiness.

(c)Other Activity. Except upon the prior approval of the Board, Executive (during the Term) shall not (i) accept any other employment; or (ii) engage, directly or indirectly, in any other business, commercial, or professional activity (whether or not pursued for pecuniary advantage) that is or may be competitive with Digimarc, that might create a conflict of interest with Digimarc, or that otherwise might interfere with the business of Digimarc or any Affiliate or theperformanceofExecutive’sdutiesandobligationstoDigimarc.SothatDigimarcmaybeaware of the extent of any other demands upon Executive’s time and attention, Executive shall disclose in confidence to Digimarc the nature and scope of any other business activity in which he is or becomes engaged during the Term. Consistent with the foregoing, the Company acknowledges that,basedoncurrentcircumstances,theBoardhasapprovedExecutivetoengageinthefollowing outside business activities: managing TCM|Strategic and its affiliates. Executive agrees to promptlydisclosetotheBoardanychangeincircumstancesthatmightcreateaconflictofinterest between the Company and Executive regarding such outside businessactivities.

4. Compensation andBenefits.

As compensation for Executive’s services, Executive will receive a cash salary of $1.00 and participate in the Company’s stock-based compensation plan, subject to the terms and conditions set forth in this Agreement. During the Term, Executive shall cease to receive any compensationundertheCompany’snonemployeedirectorcompensationpolicybutshallcontinue to vest in any awards previously granted to him as a Director, in accordance with and subject to the applicable award agreement(s) and plandocuments.

(a) Salary.DuringtheTerm,Executivewillbepaidanannualbasesalaryof

$1.00 per year. All compensation and comparable payments to be paid to Executive under this Agreement shall be less withholdings required by law.

(b)Equity Compensation. The Company shall cause to be granted to Executive restricted shares of the Company’s stock having a fair value of $250,000 on the date of grant, vesting in four quarterly tranches over the one-year period following the date of grant and subjecttosuchothertermsandconditionsassetforthintheDigimarcCorporation2018Incentive Plan, including the provisions on tax withholdingtherein.

(c)FlexibleTimeOff.Executivewillbeentitledtoflexibletimeoffconsistent with that generally provided to other executives ofDigimarc.

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(d)Reimbursement of Expenses. The Company will reimburse Executive in accordance with the policies and procedures of the Company, for all reasonable travelling, entertaining and other similar out of pocket expenses which Executive may incur wholly and necessarily in the performance of his duties, provided that Executive submits adequate documentationofsuchexpensesastheCompanymayrequire;andfurther,provided,however,for the avoidance of doubt, that Executive shall not be entitled to reimbursement of commuting costs or local housing costs associated with his performance of his duties. Reimbursement of expenses may be reportable to any appropriate tax authority and, in that event, it will be Executive’s responsibility to claim any tax relief and supply additional information that may be required.Any expense reimbursements shall be made within 60 days after submission of proper documentation by Executive (but in no event later than December 31 of the year following the year in which Executive incurs the related expense). Any reimbursement in one calendar year shall not affect the amount that may be reimbursed in any other calendar year and a reimbursement (or right thereto) may not be exchanged or liquidated for another benefit orpayment.

(e)Other Benefits. Except as specifically provided elsewhere in this Agreement, Digimarc will provide Executive with the same health, disability, retirement, death and other fringe benefits as are generally provided to other executives of Digimarc. The amount andextentofbenefitstowhichExecutiveisentitledshallbegovernedbythespecificbenefitplan, as it may be amended from time to time. Digimarc reserves the ability, in its sole discretion, to adjust Executive’s benefits under this Agreement provided that such adjustments generally apply to all executiveofficers.

5. Termination.

(a)Digimarc may terminate Executive’s employment under this Agreement at any time, with or without cause, upon written notice toExecutive.

(b)ExecutivemayterminatehisemploymentunderthisAgreementatanytime upon thirty (30) days’ prior written notice toDigimarc.

6. Effects ofTermination.

(a)If Executive’s employment ends for any reason, all Digimarc obligations underthisAgreementwillendexceptforreimbursementofproperlyauthorizedbusinessexpenses incurred by Executive prior to termination and the Company’s obligation to grant stock pursuant to Section 4(b) for the calendar quarter in which Executive’s employmentends.

7. ExciseTaxes.

(a)Notwithstanding any other provision of this Agreement, in the event that Executive becomes entitled to receive or receives any payments, options, awards or benefits (including, without limitation, the monetary value of any non-cash benefits and the accelerated vestingofstockoptions)underthisAgreementorunderanyotherplan,agreementorarrangement with Digimarc, any person whose actions result in any change described in Code Section 280G(b)(2)(A)(i) or any person affiliated with Digimarc or such person (collectively, the “Payments”), that may separately or in the aggregate constitute “parachute payments” within the meaningofSection280GandDigimarcreceivesconfirmationfromanindependentaccounting

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firm or independent tax counsel appointed by Digimarc (the “Tax Advisor”) that, but for this Section 7, any of the Payments will be subject to any excise tax pursuant to Code Section 4999or any similar or successor provision (the “Excise Tax”), then the Company shall pay to Executive either (i) the full amount of the Payments or (ii) an amount equal to the Payments, reduced by the minimum amount necessary to prevent any portion of the Payments from being an “excess parachute payment” (within the meaning of Section 280G) (the “Capped Payments”), whichever of the foregoing amounts results in the receipt by Executive, on an after-tax basis, of the greatest amount of Payments notwithstanding that all or some portion of the Payments may be subject to the Excise Tax. For purposes of determining the after-tax value of the Payments, (i) there shallbe taken into account any Excise Tax and all applicable federal, state and local taxes required to be paid by Executive in respect of the receipt of the Payments and (ii) Executive shall be deemed to payincometaxesatthehighestrateof federalincometaxandthehighestrateorratesofstateand local income taxes in the state and locality of Executive’s domicile for income tax purposes for the taxable year in which the Payments will be made, provided that the state and local income tax rate shall be determined assuming that such taxes are fully deductible for federal income tax purposes, and provided further that any phase-out of itemized deductions or other items shall be ignored.

(b)All calculations and determinations under this Section 7, including application and interpretation of the Code and related regulatory, administrative and judicial authorities, shall be made by the Tax Advisor. All determinations made bythe Tax Advisor under thisSection7shallbeconclusiveandbindingonbothDigimarcandExecutive,andDigimarcshall cause the Tax Advisor to provide its determinations and any supporting calculations with respect toExecutivetoDigimarcandExecutive.Digimarcshallbearallfeesandexpenseschargedbythe Tax Advisor in connection with its services. For purposes of making the calculations and determinations under this Section 7, after taking into account the information provided by Digimarc and Executive, the Tax Advisor may make reasonable, good faith assumptions and approximations concerning the application of Code Sections 280G and 4999. Digimarc and ExecutiveshallfurnishtheTaxAdvisorwithsuchinformationanddocumentsastheTaxAdvisor mayreasonablyrequesttoassisttheTaxAdvisorinmakingcalculationsanddeterminationsunder this Section7.

(c)In the event that Section 7(a) above applies and a reduction is required to be applied to the Payments thereunder, the Payments shall be reduced by the Company in its reasonablediscretioninthefollowingorder:(i)reductionofanyPaymentsthataresubjecttoCode Section 409A on a pro-rata basis or such other manner that complies with Code Section 409A, as determined by the Company, and (ii) reduction of any Payments that are exempt from Code Section409A.

8. Termination Obligations.

(a)Executive agrees that all property, including, without limitation, all equipment, tangible Proprietary Information (as defined below), documents, books, records, reports, notes, contracts, lists, computer disks (and other computer-generated files and data), and copies thereof, created on any medium and furnished to, obtained by, or prepared by Executivein the course of or incident to his employment, belongs to Digimarc and shall be returned promptly to Digimarc at the end of theTerm.

4

 

(b)All benefits to which Executive is otherwise entitled shall cease upon Executive’s termination, unless explicitly continued either under this Agreement or under any specific written policy or benefit plan ofDigimarc.

(c)EffectiveattheendoftheTerm,Executiveshallbedeemedtohaveresigned from all offices and directorships then held with Digimarc or any Affiliate; provided, however, that Executive may, at his election, continue to serve as a Director of theBoard.

(d)The representations and warranties contained in this Agreement and Executive’s obligations under this Section 8 on Termination Obligations and Section 9 of this Agreement on Proprietary Information shall survive the termination of thisAgreement.

(e)Following any termination of this Agreement, Executive shall fully cooperate with Digimarc in all matters relating to the winding up of pending work on behalf of Digimarc and the orderly transfer of work to other executives of Digimarc. Executive shall also cooperate in the defense of any action brought by any third party against Digimarc that relates in any way to Executive’s acts or omissions while employed byDigimarc.

(f)Prior to beginning any employment within two (2) years following the end of the Term, Executive shall first provide Digimarc with the name and address of his prospective employer so that Digimarc may provide the new employer with a copy of thisAgreement.

9. Proprietary Information and Covenant Not toCompete.

(a)Defined. “Proprietary Information” is all information and any idea in whatever form, tangible or intangible, pertaining in any manner to the business of Digimarc, or anyAffiliate,oritsemployees,clients,consultants,orbusinessassociates,whichwasproducedby any employee of Digimarc in the course of his or her employment or otherwise produced or acquiredbyoronbehalf ofDigimarc.AllProprietaryInformationnotgenerallyknownoutsideof Digimarc’sorganization,andallProprietaryInformationsoknownonlythroughimpropermeans, shallbedeemed“ConfidentialInformation.”Withoutlimitingtheforegoingdefinition,Proprietary and Confidential Information shall include, but not be limited to: (i) formulas, teaching and development techniques, processes, trade secrets, computer programs, electroniccodes, inventions, improvements, and research projects; (ii) information about costs, profits, markets, sales,andlistsofcustomersorclients;(iii)business,marketing,andstrategicplans;and

(iv) employee personnel files and compensation information. Executive should consult any Digimarc procedures instituted to identify and protect certain types of Confidential Information, which are considered by Digimarc to be safeguards in addition to the protection provided by this Agreement. Nothing contained in those procedures or in this Agreement is intended to limit the effect of the other.

(b)General Restrictions on Use. During the Term, Executive shall use Proprietary Information, and shall disclose Confidential Information, only for the benefit of Digimarc and as is necessary to carry out his responsibilities under this Agreement. Following termination, Executive shall neither, directly or indirectly, use any Proprietary Information nor disclose any Confidential Information, except as expressly and specifically authorized in writing by Digimarc. The publication of any Proprietary Information through literature or speechesmust

5

 

beapprovedinadvanceinwritingbyDigimarc.NothinginthisAgreementshallhavethepurpose or effect of preventing Executive from disclosing or discussing conduct that constitutes discrimination prohibited by Oregon Revised Statutes 659A.030, including conduct that constitutessexualassault,orthatisprohibitedbyOregonRevisedStatutes659A.082or659A.112

(c)Location and Reproduction. Executive shall maintain at his work station and/or any other place under his control only such Confidential Information as he has a current “needtoknow.”Executiveshallreturntotheappropriatepersonorlocationorotherwiseproperly dispose of Confidential Information once that need to know no longer exists. Executive shall not make copies of or otherwise reproduce Confidential Information unless there is a legitimate business need forreproduction.

(d)Prior Actions and Knowledge. Executive represents and warrants that from the time of his first contact with Digimarc, he has held in strict confidence all Confidential Information and has not disclosed any Confidential Information, directly or indirectly, to anyone outside of Digimarc, or used, copied, published, or summarized any Confidential Information, except to the extent otherwise permitted in thisAgreement.

(e)Third-Party Information. Executive acknowledges that Digimarc has received and in the future will receive from third parties their confidential information subject to a duty on Digimarc’s part to maintain the confidentiality of this information and to use it only for certain limited purposes. Executive agrees that he owes Digimarc and these third parties, during theTermandthereafter,adutytoholdallsuchconfidentialinformationinthestrictestconfidence and not to disclose or use it, except as necessary to perform his obligations hereunder and as is consistent with Digimarc’s agreement with thirdparties.

(f)No Competition. In the interest of preventing the use or disclosure of Confidential Information in breach of the preceding subsections, Executive shall not, during the Term and for a period one (1) year thereafter, perform work for any of Digimarc’s business competitors whether as an employee or as a consultant, and shall not serve as a director, partner, agent or shareholder of such competitor (except that Executive may hold less than 5% of the outstanding stock of any public company for investmentpurposes).

(g)Misuse of Confidential Information. Executive agrees that, during the Termandforaperiodone(1)yearthereafter,heshallnot,directlyorindirectly,(i)divertorattempt to divert from Digimarc (or any Affiliate) any business of any kind in which it is engaged; or (ii) employ or recommend for employment any person employed by Digimarc (or any Affiliate), unless Executive can prove that any action taken in contravention of this subsection was done without the use in any way of ConfidentialInformation.

(h)Interference with Business. In order to avoid disruption of Digimarc’s business, Executive agrees that during the Term and for a period one (1) year thereafter, he shall not, directly or indirectly, (i) solicit any customer of Digimarc (or any Affiliate) known to Executive during the Term to have been a customer to do business with anyone other than Digimarc; or (ii) solicit for employment any person employed by Digimarc (or anyAffiliate).

6

 

(i)Parallel Obligations. Executive’s obligations in this Section 9 are not exclusive and the Parties acknowledge that Executive is simultaneously executing a Non- Disclosure, Non-Competition, and Invention Assignment Agreement of even date herewith (the “NDA”).ThisAgreementandtheNDAshouldbeconstruedtogether,butintheeventofaconflict, the terms of this Agreement shallcontrol.

10. Section409A.

Digimarc makes no representations or warranties to Executive with respect to any tax, economic or legal consequences of this Agreement or any payments or other benefits provided hereunder, including without limitation under Code Section 409A, and no provision of the Agreement shall be interpreted or construed to transfer any liability for failure to comply with Code Section 409A from Executive or any other individual to Digimarc or any of its

affiliates. Executive, by executing this Agreement, shall be deemed to have waived any claim against Digimarc and its affiliates with respect to any such tax, economic or legal consequences. However, the parties intend that this Agreement and the payments and other benefits provided hereunder be exempt from the requirements of Code Section 409A to the maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4), the involuntary separation pay plan exception described in Treasury Regulation Section 1.409A-1(b)(9)(iii), or otherwise. To the extent Code Section 409A is applicable to this Agreement (and such payments and benefits), the parties intend that this Agreement (and such payments and benefits) comply with the deferral, payout and other limitations and restrictions imposed under Code Section 409A. Notwithstanding any provision of this Agreement to the contrary, this Agreement shall be interpreted, operated and administered in a manner consistent with such intentions. Without limiting the generality of the foregoing, and notwithstanding any provision of this Agreement to the contrary, with respect to any payments and benefits under this Agreement to which Code Section 409A applies,all

references in this Agreement to the termination of Executive's employment are intended tomean Executive's "separation from service," within the meaning of Code Section 409A(a)(2)(A)(i). In addition, if Executive is a "specified employee," within the meaning ofCode

Section 409A(a)(2)(B)(i), at the time of his "separation from service," within the meaning of Code Section 409A(a)(2)(A)(i), then to the extent necessary to avoid subjecting Executive to the imposition of any additional tax under Code Section 409A, amounts that would otherwise be payable under this Agreement during the six-month period immediately following Executive's "separation from service," shall not be paid to Executive during such period, but shall instead be accumulated and paid to Executive (or, in the event of Executive's death, Executive's estate) in a lump sum on the first business day following the date that is six months after Executive's separation from service. Moreover, the parties intend that this Agreement be deemed to be amended to the extent necessary to comply with the requirements of Code Section 409A and to avoid or mitigate the imposition of additional taxes under Code Section 409A, while preserving to the maximum extent possible the essential economics of Executive's rights under the Agreement.

11. Notices.

Any notice to be given hereunder by Digimarc to Executive will be deemed to be given if delivered to Executive in person, or if mailed to Executive, by certified mail, postage prepaid,

7

 

return receipt requested, at his address last shown on the records of Digimarc. Any notice to be given by Executive to Digimarc will be deemed to be given if delivered in person or by mail, postage prepaid, return receipt requested to the Chief Financial Officer at Digimarc’s principal executive office, unless Executive or Digimarc will have duly notified the other party in writing ofachangeofaddress. Ifmailed,noticewillbedeemedtohavebeengivenwhendeposited inthe mail as set forthabove.

12. Amendments.

This Agreement will not be modified or discharged, in whole or in part, except by an agreement in writing signed by an executive officer of Digimarc other than Executive on the one hand, and Executive on the other hand.

13. EntireAgreement.

This Agreement, together with any and all other written agreement(s) made contemporaneously herewith and applicable incentive and benefits plans of Digimarc, constitute the entire agreement between the parties with respect to Executive’s employment by Digimarc from and after the Effective Date. The parties are not relying on any other representation or understanding with respect thereto, express or implied, oral or written. As of the Effective Date, this Agreement, as supplemented by such contemporaneous agreement(s), supersedes any prior agreement,writtenororal,ofDigimarcwithrespecttoExecutive’semployment;fortheavoidance of doubt, Executive’s obligations of confidentiality as a Director and his rights toindemnification as a Director are unaffected by thisAgreement.

14. Captions.

ThecaptionscontainedinthisAgreementareforconvenienceofreferenceonlyanddonot affect the meaning of any terms or provisions of thisAgreement.

15. BindingEffect.

The rights and obligations of Digimarc hereunder will inure to the benefit of, and will be binding upon, Digimarc and its respective successors and assigns, and the rights and obligations of Executive hereunder will inure to the benefit of, and will be binding upon, Executive and his heirs, personal representatives and estate. All references in this Agreement to “Digimarc” will be deemed to include its successors and assigns.

16. SeverableProvisions.

IfanyprovisionofthisAgreement,oritsapplicationtoanyperson,place,orcircumstance, is held by an arbitrator or a court of competent jurisdiction to be invalid, unenforceable, or void, such provision shall be enforced to the greatest extent permitted by law, and the remainder ofthis Agreementandsuchprovisionasappliedtootherpersons,places,andcircumstancesshallremain in full force and effect.

8

 

17. GoverningLaw.

This Agreement will be interpreted, construed, and enforced in all respects in accordance with the laws of the State of Florida.

18. Interpretation.

This Agreement shall be construed as a whole, according to its fair meaning, and not in favor of or against any party. By way of example and not in limitation, this Agreement shall not be construed in favor of the party receiving a benefit nor against the party responsible for any particular language in this Agreement. Captions are used for reference purposes only and should be ignored in the interpretation of the Agreement.

19. EmployeeAcknowledgement.

Executive acknowledges that he has had the opportunity to consult legal counsel inregard to this Agreement, that he has read and understands this Agreement, that he is fully aware of its legal effect, and that he has entered into it freely and voluntarily and based on his own judgment and not on any representations or promises other than those contained in thisAgreement.

[Signature Page Follows]

9

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of April 12, 2021.

DIGIMARCCORPORATIONEXECUTIVE

/s/ Robert Chamness/s/ Riley McCormack

By: Robert P. Chamness    Riley McCormack

Its: EVP, Chief Legal Officer & Secretary

EX-31.1

Exhibit 31.1

DIGIMARC CORPORATION

CERTIFICATION

I, Riley McCormack, 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: August 5, 2021

By:	/S/ RILEY MCCORMACK
	RILEY MCCORMACK 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: August 5, 2021

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, 2021 as filed with the Securities and Exchange Commission (the “Report”), I, Riley McCormack, 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: August 5, 2021

By:	/S/ RILEY MCCORMACK
	RILEY MCCORMACK 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, 2021 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: August 5, 2021

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

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2021	Jul. 28, 2021
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2021
Document Fiscal Year Focus	2021
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	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Current Reporting Status	Yes
Entity File Number	001-34108
Entity Tax Identification Number	26-2828185
Entity Address, Address Line One	9405 SW Gemini Drive
Entity Address, City or Town	Beaverton
Entity Address, State or Province	OR
Entity Address, Postal Zip Code	97008
City Area Code	503
Local Phone Number	469-4800
Entity Common Stock, Shares Outstanding		16,930,460
Title of 12(b) Security	Common Stock, $0.001 Par Value Per Share
Security Exchange Name	NASDAQ
Entity Incorporation, State or Country Code	OR
Document Transition Report	false
Document Quarterly Report	true
Entity Interactive Data Current	Yes

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 21,358	$ 19,696
Marketable securities	39,592	58,032
Trade accounts receivable, net	4,590	3,907
Other current assets	1,805	2,197
Total current assets	67,345	83,832
Marketable securities	157	0
Property and equipment, net	3,082	3,272
Intangibles, net	6,606	6,612
Goodwill	1,114	1,114
Other assets	2,244	2,198
Total assets	80,548	97,028
Current liabilities:
Accounts payable and other accrued liabilities	4,428	2,827
Note payable, current	5,091	3,947
Deferred revenue	2,659	3,002
Total current liabilities	12,178	9,776
Lease liability and other long-term liabilities	3,128	2,295
Note payable, long-term	0	1,118
Total liabilities	15,306	13,189
Commitments and contingencies (Note 14)
Shareholders’ equity:
Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares issued and outstanding at June 30, 2021 and December 31, 2020)	50	50
Common stock (par value $0.001 per share, 50,000 authorized, 16,943 and 16,735 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively)	17	17
Additional paid-in capital	260,071	255,024
Accumulated deficit	(194,896)	(171,252)
Total shareholders’ equity	65,242	83,839
Total liabilities and shareholders’ equity	$ 80,548	$ 97,028

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares shares in Thousands	Jun. 30, 2021	Dec. 31, 2020
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	16,943	16,735
Common stock, shares outstanding	16,943	16,735

XML

Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Revenue:
Total revenue	$ 6,278	$ 6,497	$ 12,978	$ 12,686
Cost of revenue:
Total cost of revenue	2,049	2,113	4,410	4,311
Gross profit	4,229	4,384	8,568	8,375
Operating expenses:
Sales and marketing	6,277	4,633	11,218	9,879
Research, development and engineering	4,213	4,208	8,344	8,641
General and administrative	9,175	3,081	12,668	6,448
Total operating expenses	19,665	11,922	32,230	24,968
Operating loss	(15,436)	(7,538)	(23,662)	(16,593)
Other income, net	18	79	28	221
Loss before income taxes	(15,418)	(7,459)	(23,634)	(16,372)
Benefit (provision) for income taxes	(4)	(2)	(10)	3
Net loss	$ (15,422)	$ (7,461)	$ (23,644)	$ (16,369)
Earnings (loss) per common share:
Loss per common share — basic	$ (0.94)	$ (0.62)	$ (1.44)	$ (1.36)
Loss per common share — diluted	$ (0.94)	$ (0.62)	$ (1.44)	$ (1.36)
Weighted average common shares outstanding — basic	16,430	12,108	16,382	12,073
Weighted average common shares outstanding — diluted	16,430	12,108	16,382	12,073
Service [Member]
Revenue:
Total revenue	$ 3,791	$ 3,892	$ 7,575	$ 7,630
Cost of revenue:
Total cost of revenue	1,515	1,601	3,085	3,285
Subscription [Member]
Revenue:
Total revenue	2,487	2,605	5,403	5,056
Cost of revenue:
Total cost of revenue	$ 534	$ 512	$ 1,325	$ 1,026

XML

Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Total	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]
Balance at Dec. 31, 2019	$ 49,450	$ 50	$ 12	$ 188,103	$ (138,715)
Balance, shares at Dec. 31, 2019		10,000	12,446,000
Issuance of common stock, net of issuance costs	574	$ 0	$ 1	573	0
Issuance of common stock, net of issuance costs, shares		0	28,000
Exercise of stock options	135	$ 0	$ 0	135	0
Exercise of stock options, shares		0	8,000
Issuance of restricted common stock	0	$ 0	$ 0	0	0
Issuance of restricted common stock, shares		0	229,000
Forfeiture of restricted common stock	0	$ 0	$ 0	0	0
Forfeiture of restricted common stock, shares		0	(4,000)
Purchase and retirement of common stock	(1,120)	$ 0	$ 0	(1,120)	0
Purchase and retirement of common stock, shares		0	(48,000)
Stock-based compensation	4,607	$ 0	$ 0	4,607	0
Net loss	(16,369)	0	0	0	(16,369)
Balance at Jun. 30, 2020	37,277	$ 50	$ 13	192,298	(155,084)
Balance, shares at Jun. 30, 2020		10,000	12,659,000
Balance at Mar. 31, 2020	42,743	$ 50	$ 13	190,303	(147,623)
Balance, shares at Mar. 31, 2020		10,000	12,645,000
Issuance of restricted common stock	0	$ 0	$ 0	0	0
Issuance of restricted common stock, shares		0	43,000
Forfeiture of restricted common stock	0	$ 0	$ 0	0	0
Forfeiture of restricted common stock, shares		0	(4,000)
Purchase and retirement of common stock	(382)	$ 0	$ 0	(382)	0
Purchase and retirement of common stock, shares		0	(25,000)
Stock-based compensation	2,377	$ 0	$ 0	2,377	0
Net loss	(7,461)	0	0	0	(7,461)
Balance at Jun. 30, 2020	37,277	$ 50	$ 13	192,298	(155,084)
Balance, shares at Jun. 30, 2020		10,000	12,659,000
Balance at Dec. 31, 2020	83,839	$ 50	$ 17	255,024	(171,252)
Balance, shares at Dec. 31, 2020		10,000	16,735,000
Issuance of common stock, net of issuance costs, shares			0
Exercise of stock options	$ 1,075	$ 0	$ 0	1,075	0
Exercise of stock options, shares	70,000	0	70,000
Issuance of restricted common stock	$ 0	$ 0	$ 0	0	0
Issuance of restricted common stock, shares		0	198,000
Vesting of restricted stock units	0	$ 0	$ 0	0	0
Vesting of restricted stock units,shares		0	112,000
Forfeiture of restricted common stock	0	$ 0	$ 0	0	0
Forfeiture of restricted common stock, shares		0	(35,000)
Purchase and retirement of common stock	(4,849)	$ 0	$ 0	(4,849)	0
Purchase and retirement of common stock, shares		0	(137,000)
Stock-based compensation	8,821	$ 0	$ 0	8,821	0
Net loss	(23,644)	0	0	0	(23,644)
Balance at Jun. 30, 2021	65,242	$ 50	$ 17	260,071	(194,896)
Balance, shares at Jun. 30, 2021		10,000	16,943,000
Balance at Mar. 31, 2021	76,793	$ 50	$ 17	256,200	(179,474)
Balance, shares at Mar. 31, 2021		10,000	16,850,000
Issuance of common stock, net of issuance costs, shares			0
Exercise of stock options	$ 1,075	$ 0	$ 0	1,075	0
Exercise of stock options, shares	70,000	0	70,000
Issuance of restricted common stock	$ 0	$ 0	$ 0	0	0
Issuance of restricted common stock, shares		0	44,000
Vesting of restricted stock units	0	$ 0	$ 0	0	0
Vesting of restricted stock units,shares		0	112,000
Forfeiture of restricted common stock	0	$ 0	$ 0	0	0
Forfeiture of restricted common stock, shares		0	(16,000)
Purchase and retirement of common stock	(3,979)	$ 0	$ 0	(3,979)	0
Purchase and retirement of common stock, shares		0	(117,000)
Stock-based compensation	6,775	$ 0	$ 0	6,775	0
Net loss	(15,422)	0	0	0	(15,422)
Balance at Jun. 30, 2021	$ 65,242	$ 50	$ 17	$ 260,071	$ (194,896)
Balance, shares at Jun. 30, 2021		10,000	16,943,000

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Cash flows from operating activities:
Net loss	$ (23,644)	$ (16,369)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and write-off of property and equipment	717	745
Amortization and write-off of intangibles	345	431
Amortization of right of use assets under operating leases	240	233
Amortization of net premiums and (discounts) on marketable securities	(498)	96
Stock-based compensation	8,747	4,522
Changes in operating assets and liabilities:
Trade accounts receivable	(950)	445
Other current assets	392	361
Other assets	(19)	85
Accounts payable and other accrued liabilities	1,859	(155)
Deferred revenue	(331)	(500)
Lease liability and other long-term liabilities	656	24
Net cash used in operating activities	(12,486)	(10,082)
Cash flows from investing activities:
Purchase of property and equipment	(569)	(456)
Capitalized patent costs	(290)	(311)
Maturity of marketable securities	49,722	26,439
Purchase of marketable securities	(30,941)	(19,490)
Net cash provided by investing activities	17,922	6,182
Cash flows from financing activities:
Proceeds from note payable	0	5,032
Issuance of common stock, net of issuance costs	0	574
Exercise of stock options	0	135
Purchase of common stock	(3,774)	(1,120)
Net cash provided by (used in) financing activities	(3,774)	4,621
Net increase in cash and cash equivalents	1,662	721
Cash and cash equivalents at beginning of period	19,696	11,213
Cash and cash equivalents at end of period	21,358	11,934
Supplemental disclosure of cash flow information:
Cash received (paid) for income taxes, net	(31)	12
Supplemental schedule of non-cash activities:
Property and equipment and patent costs in accounts payable	(67)	(26)
Stock-based compensation capitalized to software and patent costs	74	85
Cashless exercise of stock options	$ 1,075	$ 0

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Description of Business and Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

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, is a pioneer in the automatic identification of media, including packaging, other commercial print, digital images, audio and video. The Digimarc Platform takes industry beyond the barcode, providing innovative and comprehensive automatic identification software and services to simplify search and transform information discovery. The Digimarc Platform enables applications that benefit retailers and consumer brands, national and state government agencies, media and entertainment industries, and others.

The Digimarc Platform features three core capabilities for the identification, discovery and quality management of media.  Digimarc Barcode integrates the identification function, which is a novel data carrier encoded into media in ways that are generally imperceptible to people, permitting the carrier to be repeated many times over the surface of the enhanced media. Digimarc Discover represents the discovery function, which is software for computing devices and network interfaces that recognize and decode indicia of the identity of media. These include, but are not limited to, Digimarc Barcodes, Quick Response Codes, Universal Product Codes, certain other Global Standards One (“GS1”) approved one-dimensional codes and relevant contextual data. Digimarc Verify incorporates the quality management function, a suite of software tools used to inspect and verify that the identification and discovery of media are both accurate and effective. Together, these core capabilities enable organizations, application developers, and other solution providers to build new and improve existing automatic identification solutions.

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, 2020.

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, 2020, which was filed with the SEC on February 26, 2021. 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, including the reclassification of revenue by major target market. These reclassifications had no material effect on the results of operations or financial position for any period presented.

 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, 2021 and 2020, 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.

Accounting Pronouncements Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (ASC 740) Simplifying the Accounting for Income Taxes,” that removes certain exceptions to the general

principles and also improves consistent application of and simplifies U.S. GAAP. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company adopted this new standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations and disclosures.

Accounting Pronouncements Issued But Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments,” which amends the guidance on the impairment of financial instruments. The amendments in this update remove the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The guidance removes all current recognition thresholds and introduces the new current expected credit loss (“CECL”) model which will require entities to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument’s contractual life. The new CECL model is based upon expected losses rather than incurred losses. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not expect the impact of the adoption of this standard to have a material impact on its financial condition, results of operations and disclosures.

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2021

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’s marketable securities are classified as held-to-maturity and are reported at amortized cost, which approximates fair value.

The Company’s fair value hierarchy for its cash equivalents and marketable securities was as follows:

June 30, 2021	Level 1		Level 2		Level 3		Total
Money market securities	$	18,515	$	—	$	—	$	18,515
Commercial paper		—		22,287		—		22,287
Pre-refunded municipals		—		14,395		—		14,395
Corporate notes		—		3,068		—		3,068
Total	$	18,515	$	39,750	$	—	$	58,265

December 31, 2020	Level 1		Level 2		Level 3		Total
Money market securities	$	10,988	$	—	$	—	$	10,988
Commercial paper		—		36,478		—		36,478
Pre-refunded municipals		—		26,697		—		26,697
Corporate notes		—		2,437		—		2,437
Total	$	10,988	$	65,612	$	—	$	76,600

The fair value maturities of the Company’s cash equivalents and marketable securities as of June 30, 2021, were as follows:

	Maturities by Period
	Total		Less than 1 year		1-5 years		5 - 10 years		More than 10 years
Cash equivalents and marketable securities	$	58,265	$	58,108	$	157	$	—	$	—

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 securities, commercial paper and pre-refunded municipals totaling $18,516 and $18,568 at June 30, 2021, and December 31, 2020, respectively. Cash equivalents are carried at either cost or amortized cost, depending on the type of security, which approximates fair value.

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Revenue Recognition

6 Months Ended

Jun. 30, 2021

Revenue Recognition [Abstract]

Revenue Recognition

3. Revenue Recognition

The Company derives its revenue primarily from software development services and software subscriptions.  Applicable revenue recognition criteria are considered separately for each performance obligation as follows:

• Service revenue consists primarily of revenue earned from the performance of software development services. The majority of service contracts are structured as time and materials consulting agreements.  Revenue for services is generally recognized as the services are performed. Billing for services rendered generally occurs within one month after the services are provided.

• Subscription revenue consists primarily of revenue earned from the sale of software products and to a lesser extent the licensing of intellectual property. The majority of subscription contracts are recurring, paid in advance, and recognized over the term of the subscription, which is typically one to three years.

Customer arrangements may contain multiple performance obligations such as software development services, software products, and maintenance and support fees. The Company accounts for individual products and services separately if they are distinct. To determine the transaction price, the Company considers the terms of the contract and the Company’s customary business practices. Some contracts may contain variable consideration. In those cases, the Company estimates the amount of variable consideration based on the sum of probability-weighted amounts in a range of possible consideration amounts. As part of this assessment, the Company will evaluate whether any of the variable consideration is constrained and if it is the Company will not include it in the transaction price. The consideration is allocated between distinct products and services based on their stand-alone selling prices. For items that are not sold separately, the Company estimates the standalone selling price based on reasonably available information, including market conditions, specific factors affecting the Company, and information about the customer. For distinct products and services, the Company typically recognizes the revenue associated with these performance obligations as they are delivered to the customer.  Products and services that are not capable of being distinct are combined with other products or services until a distinct performance obligation is identified.

All revenue recognized in the Consolidated Statements of Operations is considered to be revenue from contracts with customers.

The following table provides information about disaggregated revenue by major target market in the Company’s single reporting segment:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Government
Service	$	3,522	$	3,713	$	7,107	$	7,365
Subscription		300		300		600		600
Total Government		3,822		4,013		7,707		7,965
Commercial
Service	$	269	$	179	$	468	$	265
Subscription		2,187		2,305		4,803		4,456
Total Commercial		2,456		2,484		5,271		4,721
Total	$	6,278	$	6,497	$	12,978	$	12,686

The Company has contract assets from contracts with customers that are classified as “trade accounts receivable.”  Financial information about trade accounts receivable is included in Note 8.  

The Company has contract liabilities from contracts with customers that are classified as “deferred revenue.”  Deferred revenue consists of billings in advance for services and subscriptions for which the performance obligation has not been satisfied.

The following table provides information about contract liabilities from contracts with customers:

	June 30,		December 31,
	2021		2020
Deferred revenue, current	$	2,659	$	3,002
Deferred revenue, long-term		42		30
Total	$	2,701	$	3,032

The Company recognized $2,010 of revenue during the six months ended June 30, 2021, that was included in the contract liability balance as of December 31, 2020.

The aggregate amount of the transaction prices from contractual obligations that are unsatisfied or partially unsatisfied was $16,645 and $17,921 as of June 30, 2021, and December 31, 2020, respectively.

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Segment Information

6 Months Ended

Jun. 30, 2021

Segment Reporting [Abstract]

Segment Information

4. Segment Information

Geographic Information

The Company derives its revenue from a single reporting segment: automatic identification solutions. Revenue is generated in this segment primarily through software development services and software subscriptions. The Company markets its products in the U.S. and in non-U.S. countries through its sales personnel and partners.

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

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Domestic	$	1,640	$	1,856	$	3,362	$	3,615
International (1)		4,638		4,641		9,616		9,071
Total	$	6,278	$	6,497	$	12,978	$	12,686

(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

The following customers accounted for 10% or more of revenue:

	Three			Three			Six			Six
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
	2021			2020			2021			2020
Central Banks		61	%		62	%		59	%		63	%
Walmart Inc.		13	%		12	%		12	%		12	%

Long-Lived Assets by Geographical Area

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

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2021

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 stock option grants and restricted stock, restricted stock unit, and performance restricted stock unit awards.

Stock-based compensation expense related to internal labor is capitalized to software and patent costs 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 on the date of grant (measurement date) using the Black-Scholes option pricing model. The Company recognizes the fair value of stock option awards on a straight-line basis over the vesting period of the award.

The following inputs are used in the Black-Scholes option pricing model to estimate the fair value of stock options:

Stock Price. The stock price represents the fair market value of the Company’s common stock on the date of the grant.

Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms and vesting schedules of the awards. Stock options granted generally vest over a service period of three years and have a contractual term of ten years.

Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the expected life of the award.

Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the expected life of the award.

Expected Dividend Yield. The expected dividend yield is derived by dividing the Company’s expected annual dividend rate over the expected term by the fair value of the Company’s common stock at the grant date.

 There were no stock options granted during the three and six months ended June 30, 2021 and 2020.

Restricted Stock

The fair value of restricted stock awards is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the vesting period of the award. Restricted stock awards granted generally vest over a service period of three to four years for employee grants and one to three years for director grants.

Restricted Stock Units

The fair value of restricted stock unit (“RSU”) awards, which vest upon meeting a service condition, is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the service period of the award, which is generally three years.

There were no RSUs granted during the three and six months ended June 30, 2021 and 2020.

Performance Restricted Stock Units

The fair value of performance restricted stock unit (“PRSU”) awards, which vest upon meeting a market condition, such as exceeding a target stock price in the future, and a service condition, is determined on the date of grant (measurement date) using the Monte Carlo valuation model. The Company recognizes the fair value of the award on a straight-line basis over the service period of the award, which is generally three years.

The following inputs are used in the Monte Carlo valuation model to estimate the fair value of PRSUs:

Stock Price. The stock price represents the fair market value of the Company’s common stock on the date of the grant.

Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the term of the award.

Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the term of the award.

There were no PRSUs granted during the three and six months ended June 30, 2021 and 2020.

On April 12, 2021, Bruce Davis notified the Company of his intention to retire as the Company’s President and Chief Executive Officer and as Chairman and a member of the Board of Directors effective April 12, 2021 (the “Transition Date”). In connection with his retirement, the Company entered into a Separation Agreement and General Release with Mr. Davis (the “Separation Agreement”), dated April 12, 2021. Pursuant to the Separation Agreement, Mr. Davis agreed to release certain claims he may have against the Company and other released parties, and Mr. Davis’s stock options, restricted stock and RSUs that vest solely based on continued service, and PRSUs that were earned and remained subject to time-based vesting, immediately vested with respect to the number of shares that would have vested if Mr. Davis’s employment had continued for an additional twenty-four months from the Transition Date, and his right to exercise vested stock options will expire on the earliest of (i) twenty-eight months from the Transition Date, (ii) the latest date the particular stock option could have expired by its original terms under any circumstances, or (iii) the tenth anniversary of the original date of grant of the particular stock option.

The terms of the Separation Agreement resulted in the acceleration of vesting for 137 stock options, 30 RSUs, and 82 PRSUs and the forfeiture of 35 stock options, 15 RSUs, and 42 PRSUs. The terms of the Separation Agreement also resulted in a modification to all outstanding stock options, as the expiration date for exercise of the options were extended beyond the original terms of the options, and 21 PRSUs were modified to provide for accelerated vesting. In accordance with ASC 718, Compensation –

Stock Compensation, the Company calculated the fair value of the modified stock options and PRSUs and calculated the fair value of the original stock options and PRSUs immediately before the modification. The Company recorded additional stock-based compensation expense of $1,926 upon modification of these awards.

The Company incurred $3,990 of stock-based compensation expense, including the impact of the modified awards, during the three and six months ended June 30, 2021, associated with the Separation Agreement.

Stock-Based Compensation

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Stock-based compensation:
Cost of revenue	$	178	$	196	$	351	$	386
Sales and marketing		1,550		604		1,990		1,083
Research, development and engineering		405		402		801		801
General and administrative		4,604		1,125		5,605		2,252
Stock-based compensation expense		6,737		2,327		8,747		4,522
Capitalized to software and patent costs		38		50		74		85
Total stock-based compensation	$	6,775	$	2,377	$	8,821	$	4,607

The following table sets forth total unrecognized compensation costs related to non-vested stock-based awards granted under the Company’s equity compensation plan:

	As of		As of
	June 30,		December 31,
	2021		2020
Total unrecognized compensation costs	$	13,411	$	14,416

Total unrecognized compensation costs will be adjusted for any future forfeitures if and when they occur.

The Company expects to recognize the total unrecognized compensation costs as of June 30, 2021, for stock option, restricted stock, RSU, and PRSU awards over weighted average periods through June 30, 2025, as follows:

	Stock		Restricted
	Options		Stock	RSUs		PRSUs
Weighted average period		—	1.37 years		—		—

As of June 30, 2021, under the Company’s stock-based compensation plan, an additional 859 shares remained available for future grants. The Company issues new shares upon exercises of stock options, grants of restricted stock awards and vesting of RSU and PRSU awards.

Stock Option Activity

The following table reconciles the outstanding balance of stock option awards:

				Weighted		Weighted
				Average		Average		Aggregate
	Number of			Exercise		Grant Date		Intrinsic
For the three and six months ended June 30, 2021:	Options			Price		Fair Value		Value
Outstanding at December 31, 2020 and March 31, 2021		305		$	27.94	$	12.65
Granted		—			—		—
Exercised		(70	)		15.36		10.42
Forfeited or expired		(35	)		15.36		7.36
Outstanding at June 30, 2021		200		$	34.55	$	15.43	$	395
Exercisable at June 30, 2021		200		$	34.55			$	395
Unvested at June 30, 2021		—		$	—			$	—

The aggregate intrinsic value is based on the closing price of $33.50 per share of Digimarc common stock on June 30, 2021, which would have been received by the optionees had all of the options with exercise prices less than $33.50 per share been exercised on that date.

Restricted Stock Activity

The following tables reconcile the unvested balance of restricted stock awards:

				Weighted
				Average
	Number of			Grant Date
Three months ended June 30, 2021:	Shares			Fair Value
Unvested balance, March 31, 2021		501		$	33.25
Granted		44		$	30.42
Vested		(71	)	$	26.94
Forfeited		(16	)	$	39.63
Unvested balance, June 30, 2021		458		$	33.76

				Weighted
				Average
	Number of			Grant Date
Six months ended June 30, 2021:	Shares			Fair Value
Unvested balance, December 31, 2020		416		$	28.20
Granted		198		$	40.95
Vested		(121	)	$	27.42
Forfeited		(35	)	$	30.34
Unvested balance, June 30, 2021		458		$	33.76

The following table indicates the fair value of all restricted stock awards that vested:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Fair value of restricted stock awards vested	$	2,285	$	1,260	$	4,460	$	3,071

Restricted Stock Units Activity

The following table reconciles the unvested balance of RSU awards:

				Weighted
				Average
	Number of			Grant Date
For the three and six months ended June 30, 2021:	Units			Fair Value
Unvested balance, December 31, 2020 and March 31, 2021		45		$	15.36
Granted		—		$	—
Vested		(30	)		15.36
Forfeited		(15	)	$	15.36
Unvested balance, June 30, 2021		—		$	—

The fair value of RSUs vested was $1,050 for the three and six months ended June 30, 2021.

Performance Restricted Stock Units Activity

The following table reconciles the unvested balance of PRSU awards:

				Weighted
				Average
	Number of			Grant Date
For the three and six months ended June 30, 2021:	Units			Fair Value
Unvested balance, December 31, 2020 and March 31, 2021		124		$	11.08
Granted		—		$	—
Vested (1)		(82	)		15.54
Forfeited		(42	)		11.08
Unvested balance, June 30, 2021		—		$	—

(1) Includes the impact of the modification of 21 PRSUs which were cancelled and reissued at a grant date fair value of $28.93.

The fair value of PRSUs vested was $2,886 for the three and six months ended June 30, 2021.

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Shareholders' Equity

6 Months Ended

Jun. 30, 2021

Equity [Abstract]

Shareholders' Equity

6. Shareholders’ Equity

In May 2019, the Company entered into an Equity Distribution Agreement, whereby the Company may sell from time to time through Wells Fargo Securities, LLC, as its sales agent, the Company’s common stock having an aggregate offering price of up to $30,000.

There were no shares sold for the three and six months ended June 30, 2021.

For the six months ended June 30, 2020, the Company sold 28 shares at an average price of $21.92 under the Equity Distribution Agreement totaling $611 of cash proceeds, less $14 of commissions and $23 of stock issuance costs, for net cash proceeds of $574.

As of June 30, 2021, there was $6,932 available for future issuance under the Equity Distribution Agreement.

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Earnings Per Common Share

6 Months Ended

Jun. 30, 2021

Earnings Per Share [Abstract]

Earnings Per Common Share

7. 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 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, RSUs and PRSUs. The dilutive effect of stock options, RSUs and PRSUs is determined using the treasury stock method.

The following table reconciles earnings (loss) per common share:

	Three			Three			Six			Six
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
	2021			2020			2021			2020
Basic Earnings (Loss) per Common Share:
Loss to common shares — basic	$	(15,422	)	$	(7,461	)	$	(23,644	)	$	(16,369	)
Weighted average common shares outstanding — basic		16,430			12,108			16,382			12,073
Basic earnings (loss) per common share	$	(0.94	)	$	(0.62	)	$	(1.44	)	$	(1.36	)
Diluted Earnings (Loss) per Common Share:
Net loss attributable to common shares — diluted	$	(15,422	)	$	(7,461	)	$	(23,644	)	$	(16,369	)
Weighted average common shares outstanding — diluted		16,430			12,108			16,382			12,073
Diluted earnings (loss) per common share	$	(0.94	)	$	(0.62	)	$	(1.44	)	$	(1.36	)

The following table indicates the common stock equivalents related to stock options, RSUs and PRSUs that were anti-dilutive and excluded from diluted earnings per common share calculations:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Anti-dilutive shares due to:
Exercise prices higher than the average market price		100		550		100		550
Net loss		—		—		61		—

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Trade Accounts Receivable

6 Months Ended

Jun. 30, 2021

Receivables [Abstract]

Trade Accounts Receivable

8. Trade Accounts Receivable

Trade Accounts Receivable

Trade accounts receivable are recorded at the contractual or invoiced amount.

	June 30,			December 31,
	2021			2020
Trade accounts receivable, current	$	4,615		$	3,932
Trade accounts receivable, long-term		267			—
Allowance for doubtful accounts		(25	)		(25	)
Trade accounts receivable, net	$	4,857		$	3,907
Unpaid deferred revenue included in trade    accounts receivable	$	715		$	1,711

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.

Major Customers

The following customers accounted for 10% or more of trade accounts receivable, net:

	June 30,			December 31,
	2021			2020
Central Banks		47	%		69	%
Walmart, Inc		15	%	*

* Less than 10%

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Property and Equipment

6 Months Ended

Jun. 30, 2021

Property Plant And Equipment [Abstract]

Property and Equipment

9. 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 ten years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the lease term.

	June 30,			December 31,
	2021			2020
Office furniture and fixtures	$	1,650		$	1,650
Software		5,354			5,004
Equipment		5,131			4,967
Leasehold improvements		1,658			1,658
Gross property and equipment		13,793			13,279
Less accumulated depreciation and amortization		(10,711	)		(10,007	)
Property and equipment, net	$	3,082		$	3,272

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Intangibles

6 Months Ended

Jun. 30, 2021

Goodwill And Intangible Assets Disclosure [Abstract]

Intangibles

10. 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. No impairment charges were recorded for the six months ended June 30, 2021 and 2020.

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.

	Estimated Life	June 30,			December 31,
	(years)	2021			2020
Capitalized patent costs	17-20	$	9,967		$	9,708
Intangible assets acquired:
Purchased patents and intellectual property	3-10		250			250
Existing technology	5		1,560			1,560
Customer relationships	7		290			290
Gross intangible assets			12,067			11,808
Accumulated amortization			(5,461	)		(5,196	)
Intangibles, net		$	6,606		$	6,612

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Leases

6 Months Ended

Jun. 30, 2021

Leases [Abstract]

Leases

11. Leases

The Company accounts for leases in accordance with ASC 842, “Leases.” The Company leases its corporate offices in Beaverton, Oregon. The term of the lease runs through March 2024, with remaining rent payments as of June 30, 2021, totaling $2,305, payable in monthly installments.

All of the Company’s leases are operating leases.  The following table provides additional details of leases presented in the Consolidated Balance Sheets:

	June 30,			December 31,
	2021			2020
Right of use assets	$	1,553		$	1,793
Lease liabilities, current	$	703		$	663
Lease liabilities, long-term	$	1,412		$	1,772
Weighted-average remaining life	2.7 years			3.2 years
Weighted-average discount rate		8	%		8	%

The carrying value of the right of use assets is included in “Other assets” and the current and long-term lease liabilities are included in “Accounts payable and other accrued liabilities” and “Lease liability and other long-term liabilities,” respectively, in the Consolidated Balance Sheets.

Operating lease expense is included in cost of revenue and operating expenses in the Consolidated Statements of Operations and in cash flows from operating activities in the Consolidated Statements of Cash Flows.  The operating leases include variable lease payments which are not material and are included in operating lease expense.  Additional details of the Company’s operating leases are presented in the following table:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Operating lease expense	$	253	$	253	$	510	$	516
Cash paid for operating leases	$	294	$	296	$	591	$	623

The table below reconciles the cash payment obligations for the first five years and total of the remaining years for the operating lease liability recorded in the Consolidated Balance Sheet as of June 30, 2021:

	Cash
	Payment
Year ending December 31:	Obligations
Remaining in 2021	$	423
2022		862
2023		867
2024		218
2025		—
Thereafter		—
Total lease payments		2,370
Imputed interest		(255	)
Total minimum lease payments	$	2,115

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Note Payable

6 Months Ended

Jun. 30, 2021

Notes Payable [Abstract]

Note Payable

12. Note Payable

Promissory Note under the Paycheck Protection Program

On April 16, 2020, the Company entered into a Promissory Note with Stearns Bank, N.A. in an aggregate principal amount of $5,032 (the “Note”), pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The Note matures two years from the disbursement date and bears interest at a rate of 1.000% per annum, with the first six months of interest deferred. Principal and interest are payable monthly commencing six months after the disbursement date and may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. The Note is subject to forgiveness to the extent proceeds are used for payroll costs, including payments required to continue group health care benefits, and certain rent, utility, and mortgage interest expenses (collectively, “Qualifying Expenses”), pursuant to the terms and limitations of the PPP. The Company believes that it used all of the proceeds from the Note for Qualifying Expenses. However, no assurance is provided that the Company will obtain forgiveness of the Note in whole or in part.

On June 29, 2020, the Company was notified by Stearns Bank, N.A. that the Note was transferred to The Loan Source, Inc., (the “Lender”) who will be responsible for servicing the Note going forward, including administering loan forgiveness.

On September 15, 2020, the Company filed its application for 100% forgiveness of the Note. The application was reviewed by the Lender and submitted to the Small Business Administration (“SBA”) for approval on December 17, 2020. The Company has not received any notification from the SBA on the status of the SBA’s review other than receiving a request for additional supporting documentation, which the Company has submitted. Principal and interest payments can be deferred until the forgiveness process is completed.

The following table provides information about the Note:

	June 30,		December 31,
	2021		2020
Note payable	$	5,032	$	5,032
Accrued interest		59		33
Total	$	5,091	$	5,065
Note payable, current	$	5,091	$	3,947
Note payable, long-term		—		1,118
Total	$	5,091	$	5,065

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Income Taxes

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

13. Income Taxes

The provision for income taxes for the six months ended June 30, 2021 and 2020 reflects current taxes, deferred taxes, and withholding taxes. The effective tax rate for each of the six months ended June 30, 2021 and 2020 was 0%. The valuation allowance against net deferred tax assets as of June 30, 2021, was $61,152, an increase of $5,513 from $55,639 as of December 31, 2020.

Excess tax benefits of $3,101 and $3,897 were recognized in the provision for income taxes for the three and six months ended June 30, 2021, respectively, which were offset by $3,101 and $3,897 of valuation allowance, respectively. Excess tax deficiencies of $1,003 and $748 were recognized in the provision for income taxes for the three and six months ended June 30, 2020, respectively, which were offset by $1,003 and $748, of valuation allowance, respectively.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2021

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

14. Commitments and Contingencies

Certain of the Company’s contracts include an indemnification provision for claims from third parties relating to the Company’s intellectual property. Such 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. At this time, the Company does not believe that the resolution of any such matters will have a material adverse effect on its financial position, results of operations, or cash flows.

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Description of Business and Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2021

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Description of Business

Description of Business

Digimarc Corporation (“Digimarc” or the “Company”), an Oregon corporation, is a pioneer in the automatic identification of media, including packaging, other commercial print, digital images, audio and video. The Digimarc Platform takes industry beyond the barcode, providing innovative and comprehensive automatic identification software and services to simplify search and transform information discovery. The Digimarc Platform enables applications that benefit retailers and consumer brands, national and state government agencies, media and entertainment industries, and others.

The Digimarc Platform features three core capabilities for the identification, discovery and quality management of media.  Digimarc Barcode integrates the identification function, which is a novel data carrier encoded into media in ways that are generally imperceptible to people, permitting the carrier to be repeated many times over the surface of the enhanced media. Digimarc Discover represents the discovery function, which is software for computing devices and network interfaces that recognize and decode indicia of the identity of media. These include, but are not limited to, Digimarc Barcodes, Quick Response Codes, Universal Product Codes, certain other Global Standards One (“GS1”) approved one-dimensional codes and relevant contextual data. Digimarc Verify incorporates the quality management function, a suite of software tools used to inspect and verify that the identification and discovery of media are both accurate and effective. Together, these core capabilities enable organizations, application developers, and other solution providers to build new and improve existing automatic identification solutions.

Interim Consolidated Financial Statements

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, 2020.

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, 2020, which was filed with the SEC on February 26, 2021. 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, including the reclassification of revenue by major target market. These reclassifications had no material effect on the results of operations or financial position for any period presented.

Goodwill

 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, 2021 and 2020, 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.

Accounting Pronouncements

Accounting Pronouncements Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (ASC 740) Simplifying the Accounting for Income Taxes,” that removes certain exceptions to the general

principles and also improves consistent application of and simplifies U.S. GAAP. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company adopted this new standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations and disclosures.

Accounting Pronouncements Issued But Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments,” which amends the guidance on the impairment of financial instruments. The amendments in this update remove the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The guidance removes all current recognition thresholds and introduces the new current expected credit loss (“CECL”) model which will require entities to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument’s contractual life. The new CECL model is based upon expected losses rather than incurred losses. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not expect the impact of the adoption of this standard to have a material impact on its financial condition, results of operations and disclosures.

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2021

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 was as follows:

June 30, 2021	Level 1		Level 2		Level 3		Total
Money market securities	$	18,515	$	—	$	—	$	18,515
Commercial paper		—		22,287		—		22,287
Pre-refunded municipals		—		14,395		—		14,395
Corporate notes		—		3,068		—		3,068
Total	$	18,515	$	39,750	$	—	$	58,265

December 31, 2020	Level 1		Level 2		Level 3		Total
Money market securities	$	10,988	$	—	$	—	$	10,988
Commercial paper		—		36,478		—		36,478
Pre-refunded municipals		—		26,697		—		26,697
Corporate notes		—		2,437		—		2,437
Total	$	10,988	$	65,612	$	—	$	76,600

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, 2021, were as follows:

	Maturities by Period
	Total		Less than 1 year		1-5 years		5 - 10 years		More than 10 years
Cash equivalents and marketable securities	$	58,265	$	58,108	$	157	$	—	$	—

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Revenue Recognition (Tables)

6 Months Ended

Jun. 30, 2021

Revenue Recognition [Abstract]

Schedule of Disaggregated Revenue By Major Product Line in Single Reporting Segment

The following table provides information about disaggregated revenue by major target market in the Company’s single reporting segment:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Government
Service	$	3,522	$	3,713	$	7,107	$	7,365
Subscription		300		300		600		600
Total Government		3,822		4,013		7,707		7,965
Commercial
Service	$	269	$	179	$	468	$	265
Subscription		2,187		2,305		4,803		4,456
Total Commercial		2,456		2,484		5,271		4,721
Total	$	6,278	$	6,497	$	12,978	$	12,686

Schedule of Contract Liabilities from Contracts with Customers

The following table provides information about contract liabilities from contracts with customers:

	June 30,		December 31,
	2021		2020
Deferred revenue, current	$	2,659	$	3,002
Deferred revenue, long-term		42		30
Total	$	2,701	$	3,032

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2021

Segment Reporting [Abstract]

Geographical Segment Revenue

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

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Domestic	$	1,640	$	1,856	$	3,362	$	3,615
International (1)		4,638		4,641		9,616		9,071
Total	$	6,278	$	6,497	$	12,978	$	12,686

(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 Accounted for 10% or More of Revenue

The following customers accounted for 10% or more of revenue:

	Three			Three			Six			Six
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
	2021			2020			2021			2020
Central Banks		61	%		62	%		59	%		63	%
Walmart Inc.		13	%		12	%		12	%		12	%

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2021

Share Based Compensation Arrangement By Share Based Payment Award [Line Items]

Allocation of Stock-Based Compensation

Stock-Based Compensation

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Stock-based compensation:
Cost of revenue	$	178	$	196	$	351	$	386
Sales and marketing		1,550		604		1,990		1,083
Research, development and engineering		405		402		801		801
General and administrative		4,604		1,125		5,605		2,252
Stock-based compensation expense		6,737		2,327		8,747		4,522
Capitalized to software and patent costs		38		50		74		85
Total stock-based compensation	$	6,775	$	2,377	$	8,821	$	4,607

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

The following table sets forth total unrecognized compensation costs related to non-vested stock-based awards granted under the Company’s equity compensation plan:

	As of		As of
	June 30,		December 31,
	2021		2020
Total unrecognized compensation costs	$	13,411	$	14,416

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

The Company expects to recognize the total unrecognized compensation costs as of June 30, 2021, for stock option, restricted stock, RSU, and PRSU awards over weighted average periods through June 30, 2025, as follows:

	Stock		Restricted
	Options		Stock	RSUs		PRSUs
Weighted average period		—	1.37 years		—		—

Reconciliation of Outstanding Balance of Stock Options

The following table reconciles the outstanding balance of stock option awards:

				Weighted		Weighted
				Average		Average		Aggregate
	Number of			Exercise		Grant Date		Intrinsic
For the three and six months ended June 30, 2021:	Options			Price		Fair Value		Value
Outstanding at December 31, 2020 and March 31, 2021		305		$	27.94	$	12.65
Granted		—			—		—
Exercised		(70	)		15.36		10.42
Forfeited or expired		(35	)		15.36		7.36
Outstanding at June 30, 2021		200		$	34.55	$	15.43	$	395
Exercisable at June 30, 2021		200		$	34.55			$	395
Unvested at June 30, 2021		—		$	—			$	—

Reconciliation of Unvested Balance of Restricted Stock

The following tables reconcile the unvested balance of restricted stock awards:

				Weighted
				Average
	Number of			Grant Date
Three months ended June 30, 2021:	Shares			Fair Value
Unvested balance, March 31, 2021		501		$	33.25
Granted		44		$	30.42
Vested		(71	)	$	26.94
Forfeited		(16	)	$	39.63
Unvested balance, June 30, 2021		458		$	33.76

				Weighted
				Average
	Number of			Grant Date
Six months ended June 30, 2021:	Shares			Fair Value
Unvested balance, December 31, 2020		416		$	28.20
Granted		198		$	40.95
Vested		(121	)	$	27.42
Forfeited		(35	)	$	30.34
Unvested balance, June 30, 2021		458		$	33.76

Fair Value of Restricted Stock Awards Vested

The following table indicates the fair value of all restricted stock awards that vested:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Fair value of restricted stock awards vested	$	2,285	$	1,260	$	4,460	$	3,071

Restricted Stock Units [Member]

Share Based Compensation Arrangement By Share Based Payment Award [Line Items]

Reconciliation of Unvested Balance of Restricted Stock Unit

The following table reconciles the unvested balance of RSU awards:

				Weighted
				Average
	Number of			Grant Date
For the three and six months ended June 30, 2021:	Units			Fair Value
Unvested balance, December 31, 2020 and March 31, 2021		45		$	15.36
Granted		—		$	—
Vested		(30	)		15.36
Forfeited		(15	)	$	15.36
Unvested balance, June 30, 2021		—		$	—

Performance Restricted Stock Units [Member]

Share Based Compensation Arrangement By Share Based Payment Award [Line Items]

Reconciliation of Unvested Balance of Performance Restricted Stock Unit

The following table reconciles the unvested balance of PRSU awards:

				Weighted
				Average
	Number of			Grant Date
For the three and six months ended June 30, 2021:	Units			Fair Value
Unvested balance, December 31, 2020 and March 31, 2021		124		$	11.08
Granted		—		$	—
Vested (1)		(82	)		15.54
Forfeited		(42	)		11.08
Unvested balance, June 30, 2021		—		$	—

(1) Includes the impact of the modification of 21 PRSUs which were cancelled and reissued at a grant date fair value of $28.93.

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Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2021

Earnings Per Share [Abstract]

Summary of Reconciliation of Earnings (Loss) Per Common Share

The following table reconciles earnings (loss) per common share:

	Three			Three			Six			Six
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
	2021			2020			2021			2020
Basic Earnings (Loss) per Common Share:
Loss to common shares — basic	$	(15,422	)	$	(7,461	)	$	(23,644	)	$	(16,369	)
Weighted average common shares outstanding — basic		16,430			12,108			16,382			12,073
Basic earnings (loss) per common share	$	(0.94	)	$	(0.62	)	$	(1.44	)	$	(1.36	)
Diluted Earnings (Loss) per Common Share:
Net loss attributable to common shares — diluted	$	(15,422	)	$	(7,461	)	$	(23,644	)	$	(16,369	)
Weighted average common shares outstanding — diluted		16,430			12,108			16,382			12,073
Diluted earnings (loss) per common share	$	(0.94	)	$	(0.62	)	$	(1.44	)	$	(1.36	)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The following table indicates the common stock equivalents related to stock options, RSUs and PRSUs that were anti-dilutive and excluded from diluted earnings per common share calculations:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Anti-dilutive shares due to:
Exercise prices higher than the average market price		100		550		100		550
Net loss		—		—		61		—

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Trade Accounts Receivable (Tables)

6 Months Ended

Jun. 30, 2021

Receivables [Abstract]

Summary of Trade Accounts Receivable

Trade accounts receivable are recorded at the contractual or invoiced amount.

	June 30,			December 31,
	2021			2020
Trade accounts receivable, current	$	4,615		$	3,932
Trade accounts receivable, long-term		267			—
Allowance for doubtful accounts		(25	)		(25	)
Trade accounts receivable, net	$	4,857		$	3,907
Unpaid deferred revenue included in trade    accounts receivable	$	715		$	1,711

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

The following customers accounted for 10% or more of trade accounts receivable, net:

	June 30,			December 31,
	2021			2020
Central Banks		47	%		69	%
Walmart, Inc		15	%	*

* Less than 10%

XML

Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2021

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 ten years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the lease term.

	June 30,			December 31,
	2021			2020
Office furniture and fixtures	$	1,650		$	1,650
Software		5,354			5,004
Equipment		5,131			4,967
Leasehold improvements		1,658			1,658
Gross property and equipment		13,793			13,279
Less accumulated depreciation and amortization		(10,711	)		(10,007	)
Property and equipment, net	$	3,082		$	3,272

XML

Intangibles (Tables)

6 Months Ended

Jun. 30, 2021

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.

	Estimated Life	June 30,			December 31,
	(years)	2021			2020
Capitalized patent costs	17-20	$	9,967		$	9,708
Intangible assets acquired:
Purchased patents and intellectual property	3-10		250			250
Existing technology	5		1,560			1,560
Customer relationships	7		290			290
Gross intangible assets			12,067			11,808
Accumulated amortization			(5,461	)		(5,196	)
Intangibles, net		$	6,606		$	6,612

XML

Leases (Tables)

6 Months Ended

Jun. 30, 2021

Leases [Abstract]

Additional Details of Leases Presented in Balance Sheets

All of the Company’s leases are operating leases.  The following table provides additional details of leases presented in the Consolidated Balance Sheets:

	June 30,			December 31,
	2021			2020
Right of use assets	$	1,553		$	1,793
Lease liabilities, current	$	703		$	663
Lease liabilities, long-term	$	1,412		$	1,772
Weighted-average remaining life	2.7 years			3.2 years
Weighted-average discount rate		8	%		8	%

Additional Details of Operating Lease Expense

Operating lease expense is included in cost of revenue and operating expenses in the Consolidated Statements of Operations and in cash flows from operating activities in the Consolidated Statements of Cash Flows.  The operating leases include variable lease payments which are not material and are included in operating lease expense.  Additional details of the Company’s operating leases are presented in the following table:

	Three		Three		Six		Six
	Months		Months		Months		Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Operating lease expense	$	253	$	253	$	510	$	516
Cash paid for operating leases	$	294	$	296	$	591	$	623

Reconciliation of Undiscounted Cash Payment Obligations of Operating Lease Liability

The table below reconciles the cash payment obligations for the first five years and total of the remaining years for the operating lease liability recorded in the Consolidated Balance Sheet as of June 30, 2021:

	Cash
	Payment
Year ending December 31:	Obligations
Remaining in 2021	$	423
2022		862
2023		867
2024		218
2025		—
Thereafter		—
Total lease payments		2,370
Imputed interest		(255	)
Total minimum lease payments	$	2,115

XML

Note Payable (Tables)

6 Months Ended

Jun. 30, 2021

Notes Payable [Abstract]

Schedule of Note Payable

The following table provides information about the Note:

	June 30,		December 31,
	2021		2020
Note payable	$	5,032	$	5,032
Accrued interest		59		33
Total	$	5,091	$	5,065
Note payable, current	$	5,091	$	3,947
Note payable, long-term		—		1,118
Total	$	5,091	$	5,065

XML

Description of Business and Summary of Significant Accounting Policies - Additional Information (Detail) - USD ($)	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Accounting Policies [Abstract]
Goodwill, Impairment Loss	$ 0	$ 0

XML

Fair Value of Financial Instruments - Summary of Fair Value Hierarchy for Financial Assets (Detail) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	$ 58,265
Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	58,265	$ 76,600
Fair Value, Measurements, Recurring [Member] | Money Market Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	18,515	10,988
Fair Value, Measurements, Recurring [Member] | Commercial Paper [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	22,287	36,478
Fair Value, Measurements, Recurring [Member] | Pre-refunded Municipals [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	14,395	26,697
Fair Value, Measurements, Recurring [Member] | Corporate Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	3,068	2,437
Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	18,515	10,988
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	18,515	10,988
Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Commercial Paper [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	0	0
Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Pre-refunded Municipals [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	0	0
Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Corporate Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	0	0
Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	39,750	65,612
Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Money Market Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	0	0
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	22,287	36,478
Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Pre-refunded Municipals [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	14,395	26,697
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	3,068	2,437
Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	0	0
Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Money Market Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	0	0
Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Commercial Paper [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	0	0
Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Pre-refunded Municipals [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	0	0
Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Corporate Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	$ 0	$ 0

XML

Fair Value of Financial Instruments - Summary of Fair Value Maturities for Financial Asset (Detail) $ in Thousands	Jun. 30, 2021 USD ($)
Fair Value Disclosures [Abstract]
Cash equivalents and marketable securities, Maturities by Period, Total	$ 58,265
Cash equivalents and marketable securities, Maturities by Period, Less than 1 year	58,108
Cash equivalents and marketable securities, Maturities by Period, 1-5 years	157
Cash equivalents and marketable securities, Maturities by Period, 5-10 years	0
Cash equivalents and marketable securities, Maturities by Period, More than 10 years	$ 0

XML

Fair Value of Financial Instruments - Additional Information (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Fair Value Disclosures [Abstract]
Highly liquid marketable securities with original maturities	90 days or less
Cash equivalents include commercial paper and money market funds	$ 18,516	$ 18,568

XML

Revenue Recognition - Additional Information (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Revenue Recognition [Abstract]
Period of revenue from services	1 month
Subscription revenue term, minimum	1 year
Subscription revenue term, maximum	3 years
Deferred revenue, revenue recognized	$ 2,010
Aggregate amount of transaction price from contractual obligations	$ 16,645	$ 17,921

XML

Revenue Recognition - Schedule of Disaggregated Revenue By Major Product Line in Single Reporting Segment (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Disaggregation Of Revenue [Line Items]
Total	$ 6,278	$ 6,497	$ 12,978	$ 12,686
Service [Member]
Disaggregation Of Revenue [Line Items]
Total	3,791	3,892	7,575	7,630
Subscription [Member]
Disaggregation Of Revenue [Line Items]
Total	2,487	2,605	5,403	5,056
Government [Member]
Disaggregation Of Revenue [Line Items]
Total	3,822	4,013	7,707	7,965
Government [Member] | Service [Member]
Disaggregation Of Revenue [Line Items]
Total	3,522	3,713	7,107	7,365
Government [Member] | Subscription [Member]
Disaggregation Of Revenue [Line Items]
Total	300	300	600	600
Commercial [Member]
Disaggregation Of Revenue [Line Items]
Total	2,456	2,484	5,271	4,721
Commercial [Member] | Service [Member]
Disaggregation Of Revenue [Line Items]
Total	269	179	468	265
Commercial [Member] | Subscription [Member]
Disaggregation Of Revenue [Line Items]
Total	$ 2,187	$ 2,305	$ 4,803	$ 4,456

XML

Revenue Recognition - Schedule of Contract Liabilities from Contracts with Customers (Detail) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Revenue Recognition [Abstract]
Deferred revenue, current	$ 2,659	$ 3,002
Deferred revenue, long-term	42	30
Total	$ 2,701	$ 3,032

XML

Segment Information - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2021 Segment
Revenue, Major Customer [Line Items]
Number of reporting segment	1
Customer Concentration Risk [Member] | Minimum [Member] | Sales [Member]
Revenue, Major Customer [Line Items]
Percentage of revenue from major customers	10.00%

XML

Segment Information - Geographical Segment Revenue (Detail) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue		$ 6,278	$ 6,497	$ 12,978	$ 12,686
Domestic [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue		1,640	1,856	3,362	3,615
International [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	[1]	$ 4,638	$ 4,641	$ 9,616	$ 9,071

[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.

XML

Segment Information - Customers Accounted for 10% or More of Revenue (Detail) - Customer Concentration Risk [Member] - Sales [Member]	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Central Banks [Member]
Revenue, Major Customer [Line Items]
Entity wide revenue major customers percentage	61.00%	62.00%	59.00%	63.00%
Walmart Inc. [Member]
Revenue, Major Customer [Line Items]
Entity wide revenue major customers percentage	13.00%	12.00%	12.00%	12.00%

XML

Stock-Based Compensation - Additional Information (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock options granted	0		0
Additional share-based compensation			$ 1,926
Share based compensation expense	$ 6,737	$ 2,327	$ 8,747	$ 4,522
Stock Options [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period for stock options and restricted stock			3 years
Contractual terms			10 years
Stock options granted	0	0	0	0
Number of options vested.			137
Number of non-vested options forfeited.			35
Stock-based compensation plans, number of additional shares authorized for future grants			859
Stock price	$ 33.50		$ 33.50
Restricted Stock [Member] | Minimum [Member] | Employee [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period for stock options and restricted stock			3 years
Restricted Stock [Member] | Minimum [Member] | Director [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period for stock options and restricted stock			1 year
Restricted Stock [Member] | Maximum [Member] | Employee [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period for stock options and restricted stock			4 years
Restricted Stock [Member] | Maximum [Member] | Director [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period for stock options and restricted stock			3 years
Restricted Stock Units [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period for stock options and restricted stock			3 years
Stock options granted	0	0	0	0
Number of options vested.			30
Number of non-vested options forfeited.			15
Fair value	$ 1,050		$ 1,050
Performance Restricted Stock Units [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period for stock options and restricted stock			3 years
Stock options granted	0	0	0	0
Number of options vested.			82
Number of non-vested options forfeited.			42
Stock cancelled and reissued			21
Fair value	$ 2,886		$ 2,886
Separation Agreement [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share based compensation expense	$ 3,990		$ 3,990

XML

Stock-Based Compensation - Allocation of Stock-Based Compensation (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 6,737	$ 2,327	$ 8,747	$ 4,522
Capitalized to software and patent costs	38	50	74	85
Total stock-based compensation	6,775	2,377	8,821	4,607
Cost of Revenue [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	178	196	351	386
Sales and Marketing [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	1,550	604	1,990	1,083
Research, Development and Engineering [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	405	402	801	801
General and Administrative [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 4,604	$ 1,125	$ 5,605	$ 2,252

XML

Stock-Based Compensation - Unrecognized Compensation Cost Related to Non-Vested Stock-Based Awards Granted (Detail) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Total unrecognized compensation costs	$ 13,411	$ 14,416

XML

Stock-Based Compensation - Weighted Average Period for Recognition of Unrecognized Compensation Cost for Stock Options and Restricted Stock (Detail)	6 Months Ended
	Jun. 30, 2021
Restricted Stock [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Weighted average period	1 year 4 months 13 days

XML

Stock-Based Compensation - Reconciliation of Outstanding Balance of Stock Options (Detail) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2021 USD ($) $ / shares shares	Jun. 30, 2021 USD ($) $ / shares shares
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Options, Outstanding at beginning | shares	305	305
Options, Granted | shares	0	0
Options, Exercised | shares	(70)	(70)
Options, Forfeited or expired | shares	(35)	(35)
Options, Outstanding at ending | shares	200	200
Options, Exercisable at ending | shares	200	200
Options, Unvested at ending | shares	0	0
Weighted Average Exercise Price, Outstanding at beginning	$ 27.94	$ 27.94
Weighted Average Exercise Price, Granted	0	0
Weighted Average Exercise Price, Exercised	15.36	15.36
Weighted Average Exercise Price, Forfeited or expired	15.36	15.36
Weighted Average Exercise Price, Outstanding at ending	34.55	34.55
Weighted Average Exercise Price, Exercisable at ending	34.55	34.55
Weighted Average Exercise Price, Unvested at ending	0	0
Weighted Average Grant Date Fair Value, Outstanding at beginning	12.65	12.65
Weighted Average Grant Date Fair Value, Granted	0	0
Weighted Average Grant Date Fair Value, Exercised	10.42	10.42
Weighted Average Grant Date Fair Value, Forfeited or expired	7.36	7.36
Weighted Average Grant Date Fair Value, Outstanding at ending	$ 15.43	$ 15.43
Aggregate Intrinsic Value, Outstanding | $	$ 395	$ 395
Aggregate Intrinsic Value, Exercisable | $	395	395
Aggregate Intrinsic Value, Unvested | $	$ 0	$ 0

XML

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, 2021	Jun. 30, 2021
Number of Shares
Unvested, beginning balance	501	416
Granted	44	198
Vested	(71)	(121)
Forfeited	(16)	(35)
Unvested, ending balance	458	458
Weighted Average Grant Date Fair Value
Unvested, beginning balance	$ 33.25	$ 28.20
Granted	30.42	40.95
Vested	26.94	27.42
Forfeited	39.63	30.34
Unvested, ending balance	$ 33.76	$ 33.76

XML

Stock-Based Compensation - Fair Value of Restricted Stock Awards Vested (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Restricted Stock [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Fair value of restricted stock awards vested	$ 2,285	$ 1,260	$ 4,460	$ 3,071

XML

Stock-Based Compensation - Reconciliation of Unvested Balance of Restricted Stock Unit (Detail) - Restricted Stock Units [Member] - $ / shares shares in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2021
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Unvested, beginning balance	45	45
Granted	0	0
Vested	(30)	(30)
Forfeited	(15)	(15)
Unvested, ending balance	0	0
Unvested, beginning balance	$ 15.36	$ 15.36
Granted	0	0
Vested	15.36	15.36
Forfeited	15.36	15.36
Unvested, ending balance	$ 0	$ 0

XML

Stock-Based Compensation - Reconciliation of Unvested Balance of Performance Restricted Stock Unit (Detail) - Performance Restricted Stock Units [Member] - $ / shares shares in Thousands		3 Months Ended	6 Months Ended
		Jun. 30, 2021	Jun. 30, 2021
Number of Shares
Unvested, beginning balance		124	124
Granted		0	0
Vested	[1]	(82)	(82)
Forfeited		(42)	(42)
Unvested, ending balance		0	0
Weighted Average Grant Date Fair Value
Unvested, beginning balance		$ 11.08	$ 11.08
Granted		0	0
Vested	[1]	15.54	15.54
Forfeited		11.08	11.08
Unvested, ending balance		$ 0	$ 0

[1] Includes the impact of the modification of 21 PRSUs which were cancelled and reissued at a grant date fair value of $28.93

XML

Stock-Based Compensation - Reconciliation of Unvested Balance of Performance Restricted Stock Unit (Detail)(Parenthetical) - Performance Restricted Stock Units [Member] shares in Thousands	6 Months Ended
	Jun. 30, 2021 $ / shares shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock cancelled and reissued | shares	21
Grant date fair value | $ / shares	$ 28.93

XML

Shareholders' Equity - Additional Information (Detail) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2021	Jun. 30, 2020	May 31, 2019
Equity Distribution Agreement
Common Stock Capital Value Reserved For Future Issuance	$ 6,932,000	$ 6,932,000
Common Stock [Member]
Issuance of common stock	0	0	28,000
Cash proceeds from sale of common stock		$ 574,000
Sale of common stock, sales agent commissions		14,000
Stock issuance costs		$ 23,000
Common Stock [Member] | Equity Distribution Agreement With Average Price Of Twenty One Point Nine Two
Issuance of common stock		28,000
Common stock price per share	$ 21.92	$ 21.92
Cash proceeds from sale of common stock		$ 611,000
Common Stock [Member] | Maximum [Member]
Aggregate offering price of common stock				$ 30,000,000

XML

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, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Basic Earnings (Loss) per Common Share:
Loss to common shares — basic	$ (15,422)	$ (7,461)	$ (23,644)	$ (16,369)
Weighted average common shares outstanding — basic	16,430	12,108	16,382	12,073
Basic earnings (loss) per common share	$ (0.94)	$ (0.62)	$ (1.44)	$ (1.36)
Diluted Earnings (Loss) per Common Share:
Net loss attributable to common shares — diluted	$ (15,422)	$ (7,461)	$ (23,644)	$ (16,369)
Weighted average common shares outstanding — diluted	16,430	12,108	16,382	12,073
Diluted earnings (loss) per common share	$ (0.94)	$ (0.62)	$ (1.44)	$ (1.36)

XML

Earnings Per Common Share - Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Detail) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
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	0	0	61	0
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	100	550	100	550

XML

Trade Accounts Receivable - Summary of Trade Accounts Receivable (Detail) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Accounts Receivable Net Current [Abstract]
Trade accounts receivable, current	$ 4,615	$ 3,932
Trade accounts receivable, long-term	267	0
Allowance for doubtful accounts	(25)	(25)
Trade accounts receivable, net	4,857	3,907
Unpaid deferred revenue included in trade accounts receivable	$ 715	$ 1,711

XML

Trade Accounts Receivable - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2021
Accounts Receivable [Member] | Minimum [Member] | Credit Concentration Risk [Member]
Concentration Risk [Line Items]
Percentage of trade accounts receivable of major customers	10.00%

XML

Trade Accounts Receivable - Customers Accounted for 10% or More of Trade Accounts Receivable, Net (Detail) - Accounts Receivable [Member] - Credit Concentration Risk [Member]	6 Months Ended	12 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Central Banks [Member]
Concentration Risk [Line Items]
Percentage of trade accounts receivable of major customers	47.00%	69.00%
Walmart Inc. [Member]
Concentration Risk [Line Items]
Percentage of trade accounts receivable of major customers	15.00%

XML

Trade Accounts Receivable - Customers Accounted for 10% or More of Trade Accounts Receivable, Net (Parenthetical) (Detail) - Accounts Receivable [Member] - Credit Concentration Risk [Member]	6 Months Ended
	Jun. 30, 2021
Minimum [Member]
Concentration Risk [Line Items]
Percentage of trade accounts receivable of major customers	10.00%
Walmart Inc. [Member]
Concentration Risk [Line Items]
Percentage of trade accounts receivable of major customers	15.00%
Walmart Inc. [Member] | Maximum [Member]
Concentration Risk [Line Items]
Percentage of trade accounts receivable of major customers	100.00%

XML

Property and Equipment - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2021
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	10 years

XML

Property and Equipment - Depreciation and Amortization on Property and Equipment Using the Straight-Line Method (Detail) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Property Plant And Equipment [Abstract]
Office furniture and fixtures	$ 1,650	$ 1,650
Software	5,354	5,004
Equipment	5,131	4,967
Leasehold improvements	1,658	1,658
Gross property and equipment	13,793	13,279
Less accumulated depreciation and amortization	(10,711)	(10,007)
Property and equipment, net	$ 3,082	$ 3,272

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Intangibles - Additional Information (Detail) - USD ($)	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Finite-Lived Intangible Assets [Line Items]
Impairment charges on intangible	$ 0	$ 0
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, 2021	Dec. 31, 2020
Finite-Lived Intangible Assets [Line Items]
Capitalized patent costs	$ 9,967	$ 9,708
Intangible assets acquired:
Gross intangible assets	12,067	11,808
Accumulated amortization	(5,461)	(5,196)
Intangibles, net	$ 6,606	6,612
Capitalized Patent Costs [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	17 years
Capitalized Patent Costs [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	20 years
Purchased Patents and Intellectual Property [Member]
Intangible assets acquired:
Intangible assets amount	$ 250	250
Purchased Patents and Intellectual Property [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	3 years
Purchased Patents and Intellectual Property [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	10 years
Existing Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	5 years
Intangible assets acquired:
Intangible assets amount	$ 1,560	1,560
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	7 years
Intangible assets acquired:
Intangible assets amount	$ 290	$ 290

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Leases - Additional Information (Detail) - USD ($) $ in Thousands	1 Months Ended	6 Months Ended
	Jul. 31, 2015	Jun. 30, 2021
Lessee Operating Lease [Line Items]
Remaining rent payments		$ 2,370
Beaverton, Oregon [Member]
Lessee Operating Lease [Line Items]
Existence of option to extend		0
Option to extend operating lease		0
Option to extend operating lease, month and year	2024-03
Remaining rent payments		$ 2,305

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Leases - Additional Details of Leases Presented in Balance Sheets (Detail) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Leases [Abstract]
Right of use assets	$ 1,553	$ 1,793
Lease liabilities, current	703	663
Lease liabilities, long-term	$ 1,412	$ 1,772
Weighted-average remaining life	2 years 8 months 12 days	3 years 2 months 12 days
Weighted-average discount rate	8.00%	8.00%

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Leases - Additional Details of Operating Lease Expense (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Leases [Abstract]
Operating lease expense	$ 253	$ 253	$ 510	$ 516
Cash paid for operating leases	$ 294	$ 296	$ 591	$ 623

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Leases - Reconciliation of Undiscounted Cash Payment Obligations of Operating Lease Liability (Detail) $ in Thousands	Jun. 30, 2021 USD ($)
Leases [Abstract]
Remaining in 2021	$ 423
2022	862
2023	867
2024	218
2025	0
Thereafter	0
Total lease payments	2,370
Imputed interest	(255)
Total minimum lease payments	$ 2,115

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Note Payables - Additional Information (Details) - USD ($) $ in Thousands		1 Months Ended
	Sep. 15, 2020	Apr. 16, 2020	Jun. 30, 2021	Dec. 31, 2020
Debt Instrument [Line Items]
Aggregate principal loan amount			$ 5,032	$ 5,032
Application of loan percentage to be applied to forgiveness of the note	100.00%
PPP [Member]
Debt Instrument [Line Items]
Aggregate principal loan amount		$ 5,032
Term of loan		2 years
Interest rate on loan per annum		1.00%
Loan, payment terms		Principal and interest are payable monthly commencing six months after the disbursement date and may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

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Note Payables - Schedule of Note Payables (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Notes Payable [Abstract]
Note payable	$ 5,032	$ 5,032
Accrued interest	59	33
Total	5,091	5,065
Note payable, current	5,091	3,947
Note payable, long-term	0	1,118
Total	$ 5,091	$ 5,065

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Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Income Tax Disclosure [Line Items]
Deferred tax assets, valuation allowance	$ 61,152		$ 61,152		$ 55,639
Effective tax rate			0.00%	0.00%
Change in valuation allowance			$ 5,513
ASU No. 2016-09 [Member]
Income Tax Disclosure [Line Items]
Excess tax benefits recognized in the provision for income taxes offset by valuation allowance	$ 3,101	$ 1,003	$ 3,897	$ 748