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Al

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 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)

(503469-4800

(Registrant’s telephone number, including area code)

 

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

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock, $0.001 Par Value Per Share

 

DMRC

 

The NASDAQ Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

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

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

As of November 8, 2021, there were 16,931,632 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 


 

 

Table of Contents

 

PART I FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited):

3

 

Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

3

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020

4

 

Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2021 and 2020

5

 

Consolidated Statements of Cash Flows for the nine months ended September 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

21

Item 4.

Controls and Procedures

35

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 6.

Exhibits

37

SIGNATURES

38

 

 

 

2


 

 

PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements.

DIGIMARC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(UNAUDITED)

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,155

 

 

$

19,696

 

Marketable securities

 

 

19,037

 

 

 

58,032

 

Trade accounts receivable, net

 

 

4,110

 

 

 

3,907

 

Other current assets

 

 

2,550

 

 

 

2,197

 

Total current assets

 

 

50,852

 

 

 

83,832

 

Marketable securities

 

 

8,298

 

 

 

 

Property and equipment, net

 

 

2,962

 

 

 

3,272

 

Intangibles, net

 

 

6,614

 

 

 

6,612

 

Goodwill

 

 

1,114

 

 

 

1,114

 

Other assets

 

 

2,112

 

 

 

2,198

 

Total assets

 

$

71,952

 

 

$

97,028

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

4,236

 

 

$

2,827

 

Deferred revenue

 

 

2,146

 

 

 

3,002

 

Note payable, current

 

 

 

 

 

3,947

 

Total current liabilities

 

 

6,382

 

 

 

9,776

 

Lease liability and other long-term liabilities

 

 

2,685

 

 

 

2,295

 

Note payable, long-term

 

 

 

 

 

1,118

 

Total liabilities

 

 

9,067

 

 

 

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 September 30, 2021 and December 31, 2020)

 

 

50

 

 

 

50

 

Common stock (par value $0.001 per share, 50,000 authorized, 16,933 and

16,735 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively)

 

 

17

 

 

 

17

 

Additional paid-in capital

 

 

260,585

 

 

 

255,024

 

Accumulated deficit

 

 

(197,767

)

 

 

(171,252

)

Total shareholders’ equity

 

 

62,885

 

 

 

83,839

 

Total liabilities and shareholders’ equity

 

$

71,952

 

 

$

97,028

 

 

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

 

 

3


 

 

DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(UNAUDITED)

 

 

 

Three

 

 

Three

 

 

Nine

 

 

Nine

 

 

 

Months

 

 

Months

 

 

Months

 

 

Months

 

 

 

Ended

 

 

Ended

 

 

Ended

 

 

Ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

3,932

 

 

$

3,352

 

 

$

11,507

 

 

$

10,982

 

Subscription

 

 

2,485

 

 

 

2,399

 

 

 

7,888

 

 

 

7,455

 

Total revenue

 

 

6,417

 

 

 

5,751

 

 

 

19,395

 

 

 

18,437

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

 

1,630

 

 

 

1,406

 

 

 

4,715

 

 

 

4,691

 

Subscription

 

 

567

 

 

 

522

 

 

 

1,892

 

 

 

1,548

 

Total cost of revenue

 

 

2,197

 

 

 

1,928

 

 

 

6,607

 

 

 

6,239

 

Gross profit

 

 

4,220

 

 

 

3,823

 

 

 

12,788

 

 

 

12,198

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

4,647

 

 

 

4,538

 

 

 

15,865

 

 

 

14,417

 

Research, development and engineering

 

 

4,586

 

 

 

4,662

 

 

 

12,930

 

 

 

13,303

 

General and administrative

 

 

2,943

 

 

 

3,009

 

 

 

15,611

 

 

 

9,457

 

Total operating expenses

 

 

12,176

 

 

 

12,209

 

 

 

44,406

 

 

 

37,177

 

Operating loss

 

 

(7,956

)

 

 

(8,386

)

 

 

(31,618

)

 

 

(24,979

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on extinguishment of note payable

 

 

5,094

 

 

 

 

 

 

5,094

 

 

 

 

Other income (loss)

 

 

(2

)

 

 

36

 

 

 

26

 

 

 

257

 

Other income, net

 

 

5,092

 

 

 

36

 

 

 

5,120

 

 

 

257

 

Loss before income taxes

 

 

(2,864

)

 

 

(8,350

)

 

 

(26,498

)

 

 

(24,722

)

Benefit (provision) for income taxes

 

 

(7

)

 

 

(2

)

 

 

(17

)

 

 

1

 

Net loss

 

$

(2,871

)

 

$

(8,352

)

 

$

(26,515

)

 

$

(24,721

)

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share — basic

 

$

(0.17

)

 

$

(0.68

)

 

$

(1.61

)

 

$

(2.04

)

Loss per common share — diluted

 

$

(0.17

)

 

$

(0.68

)

 

$

(1.61

)

 

$

(2.04

)

Weighted average common shares outstanding — basic

 

 

16,520

 

 

 

12,241

 

 

 

16,428

 

 

 

12,129

 

Weighted average common shares outstanding — diluted

 

 

16,520

 

 

 

12,241

 

 

 

16,428

 

 

 

12,129

 

 

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

 

 

4


 

 

DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Three months ended September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JUNE 30, 2021

 

 

10

 

 

$

50

 

 

 

16,943

 

 

$

17

 

 

$

260,071

 

 

$

(194,896

)

 

$

65,242

 

Exercise of stock options

 

 

 

 

 

 

 

 

100

 

 

 

 

 

 

2,955

 

 

 

 

 

 

2,955

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(16

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(119

)

 

 

 

 

 

(4,079

)

 

 

 

 

 

(4,079

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,638

 

 

 

 

 

 

1,638

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,871

)

 

 

(2,871

)

BALANCE AT SEPTEMBER 30, 2021

 

 

10

 

 

$

50

 

 

 

16,933

 

 

$

17

 

 

$

260,585

 

 

$

(197,767

)

 

$

62,885

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JUNE 30, 2020

 

 

10

 

 

$

50

 

 

 

12,659

 

 

$

13

 

 

$

192,298

 

 

$

(155,084

)

 

$

37,277

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

 

2,676

 

 

 

2

 

 

 

38,027

 

 

 

 

 

 

38,029

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(29

)

 

 

 

 

 

(448

)

 

 

 

 

 

(448

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,667

 

 

 

 

 

 

2,667

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,352

)

 

 

(8,352

)

BALANCE AT SEPTEMBER 30, 2020

 

 

10

 

 

$

50

 

 

 

15,316

 

 

$

15

 

 

$

232,544

 

 

$

(163,436

)

 

$

69,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2020

 

 

10

 

 

$

50

 

 

 

16,735

 

 

$

17

 

 

$

255,024

 

 

$

(171,252

)

 

$

83,839

 

Exercise of stock options

 

 

 

 

 

 

 

 

170

 

 

 

 

 

 

4,030

 

 

 

 

 

 

4,030

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

223

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

 

 

 

 

 

 

 

112

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(51

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(256

)

 

 

 

 

 

(8,928

)

 

 

 

 

 

(8,928

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,459

 

 

 

 

 

 

10,459

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,515

)

 

 

(26,515

)

BALANCE AT SEPTEMBER 30, 2021

 

 

10

 

 

$

50

 

 

 

16,933

 

 

$

17

 

 

$

260,585

 

 

$

(197,767

)

 

$

62,885

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2019

 

 

10

 

 

$

50

 

 

 

12,446

 

 

$

12

 

 

$

188,103

 

 

$

(138,715

)

 

$

49,450

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

 

2,704

 

 

 

3

 

 

 

38,600