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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, 2022

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.)

8500 SW Creekside Place, Beaverton, Oregon 97008

(Address of principal executive offices) (Zip Code)

(503469-4800

(Registrant’s telephone number, including area code)

 

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

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock, $0.001 Par Value Per Share

 

DMRC

 

The NASDAQ Stock Market LLC

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

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

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

As of October 31, 2022, there were 20,035,955 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, 2022 and December 31, 2021

3

 

Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021

4

 

Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2022 and 2021

5

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

6

 

Notes to Consolidated Financial Statements

7

Item 2.

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

24

Item 4.

Controls and Procedures

40

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 6.

Exhibits

43

SIGNATURES

44

 

 

 

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,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,355

 

 

$

13,789

 

Marketable securities

 

 

16,002

 

 

 

19,537

 

Trade accounts receivable, net

 

 

7,800

 

 

 

6,368

 

Loan receivable from related party

 

 

 

 

 

2,001

 

Other current assets

 

 

6,291

 

 

 

2,316

 

Total current assets

 

 

70,448

 

 

 

44,011

 

Marketable securities

 

 

 

 

 

8,292

 

Property and equipment, net

 

 

2,633

 

 

 

2,875

 

Intangibles, net

 

 

34,032

 

 

 

6,611

 

Goodwill

 

 

6,401

 

 

 

1,114

 

Lease right of use assets

 

 

5,209

 

 

 

1,300

 

Other assets

 

 

1,198

 

 

 

673

 

Total assets

 

$

119,921

 

 

$

64,876

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

8,219

 

 

$

4,727

 

Deferred revenue

 

 

4,727

 

 

 

2,989

 

Total current liabilities

 

 

12,946

 

 

 

7,716

 

Long-term lease liabilities

 

 

6,051

 

 

 

1,028

 

Other long-term liabilities

 

 

96

 

 

 

752

 

Total liabilities

 

 

19,093

 

 

 

9,496

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

issued and outstanding at September 30, 2022 and December 31, 2021)

 

 

50

 

 

 

50

 

Common stock (par value $0.001 per share, 50,000 authorized, 20,037 and

16,940 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively)

 

 

20

 

 

 

17

 

Additional paid-in capital

 

 

361,055

 

 

 

261,324

 

Accumulated deficit

 

 

(253,361

)

 

 

(206,011

)

Accumulated other comprehensive income (loss)

 

 

(6,936

)

 

 

 

Total shareholders’ equity

 

 

100,828

 

 

 

55,380

 

Total liabilities and shareholders’ equity

 

$

119,921

 

 

$

64,876

 

 

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

 

 

3


 

 

DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

3,735

 

 

$

3,932

 

 

$

11,858

 

 

$

11,507

 

Subscription

 

 

4,086

 

 

 

2,485

 

 

 

11,121

 

 

 

7,888

 

Total revenue

 

 

7,821

 

 

 

6,417

 

 

 

22,979

 

 

 

19,395

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service (1)

 

 

1,602

 

 

 

1,630

 

 

 

5,177

 

 

 

4,715

 

Subscription (1)

 

 

1,006

 

 

 

567

 

 

 

2,934

 

 

 

1,892

 

Amortization expense on acquired intangible assets

 

 

1,048

 

 

 

 

 

 

3,362

 

 

 

 

Total cost of revenue

 

 

3,656

 

 

 

2,197

 

 

 

11,473

 

 

 

6,607

 

Gross profit

 

 

4,165

 

 

 

4,220

 

 

 

11,506

 

 

 

12,788

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

7,684

 

 

 

4,647

 

 

 

23,702

 

 

 

15,865

 

Research, development and engineering

 

 

7,575

 

 

 

4,586

 

 

 

19,731

 

 

 

12,930

 

General and administrative

 

 

4,132

 

 

 

2,943

 

 

 

15,027

 

 

 

15,611

 

Amortization expense on acquired intangible assets

 

 

301

 

 

 

 

 

 

964

 

 

 

 

Impairment of lease right of use assets and leasehold improvements

 

 

 

 

 

 

 

 

574

 

 

 

 

Total operating expenses

 

 

19,692

 

 

 

12,176

 

 

 

59,998

 

 

 

44,406

 

Operating loss

 

 

(15,527

)

 

 

(7,956

)

 

 

(48,492

)

 

 

(31,618

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on extinguishment of note payable

 

 

 

 

 

5,094

 

 

 

 

 

 

5,094

 

Refundable tax credit

 

 

376

 

 

 

 

 

 

878

 

 

 

 

Other income (loss)

 

 

247

 

 

 

(2

)

 

 

336

 

 

 

26

 

Other income, net

 

 

623

 

 

 

5,092

 

 

 

1,214

 

 

 

5,120

 

Loss before income taxes

 

 

(14,904

)

 

 

(2,864

)

 

 

(47,278

)

 

 

(26,498

)

Provision for income taxes

 

 

(26

)

 

 

(7

)

 

 

(72

)

 

 

(17

)

Net loss

 

$

(14,930

)

 

$

(2,871

)

 

$

(47,350

)

 

$

(26,515

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share — basic

 

$

(0.76

)

 

$

(0.17

)

 

$

(2.51

)

 

$

(1.61

)

Loss per common share — diluted

 

$

(0.76

)

 

$

(0.17

)

 

$

(2.51

)

 

$

(1.61

)

Weighted average common shares outstanding — basic

 

 

19,721

 

 

 

16,520

 

 

 

18,877

 

 

 

16,428

 

Weighted average common shares outstanding — diluted

 

 

19,721

 

 

 

16,520

 

 

 

18,877

 

 

 

16,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities, net of tax of $0

 

$

51

 

 

$

 

 

$

(199

)

 

$

 

Foreign currency translation adjustment, net of tax of $0

 

 

(3,118

)

 

 

 

 

 

(6,737

)

 

 

 

Other comprehensive loss

 

$

(3,067

)

 

$

 

 

$

(6,936

)

 

$

 

Net loss

 

 

(14,930

)

 

 

(2,871

)

 

 

(47,350

)

 

 

(26,515

)

Comprehensive loss

 

$

(17,997

)

 

$

(2,871

)

 

$

(54,286

)

 

$

(26,515

)

(1) Cost of revenue for Service and Subscription excludes amortization expense on acquired intangible assets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4


 

DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Three months ended September 30, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JUNE 30, 2022

 

 

10

 

 

$

50

 

 

 

19,959

 

 

$

20

 

 

$

357,509

 

 

$

(238,431

)

 

$

(3,869

)

 

$

115,279

 

Issuance of common stock

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

872

 

 

 

 

 

 

 

 

 

872

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

 

 

 

 

 

 

 

102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of common stock

 

 

 

 

 

 

 

 

(55

)

 

 

 

 

 

(923

)

 

 

 

 

 

 

 

 

(923

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,597

 

 

 

 

 

 

 

 

 

3,597

 

Unrealized gain (loss) on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

51

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,118

)

 

 

(3,118

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,930

)

 

 

 

 

 

(14,930

)

BALANCE AT SEPTEMBER 30, 2022

 

 

10

 

 

$

50

 

 

 

20,037

 

 

$

20

 

 

$

361,055

 

 

$

(253,361

)

 

$

(6,936

)

 

$

100,828

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 of common stock

 

 

 

 

 

 

 

 

(119

)

 

 

 

 

 

(4,079

)

 

 

 

 

 

 

 

 

(4,079

)

Stock-based compensation