Quarterly Report (10-q)

Date : 07/25/2019 @ 6:03PM
Source : Edgar (US Regulatory)
Stock : Digimarc Corporation (DMRC)
Quote : 36.95  -0.03 (-0.08%) @ 11:01PM
After Hours
Last Trade
Last $ 36.95 ◊ 0.00 (0.00%)

Quarterly Report (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, 2019

OR

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

For the transition period from                      to                      

Commission File Number: 001-34108

 

DIGIMARC CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Oregon

 

26-2828185

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

9405 SW Gemini Drive, Beaverton, Oregon 97008

(Address of principal executive offices) (Zip Code)

(503) 469-4800

(Registrant’s telephone number, including area code)

 

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

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock, $0.001 Par Value Per Share

 

DMRC

 

The NASDAQ Stock Market LLC

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

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

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

As of July 19, 2019, there were 12,433,246 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 


 

Table of Contents

 

PART I FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited):

3

 

Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

3

 

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

4

 

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

5

 

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

6

 

Notes to Consolidated Financial Statements

7

Item 2.

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

18

Item 4.

Controls and Procedures

31

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 5.

Other Information

32

Item 6.

Exhibits

33

SIGNATURES

34

 

 

 

2


 

PART I. FINANCI AL INFORMATION

 

 

Item 1.

Financial Statements.

DIGIMARC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(UNAUDITED)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

33,166

 

 

$

27,278

 

Marketable securities

 

 

16,792

 

 

 

16,378

 

Trade accounts receivable, net

 

 

4,239

 

 

 

3,888

 

Other current assets

 

 

2,140

 

 

 

2,100

 

Total current assets

 

 

56,337

 

 

 

49,644

 

Property and equipment, net

 

 

3,632

 

 

 

3,955

 

Intangibles, net

 

 

6,699

 

 

 

6,649

 

Goodwill

 

 

1,114

 

 

 

1,114

 

Other assets

 

 

3,057

 

 

 

425

 

Total assets

 

$

70,839

 

 

$

61,787

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

2,660

 

 

$

1,092

 

Deferred revenue

 

 

2,824

 

 

 

3,226

 

Total current liabilities

 

 

5,484

 

 

 

4,318

 

Lease liability and other long-term liabilities

 

 

2,953

 

 

 

854

 

Total liabilities

 

 

8,437

 

 

 

5,172

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

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

 

 

50

 

 

 

50

 

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

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

   respectively)

 

 

12

 

 

 

12

 

Additional paid-in capital

 

 

184,611

 

 

 

162,428

 

Accumulated deficit

 

 

(122,271

)

 

 

(105,875

)

Total shareholders’ equity

 

 

62,402

 

 

 

56,615

 

Total liabilities and shareholders’ equity

 

$

70,839

 

 

$

61,787

 

 

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

 

 

3


 

DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(UNAUDITED)

 

 

 

Three

 

 

Three

 

 

Six

 

 

Six

 

 

 

 

Months

 

 

Months

 

 

Months

 

 

Months

 

 

 

 

Ended

 

 

Ended

 

 

Ended

 

 

Ended

 

 

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

3,529

 

 

$

3,336

 

 

$

7,164

 

 

$

6,843

 

 

Subscription

 

 

2,088

 

 

 

1,444

 

 

 

3,651

 

 

 

3,022

 

 

License

 

 

563

 

 

 

658

 

 

 

1,025

 

 

 

1,186

 

 

Total revenue

 

 

6,180

 

 

 

5,438

 

 

 

11,840

 

 

 

11,051

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

 

1,553

 

 

 

1,548

 

 

 

3,084

 

 

 

3,111

 

 

Subscription

 

 

465

 

 

 

508

 

 

 

910

 

 

 

990

 

 

License

 

 

167

 

 

 

149

 

 

 

325

 

 

 

289

 

 

Total cost of revenue

 

 

2,185

 

 

 

2,205

 

 

 

4,319

 

 

 

4,390

 

 

Gross profit

 

 

3,995

 

 

 

3,233

 

 

 

7,521

 

 

 

6,661

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

5,087

 

 

 

4,757

 

 

 

10,037

 

 

 

9,644

 

 

Research, development and engineering

 

 

3,981

 

 

 

4,058

 

 

 

8,019

 

 

 

8,005

 

 

General and administrative

 

 

2,686

 

 

 

2,416

 

 

 

5,538

 

 

 

5,048

 

 

Intellectual property

 

 

393

 

 

 

305

 

 

 

751

 

 

 

620

 

 

Total operating expenses

 

 

12,147

 

 

 

11,536

 

 

 

24,345

 

 

 

23,317

 

 

Operating loss

 

 

(8,152

)

 

 

(8,303

)

 

 

(16,824

)

 

 

(16,656

)

 

Other income, net

 

 

231

 

 

 

274

 

 

 

468

 

 

 

526

 

 

Loss before income taxes

 

 

(7,921

)

 

 

(8,029

)

 

 

(16,356

)

 

 

(16,130

)

 

Provision for income taxes

 

 

(12

)

 

 

(9

)

 

 

(40

)

 

 

(20

)

 

Net loss

 

$

(7,933

)

 

$

(8,038

)

 

$

(16,396

)

 

$

(16,150

)

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share — basic

 

$

(0.68

)

 

$

(0.71

)

 

$

(1.42

)

 

$

(1.43

)

 

Loss per common share — diluted

 

$

(0.68

)

 

$

(0.71

)

 

$

(1.42

)

 

$

(1.43

)

 

Weighted average common shares outstanding — basic

 

 

11,665

 

 

 

11,337

 

 

 

11,576

 

 

 

11,302

 

 

Weighted average common shares outstanding — diluted

 

 

11,665

 

 

 

11,337

 

 

 

11,576

 

 

 

11,302

 

 

 

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

 

 

4


 

DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Three months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT MARCH 31, 2018

 

 

10

 

 

$

50

 

 

 

11,847

 

 

$

12

 

 

$

157,540

 

 

$

(81,481

)

 

$

76,121

 

Exercise of stock options

 

 

 

 

 

 

 

 

26

 

 

 

 

 

 

354

 

 

 

 

 

 

354

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(20

)

 

 

 

 

 

(592

)

 

 

 

 

 

(592

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,858

 

 

 

 

 

 

1,858

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,038

)

 

 

(8,038

)

BALANCE AT JUNE 30, 2018

 

 

10

 

 

$

50

 

 

 

11,876

 

 

$

12

 

 

$

159,160

 

 

$

(89,519

)

 

$

69,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2017

 

 

10

 

 

$

50

 

 

 

11,651

 

 

$

12

 

 

$

155,793

 

 

$

(73,508

)

 

$

82,347

 

Exercise of stock options

 

 

 

 

 

 

 

 

72

 

 

 

 

 

 

914

 

 

 

 

 

 

914

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

210

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(19

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

 

(1,120

)

 

 

 

 

 

(1,120

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,573

 

 

 

 

 

 

3,573

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139

 

 

 

139

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,150

)

 

 

(16,150

)

BALANCE AT JUNE 30, 2018

 

 

10

 

 

$

50

 

 

 

11,876

 

 

$

12

 

 

$

159,160

 

 

$

(89,519

)

 

$

69,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT MARCH 31, 2019

 

 

10

 

 

$

50

 

 

 

12,135

 

 

$

12

 

 

$

164,119

 

 

$

(114,338

)

 

$

49,843

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

 

336

 

 

 

 

 

 

19,615

 

 

 

 

 

 

19,615

 

Exercise of stock options

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

194

 

 

 

 

 

 

194

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(45

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

(1,382

)

 

 

 

 

 

(1,382

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,065

 

 

 

 

 

 

2,065

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,933

)

 

 

(7,933

)

BALANCE AT JUNE 30, 2019

 

 

10

 

 

$

50

 

 

 

12,433

 

 

$

12

 

 

$

184,611

 

 

$

(122,271

)

 

$

62,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2018

 

 

10

 

 

$

50

 

 

 

11,891

 

 

$

12

 

 

$

162,428

 

 

$

(105,875

)

 

$

56,615

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

 

336

 

 

 

 

 

 

19,615

 

 

 

 

 

 

19,615

 

Exercise of stock options

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

293

 

 

 

 

 

 

293

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

273

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted common stock

 

 

 

 

 

 

 

 

(46

)

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common stock

 

 

 

 

 

 

 

 

(44

)

 

 

 

 

 

(1,868

)

 

 

 

 

 

(1,868

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,143

 

 

 

 

 

 

4,143

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,396

)

 

 

(16,396

)

BALANCE AT JUNE 30, 2019

 

 

10

 

 

$

50

 

 

 

12,433

 

 

$

12

 

 

$

184,611

 

 

$

(122,271

)

 

$

62,402

 

 

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

 

 

5


 

DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)

 

 

 

Six

 

 

Six

 

 

 

Months

 

 

Months

 

 

 

Ended

 

 

Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(16,396

)

 

$

(16,150

)

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

Depreciation, amortization and write-off of property and equipment

 

 

747

 

 

 

764

 

Amortization and write-off of intangibles

 

 

372

 

 

 

287

 

Stock-based compensation

 

 

4,053

 

 

 

3,480

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(351

)

 

 

2,561

 

Other current assets

 

 

(40

)

 

 

210

 

Other assets

 

 

77

 

 

 

(35

)

Accounts payable and other accrued liabilities

 

 

1,132

 

 

 

(227

)

Deferred revenue

 

 

(244

)

 

 

(658

)

Lease liability and other long-term liabilities

 

 

(325

)

 

 

(21

)

Net cash used in operating activities

 

 

(10,975

)

 

 

(9,789

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(404

)

 

 

(557

)

Capitalized patent costs

 

 

(359

)

 

 

(402

)

Maturity of marketable securities

 

 

14,671

 

 

 

20,839

 

Purchase of marketable securities

 

 

(15,085

)

 

 

(15,637

)

Net cash provided by (used in) investing activities

 

 

(1,177

)

 

 

4,243

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock, net of issuance costs

 

 

19,615

 

 

 

 

Exercise of stock options

 

 

293

 

 

 

914

 

Purchase of common stock

 

 

(1,868

)

 

 

(1,120

)

Net cash provided by (used in) financing activities

 

 

18,040

 

 

 

(206