{"url_path":"/sec/dmrc/10-q/2026/item-6","section_key":"item-6","section_title":"Item 6 [Exhibits](#exhibits)","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-13","source_url":"https://www.sec.gov/Archives/edgar/data/1438231/0001437749-26-016725-index.html","accession_number":"0001437749-26-016725","cik":"0001438231","ticker":"DMRC","issuer_name":"Old Digimarc CORP","edgar_url":"https://www.sec.gov/Archives/edgar/data/1438231/0001437749-26-016725-index.html","primary_entity_key":"0001438231","primary_entity_name":"Digimarc CORP"},"word_count":12686,"has_tables":true,"body_markdown":"Item 6.\n\n[Exhibits](#exhibits)\n\n[29](#exhibits)\n\n[SIGNATURES](#signatures)\n\n[30](#signatures)\n\n \n\n2\n\n[Table of Contents](#toc)\n\n \n\n \n\n**PART I. FINANCIAL INFORMATION**\n\n \n\n**Item** **1.**         **Financial Statements.**\n\n \n\n**DIGIMARC CORPORATION**\n\n**CONSOLIDATED BALANCE SHEETS**\n\n**(In thousands, except per share data)**\n\n**(UNAUDITED)**\n\n \n\n  \n**March 31,**\n  \n**December 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\n**ASSETS**\n        \n\nCurrent assets:\n        \n\nCash and cash equivalents\n $8,818  $9,820 \n\nMarketable securities\n  1,145   3,046 \n\nTrade accounts receivable, net\n  7,092   6,513 \n\nOther current assets\n  1,988   1,961 \n\nTotal current assets\n  19,043   21,340 \n\nProperty and equipment, net\n  989   1,104 \n\nIntangibles, net\n  15,244   17,045 \n\nGoodwill\n  8,923   9,056 \n\nLease right of use assets\n  3,121   3,238 \n\nOther assets\n  1,190   1,175 \n\nTotal assets\n $48,510  $52,958 \n\n**LIABILITIES AND SHAREHOLDERS’ EQUITY**\n        \n\nCurrent liabilities:\n        \n\nAccounts payable and other accrued liabilities\n $6,004  $4,359 \n\nDeferred revenue\n  4,227   3,993 \n\nTotal current liabilities\n  10,231   8,352 \n\nLong-term lease liabilities\n  4,073   4,314 \n\nOther long-term liabilities\n  140   63 \n\nTotal liabilities\n  14,444   12,729 \n\nCommitments and contingencies (Note 15)\n          \n\nShareholders’ equity:\n        \n\nPreferred stock (par value $0.001 per share, 2,500 authorized, 10 shares issued and outstanding at March 31, 2026 and December 31, 2025)\n  50   50 \n\nCommon stock (par value $0.001 per share, 50,000 authorized, 22,140 and 21,901 shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively)\n  22   22 \n\nAdditional paid-in capital\n  425,789   424,665 \n\nAccumulated deficit\n  (390,053)  (383,087)\n\nAccumulated other comprehensive loss\n  (1,742)  (1,421)\n\nTotal shareholders’ equity\n  34,066   40,229 \n\nTotal liabilities and shareholders’ equity\n $48,510  $52,958 \n\n \n\nThe accompanying notes are an integral part of these consolidated financial statements.\n\n \n\n3\n\n[Table of Contents](#toc)\n\n \n\n \n\n**DIGIMARC CORPORATION**\n\n**CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**\n\n**(In thousands, except per share data)**\n\n**(UNAUDITED)**\n\n \n\n  \n**Three Months Ended March 31,**\n** **\n\n  \n**2026**\n  \n**2025**\n \n\nRevenue:\n        \n\nSubscription\n $4,369  $5,314 \n\nService\n  3,210   4,054 \n\nTotal revenue\n  7,579   9,368 \n\nCost of revenue:\n        \n\nSubscription (1)\n  456   744 \n\nService (1)\n  1,378   1,407 \n\nAmortization expense on acquired intangible assets\n  1,208   1,132 \n\nTotal cost of revenue\n  3,042   3,283 \n\nGross profit\n  4,537   6,085 \n\nOperating expenses:\n        \n\nSales and marketing\n  2,082   5,078 \n\nResearch, development and engineering\n  3,747   7,634 \n\nGeneral and administrative\n  5,555   5,181 \n\nAmortization expense on acquired intangible assets\n  289   271 \n\nTotal operating expenses\n  11,673   18,164 \n\nOperating loss\n  (7,136)  (12,079)\n\nOther income, net\n  171   369 \n\nLoss before income taxes\n  (6,965)  (11,710)\n\nProvision for income taxes\n  (1)  (20)\n\nNet loss\n $(6,966) $(11,730)\n\n         \n\nNet loss per share:\n        \n\nNet loss per share — basic\n $(0.32) $(0.55)\n\nNet loss per share — diluted\n $(0.32) $(0.55)\n\nWeighted average shares outstanding — basic\n  22,008   21,521 \n\nWeighted average shares outstanding — diluted\n  22,008   21,521 \n\n         \n\nComprehensive loss:\n        \n\nUnrealized gain (loss) on marketable securities, net of tax of $0\n $(21) $(11)\n\nForeign currency translation adjustment, net of tax of $0\n  (300)  679 \n\nOther comprehensive income (loss)\n $(321) $668 \n\nNet loss\n  (6,966)  (11,730)\n\nComprehensive loss\n $(7,287) $(11,062)\n\n(1) Cost of revenue for Subscription and Service excludes amortization expense on acquired intangible assets.\n\n \n\nThe accompanying notes are an integral part of these consolidated financial statements.\n\n \n\n4\n\n[Table of Contents](#toc)\n\n  \n\n \n\n** DIGIMARC CORPORATION**\n\n**CONSOLIDATED STATEMENTS OF SHAREHOLDERS**’** EQUITY**\n\n**(In thousands)**\n\n**(UNAUDITED)**\n\n \n\n                                 \n\n                                 \n\n   * *** **  * *** **  * *** **  * *** **  * *** **  * *** ** \n**Accumulated**\n   * *** **\n\n   * *** **  * *** **  * *** **  * *** ** \n**Additional**\n   * *** ** \n**Other**\n  \n**Total**\n \n\n  \n**Preferred Stock**\n  \n**Common Stock**\n  \n**Paid-in**\n  \n**Accumulated**\n  \n**Comprehensive**\n  \n**Shareholders’**\n \n\n  \n**Shares**\n  \n**Amount**\n  \n**Shares**\n  \n**Amount**\n  \n**Capital**\n  \n**Deficit**\n  \n**Loss**\n  \n**Equity**\n \n\n**Three Months Ended March 31, 2026**\n                                \n\nBalance at December 31, 2025\n  10  $50   21,901  $22  $424,665  $(383,087) $(1,421) $40,229 \n\nVesting of restricted stock units\n  —   —   153   —   —   —   —   — \n\nVesting of performance restricted stock units\n  —   —   255   —   —   —   —   — \n\nPurchase of common stock\n  —   —   (169)  —   (885)  —   —   (885)\n\nStock-based compensation\n  *—*   —   *—*   —   2,009   —   —   2,009 \n\nUnrealized gain (loss) on marketable securities\n  *—*   —   *—*   —   —   —   (21)  (21)\n\nForeign currency translation adjustments\n  *—*   —   *—*   —   —   —   (300)  (300)\n\nNet loss\n  *—*   —   *—*   —   —   (6,966)  —   (6,966)\n\nBalance at March 31, 2026\n  10  $50   22,140  $22  $425,789  $(390,053) $(1,742) $34,066 \n\n                                 \n\n**Three Months Ended March 31, 2025**\n                                \n\nBalance at December 31, 2024\n  10  $50   21,495  $21  $415,049  $(350,778) $(2,983) $61,359 \n\nVesting of restricted stock units\n  —   —   49   —   —   —   —   — \n\nVesting of performance restricted stock units\n  —   —   49   —   —   —   —   — \n\nPurchase of common stock\n  —   —   (45)  1   (1,546)  —   —   (1,545)\n\nStock-based compensation\n  *—*   —   *—*   —   1,265   —   —   1,265 \n\nUnrealized gain (loss) on marketable securities\n  *—*   —   *—*   —   —   —   (11)  (11)\n\nForeign currency translation adjustments\n  *—*   —   *—*   —   —   —   679   679 \n\nNet loss\n  *—*   —   *—*   —   —   (11,730)  —   (11,730)\n\nBalance at March 31, 2025\n  10  $50   21,548  $22  $414,768  $(362,508) $(2,315) $50,017 \n\n \n\nThe accompanying notes are an integral part of these consolidated financial statements.\n\n \n\n5\n\n[Table of Contents](#toc)\n\n  \n\n \n\n**DIGIMARC CORPORATION**\n\n**CONSOLIDATED STATEMENTS OF CASH FLOWS**\n\n**(In thousands)**\n\n**(UNAUDITED)**\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n\nCash flows from operating activities:\n\n \n \n \n \n \n \n \n \n\nNet loss\n\n \n$\n(6,966\n)\n \n$\n(11,730\n)\n\nAdjustments to reconcile net loss to net cash used in operating activities:\n\n \n \n \n \n \n \n \n \n\nDepreciation and write-off of property and equipment\n\n \n \n154\n \n \n \n146\n \n\nAmortization of acquired intangible assets\n\n \n \n1,497\n \n \n \n1,403\n \n\nAmortization and write-off of other intangible assets\n\n \n \n328\n \n \n \n193\n \n\nAmortization of lease right of use assets under operating leases\n\n \n \n117\n \n \n \n98\n \n\nStock-based compensation\n\n \n \n2,009\n \n \n \n1,260\n \n\nIncrease (decrease) in allowance for doubtful accounts\n\n \n \n21\n \n \n \n—\n \n\nChanges in operating assets and liabilities:\n\n \n \n \n \n \n \n \n \n\nTrade accounts receivable\n\n \n \n(566\n)\n \n \n(149\n)\n\nOther current assets\n\n \n \n(44\n)\n \n \n1,331\n \n\nOther assets\n\n \n \n(44\n)\n \n \n(105\n)\n\nAccounts payable and other accrued liabilities\n\n \n \n1,624\n \n \n \n1,549\n \n\nDeferred revenue\n\n \n \n231\n \n \n \n689\n \n\nLease liability and other long-term liabilities\n\n \n \n(208\n)\n \n \n(171\n)\n\nNet cash provided by (used in) operating activities\n\n \n \n(1,847\n)\n \n \n(5,486\n)\n\nCash flows from investing activities:\n\n \n \n \n \n \n \n \n \n\nPurchase of property and equipment\n\n \n \n(44\n)\n \n \n(55\n)\n\nCapitalized patent costs\n\n \n \n(77\n)\n \n \n(88\n)\n\nProceeds from maturities of marketable securities\n\n \n \n2,128\n \n \n \n6,564\n \n\nPurchases of marketable securities\n\n \n \n(227\n)\n \n \n(2,864\n)\n\nNet cash provided by (used in) investing activities\n\n \n \n1,780\n \n \n \n3,557\n \n\nCash flows from financing activities:\n\n \n \n \n \n \n \n \n \n\nPurchase of common stock\n\n \n \n(885\n)\n \n \n(1,545\n)\n\nRepayment of loans\n\n \n \n(3\n)\n \n \n(15\n)\n\nNet cash provided by (used in) financing activities\n\n \n \n(888\n)\n \n \n(1,560\n)\n\nEffect of exchange rate on cash\n\n \n \n(47\n)\n \n \n26\n \n\nNet increase (decrease) in cash and cash equivalents\n\n \n \n(1,002\n)\n \n \n(3,463\n)\n\nCash and cash equivalents at beginning of period\n\n \n \n9,820\n \n \n \n12,365\n \n\nCash and cash equivalents at end of period\n\n \n$\n8,818\n \n \n$\n8,902\n \n\nSupplemental disclosure of cash flow information:\n\n \n \n \n \n \n \n \n \n\nCash received (paid) for income taxes, net\n\n \n$\n(4\n)\n \n$\n(3\n)\n\nSupplemental schedule of non-cash investing activities:\n\n \n \n \n \n \n \n \n \n\nProperty and equipment and patent costs in accounts payable\n\n \n$\n19\n \n \n$\n28\n \n\nStock-based compensation capitalized to software and patent costs\n\n \n$\n—\n \n \n$\n5\n \n\n \n\nThe accompanying notes are an integral part of these consolidated financial statements.\n\n \n\n6\n\n[Table of Contents](#toc)\n\n \n\n**DIGIMARC CORPORATION**\n\n**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**\n\n**(In thousands, except per share data)**\n\n**(UNAUDITED)**\n\n \n\n \n\n**1. Description of Business and Significant Accounting Policies**\n\n \n\n**Description of Business**\n\n \n\nDigimarc, an Oregon corporation, is building the trust layer for the modern world. As artificial intelligence (\"AI\") accelerates how people produce, share, and interact with the world, the risks of fraud, counterfeiting, and misinformation are growing exponentially.\n\n \n\nDigimarc's innovative, highly scalable, and ultra-secure solutions make it possible for consumers, businesses, and intelligent systems to instantly verify what's real, protect what matters, and transact with confidence. Digimarc's solutions for retail loss prevention, product authentication, and digital trust and integrity are built to counter the speed and sophistication of today's AI-enabled threats. Trusted by a consortium of the world's central banks (the \"Central Banks\") to deter the counterfeiting of global currency, Digimarc exists to protect the truth in every interaction, spanning both the physical and digital worlds.\n\n \n\n**Physical Digimarc Solutions****Digital Digimarc Solutions**\n\n**Anti-Counterfeiting:** Restore trust with counterfeit resistant packaging and product verification.**Internal Compliance:** Ensure policy compliance and prevent misuse of digital assets.\n\n**Counterfeiting Deterrence:**Deter digital counterfeiting of global currencies.**Leak Detection:** Identify leaked information and its source instantly.\n\n**Product Swap Prevention:** Reduce weight-based shrink at grocery checkouts.**Piracy Prevention:** Gain insight into - and control of - digital asset use.\n\n**Recycling:** Boost product sustainability while revealing never-before-seen data.**Provenance & Authenticity:** Restore trust and ensure fair use of digital assets.\n\n**Secure Gift Cards:** Fight gift card fraud with automated tamper detection.**Royalty Monitoring:** Ensure content creators and owners receive proper payment.\n\n \n\n****\n\n**Interim Consolidated Financial Statements**\n\n \n\nOur 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, 2025*, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on *March 11,**2026* (the “*2025* Annual Report”).\n\n \n\nThe 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 Generally Accepted Accounting Principles in the United States (“GAAP”) have been condensed or omitted in accordance with the rules and regulations of the SEC.\n\n \n\nThese interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the *2025* Annual Report. 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.\n\n \n\n****\n\n**Principles of Consolidation**\n\n \n\nThe consolidated financial statements include the accounts of Digimarc and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.\n\n \n\n****\n\n**Accounting Pronouncements Issued But Not Yet Adopted**\n\n \n\nIn *November 2024,*the Financial Accounting Standards Board (\"FASB\") issued Accounting Standards Update (\"ASU\") *No.* *2024*-*03,* “*Income Statement (Subtopic 220-40) - Reporting Comprehensive Income - Expense Disaggregation Disclosures*”. The ASU requires disaggregated disclosure of income statement expenses, primarily on disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. This authoritative guidance will be effective for the Company starting in the fiscal year ending *December 31, 2027*for annual periods and in the *first* quarter of the fiscal year ending *December 31, 2028*for interim periods, with early adoption permitted. The Company is currently evaluating the effect of adopting this ASU on the Company’s disclosures.\n\n \n\nIn *September 2025**,* the FASB issued ASU *No.* *2025*-*06**,* “*Intangibles - Goodwill and Other - Internal-Use Software (Subtopic* *350-40): Targeted Improvements to the Accounting for Internal-Use Software*”, which includes amendments intended to modernize the accounting for software costs by removing references to software development stages and clarifying the capitalization threshold. The amendments are effective for annual periods beginning after *December 15, 2027**,* and interim reporting periods within those annual reporting periods, with early adoption permitted. The amendments *may *be applied prospectively, retrospectively, or through a modified transition approach. The Company is currently evaluating the effect of adopting this ASU on the Company’s consolidated financial statements and disclosures.\n\n \n\nIn *December 2025,*the FASB issued ASU *No.* *2025‑11,* “*Interim Reporting (Topic 270): Narrow*‑*Scope Improvements*”, which provides amendments intended to clarify interim disclosure requirements and improve the usability and consistency of interim financial reporting. The amendments are effective for public business entities for interim reporting periods within annual reporting periods beginning after *December 15, 2027,*and for all other entities for interim reporting periods within annual reporting periods beginning after *December 15, 2028,*with early adoption permitted. The Company is currently evaluating the effect of adopting this ASU on the Company’s disclosures.\n\n \n\nIn *December 2025,*the FASB issued ASU *No.* *2025‑12,* “*Codification Improvements,*” which includes amendments designed to clarify, correct, or enhance various areas of the FASB Accounting Standards Codification. These amendments do *not* introduce new accounting requirements but are intended to improve the clarity and consistency of the existing guidance. The amendments are effective for annual reporting periods beginning after *December 15, 2026,*and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the effect of adopting this ASU on the Company’s disclosures.\n\n \n\n*7*\n\n[Table of Contents](#toc)\n\nDIGIMARC CORPORATION\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)\n\n(In thousands, except per share data)\n\n(UNAUDITED)\n\n \n\n \n\n**2. Fair Value of Financial Instruments**\n\n \n\nThe 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 available-for-sale and are reported at fair value. Unrealized holding gains and losses are excluded from earnings and are reported net of tax in “accumulated other comprehensive loss” in the Consolidated Balance Sheets until realized. Realized gains and losses are included in “other income, net” in the Consolidated Statements of Operations and Comprehensive Loss and are derived using the specific identification method for determining the cost of marketable securities sold.\n\n \n\nIn accordance with Accounting Standards Codification (“ASC”) *No.* *820* “*Fair Value Measurements and Disclosures*”, the Company defines its fair value hierarchy based on *three* levels of inputs, of which the *first* *two* are considered observable and the last unobservable, that *may*be used to measure fair value, in the following:\n\n \n\n \n•\n\nLevel *1* Pricing inputs are quoted prices available in active markets for identical investments as of the reporting date.\n\n \n\n \n•\n\nLevel *2* Pricing inputs are quoted for similar investments, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level *2* includes investments valued at quoted prices adjusted for legal or contractual restrictions specific to these investments.\n\n \n\n \n•\n\nLevel *3* Pricing inputs are unobservable for the investment; that is, the inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.\n\n \n\nThe Company’s fair value hierarchy for its cash equivalents and marketable securities was as follows:\n\n \n\n**March 31, 2026**\n \n**Level 1**\n  \n**Level 2**\n  \n**Level 3**\n  \n**Total**\n \n\nMoney market securities\n $2,042  $—  $—  $2,042 \n\nCommercial paper\n  —   3,157   —   3,157 \n\nCorporate notes\n  —   1,145   —   1,145 \n\nPre-refunded municipals\n  —   350   —   350 \n\nTotal\n $2,042  $4,652  $—  $6,694 \n\n \n\n**December 31, 2025**\n \n**Level 1**\n  \n**Level 2**\n  \n**Level 3**\n  \n**Total**\n \n\nMoney market securities\n $1,210  $—  $—  $1,210 \n\nCommercial paper\n  —   7,093   —   7,093 \n\nFederal agency notes\n  —   2,223   —   2,223 \n\nCorporate notes\n  —   923   —   923 \n\nTotal\n $1,210  $10,239  $—  $11,449 \n\n \n\nThe fair value maturities of the Company’s cash equivalents and marketable securities as of *March 31, 2026*, were as follows:\n\n \n\n  \n**Maturities by Period**\n \n\n   * *** ** \n**Less than**\n  \n**1-5**\n  \n**5-10**\n  \n**More than**\n \n\n  \n**Total**\n  \n**1 year**\n  \n**years**\n  \n**years**\n  \n**10 years**\n \n\nCash equivalents and marketable securities\n $6,694  $6,694  $—  $—  $— \n\n \n\nThe 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 commercial paper, money market securities, federal agency notes, corporate notes, and pre-refunded municipals totaling $5,549 and $8,403 at *March 31, 2026* and *December 31, 2025*, respectively. Cash equivalents are carried at either cost or fair value, depending on the type of security.\n\n \n\n \n\n**3. Revenue Recognition**\n\n \n\nThe Company derives its revenue primarily from software subscriptions and software development services. Applicable revenue recognition criteria are considered separately for each performance obligation as follows:\n\n \n\n \n•\nSubscription revenue consists primarily of revenue earned from subscription fees for access to the Company’s SaaS platform and products and, to a lesser extent, licensing fees for software products and 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.\n\n \n\n \n•\nService revenue consists primarily of revenue earned from the performance of software development services and, to a lesser extent, professional services. The majority of software development 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.\n\n  \n\n*8*\n\n[Table of Contents](#toc)\n\nDIGIMARC CORPORATION\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)\n\n(In thousands, except per share data)\n\n(UNAUDITED)\n\n \n\nCustomer arrangements *may*contain multiple deliverables such as software platform subscriptions, software product subscriptions, and professional services. Subscriptions and services offered are usually distinct performance obligations. When they are *not* capable of being distinct, they are combined with other subscriptions or services until a distinct performance obligation is identified. To determine the transaction price, management considers the terms of the contract and the Company’s customary business practices. Some contracts *may*contain variable consideration. In those cases, management 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, management evaluates whether any of the variable consideration is constrained and if it is, it is *not* included in the transaction price. The consideration is allocated between distinct performance obligations based on their stand-alone selling prices. When the standalone selling prices are *not* directly observable, management makes estimates based on reasonably available information, including market conditions, specific factors affecting the Company, and information about the customer. The Company recognizes the revenue associated with each performance obligation as the obligation is fulfilled, which for subscriptions is typically recognized ratably over time, and for services is typically recognized when they are performed.\n\n \n\nAll revenue recognized in the Consolidated Statements of Operations and Comprehensive Loss is considered to be revenue from contracts with customers.\n\n \n\nThe following table provides information about disaggregated revenue by major target market in the Company’s single reporting segment:\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nCommercial:\n        \n\nSubscription\n $4,069  $5,014 \n\nService\n  59   796 \n\nTotal Commercial\n  4,128   5,810 \n\nGovernment:\n        \n\nSubscription\n $300  $300 \n\nService\n  3,151   3,258 \n\nTotal Government\n  3,451   3,558 \n\nTotal\n $7,579  $9,368 \n\n \n\n \n\nThe Company has contract assets from contracts with customers that are classified as “trade accounts receivable” in the Consolidated Balance Sheets. See [Note *7*](#Trade_Accounts_Receivable) for more information about trade accounts receivable.\n\n \n\nThe Company has contract assets from capitalized contract acquisition costs that are classified as “other current assets” and “other assets” in the Consolidated Balance Sheets. These contract acquisition costs are recognized in proportion to the revenue recognized from the contract they are associated with.\n\n \n\nThe following table provides information about contract assets:\n\n \n\n  \n**March 31,**\n  \n**December 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nContract acquisition costs, current\n $162  $193 \n\nContract acquisition costs, long-term\n  150   176 \n\nTotal\n $312  $369 \n\n \n\nThe Company has contract liabilities from contracts with customers that are classified as “deferred revenue” in the Consolidated Balance Sheets. Deferred revenue consists of billings in advance for subscriptions and services for which the performance obligation has *not* been satisfied.\n\n \n\nThe following table provides information about contract liabilities:\n\n \n\n  \n**March 31,**\n  \n**December 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nDeferred revenue, current\n $4,227  $3,993 \n\nDeferred revenue, long-term\n  14   17 \n\nTotal\n $4,241  $4,010 \n\n \n\nThe Company recognized $1,785 of revenue during the *three* months ended *March 31, 2026*, that was included in the contract liability balance as of *December 31, 2025*.\n\n \n\nThe aggregate amount of the transaction prices from contractual obligations that are unsatisfied or partially unsatisfied was $26,712 and $27,989 as of *March 31, 2026*, and *December 31, 2025*, respectively. As of *March 31, 2026*, the Company expects $21,396 of the $26,712 to be recognized as revenue during the next twelve months.\n\n \n\n9\n\n[Table of Contents](#toc)\n\nDIGIMARC CORPORATION\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)\n\n(In thousands, except per share data)\n\n(UNAUDITED)\n\n \n\n \n\n**4. Segment Information**\n\n \n\n*Significant Segment Expenses*\n\n \n\nThe Company derives its revenue from a single reporting segment: product digitization solutions. Revenue is generated in this segment primarily through software subscriptions and software development services. The Company manages its business activities on a consolidated basis. In addition, the Chief Executive Officer of the Company, as the chief operating decision-maker (“CODM”), reviews the Company’s operating results and makes decisions to allocate resources based on consolidated financial information. As such, the Company has one single reportable segment. The CODM uses consolidated net income (loss) as a performance measure and total consolidated assets as an asset measure, to assess performance of the Company, to allocate working capital, and to monitor budget versus actual results. \n\n \n\nThe following table illustrates reported segment revenue, segment profit and loss, and significant segment expenses.\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nRevenue:\n        \n\nSubscription\n $4,369  $5,314 \n\nService\n  3,210   4,054 \n\nTotal revenue\n  7,579   9,368 \n\nCost of revenue:\n        \n\nSubscription (1)\n  456   744 \n\nService (1)\n  1,378   1,407 \n\nAmortization expense on acquired intangible assets\n  1,208   1,132 \n\nTotal cost of revenue\n  3,042   3,283 \n\nOperating expenses:\n        \n\nCash compensation\n  4,650   12,041 \n\nStock-based compensation\n  1,662   1,123 \n\nProfessional services and consultants\n  3,480   2,853 \n\nSoftware and hardware\n  513   853 \n\nDepreciation and amortization\n  563   476 \n\nOther segment items (2)\n  805   818 \n\nTotal operating expenses\n  11,673   18,164 \n\nOperating loss\n  (7,136)  (12,079)\n\nOther income, net\n  171   369 \n\nProvision for income taxes\n  (1)  (20)\n\nNet loss\n $(6,966) $(11,730)\n\n(*1*)\n\nCost of revenue for Subscription and Service excludes amortization expense on acquired intangible assets.\n\n(*2*)\n\nOther segment items include training and travel expenses, recruiting expenses, rent and facility expenses, bad debt expenses and other miscellaneous costs.\n\n \n\n*Geographic Information*\n\n \n\nThe 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:\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nDomestic\n $1,868  $2,146 \n\nInternational (1)\n  5,711   7,222 \n\nTotal\n $7,579  $9,368 \n\n(*1*)\n\nRevenue 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.\n\n \n\n*Major Customers*\n\n \n\nThe following customers accounted for 10% or more of revenue:\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nCustomer A\n  45%  38%\n\nCustomer B\n  12%  19%\n\n \n\n*10*\n\n[Table of Contents](#toc)\n\nDIGIMARC CORPORATION\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)\n\n(In thousands, except per share data)\n\n(UNAUDITED)\n\n \n\n \n\n**5. Stock-Based Compensation**\n\n \n\nStock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include restricted stock awards (\"RSA\"), restricted stock units (\"RSU\"), performance restricted stock units (\"PRSU\"), and shares offered for purchase under the Company's Employee Stock Purchase Plan (\"ESPP\").\n\n \n\nStock-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.\n\n \n\n**Determining Fair Value**\n\n \n\n*Restricted Stock Awards*\n\n \n\nThe fair value of RSAs that 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 to four years for employee grants and one to three years for director grants.\n\n \n\n*Restricted Stock Units*\n\n \n\nThe fair value of RSU awards that 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 to four years for employee grants.\n\n \n\n*Performance Restricted Stock Units*\n\n \n\nThe fair value of PRSU awards that vest upon meeting a service condition and a performance condition, such as the Company exceeding a future annual recurring revenue target, is determined based on the fair market value of the Company’s common stock on the date of the grant (measurement date), adjusted for probability of achievement of the performance criteria as of each reporting date, and is recognized on a straight-line basis over the service period of the award, which is generally one to three years for employee grants. The probability of achievement is subject to judgment, and could change from period to period, impacting the amount of expense to be recognized. \n\n \n\nThe fair value of PRSU awards that vest upon meeting a service condition and a market condition, such as the Company exceeding shareholder returns as compared to an index of peer companies, 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 for employee grants.\n\n \n\n*Employee Stock Purchase Program*\n\n \n\nThe fair value of shares offered for purchase under the Company's ESPP is determined at the beginning of each offering period (measurement date) using the Black-Scholes 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 eighteen months.\n\n \n\n**Stock-Based Compensation**\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nStock-based compensation:\n        \n\nCost of revenue\n $347  $137 \n\nSales and marketing\n  56   355 \n\nResearch, development and engineering\n  619   407 \n\nGeneral and administrative\n  987   361 \n\nStock-based compensation expense\n  2,009   1,260 \n\nCapitalized to software and patent costs\n  —   5 \n\nTotal stock-based compensation\n $2,009  $1,265 \n\n \n\nThe following table sets forth total unrecognized compensation costs related to non-vested stock-based awards granted under the Company’s stock incentive plan:\n\n \n\n  \n**March 31,**\n  \n**December 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nTotal unrecognized compensation costs\n $9,962  $13,110 \n\n \n\nTotal unrecognized compensation costs will be adjusted based on updates to the estimated future achievement of performance conditions on PRSU awards as well as for any future forfeitures if and when they occur.\n\n \n\n*11*\n\n[Table of Contents](#toc)\n\nDIGIMARC CORPORATION\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)\n\n(In thousands, except per share data)\n\n(UNAUDITED)\n\n \n\nThe Company expects to recognize the total unrecognized compensation costs as of *March 31, 2026*, for all non-vested stock-based awards over weighted average periods through *March 31,* *2030*, as follows:\n\n \n\n                 \n\n  \n**RSAs**\n  \n**RSUs**\n  \n**PRSUs**\n  \n**ESPP**\n \n\nWeighted average period (in years)\n  0.63   1.60   1.95   0.75 \n\n \n\n \n\nAs of *March 31, 2026*, under the Company’s stock incentive plan, an additional 2,517 shares remained available for future grants, and under the Company's ESPP, an additional 189 shares remained available for future offering periods. The Company issues new shares upon the grants of RSAs, upon vesting of RSU and PRSU awards, and upon purchase of ESPP shares.\n\n \n\n*Restricted Stock Awards Activity*\n\n \n\nThe following table presents the unvested RSA activity:\n\n \n\n   * *** ** \n**Weighted**\n \n\n   * *** ** \n**Average**\n \n\n  \n**Number of**\n  \n**Grant Date**\n \n\n**Three Months Ended March 31, 2026:**\n \n**Shares**\n  \n**Fair Value**\n \n\nUnvested balance at December 31, 2025\n $85  $15.77 \n\nGranted\n  —  $— \n\nVested\n  (2) $35.82 \n\nForfeited\n  —  $— \n\nUnvested balance at March 31, 2026\n $83  $15.32 \n\n \n\nThe fair value of RSAs vested is as follows:\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nFair value of RSAs vested\n $12  $301 \n\n \n\n*Restricted Stock Units Activity*\n\n \n\nThe following table presents the unvested RSU award activity:\n\n \n\n   * *** ** \n**Weighted**\n \n\n   * *** ** \n**Average**\n \n\n  \n**Number of**\n  \n**Grant Date**\n \n\n**Three Months Ended March 31, 2026:**\n \n**Shares**\n  \n**Fair Value**\n \n\nUnvested balance at December 31, 2025\n $584  $15.32 \n\nGranted\n  77  $4.79 \n\nVested\n  (153) $11.62 \n\nForfeited\n  (34) $21.08 \n\nUnvested balance at March 31, 2026\n $474  $14.40 \n\n \n\nThe fair value of RSU awards vested is as follows:\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nFair value of RSU awards vested\n $761  $1,726 \n\n \n\n \n\n*12*\n\n[Table of Contents](#toc)\n\nDIGIMARC CORPORATION\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)\n\n(In thousands, except per share data)\n\n(UNAUDITED)\n\n \n\n*Performance Restricted Stock Units Activity*\n\n \n\nThe following table presents the unvested PRSU award activity:\n\n \n\n   * *** ** \n**Weighted**\n \n\n   * *** ** \n**Average**\n \n\n  \n**Number of**\n  \n**Grant Date**\n \n\n**Three Months Ended March 31, 2026:**\n \n**Shares**\n  \n**Fair Value**\n \n\nUnvested balance at December 31, 2025\n $533  $20.70 \n\nChange in units based on performance expectations\n  (26) $61.43 \n\nGranted\n  —  $— \n\nVested\n  (255) $12.86 \n\nForfeited\n  (29) $30.55 \n\nUnvested balance at March 31, 2026\n $223  $23.53 \n\n \n\nThe fair value of PRSU awards vested is as follows:\n\n \n\n  \n**Three Months Ended March 31,**\n\n  \n**2026**\n  \n**2025**\n* *\n\nFair value of PRSU awards vested\n $1,373  $1,707* *\n\n \n\n \n\n**6. Earnings Per Share**\n\n \n\nThe Company calculates basic and diluted earnings per share in accordance with ASC *No.* *260,* “*Earnings Per Share*,” using the treasury stock method. \n\n \n\nBasic earnings per share excludes dilution and is calculated by dividing earnings by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing earnings by the weighted-average number of common shares, as adjusted for the potentially dilutive effect of unvested RSUs and PRSUs, and outstanding ESPP purchase rights. The dilutive effect of unvested RSUs and PRSUs and outstanding ESPP purchase rights is determined using the treasury stock method. RSAs are included in shares outstanding on the date of grant.\n\n \n\nThe following table reconciles earnings (loss) per share:\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\n**Basic Earnings (Loss) per Share:**\n   ** **   ** **\n\nNet loss — basic\n $(6,966) $(11,730)\n\nWeighted average shares outstanding — basic\n  22,008   21,521 \n\nNet loss per share — basic\n $(0.32) $(0.55)\n\n         \n\n**Diluted Earnings (Loss) per Share:**\n   ** **   ** **\n\nNet loss — diluted\n $(6,966) $(11,730)\n\nWeighted average shares outstanding — diluted\n  22,008   21,521 \n\nNet loss per share — diluted\n $(0.32) $(0.55)\n\n \n\nThe following table indicates the stock equivalents related to unvested RSUs and PRSUs that were anti-dilutive and excluded from diluted earnings (loss) per share calculations:\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nAnti-dilutive shares due to net loss\n  —   119 \n\n \n\n \n\n**7. Trade Accounts Receivable**\n\n \n\n*Trade Accounts Receivable*\n\n \n\nTrade accounts receivables are recorded at the contractual or invoiced amount.\n\n \n\n  \n**March 31,**\n  \n**December 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nTrade accounts receivable, current\n $7,871  $7,271 \n\nTrade accounts receivable, long-term\n  42   90 \n\nAllowance for doubtful accounts\n  (779)  (758)\n\nTrade accounts receivable, net\n $7,134  $6,603 \n\nUnpaid deferred revenue included in trade accounts receivable\n $1,534  $2,597 \n\n  \n\n*13*\n\n[Table of Contents](#toc)\n\nDIGIMARC CORPORATION\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)\n\n(In thousands, except per share data)\n\n(UNAUDITED)\n\n \n\n*Allowance for Doubtful Accounts*\n\n \n\nThe Company’s accounts receivables are subject to concentrations of credit risk. The Company maintains an allowance for its doubtful accounts receivable to reflect any estimated credit losses. The allowance is established in accordance with the current expected credit loss model, which requires the estimation of expected credit losses over the contractual life of financial assets. The allowance is calculated using a forward-looking probability-weighted approach based on historical loss experience, current economic conditions, and reasonable and supportable forecasts. The Company records the allowance in “general and administrative” expense in the Consolidated Statements of Operations and Comprehensive Loss, up to the amount of revenue recognized to date for each account. Any incremental allowance is recorded as an offset to “deferred revenue” in the Consolidated Balance Sheets. Account receivables are written off and charged against the recorded allowance when the Company has exhausted collection efforts without success.\n\n \n\n*Unpaid Deferred Revenue*\n\n \n\nThe 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.\n\n \n\n*Major Customers*\n\n \n\nThe following customers accounted for *10%* or more of trade accounts receivable, net:\n\n \n\n  \n**March 31,**\n  \n**December 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nCompany A\n  30%  47%\n\nCompany B\n  27%  19%\n\n \n\n \n\n**8. Property and Equipment**\n\n \n\nProperty and equipment are stated at cost. Repairs and maintenance are charged to expense when incurred.\n\n \n\nDepreciation 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.\n\n \n\n  \n**March 31,**\n  \n**December 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nSoftware\n  6,065   6,061 \n\nEquipment\n  2,628   2,621 \n\nLeasehold improvements\n  192   227 \n\nOffice furniture and fixtures\n  63   63 \n\nGross property and equipment\n  8,948   8,972 \n\nAccumulated depreciation\n  (7,959)  (7,868)\n\nProperty and equipment, net\n $989  $1,104 \n\n \n\n \n\n**9. Goodwill**\n\n \n\nThe Company performs its annual goodwill impairment test during the *second* quarter of each fiscal year or whenever events or changes in circumstances indicate that the carrying value *may*exceed the fair value. If the carrying value exceeds the estimated fair value, an impairment is recorded. 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. No impairment charges were recorded for the *three* months ended *March 31, 2026*and *2025*. \n\n \n\nBalance at December 31, 2025\n $9,056 \n\nCurrency translation adjustments\n  (133)\n\nBalance at March 31, 2026\n $8,923 \n\n \n\n \n\n**10. Intangibles**\n\n \n\nIntangible 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 *three* months ended *March 31, 2026*and *2025*.\n\n \n\nPatent 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, but generally approximates *seventeen* years.\n\n \n\n*14*\n\n[Table of Contents](#toc)\n\nDIGIMARC CORPORATION\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)\n\n(In thousands, except per share data)\n\n(UNAUDITED)\n\n \n\nAmortization of intangible assets acquired is calculated using the straight-line method over the estimated useful lives of the assets.\n\n \n\n  \n**Estimated Life**\n  \n**March 31,**\n  \n**December 31,**\n \n\n  \n**(years)**\n  \n**2026**\n  \n**2025**\n \n\nCapitalized patent costs\n  ~17  $8,550  $8,795 \n\n             \n\nIntangible assets acquired:\n            \n\nDeveloped technology\n  5   23,693   24,095 \n\nCustomer relationships\n  10   11,322   11,514 \n\nPurchased intellectual property\n  10   250   250 \n\nGross intangible assets\n  * *   43,815   44,654 \n\nAccumulated amortization\n  * *   (28,571)  (27,609)\n\nIntangibles, net\n  * *  $15,244  $17,045 \n\n \n\nThe amortization of capitalized patent costs, purchased intellectual property, and developed technology is recorded in “cost of revenue” and the amortization of customer relationships is recorded in “operating expenses” in the Consolidated Statements of Operations and Comprehensive Loss.\n\n \n\nAmortization expense on intangible assets was as follows:\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nAmortization expense\n $1,608  $1,537 \n\n \n\nFor intangible assets recorded at *March 31, 2026*, the estimated future aggregate amortization expense for the years ending *December 31, **2026* through *December 31, **2030* is as follows:\n\n \n\n  \n**Amortization**\n \n\n  **Expense** \n\nRemainder of 2026\n  4,728 \n\n2027\n  1,555 \n\n2028\n  1,546 \n\n2029\n  1,521 \n\n2030\n  1,487 \n\n \n\n \n\n**11. Leases**\n\n \n\nThe Company accounts for leases in accordance with ASC *No.* *842,* “*Leases.*”\n\n \n\nIn *February 2022,*the Company entered into a sublease agreement and lease extension agreement for office space in Beaverton, Oregon to move the Company’s corporate headquarters. The term of the sublease and lease extension runs through *September 2030,*with remaining rent payments as of *March 31, 2026*, totaling $6,157 plus operating expenses, payable in monthly installments. The *first* 26 months of rent payments and operating expenses were abated to cover the remaining lease term on the Company’s former corporate headquarters.\n\n    \n\nAll of the Company’s leases are operating leases. The following table provides additional details of leases presented in the Consolidated Balance Sheets:\n\n \n\n  \n**March 31,**\n  \n**December 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nLease right of use assets\n $3,121  $3,238 \n\nLease liabilities, current\n $931  $899 \n\nLease liabilities, long-term\n $4,073  $4,314 \n\n         \n\nWeighted-average remaining life (in years)\n  4.5   4.7 \n\nWeighted-average discount rate\n  9%  9%\n\n \n\nThe current lease liabilities are included in “accounts payable and other accrued liabilities” in the Consolidated Balance Sheets.\n\n \n\nThe carrying value of the lease right of use assets is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset *may**not* be recoverable. No impairment charges were recorded for the *three* months ended *March 31, 2026*and *2025*. \n\n \n\n*15*\n\n[Table of Contents](#toc)\n\nDIGIMARC CORPORATION\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)\n\n(In thousands, except per share data)\n\n(UNAUDITED)\n\n \n\n  \n\nOperating lease expense is included in “operating expenses” in the Consolidated Statements of Operations and Comprehensive Loss and in “cash flows from operating activities” in the Consolidated Statements of Cash Flows. The operating leases include variable lease payments, which are included in operating lease expense. Additional details of the Company’s operating leases are presented in the following table:\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nOperating lease expense\n $349  $369 \n\nCash paid for operating leases\n $443  $452 \n\n \n\nThe table below reconciles the aggregate cash payment obligations for the next *five* years and total of the remaining years for the operating lease liability recorded in the Consolidated Balance Sheets as of *March 31, 2026*:\n\n \n\n  \n**Cash**\n \n\n  \n**Payment**\n \n\n  **Obligations** \n\nRemainder of 2026\n $1,025 \n\n2027\n  1,397 \n\n2028\n  1,296 \n\n2029\n  1,389 \n\n2030\n  1,066 \n\nThereafter\n  — \n\nTotal lease payments\n  6,173 \n\nImputed interest\n  (1,169)\n\nTotal minimum lease payments\n $5,004 \n\n \n\nIn *December 2025,*the Company entered into a sub-sublease agreement for the Company's corporate headquarters in Beaverton, Oregon, whereby the Company agreed to sub-sublease 38 thousand of the 65 thousand square feet of the building to another tenant. The term of the sub-sublease began on *March 1, 2026*and runs through *September 2030.*The Company has recognized net sublease income of $48 for the *three* months ended *March 31, 2026* in the Consolidated Statements of Operations and Comprehensive Loss and in \"cash flows from operating activities\" in the Consolidated Statements of Cash Flows. The remaining rent payments owed to the Company under the sub-sublease are $2,818.\n\n \n\n**12. Accounts Payable and Accrued liabilities**\n\n \n\nThe components of accounts payable and accrued liabilities are summarized below:\n\n \n\n  \n**March 31,**\n  \n**December 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nAccrued liabilities\n $3,998  $2,959 \n\nAccounts payable\n  1,075   501 \n\nLease liabilities, current\n  931   899 \n\nAccounts payable and other accrued liabilities\n $6,004  $4,359 \n\n \n\n \n\n**13. Other Income**\n\n \n\nThe following table provides activity in other income, net:\n\n \n\n  \n**Three Months Ended March 31,**\n \n\n  \n**2026**\n  \n**2025**\n \n\nInterest income\n $101  $254 \n\nRefundable tax credit\n  18   87 \n\nForeign currency gains (losses)\n  4   28 \n\nOther income (loss)\n  48   — \n\nOther income, net\n $171  $369 \n\n \n\n \n\n**14. Income Taxes**\n\n \n\nThe provision for income taxes reflects current taxes and deferred taxes. The effective tax rate for each of the *three* months ended *March 31, 2026*and *2025* was 0%.\n\n \n\nThe valuation allowance against net deferred tax assets as of *March 31, 2026*, was $113,664, an increase of $918 from $112,746 as of *December 31, 2025*. The Company continues to provide for a valuation allowance to offset its net deferred tax assets until such time it is more likely than *not* the tax assets or portions thereof will be realized.\n\n \n\n16\n\n[Table of Contents](#toc)\n\n \n\nExcess tax deficiencies of $2,968 and $131 were recognized in the provision for income taxes for the *three* months ended *March 31, 2026*and *2025*, respectively, which were offset by $2,968 and $131 of valuation allowance, respectively.\n\n \n\n \n\n**15. Commitments and Contingencies**\n\n \n\nCertain of the Company’s product and services agreements 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 *No.* *450* “*Contingencies*.” To date, there have been *no* claims made under such indemnification provisions.\n\n \n\nThe Company is subject to certain legal proceedings, including ongoing securities and derivative matters, as previously disclosed in the Company's Annual Report on Form *10*-K for the Year Ended *December 31, 2025*. On *February 9, 2026,*the Company and its Chief Executive Officer and Chief Financial Officer moved to dismiss the class action lawsuit captioned *Ullom v. Digimarc Corp., et al.*, *No.* *3:25*-cv-*00779*-JR (the \"*Ullom*Action\"). On *February 11, 2026,*the two derivative lawsuits filed in the Circuit Court of the State of Oregon for the County of Multnomah, *Johnson v. McCormack et al.*, *No.* *25*-cv-*56998* and *Sperry v. McCormack et al.*, *No.* *26*-cv-*00621,* were consolidated and remain stayed pending resolution of the defendants' motion to dismiss in the *Ullom* Action.\n\n \n\nThese cases are at an early stage. The Company believes it has defenses to the claims and is responding accordingly.\n\n \n\n \n\n**16. Subsequent Events**\n\n \n\nOn *April **30,* *2026,* the Company’s shareholders approved a previously announced holding‑company reorganization pursuant to which Digimarc Corporation would become a wholly owned subsidiary of Digimarc Parent, Inc. (formerly Deschutes Parent, Inc.), a newly formed Oregon corporation, and each outstanding share of the Company’s common stock would be exchanged for *one* share of common stock of Digimarc Parent, Inc. on a one‑for‑one basis. The reorganization is intended, among other things, to support the Company’s long‑term equity incentive strategy and better align employee and executive compensation with long‑term shareholder value creation.\n\n \n\nThe Company currently expects the reorganization to be completed following satisfaction of the remaining customary closing conditions. Additional information regarding the reorganization is included in the Company’s previously filed proxy materials.\n\n \n\n*17*\n\n[Table of Contents](#toc)\n\n \n\n \n\n**Item** **2.**  **Management’****s Discussion and Analysis of Financial Condition and Results of Operations**\n\n \n\n*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.*”\n\n \n\n*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 2025 Annual Report, and other reports and filings we have made with the SEC.*\n\n \n\n*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.*\n\n \n\n*All dollar amounts within the tables below are in thousands. The percentages within the tables may not sum to 100% due to rounding.*\n\n \n\n*Digimarc, Illuminate, and the circle-d logo are registered trademarks of Digimarc Corporation. EVRYTHNG and EVRYTHNG PRODUCT CLOUD are registered trademarks of EVRYTHNG Limited (*“*EVRYTHNG*”*), a wholly owned subsidiary of Digimarc. *\n\n \n\n**Overview**\n\n \n\nDigimarc, an Oregon corporation, is building the trust layer for the modern world. As artificial intelligence (\"AI\") accelerates how people produce, share, and interact with the world, the risks of fraud, counterfeiting, and misinformation are growing exponentially. The impacts of these threats are evidenced by:\n\n \n\n \n\n•\n\nConsumers demanding more transparency into how, where, and by whom products are made​. \n\n \n\n \n\n•\n\nBrands and creators facing rampant counterfeiting and intellectual property theft​. \n\n \n\n \n\n•\n\nRetailers losing hundreds of billions of dollars annually to shrink and theft​. \n\n \n\n \n\n•\n\nEnterprises experiencing an increase in information leaks and digital manipulation​. \n\n \n\n \n\n•\n\nAI-generated content blurring reality, sowing confusion and mistrust. \n\n \n\n \n\n•\n\nRegulators increasing pressure on companies to prove product authenticity and data integrity. \n\n \n\nOur innovative, highly scalable, and ultra-secure solutions make it possible for consumers, businesses, and intelligent systems to instantly verify what's real, protect what matters, and transact with confidence. Our solutions for retail loss prevention, product authentication, and digital trust and integrity are built to counter the speed and sophistication of today's AI-enabled threats. Trusted by a consortium of the world's central banks (the \"Central Banks\") to deter the counterfeiting of global currency, we exist to protect the truth in every interaction, spanning both the physical and digital worlds.\n\n \n\n**Physical Digimarc Solutions**\n**Digital Digimarc Solutions**\n\n**Anti-Counterfeiting:** Restore trust with counterfeit resistant packaging and product verification.\n**Internal Compliance:** Ensure policy compliance and prevent misuse of digital assets.\n\n**Counterfeiting Deterrence:** Deter digital counterfeiting of global currencies.\n**Leak Detection:** Identify leaked information and its source instantly.\n\n**Product Swap Prevention:** Reduce weight-based shrink at grocery checkouts.\n**Piracy Prevention:** Gain insight into - and control of - digital asset use.\n\n**Recycling:** Boost product sustainability while revealing never-before-seen data.\n**Provenance & Authenticity:** Restore trust and ensure fair use of digital assets.\n\n**Secure Gift Cards:** Fight gift card fraud with automated tamper detection.\n**Royalty Monitoring:** Ensure content creators and owners receive proper payment.\n\n \n\nOur commercial solutions run on the Illuminate® platform—a high-performance, hyper-scalable, and ultra-secure software as a service (“SaaS”) cloud-based platform for digital connectivity. Tested and trusted by the most highly demanding and mission-critical ecosystems in the world, the Illuminate platform provides the tools for the application of advanced digital watermarks and dynamic Quick Response (“QR”) codes, Application Programming Interfaces (\"APIs\") that allow for direct integration into other mission critical systems, AI-assisted authentication workflows, and a centralized repository for capturing insights about digital interactions as well as automating activities based on that information.\n\n \n\nThe foundational digital watermarking technology used in our commercial solutions is backed by decades of innovation and inventions. It is also the same technology we use to deter digital counterfeiting of global currencies as part of our almost 30-year relationship with the Central Banks. This relationship was the first commercially successful large-scale use of our technologies and today protects hundreds of billions of banknotes in circulation around the world.\n\n \n\nOur intellectual property contains many innovations in digital watermarking, content and object recognition, product authentication, 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 675 U.S. and foreign patents granted and applications pending as of March 31, 2026. The patents in our portfolio each have a life of approximately 20 years from the patent’s effective filing date.\n\n \n\n18\n\n[Table of Contents](#toc)\n\n \n\n**Critical Accounting Policies and Estimates**\n\n \n\nDetailed information about our critical accounting policies and estimates is set forth in Part III, Item 15 of our 2025 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.\n\n    \n\n**Results of Operations**\n\n \n\nThe following table presents Consolidated 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 months ended March 31, 2026, and all changes discussed with respect to such period reflect changes compared to the three months ended March 31, 2025.\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n\n**Percentages are percent of total revenue**\n\n \n \n \n** **\n \n \n \n** **\n\nRevenue:\n\n \n \n \n \n \n \n \n \n\nSubscription\n\n \n \n58\n%\n \n \n57\n%\n\nService\n\n \n \n42\n%\n \n \n43\n%\n\nTotal revenue\n\n \n \n100\n%\n \n \n100\n%\n\nCost of revenue:\n\n \n \n \n \n \n \n \n \n\nSubscription (1)\n\n \n \n6\n%\n \n \n8\n%\n\nService (1)\n\n \n \n18\n%\n \n \n15\n%\n\nAmortization expense on acquired intangible assets\n\n \n \n16\n%\n \n \n12\n%\n\nTotal cost of revenue\n\n \n \n40\n%\n \n \n35\n%\n\nGross profit\n\n \n \n60\n%\n \n \n65\n%\n\nOperating expenses:\n\n \n \n \n \n \n \n \n \n\nSales and marketing\n\n \n \n27\n%\n \n \n54\n%\n\nResearch, development and engineering\n\n \n \n49\n%\n \n \n81\n%\n\nGeneral and administrative\n\n \n \n73\n%\n \n \n55\n%\n\nAmortization expense on acquired intangible assets\n\n \n \n4\n%\n \n \n3\n%\n\nTotal operating expenses\n\n \n \n154\n%\n \n \n194\n%\n\nOperating loss\n\n \n \n(94\n)%\n \n \n(129\n)%\n\nOther income, net\n\n \n \n2\n%\n \n \n4\n%\n\nLoss before income taxes\n\n \n \n(92\n)%\n \n \n(125\n)%\n\nProvision for income taxes\n\n \n \n(—\n)%\n \n \n(—\n)%\n\nNet loss\n\n \n \n(92\n)%\n \n \n(125\n)%\n\n(1)\n\nCost of revenue for Subscription and Service excludes amortization expense on acquired intangible assets.\n\n \n\n**Summary**\n\n \n\nTotal revenue for the three months ended March 31, 2026, decreased $1.8 million, or 19%, to $7.6 million, compared to $9.4 million for the three months ended March 31, 2025. Subscription revenue decreased $0.9 million, primarily reflecting a decrease of $1.5 million from the expiration of two commercial contracts in 2025, partially offset by higher subscription revenue from new and existing commercial contracts. Service revenue decreased $0.8 million, primarily reflecting $0.5 million lower commercial service revenue from HolyGrail 2.0 recycling projects, as that work was previously completed.\n\n \n\nTotal operating expenses for the three months ended March 31, 2026, decreased $6.5 million, or 36%, to $11.7 million, compared to $18.2 million for the three months ended March 31, 2025. The decrease primarily reflects decreases in cash compensation costs of $7.4 million, consulting costs of $0.5 million and software and hardware costs of $0.3 million, partially offset by increases in legal costs of $1.0 million and stock compensation costs of $0.5 million. The $7.4 million decrease in cash compensation costs primarily reflects $4.2 million of lower costs largely due to lower headcount and $3.2 million of cash severance costs resulting from the reduction in force in the first quarter of 2025. The $1.0 million increase in legal costs primarily reflects costs associated with the corporate reorganization.\n\n \n\n*Revenue*\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**Increase/(Decrease)**\n\n \n \n\n**Increase/(Decrease)**\n\n \n\nRevenue:\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nSubscription\n\n \n$\n4,369\n \n \n$\n5,314\n \n \n$\n(945\n)\n \n \n(18\n)%\n\nService\n\n \n \n3,210\n \n \n \n4,054\n \n \n \n(844\n)\n \n \n(21\n)%\n\nTotal\n\n \n$\n7,579\n \n \n$\n9,368\n \n \n$\n(1,789\n)\n \n \n(19\n)%\n\nRevenue (as % of total revenue):\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nSubscription\n\n \n \n58\n%\n \n \n57\n%\n \n \n \n \n \n \n \n \n\nService\n\n \n \n42\n%\n \n \n43\n%\n \n \n \n \n \n \n \n \n\nTotal\n\n \n \n100\n%\n \n \n100\n%\n \n \n \n \n \n \n \n \n\n \n\n19\n\n[Table of Contents](#toc)\n\n \n\n*Subscription*\n\n \n\nSubscription revenue consists primarily of revenue earned from subscription fees for access to our SaaS platform and products and, to a lesser extent, licensing fees for our software products and 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.\n\n \n\nThe $0.9 million decrease in subscription revenue for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects a decrease of $1.5 million from the expiration of two commercial contracts in 2025, partially offset by an increase from new and existing commercial contracts.  \n\n \n\n*Service*\n\n \n\nService revenue consists primarily of revenue earned from the performance of software development services and, to a lesser extent, professional services. The majority of software development 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 our service revenue, has a contract term through December 31, 2029. 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.\n\n \n\nThe $0.8 million decrease in service revenue for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects $0.5 million of lower commercial service revenue from HolyGrail 2.0 recycling projects.\n\n \n\n*Revenue by geography*\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**Increase/(Decrease)**\n\n \n \n\n**Increase/(Decrease)**\n\n \n\nRevenue by geography:\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nDomestic\n\n \n$\n1,868\n \n \n$\n2,146\n \n \n$\n(278\n)\n \n \n(13\n)%\n\nInternational\n\n \n \n5,711\n \n \n \n7,222\n \n \n \n(1,511\n)\n \n \n(21\n)%\n\nTotal\n\n \n$\n7,579\n \n \n$\n9,368\n \n \n$\n(1,789\n)\n \n \n(19\n)%\n\nRevenue (as % of total revenue):\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nDomestic\n\n \n \n25\n%\n \n \n23\n%\n \n \n \n \n \n \n \n \n\nInternational\n\n \n \n75\n%\n \n \n77\n%\n \n \n \n \n \n \n \n \n\nTotal\n\n \n \n100\n%\n \n \n100\n%\n \n \n \n \n \n \n \n \n\n \n\n*Domestic*\n\n \n\nThe $0.3 million decrease in domestic revenue for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects a decrease of $0.8 million from the expiration of a commercial subscription contract with a domestic customer in October 2025, partially offset by higher commercial subscription revenue from new and existing contracts with domestic customers.\n\n \n\n*International*\n\n \n\nThe $1.5 million decrease in international revenue for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects a decrease of $0.8 million from the expiration of a commercial subscription and service contract with an international customer in April 2025 and $0.5 million of lower commercial service revenue from HolyGrail 2.0 recycling projects.\n\n \n\n*Revenue by market*\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**Increase/(Decrease)**\n\n \n \n\n**Increase/(Decrease)**\n\n \n\nCommercial:\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nSubscription\n\n \n$\n4,069\n \n \n$\n5,014\n \n \n$\n(945\n)\n \n \n(19\n)%\n\nService\n\n \n \n59\n \n \n \n796\n \n \n \n(737\n)\n \n \n(93\n)%\n\nTotal Commercial\n\n \n$\n4,128\n \n \n$\n5,810\n \n \n$\n(1,682\n)\n \n \n(29\n)%\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nGovernment:\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nSubscription\n\n \n$\n300\n \n \n$\n300\n \n \n$\n—\n \n \n \n—\n%\n\nService\n\n \n \n3,151\n \n \n \n3,258\n \n \n \n(107\n)\n \n \n(3\n)%\n\nTotal Government\n\n \n$\n3,451\n \n \n$\n3,558\n \n \n$\n(107\n)\n \n \n(3\n)%\n\nTotal\n\n \n$\n7,579\n \n \n$\n9,368\n \n \n$\n(1,789\n)\n \n \n(19\n)%\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nRevenue (as % of total revenue):\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nCommercial\n\n \n \n54\n%\n \n \n62\n%\n \n \n \n \n \n \n \n \n\nGovernment\n\n \n \n46\n%\n \n \n38\n%\n \n \n \n \n \n \n \n \n\nTotal\n\n \n \n100\n%\n \n \n100\n%\n \n \n \n \n \n \n \n \n\n \n\n20\n\n[Table of Contents](#toc)\n\n \n\n*Commercial*\n\n \n\nThe $1.7 million decrease in commercial revenue for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects a decrease of $1.6 million from the expiration of two commercial contracts in 2025 and $0.5 million of lower commercial service revenue from HolyGrail 2.0 recycling projects, partially offset by higher commercial subscription revenue from new and existing customers.\n\n \n\n*Government*\n\n \n\nThe $0.1 million decrease in government revenue for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, reflects $0.1 million of lower government service revenue from the Central Banks.\n\n \n\n*Annual Recurring Revenue (*“*ARR*”*)*\n\n \n\n \n \n\n**As of**\n\n \n \n\n**As of**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**March 31,**\n\n \n \n\n**March 31,**\n\n \n \n\n**Increase**\n\n \n \n\n**Increase**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**(Decrease)**\n\n \n \n\n**(Decrease)**\n\n \n\nARR\n\n \n$\n15,038\n \n \n$\n19,973\n \n \n$\n(4,935\n)\n \n \n(25\n)%\n\n \n\nARR decreased $4.9 million from $20.0 million as of March 31, 2025 to $15.0 million as of March 31, 2026, reflecting the expiration of two commercial contracts, one in April 2025 that accounted for $3.7 million of ARR and the other in October 2025 that accounted for $3.1 million of ARR, partially offset by $1.8 million of net increases to ARR from new and existing commercial contracts.\n\n \n\nWe provide an ARR performance metric to help investors better understand and assess the performance of our business because our mix of revenue generated from recurring sources has increased in recent years. ARR is calculated as the aggregation of annualized subscription fees from all of our commercial contracts as of the measurement date. ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with, or to replace, either of those items. ARR is not a forecast and the contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.\n\n \n\n*Cost of revenue*\n\n \n\n*Subscription*. Cost of subscription revenue primarily includes:\n\n \n\n \n\n•\n\ninternet cloud hosting costs and image search data fees to support our subscription products; and\n\n \n\n \n\n•\n\namortization of capitalized patent costs and patent maintenance fees.\n\n   \n\n*Service.* Cost of service revenue primarily includes:\n\n \n\n \n\n•\n\ncompensation, benefits, incentive compensation in the form of cash and stock-based compensation and related costs of our software developers, quality assurance personnel, professional services team and other personnel where we bill our customers for time and materials costs;\n\n \n\n \n\n•\n\npayments to outside contractors that are billed to customers;\n\n \n\n \n\n•\n\ncharges for equipment and software directly used by customers; and\n\n \n\n \n\n•\n\ntravel costs that are billed to customers.\n\n \n\n*Amortization expense on acquired intangible assets*includes:\n\n \n\n \n\n•\n\namortization expense recognized on the developed technology intangible asset acquired in the EVRYTHNG acquisition.\n\n \n\n*Gross profit*\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**Increase/(Decrease)**\n\n \n \n\n**Increase/(Decrease)**\n\n \n\nGross Profit:\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nSubscription (1)\n\n \n$\n3,913\n \n \n$\n4,570\n \n \n$\n(657\n)\n \n \n(14\n)%\n\nService (1)\n\n \n \n1,832\n \n \n \n2,647\n \n \n \n(815\n)\n \n \n(31\n)%\n\nAmortization expense on acquired intangible assets\n\n \n \n(1,208\n)\n \n \n(1,132\n)\n \n \n(76\n)\n \n \n(7\n)%\n\nTotal\n\n \n$\n4,537\n \n \n$\n6,085\n \n \n$\n(1,548\n)\n \n \n(25\n)%\n\nGross Profit Margin:\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nSubscription (1)\n\n \n \n90\n%\n \n \n86\n%\n \n \n \n \n \n \n \n \n\nService (1)\n\n \n \n57\n%\n \n \n65\n%\n \n \n \n \n \n \n \n \n\nTotal\n\n \n \n60\n%\n \n \n65\n%\n \n \n \n \n \n \n \n \n\n(1)\n\nGross Profit and Gross Profit Margin for Subscription and Service excludes amortization expense on acquired intangible assets.\n\n \n\n21\n\n[Table of Contents](#toc)\n\n \n\nThe $1.5 million decrease in total gross profit for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects $1.8 million of lower revenue, partially offset by $0.3 million of lower cost of subscription revenue.\n\n \n\nThe increase in subscription gross profit margin, excluding amortization expense on acquired intangible assets, for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects $0.3 million of lower cost of subscription revenue.\n\n \n\nThe decrease in service gross profit margin, excluding amortization expense on acquired intangible assets, for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects a less favorable mix of service revenue.\n\n \n\n*Operating expenses*\n\n \n\n*Sales and marketing*\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**Increase/(Decrease)**\n\n \n \n\n**Increase/(Decrease)**\n\n \n\nSales and marketing\n\n \n$\n2,082\n \n \n$\n5,078\n \n \n$\n(2,996\n)\n \n \n(59\n)%\n\nSales and marketing (as % of total revenue)\n\n \n \n27\n%\n \n \n54\n%\n \n \n \n \n \n \n \n \n\n \n\nSales and marketing expenses consist primarily of:\n\n \n\n \n\n•\n\ncompensation, benefits, incentive compensation in the form of cash and stock-based compensation and related costs of our sales, marketing, product, professional services and customer support personnel;\n\n \n\n \n\n•\n\ntravel and market research costs, and costs associated with marketing programs, such as trade shows, public relations and new product launches;\n\n \n\n \n\n•\n\nconsulting costs for sales and marketing and product initiatives; and\n\n \n\n \n\n•\n\nthe allocation of facilities and information technology costs.\n\n \n\nThe $3.0 million decrease in sales and marketing expenses for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects:\n\n \n\n \n\n•\n\nlower cash compensation costs of $1.7 million largely due to lower headcount;\n\n \n\n \n\n•\n\nlower cash severance costs of $0.9 million resulting from the reduction in force in 2025; and\n\n \n\n \n\n•\n\nlower stock compensation costs of $0.3 million.\n\n \n\n*Research, development and engineering*\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**Increase/(Decrease)**\n\n \n \n\n**Increase/(Decrease)**\n\n \n\nResearch, development and engineering\n\n \n$\n3,747\n \n \n$\n7,634\n \n \n$\n(3,887\n)\n \n \n(51\n)%\n\nResearch, development and engineering (as % of total revenue)\n\n \n \n49\n%\n \n \n81\n%\n \n \n \n \n \n \n \n \n\n \n\nResearch, development and engineering expenses consist primarily of:\n\n \n\n \n\n•\n\ncompensation, benefits, incentive compensation in the form of cash and stock-based compensation and related costs of our software and hardware developers and quality assurance personnel;\n\n \n\n \n\n•\n\npayments to outside contractors for software development services;\n\n \n\n \n\n•\n\nthe purchase of materials and services for platform and product development; and\n\n \n\n \n\n•\n\nthe allocation of facilities and information technology costs.\n\n \n\nThe $3.9 million decrease in research, development and engineering expenses for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects:\n\n \n\n \n\n•\n\nlower cash compensation costs of $1.9 million largely due to lower headcount;\n\n \n\n \n\n•\n\nlower cash severance costs of $1.6 million resulting from the reduction in force in 2025; and\n\n \n\n \n\n•\n\nlower software and hardware costs of $0.3 million.\n\n \n\n22\n\n[Table of Contents](#toc)\n\n \n\n*General and administrative*\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**Increase/(Decrease)**\n\n \n \n\n**Increase/(Decrease)**\n\n \n\nGeneral and administrative\n\n \n$\n5,555\n \n \n$\n5,181\n \n \n$\n374\n \n \n \n7\n%\n\nGeneral and administrative (as % of total revenue)\n\n \n \n73\n%\n \n \n55\n%\n \n \n \n \n \n \n \n \n\n \n\nWe 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. These costs are allocated to sales and marketing, research, development and engineering, and general and administrative based on relative headcount.\n\n \n\nGeneral and administrative expenses consist primarily of:\n\n \n\n \n\n•\n\ncompensation, benefits and incentive compensation in the form of cash and stock-based compensation and related costs of our general and administrative personnel;\n\n \n\n \n\n•\n\nthird party and professional fees associated with legal, accounting and human resources functions;\n\n \n\n \n\n•\n\ncosts associated with being a public company;\n\n \n\n \n\n•\n\nthird 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; and\n\n \n\n \n\n•\n\nthe allocation of facilities and information technology costs.\n\n \n\nThe \n$0.4 million \nincrease in general and administrative expenses for\nthe three months ended\nMarch 31, 2026\n, compared to the corresponding three months ended\nMarch 31, 2025, primarily reflects:\n\n \n\n \n\n•\n\nhigher legal costs of $1.0 million, largely related to the corporate reorganization;\n\n \n\n \n\n•\n\nhigher stock compensation costs of $0.6 million; and\n\n \n\n \n\n•\n\nlower allocation out for facilities and information technology costs of $0.3 million primarily due to lower allocable costs; partially offset by\n\n \n\n \n\n•\n\nlower cash severance costs of $0.7 million resulting from the reduction in force in 2025;\n\n \n\n \n\n•\n\nlower cash compensation costs of $0.6 million largely due to lower headcount; and\n\n \n\n \n\n•\n\nlower consulting costs of $0.5 million.\n\n \n\n*Amortization expense on acquired intangible assets*\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**Increase/(Decrease)**\n\n \n \n\n**Increase/(Decrease)**\n\n \n\nAmortization expense on acquired intangible assets\n\n \n$\n289\n \n \n$\n271\n \n \n$\n18\n \n \n \n7\n%\n\nAmortization expense on acquired intangible assets (as % of total revenue)\n\n \n \n4\n%\n \n \n3\n%\n \n \n \n \n \n \n \n \n\n \n\nAmortization expense on acquired intangible assets relates to amortization expense recognized on the customer relationships intangible asset acquired in the EVRYTHNG acquisition.\n\n \n\nThe insignificant change in amortization expense on acquired intangible assets reflects the impact of changes in foreign currency exchange rates. \n\n \n\n*Stock-based compensation*\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**Increase/(Decrease)**\n\n \n \n\n**Increase/(Decrease)**\n\n \n\nCost of revenue\n\n \n$\n347\n \n \n$\n137\n \n \n$\n210\n \n \n \n153\n%\n\nSales and marketing\n\n \n \n56\n \n \n \n355\n \n \n \n(299\n)\n \n \n(84\n)%\n\nResearch, development and engineering\n\n \n \n619\n \n \n \n407\n \n \n \n212\n \n \n \n52\n%\n\nGeneral and administrative\n\n \n \n987\n \n \n \n361\n \n \n \n626\n \n \n \n173\n%\n\nTotal\n\n \n$\n2,009\n \n \n$\n1,260\n \n \n$\n749\n \n \n \n59\n%\n\n \n\nThe $0.7 million increase in stock-based compensation expense for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects a larger number of employee stock grants.\n\n \n\nWe anticipate incurring an additional $10.0 million in stock-based compensation expense through March 31, 2030, for stock awards outstanding as of March 31, 2026. \n\n \n\n23\n\n[Table of Contents](#toc)\n\n \n\n*Other income, net*\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**Increase/(Decrease)**\n\n \n \n\n**Increase/(Decrease)**\n\n \n\nOther income, net\n\n \n$\n171\n \n \n$\n369\n \n \n$\n(198\n)\n \n \n(54\n)%\n\nOther income, net (as % of total revenue)\n\n \n \n2\n%\n \n \n4\n%\n \n \n \n \n \n \n \n \n\n \n\nThe $0.2 million decrease in other income, net for the three months ended March 31, 2026, compared to the corresponding three months ended March 31, 2025, primarily reflects lower interest income due to lower marketable securities balances and interest rates.\n\n \n\n*Income Taxes *\n\n \n\nThe provision for income taxes reflects current taxes and deferred taxes. The effective tax rate for each of the three months ended March 31, 2026 and 2025 was 0%. Our effective tax rate is significantly lower than our statutory tax rate because we have a valuation allowance recorded against our deferred tax assets. \n\n \n\nThe valuation allowance against deferred tax assets as of March 31, 2026, was $113.7 million, an increase of $0.9 million from $112.7 million as of December 31, 2025.\n\n \n\nWe continually assess the applicability of a valuation allowance against our deferred tax assets. Based upon the positive and negative evidence available as of March 31, 2026, 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 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. Future reversals of the valuation allowance would result in a tax benefit in the period recognized.\n\n \n\n*Non-GAAP Financial Measures*\n\n \n\nThe following discussion and analysis includes both financial measures in accordance with U.S. GAAP (“GAAP”) as well as non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that excludes amounts that are not normally excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to, GAAP financial measures. Non-GAAP financial measures may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. Our management uses and relies on Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, and Non-GAAP net loss per diluted share, which are all non-GAAP financial measures. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods.\n\n \n\nOur management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management recognizes that the non-GAAP financial measures have inherent limitations because of the described excluded items.\n\n \n\nWe define Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, and Non-GAAP net loss per diluted share excluding the adjustments in the table below. These non-GAAP financial measures are an important measure of our operating performance because they allow management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing non-cash and non-recurring activities that can affect comparability.\n\n \n\nWe have included a reconciliation of our financial measures calculated in accordance with GAAP to the most comparable non-GAAP financial measures. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between us and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definitions being used and to the reconciliation between such measures and the corresponding GAAP measures provided by each company under applicable SEC rules.\n\n \n\n24\n\n[Table of Contents](#toc)\n\n \n\nThe following table presents a reconciliation of Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, and Non-GAAP net loss per diluted share for the three months ended March 31, 2026 and 2025:\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n\nGAAP gross profit\n\n \n$\n4,537\n \n \n$\n6,085\n \n\nAmortization of acquired intangible assets\n\n \n \n1,208\n \n \n \n1,132\n \n\nAmortization and write-off of other intangible assets (1)\n\n \n \n207\n \n \n \n220\n \n\nStock-based compensation\n\n \n \n347\n \n \n \n137\n \n\nNon-GAAP gross profit\n\n \n$\n6,299\n \n \n$\n7,574\n \n\nNon-GAAP gross profit margin\n\n \n \n83\n%\n \n \n81\n%\n\n \n \n \n \n \n \n \n \n \n\nGAAP operating expenses\n\n \n$\n11,673\n \n \n$\n18,164\n \n\nDepreciation and write-off of property and equipment\n\n \n \n(154\n)\n \n \n(146\n)\n\nAmortization of acquired intangible assets\n\n \n \n(289\n)\n \n \n(271\n)\n\nAmortization and write-off of other intangible assets\n\n \n \n(121\n)\n \n \n(59\n)\n\nAmortization of lease right of use assets under operating leases\n\n \n \n(117\n)\n \n \n(98\n)\n\nStock-based compensation\n\n \n \n(1,662\n)\n \n \n(1,123\n)\n\nCorporate reorganization expenses\n\n \n \n(1,223\n)\n \n \n—\n \n\nNon-GAAP operating expenses\n\n \n$\n8,107\n \n \n$\n16,467\n \n\n \n \n \n \n \n \n \n \n \n\nGAAP net loss\n\n \n$\n(6,966\n)\n \n$\n(11,730\n)\n\nTotal adjustments to gross profit\n\n \n \n1,762\n \n \n \n1,489\n \n\nTotal adjustments to operating expenses\n\n \n \n3,566\n \n \n \n1,697\n \n\nNon-GAAP net loss\n\n \n$\n(1,638\n)\n \n$\n(8,544\n)\n\n \n \n \n \n \n \n \n \n \n\nGAAP net loss per diluted share\n\n \n$\n(0.32\n)\n \n$\n(0.55\n)\n\nNon-GAAP net loss\n\n \n$\n(1,638\n)\n \n$\n(8,544\n)\n\nNon-GAAP net loss per diluted share\n\n \n$\n(0.07\n)\n \n$\n(0.40\n)\n\n(1)\n\nIn the second quarter of fiscal 2025, management updated its definition of Non-GAAP gross profit to adjust for the amortization of patent maintenance costs. The related amortization expense for the three months ended March 31, 2026 and 2025 is now reflected in “amortization and write-off of other intangible assets” above to calculate Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP net loss and Non-GAAP net loss per diluted share.\n\n \n\nNon-GAAP gross profit for the three months ended March 31, 2026, decreased by $1.3 million compared to the three months ended March 31, 2025. The decrease primarily reflects lower revenue, partially offset by lower cost of subscription revenue. \n\n \n\nNon-GAAP gross profit margin for the three months ended March 31, 2026, increased to 83% compared to 81% for the three months ended March 31, 2025. The increase primarily reflects a lower cost of subscription revenue.\n\n \n\nNon-GAAP operating expenses for the three months ended March 31, 2026, decreased by $8.4 million compared to the three months ended March 31, 2025. The decrease primarily reflects $4.2 million of lower cash compensation costs largely due to lower headcount, $3.2 million lower cash severance costs resulting from the reduction in force in the first quarter of 2025, $0.5 million lower consulting costs, and $0.3 million of lower software and hardware costs. \n\n \n\n**Liquidity and Capital Resources**\n\n \n\n \n \n\n**March 31,**\n\n \n \n\n**December 31,**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n\nWorking capital\n\n \n$\n8,812\n \n \n$\n12,988\n \n\nCurrent ratio (1)\n\n \n \n1.9:1\n \n \n \n2.6:1\n \n\nCash, cash equivalents and short-term marketable securities\n\n \n$\n9,963\n \n \n$\n12,866\n \n\n(1)\n\nThe current ratio is calculated by dividing total current assets by total current liabilities.\n\n \n\nThe $2.9 million decrease in cash, cash equivalents and marketable securities at March 31, 2026, from December 31, 2025, resulted primarily from:\n\n \n\n \n\n•\n\n$1.8 million of cash used in operations; and\n\n \n\n \n\n•\n\n$0.9 million of cash used for purchases of common stock related to tax withholding in connection with the vesting of restricted stock, restricted stock units, and performance restricted stock units.\n\n \n\nFinancial 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 include commercial paper and corporate notes. Our investment policy requires our portfolio to be invested to ensure that the greater of $3.0 million or 7% of the invested funds will be available within 30 days’ notice.\n\n \n\nOther 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 $1.0 million, 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 $15.0 million, whichever is lesser, to be invested in any one industry category (e.g., financial, energy, etc.) at the time of purchase. As a result, we believe our credit risk associated with cash and investments to be minimal.\n\n \n\n25\n\n[Table of Contents](#toc)\n\n \n\nA decline in the market value of any security that is deemed to be other-than-temporary is charged to earnings. To determine whether an impairment is other-than-temporary, we consider whether we have the ability and intent to hold the investment until a market price recovery and evidence indicating that the cost of the investment is recoverable outweighs evidence to the contrary. There have been no other-than-temporary impairments identified or recorded by us for the three months ended March 31, 2026 and 2025.\n\n \n\n*Cash flows from operating activities*\n\n \n\nThe components of cash flows used in operating activities were:\n\n \n\n \n \n\n**Three Months Ended March 31,**\n\n \n \n\n**Dollar**\n\n \n \n\n**Percent**\n\n \n\n \n \n\n**2026**\n\n \n \n\n**2025**\n\n \n \n\n**Increase/(Decrease)**\n\n \n \n\n**Increase/(Decrease)**\n\n \n\nNet loss\n\n \n$\n(6,966\n)\n \n$\n(11,730\n)\n \n$\n(4,764\n)\n \n \n(41\n)%\n\nNon-cash items included in net loss\n\n \n \n4,126\n \n \n \n3,100\n \n \n \n(1,026\n)\n \n \n(33\n)%\n\nChanges in operating assets and liabilities\n\n \n \n993\n \n \n \n3,144\n \n \n \n2,151\n \n \n \n68\n%\n\nNet cash used in operating activities\n\n \n$\n(1,847\n)\n \n$\n(5,486\n)\n \n$\n(3,639\n)\n \n \n(66\n)%\n\n \n\nCash used in operating activities for the three months ended March 31, 2026, decreased by $3.6 million, compared to the corresponding three months ended March 31, 2025, reflecting a $4.8 million lower net loss and $1.0 million of higher non-cash items included in net loss, partially offset by a $2.2 million change in operating assets and liabilities due to unfavorable timing. The increase in non-cash items included in net loss primarily reflects $0.7 million of higher stock compensation expense. The unfavorable timing of operating assets and liabilities primarily reflects the timing and amount of refundable tax credits, customer receipts, and vendor prepayments.\n\n \n\n*     **Cash flows from investing activities*\n\n \n\nCash flows from investing activities for the three months ended March 31, 2026, decreased by $1.8 million, compared to the corresponding three months ended March 31, 2025, primarily reflecting $4.4 million of lower proceeds from maturities of marketable securities, partially offset by $2.6 million of lower purchases of marketable securities.\n\n \n\n     *Cash flows from financing activities*\n\n \n\nCash flows from financing activities for the three months ended March 31, 2026, increased by $0.7 million, compared to the corresponding three months ended March 31, 2025, primarily reflecting $0.7 million of lower purchases of common stock.\n\n \n\n**Future Cash Expectations**\n\n \n\nWe believe that our current cash, cash equivalents, and marketable securities balances will satisfy our projected working capital and capital expenditure requirements for at least the next 12 months.\n\n \n\nOur commercial subscription revenue in fiscal 2026 has been negatively impacted by the expiration of two commercial contracts that ended in 2025. The two expired commercial contracts contributed $1.5 million of subscription revenue during the three months ended March 31, 2025 compared to $0 during the three months ended March 31, 2026.\n\n \n\n*Shelf Registration*\n\n \n\nOn June 23, 2023, we filed a new shelf registration statement on Form S-3 that included $34.6 million of unsold securities from our prior shelf registration statement filed on June 5, 2020. The new shelf registration statement became effective on July 19, 2023, and expires on July 19, 2026. Under the new shelf registration statement, we may sell securities in one or more offerings up to $100.0 million. As of March 31, 2026, $67.5 million remained available under the new shelf registration statement.\n\n \n\nWe 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. These factors may inhibit our near-term ability to obtain financing.\n\n \n\n**Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995**\n\n \n\nThis 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, as amended. 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 2025 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:\n\n \n\n \n\n•\n\ntrends and sources of future revenue;\n\n \n\n \n\n•\n\nanticipated revenue to be generated from current contracts;\n\n \n\n26\n\n[Table of Contents](#toc)\n\n \n\n \n\n•\n\nanticipated expenses, costs, margins, provision for income taxes and investment activities;\n\n \n\n \n\n•\n\nour assumptions and expectations related to stock awards, including future stock-based compensation expense;\n\n \n\n \n\n•\n\nour belief that we have one of the world’s most extensive patent portfolios in digital watermarking and related fields;\n\n \n\n \n\n•\n\nour beliefs regarding our critical accounting policies;\n\n \n\n \n\n•\n\nbusiness opportunities that could require that we seek additional financing and our ability to do so;\n\n \n\n \n\n•\n\nour expected short-term and long-term liquidity positions;\n\n \n\n \n\n•\n\nour 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;\n\n \n\n \n\n•\n\nour expectations regarding our ability to meet future financial obligations as they become due within the coming fiscal year;\n\n \n\n \n\n•\n\nour 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;\n\n \n\n \n\n•\n\nprotection, development and monetization of our intellectual property portfolio; and\n\n \n\n \n\n•\n\nour beliefs related to legal proceedings and claims arising in the ordinary course of business.\n\n \n\nWe believe that the risk factors specified above and the risk factors contained in Part I, Item 1A. “Risk Factors” of our 2025 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."}