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 UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

 FORM 10-K

 (Mark One)

 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 For the fiscal year ended December 31, 2024

 OR

 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 For the transition period from to

 Commission File Number 001-34108

 (Exact name of registrant as specified in its charter)

 Oregon

 26-2828185

 (State or other jurisdiction of
 incorporation or organization)

 (I.R.S. Employer
 Identification No.)

 8500 SW Creekside Place, Beaverton, Oregon 97008

 (Address of principal executive offices) (Zip Code)

 ( 503) 469-4800

 (Registrant ' s telephone number, including area code)

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

 Title of Each Class

 Trading Symbol

 Name of Each Exchange on Which Registered

 Common Stock, $0.001 Par Value Per Share

 DMRC

 The NASDAQ Stock Market LLC

 Securities registered pursuant to Section 12(g) of the Act: NONE

 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

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

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

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

 Large accelerated filer

 Accelerated filer

 Non-accelerated filer

 Smaller reporting company

 Emerging growth company

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

 Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b).

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

 The aggregate market value of common stock, par value $0.001 per share, held by non-affiliates of the registrant, based on the closing price of our common stock on the Nasdaq Global Market on the last business day of the registrant's most recently completed fiscal second quarter (June 30, 2024), was approximately $ 539 million. Shares of common stock beneficially held by each officer and director have been excluded from this computation because these persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purposes.

 As of February 21, 202 5, 21,548,579 shares of the registrant's common s tock were outstanding.

 DOCUMENTS INCORPORATED BY REFERENCE

 Portions of the registrant's proxy statement pursuant to Regulation 14A (the "Proxy Statement") for its 2025 annual meeting of shareholders are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K. The registrant intends to file the Proxy Statement not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

 Auditor Name: KPMG LLP
 Auditor Location: Portland, Oregon
 Auditor Firm ID: 185

 Item 1.

 Business

 Item 1A.

 Risk Factors

 Item 1B.

 Unresolved Staff Comments

 Item 1C.

 Cybersecurity

 Item 2.

 Properties

 Item 3.

 Legal Proceedings

 Item 4.

 Mine Safety Disclosures

 Item 5.

 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 Item 7.

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

 Item 7A.

 Quantitative and Qualitative Disclosures About Market Risk

 Item 8.

 Financial Statements and Supplementary Data

 Item 9.

 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 Item 9A.

 Controls and Procedures

 Item 9B.

 Other Information

 Item 9C.

 Disclosure Regarding Foreign Jurisdictions That Prevent Inspections

 Item 10.

 Directors, Executive Officers and Corporate Governance

 Item 11.

 Executive Compensation

 Item 12.

 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 Item 13.

 Certain Relationships and Related Transactions, and Director Independence

 Item 14.

 Principal Accountant Fees and Services

 Item 15.

 Exhibits and Financial Statement Schedules

 SIGNATURES

 Unless the context otherwise requires, references in this Annual Report on Form 10-K to " Company, " " Digimarc, " " we, " " our " and " us " refer to Digimarc Corporation.

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

 Digimarc, Digimarc Barcode, The Barcode of Everything, Barcode of Everything, and the circle-d logo are registered trademarks of Digimarc Corporation. EVRYTHNG and EVRYTHNG PRODUCT CLOUD are registered trademarks of EVRYTHNG Limited, a wholly owned subsidiary of Digimarc.

 ITEM 1: BUSINESS

 The following discussion of Digimarc ' s business contains forward-looking statements relating to future events or the future financial performance of Digimarc. Our actual results could differ materially from those anticipated in these forward-looking statements. Please see the discussion regarding forward-looking statements included in this Annual Report on Form 10-K in Item 7, Management ' s Discussion and Analysis of Financial Condition and Results of Operations, under the caption " Forward-Looking Statements. "

 The following discussion of our business should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K.

 Overview

 Digimarc, an Oregon corporation, is a pioneer and global leader in digital watermarking technologies. For nearly 30 years, Digimarc innovations and intellectual property in digital watermarking have been deployed in solutions built upon one or both of the following two things: the identification and the authentication of physical and digital items, often at massive scale, and often where other methods of identification or authentication don't work well or don't work at all.

 The Digimarc Illuminate platform is a distinctive software as a service ("SaaS") cloud-based platform for digital connectivity that provides the tools for the application of advanced digital watermarks and dynamic Quick Response ("QR") codes, software (digital twins) that enables various systems and devices to interact with those data carriers, and a centralized platform for capturing insights about digital interactions and automating activities based on that information.

 The Digimarc product suite is built on top of the Digimarc Illuminate platform to power a trusted and scalable ecosystem that can address specific business needs in areas like automation, authenticity, sustainability, and customer trust and connectivity. All of the Company's products are complementary to each other, providing exponential benefits when combined. By enabling customers to create and connect digital twins to physical and digital items, Digimarc's products provide many benefits including:

 •

 Digimarc Automate improves product inspection by embedding imperceptible digital watermarks into products, labels, and packaging, which are detectable by standard vision systems. This significantly reduces mixing errors and mislabeling, ensuring higher accuracy and efficiency in production, fulfillment, and distribution facilities without additional costs for special inks or hardware. By enabling real-time data analysis and minimizing human error, Digimarc Automate enhances quality assurance, reduces waste, and lowers the risk of product recalls, giving brands a competitive edge.

 •

 Digimarc Engage activates products and multimedia to create and leverage an interactive, fully owned communications channel directly with consumers. Digimarc delivers dynamic, GS1 Digital Link-compliant QR codes and hyperlinks that provide contextual redirection capabilities for multiple consumer experiences (including personalized and automated loyalty and rewards programs) based on a variety of factors such as time and location or previous behavior. Connecting engagements across the physical and digital worlds in a singular view results in powerful new capabilities and insights for brands.

 •

 Digimarc Recycle increases the quality and quantity of recycled materials by digitizing products and packaging with digital watermarking technology. Coupled with consumer engagement capabilities, brands can leverage a direct, digital communications channel. Plus, Digimarc Recycle creates a cloud-based record of never-before-seen post-consumption data to provide new insights that benefit stakeholders across the value chain, including brands, facility operators, and Producer Responsibility Organizations ("PROs").

 •

 Digimarc Retail Experience delivers smarter, connected packaging that supports next-generation retail checkout systems, including checkout efficiency (faster scanning) and checkout effectiveness (reduced shrinkage including gift card and price look-up fraud prevention), optimized operational processes, advanced consumer engagement experiences, compliance with upcoming industry standards, and the collection of powerful first-party data and consumer insights.

 •

 Digimarc Validate supports authentication in the physical and digital worlds to help ensure online interactions can be trusted and that real products and digital assets are genuine and in the right place. Digimarc's technology protects digital images, audio, product packaging, gift cards, and other physical items by delivering exclusive, covert digital watermarks and/or dynamic QR codes and a cloud-based record of product authentication information. In addition, consumer engagement capabilities provide a direct, digital communications channel.

 Digimarc has maintained a relationship with a consortium of central banks (the "Central Banks") for nearly 30 years, providing trusted technology to help deter digital counterfeiting of currency. This relationship was the first commercially successful large-scale use of our technologies and protects billions of banknotes in circulation globally.

 In February 2024, Digimarc announced the availability of its next-generation digital watermarks featuring more advanced security and greater access control. Digimarc's next-generation digital watermarks have also been optimized to efficiently address multiple use cases while simultaneously delivering pronounced improvements in both imperceptibility and performance.

 In March 2024, Digimarc announced Digimarc Engage, a product for direct-to-consumer digital communication that is designed to transform the way businesses, brands, and consumers interact. Digimarc Engage is the industry's first consumer engagement solution offering contextual and differentiated experiences across both physical items and digital media – powering integrated marketing campaigns with richer consumer experiences while revealing never-before-available omnichannel data insights to inform smarter campaigns for businesses and brands.

 In June 2024, Digimarc launched Digimarc Automate, an innovative automated product inspection solution designed to enhance accuracy and efficiency in production, fulfillment, and distribution facilities. Utilizing advanced digital watermarking technology, Digimarc Automate surpasses systems using traditional product codes, enhancing quality assurance, waste reduction, data collection, and cost savings.

 In October 2024, Digimarc announced the release of its new Digimarc Recycle sortation software. This technological advancement reduces the cost of Digimarc Recycle-compliant hardware by nearly 50%, significantly lowering the barrier of entry for recycling and waste sortation facilities around the world that are seeking a more sophisticated solution.

 In October 2024, Digimarc announced the launch of the Digimarc Validate mobile application, a groundbreaking out-of-the-box solution designed to help businesses combat counterfeit products. The new app empowers field agents with a simple, cost-effective tool for instant product authentication, protecting customers, securing revenue, and preserving brand integrity.

 In October 2024, Digimarc also announced the release of the industry's first implementation of digital watermarking technology approved for use in the Coalition for Content Provenance and Authenticity's ("C2PA") latest standard, version 2.1. This milestone marks a critical step forward in ensuring the authenticity of digital content in an era where generative artificial intelligence ("GenAI") is rapidly reshaping the media landscape.

 In November 2024, Digimarc introduced its most advanced anti-counterfeit solution to date. Digimarc's new Digital Security Solution empowers security solutions providers and businesses with the tools needed to protect government programs, businesses, and citizens worldwide against counterfeit threats. This launch leverages proven technology and expertise gained through the company's nearly 30-year relationship with the world's central banks.

 Customers and Business Partners

 We generate revenue through two primary markets: commercial and government. Commercial includes retailers, consumer brands, their suppliers and related solution providers, as well as media, entertainment, and other customers. Government includes the Central Banks and other government customers.

 We derive our revenue primarily from software subscriptions and software development services. Subscriptions for our software products are generally sold to retailers, consumer brands, their suppliers and related solution providers. Software development services are generally provided to the Central Banks. During 2024, we generated 41% of our revenue under the long-term contract with the Central Banks, with whom we have been developing, deploying, supporting and enhancing a system to deter digital counterfeiting of currency for nearly 30 years. In December 2022, the 5-year extension option included in our contract with the Central Banks was exercised two years early. The contract now runs through December 31, 2029.

 Technology and Intellectual Property

 We seek patent protection for our inventions to differentiate our products and technologies, mitigate infringement risks, and develop opportunities for licensing. Our patent portfolio covers a wide range of methods, applications, system architectures and processes.

 Our 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 820 U.S. and foreign patents granted and applications pending as of December 31, 2024. The patents in our portfolio each have a life of approximately 20 years from the patent's effective filing date.

 For a discussion of activities and costs related to our research and development in the last two years, see "Research, development and engineering" under Part II, Item 7, " Management's Discussion and Analysis of Financial Condition and Results of Operations."

 Markets

 Our patented technologies are used in various automatic identification products and solutions supporting a variety of media objects, from consumer goods to movies and music, digital images, and banknotes. Each media object enabled by our technology creates the potential for several applications including in the areas of automation, authentication, sustainability, and customer trust and connectivity.

 We sell access to our platform and products through both direct and indirect sales channels. Our sales are generally focused in North America and Europe.

 We believe that our existing products represent only a small portion of the potential market for our technology.

 Competition

 No single competitor or small number of competitors dominate our market. Our competitors vary depending on the application of our products and services. We generally compete with non-digital watermarking technologies. These alternatives include, among other things, encryption-based security systems and technologies and solutions based on fingerprinting, pattern recognition, and traditional barcodes. Our competitive position in digital watermarking applications is strong because of our large, high-quality, sophisticated patent portfolio, our trade secrets and know-how, and our substantial and growing amount of intellectual property in related innovations for the automatic identification of physical and digital media objects that span basic technologies, applications, system designs and business processes. Our intellectual property portfolio allows us to use proprietary technologies that are well-regarded by our customers and partners, and not available to our competitors without a license. We compete based on the variety of features we offer and a traditional cost/benefit analysis against alternative technologies and solutions. Our competitive position within some markets may be affected by factors such as reluctance to adopt new technologies and by changes in government regulations.

 Backlog

 Based on projected commitments we have for the periods under contract with our respective customers, we anticipate our current contracts as of
 December 31, 2024,
 will generate a minimum of
 $36.2
 million in future revenue, compared to
 $43.7
 million as of
 December 31, 2023
. The
 decrease
 reflects the impact of revenue recognized on our existing backlog, a shortened committed contractual period of an existing contract, and the expiration of a commercial contract in June 2024, partially offset by new contracts entered into in 2024. We expect approximately $20.2 million of the
 $36.2
 million to be recognized as revenue during 2025.

 Some factors that lead to increased backlog include:

 •

 contracts with new customers;

 •

 renewals with current customers;

 •

 add-on orders with customers; and

 •

 contracts with longer contractual periods replacing contracts with shorter contractual periods.

 Some factors that lead to decreased backlog include:

 •

 recognition of revenue associated with existing backlog;

 •

 contracts with shorter contractual periods replacing contracts with longer contractual periods;

 •

 modifications to existing contracts;

 •

 contract minimum payments ending; and

 •

 expiration of contracts with existing customers.

 The mix of these factors, among others, dictates whether our backlog increases or decreases for any given period. Our backlog may not result in actual revenue in any particular period, because the orders, awards and contracts included in our backlog may be subject to modification, cancellation or suspension. We may not realize revenue on certain contracts, orders or awards included in our backlog, or the timing of any realization may change.

 Human Capital Resources and Management

 Employees and Labor Relations

 At
 December 31, 2024, we
 had 215 full-time employees, including 109 in research, development and engineering; 70 in sales, marketing, product, operations and customer support; and 36 in finance, administration, information technology, intellectual property and legal.

 Our employees are not covered by any collective bargaining agreement, and we have never experienced a work stoppage. We believe that our relations with our employees are good. Voluntary employee turnover was
 5% for the year ended
 December 31, 2024.

 Values

 Culture is critically important to Digimarc's success. We incorporate our core values in daily interactions with colleagues, customers, vendors and other stakeholders. Our core values are embodied in the words Collaborative, Curious and Courageous.

 Digimarc Values

 Collaborative

 Curious

 Courageous

 We:

 Ask for help
 Prioritize mentoring
 Build trust and transparency

 Support innovative thinking
 Continuously seek clarity
 Listen to our stakeholders

 Challenge our own biases
 Cultivate collective experiences
 Seek out and support ideas

 We Do Not:

 Avoid difficult conversations

 Lose sight of our purpose

 Assume we have all the answers

 Digimarc follows a Purposeful Work approach which enables teams to determine the right balance of working between home and office locations, considering both the company and departmental needs, and those of our staff.

 Giving Back to Our Communities

 At Digimarc, giving back to our communities isn't just an act of goodwill—it's part of our identity. In 2024, we launched our Month of Giving, empowering employees to volunteer with organizations they're passionate about. As part of this initiative, our Beaverton team came together to support a local soup kitchen, making a meaningful difference in the lives of those we serve.

 Compensation and Benefits

 Our compensation program is designed to support, reinforce, and align our values, business strategy, and operational and financial goals of profitable growth and appreciation of our value in the public equity markets.

 Digimarc's compensation program is designed to pay all our employees fairly for their performance and contributions. We do this by balancing a wide variety of important internal and external factors aligned to our Company culture and values. Compensation and benefits are reviewed against the market annually, at a minimum. In 2024, we engaged a third-party consultant to review our compensation bands and ensure we are offering competitive compensation packages. Through this engagement we enhanced our benchmarks to align with public SaaS companies.

 We strive to provide a base salary and restricted stock units that are competitive with the market and compensate above market for outstanding performance. The Company uses restricted stock units to incentivize candidates and high performing employees that contribute to the strategic goals of the Company and drive Company value. Performance stock units are used with our executive management team and are awarded based upon delivering established financial and strategic goals. Equity incentive compensation promotes a sense of ownership and reinforces our philosophy that all employees are valued shareholders in the long-term success of the business. In alignment with our Company culture, we strive to communicate openly about the objectives of the Company and the design of the compensation program. The compensation process is intended to be fair so that all employees and managers understand the goals and the outcomes of the process.

 We are committed to administering the compensation program in a manner that is transparent, consistent, and free of discrimination. We post salary ranges for new positions and do not ask for the previous salary history of our candidates. We promote internal mobility and commit to transparency in how we level and promote our employees.

 We also believe that employees require time to balance the many needs of their lives, both at work and outside of work. Our policies for Paid Time Off ("PTO") are designed to provide employees with time off for vacation, sick days, or other personal reasons. Full time employees at the exempt level in the U.S. are eligible for the Self-Managed PTO program. Non-exempt and part-time U.S. employees are eligible for the Granted PTO program. Under the Self-Managed PTO program, eligible employees may take as much paid time off from work as is consistent with their duties and ability to meet performance expectations.

 Learning and Development

 We invest resources to develop the talent needed to remain at the forefront of innovation. We have a performance management system to support continuous learning and development. Through the use of anonymous surveys, employees can voice their perceptions of the Company and their work experience, including learning and development opportunities. We have strong participation in our surveys and engage our managers to respond to areas that employees have identified as needing improvement or given lower scores.

 We support training and development programs for our employees through tuition reimbursement, online training programs such as Digimarc University, Linked In Learning, conferences, seminars, on-the-job training, and skill certifications. We also encourage and foster onsite training programs and mentoring.

 Health, Safety and Wellness

 We are committed to a safe and drug-free workplace. We continually invest in programs designed to improve physical, mental, and social well-being. We provide access to a variety of innovative, flexible, and convenient health and wellness programs, for our employees and their families.

 Governance and Oversight

 The executive management team is entrusted with developing and advancing our human capital strategy, which is reviewed by the Board of Directors. Our Chief People Officer is charged with developing and stewarding this strategy on a Company-wide basis. This incorporates a broad range of dimensions, including culture, values, labor and employee relations, leadership capabilities, performance management and total rewards. Key processes include ongoing performance and development feedback, and periodic engagement surveys reviewed by management and the Board of Directors. All employees have access to resources on topics regarding integrity, our code of conduct, diversity, compliance, and workplace harassment. Employees are encouraged to address any concerns through multiple channels, including anonymously whenever possible, without fear of retaliation or retribution.

 Available Information

 We make available free of charge through our website at  our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these and other reports filed or furnished by us pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we file these materials with the Securities and Exchange Commission (the "SEC"). The content on any website referred to in this annual report is not incorporated by reference in this annual report unless expressly noted.

 ITEM 1A: RISK FACTORS

 Our business, financial condition, results of operations and cash flows may be affected by a number of factors. The following risk factors identify risks of which we are aware and that we consider to be material to our business. If any of the following risks and uncertainties develops into actual events, our business, financial condition, results of operations or cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline.

 RISKS RELATED TO OUR BUSINESS

 (1) As a purveyor of disruptive technology, if our partners and potential customers defer or delay adopting and implementing our technology, or if competitors or other market participants successfully engage in campaigns to discredit our technology, our revenues will be negatively affected.

 While the Company's business in the government market remains relatively strong and predictable, our primary source of revenue growth—the commercial market—is subject to the market forces and adoption curves common to other disruptive technologies. The commercial market is in its earlier stages of development. If widespread adoption of Digimarc technology in the commercial market takes longer than anticipated, we will continue to experience operating losses. For example, we expect that our subscription revenue in 2025 will be negatively impacted by the termination of a commercial contract that contributed $3.3 million of subscription revenue in 2024. This contract is expected to end in April 2025 and contribute $1.1 million of subscription revenue in 2025. Additionally, our subscription revenue in 2025 may also be impacted negatively by the expiration of a commercial contract in June 2024 that may or may not be extended. This contract contributed $2.1 million of subscription revenue in 2024.

 We expect companies marketing competing technologies to compete vigorously in the marketplace, and to seek to preserve their market share. To the extent these companies succeed in defending their market position, our ability to achieve profitable operations will be impeded.

 With respect to anticipated sales growth and prospects for the commercial market, our two major avenues for revenue generation are direct sales to customers and indirect sales through partners. Our direct sales force is relatively new. Most of our partners are also relatively new to our products. Thus, the anticipated sources of revenue growth for the commercial market are unproven. We are executing strategies intended to make each of these means of revenue generation more effective, but we provide no assurance that we will execute these strategies successfully.

 (2) Our future growth will depend to a material extent on the successful advocacy of our technology by our partners to their customers, and implementation of our technology in solutions propagated by our partners and provided by third parties.

 Our business has long relied on the success of business partners. Continuing our success is largely dependent on a new generation of business partners supporting Digimarc technology in the commercial market. We have entered into agreements with numerous partners to propagate and support our technology, including brand deployment and pre-media service providers and consumer packaging solutions companies, all of which offer Digimarc digital watermarking services to consumer-packaged goods companies. We have also entered into agreements with numerous scanner manufacturers to enable their devices to read Digimarc watermarks. We provide no assurance that these collaborations will successfully generate revenue for our business.

 If our partners are not successful in advocating and deploying our technology, we may not be able to achieve and sustain profitable operations. If other business partners who include our technology in their products cease to do so, or we fail to successfully collaborate with third parties or to obtain other partners who will do so, or these partners are unsuccessful in their efforts, expanding deployment of our technology will be adversely affected. Consequently, our ability to increase revenue could be adversely affected, and we may suffer other adverse effects to our business. In addition, if our technology does not perform according to market expectations, our future sales would suffer as customers employ alternative technologies.

 (3) If leading companies in the consumer-packaged goods industry and related industries downplay, minimize or reject the use of our technology, our product deployment may be slowed, and we may be unable to achieve profitable operations.

 Our business endeavors in the commercial market may be impeded or frustrated by larger, more influential companies or industry trade groups downplaying, minimizing or rejecting the value or use of our technology. A negative position by such companies or groups could result in obstacles for us that we would be incapable of overcoming and may block or impede the adoption of our technology. Such a development would make the achievement of our business objectives in this market difficult or impossible. For example, we expect that our subscription revenue in 2025 will be negatively impacted by the termination of a commercial contract that contributed $3.3 million of subscription revenue in 2024. This contract is expected to end in April 2025 and contribute $1.1 million of subscription revenue in 2025. Additionally, our subscription revenue in 2025 may also be impacted negatively by the expiration of a commercial contract in June 2024 that may or may not be extended. This contract contributed $2.1 million of subscription revenue in 2024.

 (4) We are subject to risks encountered by companies developing and relying upon new technologies, products, and services to achieve and sustain profitable operations.

 Our business and prospects must be considered in light of the risks and uncertainties to which companies with new and rapidly evolving technology, products, and services are exposed. These risks include the following:

 •

 we may be unable to develop sources of new revenue or sustainable growth in revenue because our current and anticipated technologies, products, and services may be inadequate or may be unable to attract or retain customers;

 •

 intense competition from existing and new technologies and providers and rapid technological change could adversely affect the market's acceptance of our products and services; and

 •

 we may be unable to develop and maintain new technologies upon which our products and services are dependent, which may cause our products and services to be less sustainable and competitive or which could make it harder for us to expand our revenue and business.

 (5) A significant portion of our current and potential future revenue is subject to commercial and government contracts and the development of new markets that may involve unpredictable delays and other unexpected changes. Such volatility and uncertainty might limit our actual revenue in any given quarter or year.

 We derive a significant portion of our revenue from contracts tied to development schedules or development of new markets, which could shift for months, quarters, or years as the needs of our customers and the markets in which they participate change. Government agencies and commercial customers also face budget pressures that introduce added uncertainty. Any shift in development schedules, the markets in which we or our partners participate, or customer procurement processes, which are outside our control and may not be predictable, could result in delays in revenues forecasted for any particular period, could affect the predictability of our quarterly and annual results, and might limit our actual revenue recognized in any given quarter or year, resulting in reduced and less predictable revenue, adversely affecting profitability.

 We are expanding into new markets, which involve inherent risk and unpredictability. With our acquisition of EVRYTHNG, we expanded into applications of the product cloud in conjunction with Digimarc watermarks and other data carriers. As we seek to expand outside our areas of historical expertise, we lack the history and insight that benefited us in fields conventionally using digital watermarking. Although we have extensive experience in the commercial application of digital watermarking, we are investing in but may not be as well-positioned for these other opportunities. Accordingly, it may be difficult for us to achieve success in other technologies we might pursue.

 (6) A small number of customers account for a substantial portion of our revenue, and the loss of any large contract could materially disrupt our business.

 Historically, we have derived a significant portion of our revenue from a limited number of customers. Five customers represented approximately 76% of our revenue for the year ended December 31, 2024.

 Nearly half of our revenue came from our contract with the Central Banks in 2024 and 2023. That contract expires at the end of 2029. The customer contracts we enter into may contain termination for convenience provisions or may not include automatic renewal provisions. If we were to lose any such contract for any reason, or if our relationship with these customers or the Central Banks were materially modified, our financial results would be adversely affected. For example, we expect our government service revenue in 2025 to be 12% to 14% lower than 2024 due to a smaller approved budget for program work in 2025.

 We expect to continue to depend upon a small number of customers for a significant portion of our revenue for the foreseeable future. The loss of, or decline in, orders or backlog from one or more major customers could reduce our revenue and have a material adverse effect on our financial results. For example, we expect that our subscription revenue in 2025 will be negatively impacted by the termination of a commercial contract that contributed $3.3 million of subscription revenue in 2024. This contract is expected to end in April 2025 and contribute $1.1 million of subscription revenue in 2025. Additionally, our subscription revenue in 2025 may also be impacted negatively by the expiration of a commercial contract in June 2024 that may or may not be extended. This contract contributed $2.1 million of subscription revenue in 2024.

 (7) The market for our products is highly competitive, and alternative technologies or larger companies that compete with us may be more successful than us in gaining market share, which would decrease our revenue and profits.

 The markets in which we compete for business are intensely competitive and rapidly evolving. We expect competition to continue from both existing competitors and new market entrants. We face competition from other companies and from alternative technologies, including some of our customers, partners, and licensees. We also may face competition from unexpected sources.

 Alternative technologies that may directly or indirectly compete with our products include:

 •

 generative Artificial Intelligence ("AI") technologies — AI technologies that employ machine learning to train AI models to embed and detect identifying information within digital content;

 •

 traditional anti-counterfeiting technologies — solutions designed to deter counterfeiting including optically sensitive ink, magnetic threads and other materials used in the printing of banknotes used by many government agencies (that compete for budgetary outlays);

 •

 object and image recognition (e.g., trained classifiers employing machine learning) — technologies that recognize one or several pre-specified or learned objects or object classes, usually together with their two-dimensional positions in the image or three-dimensional poses in the scene;

 •

 radio frequency tags — embedded chips that emit a signal when in close proximity with a receiver, used in some photo identification credentials, labels and tags;

 •

 digital fingerprints and signatures — a metric, or metrics, computed solely from a source image or audio or video track, that can be used to identify an image or track, or authenticate the image; and

 •

 object sorting technologies — chemical tracers, taggants, Near Infrared sorters, dot or matrix codes, used to identify and sort objects, and that can be used in connection with systems using a combination of these methods and machine learning.

 In the competitive environments in which we operate, product creation, development and marketing processes relating to technology are uncertain and complex and require accurate prediction of demand as well as successful management of various risks inherent in technology development. In light of these uncertainties, it is possible that our failure to successfully accommodate future changes in technologies related to our technology could have a long-term negative effect on our growth and results of operations.

 As we work to achieve market acceptance of our products and services, new developments are expected to continue, and discoveries by others, including current and potential competitors, could render our products and services uncompetitive. Moreover, because of rapid technological changes, we may be required to expend greater amounts of time and money than anticipated to develop new products and services, which in turn may require greater revenue streams from those products and services to cover developmental costs. Many of the companies that compete with us for some of our business, as well as other companies with whom we may compete with in the future, are larger and may have stronger brand recognition and greater technical, financial, marketing, and/or political resources than we do. These attributes could enable these companies to have more success in the market than we have, either by providing better products or better pricing than we can provide. We may be unable to compete successfully against current or future participants in our markets or against alternative technologies, and the competitive pressures we face may have a materially adverse effect on our financial position, results of operations or cash flows.

 (8) An increase in our operations outside of the U.S. subjects us to risks additional to those to which we are exposed in our domestic operations.

 We believe that revenue from sales of products and services to commercial customers outside the U.S. could represent a growing percentage of our total revenue in the future. Digimarc technology is not bounded geographically, and we believe our technology will be deployed globally. As such, certain contracts may be made and performed, in whole or in part, outside of the United States. Additionally, with the acquisition of EVRYTHNG, our workforce expanded significantly into the United Kingdom and other European countries.

 International operations are subject to a number of risks that can adversely affect our sales of products and services to customers outside of the U.S., or expose us to additional expense or liabilities, including the following:

 •

 difficulties and costs of staffing, developing and managing foreign operations as a result of distance, language, and cultural differences;

 •

 the effect of laws governing our business, employee, and contractor relationships, and the existence of workers' councils and labor unions in some jurisdictions;

 •

 changes in foreign government regulations and security requirements;

 •

 export license requirements, tariffs, retaliatory trade measures;

 •

 difficulty in protecting intellectual property;

 •

 difficulty in collecting accounts receivable;

 •

 currency fluctuations; and

 •

 political and economic uncertainty or instability.

 If we fail to comply with the many international laws and regulations that apply to our business, we may be subject to significant fines, penalties, or liabilities for noncompliance. These factors may result in greater risk of performance problems or of reduced profitability with respect to our international programs in these markets. In addition, if foreign customers, in particular foreign government authorities, terminate or delay the implementation of our products and services, it may be difficult for us, or we may not be able, to recover our potential losses.

 Geopolitical tensions and the potential for isolationist policies implemented by governments around the world may affect international relations, resulting in reduced market opportunities and diminished demand in foreign markets. In some cases, such tensions could lead to national security-related restrictions that directly impact our business operations.

 (9) We depend on our key employees for our future success. If we are not able to retain, hire, or integrate these employees, we may not be able to meet our commitments.

 Due to the high level of technical expertise that our industry requires, our ability to successfully develop, market, sell, license and support our products, services, and intellectual property depends to a significant degree upon the continued contributions of our key personnel in engineering, sales, marketing, operations, and legal, many of whom would be difficult to replace. We believe our future success will depend in large part upon our ability to retain our current key employees and our ability to attract, integrate, and retain new personnel in the future. It may not be practical for us to match the compensation some of our employees could be offered by other employers. In addition, we may encounter difficulties in hiring and retaining employees because of concerns related to our financial performance. These circumstances may have a negative effect on the market price of our common stock, and employees and prospective employees may factor in any uncertainties relating to our stability and the value of any equity-based incentives in their decisions regarding employment opportunities and decide to leave our employ or decline employment offers.

 Moreover, our business is based in large part on unique and sophisticated technology. New employees require substantial training, involving significant resources and management attention. Competition for experienced personnel in our business can be intense. If we do not succeed in attracting new, qualified personnel or in integrating, retaining, and motivating our current personnel, our growth and ability to deliver products and services that our customers require may be hampered.

 On February 26, 2025, we announced a reorganization, which could impact our workforce by up to 90 employees.

 (10) We may acquire or invest in other companies or technologies in the future, which could divert management ' s attention, result in additional dilution to our shareholders, increase expenses, disrupt our operations and harm our operating results.

 We acquired EVRYTHNG in January 2022, and we may in the future acquire or invest in businesses, products or technologies that we believe could complement or expand our current product and service offerings, enhance our technical capabilities, expand our operations into new markets, or otherwise offer growth opportunities. The pursuit of potential acquisitions or other strategic transactions may divert the attention of management and cause us to incur various expenses related to identifying, investigating, and pursuing suitable acquisitions or strategic transactions, whether or not they are completed.

 There are inherent risks in integrating and managing acquisitions. We may not be able to assimilate or integrate the acquired personnel, operations and technologies successfully or effectively manage the combined business following an acquisition. We also may not achieve the anticipated benefits from an acquired business due to a number of factors, including:

 •

 unanticipated costs or liabilities associated with the acquisition;

 •

 incurrence of acquisition-related costs;

 •

 inability to generate sufficient revenue to offset acquisition or investment costs;

 •

 the inability to maintain relationships with customers and partners of the acquired business;

 •

 the need to implement additional controls, procedures and policies;

 •

 entry into geographic markets in which we have little or no prior experience, and challenges caused by distance, language, and cultural differences;

 •

 differences in foreign labor and employment laws, including classification of employees and contractors;

 •

 disruption of our ongoing business;

 •

 the potential loss of key employees; and

 •

 use of substantial portions of our available cash to complete the acquisition.

 Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our financial position. In addition, if an acquired business fails to meet our expectations, our operating results and business and financial condition may suffer.

 (11) If our revenue models and pricing structures relating to products and services that are under development do not gain market acceptance, the products and services may fail to attract or retain customers and we may not be able to generate new revenue or sustain existing revenue.

 Our revenues result from a combination of software subscriptions and software development services. We have not fully developed our revenue models for some products in the commercial market. Because some of our products and services are not yet well-established in the marketplace, and because some of these products and services will not directly displace existing solutions, we cannot be certain that the pricing structure for these products and services will gain market acceptance or be sustainable over time, or that the marketing for these products and services will be effective.

 (12) An unfavorable assessment of digital watermarking technology by members of the HolyGrail 2.0 initiative could discourage adoption of our technology.

 In September 2020, AIM – European Brands Association, in conjunction with over 85 companies and organizations including many of Europe's largest consumer-packaged goods companies, launched the HolyGrail 2.0 initiative. The purpose of the initiative is to assess whether digital watermarking technology can improve waste sorting and recycling rates for product packaging in the European Union. Digimarc is a technology provider for this ongoing assessment.

 An unfavorable assessment of digital watermarking technology generally, or of Digimarc's digital watermarking technology particularly, could cause its members to consider alternative technologies. This outcome could dissuade HolyGrail 2.0 members and others following its lead from adopting digital watermarking technology for sortation and recycling. This in turn could have a materially adverse effect on our ability to grow adoption of our Digimarc Recycle product.

 (13) The technological viability and economic attractiveness of competing technologies could cause the consumer-packaged goods industry and related industries to adopt a technology other than digital watermarking to support its waste sortation and recycling initiatives.

 We have identified two technologies that could be perceived by industry participants to out-perform or be available on more economically favorable terms than Digimarc's digital watermarking technology for waste sortation and recycling: chemical tracers and/or artificial intelligence. Industry leaders in a position to influence the industry at large could determine that chemical tracers or artificial intelligence represent a more technologically viable and/or economically attractive solution, including due to the greater number of potential suppliers, which in turn could increase pricing competition and lower barriers to entry. Such a determination could result in the devaluation of digital watermarking technology's ability to support the product packaging lifecycle and negatively affect our revenue growth prospects.

 RISKS RELATED TO INFORMATION SECURITY

 (14) The security systems used in our business and our product and service offerings may be circumvented or sabotaged by third parties, which could result in the disclosure of sensitive information or private personal information or cause other business interruptions that could damage our reputation and disrupt our business.

 Our business relies on computers and other information technologies, both internal and external. The protective measures that we use may not prevent all security breaches, and failure to prevent security breaches may disrupt our business, damage our reputation, or expose us to litigation and liability. A party who circumvents our security measures or the security measures of our third-party vendors could misappropriate sensitive or proprietary information or materials or cause interruptions or otherwise damage our products, services, and reputation, and the property of our customers. If unintended parties obtain sensitive data and information or create bugs or viruses or otherwise sabotage the functionality of our or our third-party vendor's systems, we may receive negative publicity, incur liability to our customers, or lose the confidence of our customers, any of which may cause the termination or modification of our contracts. Further, our insurance coverage may be insufficient to cover losses and liabilities that may result from these events.

 In addition, we may be required to expend significant capital and other resources to protect ourselves against the threat of security breaches or to alleviate problems caused by these breaches. Any protection or remedial measures may not be available at a reasonable price or at all or may not be entirely effective if commenced.

 (15) We may experience outages and disruptions of our infrastructure that may harm our business, prospects, financial condition and results of operations.

 We may be subject to outages or disruptions of our infrastructure, including information technology system failures and network disruptions. We use third-party cloud service providers, which are also susceptible to outages and disruptions. System redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient for all eventualities.

 (16) Data breaches and cyber-attacks or cyber-fraud could compromise our intellectual property or other sensitive information or result in losses.

 We maintain sensitive data on our networks and the networks of our business partners and third-party providers, including proprietary and confidential information relating to our intellectual property, personnel, and business, and that of our customers and third-party providers. Companies have been increasingly subject to a wide variety of security incidents, cyber-attacks, hacking, phishing, and other attempts to gain unauthorized access or engage in fraudulent behavior, resulting in risks that could adversely impact our business, financial condition, and reputation. These risks include but are not limited to:

 •

 our policies and security measures cannot guarantee security, and our information technology infrastructure, including our networks and systems, may be vulnerable to data breaches, cyber-attacks, or fraud, leading to the disclosure of sensitive customer information;

 •

 third parties may attempt to penetrate or infect our network and systems with malicious software and phishing attacks in an effort to gain unauthorized access to our network and systems;

 •

 we may be subject to the risk of third parties falsifying invoices and similar fraud, frequently by obtaining unauthorized access to our vendors' and business partners' networks;

 •

 other disruption of our operations due to cyberattacks or other malicious activities; and

 •

 failure to comply with cybersecurity regulations, resulting in legal and financial consequences.

 In some circumstances, we may partner with third-party providers and provide them with sensitive data. If these third parties fail to adopt or adhere to adequate data security practices, or in the event of a breach of their networks, this sensitive data may be improperly accessed, used, or disclosed. These data breaches and any unauthorized access or disclosure of sensitive data could compromise our intellectual property, expose sensitive business information, and subject us to liability.

 The increase in cyber-attacks has resulted in an increased focus on cybersecurity by various government agencies. Cyber-attacks or any investigation or enforcement action related to cybersecurity could cause us to incur significant remediation costs, disrupt key business operations, and divert attention of management and key information technology resources. We may incur losses as a result of cyber-fraud, such as making unauthorized payments, irrespective of robust internal controls. Our reputation and business could be harmed, and we could be subject to third-party claims in the event of such a security breach.

 RISKS RELATED TO FINANCIAL REPORTING

 (17) Changes to financial accounting standards may affect our results of operations and could cause us to change our business practices.

 We prepare our consolidated financial statements to conform to generally accepted accounting principles in the United States ("U.S. GAAP"). These accounting principles are subject to interpretation by the Securities and Exchange Commission ("SEC") and various bodies formed to interpret and create accounting rules and regulations. Changes in these rules, or guidance relating to interpretation and adoption of these rules, could have a significant effect on our financial results and could affect portions of our business differently.

 (18) We were not profitable in 2024 or 2023 and may not be able to become profitable in the future, particularly if we were to lose large contracts or fail in our new market development initiatives. Sustained lack of profitability could cause us to incur asset impairment charges for long-lived assets or record valuation allowances against our deferred tax assets.

 We incurred net losses in 2024 and 2023 largely due to increased levels of investments in our business to support product development and sales growth initiatives.

 Becoming profitable in the future will depend upon a variety of factors, including our ability to maintain our current customers and to acquire new commercial customers. Profitability will also depend on our efficiency in executing our business strategy and capitalizing on new opportunities. Various adverse developments, including the loss of large contracts or cost overruns on our existing contracts, could adversely affect our revenue, margins, and profitability. For example, we expect that our subscription revenue in 2025 will be negatively impacted by the termination of a commercial contract that contributed $3.3 million of subscription revenue in 2024. This contract is expected to end in April 2025 and contribute $1.1 million of subscription revenue in 2025. Additionally, our subscription revenue in 2025 may also be impacted negatively by the expiration of a commercial contract in June 2024 that may or may not be extended. This contract contributed $2.1 million of subscription revenue in 2024.

 If we continue to incur operating losses, an impairment to the carrying value of our long-lived assets, including goodwill, acquired intangible assets, patent assets and property and equipment could result. We test for impairment of our long-lived assets when a triggering event occurs that would indicate that the carrying value may not be recoverable. Our methodology for assessing impairment may require management to make judgments and assumptions regarding future cash flows. Our projections of future cash flows are largely based on historical experience, and these projections may not be achieved. Changes to these financial projections used in our impairment analysis could lead to an impairment of all or a portion of our long-lived assets. Any such impairment charge could adversely affect our results of operations and our stock price. We evaluated our long-lived assets for impairment as of December 31, 2024, and 2023 and concluded there was no impairment for either period. We do not guarantee, however, that our long-lived assets will not become impaired in the future.

 We record valuation allowances on our deferred tax assets if, based on available evidence, it is more-likely-than-not that all or some portion of the value of the assets will not be realized. The determination of whether our deferred tax assets are realizable requires management to identify and weigh all available positive and negative evidence. Management considers recent financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, tax planning strategies and other evidence in assessing the realizability of our deferred tax assets. Adjustments to our deferred tax assets could adversely affect our results of operations and our stock price. We have maintained a full valuation allowance against our deferred tax assets largely due to the cumulative loss we have incurred over the previous three years, which is considered a significant piece of negative evidence in assessing the realizability of deferred tax assets. As of December 31, 2024, and 2023, we determined a valuation allowance was still appropriate given the cumulative loss. We will not record tax benefits on any future losses until it is determined that those tax benefits will be realized.

 (19) We may be adversely affected by variability of contracted arrangements.

 We periodically agree to modify the terms of contractual arrangements with our customers, partners and licensees in response to changes in circumstances underlying the original contractual arrangements, and it is likely that we will do so in the future. As a result of this practice, the terms of our contractual arrangements with our customers, partners, and licensees may vary over time and, depending on the particular modification, could have a material adverse effect on our financial position, results of operations, or cash flows.

 RISKS RELATED TO INTELLECTUAL PROPERTY AND LEGAL

 (20) (a) We may not be able to adequately secure patent or other protection for our technologies.

 Our business depends in part on securing protection for our proprietary technology. To protect our intellectual property portfolio, we rely on a combination of patent, copyright, trademark and trade secret rights, confidentiality procedures, and licensing arrangements. Although we regularly apply for patents to protect our intellectual property, there is no guarantee that we will secure patent protection for any particular technology we develop.

 Changes in the U.S. and foreign patent laws, or in the interpretation of existing laws, may adversely affect our ability to secure or enforce patents. For example, the U.S. Supreme Court issued a decision in 2014 limiting patent eligibility of computer implemented inventions. The Leahy-Smith America Invents Act of 2011 (the "America Invents Act") also codifies several changes to the U.S. patent laws, including the creation of a post-grant inter partes review process to challenge patents after they have issued. The America Invents Act allows third parties to petition the U.S. Patent and Trademark Office to review and reconsider the patentability of any of our inventions claimed in our issued patents. Similar laws and legal processes exist to challenge the validity of patents in other jurisdictions. Any such proceeding may result in one or more of our patent claims becoming limited or being invalidated altogether. Additionally, certain foreign jurisdictions may not recognize or enforce our patents in those jurisdictions. A limitation or invalidation of our patent claims could adversely affect our financial position and our operating results.

 Patents have finite lives, and our ability to continue to rely on our patents as a barrier to entry is limited to the term of the patents. Our earliest patents began expiring in 2012, and the patents in our portfolio expire at various times betwee n 2025 and 2039. The size and strength of our portfolio depends on the number of patents that have been granted, offset by the number of patents that expire, in any given year.

 As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees, directors, consultants, and corporate partners, and attempt to control access to and distribution of our technology, solutions, documentation, and other proprietary information. Despite these procedures, third parties could copy or otherwise obtain and make unauthorized use of our technology, solutions or other proprietary information or independently develop similar technologies, solutions, or information. The steps that we have taken to prevent misappropriation of our solutions, technology or other proprietary information may not succeed.

 We do not assure you that the protection of our proprietary rights will be adequate or that our competitors will not independently develop similar technologies, duplicate our services, or design around any of our patents.

 (b) We may be subject to infringement claims and other litigation, which could adversely affect our business.

 As more companies engage in business activities relating to digital watermarking services, and develop corresponding intellectual property rights, it is increasingly likely that claims may arise which assert that some of our products or services infringe other parties' intellectual property rights. These claims could subject us to costly litigation and divert management resources. These claims may require us to pay significant damages, cease production of infringing products, terminate our use of infringing technology, or develop non-infringing alternative technologies. In these circumstances, continued use of our technology may require that we acquire licenses to the intellectual property that is the subject of the alleged infringement, and we might not be able to obtain these licenses on commercially reasonable terms or at all. Our use of protected technology may result in liability that threatens our continuing operation.

 Some of our contracts include indemnity and similar provisions regarding our non-infringement of third-party intellectual property rights. As deployment of our technology increases, and more companies enter our markets, the likelihood of a third-party lawsuit resulting from these provisions increases. If an infringement arose in a context governed by such a contract, we may have to expend significant sums to defend our customer, refund to our customer amounts already paid to us, pay significant damages, or cease distributing our allegedly infringing products entirely.

 (21) We are periodically involved in litigation in the ordinary course of business, and an adverse resolution of such litigation may adversely affect our business, financial condition, results of operations, and cash flows.

 From time to time, in our normal course of business, we are a party to various legal claims, actions and complaints. Given the uncertain nature of litigation, we are not able to estimate the amount or range of gain or loss that could result from an outcome of litigation. Litigation can be expensive, lengthy, and disruptive to normal business operations. The results of complex legal proceedings are often uncertain and difficult to predict. We could incur costs in excess of any established accruals and, to the extent available, excess liability insurance. An unfavorable outcome in any legal proceedings could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

 (22) The terms and conditions of our contracts could subject us to damages, losses and other expenses if we fail to meet delivery and performance requirements.

 Our service contracts typically include provisions imposing:

 •

 development and delivery schedules;

 •

 customer acceptance and testing requirements; and

 •

 other performance requirements.

 To the extent these provisions involve performance over extended periods of time, risks of noncompliance may increase. From time to time, we have experienced delays in system implementation, timely acceptance of deliverables, concerns regarding deliverable performance, and other contractual disputes. If we fail to meet contractual performance requirements as promised, or to successfully resolve customer disputes, we could incur liability for damages, as well as increased costs, lower margins, or compensatory obligations in addition to other losses, such as harm to our reputation. Any unexpected increases in costs to meet our contractual obligations or any other requirements necessary to address claims and damages with regard to our customer contracts could have a material adverse effect on our business and financial results.

 RISKS RELATED TO OUR CAPITAL STOCK

 (23) Our corporate governance documents and Oregon law may delay or prevent an acquisition of us that shareholders may consider favorable, which could decrease the value of your shares.

 Our articles of incorporation, bylaws and Oregon law contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions include supermajority voting requirements for shareholders to amend our organizational documents and limitations on actions by our shareholders by written consent. In addition, our Board of Directors has the right to issue preferred stock without shareholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer. Oregon law restricts the ability to vote shares of stock acquired in a transaction that causes the acquiring person to control at least one-fifth, one-third or one-half of the votes entitled to be cast in the election of directors (a "control share acquisition"). Shares acquired in a control share acquisition have no voting rights except as authorized by a vote of the shareholders. Although we believe these provisions protect our shareholders from coercive or otherwise unfair takeover tactics and thereby provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our Board of Directors, these provisions apply even if the offer may be considered beneficial by some shareholders.

 (24) Our common stock price may be volatile, and you could lose all or part of your investment in shares of our common stock.

 The price of shares of our common stock may fluctuate as a result of changes in our operating performance or prospects and other factors. Some specific factors that may have a significant effect on the price of shares of our common stock include:

 •

 the public's reaction to our public disclosures;

 •

 actual or anticipated changes in our operating results or future prospects;

 •

 strategic actions by us or our competitors, such as acquisitions or restructurings;

 •

 impact of acquisitions on our liquidity and financial performance;

 •

 new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 •

 changes in accounting standards, policies, guidance, interpretations or principles applicable to us;

 •

 conditions of the industry as a result of changes in financial markets or general economic or political conditions;

 •

 the failure of securities analysts to cover our common stock in the future, or changes in financial estimates by analysts;

 •

 changes in analyst recommendations or revenue and earnings estimates regarding us, other comparable companies or the industry generally, and our ability to meet those estimates;

 •

 changes in the amount of dividends paid, if any;

 •

 changes in our financing strategy or capital structure;

 •

 future issuances of our common stock or the perception that future sales could occur; and

 •

 volatility in the equity securities market.

 GENERAL RISK FACTORS

 (25) If we are unable to respond to regulatory or industry standards effectively, or if we are unable to develop and integrate new technologies effectively, our growth and the development of our products and services could be delayed or limited.

 Our future success will depend in part on our ability to enhance and improve the responsiveness, functionality, and features of our products and services, and those of our business partners, in accordance with regulatory or industry standards. Our ability to remain competitive will depend in part on our ability to comply with emerging industry and governmental standards in a timely and cost-effective manner. If we are unable to meet these standards effectively, our growth and the development of various products and services could be delayed or limited.

 (26) We may need to hire additional employees or contract labor in the future in order to take advantage of new business opportunities arising from increased demand, which could increase costs and impede our ability to achieve or sustain profitability in the short term.

 We have staffed our company with the intent of accelerating our product development and sales growth initiatives while also focusing on achieving and sustaining profitability. Our current staffing levels could affect our ability to respond to increased demand for our products and services. In addition, to meet any increased demand and take advantage of new business opportunities in the future, we may need to increase our workforce through additional employees or contract labor. Although we believe that increasing our workforce would potentially support anticipated growth and profitability, it would increase our costs. If we experience such an increase in costs, we may not succeed in achieving or sustaining profitability in the short term.

 On February 26, 2025, we announced a reorganization, which could impact our workforce by up to 90 employees. This reorganization is intended to streamline our team structure to better align with our long-term growth initiatives and profitability objectives. If we do not fully realize or maintain the anticipated benefits of the reorganization and related cost reduction initiatives, our business, financial condition, or results of operations could be adversely affected, and additional reorganization actions and cost reduction initiatives may be necessary. Our reorganization and cost cutting activities may also yield unintended consequences and costs, such as attrition beyond our intended reorganization, a reduction in morale among our remaining employees, and the risk we may not achieve the anticipated benefits of the reorganization, all of which may have an adverse effect on our results of operations or financial condition.

 (27) Products deploying our technology could have unknown defects or errors, which may give rise to claims against us, divert application of our resources from other purposes or increase our project implementation and support costs.

 Products and services as complex as ours may contain undetected defects or errors. Furthermore, we often provide complex implementation, integration, customization, consulting, and other technical services in connection with the implementation and ongoing maintenance of our products. Despite testing, defects or errors in our products and services may occur, which could result in delays in the development and implementation of our products, inability to meet customer requirements or expectations in a timely manner, loss of revenue or market share, increased implementation and support costs, failure to achieve market acceptance, diversion of development resources, injury to our reputation, increased insurance costs, increased service and warranty costs, and warranty or breach of contract claims. Although we attempt to reduce the risk of losses resulting from warranty or breach of contract claims through warranty disclaimers and liability limitation clauses in our agreements when we can, these contractual provisions are sometimes rejected or limited and may not be enforceable in every instance. If a court refuses to enforce the liability limiting provisions of our contracts for any reason, or if liabilities arise that were not contractually limited or adequately covered by insurance, the expense associated with defending these actions or paying the resultant claims could be significant.

 ITEM 1B: UNRESOLVED STAFF COMMENTS

 None.

 ITEM 1C: CYBERSECURITY

 Cybersecurity risk management is a critical component of our overall risk management program. We have implemented robust information security processes for assessing, identifying, and managing material risks from cybersecurity breaches that could adversely affect our business, financial condition and reputation. Although we have implemented measures to safeguard against cybersecurity risks, there is no assurance that these measures will prevent all incidents or fully mitigate their impact. We continuously work to enhance our information security processes and risk management program. Our cybersecurity risk management program is led by our Senior Director of Information Security ("InfoSec") with direction and oversight from the Company's executive management team. The Senior Director of InfoSec and the Company's executive leaders directly involved have extensive experience in information security, risk management, and technology, and a track record of successful leadership in areas relevant to cybersecurity.

 On a regular basis, we conduct thorough cybersecurity risk assessments that encompass both financial and non-financial risks, to identify vulnerabilities within our information systems. We also engage third -party experts and consultants to assist with cybersecurity risk assessments and to perform black box and white box penetration testing. We have implemented continuous enterprise-wide monitoring tools to detect and assess cybersecurity threats. In addition, we maintain and practice our incident response plans to facilitate timely identification and reporting of cybersecurity events. Aligned with our broader risk management framework, our materiality assessment criteria are determined based on a comprehensive review of potential cybersecurity impacts on our operations, financials and reputation. Our risk mitigation strategies include a broad variety of technical and operational measures, including, but not limited to, cross-functional collaboration among the information security, legal and risk management and operational teams, and Company-wide training on cybersecurity and privacy. We conduct regular and ongoing information security training and maintain a compliance program, which includes live and virtual training and periodic testing to ensure compliance with corporate standards and procedures. New employees must acknowledge that they have completed all the information security training and adhere to standards and procedures upon hire. All other employees acknowledge completion of this training annually.

 In 2024, the Company again achieved System and Organization SOC Type II ("SOC 2") compliance for its product digitization platform. An independent auditor provided this certification after conducting a comprehensive audit, confirming that from February 16, 2023, to February 29, 2024, our information security controls were well-designed and worked effectively. The Company is working diligently to continue to maintain compliance with SOC 2 with the audit for 2025 currently in process.

 Our Board of Directors plays a vital role in overseeing the Company's enterprise risk management program and has delegated cybersecurity risk management to the Audit Committee of the Board of Directors. The Audit Committee is responsible for ensuring that management has processes in place designed to identify and evaluate cybersecurity risks to which the Company is exposed, and to implement processes to manage cybersecurity risks and mitigate cybersecurity incidents. Our Senior Director of InfoSec provides annual updates to the Audit Committee on the current cybersecurity threat landscape, emerging risks, remediation plans, and the effectiveness of related internal controls, and our Chief Financial Officer provides quarterly updates to the Audit Committee regarding progress on the Company's cybersecurity program. When applicable, additional cybersecurity updates are provided to our Audit Committee in interim periods in the event of a significant cybersecurity threat. All members of the Board of Directors are invited to attend these meetings.

 The Audit Committee regularly engages in risk assessments specifically focused on cybersecurity, considering potential impacts on operations, financial results, and reputation, and periodically reviews cybersecurity policies and procedures to ensure they align with best practices and evolving cyber threats. In addition, the Audit Committee participates in the allocation of resources for cybersecurity initiatives, ensuring that investments align with the Company's risk appetite and strategic objectives. The Audit Committee is also briefed on the Company's crisis management and incident response plans, ensuring preparedness for potential cybersecurity incidents. The full Board of Directors participates with management in security tabletop exercises to test our incident response plans.

 In 2024, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced undetected cybersecurity incidents. For additional information about these risks, see Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K.

 ITEM 2: PROPERTIES

 In February 2022, we entered into a sublease agreement and lease extension agreement on a new facility in Beaverton, Oregon in order to move our corporate headquarters. The new facility is approximately 65,500 square feet in size. The term of the sublease and lease extension runs through September 2030. The remaining rent payments as of December 31, 2024 were $7.8 million plus operating expenses, payable in monthly installments. The first 26 months of rent payments and operating expenses were abated to cover the remaining term of the lease on our former corporate headquarters.

 The lease term of the Company's former corporate headquarters in Beaverton, Oregon ended in March 2024, with no remaining rent payments as of December 31, 2024. The Company stopped using this office space as its corporate headquarters in March 2022.

 We believe that our existing office space is suitable and adequate for our current and foreseeable future needs.

 ITEM 3: LEGAL PROCEEDINGS

 We are subject from time to time to legal proceedings and claims arising in the ordinary course of business. At this time, we do not believe that the resolution of any such matters will have a material adverse effect on our financial position, results of operations or cash flows.

 ITEM 4: MINE SAFETY DISCLOSURES

 Not applicable.

 ITEM 5: MARKET FOR REGISTRANT ' S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 Our common stock began trading on the Nasdaq Stock Market LLC in October 2008 under the symbol "DMRC."

 As of February 21, 2025, we ha d 157 shareholders of record of our common stock, as shown in the records of our transfer agent. Since many holders hold shares in "street name," we believe that there is a significantly larger number of beneficial owners of our common stock than the number of shareholders of record.

 We withhold (purchase) shares of common stock in connection with the vesting of restricted shares, restricted stock units, and performance restricted stock units, to satisfy required tax withholding obligations.

 The following table sets forth information regarding purchases of our equity securities during the three-month period ended December 31, 2024:

 (d)

 (c)

 Approximate

 Total number

 dollar value

 of shares

 of shares that

 (a)

 (b)

 purchased as

 may yet be

 Total number

 Average price

 part of publicly

 purchased

 of shares

 paid per

 announced plans

 under the plans

 Period

 purchased (1)

 share (1)

 or programs

 or programs

 Month 1

 October 1, 2024 to October 31, 2024

 —

 $

 —

 —

 $

 —

 Month 2

 November 1, 2024 to November 30, 2024

 19,757

 $

 27.18

 —

 $

 —

 Month 3

 December 1, 2024 to December 31, 2024

 —

 $

 —

 —

 $

 —

 Total

 19,757

 $

 27.18

 —

 $

 —

 (1)

 Fully vested shares of common stock withheld (purchased) by us in satisfaction of required withholding tax liability upon the vesting of restricted stock awards, restricted stock units, and performance restricted stock units.

 ITEM 7: MANAGEMENT ' S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 The following Management ' s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements relating to future events or the future financial performance of Digimarc, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements. Please see the discussion regarding forward-looking statements included at the end of this discussion, under the caption " Forward-Looking Statements, " and Item 1A, " Risk Factors " for a discussion of some of the uncertainties, risks and assumptions associated with these statements.

 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 Annual Report on Form 10-K.

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

 Overview

 Digimarc, an Oregon corporation, is a pioneer and global leader in digital watermarking technologies. For nearly 30 years, Digimarc innovations and intellectual property in digital watermarking have been deployed in solutions built upon one or both of the following two things: the identification and the authentication of physical and digital items, often at massive scale, and often where other methods of identification or authentication don't work well or don't work at all.

 The Digimarc Illuminate platform is a distinctive software as a service ("SaaS") cloud-based platform for digital connectivity that provides the tools for the application of advanced digital watermarks and dynamic Quick Response ("QR") codes, software (digital twins) that enables various systems and devices to interact with those data carriers, and a centralized platform for capturing insights about digital interactions and automating activities based on that information.

 The Digimarc product suite is built on top of the Digimarc Illuminate platform to power a trusted and scalable ecosystem that can address specific business needs in areas like automation, authenticity, sustainability, and customer trust and connectivity. All of the Company's products are complementary to each other, providing exponential benefits when combined. By enabling customers to create and connect digital twins to physical and digital items, Digimarc's products provide many benefits including:

 •

 Digimarc Automate improves product inspection by embedding imperceptible digital watermarks into products, labels, and packaging, which are detectable by standard vision systems. This significantly reduces mixing errors and mislabeling, ensuring higher accuracy and efficiency in production, fulfillment, and distribution facilities without additional costs for special inks or hardware. By enabling real-time data analysis and minimizing human error, Digimarc Automate enhances quality assurance, reduces waste, and lowers the risk of product recalls, giving brands a competitive edge.

 •

 Digimarc Engage activates products and multimedia to create and leverage an interactive, fully owned communications channel directly with consumers. Digimarc delivers dynamic, GS1 Digital Link-compliant QR codes and hyperlinks that provide contextual redirection capabilities for multiple consumer experiences (including personalized and automated loyalty and rewards programs) based on a variety of factors such as time and location or previous behavior. Connecting engagements across the physical and digital worlds in a singular view results in powerful new capabilities and insights for brands.

 •

 Digimarc Recycle increases the quality and quantity of recycled materials by digitizing products and packaging with digital watermarking technology. Coupled with consumer engagement capabilities, brands can leverage a direct, digital communications channel. Plus, Digimarc Recycle creates a cloud-based record of never-before-seen post-consumption data to provide new insights that benefit stakeholders across the value chain, including brands, facility operators, and Producer Responsibility Organizations ("PROs").

 •

 Digimarc Retail Experience delivers smarter, connected packaging that supports next-generation retail checkout systems, including checkout efficiency (faster scanning) and checkout effectiveness (reduced shrinkage including gift card and price look-up fraud prevention), optimized operational processes, advanced consumer engagement experiences, compliance with upcoming industry standards, and the collection of powerful first-party data and consumer insights.

 •

 Digimarc Validate supports authentication in the physical and digital worlds to help ensure online interactions can be trusted and that real products and digital assets are genuine and in the right place. Digimarc's technology protects digital images, audio, product packaging, gift cards, and other physical items by delivering exclusive, covert digital watermarks and/or dynamic QR codes and a cloud-based record of product authentication information. In addition, consumer engagement capabilities provide a direct, digital communications channel.

 Digimarc has maintained a relationship with the Central Banks for nearly 30 years, providing trusted technology to help deter digital counterfeiting of currency. This relationship was the first commercially successful large-scale use of our technologies and protects billions of banknotes in circulation globally.

 Our 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 820 U.S. and foreign patents granted and applications pending as of December 31, 2024. The patents in our portfolio each have a life of approximately 20 years from the patent's effective filing date.

 Critical Accounting Policies and Estimates

 The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, contingencies, goodwill, income taxes, intangible assets, marketable securities, property and equipment and revenue recognition. We base our estimates on historical experience and on other assumptions we believe to be reasonable in the circumstances. Actual results may differ from these estimates under different assumptions and/or conditions.

 Some of our accounting policies require higher degrees of judgment than others in their application. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

 Revenue recognition:

 Revenue is recognized in accordance with Accounting Standards Codification ("ASC") 606 " Revenue from Contracts with Customers " by applying the following steps:

 Step 1: Identify the contract(s) with a customer.

 Step 2: Identify the performance obligation(s) in the contract.

 Step 3: Determine the transaction price.

 Step 4: Allocate the transaction price to the performance obligation(s) in the contract.

 Step 5: Recognize when (or as) the entity satisfies the performance obligation(s).

 We derive our revenue primarily from software subscriptions and software development services. Applicable revenue recognition criteria are considered separately for each performance obligation as follows:

 •

 Subscription 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. 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.

 •

 Service 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 consulting agreements. Revenue for services is generally recognized as the services are performed. Billing for services rendered generally occurs within one month after the services are provided.

 Customer arrangements may contain multiple deliverables such as software platform subscriptions, software product subscriptions, and professional services. The subscriptions and services we offer 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, we consider the terms of the contract and our customary business practices. Some contracts may contain variable consideration. In those cases, we estimate 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, we will evaluate whether any of the variable consideration is constrained and if it is, we will not include it 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, we make estimates based on reasonably available information, including market conditions, specific factors affecting us, and information about the customer. We recognize the revenue associated with each performance obligation as we fulfil the obligation, which for subscriptions is typically recognized ratably over time and for services is typically recognized when they are performed.

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

 Results of Operations—the Years Ended December 31, 2024 and December 31, 2023

 The following tables present our consolidated statements of operations data for the periods indicated.

 2024

 2023

 $

 22,418

 $

 18,973

 16,000

 15,878

 Total revenue

 Cost of revenue:

 2,959

 2,975

 6,628

 7,252

 4,592

 4,459

 Total cost of revenue

 14,179

 14,686

 Gross profit

 24,239

 20,165

 Operating expenses:

 21,167

 22,409

 26,209

 26,577

 17,073

 18,071

 1,097

 1,065

 —

 Total operating expenses

 65,546

 68,372

 Operating loss

 (41,307

)

 (48,207

)

 2,341

 2,452

 Loss before income taxes

 (38,966

)

 (45,755

)

 (44

)

 (204

)

 $

 (39,010

)

 $

 (45,959

)

 2024

 2023

 Percentages are percent of total revenue

 %

 %

 %

 %

 Total revenue

 %

 %

 Cost of revenue:

 %

 %

 %

 %

 %

 %

 Total cost of revenue

 %

 %

 Gross profit

 %

 %

 Operating expenses:

 %

 %

 %

 %

 %

 %

 %

 %

 —

 %

 %

 Total operating expenses

 %

 %

 Operating loss

 (108

)%

 (138

)%

 %

 %

 Loss before income taxes

 (101

)%

 (131

)%

 (—

)%

 (1

)%

 (102

)%

 (132

)%

 (1)

 Cost of revenue for Subscription and Service excludes Amortization expense on acquired intangible assets

 Summary

 Total revenue for the twelve months ended December 31, 2024, increased $3.6 million, or 10%, to $38.4 million, compared to $34.9 million for the corresponding twelve months ended December 31, 2023, primarily due to $3.4 million of higher subscription revenue, which includes higher subscription revenue from new and existing commercial contracts, partially offset by the expiration of a commercial contract in June 2024.

 We expect that our subscription revenue in 2025 will be negatively impacted by the termination of a commercial contract that contributed $3.3 million of subscription revenue in 2024. This contract is expected to end in April 2025 and contribute $1.1 million of subscription revenue in 2025. Our subscription revenue in 2025 may also be impacted negatively by the expiration of a commercial contract in June 2024 that may or may not be extended. This contract contributed $2.1 million of subscription revenue in 2024. We expect government service revenue in 2025 to be $1.7 million to $2.0 million lower than 2024 due to a smaller approved budget for program work in 2025.

 Total operating expenses for the twelve months ended December 31, 2024, decreased $2.8 million, or 4%, to $65.5 million, compared to $68.4 million for the corresponding twelve months ended December 31, 2023, primarily due to lower cash compensation costs of $1.5 million, lower stock compensation costs of $0.7 million, lower depreciation and amortization costs of $0.5 million, and lower lease impairment costs of $0.3 million, partially offset by $0.5 million of higher professional services and consulting costs. The $1.5 million decrease in cash compensation costs includes $1.5 million of cash severance costs in 2023, and lower cash compensation costs of $1.0 million primarily reflecting lower headcount, net of annual compensation adjustments, partially offset by $0.6 million of cash severance costs in 2024 and $0.5 million of lower cash labor costs allocated to cost of revenue due to the amount and mix of billable labor hours incurred.

 We expect our expenses in 2025 to be significantly lower than 2024 due to the reorganization we announced on February 26, 2025. The reorganization is expected to reduce our cash expenses by approximately $16.5 million on an annualized basis. We have also identified approximately $5.5 million of other annualized cash cost savings. We expect to incur approximately $3.0 million in one-time reorganization costs in the first quarter of 2025.

 Revenue

 2024

 2023

 $

 22,418

 $

 18,973

 $

 3,445

 %

 16,000

 15,878

 %

 Total

 $

 $

 $

 3,567

 %

 Revenue (as % of total revenue):

 %

 %

 %

 %

 Total

 %

 %

 Subscription. Subscription 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. The majority of subscription contracts are recurring, paid in advance and recognized over the term of the subscription, which is typically one to three years.

 The $3.4 million increase in subscription revenue for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to higher subscription revenue from new and existing commercial contracts, partially offset by the expiration of a commercial contract in June 2024.

 Service. Service 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.

 The $0.1 million increase in service revenue for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to $0.6 million of higher service revenue from HolyGrail 2.0 recycling projects, partially offset by $0.4 million of lower other commercial service revenue and $0.2 million of lower government service revenue.

 Revenue by geography

 2024

 2023

 Revenue by geography:

 Domestic

 $

 10,195

 $

 11,380

 $

 (1,185

)

 (10

)%

 International

 28,223

 23,471

 4,752

 %

 Total

 $

 $

 $

 3,567

 %

 Revenue (as % of total revenue):

 Domestic

 %

 %

 International

 %

 %

 Total

 %

 %

 Domestic. The $1.2 million decrease in domestic revenue for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to $1.2 million of lower subscription revenue, which includes the impact of the expiration of a commercial contract in June 2024 with a domestic customer, partially offset by higher subscription revenue from new and existing commercial contracts with domestic customers.

 International. The $4.8 million increase in international revenue for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to $4.6 million of higher subscription revenue from new and existing commercial contracts with international customers.

 Revenue by market

 2024

 2023

 Commercial:

 $

 21,218

 $

 17,773

 $

 3,445

 %

 1,308

 1,042

 %

 Total Commercial

 $

 22,526

 $

 18,815

 $

 3,711

 %

 Government:

 $

 1,200

 $

 1,200

 $

 —

 —

 %

 14,692

 14,836

 (144

)

 (1

)%

 Total Government

 $

 15,892

 $

 16,036

 $

 (144

)

 (1

)%

 Total

 $

 $

 $

 3,567

 %

 Revenue (as % of total revenue):

 Commercial

 %

 %

 Government

 %

 %

 Total

 %

 %

 Commercial. The $3.7 million increase in commercial revenue for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to $3.4 million of higher commercial subscription revenue, which includes higher revenue from new and existing commercial contracts, partially offset by the expiration of a commercial contract in June 2024, and $0.6 million of higher service revenue from HolyGrail 2.0 recycling projects, partially offset by $0.4 million of lower other commercial service revenue.

 Government. The $0.1 million decrease in government revenue for twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to lower program work with the Central Banks.

 Annual Recurring Revenue ( " ARR ")

 As of

 As of

 Increase

 Increase

 2024

 2023

 (Decrease)

 (Decrease)

 ARR

 $

 19,964

 $

 22,251

 $

 (2,287

)

 (10

)%

 ARR decreased $2.3 million, or 10%, from December 31, 2023 to December 31, 2024, primarily reflecting a $5.8 million decrease in ARR due to the expiration of a commercial contract in June 2024, partially offset by an increase in ARR from new and existing commercial contracts.

 We 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 active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

 Cost of revenue

 Subscription. Cost of subscription revenue primarily includes:

 •

 internet cloud hosting costs and image search data fees to support our software subscriptions; and

 •

 amortization of capitalized patent costs and patent maintenance fees.

 Service. Cost of service revenue primarily includes:

 •

 compensation, 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;

 •

 payments to outside contractors that are billed to customers;

 •

 charges for equipment and software directly used by customers;

 •

 depreciation for equipment and software directly used by customers; and

 •

 travel costs that are billed to customers.

 Amortization expense on acquired intangible assets. Amortization expense includes:

 •

 amortization expense recognized on the developed technology intangible asset acquired in the EVRYTHNG acquisition.

 Gross profit

 2024

 2023

 Gross Profit:

 $

 19,459

 $

 15,998

 $

 3,461

 %

 9,372

 8,626

 %

 (4,592

)

 (4,459

)

 (133

)

 (3

)%

 Total

 $

 24,239

 $

 20,165

 $

 4,074

 %

 Gross Profit Margin:

 %

 %

 %

 %

 Total

 %

 %

 (1)

 Gross Profit and Gross Profit Margin for Subscription and Service excludes amortization expense on acquired intangible assets.

 The $4.1 million increase in total gross profit for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to $3.4 million of higher subscription revenue and $0.6 million of lower cost of service revenue.

 The increase in subscription gross profit margin, excluding amortization expense on acquired intangible assets, for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to higher subscription revenue combined with a more favorable mix of subscription revenue.

 The increase in service gross profit margin, excluding amortization expense on acquired intangible assets, for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to a more favorable mix of service revenue.

 Operating expenses

 2024

 2023

 $

 21,167

 $

 22,409

 $

 (1,242

)

 (6

)%

 Sales and marketing (as % of total revenue)

 %

 %

 Sales and marketing expenses consist primarily of:

 •

 compensation, benefits, incentive compensation in the form of cash and stock-based compensation and related costs of our sales, marketing, product, operations and customer support personnel;

 •

 travel and market research costs, and costs associated with marketing programs, such as trade shows, public relations and new product launches;

 •

 professional services, consulting and outside contractor costs for sales and marketing and product initiatives; and

 •

 the allocation of facilities and information technology costs.

 The $1.2 million decrease in sales and marketing expenses for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to:

 •

 lower cash compensation costs of $0.9 million, primarily reflecting lower headcount, net of annual compensation adjustments;

 •

 cash severance costs of $0.6 million in 2023; and

 •

 lower professional services and consulting costs of $0.5 million; partially offset by

 •

 cash severance costs of $0.6 million in 2024; and

 •

 lower cash labor costs allocated to cost of revenue of $0.4 million due to the amount and mix of billable labor hours incurred.

 2024

 2023

 $

 26,209

 $

 26,577

 $

 (368

)

 (1

)%

 Research, development and engineering (as % of total revenue)

 %

 %

 Research, development and engineering expenses arise primarily from three areas that support our business model: fundamental research, platform development and product development.

 Research, development and engineering expenses consist primarily of:

 •

 compensation, 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;

 •

 payments to outside contractors for software development services;

 •

 the purchase of materials and services for platform and product development; and

 •

 the allocation of facilities and information technology costs.

 The $0.4 million decrease in research, development and engineering expenses for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to:

 •

 cash severance costs of $0.8 million in 2023; and

 •

 lower stock compensation costs of $0.4 million; partially offset by

 •

 higher professional services and consulting costs of $0.5 million; and

 •

 higher cash compensation costs of $0.2, primarily reflecting annual compensation adjustments, net of lower headcount.

 2024

 2023

 $

 17,073

 $

 18,071

 $

 (998

)

 (6

)%

 General and administrative (as % of total revenue)

 %

 %

 We incur general and administrative costs in the functional areas of finance, legal, human resources, intellectual property, executive, and board of directors. Costs for facilities and information technology are also managed as part of the general and administrative processes and are allocated to this area as well as each of the areas in sales and marketing and research, development and engineering, based on relative headcount.

 General and administrative expenses consist primarily of:

 •

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

 •

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

 •

 costs associated with being a public company;

 •

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

 •

 the allocation of facilities and information technology costs.

 The $1.0 million decrease in general and administrative expenses for the twelve months ended December 31, 2024, compared to the twelve months ended December 31, 2023, was primarily due to:

 •

 lower cash compensation costs of $0.4 million, primarily reflecting lower headcount, net of annual compensation adjustments;

 •

 lower stock compensation costs of $0.4 million;

 •

 lower depreciation and amortization costs of $0.3 million; and

 •

 lower other costs of $0.3 million, primarily reflecting lower accounting and tax costs; partially offset by

 •

 higher professional services and consulting costs of $0.4 million.

 2024

 2023

 $

 1,097

 $

 1,065

 $

 %

 Amortization expense on acquired intangible assets (as % of total revenue)

 %

 %

 Amortization expense on acquired intangible assets relates to amortization expense recognized on the customer relationships intangible asset acquired in the EVRYTHNG acquisition.

 The increase in amortization expense on acquired intangible assets was primarily due to the impact of changes in foreign currency exchange rates.

 2024

 2023

 $

 —

 $

 $

 (250

)

 (100

)%

 Impairment of lease right of use assets and leasehold improvements (as % of total revenue)

 —%

 %

 The $0.3 million decrease in impairment of lease right of use assets and leasehold improvements for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to an impairment charge recorded in 2023 on our former corporate headquarters in Beaverton, Oregon. The lease on our former corporate headquarters expired on March 31, 2024.

 2024

 2023

 Cost of revenue

 $

 $

 1,126

 $

 (420

)

 (37

)%

 2,788

 2,640

 %

 2,522

 2,962

 (440

)

 (15

)%

 4,013

 4,430

 (417

)

 (9

)%

 Total stock-based compensation

 $

 10,029

 $

 11,158

 $

 (1,129

)

 (10

)%

 The $1.1 million decrease in stock-based compensation expense for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to:

 •

 stock-based severance costs of $0.6 million incurred in 2023;

 •

 reversal of stock compensation expenses of $0.4 million on unvested stock awards that were forfeited in 2024; and

 •

 lower amount of employee equity grants made in 2024 resulting in lower expense of $0.3 million.

 We anticipate incurring an additional $16.2 million in stock-based compensation expense through December 31, 2028 for awards outstanding as of December 31, 2024.

 Leases

 In February 2022, we entered into a sublease agreement and lease extension agreement for office space in Beaverton, Oregon in order to move our corporate headquarters. The new facility is approximately 65,500 square feet in size. The term of the sublease and lease extension runs through September 2030. The remaining rent payments as of December 31, 2024 were $7.8 million plus operating expenses, payable in monthly installments. The first 26 months of rent payments and operating expenses were abated to cover the remaining term of the lease on our former corporate headquarters.

 The lease term of our former corporate headquarters in Beaverton, Oregon ended in March 2024, with no remaining rent payments as of December 31, 2024. The Company stopped using this office space as its corporate headquarters in March 2022.

 2024

 2023

 $

 2,341

 $

 2,452

 $

 (111

)

 (5

)%

 Other income, net (as % of total revenue)

 %

 %

 The $0.1 million decrease in other income, net for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to $0.1 million of lower refundable research and development tax credits, and $0.1 million of foreign currency losses, partially offset by $0.1 million of higher interest income on our marketable securities.

 The provision for income taxes reflects current taxes and deferred taxes.

 For the year ended December 31, 2024, our effective tax rate was 0%, reflecting a valuation allowance recorded against our deferred tax assets. The valuation allowance against deferred tax assets as of December 31, 2024 was $104.4 million, an increase of $9.1 million from $95.3 million as of December 31, 2023. We continually assess the applicability of a valuation allowance against our deferred tax assets. Based upon the positive and negative evidence available as of December 31, 2024, and largely due to the cumulative loss incurred by us over the preceding three 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. All future reversals of the valuation allowance would result in a tax benefit in the period recognized.

 For the year ended December 31, 2023, our effective tax rate was 0%, reflecting a valuation allowance recorded against our deferred tax assets. The valuation allowance against deferred tax assets as of December 31, 2023, was $95.3 million, an increase of $12.3 million from $83.0 million as of December 31, 2022.

 Non-GAAP Financial Measures

 The 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 loss per share (diluted), 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.

 Our 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.

 We define Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, and Non-GAAP loss per share (diluted) 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.

 We 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.

 The 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 loss per share (diluted) for the years ended December 31, 2024 and 2023:

 2024

 2023

 GAAP gross profit

 $

 24,239

 $

 20,165

 Amortization of acquired intangible assets

 4,592

 4,459

 Amortization and write-off of other intangible assets

 1,126

 Non-GAAP gross profit

 $

 30,081

 $

 26,323

 Non-GAAP gross profit margin

 %

 %

 GAAP operating expenses

 $

 65,546

 $

 68,372

 Depreciation and write-off of property and equipment

 (728

)

 (1,121

)

 Amortization of acquired intangible assets

 (1,097

)

 (1,065

)

 Amortization and write-off of other intangible assets

 (276

)

 (393

)

 Amortization of lease right of use assets under operating leases

 (358

)

 (517

)

 (9,323

)

 (10,032

)

 —

 (250

)

 Non-GAAP operating expenses

 $

 53,764

 $

 54,994

 GAAP net loss

 $

 (39,010

)

 $

 (45,959

)

 Total adjustments to gross profit

 5,842

 6,158

 Total adjustments to operating expenses

 11,782

 13,378

 Non-GAAP net loss

 $

 (21,386

)

 $

 (26,423

)

 GAAP loss per share (diluted)

 $

 (1.83

)

 $

 (2.26

)

 Non-GAAP net loss

 $

 (21,386

)

 $

 (26,423

)

 Non-GAAP loss per share (diluted)

 $

 (1.01

)

 $

 (1.30

)

 Non-GAAP gross profit for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, increased by $3.8 million primarily due to higher subscription revenue and lower cost of service revenue.

 Non-GAAP gross profit margin for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, increased by 2 percentage points primarily due to higher subscription revenue combined with a more favorable mix of subscription revenue.

 Non-GAAP operating expenses for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, decreased by $1.2 million primarily due to $1.5 million of lower cash compensation costs, partially offset by higher professional services and consulting costs of $0.5 million. The $1.5 million decrease in cash compensation costs includes $1.5 million of cash severance costs in 2023, and lower cash compensation costs of $1.0 million primarily reflecting lower headcount, net of annual compensation adjustments, partially offset by $0.6 million of cash severance costs in 2024 and $0.5 million of lower cash labor costs allocated to cost of revenue due to the amount and mix of billable labor hours incurred.

 Liquidity and Capital Resources

 2024

 2023

 Working capital

 $

 30,193

 $

 24,555

 Current ratio (1)

 4.3:1

 3:1

 Cash, cash equivalents and short-term marketable securities

 $

 28,730

 $

 27,182

 Long-term marketable securities

 —

 —

 Total cash, cash equivalents and marketable securities

 $

 28,730

 $

 27,182

 (1)

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

 The $1.5 million increase in cash, cash equivalents and marketable securities at December 31, 2024, from December 31, 2023, resulted primarily from:

 •

 net proceeds from the issuance of common stock; partially offset by

 •

 cash used in operations;

 •

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

 •

 purchases of property and equipment and capitalized patent costs.

 Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, and trade accounts receivable. We place our cash and cash equivalents with major banks and financial institutions and at times deposits may exceed insured limits. Marketable securities include commercial paper, U.S. treasuries, and federal agency 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.

 Other than cash used for operating needs, which may include short-term marketable securities, our investment policy limits our credit exposure to any one financial institution or type of financial instrument by limiting the maximum of 5% of our cash and cash equivalents and marketable securities or $1.0 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 greater, 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.

 A 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 in the years ended December 31, 2024 and 2023.

 Cash flows from operating activities

 2024

 2023

 $

 (39,010

)

 $

 (45,959

)

 $

 (6,949

)

 (15

)%

 Non-cash items

 17,641

 19,556

 1,915

 %

 Changes in operating assets and liabilities

 (5,203

)

 4,408

 9,611

 %

 Net cash used in operating activities

 $

 (26,572

)

 $

 (21,995

)

 $

 4,577

 %

 Cash flows used in operating activities for the twelve months ended December 31, 2024, compared the corresponding twelve months ended December 31, 2023, increased b y $4.6 million, primarily as a result of $9.6 million from unfavorable timing of changes in operating assets and liabilities, and $1.9 million of lower non-cash items included in net loss, partially offset by $7.0 million lower net loss. The unfavorable timing of changes in operating assets and liabilities are largely due to the amount and timing of customer receipts, vendor payments, and refundable research and development tax credits. Customer receipts were negatively impacted by $5.8 million related to the expiration of a commercial contract in June 2024. The change in non-cash items primarily reflects lower stock-based compensation, depreciation, and amortization expenses.

 Cash flows from investing activities

 Cash flows from investing activities for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, decreased by $23.8 million, primarily as a result of higher purchases of marketable securities, and lower net proceeds from maturities of marketable securities.

 Cash flows from financing activities

 Cash flows from financing activities for the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, increased by $31.5 million, primarily as a result of the $32.2 million of net cash proceeds raised from our registered direct stock offering in February 2024, partially offset by higher purchases of common stock.

 Future cash expectations

 Under the rules of ASC Subtopic 205-40 " Presentation of Financial Statements-Going Concern " ("ASC 205-40"), companies are required to evaluate whether conditions and/or events raise substantial doubt about their ability to meet their future financial obligations as they become due within one year after the date that the financial statements are issued. This evaluation takes into account a company's current available cash and projected cash needs over the one-year evaluation period but may not consider things beyond its control. We have incurred operating losses and negative cash flows from operating activities during the last several years, and depending on future results, may continue to incur such losses and negative cash flows in the future. We believe our currently available cash and marketable securities will satisfy our projected working capital and capital expenditure requirements for at least the next 12 months.

 We expect that our subscription revenue in 2025 will be negatively impacted by the termination of a commercial contract that contributed $3.3 million of subscription revenue in 2024. This contract is expected to end in April 2025 and contribute $1.1 million of subscription revenue in 2025. Our subscription revenue in 2025 may also be impacted negatively by the expiration of a commercial contract in June 2024 that may or may not be extended. This contract contributed $2.1 million of subscription revenue in 2024. We expect government service revenue in 2025 to be $1.7 million to $2.0 million lower than 2024 due to a smaller approved budget for program work in 2025.

 We expect our expenses in 2025 to be significantly lower than 2024 due to the reorganization we announced on February 26, 2025. The reorganization is expected to reduce our cash expenses by approximately $16.5 million on an annualized basis. We have also identified approximately $5.5 million of other annualized cash cost savings. We expect to incur approximately $3.0 million in one-time reorganization costs in the first quarter of 2025.

 Registered Direct Offering

 On February 24, 202 4, we entered into purchase agreements with certain investors providing for the issuance and sale by us of 929 thousand common shares in a registered direct stock offering. The common shares were offered at a price of $35.00 per share, and the gross cash proceeds to us were $32.5 million. We incurred $0.3 million of legal costs related to the offering. The closing of the registered direct offering occurred on February 27, 2024.

 Equity Distribution Agreement

 On February 27, 2024, we provided notice to Wells Fargo Securities, LLC of our intention to terminate the Equity Distribution Agreement that had previously been in place, with an effective date of March 1, 2024. No shares were sold under the Equity Distribution Agreement during the years ended December 31, 2024 and 2023.

 Shelf Registration

 On 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 December 31, 2024, $67.5 million remained available under the new shelf registration statement.

 We may sell shares under the shelf registration and/or use similar or other financing means to raise working capital in the future, if necessary, to support continued investment in our growth initiatives. We may also raise capital in the future to fund acquisitions and/or investments in complementary businesses, technologies or product lines. If it becomes necessary to obtain additional financing, we may not be able to do so, or if these funds are available, they may not be available on satisfactory terms. These factors may inhibit our near-term ability to obtain financing.

 Forward-Looking Statements

 This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Words such as "may," "might," "plan," "should," "could," "expect," "anticipate," "intend," "believe," "project," "forecast," "estimate," "continue," and variations of such terms or similar expressions are intended to identify such forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us, and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements, and investors are cautioned not to place undue reliance on such statements. We believe that the following factors, among others (including those described in Item 1A. "Risk Factors "), 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:

 •

 the concentration of most of our revenue among few customers and the trends and sources of future revenue;

 •

 anticipated successful advocacy of our technology by our partners;

 •

 anticipated revenue to be generated from current contracts, renewals and expirations or terminations of contracts, and new programs;

 •

 our belief regarding the global deployment of our products;

 •

 our beliefs regarding potential outcomes of participating in the HolyGrail 2.0 initiative and the utility of our products in the recycling industry;

 •

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

 •

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

 •

 our assumptions and expectations related to stock awards;

 •

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

 •

 anticipated effects of our adoption of accounting pronouncements;

 •

 our beliefs regarding our critical accounting policies;

 •

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

 •

 our estimates, judgments and assumptions related to impairment testing;

 •

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

 •

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

 •

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

 •

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

 •

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

 •

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

 •

 our expectations regarding our ability to meet future financial obligations as they become due within the coming fiscal year;

 •

 the effect of computerized trading on our stock price;

 •

 capital market conditions, our expectations regarding credit risk exposure, interest rate volatility and other limitations on the availability of capital, which could have an impact on our cost of capital and our ability to access the capital markets;

 •

 our use of cash, cash equivalents and marketable securities in upcoming quarters and the possibility that our deposits of cash and cash equivalents with major banks and financial institutions may exceed insured limits;

 •

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

 •

 our beliefs related to our existing facilities;

 •

 protection, development and monetization of our intellectual property portfolio;

 •

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

 •

 our beliefs regarding cybersecurity incidents;

 •

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

 •

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

 •

 other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in Item 1A. " Risk Factors. "

 We believe that the risk factors specified above and the risk factors contained in Item 1A, " Risk Factors," 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K.

 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 Not applicable.

 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 Our Consolidated Financial Statements and the accompanying Notes that are filed as part of this Annual Report are listed under Part III, Item 15, Exhibits and Financial Statement Schedules and are set forth beginning on page F-1 immediately following the signature page of this Form 10-K.

 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 None

 ITEM 9A: CONTROLS AND PROCEDURES

 Evaluation of Disclosure Controls and Procedures

 Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, have carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this Form 10-K. These disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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

 Management ' s Report on Internal Control Over Financial Reporting

 Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

 Because of inherent limitations, any control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management is committed to continue monitoring our internal controls over financial reporting and will modify or implement additional controls and procedures that may be required to ensure the ongoing integrity of our consolidated financial statements.

 With the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, ("COSO"). Based on this evaluation, management has concluded that internal control over financial reporting was effective as of the end of the period covered by this Form 10-K based on those criteria.

 Changes in Internal Control Over Financial Reporting

 There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 ITEM 9B: OTHER INFORMATION

 During the three months ended December 31, 2024, no director or officer of the Company adopted or terminated a "Rule10b5 - 1 trading arrangement" or "non- Rule10b5 - 1 trading arrangement", as each term is defined in Item 408 (a) of Regulation S-K.

 ITEM 9C: DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 Not applicable

 Certain information required by Part III of this Annual Report on Form 10-K is incorporated herein by reference to the Proxy Statement for our 2025 annual meeting of shareholders, which we intend to file no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

 ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 Code of Ethics

 We have adopted a Code of Business Conduct that applies to our principal executive officer, principal financial officer and controller, as well as a Code of Ethics for Financial Professionals that applies to our principal financial officer and controller. We have made these codes available in the Corporate Governance section of our website at  If we waive, or implicitly waive, any material provision of the codes, or substantively amend the codes, we will disclose that fact on our website within four business days.

 The other information required by this item will be included in the Proxy Statement, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference.

 ITEM 11: EXECUTIVE COMPENSATION

 The information required by this item will be included in the Proxy Statement, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference.

 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 The information required by this item will be included in the Proxy Statement, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference.

 ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 The information required by this item will be included in the Proxy Statement, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference.

 ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

 The information required by this item will be included in the Proxy Statement, which we intend to file with the SEC no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference.

 ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 (a)(1) Financial Statements

 The following documents are filed as part of this Annual Report on Form 10-K:

 (i)

 Report of Independent Registered Public Accounting Firm

 Consolidated Balance Sheets as of December 31, 2024 and 2023

 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2024 and 2023

 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2024 and 2023

 Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023

 (ii)

 Notes to Consolidated Financial Statements

 (a)(2) Financial Statement Schedules

 All schedules have been omitted since they are not required or are not applicable or the required information is shown in the consolidated financial statements or related notes.

 (a)(3) Exhibits

 EXHIBIT INDEX

 The agreements included or incorporated by reference as exhibits to this report may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other party or parties to the applicable agreement and:

 •

 were not intended to be treated as categorical statements of fact, but rather as a means of allocating the risk to one of the parties if those statements prove to be inaccurate;

 •

 were qualified by disclosures that were made to the other party or parties in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 •

 may apply standards of "materiality" that are different from "materiality" under the securities laws; and

 •

 were made only as of the date of the applicable agreement or other date or dates that may be specified in the agreement.

 Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about Digimarc may be found elsewhere in this Annual Report on Form 10-K and in Digimarc's other public filings, which are available without charge through the SEC's website at

 Exhibit
 Number

 Exhibit Description

 2.1

 Separation Agreement among DMRC Corporation, DMRC LLC, Digimarc Corporation and, with respect to certain sections, L-1 Identity Solutions, Inc. (incorporated by reference to Exhibit 2.1 to Amendment No. 2 to the Company's Registration Statement on Form 10, filed with the Commission on August 13, 2008 (File No. 001-34108))

 2.2

 Agreement and Plan of Merger dated April 30, 2010 between Digimarc Corporation, a Delaware corporation, and Digimarc Oregon Corporation, an Oregon corporation (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed with the Commission on May 4, 2010 (File No. 001-34108))

 2.3

 Share Purchase Agreement dated November 15, 2021 between Digimarc Corporation, an Oregon corporation, and EVRYTHNG Limited, a company incorporated and registered in England, the sellers party thereto, and Fortis Advisors LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed with the Commission on January 4, 2022 (File No. 001-34108))

 3.1

 Articles of Incorporation of Digimarc Corporation (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on October 30, 2020 (File No. 001-34108))

 3.2

 Bylaws of Digimarc Corporation (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K, filed with the Commission on May 4, 2010 (File No. 001-34108))

 4.1

 Specimen common stock certificate of Digimarc Corporation (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on July 25, 2014 (File No. 001-34108))

 4.2

 Description of Securities (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K, filed with the Commission on February 27, 2020 (File No. 001-34108))

 4.3

 Warrant Agency Agreement, dated January 3, 2022, between Digimarc Corporation and Broadridge Corporate Issuer Solutions, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the Commission on January 4, 2022 (File No. 001-34108))

 10.1

 License Agreement, dated as of August 1, 2008, between DMRC Corporation and L-1 Identity Solutions Operating Company (incorporated by reference to Exhibit 10.2 to Amendment No. 4 to the Company's Registration Statement on Form 10, filed with the Commission on October 2, 2008 (File No. 001-34108))(1)

 10.2

 Counterfeit Deterrence System Development and License Agreement Amendment, dated December 1, 2022, and effective January 1, 2023, between Digimarc Corporation and Bank for International Settlements (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K, filed with the Commission on March 2, 2023 (File No. 001-34108))

 *10.3

 Digimarc Corporation 2008 Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on April 25, 2014 (File No. 001-34108))

 *10.4

 Form of Indemnification Agreement between Digimarc Corporation and each of its executive officers and directors (incorporated by reference to Exhibit 10.1 to Digimarc Corporation's Annual Report on Form 10-K, as filed by Digimarc Corporation with the Securities and Exchange Commission on March 13, 2006 (File No. 000-28317))

 *10.5

 Form of Change of Control Retention Agreement entered into by and between Digimarc Corporation and Mr. Meyer (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K, filed with the Commission on February 22, 2019 (File No. 001-34108))

 10.6

 Patent License Agreement, dated as of June 11, 2009, between Digimarc Corporation and The Nielsen Company (US), LLC (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on July 31, 2009 (File No. 001-34108))(2)

 10.7

 Limited Liability Company I Agreement, dated June 11, 2009, between Digimarc Corporation and The Nielsen Company (US), LLC (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on July 31, 2009 (File No. 001-34108))(2)

 10.8

 Limited Liability Company II Agreement, dated June 11, 2009 between Digimarc Corporation and The Nielsen Company (US), LLC (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on July 31, 2009 (File No. 001-34108))(2)

 10.9

 Lease Agreement, dated March 22, 2004, between Digimarc Corporation and PS Business Parks, L.P., as amended on May 13, 2010 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on July 30, 2010 (File No. 001-34108))

 10.10

 Second Amendment to Lease, dated July 31, 2015, between PD Office Owner 9, L.P. and Digimarc Corporation (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on October 30, 2015 (File No. 001-34108))

 10.11

 Patent Rights Agreement, dated October 5, 2010, between Digimarc Corporation and IV Digital Multimedia Inventions, LLC (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K, filed with the Commission on March 3, 2011 (File No. 001-34108))

 *10.12

 Digimarc Corporation 2018 Incentive Plan, as amended (incorporated by reference to Appendix A of the Company's Definitive Proxy Statement on Schedule 14A, filed with the Commission on March 28, 2023 (file No. 001-34108))

 *10.13

 Equity Compensation Program for Non-Employee Directors Under the Digimarc 2018 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on August 8, 2023 (File No. 001-34108))

 10.14

 Grant-Back License Agreement, dated October 5, 2010, between Digimarc Corporation and IV Digital Multimedia Inventions, LLC (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on May 2, 2019 (File No. 001-34108)) (5)

 10.15

 Amendment No. 1 to Equity Distribution Agreement, dated August 6, 2020, between Digimarc Corporation and Wells Fargo Securities, LLC (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on October 30, 2020 (File No. 001-34108))

 *10.16

 Employment Agreement, effective as of August 10, 2020, between Digimarc Corporation and Bruce Davis (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the Commission on August 14, 2020 (File No. 001-34108))

 10.17

 Subscription Agreement, dated September 29, 2020, between the Company and TCM Strategic Partners L.P. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the Commission on September 29, 2020 (File No. 001-34108))

 10.18

 Registration Rights Agreement, dated September 29, 2020, between the Company and TCM Strategic Partners L.P. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed with the Commission on September 29, 2020 (File No. 001-34108))

 10.19

 Work Agreement, dated October 5, 2010, by and among Digimarc Corporation, Invention Law Group, P.C. and IV Digital Multimedia Inventions, LLC (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on April 29, 2021 (File No. 001-34108)) +

 *10.20

 Separation Agreement and General Release, dated April 12, 2021, between Digimarc Corporation and Bruce Davis (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on April 29, 2021 (File No. 001-34108))

 *10.21

 Employment Agreement, dated April 12, 2021, between Digimarc Corporation and Riley McCormack (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on April 29, 2021 (File No. 001-34108))

 *10.22

 Amendment No. 1 to Employment Agreement, dated as of February 27, 2023, between Digimarc Corporation and Riley McCormack (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K, filed with the Commission on February 29, 2024 (File No. 001-34108))

 *10.23

 Separation Agreement and General Release, dated December 28, 2021, between Digimarc Corporation and Robert Chamness (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K, filed with the Commission on March 7, 2022 (File No. 001-34108))

 10.24

 Sublease Agreement, dated February 4, 2022, by and between Fiserv Solutions, LLC and Digimarc Corporation (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K, filed with the Commission on March 7, 2022 (File No. 001-34108))

 10.25

 Lease Extension Agreement, dated February 4, 2022, between Portland 1 LLC and Digimarc Corporation (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K, filed with the Commission on March 7, 2022 (File No. 001-34108))

 *10.26

 Form of Change of Control Retention Agreement entered into between Digimarc Corporation and Mr. Meyer incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K, filed with the Commission on March 7, 2022 (File No. 001-34108))

 *10.27

 Digimarc Corporation Short-Term Incentive Plan (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K, filed with the Commission on February 29, 2024 (File No. 001-34108))

 *10.28

 Consulting Agreement, entered into as of January 9, 2024, by and between the Company and Andrew Walter (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K, filed with the Commission on February 29, 2024 (File No. 001-34108))

 10.29

 Form of Common Stock Purchase Agreement, dated February 24, 2024 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the Commission on February 26, 2024 (File No. 001-34108))

 *10.30

 Form of Executive Retention Agreement entered into between Digimarc Corporation and each of Ms. Quinn and Messrs. Beck, Benton, Karamanos, Rodriguez, and Sickles

 *10.31

 Executive Retention Agreement entered into between Digimarc Corporation and Mr. McCormack

 10.32

 Counterfeit Deterrence System Development and License Agreement, dated as of December 6, 2012, between Digimarc Corporation and the Bank for International Settlements +

 21.1

 List of Subsidiaries

 23.1

 Consent of Independent Registered Public Accounting Firm

 31.1

 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 31.2

 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 32.1

 Section 1350 Certification of Chief Executive Officer

 32.2

 Section 1350 Certification of Chief Financial Officer

 Digimarc Corporation Incentive Compensation Recovery Policy

 101.INS

 101.SCH

 101.CAL

 101.DEF

 101.LAB

 101.PRE

 *

 Management contract or compensatory plan or arrangement.

 Schedules and certain exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Digimarc hereby undertakes to furnish to the Securities and Exchange Commission (the "Commission") copies of the omitted schedules and exhibits upon request by the Commission.

 +

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

 (1)

 Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to an order granted by the Commission on October 21, 2008, under Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission.

 (2)

 Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to an order granted by the Commission on September 10, 2009, under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission.

 (3)

 Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to an order granted by the Commission on May 6, 2016, under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission.

 (4)

 Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to an order granted by the Commission on September 3, 2013, under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission.

 (5)

 Confidential treatment has been requested for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the Exchange Act. Confidential portions of this exhibit have been separately filed with the SEC.

 SIGNATURES

 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 Date: February 27, 2025

 By:

 /s/ Charles Beck

 Charles Beck
 Title: Chief Financial Officer

 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 Signature

 Title

 Date

 /s/ Riley McCormack

 President, Chief Executive Officer and Director

 Riley McCormack

 (Principal Executive Officer)

 /s/ Charles Beck

 Chief Financial Officer and Treasurer

 Charles Beck

 (Principal Financial and Accounting Officer)

 /s/ Katie Kool

 Chair of the Board of Directors

 Katie Kool

 /s/ Dana Mcilwain

 Dana Mcilwain

 /s/ LaShonda Anderson-Williams

 LaShonda Anderson-Williams

 /s/ Michael Park

 Michael Park

 /s/ Sandeep Dadlani

 Sandeep Dadlani

 /s/ Sheila Cheston

 Sheila Cheston

 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 Page

 Report of Independent Registered Public Accounting Firm

 Consolidated Balance Sheets

 Consolidated Statements of Operations and Comprehensive Loss

 Consolidated Statements of Shareholders' Equity

 Consolidated Statements of Cash Flows

 Notes to Consolidated Financial Statements

 Report of Independent Registered Public Accounting Firm

 To the Shareholders and Board of Directors
 Digimarc Corporation:

 Opinion on the Consolidated Financial Statements

 We have audited the accompanying consolidated balance sheets of Digimarc Corporation and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, shareholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.

 Basis for Opinion

 These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 Critical Audit Matter

 The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 Revenue recognition for new contracts

 As discussed in Note 3 to the consolidated financial statements, the Company recorded $38,418 thousand of total revenue for the year ended December 31, 2024, of which $22,418 thousand was subscription revenue and $16,000 thousand was service revenue. Customer arrangements may contain multiple performance obligations such as software subscriptions, software products, software development services, and/or maintenance and support fees. The Company accounts for individual products and services separately if they are distinct. The Company derives its revenue primarily from software subscriptions and software development services with a wide range of software and service offerings.

 We identified the evaluation of the Company's revenue recognition related to new contracts entered during the year as a critical audit matter. Challenging auditor judgment was required to evaluate the potential impact of specific contract terms on revenue recognition due to the unique nature of new revenue contracts within each software and service offering.

 The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the Company's revenue recognition process, including a control over the Company's assessment of the contract terms and applicable revenue recognition requirements for new contracts. For a selection of new contracts, we read the contract and evaluated the Company's assessment of the contract terms and revenue recognition. For certain contracts, we confirmed the relevant contract terms directly with the Company's customers and compared them to the terms utilized by the Company to record revenue. We assessed the recorded revenue by selecting a sample of transactions and comparing the revenue recognized for consistency with the terms of the underlying documentation, including contracts with customers. For a selection of revenue contracts entered during the year, we interviewed personnel outside of the accounting function to consider any other relevant facts and circumstances and their impact on revenue recognition.

 /s/ KPMG LLP

 We have served as the Company's auditor since 2010.

 Portland, Oregon

 CONSOLIDATED BALANCE SHEETS

 2024

 2023

 ASSETS

 Current assets:

 Cash and cash equivalents

 $
 12,365

 $
 21,456

 Marketable securities

 16,365

 5,726

 Trade accounts receivable, net

 6,412

 5,813

 Other current assets

 4,189

 4,085

 Total current assets

 39,331

 37,080

 Property and equipment, net

 1,040

 1,570

 Intangibles, net

 22,191

 28,458

 Goodwill

 8,532

 8,641

 Lease right of use assets

 3,659

 4,017

 Other assets

 1,013

 Total assets

 $
 75,766

 $
 80,552

 LIABILITIES AND SHAREHOLDERS' EQUITY

 Current liabilities:

 Accounts payable and other accrued liabilities

 $
 5,118

 $
 6,672

 Deferred revenue

 4,020

 5,853

 Total current liabilities

 9,138

 12,525

 Long-term lease liabilities

 5,213

 5,994

 Other long-term liabilities

 Total liabilities

 14,407

 18,625

 Commitments and contingencies (Note 16)

 Shareholders' equity:

 Preferred stock (par value $ 0.001 per share, 2,500 authorized, 10 shares issued and outstanding at December 31, 2024 and December 31, 2023)

 Common stock (par value $ 0.001 per share, 50,000 authorized, 21,495 and 20,379 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively)

 Additional paid-in capital

 415,049

 376,189

 Accumulated deficit

 ( 350,778
)

 ( 311,768
)

 Accumulated other comprehensive loss

 ( 2,983
)

 ( 2,564
)

 Total shareholders' equity

 61,359

 61,927

 Total liabilities and shareholders' equity

 $
 75,766

 $
 80,552

 See Notes to Consolidated Financial Statements

 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 2024

 2023

 $

 22,418

 $

 18,973

 16,000

 15,878

 Total revenue

 Cost of revenue:

 2,959

 2,975

 6,628

 7,252

 4,592

 4,459

 Total cost of revenue

 14,179

 14,686

 Gross profit

 24,239

 20,165

 Operating expenses:

 21,167

 22,409

 26,209

 26,577

 17,073

 18,071

 1,097

 1,065

 —

 Total operating expenses

 65,546

 68,372

 Operating loss

 ( 41,307

)

 ( 48,207

)

 2,341

 2,452

 Loss before income taxes

 ( 38,966

)

 ( 45,755

)

 ( 44

)

 ( 204

)

 $

)

 $

)

 Loss per share:

 Loss per share — basic

 $

 ( 1.83

)

 $

 ( 2.26

)

 Loss per share — diluted

 $

 ( 1.83

)

 $

 ( 2.26

)

 Weighted average shares outstanding — basic

 21,261

 20,322

 Weighted average shares outstanding — diluted

 21,261

 20,322

 Comprehensive loss:

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

 $

 ( 13

)

 $

 Foreign currency translation adjustment, net of tax of $0

 ( 406

)

 1,661

 Other comprehensive income (loss)

 $

 ( 419

)

 $

 1,799

)

)

 Comprehensive loss

 $

 ( 39,429

)

 $

 ( 44,160

)

 (1)

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

 See Notes to Consolidated Financial Statements

 CONSOLIDATED STATEMENTS OF SHAREHOLDERS ' EQUITY

 (In thousands)

 Accumulated

 Additional

 Other

 Total

 Preferred Stock

 Common Stock

 Paid-in

 Accumulated

 Comprehensive

 Shareholders'

 Shares

 Amount

 Shares

 Amount

 Capital

 Deficit

 Loss

 Equity

 Year Ended December 31, 2024

 Balance at December 31, 2023

 $

 20,379

 $

 $

 376,189

 $

 ( 311,768

)

 $

 ( 2,564

)

 $

 61,927

 Issuance of common stock

 —

 —

 32,217

 —

 —

 32,218

 Issuance of restricted common stock

 —

 —

 —

 —

 —

 —

 —

 Vesting of restricted stock units

 —

 —

 —

 —

 —

 —

 —

 Vesting of performance restricted stock units

 —

 —

 —

 —

 —

 —

 —

 Forfeiture of restricted common stock

 —

 —

 ( 7

)

 —

 —

 —

 —

 —

 Purchase of common stock

 —

 —

 ( 108

)

 —

 ( 3,416

)

 —

 —

 ( 3,416

)

 —

 —

 —

 —

 10,059

 —

 —

 10,059

 Unrealized gain (loss) on marketable securities

 —

 —

 —

 —

 —

 —

 ( 13

)

 ( 13

)

 Foreign currency translation adjustments

 —

 —

 —

 —

 —

 —

 ( 406

)

 ( 406

)

 —

 —

 —

 —

 —

)

 —

)

 Balance at December 31, 2024

 $

 21,495

 $

 $

 415,049

 $

 ( 350,778

)

 $

 ( 2,983

)

 $

 61,359

 Year Ended December 31, 2023

 Balance at December 31, 2022

 $

 20,260

 $

 $

 367,692

 $

 ( 265,809

)

 $

 ( 4,363

)

 $

 97,590

 Issuance of common stock

 —

 —

 —

 —

 —

 —

 —

 Issuance of restricted common stock

 —

 —

 —

 —

 —

 —

 —

 Vesting of restricted stock units

 —

 —

 —

 —

 —

 —

 —

 Vesting of performance restricted stock units

 —

 —

 —

 —

 —

 —

 —

 Forfeiture of restricted common stock

 —

 —

 ( 6

)

 —

 —

 —

 —

 —

 Purchase of common stock

 —

 —

 ( 93

)

 —

 ( 2,724

)

 —

 —

 ( 2,724

)

 —

 —

 —

 —

 11,221

 —

 —

 11,221

 Unrealized gain (loss) on marketable securities

 —

 —

 —

 —

 —

 —

 Foreign currency translation adjustments

 —

 —

 —

 —

 —

 —

 1,661

 1,661

 —

 —

 —

 —

 —

)

 —

)

 Balance at December 31, 2023

 $

 20,379

 $

 $

 376,189

 $

 ( 311,768

)

 $

 ( 2,564

)

 $

 61,927

 See Notes to Consolidated Financial Statements

 CONSOLIDATED STATEMENTS OF CASH FLOWS

 (In thousands)

 2024

 2023

 Cash flows from operating activities:

 $

)

 $

)

 Adjustments to reconcile net loss to net cash used in operating activities:

 Depreciation and write-off of property and equipment

 1,121

 Amortization of acquired intangible assets

 5,689

 5,524

 Amortization and write-off of other intangible assets

 Amortization of lease right of use assets under operating leases

 10,029

 11,158

 —

 Increase (decrease) in allowance for doubtful accounts

 Changes in operating assets and liabilities:

 Trade accounts receivable

 ( 687

)

 ( 335

)

 Other current assets

 ( 128

)

 2,200

 Other assets

 ( 156

)

 Accounts payable and other accrued liabilities

 ( 1,608

)

 Deferred revenue

 ( 1,838

)

 1,627

 Lease liability and other long-term liabilities

 ( 786

)

 ( 43

)

 Net cash provided by (used in) operating activities

 ( 26,572

)

 ( 21,995

)

 Cash flows from investing activities:

 Purchase of property and equipment

 ( 212

)

 ( 314

)

 Capitalized patent costs

 ( 431

)

 ( 426

)

 Proceeds from maturities of marketable securities

 22,555

 27,664

 Purchases of marketable securities

 ( 33,194

)

 ( 14,363

)

 Net cash provided by (used in) investing activities

 ( 11,282

)

 12,561

 Cash flows from financing activities:

 Issuance of common stock, net of issuance costs

 32,218

 —

 Purchase of common stock

 ( 3,416

)

 ( 2,724

)

 Repayment of loans

 ( 37

)

 ( 36

)

 Net cash provided by (used in) financing activities

 28,765

 ( 2,760

)

 Effect of exchange rate on cash

 ( 2

)

 Net increase (decrease) in cash and cash equivalents

 ( 9,091

)

 ( 12,142

)

 Cash and cash equivalents at beginning of period

 21,456

 33,598

 Cash and cash equivalents at end of period

 $

 12,365

 $

 21,456

 Supplemental disclosure of cash flow information:

 Cash received (paid) for income taxes, net

 $

 ( 63

)

 $

 ( 233

)

 Supplemental schedule of non-cash activities:

 Property and equipment and patent costs in accounts payable

 $

 $

 Stock-based compensation capitalized to software and patent costs

 $

 $

 Right of use assets obtained in exchange for lease obligations

 $

 —

 $

 See Notes to Consolidated Financial Statements

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 ( 1) Description of Business and Summary of Significant Accounting Policies

 Description of Business

 Digimarc, an Oregon corporation, is a pioneer and global leader in digital watermarking technologies. For nearly 30 years, Digimarc innovations and intellectual property in digital watermarking have been deployed in solutions built upon one or both of the following two things: the identification and the authentication of physical and digital items, often at massive scale, and often where other methods of identification or authentication don't work well or don't work at all.

 The Digimarc Illuminate platform is a distinctive software as a service ("SaaS") cloud-based platform for digital connectivity that provides the tools for the application of advanced digital watermarks and dynamic Quick Response ("QR") codes, software (digital twins) that enables various systems and devices to interact with those data carriers, and a centralized platform for capturing insights about digital interactions and automating activities based on that information.

 The Digimarc product suite is built on top of the Digimarc Illuminate platform to power a trusted and scalable ecosystem that can address specific business needs in areas like automation, authenticity, sustainability, and customer trust and connectivity. All of the Company's products are complementary to each other, providing exponential benefits when combined. By enabling customers to create and connect digital twins to physical and digital items, Digimarc's products provide many benefits including:

 •

 Digimarc Automate improves product inspection by embedding imperceptible digital watermarks into products, labels, and packaging, which are detectable by standard vision systems. This significantly reduces mixing errors and mislabeling, ensuring higher accuracy and efficiency in production, fulfillment, and distribution facilities without additional costs for special inks or hardware. By enabling real-time data analysis and minimizing human error, Digimarc Automate enhances quality assurance, reduces waste, and lowers the risk of product recalls, giving brands a competitive edge.

 •

 Digimarc Engage activates products and multimedia to create and leverage an interactive, fully owned communications channel directly with consumers. Digimarc delivers dynamic, GS1 Digital Link-compliant QR codes and hyperlinks that provide contextual redirection capabilities for multiple consumer experiences (including personalized and automated loyalty and rewards programs) based on a variety of factors such as time and location or previous behavior. Connecting engagements across the physical and digital worlds in a singular view results in powerful new capabilities and insights for brands.

 •

 Digimarc Recycle increases the quality and quantity of recycled materials by digitizing products and packaging with digital watermarking technology. Coupled with consumer engagement capabilities, brands can leverage a direct, digital communications channel. Plus, Digimarc Recycle creates a cloud-based record of never-before-seen post-consumption data to provide new insights that benefit stakeholders across the value chain, including brands, facility operators, and Producer Responsibility Organizations ("PROs").

 •

 Digimarc Retail Experience delivers smarter, connected packaging that supports next-generation retail checkout systems, including checkout efficiency (faster scanning) and checkout effectiveness (reduced shrinkage including gift card and price look-up fraud prevention), optimized operational processes, advanced consumer engagement experiences, compliance with upcoming industry standards, and the collection of powerful first -party data and consumer insights.

 •
 Digimarc Validate supports authentication in the physical and digital worlds to help ensure online interactions can be trusted and that real products and digital assets are genuine and in the right place. Digimarc's technology protects digital images, audio, product packaging, gift cards, and other physical items by delivering exclusive, covert digital watermarks and/or dynamic QR codes and a cloud-based record of product authentication information. In addition, consumer engagement capabilities provide a direct, digital communications channel.

 Principles of Consolidation

 The consolidated financial statements include the accounts of Digimarc and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

 Use of Estimates

 The preparation of the consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The most significant estimates and judgments made by the Company relate to its revenue accounting policy. Management bases its estimates on historical experience and on other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities, and the measurement and recognition of revenue that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 F-

 Cash Equivalents

 The Company considers all highly liquid marketable securities with original maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include commercial paper, federal agency notes, U.S. treasuries and money market securities, totaling $ 8,889 and $ 17,362 at December 31, 2024 and 2023, respectively. Cash equivalents are carried at either cost or fair value depending on the type of security.

 Marketable Securities

 The Company considers all investments with original maturities over 90 days that mature in less than one -year from the balance sheet date to be short-term marketable securities. Short-term marketable securities primarily include commercial paper, U.S. treasuries and federal agency notes.

 The Company's marketable securities are classified as available-for-sale. 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 are derived using the specific identification method for determining the cost of marketable securities sold.

 A 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, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether 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 the Company.

 Concentrations of Business and Credit Risk

 A significant portion of the Company's business depends on a limited number of large contracts. The loss of any large contract may result in loss of revenue and margin on a prospective basis. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, and accounts receivable.

 The Company places its cash and cash equivalents with major banks and financial institutions and at times deposits may exceed insured limits. Other than cash used for operating needs, which may include short-term marketable securities with the Company's principal banks, the Company's investment policy limits its credit exposure to any one financial institution or type of financial instrument by limiting the maximum of 5 % of its cash equivalents and marketable securities or $ 1,000, whichever is greater, to be invested in any one issuer except for the U.S. government, U.S. federal agencies and U.S. backed securities, which have no limits, at the time of purchase. The Company's investment policy also limits its credit exposure by limiting the maximum of 40 % of its cash equivalents and marketable securities, or $ 15,000, whichever is greater, to be invested in any one industry category, (e.g., financial, energy, etc.), at the time of purchase. As a result, the Company's credit risk associated with cash and cash equivalents and marketable securities is believed to be minimal.

 The Company manages credit risk on accounts receivable by evaluating a customer's credit worthiness before extending any significant amount of credit. There is a significant concentration of accounts receivable at various times from our three largest customers. All three customers have significant financial means and a history of paying their invoices. The Company does not have a history of significant bad debt write-offs. As a result, the Company's credit risk associated with accounts receivable is believed to be low.

 Contingencies

 The Company evaluates all pending or threatened contingencies or commitments, if any, that are reasonably likely to have a material adverse effect on the Company's operations or financial position. The Company assesses the probability of an adverse outcome and determines if it is remote, reasonably possible or probable as defined in accordance with Accounting Standards Codification ("ASC") 450 " Contingencies." If information available prior to the issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and the amount of the loss, or the range of probable loss can be reasonably estimated, then the loss is accrued and charged to operations. If no accrual is made for a loss contingency because one or both of the conditions pursuant to ASC 450 are not met, but the probability of an adverse outcome is at least reasonably possible, the Company will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss, or state that such an estimate cannot be made.

 Goodwill

 The Company tests goodwill for impairment annually and whenever events or changes in circumstances indicate that the carrying value may exceed the fair value, in accordance with ASC 350 " Intangibles – Goodwill and Other. " The Company operates as a single reporting unit. The Company estimates the fair value of its single reporting unit using a market approach, which takes into account the Company's market capitalization plus an estimated control premium. In connection with the Company's annual impairment tests of goodwill as of June 30, 2024 and 2023, it was concluded that there was no impairment to goodwill as the estimated fair value of the Company's reporting unit significantly exceeded the carrying value.

 Impairment of Long-Lived Assets

 The Company assesses long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in accordance with ASC 360 " Property, Plant and Equipment."

 F-

 Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of the assets to future net undiscounted cash flows expected to be generated by the assets over their remaining useful life. If such assets are considered to be impaired, the impairment would be recognized in operating results at the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is determined based on discounted cash flows, observable market values or appraised values, depending on the nature of the assets.

 Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

 Research and Development

 Research and development costs are expensed as incurred in accordance with ASC 730 " Research and Development."

 Software Development Costs

 Under ASC 985 " Software," software development costs are to be capitalized beginning when a product's technological feasibility has been established and ending when a product is made available for general release to customers. To date, the establishment of technological feasibility of the Company's products has occurred shortly before general release and, therefore, software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs and has charged all such costs to research and development expense.

 Patent Costs

 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 award date, which varies depending on the pendency period of the application. Capitalized patent costs, also referred to as patent prosecution costs, include internal legal labor, professional legal fees, government filing fees and translation fees related to expanding the Company's patent portfolio.

 Costs associated with the maintenance and annuity fees of patents are accounted for as prepaid assets at the time of payment and amortized over the shorter of the maintenance period or remaining life of the related patent.

 Revenue Recognition

 See Note 3 for detailed disclosures of the Company's revenue recognition policy.

 Stock-Based Compensation

 The Company accounts for stock-based compensation in accordance with ASC 718 " Compensation — Stock Compensation," which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including restricted stock awards, restricted stock units and performance stock units based on estimated fair values. The estimated fair value of stock-based awards is recognized over the vesting period of the award using the straight-line method.

 F-

 Income Taxes

 The Company accounts for income taxes in accordance with ASC 740 " Income Taxes " utilizing the asset and liability method. Under the asset and liability method, deferred income taxes reflect the future tax consequences of differences between the tax basis of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period of enactment.

 The Company records valuation allowances on deferred tax assets if, based on available evidence, it is more-likely-than- not that all or some portion of the assets will not be realized.

 The Company is subject to income taxes within the U.S. and other countries, and, in the ordinary course of business, there are transactions and calculations where the ultimate tax determination is uncertain. The Company reports a liability (or contra asset) for unrecognized tax benefits resulting from uncertain tax positions taken (or expected to be taken) on a tax return. The Company recognizes interest and penalties, if any, related to the unrecognized tax benefits in the provision for income taxes.

 Liquidity

 Under ASC 205 - 40 " Presentation of Financial Statements-Going Concern ", companies are required to evaluate whether conditions and/or events raise substantial doubt about their ability to meet their future financial obligations as they become due within one year after the date that the financial statements are issued. This evaluation takes into account a company's current available cash and projected cash needs over the one year evaluation period but may not consider things beyond its control. The Company has incurred operating losses and negative cash flows from operating activities the last several years and depending on future results may continue to incur such losses and negative cash flows in the future. The Company believes its currently available cash and marketable securities will satisfy the Company's projected working capital and capital expenditure requirements for at least the next 12 months.

 Foreign Currency

 The Company prepares consolidated financial statements in its reporting currency, the U.S. dollar. The functional currency of the Company's foreign subsidiaries generally is the applicable local currency. Monetary assets and liabilities denominated in a foreign currency are remeasured at the end of each reporting period, with respective gain or loss recorded in other income, net on the Consolidated Statement of Operation. Financial statements of each foreign subsidiaries are translated from their respective functional currencies to U.S. dollar, with translation adjustments recorded in other comprehensive income (loss) on the Consolidated Statement Operation and Comprehensive Loss, and foreign currency translation adjustments on the Consolidated Statement of Shareholders' Equity. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Revenue and expenses are translated using the average exchange rates during the period. Equity transactions are translated at the historical exchange rates. The Company's foreign exchange exposure is not material to the Company's consolidated financial condition.

 Accounting Pronouncements Adopted

 In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023 - 07 " Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures ". The ASU requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating decision-maker ("CODM") and included within the reported measure of a segment's profit or loss, requires interim disclosures about a reportable segment's profit or loss and assets that are currently required annually, requires disclosure of the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss and contains other disclosure requirements. This authoritative guidance is effective for the Company starting in the fiscal year ended December 31, 2024 for annual periods and in the first quarter of the fiscal year ending December 31, 2025 for interim periods, with early adoption permitted. The Company adopted this new standard on December 31, 2024. The new standard has not had a material impact on the Company's consolidated financial statements; however, we have provided additional details and disclosures under the new guidance in Note 4.

 F-

 Accounting Pronouncements Issued But Not Yet Adopted

 In December 2023, the FASB issued ASU No. 2023 - 09 " Income Taxes (Topic 740) - Improvements to Income Tax Disclosures ". The ASU requires greater disaggregation of income tax disclosures primarily on the income tax rate reconciliation and income taxes paid. This authoritative guidance will be effective for the Company starting in the fiscal year ending December 31, 2025, with early adoption permitted. The Company is currently evaluating the effect of this new standard on the Company's disclosures.

 In November 2024, the FASB issued 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 this new standard on the Company's disclosures.

 ( 2) Fair Value of Financial Instruments

 In accordance with ASC 820 " Fair Value Measurements and Disclosures ", the Company defines its's 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:

 •

 Level 1 Pricing inputs are quoted prices available in active markets for identical investments as of the reporting date.

 •

 Level 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.

 •

 Level 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.

 The Company's fair value hierarchy for its cash equivalents and marketable securities as of December 31, 2024 and 2023, respectively, was as follows:

 December 31, 2024

 Level 1

 Level 2

 Level 3

 Total

 Money market securities

 $

 $
 —

 $
 —

 $

 Commercial paper

 —

 10,633

 —

 10,633

 U.S. treasuries

 —

 9,192

 —

 9,192

 Federal agency notes

 —

 5,317

 —

 5,317

 Total

 $

 $
 25,142

 $
 —

 $
 25,254

 December 31, 2023

 Level 1

 Level 2

 Level 3

 Total

 Money market securities

 $
 1,515

 $
 —

 $
 —

 $
 1,515

 Commercial paper

 —

 14,622

 —

 14,622

 U.S. treasuries

 —

 5,953

 —

 5,953

 Federal agency notes

 —

 —

 Total

 $
 1,515

 $
 21,573

 $
 —

 $
 23,088

 The fair value maturities of the Company's cash equivalents and marketable securities as of December 31, 2024 are as follows:

 Maturities by Period

 Less than

 1 - 5

 5 - 10

 More than

 Total

 1 year

 years

 years

 10 years

 Cash equivalents and marketable securities

 $
 25,254

 $
 25,254

 $
 —

 $
 —

 $
 —

 ( 3) Revenue Recognition

 The Company recognizes revenue in accordance with ASC 606 " Revenue Recognition " by applying the following steps:

 Step 1: Identify the contract(s) with a customer.

 Step 2: Identify the performance obligation(s) in the contract.

 Step 3: Determine the transaction price.

 Step 4: Allocate the transaction price to the performance obligation(s) in the contract.

 Step 5: Recognize when (or as) the entity satisfies the performance obligation(s).

 The 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:

 •
 Subscription 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. 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.

 •
 Service 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.

 F-

 Customer 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.

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

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

 2024

 2023

 Commercial:

 $
 21,218

 $
 17,773

 1,308

 1,042

 Total Commercial

 $
 22,526

 $
 18,815

 Government:

 $
 1,200

 $
 1,200

 14,692

 14,836

 Total Government

 15,892

 16,036

 Total

 $

 $

 The Company has contract assets from contracts with customers that are classified as "trade accounts receivable" in the Consolidated Balance Sheets. See Note 7 for more information about trade accounts receivable.

 The Company has contract assets from capitalized contract acquisition costs that are classified as "other current assets" and "other assets" in the Consolidated Balance Sheet. These contract acquisition costs are recognized in proportion to the revenue recognized from the contract they are associated with.

 The following table provides information about contract assets:

 2024

 2023

 Contract acquisition costs, current

 $

 $

 Contract acquisition costs, long-term

 —

 Total

 $

 $

 The 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.

 The following table provides information about contract liabilities:

 2024

 2023

 Deferred revenue, current

 $
 4,020

 $
 5,853

 Deferred revenue, long-term

 Total

 $
 4,022

 $
 5,860

 The Company recognized $ 5,725 of revenue during the year ended December 31, 2024 that was included in the contract liability balance as of December 31, 2023.

 The aggregate amount of the transaction prices from contractual obligations that are unsatisfied or partially unsatisfied was $ 25,215 and $ 31,798, as of December 31, 2024 and 2023, respectively. As of December 31, 2024, the Company expects $ 20,171 of the $ 25,215 to be recognized as revenue during 2025.

 F-

 ( 4) Segment Information

 Significant Segment Expenses

 The 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.

 The following table illustrates reported segment revenue, segment profit and loss, and significant segment expenses.

 2024

 2023

 $
 22,418

 $
 18,973

 16,000

 15,878

 Total revenue

 Cost of revenue:

 2,959

 2,975

 6,628

 7,252

 4,592

 4,459

 Total cost of revenue

 14,179

 14,686

 Operating expenses

 Cash compensation

 38,997

 40,471

 9,323

 10,032

 Professional services and consultants

 7,757

 7,303

 Software and hardware

 3,538

 3,581

 Depreciation and amortization

 2,104

 2,582

 —

 Other segment items (2)

 3,827

 4,153

 Total operating expenses

 65,546

 68,372

 Operating loss

 ( 41,307
)

 ( 48,207
)

 2,341

 2,452

 ( 44
)

 ( 204
)

 $
)

 $
)

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

 ( 2)

 Other segment items include training and travel expenses, recruiting expenses, rent and facility expenses, bad debt expenses and other miscellaneous costs.

 Geographic Information

 The Company markets its products in the U.S. and in non-U.S. countries through its sales personnel and partners. Revenue by geographic area, based upon the "bill-to" location, was as follows:

 2024

 2023

 Domestic

 $
 10,195

 $
 11,380

 International (1)

 28,223

 23,471

 Total

 $

 $

 ( 1)

 Revenue from the Central Banks is classified as international revenue. Reporting revenue by country for this customer is not practicable.

 Major Customers

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

 2024

 2023

 Customer A

 %

 %

 Customer B

 %

 *

 Customer C

 %

 %

 F-

 Long-lived tangible assets by geographical area

 Long-lived tangible assets by geographic area were as follows:

 2024

 2023

 United States

 $
 1,026

 $
 1,535

 Europe

 Total

 $
 1,040

 $
 1,570

 ( 5) Stock-Based Compensation

 Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include restricted stock awards, restricted stock units, and performance restricted stock units.

 Stock-based compensation expense related to internal labor is capitalized to software and patent costs based on direct labor hours charged to capitalized software and patent costs.

 Determining Fair Value

 Restricted Stock Awards

 The fair value of restricted stock awards ("RSA") 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.

 Restricted Stock Units

 The fair value of restricted stock unit ("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.

 Performance Restricted Stock Units

 The fair value of performance restricted stock unit ("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 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.

 The fair value of performance restricted stock units 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.

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

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

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

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

 Monte Carlo Valuation Inputs:

 2024

 2023

 Stock price

 $
 36.64

 $
 22.37

 Expected volatility

 66.3
 %

 74.7
 %

 Risk-free interest rate

 4.3
 %

 4.3
 %

 F-

 Stock-based Compensation

 2024

 2023

 Stock-based compensation:

 Cost of revenue

 $

 $
 1,126

 2,788

 2,640

 2,522

 2,962

 4,013

 4,430

 Stock-based compensation expense

 10,029

 11,158

 Capitalized to software and patent costs

 Total stock-based compensation

 $
 10,059

 $
 11,221

 The following table sets forth total unrecognized compensation costs related to non-vested stock-based awards granted under the Company's stock incentive plans:

 2024

 2023

 Total unrecognized compensation costs

 $
 16,226

 $
 15,370

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

 The Company expects to recognize the total unrecognized compensation costs as of December 31, 2024 for all non-vested stock-based awards over weighted average periods through December 31, 2028 as follows:

 RSAs

 RSUs

 PRSUs

 Weighted average period (in years)

 1.01

 1.33

 1.32

 As of December 31, 2024, under the Company's stock incentive plan, an additional 1,274 shares r emained available for future grants.

 The Company issues new shares upon grants of RSAs and vesting of RSU and PRSU awards.

 Restricted Stock Awards Activity

 The following table presents the unvested balance of RSA activity:

 Weighted

 Average

 Number of

 Grant Date

 Shares

 Fair Value

 Unvested balance, December 31, 2022

 $
 32.06

 $
 22.10

 ( 130
)

 $
 30.18

 ( 6
)

 $
 34.89

 Unvested balance, December 31, 2023

 $
 29.89

 $
 28.37

 ( 84
)

 $
 29.20

 ( 7
)

 $
 27.57

 Unvested balance, December 31, 2024

 $
 29.98

 The fair value of RSAs vested is as follows:

 2024

 2023

 Fair value of RSAs vested

 $
 2,234

 $
 3,273

 F-

 Restricted Stock Units Activity

 The following table presents the unvested balance of RSU awards activity:

 Weighted

 Average

 Number of

 Grant Date

 Units

 Fair Value

 Unvested balance, December 31, 2022

 $
 24.77

 $
 23.20

 ( 161
)

 $
 24.46

 ( 65
)

 $
 25.17

 Unvested balance, December 31, 2023

 $
 23.77

 $
 35.29

 ( 197
)

 $
 26.86

 ( 67
)

 $
 26.58

 Unvested balance, December 31, 2024

 $
 28.27

 The fair value of RSU awards vested is as follows:

 2024

 2023

 Fair value of RSU awards vested

 $
 5,747

 $
 4,893

 Performance Restricted Stock Units Activity

 The following table presents the unvested balance of PRSU awards activity:

 Weighted

 Average

 Number of

 Grant Date

 Units

 Fair Value

 Unvested balance, December 31, 2021

 —

 $
 —

 $
 31.93

 —

 $
 —

 ( 6
)

 $
 32.02

 Unvested balance, December 31, 2022

 $
 31.92

 Change in units based on performance expectations

 ( 6
)

 $
 32.02

 $
 27.75

 ( 2
)

 $
 32.02

 ( 1
)

 $
 32.02

 Unvested balance, December 31, 2023

 $
 29.01

 Change in units based on performance expectations

 $
 22.37

 $
 36.77

 ( 60
)

 $
 22.37

 ( 20
)

 $
 34.17

 Unvested balance, December 31, 2024

 $
 32.08

 The fair value of PRSU awards vested is as follows:

 2024

 2023

 Fair value of PRSU awards vested

 $
 2,370

 $

 ( 6) Earnings Per Share

 The Company calculates basic and diluted earnings per share in accordance with ASC 260 " Earnings Per Share," using the treasury stock method.

 Basic earnings per share excludes dilution and is calculated by dividing earnings by the weighted-average number of shares outstanding for the period. Diluted earnings per share is calculated by dividing earnings by the weighted-average number of shares, as adjusted for the potentially dilutive effect of unvested RSUs and PRSUs. The dilutive effect of unvested RSUs and PRSUs is determined using the treasury stock method. RSAs are included in shares outstanding on the date of grant.

 F-

 The following table reconciles earnings (loss) per share:

 2024

 2023

 Basic Earnings (Loss) per Share:

 Net loss — basic

 $
)

 $
)

 Weighted average shares outstanding — basic

 21,261

 20,322

 Basic loss per share

 $
 ( 1.83
)

 $
 ( 2.26
)

 Diluted Earnings (Loss) per Share:

 Net loss — diluted

 $
)

 $
)

 Weighted average shares outstanding — diluted

 21,261

 20,322

 Diluted loss per share

 $
 ( 1.83
)

 $
 ( 2.26
)

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

 2024

 2023

 Anti-dilutive shares due to net loss

 ( 7) Trade Accounts Receivable

 Trade Accounts Receivable

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

 2024

 2023

 Trade accounts receivable, current

 $
 6,563

 $
 5,947

 Trade accounts receivable, long-term

 Allowance for doubtful accounts

 ( 151
)

 ( 134
)

 Trade accounts receivable, net

 $
 6,492

 $
 5,822

 Unpaid deferred revenue included in trade accounts receivable

 $
 2,590

 $
 2,073

 Allowance for Doubtful Accounts

 The 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 lossmodel, 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, 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.

 Unpaid Deferred Revenue

 The unpaid deferred revenue that is included in trade accounts receivable is billed in accordance with the provisions of the contracts with the Company's customers.

 Major Customers

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

 2024

 2023

 Company A

 %

 %

 Company B

 %

 *

 Company C

 *

 %

 *

 Less than 10%

 F-

 ( 8) Property and Equipment

 Property and equipment are stated at cost. Repairs and maintenance are charged to expense when incurred.

 Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, generally two to ten years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the lease term.

 2024

 2023

 Office furniture and fixtures

 $

 $
 1,435

 Software

 5,476

 5,497

 Equipment

 2,566

 2,472

 Leasehold improvements

 1,861

 Gross property and equipment

 8,308

 11,265

 Less accumulated depreciation

 ( 7,268
)

 ( 9,695
)

 Property and equipment, net

 $
 1,040

 $
 1,570

 ( 9) Goodwill

 Balance at December 31, 2022

 $
 8,229

 Currency translation adjustments

 Balance at December 31, 2023

 $
 8,641

 Currency translation adjustments

 ( 109
)

 Balance at December 31, 2024

 $
 8,532

 ( 10) Intangibles

 Amortization of intangible assets acquired is calculated using the straight-line method over the estimated useful lives of the assets.

 Estimated Life

 (years)

 2024

 2023

 Capitalized patent costs

 ~17

 $
 9,174

 $
 9,231

 Intangible assets acquired:

 Purchased intellectual property

 Developed technology

 22,504

 22,836

 Customer relationships

 10,754

 10,913

 Gross intangible assets

 42,682

 43,230

 Accumulated amortization

 ( 20,491
)

 ( 14,772
)

 Intangibles, net

 $
 22,191

 $
 28,458

 The 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.

 Amortization expense on intangible assets was as follows:

 2024

 2023

 Amortization expense

 $
 6,233

 $
 6,097

 F-

 For intangible assets recorded at December 31, 2024, the estimated future aggregate amortization expense for the years ending December 31, 2025 through December 31, 2029 is as follows:

 Amortization

 As of December 31, 2024

 Expense

 2025

 $
 6,099

 2026

 6,068

 2027

 1,536

 2028

 1,525

 2029

 1,495

 ( 11) Leases

 The Company accounts for leases in accordance with ASC 842, " Leases. "

 The Company entered into a sublease agreement and lease extension agreement for office space in Beaverton, Oregon in
 February 2022 to move the Company's corporate headquarters. The term of the sublease and lease extension runs through
 September 2030. The remaining rent payments as of
 December 31, 2024 were
 $ 7,796 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.

 The lease term of the Company's former corporate headquarters in Beaverton, Oregon ended in March 2024, with no remaining rent payments as of December 31, 2024. The Company stopped using this office space as its corporate headquarters in March 2022.

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

 2024

 2023

 Lease right of use assets

 $
 3,659

 $
 4,017

 Lease liabilities, current

 $

 $

 Lease liabilities, long-term

 $
 5,213

 $
 5,994

 Weighted-average remaining life (in years)

 5.7

 6.5

 Weighted-average discount rate

 %

 %

 The current lease liabilities are included in "accounts payable and other accrued liabilities" in the Consolidated Balance Sheets.

 The 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 was recorded for the twelve months ended December 31, 2024. An "impairment of lease right of use assets and leasehold improvements" of $ 250 was recorded in the Consolidated Statements of Operations for the twelve months ended December 31, 2023, related to the Company's former corporate headquarters. The impairment charge was determined by comparing the carrying value of the assets to the net present value of estimated cash flows from the future sublease of the office space over the remaining lease term.

 Operating lease expense is included in "operating expenses" in the Consolidated Statements of Operations and in "cash flows from operating activities" in the Consolidated Statements of Cash Flows. The operating leases include variable lease payments, which are included in operating lease expense. Additional details of the Company's operating leases are presented in the following table:

 2024

 2023

 Operating lease expense

 $
 1,482

 $
 1,556

 Cash paid for operating leases

 $
 1,663

 $
 1,151

 F-

 The 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 Sheet as of December 31, 2024:

 Cash

 Payment

 As of December 31, 2024

 Obligations

 2025

 $
 1,317

 2026

 1,356

 2027

 1,397

 2028

 1,296

 2029

 1,389

 Thereafter

 1,066

 Total lease payments

 7,821

 Imputed interest

 ( 1,827
)

 Total minimum lease payments

 $
 5,994

 ( 12) Shareholders ' Equity

 Preferred Stock

 In June 2008, the Board of Directors authorized 2,500 shares of preferred stock, par value $ 0.001 per share. The Board of Directors has the authority to issue the undesignated preferred stock in one or more series and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued series of undesignated preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by the shareholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control of the Company without further action by shareholders and may adversely affect the voting and other rights of the holders of common stock.

 The Board of Directors authorized 10 shares of Series A Redeemable Nonvoting Preferred stock ("Series A Preferred") that were issued to certain executive officers at the time of formation. The Series A Preferred has no voting rights, except as required by law, and may be redeemed at the option of the Company's Board of Directors at any time.

 The Series A Preferred is redeemable based on the stated fair value of $ 5.00 per share. The Series A Preferred has no dividend rights and no rights to the undistributed earnings of the Company.

 Common Stock

 In June 2008, the Board of Directors authorized 50,000 shares of common stock, par value $ 0.001 per share. The holders of Digimarc common stock are entitled to one vote for each share held of record on all matters submitted to a vote of its shareholders, including the election of directors. Subject to preferences that may be granted to any then outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends as may be declared by the Board of Directors out of funds legally available for such purpose, as well as any distributions to the Company's shareholders. In the event of the Company's liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all of the Company's assets remaining after payment of liabilities and the liquidation preference of any then outstanding preferred stock. Holders of common stock have no preemptive or other subscription or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and non-assessable.

 F-

 Registered Direct Offering

 On February 24, 2024, the Company entered into purchase agreements with certain investors providing for the issuance and sale by the Company of 929 common shares in a registered direct stock offering. The common shares were offered at a price of $ 35.00 per share, and the gross cash proceeds to the Company were $ 32,500. The Company incurred $ 282 of legal costs related to the offering. The closing of the registered direct offering occurred on February 27, 2024.

 Stock Incentive Plan

 In
 March 2018, the Company's Board of Directors approved the
 2018 Incentive Plan (
 "2018 Plan") which was later approved by the Company's shareholders at the Company's
 2018 Annual Meeting of Shareholders in
 April 2018. The
 2018 Plan replaced the
 2008 Incentive Plan (
 "2008 Plan"). The
 2018 Plan provides for the grant of incentive and, stock appreciation rights, stock awards, restricted stock awards, restricted stock units, performance shares, performance units, and other stock or cash-based awards, which
 may be granted to officers, directors, employees, consultants, agents, advisors and independent contractors who provide services to the Company and its affiliated companies.

 In
 May 2023, the
 2018 Plan was modified as approved by the Company's shareholders at the Company's
 2023 Annual Meeting of Shareholders. The amendment added
 1,200 shares to the pool of shares authorized for issuance.

 The
 2018 Plan authorizes the issuance of
 2,200 shares of common stock. In addition, up to
 770 shares of common stock subject to awards outstanding under the
 2008 Plan became available for issuance under
 2018 Plan to the extent that those shares cease to be subject to the awards (as a result of, for example, expiration, cancellation or forfeiture of the award). The shares authorized under the
 2018 Plan are subject to adjustment in the event of a stock split, stock dividend, recapitalization or similar event. Shares issued under the
 2018 Plan will consist of authorized and unissued shares or shares held by the Company as treasury shares. If an award granted under the
 2018 Plan lapses, expires, terminates or is forfeited or surrendered without having been fully exercised or without the issuance of all the shares subject to the award, the shares covered by that award will again be available for issuance under the
 2018 Plan. Shares that are (i) tendered by a participant or retained by the Company as payment for the purchase price of an award or to satisfy tax withholding obligations or (ii) covered by an award that is settled in cash, or in some manner that some or all of the shares covered by the award are
 not issued, will again be available for issuance under the
 2018 Plan. In addition, awards granted as substitute awards in connection with acquisition transactions will
 not reduce the number of shares authorized for issuance under the
 2018 Plan.

 ( 13) Defined Contribution Plan

 The Company sponsors an employee retirement savings plan (the "Plan") which qualifies as a deferred salary arrangement under Section 401 (k) of the Internal Revenue Code. The Plan combines both an employee savings plan and company matching plan into one plan under Section 401 (k), including a 401 (k) Roth option. Employees become eligible to participate in the Plan at the beginning of the month following the employee's hire date. Employees may contribute up to 75 % of their pay to the Plan, subject to the limitations of the Internal Revenue Service Code.

 The Company made matching contributions in the aggregate amount as follows:

 2024

 2023

 Matching contributions

 $
 1,234

 $
 1,217

 ( 14) Other Income

 The following table provides information about other income, net:

 2024

 2023

 Interest income

 $
 1,818

 $
 1,680

 Refundable tax credit

 Foreign currency gains (losses)

 ( 27
)

 Other income (loss)

 —

 ( 8
)

 Total other income, net

 $
 2,341

 $
 2,452

 ( 15) Income Taxes

 The provision for income taxes reflects current taxes and deferred taxes. The effective tax rate for each of the years ended December 31, 2024 and 2023 was 0 %. 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.

 F-

 Components of loss before income taxes are as follows:

 2024

 2023

 Domestic

 $
 ( 27,044
)

 $
 ( 35,039
)

 International

 ( 11,922
)

 ( 10,716
)

 Loss before income taxes

 $
 ( 38,966
)

 $
 ( 45,755
)

 Components of the provision (benefit) for income taxes allocated to continuing operations include the following:

 2024

 2023

 Current:

 Federal

 $

 $
 ( 141
)

 State

 ( 13
)

 ( 9
)

 Foreign

 ( 36
)

 ( 37
)

 Sub-total

 $
 ( 44
)

 $
 ( 187
)

 Deferred:

 Federal

 $
 —

 $
 ( 17
)

 State

 —

 —

 Foreign

 —

 —

 Sub-total

 $
 —

 $
 ( 17
)

 Total

 $
 ( 44
)

 $
 ( 204
)

 The reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:

 Year Ended

 Year Ended

 2024

 %

 2023

 %

 Income taxes computed at statutory rates

 $
 8,183

 ( 21
)%

 $
 9,609

 ( 21
)%

 (Increases) decreases resulting from:

 Change in valuation allowance

 ( 9,319
)

 %

 ( 11,716
)

 %

 NOL surrendered for refundable tax credit

 ( 1,355
)

 %

 ( 1,607
)

 %

 Foreign research deductions and credits

 ( 2
)%

 ( 2
)%

 Federal and state research and experimentation credits

 1,288

 ( 3
)%

 1,412

 ( 3
)%

 State income taxes, net of federal tax benefit

 ( 139
)

 —
 %

 ( 1
)%

 Other

 ( 2
)%

 ( 3
)%

 Total

 $
 ( 44
)

 —
 %

 $
 ( 204
)

 —
 %

 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items comprising the Company's deferred tax assets and deferred tax liabilities are as follows:

 2024

 2023

 Deferred tax assets:

 Federal and state net operating losses

 $
 79,856

 $
 77,201

 Federal and state research and experimentation credits

 13,610

 12,406

 Research and experimental costs

 12,806

 9,458

 Stock based compensation

 1,822

 1,474

 ASC 842 - lease liabilities

 1,303

 1,468

 Accrued compensation

 Fixed asset differences

 Intangible asset differences

 —

 Other

 Total gross deferred tax assets

 110,180

 102,861

 Less valuation allowance

 ( 104,361
)

 ( 95,256
)

 Net deferred tax assets

 $
 5,819

 $
 7,605

 Deferred tax liabilities:

 Patent expenditures

 $
 ( 888
)

 $
 ( 1,096
)

 ASC 842 - right of use assets

 ( 795
)

 ( 897
)

 Fixed asset differences

 ( 4
)

 ( 9
)

 Intangible asset differences

 ( 4,132
)

 ( 5,603
)

 Total gross deferred tax liabilities

 $
 ( 5,819
)

 $
 ( 7,605
)

 Total net deferred tax assets and liabilities

 $
 —

 $
 —

 F-

 The Company had a valuation allowance of $ 104,361 and $ 95,256 on deferred tax assets as of December 31, 2024 and 2023, respectively, an increase of $ 9,105 during the year ended December 31, 2024.

 As of December 31, 2024, the Company has federal, state, and foreign net operating loss carryfo rwards of $ 257,535, $ 173,657, and $ 70,922 respectively, which have a carryforward of 5 years to indefinite depending on the jurisdiction.

 As of December 31, 2024, the Company has federal research and experimental tax credits of $ 14,746, which have a carryforward of 20 years.

 A summary reconciliation of the Company's uncertain tax positions is as follows:

 2024

 2023

 Beginning balance

 $
 1,063

 $
 1,046

 Addition for current year tax positions

 Addition for prior year tax positions

 —

 —

 Reduction for prior year positions

 ( 11
)

 ( 77
)

 Reduction for prior year positions resolved during the current year

 —

 —

 Ending balance

 $
 1,137

 $
 1,063

 As of December 31, 2024, the total unrecognized tax benefits, if recognized, would not materially affect the Company's effective tax rate.

 The Company records accrued interest and penalties associated with uncertain tax positions in the "provision for income taxes" in the Consolidated Statements of Operations. For the years ended December 31, 2024 and 2023, the Company recognized accrued interest and penalties associated with uncertain tax positions of $ 0 and $ 0, respectively. The Company does not anticipate any of its unrecognized benefits will significantly increase or decrease within the next 12 months.

 The Company's open tax years subject to examination in the U.S. federal jurisdiction are 2021 through 2023, in applicable state jurisdictions for the tax years 2021 through 2023, and in applicable foreign jurisdictions for tax year 2023. To the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or tax credit carryforward.

 ( 16) Commitments and Contingencies

 Certain 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 450. To date, there have been no claims made under such indemnification provisions.

 The Company is subject from time to time to other legal proceedings and claims arising in the ordinary course of business. At this time, the Company does not believe that the resolution of any such matters will have a material adverse effect on its financial position, results of operations or cash flows.

 ( 17) Subsequent Events

 On February 26, 2025, the Company announced a reorganization, which could impact our workforce by up to 90 employees. The reorganization is expected to reduce the Company's cash expenses by approximately $ 16,500 on an annualized basis. The Company expects to incur approximately $ 3,000 in one -time reorganization costs in the first quarter of 2025.