** **

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K/A**

**(Amendment No. 1)**

 

**(Mark One)**

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

 

**For the fiscal yearended December 31, 2004**

** **

**OR**

** **

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

 

**For the transitionperiod from             to             **

 

**Commission File Number000-28317**

 

**DIGIMARCCORPORATION**

(Exactname of registrant as specified in its charter)

 
| **Delaware**                                                     | ** ** | **94 3342784**                         |
|------------------------------------------------------------------|------------|----------------------------------------|
| (State  or other jurisdiction of  incorporation or organization) |       | (I.R.S.  Employer  Identification No.) |
|                                                             |       |                                   |
| **9405 SW Gemini Drive,  Beaverton, Oregon**                     | ** ** | **97008**                              |
| (Address  of principal executive offices)                        |       | (Zip  Code)                            |

 

**(503) 469-4800**

(Registrant’stelephone number, including area code)

 

Securitiesregistered pursuant to Section 12(b) of the Act:

**NONE**

 

Securitiesregistered pursuant to Section 12(g) of the Act:

**Common Stock, $0.001 parvalue**

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes  ý  No  o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. ý

 

Indicateby check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Act). Yes  ý  No  o

 

Theaggregate market value of common stock, par value $0.001 per share, held bynon-affiliates of the registrant, based on the closing price for the commonstock on The Nasdaq National Market on the last business day of the registrant’smost recently completed fiscal second quarter (June 30, 2004), wasapproximately $265 million. Shares of common stock beneficially held byeach officer and director have been excluded from this computation in that suchpersons may be deemed to be affiliates. This determination of affiliate statusis not necessarily a conclusive determination for any other purposes.

 

Asof March 31, 2005, there were 20,723,429 shares of the registrant’s commonstock outstanding.

 

**DocumentsIncorporated by Reference**

 

None.

 

 

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**ExplanatoryNote**

 

DigimarcCorporation is filing this Amendment No. 1 to Form 10-K toamend its Form 10-K for the year ended December 31, 2004, filedwith the Securities and Exchange Commission on April 7, 2005 (the “OriginalFiling”), in order to amend Item 9A, “Controls and Procedures”.

 

Management’sreport on internal controls over financial reporting, the related attestationreport of the Company’s independent registered public accounting firm and arevised report of the Independent Registered Public Accounting Firm, dated May27, 2005, on the Consolidated Financial Statements as of December 31, 2004and 2003 and for each of the years in the three-year-period ended December 31,2004 are included in this Amendment No. 1 in Item 9A.

 

Asa result of this Amendment No. 1, an additional Consent of IndependentRegistered Public Accounting Firm dated June 1, 2005 is being filed to coverthe reports related to our internal control over financial reporting andConsolidated Financial Statements included herein.

 

Exceptfor the matters disclosed in Item 9A and Exhibits 23.1, 31.1 and 31.2, whichare filed herewith pursuant to the requirements of Rule 12b-15 underthe Securities Exchange Act of 1934, this Amendment No. 1 to Form 10-Kcontinues to speak as of the date of the Original Filing and does not modify,amend or update in any way the financial statements or any other item ordisclosures in the Original Filing.

 

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**Tableof Contents**

 
| **PART II** |                                        |
|------------------|---------------------------------------------|
| Item 9A.         | Controls and  Procedures                    |   |
| **PART IV** |                                        |
| Item 15.         | Exhibits and  Financial Statement Schedules |   |
| SIGNATURES       |                                        |

 

i

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**ITEM9A**:   CONTROLS AND PROCEDURES

 

Weidentified during the third quarter of 2004 certain errors in the accountingfor software development costs and project capitalization at DIDS, and wepostponed the release of our financial results for the quarter ended September 30,2004 pending the completion of our review of these accounting errors. Weidentified these errors as a result of our review of our accounting and ourreview of our internal control over financial reporting in preparation forcompliance with Section 404 of the Sarbanes-Oxley Act of 2002 and itsimplementing regulations. This review involved a detailed analysis anddocumentation of the processes that impact the preparation of our financialstatements, an assessment of the risks that could adversely affect the accurateand timely preparation of those financial statements and the identification ofthe controls that are in place to mitigate the risks of untimely or inaccuratepreparation of those financial statements. During the course of our review, wedetermined that certain prior period financial statements required restatement.As a result, the Original Filing included restated consolidated financialstatements as of and for (1) the fiscal year ended December 31, 2003,including each of the quarterly periods in the fiscal year ended December 31,2003, and (2) the quarterly periods ended March 31, 2004 and June 30,2004.

 

The certifications of our principal executiveofficer and the principal financial officer required in accordance with Section 302of the Sarbanes-Oxley Act of 2002 are attached as exhibits to this Form 10-K/A.The disclosures set forth in this Item 9A contain information concerning theevaluation of our disclosure controls and procedures, and changes in internalcontrol over financial reporting, referred to in paragraph 4 of thecertifications. This Item 9A should be read in conjunction with the officercertifications for a more complete understanding of the topics presented.

 

**(1)  Management’s Report on InternalControl Over Financial Reporting**

** **

Our management is responsible for establishingand maintaining adequate internal control over financial reporting as definedin Rules 13a-15(f) and 15d-15(f) under theSecurities Exchange Act of1934.  Our internal control overfinancial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with U.S. generallyaccepted accounting principles (“U.S. GAAP”). Our internal control over financial reporting includes those policiesand procedures that:

 

•  Pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of our assets;

 

•  Provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements inaccordance with U.S. GAAP, and that receipts and expenditures are being madeonly in accordance with authorizations from our management and directors; and

 

•  Provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use or disposition of our assetsthat could have a material effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.

 

With the participation of our principalexecutive officer and our principal financial officer, our management conductedan evaluation of the effectiveness of our internal control over financial reporting based on the framework established in *Internal Control-Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, our management hasconcluded that our internal control over financial reporting was not effectiveas of December 31, 2004, due to the material weaknesses in interim andannual financial reporting described as follows.

 

1

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The Public Company Accounting Oversight Board (“PCAOB”)has defined “material weakness” as “a significant deficiency, or combination ofsignificant deficiencies, that results in more than a remote likelihood that a material misstatementof the annual or interim financial statements will not be prevented or detected.”

 

Inconnection with our restatement, we identified and reported to our auditcommittee the following areas for improvement in our internal control overfinancial reporting. These matters constitute “material weaknesses” as definedunder standards established by the PCAOB.

 

•  *Inadequate supervision and technical accounting expertise within theaccounting and finance department.  *There wasnot adequate supervision and technical accounting expertise within ouraccounting and finance department. The personnel resources and technicalaccounting expertise in the accounting and finance department were notsufficient to adequately resolve non-routine matters or complex accountingprocesses, such as those matters and processes relating to the recording of softwarecapitalization, standard costing, and revenue recognition in accordance withU.S. GAAP.

 

•  *Inadequate design andimplementation of new accounting system.  *The newaccounting system we began to implement in the second quarter of 2002, andwhich was placed in service during the fourth quarter of 2003, was not designedor implemented properly. There was a lack of accounting expertise within ouraccounting and finance department and, as a result, our internally developedguidelines were not properly implemented during the setup and configuration ofthe new accounting system. Implementation of the new accounting system also wasflawed because some of our accounting, finance and operations employees werenot properly trained in the use of the new accounting system. In addition, thenew and old accounting systems were not operated in parallel prior to theCompany’s reliance on the new system. These implementation issues resulted inerrors with respect to accounting for fixed assets and inventory, including theduplicate recording of purchases, the capitalization of assets that should havebeen expensed and the expensing of assets that should have been capitalized.

 

•  *Inadequate quarterly and year-end financial statement close and reviewprocess.  *For each quarterly and fiscal year-endperiod, a financial statement close and review process occurs. Our staffing forthe quarterly and year-end financial statement close process was notsufficient, and in some instances, we failed to have adequate management reviewand supervision over the financial statement close and review process,including timely reconciliation of inventory, tax and accounts payable accountsto ensure our financial statements were prepared in accordance with U.S. GAAP.  Where there was a review process,documentation of approvals was not always evident.

 

•  *Insufficient controls both fordetermining the nature and types of costs that should be capitalized and forensuring allocation of costs to particular projects are appropriate.*   Controlsfor determining the nature and types of costs that should be capitalized inaccordance with U.S. GAAP, and for ensuring that costs were allocated toappropriate projects, were inadequate, which affected our accounting for fixedasset accounts and research and development expense. We lacked adequate personnelwith sufficient expertise in complex software capitalization and projectaccounting rules under U.S. GAAP and there was not a clearunderstanding regarding the application of our internal policies in theseareas. Some of our employees who performed accounting functions were notadequately trained and supervised, and there were deficiencies in communicationbetween functional departments within the Company. Such controls also wereinsufficient because the documentary support for the historical capitalizationof certain software development costs and the system for tracking costs thatqualify for capitalization needed improvement, and the detective controlsrelated to the capitalization of internally developed software were notadequate.

 

•  *Insufficient controlsto ensure that various international, state and local tax exposures werequantified and properly accrued on a timely basis*.   Internalcontrols related to the quantification and accrual of international, state andlocal taxes incurred by the Company were insufficient. There was not sufficientstaff to properly quantify, accrue, and record such taxes on a timely basis inaccordance with U.S. GAAP.

 

2

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This affected our incometax payable and income tax expense accounts, as well as sales, use, andproperty tax expense and accrual accounts.

 

•  *Insufficient training andinadequate reconciliation processes for complex revenue recognitionrequirements primarily related to international transactions.*   Trainingand reconciliation processes related to complex revenue recognitionrequirements regarding distributor discounts, partial deliveries of goods andthe acceptance criteria for shipped goods were insufficient to ensure thesetransactions were recorded in accordance with U.S. GAAP. This affected ourrevenue and our deferred revenue accounts.

 

•  *Insufficient controlsrelated to system access and segregation of duties.  *The Companydid not maintain adequate segregation of duties among employees. Users of ournew accounting system had access to multiple accounting processes within thesystem, including vendor set-up and account maintenance, instead of only thoseprocesses that were the responsibility of such user. In the absence of suchcontrols, inappropriate or unauthorized transactions could be entered into thesystem which increases susceptibility to the misappropriation of assets.

 

•  *Inadequacies related toentity-level controls.*   There weredeficiencies in the design and execution of our entity-level controls relatingto training, job descriptions, managing of employee turnover, application ofU.S. GAAP, documentation of expenditure approvals, and communication betweendepartments. These deficiencies contributed to the restatement of ourpreviously issued financial statements as discussed herein, delays incompliance efforts with Section 404 of the Sarbanes-Oxley Act of 2002 andthe rules issued thereunder, and the delayed filing of our Form 10-Kfor the year ended December 31, 2004.

 

KPMGLLP has issued an attestation report on management’s assessment of our internalcontrol over financial reporting.  Thisreport appears below.

 

**(2) Remediation Activities**

** **

Digimarcplaces the highest priority on addressing these matters. Under the direction ofour senior management and the participation and oversight of our auditcommittee, we have implemented significant changes to our infrastructure andrelated processes over the past nine months, and continue to address thesematters and will make changes as appropriate. The numbers set forth oppositeeach identified area for improvement in the chart below correspond to thenumbered descriptions of the changes we have implemented, or are in the processof implementing, to improve such areas of our internal controls which appearimmediately following the chart.

 
| **Identified Areas for Improvement in Internal Controls**                                                                                                                     | ** ** | **Changes Implemented** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|
|                                                                                                                                                                          |       |                    |
| Inadequate  supervision and technical accounting expertise within the accounting and  finance department                                                                      |       | 1, 2, 3, 4,  8          |
|                                                                                                                                                                          |       |                    |
| Inadequate  design and implementation of new accounting systems                                                                                                               |       | 1, 2, 3, 4,  6, 9       |
|                                                                                                                                                                          |       |                    |
| Inadequate  quarterly and year-end financial statement close and review process                                                                                               |       | 1, 2, 3, 4,  5, 6, 7, 8 |
|                                                                                                                                                                          |       |                    |
| Insufficient  controls for determining the nature and types of costs that should be  capitalized and for ensuring allocation of costs to particular projects are  appropriate |       | 1, 2, 3, 4,  8          |
|                                                                                                                                                                          |       |                    |
| Insufficient  controls to ensure that various international, state and local tax exposures  were quantified and accrued on a timely basis                                     |       | 1, 2, 4, 7              |
|                                                                                                                                                                          |       |                    |
| Insufficient  training and inadequate reconciliation processes for complex revenue  recognition requirements primarily  related to international transactions                 |       | 1, 2, 4, 7              |
|                                                                                                                                                                          |       |                    |
| Insufficient  controls related to system access and segregation of duties                                                                                                     |       | 1, 2, 9                 |
|                                                                                                                                                                          |       |                    |
| Inadequacies  related to entity-level controls                                                                                                                                |       | 1, 2, 4, 5              |

 

3

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*Descriptionof Changes Implemented to Improve Internal Controls*

* *

1.      We hired a new Chief Financial Officer inJune 2004, a new President of DIDS in April 2005, and a number ofother personnel and consultants who have expertise in financial controls oraccounting, and we are actively recruiting other senior level members of thefinance and accounting organization, including adding a Director of Tax in May 2005,to improve the overall quality and level of experience in our finance andaccounting organization.

 

2.      We have made, and will continue to make,changes in our finance and accounting organization to provide clearersegregation of responsibilities and supervision with regard to, among others,documentation supporting our quarterly and annual financial statements.

 

3.      We have initiated additional training ofour management and other employees at DIDS regarding timekeeping practices andother best practices.

 

4.      We are implementing an enhanced quarterlyand annual financial statement close and review close process to includeadditional analysis and support for the financial accounts.

 

5.      We have deployed significant internal andexternal resources directed at documenting and testing our internal controlover financial reporting as contemplated by Section 404 of Sarbanes-Oxley,and such efforts have been helpful in improving our overall process and controlenvironment.

 

6.      We have strengthened our inventorymanagement and controls systems and procedures, including those governing theusability and disposition of slow-moving or excess inventories, by performingtimely physical inventory counts that reconcile to the general ledger,analyzing historical and expected usage levels, and reviewing manufacturingstandard costs.

 

7.      We have enhanced our review anddocumentation of accounting estimates. This includes changes in people,processes, and documentation in areas such as inventory reserves, allowance forbad debt, long-lived asset impairment analyses, estimated revenue amounts,estimated international taxes, and estimates related to percentage ofcompletion contracts.

 

8.      We have continued to implement steps,including changes to our processes and systems, to improve the information flowamong the various personnel that have a role in the determination of propercost capitalization as well as to improve the review and approval processrelating to such determination, and we are implementing processes to improvecommunication among our various functional groups, which include sales,manufacturing, customer support, engineering, accounting, and legal, during thecontract negotiation, implementation and fulfillment phases.

 

9.      We have established a staff position toimplement preventive control procedures related to system access and to monitorand control access to system modules in accordance with appropriate guidelinesin order to ensure safeguarding of assets, and are in the process ofimplementing such preventative controls at the system and procedural levels. Inaddition, we have implemented detective controls such as the enhanced review ofaccounting transactions and financial statements.

 

Wecontinue to take remedial steps to strengthen our internal controls and enhanceour reporting processes.  Additionally,our on-going accounting review has resulted in some, and may result in further,remediation efforts with respect to some of our accounting processes, inparticular with regard to cost capitalization and project accounting.

 

4

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**(3)  EvaluationProcess; Conclusion on Ineffectiveness of Disclosure Controls and Procedures atDecember 31, 2004**

 

Our current management, with the participationof our principal executive officer and principal financial officer, carried outa separate evaluation of the effectiveness of our disclosure controls andprocedures (as defined in Rules 240.13a-15(e) and 240.15d-15(e) ofthe Securities Exchange Act of 1934) as of December 31, 2004, whichincluded an evaluation of disclosure controls and procedures applicable to theperiod covered by the filing of this periodic report. As noted above, we haveidentified a number of areas for improvement in our internal controls andprocedures, as they existed as of December 31, 2004. Based on theevaluation of the effectiveness of our disclosure controls and procedures as ofDecember 31, 2004, and subject to the information set forth in this Item9A, our principal executive officer and principal financial officer haveconcluded that our disclosure controls and procedures were not effective basedon the matters described in this Item 9A. However, subsequent to December 31,2004, and up to the filing date of this report, we implemented a detailedreview and analysis of our accounting records, including a reconstruction ofcertain accounting records,****insupport of the financial statements contained herein utilizing consultants withexpertise in accounting under the direction of new financial management. Asinternal control issues have been identified, management has taken steps toremediate such matters. If additional internal control issues come to light, managementintends to address them promptly.

 

As described above, we currently are designingand implementing new controls to address the weaknesses identified in ourinternal controls and procedures. Notwithstanding these improvements, ourinternal controls and procedures may not be capable of preventing all instancesof error or fraud. Any control system, no matter how well conceived andoperated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Further, the design of a controlsystem must reflect the fact that there are knowledge and resource constraintsin any such system, and a large number of complex permutations of facts,circumstances, accounting policies, procedural implications and business practicesthat must be considered. Because of the inherent limitations in all controlsystems, no evaluation of controls can provide absolute assurance that allcontrol issues and instances of fraud, if any, have been detected. Theseinherent limitations include the realities that judgments in decision-makingcan be faulty, and breakdowns can occur because of simple error or mistake.Additionally, controls can be circumvented by the individual acts of somepersons, by collusion of two or more people, or by management override of thecontrols. The design of any system of controls also is based in part uponcertain assumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under all potentialfuture conditions. Over time, the control systems we develop may becomeinadequate because of changes in conditions, or the degree of compliance withthe policies or procedures may deteriorate. Because of the inherent limitationsin a cost-effective control system, misstatements due to error or fraud mayoccur and not be detected.

 

(4)  Changes to Internal Controls

 

Other than as described above, there have notbeen any changes in our internal control over financial reporting that occurredduring the Company’s fiscal quarter ended December 31, 2004 or since theevaluation date by our management of its internal controls that have materiallyaffected or are reasonably likely to materially affect our internal controlover financial reporting.

 

 
| By:    | /s/ Bruce Davis           |   |
|--------|---------------------------|--------|
|   | Bruce Davis               |
|   | *Chief Executive Officer* |
|   |                      |
|   |                      |
| By:    | /s/ Michael McConnell     |   |
|   | Michael McConnell         |
|   | *Chief Financial Officer* |

 

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**Report of Independent Registered Public Accounting Firm**

 

To the Board of Directors and Stockholders of

Digimarc Corporation:

 

We have audited management’s assessment,included in the accompanying Management’s Report on Internal Control overFinancial Reporting set forth in Item 9A(1), that Digimarc Corporation (the “Company”)did not maintain effective internal control over financial reporting as of December 31,2004, because of the effect of the material weaknesses identified in management’sassessment, based on criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).  The Company’s management is responsible formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financialreporting.  Our responsibility is toexpress an opinion on management’s assessment and an opinion on theeffectiveness of the Company’s internal control over financial reporting basedon our audit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects.  Our audit includedobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances.  We believe that our audit provides areasonable basis for our opinion.

 

A company’s internal control over financialreporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples.  A company’s internal controlover financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. The following material weaknesses have been identified and included inmanagement’s assessment as of December 31, 2004:

 

•  *Inadequate supervision and technical accounting expertise within theaccounting and finance department.**  *There wasnot adequate supervision and technical accounting expertise within the Company’saccounting and finance department. The personnel resources and technicalaccounting expertise in the accounting and finance department were notsufficient to adequately resolve non-routine matters or complex accountingprocesses, such as those matters and processes relating to the recording ofsoftware capitalization, standard costing, and revenue recognition inaccordance with U.S. generally accepted accounting principles (U.S. GAAP).

 

•  *Inadequate design andimplementation of new accounting system.**  *The newaccounting system the Company began to implement in the second quarter of 2002,and which was placed in service during the

 

6

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fourth quarter of 2003,was not designed or implemented properly. There was a lack of accountingexpertise within the Company’s accounting and finance department and, as aresult, the Company’s internally developed guidelines were not properlyimplemented during the setup and configuration of the new accounting system.Implementation of the new accounting system also was flawed because some of theCompany’s accounting, finance and operations employees were not properlytrained in the use of the new accounting system. In addition, the new and oldaccounting systems were not operated in parallel prior to the Company’sreliance on the new system. These implementation issues resulted in errors withrespect to accounting for fixed assets and inventory, including the duplicaterecording of purchases, the capitalization of assets that should have beenexpensed and the expensing of assets that should have been capitalized.

 

•  *Inadequate quarterly and year-end financial statement close and reviewprocess.**  *For each quarterly and fiscal year-endperiod, a financial statement close and review process occurs. The Company’sstaffing for the quarterly and year-end financial statement close process wasnot sufficient, and in some instances, the Company failed to have adequatemanagement review and supervision over the financial statement close and reviewprocess, including timely reconciliation of inventory, tax and accounts payableaccounts to ensure the Company’s financial statements were prepared inaccordance with U.S. GAAP.  Where therewas a review process, documentation of approvals was not always evident.

 

•  *Insufficient controls both fordetermining the nature and types of costs that should be capitalized and forensuring allocation of costs to particular projects are appropriate.*   Controls fordetermining the nature and types of costs that should be capitalized inaccordance with U.S. GAAP, and for ensuring that costs were allocated toappropriate projects, were inadequate, which affected the Company’s accountingfor fixed asset accounts and research and development expense. The Companylacked adequate personnel with sufficient expertise in complex softwarecapitalization and project accounting rules under U.S. GAAP and therewas not a clear understanding regarding the application of the Company’sinternal policies in these areas. Some of the Company’s employees who performedaccounting functions were not adequately trained and supervised, and there weredeficiencies in communication between functional departments within theCompany. Such controls also were insufficient because the documentary supportfor the historical capitalization of certain software development costs and thesystem for tracking costs that qualify for capitalization needed improvement, andthe detective controls related to the capitalization of internally developedsoftware were not adequate.

 

•  *Insufficient controlsto ensure that various international, state and local tax exposures werequantified and properly accrued on a timely basis*.   Internalcontrols related to the quantification and accrual of international, state andlocal taxes incurred by the Company were insufficient. There was not sufficientstaff to properly quantify, accrue, and record such taxes on a timely basis inaccordance with U.S. GAAP. This affected the Company’s income tax payable andincome tax expense accounts, as well as sales, use and property tax expense andaccrual accounts.

 

•  *Insufficient training andinadequate reconciliation processes for complex revenue recognitionrequirements primarily related to international transactions.*   Training andreconciliation processes related to complex revenue recognition requirementsregarding distributor discounts, partial deliveries of goods and the acceptancecriteria for shipped goods were insufficient to ensure these transactions wererecorded in accordance with U.S. GAAP. This affected the Company’s revenue andthe Company’s deferred revenue accounts.

 

•  *Insufficient controlsrelated to system access and segregation of duties.**  *The Companydid not maintain adequate segregation of duties among employees. Users of theCompany’s new accounting system had access to multiple accounting processeswithin the system, including vendor set-up and account maintenance, instead ofonly those processes that were the responsibility of such user. In the absenceof such controls, inappropriate or unauthorized transactions could be enteredinto the system which increases susceptibility to the misappropriation ofassets.

 

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•  *Inadequacies related toentity-level controls.**  *There weredeficiencies in the design and execution of the Company’s entity-level controlsrelating to training, job descriptions, managing of employee turnover,application of U.S. GAAP, documentation of expenditure approvals, andcommunication between departments. These deficiencies contributed to therestatement of the Company’s previously issued financial statements asdiscussed herein, delays in compliance efforts with Section 404 of theSarbanes-Oxley Act of 2002 and the rules issued thereunder, and thedelayed filing of the Company’s Form 10-K for the year ended December 31,2004.

 

We also have audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of Digimarc Corporation and subsidiaries as of December 31,2004 and 2003, and the related consolidated statements of operations,stockholders’ equity, and cash flows for each of the years in the three-yearperiod ended December 31, 2004. This report does not affect our report dated May 27, 2005, whichexpressed an unqualified opinion on the consolidated financial statements.

 

***In ouropinion, management’s assessment that the Company did not maintain effectiveinternal control over financial reporting as of December 31, 2004, isfairly stated, in all material respects, based on the criteria established in***Internal Control – Integrated Framework issued by COSO.  Also, in our opinion, because of the effectof the material weaknesses described above on the achievement of the objectivesof the control criteria, the Company has not maintained effective internalcontrol over financial reporting as of December 31, 2004, based on thecriteria established in Internal Control – Integrated Framework issued by COSO.

 
| ***/s/ KPMG  LLP***     | *** *** |
|-------------------------|--------------|
| *** ***            |
| ***Portland,  Oregon*** |
| ***May 27,  2005***     |

 

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

To theBoard of Directors andStockholders of Digimarc Corporation

 

Wehave audited the accompanying consolidated balance sheets of DigimarcCorporation and subsidiaries as of December 31, 2004 and 2003, and therelated consolidated statements of operations, stockholders’ equity, and cashflows for each of the years in the three-year period ended December 31,2004. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of DigimarcCorporation and subsidiaries as of December 31, 2004 and 2003, and theresults of their operations and their cash flows for each of the years in thethree-year period ended December 31, 2004 in conformity with U.S.generally accepted accounting principles.

 

Asindicated in Note 2 to the consolidated financial statements, the Company hasrestated its consolidated financial statements as of and for the year ended December 31,2003.

 

We also have audited, in accordance with the standardsof the Public Accounting Oversight Board (United States), the effectiveness ofDigimarc Corporation and its subsidiaries’ internal control over financialreporting as of December 31, 2004, based on criteria established in *Internal Control – Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO), andour report dated May 27, 2005 expressed an unqualified opinion on management’sassessment of, and an adverse opinion on the effective operation of, internalcontrol over financial reporting.

 
| ***/s/  KPMG LLP*** | *** *** |
|---------------------|--------------|
| *** ***        |
| Portland,  Oregon   |
| May  27, 2005       |

 

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**PART III**

 

**ITEM15**:   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTSON FORM 8-K

 

**(a)(3) Exhibits**

 
| **Exhibit  Number** | ** ** | **Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                 |       | Asset Purchase Agreement among Polaroid  Corporation, Polaroid ID Systems, Inc. and Digimarc Corporation  (incorporated by reference to Exhibit 2.1 to the Registrant’s Current  Report on Form 8-K, as filed with the Securities and Exchange  Commission on January 3, 2002)                                                                                                                                                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.1                 |       | Second Amended and Restated Certificate of  Incorporation of the Registrant (incorporated by reference to Exhibit 3.1  to the Registrant’s Quarterly Report on Form 10-Q, as filed with  the Securities and Exchange Commission on November 14, 2000)                                                                                                                                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.2                 |       | Certificate of Amendment of Second Amended  and Restated Certificate of Incorporation of the Registrant (incorporated by  reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q,  as filed with the Securities and Exchange Commission on November 14,  2000)                                                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.3                 |       | Amended and Restated Bylaws of the  Registrant, as amended (incorporated by reference to Exhibit 3.3 to the  Registrant’s Annual Report on Form 10-K, as filed with the  Securities and Exchange Commission on March 15, 2004)                                                                                                                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.4                 |       | Certificate of Designation of the Series A  Preferred Stock of Digimarc Corporation (incorporated by reference to Exhibit 3.1  to the Registrant’s Current Report on Form 8-K, as filed with the  Securities and Exchange Commission on November 17, 2004)                                                                                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.1                 |       | Reference is made to Exhibits 3.1, 3.2 and  3.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.2                 |       | Second Amended and Restated Investor Rights  Agreement, dated as of November 2, 1999, between the Registrant and the  holders of the Registrant’s preferred stock (incorporated by reference to Exhibit 4.2  to the Registrant’s Registration Statement on Form S-1 (Commission  File No. 333-87501) which became effective on December 2,  1999)                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.3                 |       | Rights Agreement, dated as of November 16,  2004, between Digimarc Corporation and EquiServe Trust Company, N.A. together  with: Exhibit A Form of Rights Certificate; Exhibit B Form of  Summary of Rights to Purchase Preferred Stock; and Exhibit C Form of  Certificate of Designation of the Series A Preferred Stock of Digimarc  Corporation (incorporated by reference to Exhibit 4.1 to the Registrant’s  Current Report on Form 8-K, as filed with the Securities and  Exchange Commission on November 17, 2004) |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.1                |       | Form of Indemnification Agreement  between the Registrant and each of its executive officers and directors  (incorporated by reference to Exhibit 10.1 to the Registrant’s  Registration Statement on Form S-1 (Commission File No. 333-87501)  which became effective on December 2, 1999)                                                                                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.2                |       | Registrant’s 1995 Stock Incentive Plan, as  amended (incorporated by reference to Exhibit 99.1 to the Registrant’s  Registration Statement on Form S-8 (Commission File No. 333-31114)  which became effective on February 25, 2000)                                                                                                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.3                |       | Registrant’s Restated 1999 Stock Incentive  Plan, as amended and restated on April 17, 2003 (incorporated by  reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K,  as filed with the Securities and Exchange Commission on March 15, 2004)                                                                                                                                                                                                                                                                                         |

 

10

----

 
| **Exhibit  Number** | ** ** | **Document**                                                                                                                                                                                                                                                                                                                                                                                                     |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.4                |       | Form of Notice of Stock Option Award  and Stock Option Award Agreement for the Digimarc Corporation 1999 Stock  Incentive Plan (incorporated by reference to Exhibit 99(d)(2) of  the Company’s Schedule TO, as filed with the Securities and Exchange  Commission on February 16, 2001)                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.5                |       | Registrant’s 1999 Employee Stock Purchase  Plan, as amended and restated on February 19, 2004, including forms of  agreements thereunder (incorporated by reference to Exhibit 99.1 to the  Registrant’s Registration Statement on Form S-8 (Commission File No. 333-115074)  which became effective on April 30, 2004)                                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.6                |       | Lease Agreement, dated as of June 25,  1999, between the Registrant and Southplace Associates LLC (incorporated by  reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1  (Commission File No. 333-87501) which became effective on December 2,  1999)                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.7                |       | First Amendment to Lease Agreement, dated  as of February 17, 2000, between the Registrant and Southplace  Associates LLC (incorporated by reference to Exhibit 10.10 to the  Registrant’s Registration Statement on Form S-1 (Commission File No. 333-32778)  which was filed with the Securities and Exchange Commission on March 17,  2000 and withdrawn on July 31, 2000) |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.8                |       | CityPlex Towers Lease Agreement, dated as  of January 4, 2000, between the Registrant and Oral Roberts University  (incorporated by reference to Exhibit 10.11 to the Registrant’s  Registration Statement on Form S-1 (Commission File No. 333-32778)  which was filed with the Securities and Exchange Commission on March 17,  2000 and withdrawn on July 31, 2000)        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.9                |       | Strategic Investment Agreement, dated as of  September 17, 2000, between the Registrant and Macrovision Corporation  (incorporated by reference to Exhibit 10.12 to the Registrant’s Quarterly  Report on Form 10-Q, as filed with the Securities and Exchange  Commission on November 14, 2000)                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.10               |       | Strategic Investment Agreement, dated as of  September 17, 2000, between the Registrant and Koninklijke Philips  Electronics N.V. (incorporated by reference to Exhibit 10.13 to the  Registrant’s Quarterly Report on Form 10-Q, as filed with the  Securities and Exchange Commission on November 14, 2000)                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.11               |       | Registrant’s 2000 Non-Officer Employee  Stock Incentive Plan, as amended and restated on February 19, 2004  (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly  Report on Form 10-Q, as filed with the Securities and Exchange  Commission on May 10, 2004)                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.12               |       | Registrant’s 1999 Non-Employee Director  Option Program, as amended and restated on March 10, 2004 (incorporated  by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q,  as filed with the Securities and Exchange Commission on May 10, 2004)                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.13               |       | First Promissory Note, dated July 1,  2002, between Digimarc Corporation and Indraneel Paul (incorporated by  reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K,  as filed with the Securities and Exchange Commission on March 31, 2003)                                                                                                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.14               |       | Second Promissory Note, dated July 1,  2002, between Digimarc Corporation and Indraneel Paul (incorporated by  reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K,  as filed with the Securities and Exchange Commission on March 31, 2003)                                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.15               |       | Employment Agreement, dated as of July 16,  2001, between the Registrant and Bruce Davis (incorporated by reference to Exhibit 10.1  to the Registrant’s Quarterly Report on Form 10-Q, as filed with  the Securities and Exchange Commission on May 15, 2003)                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.16               |       | Form of Warrant (incorporated by  reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K,  as filed with the Securities and Exchange Commission on August 27, 2003)                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.17               |       | Purchase Agreement by and between the  Registrant and each of the purchasers whose names are set forth on the  signature pages thereof (incorporated by reference to Exhibit 10.1  to the Registrant’s Current Report on Form 8-K, as filed with the  Securities and Exchange Commission on August 27, 2003)                                                                            |

 

11

----

 
| **Exhibit  Number** | ** ** | **Document**                                                                                                                                                                                                                                                                                                                                           |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.18               |       | Form of Notice of Stock Option Award  and Stock Option Award Agreement for employees under the Digimarc Corporation  1999 Stock Incentive Plan (incorporated by reference to Exhibit 99(d)(2) of  the Company’s Schedule TO, as filed with the Securities and Exchange  Commission on February 16, 2001)                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 10.19               |       | Form of Restricted Stock Agreement for  the Digimarc Corporation 1999 Stock Incentive Plan (incorporated by reference  to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K,  as filed with the Securities and Exchange Commission on March 1, 2005)                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 10.20               |       | Form of Stock Option Award Agreement  for the 1999 Non-Employee Director Option Program adopted under the Digimarc  Corporation 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.2  to the Registrant’s Current Report on Form 8-K, as filed with the  Securities and Exchange Commission on March 1, 2005) |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 10.21               |       | Forms of Notice of Stock Option Award and  Stock Option Award Agreement for officers under the Digimarc Corporation 1999  Stock Incentive Plan*                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 10.22               |       | Full Service Lease, dated March 22,  2004, by and between PS Business Parks, L.P., and the Registrant*                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 21.1                |       | List of Subsidiaries (incorporated by  reference to Exhibit 21.1 to the Registrant’s Annual Report on Form 10-K,  as filed with the Securities and Exchange Commission on March 31, 2003)                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 23.1                |       | Consent of KPMG LLP, Independent Registered  Public Accounting Firm                                                                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 24.1                |       | Power of Attorney*                                                                                                                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 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*                                                                                                                                                                                                                                                                                           |

 

----

* Previously filed.

 

12

----

 

**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
|               | DIGIMARC CORPORATION                                                                                        |
|--------------------|-------------------------------------------------------------------------------------------------------------|
|               |                                                                                                        |
|               |                                                                                                        |
|               | /s/ Michael  McConnell                                                                                      |   |
|               | Michael  McConnell                                                                                          |   |
| Date: June 1, 2005 | *Title:  Chief Financial Officer (Duly Authorized Officer and Principal Financial and  Accounting Officer)* |   |

 

13

----

 

**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.1                 |       | Asset Purchase Agreement among Polaroid  Corporation, Polaroid ID Systems, Inc. and Digimarc Corporation  (incorporated by reference to Exhibit 2.1 to the Registrant’s Current  Report on Form 8-K, as filed with the Securities and Exchange  Commission on January 3, 2002)                                                                                                                                                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.1                 |       | Second Amended and Restated Certificate of  Incorporation of the Registrant (incorporated by reference to Exhibit 3.1  to the Registrant’s Quarterly Report on Form 10-Q, as filed with  the Securities and Exchange Commission on November 14, 2000)                                                                                                                                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.2                 |       | Certificate of Amendment of Second Amended  and Restated Certificate of Incorporation of the Registrant (incorporated by  reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q,  as filed with the Securities and Exchange Commission on November 14,  2000)                                                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.3                 |       | Amended and Restated Bylaws of the  Registrant, as amended (incorporated by reference to Exhibit 3.3 to the  Registrant’s Annual Report on Form 10-K, as filed with the  Securities and Exchange Commission on March 15, 2004)                                                                                                                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.4                 |       | Certificate of Designation of the Series A  Preferred Stock of Digimarc Corporation (incorporated by reference to Exhibit 3.1  to the Registrant’s Current Report on Form 8-K, as filed with the  Securities and Exchange Commission on November 17, 2004)                                                                                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.1                 |       | Reference is made to Exhibits 3.1, 3.2 and  3.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.2                 |       | Second Amended and Restated Investor Rights  Agreement, dated as of November 2, 1999, between the Registrant and the  holders of the Registrant’s preferred stock (incorporated by reference to Exhibit 4.2  to the Registrant’s Registration Statement on Form S-1 (Commission  File No. 333-87501) which became effective on December 2,  1999)                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.3                 |       | Rights Agreement, dated as of November 16,  2004, between Digimarc Corporation and EquiServe Trust Company, N.A. together  with: Exhibit A Form of Rights Certificate; Exhibit B Form of  Summary of Rights to Purchase Preferred Stock; and Exhibit C Form of  Certificate of Designation of the Series A Preferred Stock of Digimarc  Corporation (incorporated by reference to Exhibit 4.1 to the Registrant’s  Current Report on Form 8-K, as filed with the Securities and  Exchange Commission on November 17, 2004) |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.1                |       | Form of Indemnification Agreement  between the Registrant and each of its executive officers and directors  (incorporated by reference to Exhibit 10.1 to the Registrant’s  Registration Statement on Form S-1 (Commission File No. 333-87501)  which became effective on December 2, 1999)                                                                                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.2                |       | Registrant’s 1995 Stock Incentive Plan, as  amended (incorporated by reference to Exhibit 99.1 to the Registrant’s  Registration Statement on Form S-8 (Commission File No. 333-31114)  which became effective on February 25, 2000)                                                                                                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.3                |       | Registrant’s Restated 1999 Stock Incentive  Plan, as amended and restated on April 17, 2003 (incorporated by  reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K,  as filed with the Securities and Exchange Commission on March 15, 2004)                                                                                                                                                                                                                                                                                         |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.4                |       | Form of Notice of Stock Option Award  and Stock Option Award Agreement for the Digimarc Corporation 1999 Stock  Incentive Plan (incorporated by reference to Exhibit 99(d)(2) of  the Company’s Schedule TO, as filed with the Securities and Exchange  Commission on February 16, 2001)                                                                                                                                                                                                                                                                 |

 

----

 
| **Exhibit  Number** | ** ** | **Document**                                                                                                                                                                                                                                                                                                                                                                                                     |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.5                |       | Registrant’s 1999 Employee Stock Purchase  Plan, as amended and restated on February 19, 2004, including forms of  agreements thereunder (incorporated by reference to Exhibit 99.1 to the  Registrant’s Registration Statement on Form S-8 (Commission File No. 333-115074)  which became effective on April 30, 2004)                                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.6                |       | Lease Agreement, dated as of June 25,  1999, between the Registrant and Southplace Associates LLC (incorporated by  reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1  (Commission File No. 333-87501) which became effective on December 2,  1999)                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.7                |       | First Amendment to Lease Agreement, dated  as of February 17, 2000, between the Registrant and Southplace  Associates LLC (incorporated by reference to Exhibit 10.10 to the  Registrant’s Registration Statement on Form S-1 (Commission File No. 333-32778)  which was filed with the Securities and Exchange Commission on March 17,  2000 and withdrawn on July 31, 2000) |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.8                |       | CityPlex Towers Lease Agreement, dated as  of January 4, 2000, between the Registrant and Oral Roberts University  (incorporated by reference to Exhibit 10.11 to the Registrant’s  Registration Statement on Form S-1 (Commission File No. 333-32778)  which was filed with the Securities and Exchange Commission on March 17,  2000 and withdrawn on July 31, 2000)        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.9                |       | Strategic Investment Agreement, dated as of  September 17, 2000, between the Registrant and Macrovision Corporation  (incorporated by reference to Exhibit 10.12 to the Registrant’s  Quarterly Report on Form 10-Q, as filed with the Securities and  Exchange Commission on November 14, 2000)                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.10               |       | Strategic Investment Agreement, dated as of  September 17, 2000, between the Registrant and Koninklijke Philips  Electronics N.V. (incorporated by reference to Exhibit 10.13 to the  Registrant’s Quarterly Report on Form 10-Q, as filed with the  Securities and Exchange Commission on November 14, 2000)                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.11               |       | Registrant’s 2000 Non-Officer Employee  Stock Incentive Plan, as amended and restated on February 19, 2004  (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly  Report on Form 10-Q, as filed with the Securities and Exchange Commission  on May 10, 2004)                                                                                                  |
| 10.12               |       | Registrant’s 1999 Non-Employee Director  Option Program, as amended and restated on March 10, 2004 (incorporated  by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q,  as filed with the Securities and Exchange Commission on May 10, 2004)                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.13               |       | First Promissory Note, dated July 1,  2002, between Digimarc Corporation and Indraneel Paul (incorporated by  reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K,  as filed with the Securities and Exchange Commission on March 31, 2003)                                                                                                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.14               |       | Second Promissory Note, dated July 1,  2002, between Digimarc Corporation and Indraneel Paul (incorporated by  reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K,  as filed with the Securities and Exchange Commission on March 31, 2003)                                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.15               |       | Employment Agreement, dated as of July 16,  2001, between the Registrant and Bruce Davis (incorporated by reference to Exhibit 10.1  to the Registrant’s Quarterly Report on Form 10-Q, as filed with  the Securities and Exchange Commission on May 15, 2003)                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.16               |       | Form of Warrant (incorporated by  reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K,  as filed with the Securities and Exchange Commission on August 27, 2003)                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.17               |       | Purchase Agreement by and between the  Registrant and each of the purchasers whose names are set forth on the  signature pages thereof (incorporated by reference to Exhibit 10.1  to the Registrant’s Current Report on Form 8-K, as filed with the  Securities and Exchange Commission on August 27, 2003)                                                                            |

 

----

 
| **Exhibit  Number** | ** ** | **Document**                                                                                                                                                                                                                                                                                                                                           |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.18               |       | Form of Notice of Stock Option Award  and Stock Option Award Agreement for employees under the Digimarc Corporation  1999 Stock Incentive Plan (incorporated by reference to Exhibit 99(d)(2) of  the Company’s Schedule TO, as filed with the Securities and Exchange  Commission on February 16, 2001)                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 10.19               |       | Form of Restricted Stock Agreement for  the Digimarc Corporation 1999 Stock Incentive Plan (incorporated by reference  to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K,  as filed with the Securities and Exchange Commission on March 1, 2005)                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 10.20               |       | Form of Stock Option Award Agreement  for the 1999 Non-Employee Director Option Program adopted under the Digimarc  Corporation 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.2  to the Registrant’s Current Report on Form 8-K, as filed with the  Securities and Exchange Commission on March 1, 2005) |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 10.21               |       | Forms of Notice of Stock Option Award and  Stock Option Award Agreement for officers under the Digimarc Corporation 1999  Stock Incentive Plan*                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 10.22               |       | Full Service Lease, dated March 22,  2004, by and between PS Business Parks, L.P., and the Registrant*                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 21.1                |       | List of Subsidiaries (incorporated by  reference to Exhibit 21.1 to the Registrant’s Annual Report on Form 10-K,  as filed with the Securities and Exchange Commission on March 31, 2003)                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 23.1                |       | Consent of KPMG LLP, Independent Registered  Public Accounting Firm                                                                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 24.1                |       | Power of Attorney*                                                                                                                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                   |
| 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*                                                                                                                                                                                                                                                                                           |

 

----

*Previously filed

 

----