What changed in this filing

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Item 1. Financial Statements

2020-10-28 compared with 2020-08-05 · 105 added, 81 removed, 356 unchanged (34% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts, unaudited)

June 30, 2020 March 31, 2020

September 30, 2020 March 31, 2020

Current assets:

1 unchanged sentence

Restricted cash 792 830

Accounts receivable, net of allowance for doubtful accounts of $ 1,348 and $ 1,247 as of June 30, 2020 and March 31, 2020, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 1,399 and $ 1,247 as of September 30, 2020 and March 31, 2020, respectively

62,712 70,370

12 unchanged sentences

Deferred revenue 73,101 81,492

Accrued restructuring charges 458 —

Long-term debt, current portion 1,388 7,321

10 unchanged sentences

Preferred stock, 20,000 shares authorized;

no shares issued as of June 30, 2020 and March 31, 2020, respectively

no shares issued as of September 30, 2020 and March 31, 2020, respectively

Common stock, $ 0.01 par value;

125,000 shares authorized;

39,905 shares issued and outstanding as of June 30, 2020 and March 31, 2020, respectively

40,740 shares issued and outstanding as of September 30, 2020 and 39,905 as of March 31, 2020, respectively

Additional paid-in capital 522,357 505,762

7 unchanged sentences

(in thousands, except per share amounts, unaudited)

Three Months Ended June 30,

Three Months Ended September 30, Six Months Ended September 30,

2020 2019 2020 2019

Product $ 50,850 $ 68,130 $ 90,537 $ 133,926

13 unchanged sentences

Total operating expenses 35,234 39,324 69,580 82,402

Income (loss) from operations ( 3,495 ) 2,748

Income from operations 3,500 4,199 6 6,947

Other income (expense), net ( 312 ) 76 ( 697 ) 165

12 unchanged sentences

(in thousands, unaudited)

Three Months Ended June 30,

Six Months Ended September 30,

Operating activities

8 unchanged sentences

Deferred income taxes ( 15 ) —

Unrealized foreign exchange loss 482 130

Unrealized foreign exchange (gain) loss 1,193 ( 99 )

Changes in assets and liabilities:

7 unchanged sentences

Other assets and liabilities ( 5,694 ) ( 3,939 )

Net cash provided by (used in) operating activities ( 8,987 ) 903

Net cash used in operating activities ( 19,299 ) ( 9,656 )

Investing activities

2 unchanged sentences

Financing activities

Senior Secured Term Loan borrowings, net of debt issuance costs 19,400 —

PNC Credit Facility borrowings 78,582 ( 413 )

PNC Credit Facility repayments ( 81,653 ) —

Paycheck Protection Program borrowing 10,000 —

Net cash provided by (used in) financing activities 26,329 ( 413 )

Borrowings of long-term debt, net of debt issuance costs 19,400 —

Repayments of long-term debt — ( 825 )

Borrowings of credit facility 140,987 172,119

Repayments of credit facility ( 144,058 ) ( 165,143 )

Borrowings of payment protection program 10,000 —

Payment of taxes due upon vesting of restricted stock — ( 171 )

Proceeds from issuance of common stock 539 —

Net cash provided by financing activities 26,868 5,980

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 96 ) 72

4 unchanged sentences

Cash paid for interest $ 14,181 $ 10,567

Cash paid (received) for income taxes, net of refunds $ ( 1,964 ) $ 126

Cash received for income taxes, net of refunds $ ( 1,578 ) $ ( 51 )

Non-cash transactions

2 unchanged sentences

Transfer of inventory to property and equipment $ 207 $ 169

Payment of litigation settlements with insurance proceeds $ — $ 8,950

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows:

9 unchanged sentences

Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Deficit

Shares Amount

Balance, March 31, 2019 36,040 $ 360 $ 499,224 $ ( 697,954 ) $ ( 1,410 ) $ ( 199,780 )

Net income — — — ( 3,807 ) — ( 3,807 )

Three Months Ended Shares Amount

Balance, June 30, 2019 36,046 $ 360 $ 500,211 $ ( 701,761 ) $ ( 1,326 ) $ ( 202,516 )

Net loss — — — ( 2,315 ) — ( 2,315 )

Foreign currency translation adjustments, net — — — — ( 474 ) ( 474 )

1 unchanged sentence

Stock-based compensation — — 2,365 — — 2,365

Balance, September 30, 2019 36,717 $ 368 $ 502,398 $ ( 704,076 ) $ ( 1,800 ) $ ( 203,110 )

Balance, June 30, 2020 39,905 $ 399 $ 519,235 $ ( 713,900 ) $ ( 1,235 ) $ ( 195,501 )

Net loss — — — ( 4,592 ) — ( 4,592 )

Foreign currency translation adjustments, net — — — — 722 722

Shares issued under employee stock purchase plan 133 2 537 — — 539

Shares issued under employee incentive plans, net 702 7 ( 7 ) — — —

Stock-based compensation — — 2,592 — — 2,592

Balance, September 30, 2020 40,740 $ 408 $ 522,357 $ ( 718,492 ) $ ( 513 ) $ ( 196,240 )

See accompanying Notes to Condensed Consolidated Financial Statements.

Common Stock Additional

Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Deficit

Shares Amount

Six Months Ended Shares Amount

Balance, March 31, 2019 36,040 $ 360 $ 499,224 $ ( 697,954 ) $ ( 1,410 ) $ ( 199,780 )

Net loss — — — ( 6,122 ) — ( 6,122 )

Foreign currency translation adjustments, net — — — — ( 390 ) ( 390 )

Shares issued under employee incentive plans, net 677 8 ( 178 ) — — ( 170 )

Stock-based compensation — — 3,352 — — 3,352

Balance, September 30, 2019 36,717 $ 368 $ 502,398 $ ( 704,076 ) $ ( 1,800 ) $ ( 203,110 )

Balance, March 31, 2020 39,905 $ 399 $ 505,762 $ ( 703,164 ) $ ( 1,522 ) $ ( 198,525 )

Net loss — — — ( 15,328 ) — ( 15,328 )

Foreign currency translation adjustments — — — — 1,009 1,009

Shares issued under employee stock purchase plan 133 2 537 — — 539

Shares issued under employee incentive plans, net 702 7 ( 7 ) — — —

Warrants issued related to long-term debt — — 11,515 — — 11,515

Warrants issued to consultants — — 167 — — 167

Stock-based compensation — — 4,550 — — 4,550

Balance, June 30, 2020 39,905 $ 399 $ 519,235 $ ( 713,900 ) $ ( 1,235 ) $ ( 195,501 )

Balance, September 30, 2020 40,740 $ 408 $ 522,357 $ ( 718,492 ) $ ( 513 ) $ ( 196,240 )

See accompanying Notes to Condensed Consolidated Financial Statements.

11 unchanged sentences

The Company helps customers around the world capture, create and share digital data and preserve and protect it for decades.

The Company’s software-defined, hyperconverged storage solutions span from non-violate memory express (“NVMe”), to solid state drives, (“SSD”), hard disk drives, (“HDD”), tape and the cloud and are tied together leveraging a single namespace view of the entire data environment.

The Company’s software-defined, hyperconverged storage solutions span from non-volatile memory express (“NVMe”), to solid state drives, (“SSD”), hard disk drives, (“HDD”), tape and the cloud and are tied together leveraging a single namespace view of the entire data environment.

The Company works closely with a broad network of distributors, value-added resellers (“VARs”), direct marketing resellers (“DMRs”), original equipment manufacturers (“OEMs”) and other suppliers to meet customers’ evolving needs.

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.

All intercompany balances and transactions have been eliminated.

2 unchanged sentences

However, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included within the Company's most recent Annual Report on Form 10-K.

The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring items) necessary to present fairly the Company’s financial position as of June 30, 2020, results of operations and comprehensive loss and changes in stockholder's deficit for the three months ended June 30, 2020 and 2019.

The unaudited consolidated interim financial statements reflect all adjustments, consisting only of normal and recurring items, necessary to present fairly our financial position as of September 30, 2020, the results of operations and comprehensive loss and changes in stockholder's deficit for the three and six months ended September 30, 2020 and 2019, and the statement of cash flows for the six months ended September 30, 2020 and 2019.

Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.

3 unchanged sentences

For many of our customers, the COVID-19 pandemic has significantly affected their business.

Movie and television production has been paused, professional and collegiate sports seasons have been postponed or cancelled, and many corporations and enterprises have put information technology spending on hold while they assess the short- and long-term impact of the pandemic.

Movie and television production has decreased significantly, professional and collegiate sports seasons have been postponed or cancelled, and many corporations and enterprises have put information technology spending on hold while they assess the short- and long-term impact of the pandemic.

While our supply chain remains intact and operating, we have experienced issues related to our logistics network.

3 unchanged sentences

The extent of the impact will depend, in part, on how long the negative trends in customer demand and supply chain levels will continue.

The Company’s management continues to actively monitor the situation and may take further actions altering its business operations that tare determined to be in the best interests of its employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

The Company’s management continues to actively monitor the situation and may take further actions altering its business operations that are determined to be in the best interests of its employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

Use of Estimates

1 unchanged sentence

These estimates and assumptions have been applied using methodologies that are consistent throughout the periods presented with consideration given to the potential impacts of COVID-19 pandemic.

However, actual results could differ materially from these estimates and be significantly affected by the severity and duration of the pandemic, the extent of actions to contain or treat COVID-19, how quickly and to what extent normal economic and operating activity can resume, and the severity and duration of the global economic downturn that results from the pandemic.

Fair Value Measurements

7 unchanged sentences

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Our financial instruments consist of Level 2 liabilities.

Our financial instruments consist of Level 1 assets and Level 2 liabilities.

Recently Adopted Accounting Pronouncements

7 unchanged sentences

Recently Issued Accounting Pronouncements Not Yet Adopted

Recent accounting pronouncements issued by the Financial Accounting Standards Board (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not have, or are not expected to have, a material impact on our present or future consolidated financial statements.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (ASU 2020-06) related to the measurement and disclosure requirements for convertible instruments and contracts in an entity's own equity.

The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity's own equity.

This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021.

We plan to adopt this pronouncement for our fiscal year beginning March 31, 2021, and we do not expect it to have a material effect on our consolidated financial statements.

Based on how the Company manages its business, the Company has determined that it currently operates in one reportable segment.

1 unchanged sentence

(a) Americas;

(b) Europe, Middle East and

Africa (“EMEA”);

(b) Europe, Middle East and Africa (“EMEA”);

and (c) Asia Pacific (“APAC”).

1 unchanged sentence

In the following table, revenue is disaggregated by major product offering and geographies (in thousands):

Three Months Ended

June 30, 2020 June 30, 2019 1

Three Months Ended September 30, Six Months Ended September 30,

Primary storage systems $ 16,933 $ 16,352 $ 23,792 $ 25,771

17 unchanged sentences

Service 31,494 32,401 61,880 65,781

3,477 5,258 6,709 11,712

Total revenue $ 85,821 $ 105,789 $ 159,126 $ 211,419

1 Primary and Secondary storage system revenue has been adjusted for June 30, 2019 due to certain reclassifications from Primary to Secondary storage systems.

1 Primary and Secondary storage system revenue has been adjusted for September 30, 2019 due to certain reclassifications from Primary to Secondary storage systems.

2 Revenue for Americas geographic region outside of the United States is not significant.

1 unchanged sentence

Contract Balances

The following table presents the Company’s contract liabilities and certain information related to this balance as of and for the three months ended June 30, 2020 (in thousands):

June 30, 2020

The following table presents the Company’s contract liabilities and certain information related to this balance as of and for the six months ended September 30, 2020 (in thousands):

September 30, 2020

Contract liabilities (deferred revenue) $ 106,350

4 unchanged sentences

The Company applied the practical expedient in accordance within ASC 606, Revenue from Contracts with Customers (“ASC 606”), to exclude amounts for variable consideration constituting a sale- or usage-based royalty promised in exchange for a license of intellectual property from remaining performance obligations.

Remaining performance obligation consisted of the following (in thousands):

Remaining performance obligations consisted of the following (in thousands):

Current Non-Current Total

As of June 30, 2020 $ 89,965 $ 45,122 $ 135,087

The Company expects to recognize approximately 67 % of the remaining performance obligations within the next 12 months.

As of September 30, 2020 $ 86,653 $ 42,598 $ 129,251

The Company's non-current remaining performance obligations are expected to be recognized in the next 13 to 60 months.

1 unchanged sentence

Manufacturing inventories

June 30, 2020 March 31, 2020

September 30, 2020 March 31, 2020

Finished goods:

6 unchanged sentences

Service parts inventories

June 30, 2020 March 31, 2020

September 30, 2020 March 31, 2020

Finished goods $ 17,924 $ 15,845

3 unchanged sentences

The Company’s long-term debt consisted of the following (in thousands):

June 30, 2020 March 31, 2020

September 30, 2020 March 31, 2020

Senior Secured Term Loan $ 185,208 $ 165,208

9 unchanged sentences

On December 27, 2018, the Company entered into a senior secured term loan totaling $ 165.0 million with U.S.

Bank, National Association (the “the Senior Secured Term Loan”).

Bank, National Association (the “Senior Secured Term Loan”).

In connection with the Senior Secured Term Loan, the Company amended its existing Revolving Credit Facility with PNC, providing for borrowing under loans up to a maximum principal amount of the lesser of:

40 unchanged sentences

In connection with the June 2020 Term Loan Amendment, the Company entered into an amended and restated registration rights agreement (the “Amended Registration Rights Agreement”) with the holders of the warrants previously issued to the Senior Secured Term Loan lenders in December 2018 and the 2020 Term Loan Warrants (collectively, the “Term Loan Warrants”).

The Amended Registration Rights Agreement grants the holders of the Term Loan Warrants certain registration rights for the shares of common stock issuable upon the exercise of the applicable Term Loan Warrants, including (i) the ability of a holder to request that the Company file a Form S-1 registration statement with respect to at least 40 % of the registrable securities held by such holder as of the issuance date of the applicable Term Loan Warrants;

(ii) the ability of a holder to request that the Company file a Form S-3 registration statement with respect to outstanding registrable securities if at any time the Company is eligible to use a Form S-3 registration statement;

and (iii) certain piggyback registration rights related to potential future equity offerings of the Company, subject to certain limitations.

As of June 30, 2020, the interest rates on the Senior Secured Term Loan and the Amended PNC Credit Facility were 12.0 % and 7.8 %, respectively.

As of June 30, 2020, the Amended PNC Credit Facility had a borrowing base of $ 26.8 million, $ 25.4 million of which was available at that date.

As of June 30, 2020, the Company was required to maintain a $ 5.0 million restricted cash reserve as part of the Amended PNC Credit Facility.

This balance is presented as long-term restricted cash within the accompanying condensed consolidated balance sheet as of June 30, 2020.

The Amended Registration Rights Agreement grants the holders of the Term Loan Warrants certain registration rights for the shares of common stock issuable upon the exercise of the applicable Term Loan Warrants, including (a) the ability of a holder to request that the Company file a Form S-1 registration statement with respect to at least 40 % of the registrable securities held by such holder as of the issuance date of the applicable Term Loan Warrants;

(b) the ability of a holder to request that the Company file a Form S-3 registration statement with respect to outstanding registrable securities if at any time the Company is eligible to use a Form S-3 registration statement;

and (c) certain piggyback registration rights related to potential future equity offerings of the Company, subject to certain limitations.

As of September 30, 2020, the interest rates on the Senior Secured Term Loan and the Amended PNC Credit Facility were 12.0 % and 7.8 %, respectively.

As of September 30, 2020, the Amended PNC Credit Facility had a borrowing base of $ 23.6 million, of which $ 21.8 million was available at that date.

As of September 30, 2020, the Company was required to maintain a $ 5.0 million restricted cash reserve as part of the Amended PNC Credit Facility.

This balance is presented as long-term restricted cash within the accompanying condensed consolidated balance sheet as of September 30, 2020.

Paycheck Protection Program

3 unchanged sentences

Under the terms of the PPP Note, the Company may apply for forgiveness of the amount due on the PPP Loan.

The Company used the proceeds from the PPP Loan for qualifying expenses as defined in the PPP, and intends to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act.

The Company used the proceeds from the PPP Loan for qualifying expenses as defined in the PPP and has applied for forgiveness of the PPP Loan in accordance with the terms of the CARES Act.

However, the Company cannot assure at this time that the PPP Loan will be forgiven partially or in full.

Supplemental balance sheet information related to leases was as follows:

June 30, 2020 March 31, 2020

Supplemental balance sheet information related to leases is as follows (in thousands):

Operating leases September 30, 2020 March 31, 2020

Operating lease right-of-use asset $ 10,597 $ 12,689

3 unchanged sentences

Components of lease cost were as follows (in thousands):

Three Months Ended June 30,

Three Months Ended September 30, Six Months Ended September 30,

Lease Cost 2020 2019 2020 2019

5 unchanged sentences

For the fiscal year ended March 31,

2021, excluding the three months ended June 30, 2020

2021, excluding the six months ended September 30, 2020

Thereafter 2,935

2 unchanged sentences

Present value of lease liabilities $ 11,834

Lease Term and Discount Rate June 30, 2020 March 31, 2020

Lease Term and Discount Rate September 30, 2020 March 31, 2020

Weighted average remaining operating lease term (years) 4.82 4.99

Weighted average discount rate for operating leases 13.96 % 13.91 %

Operating cash outflows related to operating leases totaled $ 1.4 million and $ 1.3 million for the three months ended June 30, 2020 and 2019.

Operating cash outflows related to operating leases totaled $ 1.3 million for the six months ended September 30, 2020 and 2019.

RESTRUCTURING CHARGES

The following table summarizes the restructuring activities for the three months ended June 30, 2020 and 2019 (in thousands):

Balance as of March 31, 2020 Severance and Benefits Facilities Total

Costs accrued related to restructuring are classified within accrued liabilities on the condensed consolidated balance sheets.

The following table summarizes the restructuring activities for the six months ended September 30, 2020 and 2019 (in thousands):

Severance and Benefits Facilities Total

Balance as of March 31, 2020 $ — $ — $ —

Restructuring costs 2,637 — 2,637

Cash payments ( 2,397 ) — ( 2,397 )

Balance as of June 30, 2020 $ 458 $ — $ 458

Balance as of September 30, 2020 $ 240 $ — $ 240

Balance as of March 31, 2019 $ — $ 2,876 $ 2,876

2 unchanged sentences

Cash payments — ( 3,661 ) ( 3,661 )

Balance as of June 30, 2019 $ — $ 2,405 $ 2,405

During the three months ended June 30, 2020, the Company initiated a restructuring plan to improve operational efficiency and rationalized its cost structure.

The restructuring plan included a reduction in workforce which resulted in severance and other benefits of $ 1.0 million.

Balance as of September 30, 2019 $ — $ 299 $ 299

NET LOSS PER SHARE

The following outstanding stock-based instruments which are comprised of performance share units, restricted stock units, stock options and warrants were excluded from the calculation of diluted net income (loss) per share because their effect would have been anti-dilutive (in thousands):

Three Months Ended

June 30, 2020 June 30, 2019

Three Months Ended September 30, Six Months Ended September 30,

2020 2019 2020 2019

8,020 8,625 7,180 6,860

The dilutive impact related to common shares from restricted stock units, stock options and warrants is determined by applying the treasury stock method of determining value to the assumed vesting of outstanding restricted stock units and the exercise of outstanding options and warrants.

The dilutive impact related to common shares from contingently issuable performance share units is determined by applying a two-step approach using both the contingently issuable share guidance and the treasury stock method.

For the three months ended June 30, 2020, there were 0.8 million contingently issuable market based restricted stock units excluded from the calculation of diluted net income (loss) per share, respectively, as their market

performance condition had not yet been achieved.

These shares will be earned based on the Company’s achievement of certain average stock price targets in addition to a time-based vesting period.

The effective tax rate for the three months ended June 30, 2020 and 2019 was - 4.1 % and - 9.7 %, respectively.

For the three and six months ended September 30, 2020, there were 1.6 million and 0.5 million contingently issuable market based and performance based restricted stock units, respectively, excluded from the calculation of diluted net income (loss) per share, as their market and performance conditions had not yet been achieved.

These shares will be earned based on the Company’s achievement of certain average stock price and performance targets in addition to a time-based vesting period.

The effective tax rate for the three and six months ended September 30, 2020 was - 4.6 % and - 4.2 %, respectively as compared to - 11.7 % and - 10.5 % in the three and six months ended September 30, 2019.

Income tax provisions for each of these periods reflect expenses for foreign and state taxes and differed from the federal statutory tax rate of 21% in both periods due primarily to unbenefited losses experienced in jurisdictions with valuation allowances on deferred tax assets as well as the forecasted mix of earnings in domestic and international jurisdictions.

As of June 30, 2020, including interest and penalties, the Company had $ 109.1 million of unrecognized tax benefits, $ 90.8 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance.

As of June 30, 2020, the Company had accrued interest and penalties related to these unrecognized tax benefits of $ 1.2 million.

As of September 30, 2020, including interest and penalties, the Company had $ 109.8 million of unrecognized tax benefits, $ 91.5 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance.

As of September 30, 2020, the Company had accrued interest and penalties related to these unrecognized tax benefits of $ 1.2 million.

The Company recognizes interest and penalties related to income tax matters in the income tax provision in the condensed consolidated statements of operations.

As of June 30, 2020, $ 102.7 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the condensed consolidated balance sheets and $ 6.4 million (including interest and penalties) were recorded in other long-term liabilities in the condensed consolidated balance sheets.

As of September 30, 2020, $ 103.2 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the condensed consolidated balance sheets and $ 6.6 million (including interest and penalties) were recorded in other long-term liabilities in the condensed consolidated balance sheets.

During the next 12 months, it is reasonably possible that approximately $ 9.2 million of tax benefits, inclusive of interest and penalties, that are currently unrecognized could be recognized as a result of the expiration of applicable statutes of limitations.

2 unchanged sentences

The Company uses contract manufacturers for its manufacturing operations.

Under these arrangements, the contract manufacturer procures inventory to manufacture products based upon our forecast of customer demand.

Under these arrangements, the contract manufacturer procures inventory to manufacture products based upon the Company’s forecast of customer demand.

The Company has similar arrangements with certain other suppliers.

1 unchanged sentence

Such a variance in forecasted demand could require a cash payment for inventory in excess of current customer demand or for costs of excess or obsolete inventory.

As of June 30, 2020, the Company had issued non-cancelable commitments for $ 19.2 million to purchase inventory from its contract manufacturers and suppliers.

As of September 30, 2020, the Company had issued non-cancelable commitments for $ 21.3 million to purchase inventory from its contract manufacturers and suppliers.

Legal Proceedings

12 unchanged sentences

On July 14, 2020, Starboard Value LP, Starboard Value and Opportunity Master Fund Ltd., Starboard Value and Opportunity S LLC, and Starboard Value and Opportunity C LP (collectively, “Starboard”) filed a lawsuit against Quantum Corporation, Quantum’s former CEO and board member Jon Gacek, and former Quantum board member Paul Auvil in the California Superior Court in Santa Clara County.

The complaint alleges that between 2012 and

2014, Starboard purchased a large number of shares of Quantum’s common stock, obtained three seats on Quantum’s board of directors and then, in July 2014, entered into an agreement with Quantum whereby Starboard would not seek control of Quantum’s board but would instead support Quantum’s slate of board nominees so long as Quantum met certain performance objectives by the end of fiscal 2015.

The complaint alleges that between 2012 and 2014, Starboard purchased a large number of shares of Quantum’s common stock, obtained three seats on Quantum’s board of directors and then, in July 2014, entered into an agreement with Quantum whereby Starboard would not seek control of Quantum’s board but would instead support Quantum’s slate of board nominees so long as Quantum met certain performance objectives by the end of fiscal 2015.

The complaint further alleges that Quantum did not meet those performance objectives but hid that by improperly recognizing revenue in fiscal 2015, with the alleged objective of entrenching Messrs.

5 unchanged sentences

Starboard is demanding a jury trial, and seeks unspecified damages including punitive damages, an award of rescission or rescissory damages, and award of restitution in an amount necessary to compensate for the alleged unjust enrichment of Quantum, attorney fees and costs and other relief deemed just or appropriate by the court.

At this time the Company is unable to estimate the range of possible outcomes with respect to this matter.

On September 14, 2020, all defendants filed a joint motion to dismiss this action on grounds of forum non conveniens and the mandatory Delaware forum selection clauses set forth in the contracts between Starboard and Quantum.

The parties have filed a stipulation, which is currently under review by the Court;

if approved, the stipulation would provide for a briefing schedule on the motion to continue through December 4, 2020, with oral argument on the motion to be held the week of December 14, 2020.

At this time, the Company is unable to estimate the range of poss ible outcomes with respect to this matter.

Other Commitments

Additionally, from time to time, the Company is a party to various legal proceedings and claims arising from the normal course of business activities.

Based on current available information, the Company does not expect that the ultimate outcome of any currently pending unresolved matters, individually or in the aggregate, will have a material adverse effect on the Company’s results of operations, cash flows or financial position.

Based on current available information, the Company does not expect that the ultimate outcome of any of these other currently pending unresolved matters, individually or in the aggregate, will have a material adverse effect on the Company’s results of operations, cash flows or financial position.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s assets, measured and recorded at fair value on a recurring basis, may consist of money market funds which are included in cash and cash equivalents in the Condensed Consolidated Balance Sheets and are valued using quoted market prices (level 1 fair value measurements) at the respective balance sheet dates.

No impairments charges were recognized for non-financial assets in the three months ended June 30, 2020 and 2019.

No impairments charges were recognized for non-financial assets in the six months ended September 30, 2020 and 2019.

The Company has no non-financial liabilities measured and recorded at fair value on a non-recurring basis.

Long-term Debt

The table below represents the carrying value and total estimated fair value of long-term debt as of June 30, 2020 and 2019.

The table below represents the carrying value and total estimated fair value of long-term debt as of September 30, 2020 and 2019.

The fair value has been classified as Level 2 within the fair value hierarchy.

September 30,

Carrying Value Fair Value Carrying Value Fair Value

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements