What changed in this filing

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Item 1. Financial Statements

2021-01-27 compared with 2020-10-28 · 138 added, 76 removed, 385 unchanged (36% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts, unaudited)

September 30, 2020 March 31, 2020

December 31, 2020 March 31, 2020

Current assets:

1 unchanged sentence

Restricted cash 766 830

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

Accounts receivable, net of allowance for doubtful accounts of $ 1,430 and $ 1,247 as of December 31, 2020 and March 31, 2020, respectively

69,440 70,370

4 unchanged sentences

Property and equipment, net 9,855 9,046

Intangible assets, net 5,503 —

Goodwill 3,447 —

Restricted cash 5,000 5,000

18 unchanged sentences

Preferred stock, 20,000 shares authorized;

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

no shares issued as of December 31, 2020 and March 31, 2020, respectively

Common stock, $ 0.01 par value;

125,000 shares authorized;

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

41,554 shares issued and outstanding as of December 31, 2020 and 39,905 as of March 31, 2020, respectively

Additional paid-in capital 526,307 505,762

Accumulated deficit ( 721,161 ) ( 703,164 )

Accumulated other comprehensive loss ( 513 ) ( 1,522 )

Accumulated other comprehensive income (loss) 462 ( 1,522 )

Total stockholders’ deficit ( 193,976 ) ( 198,525 )

2 unchanged sentences

QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts, unaudited)

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

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

15 unchanged sentences

Income from operations 6,093 11,675 6,098 18,623

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

Other expense, net ( 698 ) ( 611 ) ( 1,395 ) ( 446 )

Interest expense ( 7,808 ) ( 6,425 ) ( 21,823 ) ( 19,079 )

Net loss before income taxes ( 4,390 ) ( 2,072 ) ( 14,706 ) ( 5,541 )

Income tax provision 202 243 622 581

Net loss $ ( 4,592 ) $ ( 2,315 ) $ ( 15,328 ) $ ( 6,122 )

Net loss per share - basic and diluted $ ( 0.11 ) $ ( 0.06 ) $ ( 0.38 ) $ ( 0.17 )

Weighted average shares - basic and diluted 40,286 36,297 40,097 36,172

Net loss $ ( 4,592 ) $ ( 2,315 ) $ ( 15,328 ) $ ( 6,122 )

Net income (loss) before income taxes ( 2,413 ) 4,639 ( 17,120 ) ( 902 )

Income tax provision (benefit) 256 ( 110 ) 877 471

Net income (loss) $ ( 2,669 ) $ 4,749 $ ( 17,997 ) $ ( 1,373 )

Net income (loss) per share - basic $ ( 0.07 ) $ 0.12 $ ( 0.45 ) $ ( 0.04 )

Net income (loss) per share - diluted $ ( 0.07 ) $ 0.10 $ ( 0.45 ) $ ( 0.04 )

Weighted average shares - basic 40,927 38,134 40,374 36,828

Weighted average shares - diluted 40,927 46,567 40,374 36,828

Net income (loss) $ ( 2,669 ) $ 4,749 $ ( 17,997 ) $ ( 1,373 )

Foreign currency translation adjustments, net 975 839 1,984 449

Total comprehensive loss $ ( 3,870 ) $ ( 2,789 ) $ ( 14,319 ) $ ( 6,512 )

Total comprehensive income (loss) $ ( 1,694 ) $ 5,588 $ ( 16,013 ) $ ( 924 )

See accompanying Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands, unaudited)

Six Months Ended September 30,

Nine Months Ended December 31,

Operating activities

8 unchanged sentences

Deferred income taxes 6 242

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

Unrealized foreign exchange loss 1,984 479

Changes in assets and liabilities:

10 unchanged sentences

Purchases of property and equipment ( 4,665 ) ( 2,327 )

Business acquisition, net of cash acquired ( 2,636 ) —

Net cash used in investing activities ( 7,301 ) ( 2,327 )

1 unchanged sentence

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

Repayments of long-term debt — ( 825 )

Borrowings of credit facility 232,663 245,590

10 unchanged sentences

Cash paid for interest $ 19,992 $ 15,942

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

Cash paid (received) for income taxes, net of refunds $ ( 2,464 ) $ 155

Non-cash transactions

13 unchanged sentences

Common Stock Additional

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

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

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 )

Balance, September 30, 2019

36,717 $ 368 $ 502,398 $ ( 704,076 ) $ ( 1,800 ) $ ( 203,110 )

Net income — — — 4,749 — 4,749

Foreign currency translation adjustments, net — — — — 839 839

Shares issued under employee incentive plans, net 355 3 ( 4 ) — — ( 1 )

Warrants exercised related to long-term debt, net 2,783 28 ( 28 ) — — —

Stock-based compensation — — 2,056 — — 2,056

Balance, December 31, 2019

39,855 $ 399 $ 504,422 $ ( 699,327 ) $ ( 961 ) $ ( 195,467 )

Balance, September 30, 2020

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

40,740 $ 408 $ 522,357 $ ( 718,492 ) $ ( 513 ) $ ( 196,240 )

Net loss — — — ( 2,669 ) — ( 2,669 )

Foreign currency translation adjustments, net — — — — 975 975

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

Shares issued under employee incentive plans, net 453 5 ( 5 ) — — —

Shares issued in connection with business acquisition 361 3 2,077 — — 2,080

Stock-based compensation — — 1,878 — — 1,878

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

Balance, December 31, 2020

41,554 $ 416 $ 526,307 $ ( 721,161 ) $ 462 $ ( 193,976 )

See accompanying Notes to Condensed Consolidated Financial Statements.

Common Stock Additional

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

Six Months Ended Shares Amount

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

Nine Months Ended Shares Amount

Balance, March 31, 2019

36,040 $ 360 $ 499,224 $ ( 697,954 ) $ ( 1,410 ) $ ( 199,780 )

Net loss — — — ( 1,373 ) — ( 1,373 )

1 unchanged sentence

Shares issued under employee incentive plans, net 1,032 11 ( 182 ) — ( 171 )

Warrants exercised related to long-term debt, net 2,783 28 ( 28 ) — — —

Stock-based compensation — — 5,408 — — 5,408

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

Balance, December 31, 2019

39,855 $ 399 $ 504,422 $ ( 699,327 ) $ ( 961 ) $ ( 195,467 )

Balance, March 31, 2020

39,905 $ 399 $ 505,762 $ ( 703,164 ) $ ( 1,522 ) $ ( 198,525 )

Net loss — — — ( 17,997 ) — ( 17,997 )

2 unchanged sentences

Shares issued under employee incentive plans, net 1,155 12 ( 12 ) — — —

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

Shares issued in connection with business acquisition 361 3 2,077 — — 2,080

Shares surrendered for employees' tax liability upon settlement of restricted stock units — — — — — —

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

Stock-based compensation — — 6,428 — — 6,428

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

Balance, December 31, 2020

41,554 $ 416 $ 526,307 $ ( 721,161 ) $ 462 $ ( 193,976 )

See accompanying Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

Description of Business and Summary of Significant Accounting Policies

Business Combination

Long-Term Debt

Restructuring Charges

Net Loss Per Share

Net Income (Loss) Per Share

Commitments and Contingencies

13 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 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.

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 December 31, 2020, the results of operations and comprehensive income (loss) and changes in stockholder's deficit for the three and nine months ended December 31, 2020 and 2019, and the statement of cash flows for the nine months ended December 31, 2020 and 2019.

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

COVID-19 Risks and Uncertainties

Quantum is subject to the risks arising from COVID-19 which have caused substantial financial market volatility and have adversely affected both the U.S.

Quantum is subject to risks arising from COVID-19 which have caused substantial financial market volatility and have adversely affected both the U.S.

and the global economy.

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

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

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.

While the Company’s supply chain remains intact and operating, it has experienced issues related to its logistics network.

The reduced capacity within and across freight lanes (aircraft, personnel, customs clearance, etc.) has caused late deliveries from re-routes and mis-shipments, as well as increased expedite and other charges to deliver and receive products.

7 unchanged sentences

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 may result from the pandemic.

On November 25, 2020, the Company filed a shelf registration statement on Form S-3 for the issuance common stock, preferred stock, debt securities, warrants, units or rights, from time to time, in one or more offerings up to an aggregate of $ 200 million (the “Registration Statement”).

On November 25, 2020 the Company entered into a Sales Agreement with B.Riley Securities, Inc.

Riley”) and filed a prospectus supplement to the Registration Statement to establish an at-the-market equity offering program (the “ATM Program”) pursuant to which the Company may, from time to time, sell shares of the Company’s common stock up to an aggregate of $ 50 million through B.

Riley, as the Company’s sales agent.

The Company pays B.

Riley a commission equal to 3 % of the gross proceeds the Company receives from sales of common stock under the ATM Program.

During the three and nine months ended December 31, 2020, the Company did not issue any shares under the ATM Program.

As of December 31, 2020, the Company had $ 50 million available for sale of common stock under the ATM Program.

Fair Value Measurements

20 unchanged sentences

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.

We plan to adopt this pronouncement for our fiscal year ending March 31, 2022, 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.

5 unchanged sentences

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

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

Three Months Ended December 31, Nine Months Ended December 31,

Primary storage systems $ 18,755 $ 17,744 $ 42,547 $ 43,516

19 unchanged sentences

Total revenue $ 98,023 $ 103,315 $ 257,149 $ 314,734

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

1 Primary and Secondary storage system revenue has been adjusted for December 31, 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 six months ended September 30, 2020 (in thousands):

September 30, 2020

The following table presents the Company’s contract liabilities and certain information related to this balance as of and for the nine months ended December 31, 2020 (in thousands):

December 31, 2020

Contract liabilities (deferred revenue) $ 110,007

6 unchanged sentences

Current Non-Current Total

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

As of December 31, 2020

$ 89,655 $ 37,169 $ 126,824

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

September 30, 2020 March 31, 2020

December 31, 2020 March 31, 2020

Finished goods:

6 unchanged sentences

Service parts inventories

September 30, 2020 March 31, 2020

December 31, 2020 March 31, 2020

Finished goods $ 17,707 $ 15,845

1 unchanged sentence

Total service parts inventories $ 22,998 $ 20,502

BUSINESS COMBINATION

On December 12, 2020 (the “Close Date”), the Company entered into a Stock Purchase Agreement (the “SPA”) to acquire all of the issued and outstanding shares of Square Box Systems Limited (“SBS”).

The acquisition builds on Quantum's recently expanded portfolio that classifies, manages, and protects data across its lifecycle by adding technology advancements to further enrich video, digital images and other forms of unstructured data.

The purchase price of approximately $ 7.7 million was comprised of (a) $ 2.6 million cash (net of cash acquired);

(b) approximately 0.4 million shares of the Company’s common stock, with a fair value of $ 2.1 million;

and (d) $ 1.0 million cash payable at the second anniversary of the Closing Date.

The purchase price was allocated to tangible assets of approximately $ 0.8 million, intangible assets of approximately $ 5.6 million based on their fair values on the acquisition date, liabilities of approximately $ 1.0 million, and a net deferred tax liability of $ 1.1 million.

The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed was approximately $ 3.4 million, which has been recorded as goodwill.

The historical results of operations for SBS were not significant to the Company's consolidated results of operations for the periods presented.

Certain estimated values for the acquisition, including goodwill and intangible assets, are not yet finalized and are subject to revision as additional information becomes available and more detailed analyses are completed.

The following table summarizes intangible assets related to the SBS acquisition as of December 31, 2020:

Three and Nine Months Ended December 31, 2020

Gross Carrying Value Accumulated Amortization Net Carrying Amount

Developed technology $ 4,700 $ ( 81 ) $ 4,619

Customer lists 900 ( 16 ) 884

Intangible assets, net $ 5,600 $ ( 97 ) $ 5,503

Intangible assets amortization expense for the three and nine months ended December 31, 2020 was $ 0.1 million.

As of December 31, 2020, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 3.0 years.

As of December 31, 2020, the future expected amortization expense for intangible assets is as follows (in thousands):

Fiscal year ending Estimated future amortization expense

Remainder of 2021 $ 465

Total $ 5,503

LONG-TERM DEBT

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

September 30, 2020 March 31, 2020

December 31, 2020 March 31, 2020

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

37 unchanged sentences

Approximately $ 0.8 million in third party costs were expensed related to the Term Loan Amendments.

On December 10, 2020, the Company amended the Senior Secured Term Loan agreement to, among other things, allow the SBS acquisition.

Amended PNC Credit Facility

11 unchanged sentences

In connection with the modifications, the Company incurred $ 0.5 million in fees paid to the lenders which was recorded to other assets and is amortized to interest expense over the remaining term of the Amended PNC Credit Facility.

On December 10, 2020, the Company amended the Amended PNC Credit Facility to, among other things, allow the

SBS acquisition.

The amendment added a covenant requiring the Company to maintain at least $ 30.0 million average liquidity (the “Average Liquidity Requirement”), as defined in the Amended PNC Credit Facility, for the preceding thirty days measured as of the last day of each month.

If the Average Liquidity Requirement has not been satisfied during the period prior to the payment of the SBS Deferred Purchase Price, a reserve will be established to reduce borrowings availability under the Amended PNC Credit Facility in an amount equal to (a) $ 2.0 million during the period from the amendment date through the first anniversary of the amendment, and, (b) $ 1.0 million during the period from the first anniversary of the amendment through the second anniversary of the amendment

Registration Rights Agreement

3 unchanged sentences

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.

As of December 31, 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 December 31, 2020, the Amended PNC Credit Facility had a borrowing base of $ 27.0 million, of which $ 19.2 million was available at that date.

As of December 31, 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 December 31, 2020.

Paycheck Protection Program

On April 13, 2020, the Company entered into a Paycheck Protection Program (“PPP”) Term Loan (“PPP Loan”) effective April 11, 2020 with PNC in an aggregate principal amount of $ 10.0 million pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

The PPP Loan bears interest at a fixed rate of 1 % per annum, with interest deferred up to a maximum of 10 months after the expiration of the covered period, as defined in the PPP Loan agreement, payable monthly thereafter.

The PPP Loan bears interest at a fixed rate of 1 % per annum.

The PPP Loan has an initial term of two years and is unsecured and guaranteed by the Small Business Administration.

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 has applied 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 Loan 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 is as follows (in thousands):

Operating leases September 30, 2020 March 31, 2020

Operating leases December 31, 2020 March 31, 2020

Operating lease right-of-use asset $ 10,096 $ 12,689

3 unchanged sentences

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

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

Three Months Ended December 31, 2020 Nine Months Ended December 31,

Lease Cost 2020 2019 2020 2019

5 unchanged sentences

For the fiscal year ended March 31,

2021, excluding the six months ended September 30, 2020

2021, excluding the nine months ended December 31, 2020

Thereafter 2,948

2 unchanged sentences

Present value of lease liabilities $ 11,306

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

Lease Term and Discount Rate December 31, 2020 March 31, 2020

Weighted average remaining operating lease term (years) 4.66 4.99

Weighted average discount rate for operating leases 13.97 % 13.91 %

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

Operating cash outflows related to operating leases totaled $ 4.4 million and $ 3.4 million for the nine months ended December 31, 2020 and 2019, respectively.

RESTRUCTURING CHARGES

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):

The following table summarizes the restructuring activities for the nine months ended December 31, 2020 and 2019 (in thousands):

Severance and Benefits Facilities Total

2 unchanged sentences

Cash payments ( 2,627 ) — ( 2,627 )

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

Balance as of December 31, 2020

$ 210 $ — $ 210

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

2 unchanged sentences

Cash payments — ( 3,659 ) ( 3,659 )

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

NET LOSS PER SHARE

Other non-cash 63 63

Balance as of December 31, 2019

$ — $ 300 $ 300

NET INCOME (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 September 30, Six Months Ended September 30,

Three Months Ended December 31, 2020 Nine Months Ended December 31,

2020 2019 2020 2019

2 unchanged sentences

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 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.

For the three and nine months ended December 31, 2020, there were 1.5 million and 0.4 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 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 effective tax rate for the three and nine months ended December 31, 2020 was - 10.6 % and - 5.1 %, respectively as compared to - 2.7 % and - 52.2 % in the three and nine months ended December 31, 2019, respectively.

The effective tax rates differed from the federal statutory tax rate of 21% during each of these 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 December 31, 2020, including interest and penalties, the Company had $ 110.4 million of unrecognized tax benefits, $ 92.1 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance.

As of December 31, 2020, the Company had accrued interest and penalties related to these unrecognized tax benefits of $ 1.3 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 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.

As of December 31, 2020, $ 103.6 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 $ 6.8 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.

6 unchanged sentences

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

As of December 31, 2020, the Company had issued non-cancelable commitments for $ 18.9 million to purchase inventory from its contract manufacturers and suppliers.

Legal Proceedings

8 unchanged sentences

In those proceedings the asserted claims of the ’506 patent, the ’992 patent, and the ’513 patent were found unpatentable.

In addition, on July 19, 2019, all claims of the ’728 patent, the ’530 patent, and the ’908 patent were found invalid under 35 U.S.C.

The stay remains in effect pending Realtime’s appeal of those rulings.

In addition, on July 19, 2019, the United States District Court for the District of Delaware issued a decision finding that all claims of the ’728 patent, the ’530 patent, and the ’908 patent are invalid under 35 U.S.C.

§ 101 (the “Delaware Action”).

On appeal, the Federal Circuit vacated the decision in the Delaware Action and remanded for the Court to “elaborate on its ruling.” As of now, the case pending against Quantum in the Northern District of California remains stayed.

The Court in the Northern District of California has scheduled a Case Management Conference for March 29, 2021 and will decide at that point whether to keep the stay in place pending further developments in the Delaware Action or lift the stay and set a schedule for discovery and other proceedings.

The Company believes the probability that this lawsuit will have a material adverse effect on our business, operating results or financial condition is remote.

9 unchanged sentences

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.

On November 19, 2020, Starboard filed a first amended complaint, in which Quantum was not named as a defendant and therefore, in effect Quantum has been dismissed from the action and is no longer a party.

The first amended complaint reasserts with only minor modifications the existing claims against Messrs.

Gacek and Auvil, and adds a new claim against Messrs.

Gacek and Auvil, alleging that they aided and abetted Quantum in committing a fraud on plaintiffs by intentionally or recklessly misrepresenting its financial performance and concealing the misstatements to allow the alleged fraud to continue.

The amended complaint seeks no relief from Quantum.

However, Quantum expects to continue to incur expenses related to this litigation, subject to potential offset from insurance.

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

Other Commitments

3 unchanged sentences

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 six months ended September 30, 2020 and 2019.

No impairments charges were recognized for non-financial assets in the nine months ended December 31, 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 September 30, 2020 and 2019.

The table below represents the carrying value and total estimated fair value of long-term debt as of December 31, 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

Senior Secured Term Loan $ 185,208 $ 188,471 $ 163,350 $ 159,054

Amended PNC Credit Facility 5,960 5,812 5,289 3,880

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