What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-05-26 compared with 2020-06-24 · 467 added, 482 removed, 605 unchanged (61% of the section changed)

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Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2021, based on the criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2020 due to the adoption of Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842), using the modified retrospective transition method.

Basis for Opinion

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting.

Basis for Opinions

Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

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Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audits of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

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A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(2) provide reasonable

assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the consolidated financial statements.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Emphasis of Matter - COVID-19

As described in Note 1 to the consolidated financial statements, the World Health Organization has declared COVID-19 a global pandemic leading to broader global economic uncertainties.

The measures taken by government agencies to slow the progression of the disease are uncertain and may adversely affect the Company’s result of operations, cash flows and financial position.

Our opinions are not modified with respect to this matter.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition — Refer to Note 1 to the Consolidated Financial Statements

Critical Audit Matter Description

The Company recognizes revenue from sales of products as control is transferred to customers, which generally occurs at the point of shipment or upon delivery, unless customer acceptance is uncertain.

Revenue from distributors is recognized when the customer obtains control of the product, which generally occurs at the point of shipment or upon delivery, unless customer acceptance is uncertain.

Net sales for the fiscal year ended March 31, 2021 was $349.6 million, which principally consist of product sales.

We identified the timing of revenue recognition for product sales (i.e., whether the Company recorded product sales in the appropriate fiscal year) as a critical audit matter because of the significant judgments used when applying Accounting Standards Codification Topic 606 – Revenue from Contracts with Customers – to contracts with customers.

The Company utilizes a broad network of distributors, value-added resellers (“VARs”), direct marketing resellers (“DMRs”), original equipment manufacturers (“OEMs”) and other suppliers ship products and fulfill performance obligations.

This made auditing the timing of revenue recognition for product sales challenging and required significant audit effort to validate the timing of revenue recognition.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the timing of revenue recognition for product sales included the following, among others:

• We tested the effectiveness of internal controls over the timing of revenue recognition.

• We selected a sample of product sales obtained the invoice, purchase order, customer contract or agreement, packing list, bill of lading, proof of delivery, and evidence of cash collection, to validate revenue was recognized in the appropriate fiscal year.

• We selected a sample of product sales for the year and examined the related contract to validate no customer acceptance clauses existed that would preclude revenue recognition.

• We selected a sample of credit memos from the period immediately subsequent to the Company’s fiscal year end and the related invoice, return merchandise authorization form, and shipping documents, to and validated revenue was recognized in the fiscal year ended March 31, 2021 only when control was transferred to the customer and if applicable, customer acceptance had occurred.

• We obtained and evaluated internal certifications provided by the Company’s sales employees to validate no side agreements existed that could impact the timing of revenue recognition.

Inventories – Excess and Obsolescence Reserve — Refer to Note 1 to the Consolidated Financial Statements

Critical Audit Matter Description

The Company’s manufacturing and service parts inventories are recorded on a first-in, first-out (“FIFO”) basis, subject to the lower of cost or net realizable value, and as necessary, the Company writes down the valuation of inventories for excess and obsolescence.

Provision for manufacturing and service inventories for the fiscal year ended March 31, 2021 was $12.8 million.

We identified the excess and obsolescence write-down as a critical audit matter because of the judgment’s management makes to estimate the excess and obsolescence write-downs.

This required a high degree of auditor judgment and significant effort to validate the methodology and the reasonableness of the excess and obsolescence write-downs.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company’s excess and obsolescence write-down included the following procedures, among others:

• We tested the effectiveness of internal controls over inventory valuation.

• We gained an understanding and evaluated the Company’s methodology for determining inventory that is excess or obsolete and the key assumptions and judgments made as part of the process.

• We evaluated the assumptions used by the Company to define what is considered aged inventory by assessing historical trends in the Company’s product life cycle as well as evaluating the underlying calculations applied to the aged inventory.

• We evaluated the inventory valuation utilizing the methodology above to assess the inventory write-down rate applied to different products.

/s/ Armanino LLP

San Ramon, California

June 24, 2020

We have served as the Company's auditor since 2019.

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Restricted cash 707 830

Accounts receivable, net of allowance for doubtful accounts of $1,2 47 a nd $68, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 406 and $ 1,247 , respectively

73,102 70,370

Manufacturing inventories 24,467 29,196

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Property and equipment, net 10,051 9,046

Intangible assets, net 5,037 —

Goodwill 3,466 —

Restricted cash 5,000 5,000

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Other long-term assets 5,921 3,433

Total assets $ 194,924 $ 165,995

Liabilities and Stockholders’ Deficit

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Long-term debt, net of current portion 90,890 146,847

Operating lease liability

Operating lease liabilities 8,005 10,822

Other long-term liabilities 13,058 11,154

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Year Ended March 31,

2021 2020 2019

Product $ 209,808 $ 251,168 $ 244,654

Service 124,904 131,050 134,696

Royalty 14,864 20,731 23,330

Total revenue 349,576 402,949 402,680

Cost of revenue:

Product 150,257 179,760 179,846

Service 48,566 50,681 55,220

Total cost of revenue 198,823 230,441 235,066

Gross profit 150,753 172,508 167,614

Operating expenses:

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Income (loss) from operations

8,403 21,204 ( 4,746 )

Other income (expense), net ( 1,312 ) ( 261 ) 2,878

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Net loss before income taxes

Income tax provision (benefit)

( 35,220 ) ( 4,407 ) ( 40,421 )

Income tax provision 239 803 2,376

Net loss $ ( 35,459 ) $ ( 5,210 ) $ ( 42,797 )

Net loss per share - basic and diluted $ ( 0.83 ) $ ( 0.14 ) $ ( 1.20 )

Weighted average shares - basic and diluted 42,852 37,593 35,551

Net loss $ ( 35,459 ) $ ( 5,210 ) $ ( 42,797 )

Foreign currency translation adjustments, net 666 ( 112 ) ( 1,136 )

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Year Ended March 31,

2021 2020 2019

Operating activities

$ ( 35,459 ) $ ( 5,210 ) $ ( 42,797 )

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

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Amortization of debt issuance costs 6,301 4,017 2,825

Long-term debt related costs 167 — —

Paid-in-kind interest — 1,858 —

Provision for manufacturing and service inventories 6,334 6,255 8,851

Tax benefit from settlement and Tax Reform Act

Non-cash income tax benefit ( 577 ) — —

Stock-based compensation 9,624 6,748 3,409

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Bad debt expense ( 573 ) 1,221 315

Unrealized foreign exchange (gain) loss

Unrealized foreign exchange (gain) loss, net of income taxes 1,243 128 ( 224 )

Non-cash loss on debt extinguishment 10,087 — 17,851

(Gain) loss on investment

Gain on investment — — ( 2,729 )

Other non-cash — — 1,795

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Net cash used in operating activities

( 767 ) ( 1,181 ) ( 16,859 )

Investing activities

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Cash distributions from investments — — 2,943

Business acquisition

Business acquisitions ( 2,655 ) ( 1,966 ) —

Net cash provided by (used in) investing activities

( 9,586 ) ( 4,599 ) 235

Financing activities

Borrowings of long-term debt and credit facility

Repayments of long-term debt and credit facility

Repayments of convertible subordinated debt

Borrowings of long-term debt 19,400 — 186,780

Repayments of long-term debt ( 92,782 ) ( 1,238 ) ( 121,807 )

Borrowings of credit facility 309,920 331,632 320,927

Repayments of credit facility ( 313,065 ) ( 329,012 ) ( 369,336 )

Borrowings of paycheck protection program 10,000 — —

Proceeds from secondary offering, net 96,756 — —

Payment of taxes due upon vesting of restricted stock ( 236 ) ( 171 ) ( 354 )

Proceeds from issuance of common stock 1,335 — —

Net cash provided by (used in) financing activities

Net cash provided by financing activities 31,328 1,211 16,210

Effect of exchange rate changes on cash and cash equivalents ( 108 ) ( 16 ) 62

Net change in cash, cash equivalents, and restricted cash 20,867 ( 4,585 ) ( 352 )

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Cash, cash equivalents, and restricted cash at beginning of period 12,270 16,855 17,207

Cash, cash equivalents, and restricted cash at end of period $ 33,137 $ 12,270 $ 16,855

Supplemental disclosure of cash flow information

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Purchases of property and equipment included in accounts payable $ 258 $ 368 $ 105

Purchases of property and equipment included in accrued liabilities $ 1,212 $ — $ —

Transfer of inventory to property and equipment $ 429 $ 400 $ 408

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(in thousands)

Paid-in Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

Total Stockholders' Deficit

Common Stock Additional

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

Shares Amount

Balance, March 31, 2018 35,443 354 481,610 ( 655,157 ) ( 274 ) ( 173,467 )

Net loss — — — ( 42,797 ) — ( 42,797 )

Foreign currency translation adjustments, net — — — — ( 1,136 ) ( 1,136 )

Shares issued under employee stock purchase plan

Shares issued under employee incentive plans, net 597 6 ( 360 ) — — ( 354 )

Share-based compensation

Stock-based compensation — — 3,409 — — 3,409

Reclassifications of liability classified warrants to equity — — 14,565 — — 14,565

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

Net loss — — — ( 5,210 ) — ( 5,210 )

Foreign currency translation adjustments, net — — — — ( 112 ) ( 112 )

Shares issued under employee incentive plans, net 1,082 11 ( 182 ) — — ( 171 )

Share-based compensation

Reclassifications of liability classified warrants to equity

Shares issued from warrants exercised, net 2,783 28 ( 28 ) — — —

Stock-based compensation — — 6,748 — — 6,748

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

Foreign currency translation adjustments, net

Net loss — — — ( 35,459 ) — ( 35,459 )

Foreign currency translation adjustments, net of income taxes — — — — 666 666

Shares issued under employee stock purchase plan 320 4 1,331 — — 1,335

Shares issued under employee incentive plans, net 1,264 13 ( 13 ) — — —

Shares issued from warrants exercised, net

Share-based compensation

Shares surrendered for employees' tax liability upon settlement of restricted stock units ( 44 ) — ( 236 ) — — ( 236 )

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

Shares issued in connection with secondary equity offering, net 15,109 151 96,604 — — 96,755

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

Stock-based compensation — — 9,624 — — 9,624

Balance, March 31, 2021 56,915 $ 570 $ 626,664 $ ( 738,623 ) $ ( 856 ) $ ( 112,245 )

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Revenue Recognition

Business Acquisition

Balance Sheet Information

Restructuring Charges

Stock Incentive Plans and Share-Based Compensation

Net Loss Per Share

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Fair Value of Financial Instruments

Subsequent Events

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Description of Business

Quantum Corporation, together with its consolidated subsidiaries (“Quantum” or the “Company”), was founded in 1980 and reincorporated in Delaware in 1987, and is headquartered in San Jose, California.

The Company is a leader in storing and managing digital video and other forms of unstructured data, delivering top streaming performance for video and rich media applications, along with low-cost, long-term storage systems for data protection and archiving.

Quantum Corporation, together with its consolidated subsidiaries (“Quantum” or the “Company”), is a leader in storing and managing digital video and other forms of unstructured data, delivering top streaming performance for video and rich media applications, along with low-cost, long-term storage systems for data protection and archiving.

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

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To determine whether or not the entity is consolidated with the Company’s results, the Company also evaluates which interests are variable interests in the VIE and which party is the primary beneficiary of the VIE.

COVID-19 Risks and Uncertainties

We are subject to the 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.

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.

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

To date, we have experienced minimal impact on product availability, although future capacity constraints across the network due to lost capacity from factory down time, closures, as well as reduced staff and demand signal fluctuations are expected to impact product availability in the months and possibly quarters to come.

We believe that these social and economic impacts have had a negative effect on sales due to the decline in our customers' ability or willingness to purchase our products and services.

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

Our management continues to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

Principles of Consolidation

The consolidated financial statements include the accounts of Quantum and our wholly owned subsidiaries.

The consolidated financial statements include the accounts of Quantum and its wholly owned subsidiaries.

All intercompany accounts and transactions have been eliminated.

Use of Estimates

Company management has made estimates and assumptions relating to the reporting of certain assets and liabilities in conformity with U.S.

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.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes.

Actual results could differ from these estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment from the ongoing COVID-19 pandemic.

Such estimates include, but are not limited to, the determination of standalone selling price for revenue arrangements with multiple performance obligations, useful lives of intangible assets and property and equipment, stock-based compensation and provision for income taxes including related reserves.

Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Cash and Cash Equivalents

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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 3 liabilities.

The Company's financial instruments consist of Level 3 liabilities.

Manufacturing Inventories

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Adjustments to reduce the cost of manufacturing inventory to its net realizable value, if required, are made for estimated excess, obsolete or impaired balances.

Factors influencing these adjustments include declines in demand, rapid technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues.

Factors influencing these adjustments include declines in demand, rapid technological changes, product life cycle and development plans, component cost trends,

product pricing, physical deterioration and quality issues.

Revisions to these adjustments would be required if these factors differ from the Company’s estimates.

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Property and equipment are carried at cost, less accumulated depreciation and amortization, computed on a straight-line basis over the estimated useful lives of the assets as follows:

Machinery and equipment

Computer equipment

Other software

Furniture and fixtures

Other office equipment

Leasehold improvements

Shorter of useful life or life of lease

Machinery and equipment 3 to 5 years

Computer equipment 3 to 5 years

Enterprise resource planning software (1) 10 years

Other software 3 years

Furniture and fixtures 5 years

Other office equipment 5 years

Leasehold improvements Shorter of useful life or life of lease

(1) Included in other long-term assets in the accompanying consolidated balance sheets.

When assets are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the consolidated statements of operations and comprehensive income (loss) in the period realized.

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Judgment is used when applying these impairment rules to determine the timing of impairment testing, the undiscounted cash flows used to assess impairments and the fair value of the asset group.

Business Combinations

The Company allocates the purchase price to the assets acquired and liabilities assumed based on their estimated fair values.

The excess of the purchase price over the fair values of the assets acquired and liabilities assumed is recorded as goodwill.

During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

The results of operations of an acquired business is included in its consolidated financial statements from the date of acquisition.

Acquisition-related expenses are expensed as incurred.

Goodwill represents the excess of the purchase price consideration over the estimated fair value of the tangible and intangible assets acquired and liabilities assumed in a business combination.

Goodwill is evaluated for impairment annually in the third quarter of its fiscal year as a single reporting unit, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

The Company may elect to

qualitatively assess whether it is more likely than not that the fair value of its reporting unit is less than its carrying value.

If the Company opts not to qualitatively assess, a quantitative goodwill impairment test is performed.

The quantitative test compares its reporting unit's carrying amount, including goodwill, to its fair value calculated based on its enterprise value.

If the carrying amount exceeds its fair value, an impairment loss is recognized for the excess.

The Company did not recognize any impairment of goodwill in any of the periods presented in the consolidated financial statements.

Purchased Intangible Assets

Purchased intangible assets with finite lives are stated at cost, net of accumulated amortization.

The Company amortizes its intangible assets on a straight-line basis over an estimated useful life of three to seven years .

Impairment of Long-Lived Assets

We review our long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

We measure the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate.

If the total of the future undiscounted cash flows is less than the carrying amount of an asset, we record an impairment charge for the amount by which the carrying amount of the asset exceeds its fair market value.

Operating Leases

The Company determines if an arrangement contains a lease at inception.

Lease liabilities are recognized at the present value of the future lease payments at commencement date.

The interest rate implicit in the Company's operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future payments.

The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments.

The operating lease right-of-use ("ROU") asset is determined based on the lease liability initially established and reduced for any prepaid lease payments and any lease incentives.

The Company accounts for the lease and non-lease components of operating lease contract consideration as a single lease component.

Certain of the operating lease agreements contain rent concession, rent escalation, and option to renew provisions.

Rent concession and rent escalation provisions are considered in determining the lease cost.

Lease cost is recognized on a straight-line basis over the lease term commencing on the date the Company has the right to use the leased property.

The Company generally uses the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that an extension or termination option will be exercised.

In addition, certain operating lease agreements contain tenant improvement allowances from the Company's landlords.

These allowances are accounted for as lease incentives and reduce its ROU asset and lease cost over the lease term.

For short-term leases with lease term no longer than twelve months, and do not include an option to purchase the underlying asset that is reasonably certain to be exercise, the Company recognizes rent expense in the Company's consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.

Deferred Revenue

Deferred revenue primarily consists of amounts that have been invoiced but have not yet been recognized as revenue and performance obligations pertaining to subscription services.

The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the consolidated balance sheet dates.

Revenue recognition

The Company generates revenue from three main sources:

(1) product, (2) professional services, and (3) royalties.

Sales tax collected on sales is netted against government remittances and thus, recorded on a net basis.

Company's performance obligations are satisfied at a point in time or over time as stand ready obligations.

The majority of revenue is recognized at a point in time when products are accepted, installed or delivered.

Product Revenue

The Company's product revenue is comprised of multiple storage solution hardware and software offerings targeted towards consumer and enterprise customers.

Revenue from product sales is recognized at the point in time when the customer takes control of the product.

If there are significant post-delivery obligations, the related revenue is deferred until such obligations are fulfilled.

Revenue from contracts with customer acceptance criteria are recognized upon end user acceptance.

Service Revenue

Service revenue primarily consists of three components:

(1) post-contract customer support agreements.

(2) installation, and (3) consulting & training.

Customers have the option to choose between different levels of hardware and software support.

The Company's support plans include various stand-ready obligations such as technical assistance hot-lines, replacement parts maintenance, and remote monitoring that are delivered whenever called upon by its customers.

Support plans provide additional services and assurance outside the scope of the Company's primary product warranties.

Revenue from support plans are recognized ratably over the contractual term of the service contract.

The Company offers installation services on all its products.

Customers can opt to either have Quantum or a Quantum-approved third-party service provider install its products.

Installation services are typically completed within a short period of time and revenue from these services are recognized at the point when installation is complete.

A majority of the Company's consulting and training revenue does not take significant time to complete therefore these obligations are satisfied upon completion of such services at a point in time.

Royalty Revenue

The Company licenses certain intellectual property to third party manufacturers which gives the manufacturers rights to intellectual property including the right to either manufacture or include the intellectual property in their products for resale.

Licensees pay the Company a per-unit royalty for sales of their products that incorporate its intellectual property.

On a periodic and timely basis, the licensees provide us with reports containing units sold to end users subject to the royalties.

The reports substantiate that the performance obligation has been satisfied therefore revenue is recognized based on the reports or when amounts can be reasonably estimated.

Significant Judgements

The Company generally enters into contracts with customers to provide storage solutions to meet their individual needs.

Most of the Company’s contracts contain multiple goods and services designed to meet each customers’ unique storage needs.

Contracts with multiple goods and services have multiple distinct performance obligations as the promise to transfer hardware, installation services, and support services are capable of being distinct and provide economic benefit to customers on their own.

Stand-alone selling price

For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price (“SSP”) of the good or service underlying each performance obligation.

The SSP represents the amount for which the Company would sell the good or service to a customer on a standalone basis (i.e., not sold as a bundle with any other products or services).

Where SSP may not be directly observable (e.g., the performance obligation is not sold separately), the Company maximized the use of observable inputs by using information including reviewing discounting practices, performance obligations with similar customers and product groupings.

The Company evaluated all methods included in ASC 606 to determine SSP and concluded that invoice price is the best representation of what the Company expects to receive from the delivery of each performance obligation.

Variable consideration

Product revenue includes multiple types of variable consideration, such as rebates, returns, or stock rotations.

All contracts with variable consideration require payment upon satisfaction of the performance obligation typically with net 45-day payment terms.

The Company does not include significant financing components in its contracts.

The Company constrains estimates of variable consideration to amounts that are not expected to result in a significant revenue reversal in the future, primarily based on the most likely level of consideration to be returned to the customer under the specific terms of the underlying programs.

The expected value method is used to estimate the consideration expected to be returned to the customer.

The Company uses historical data and current trends to drive the estimates.

The Company records a reduction to revenue to account for these programs.

The Company initially measures this asset at the carrying amount of the inventory, less any expected costs to recover the goods including potential decreases in the value of the returned goods.

Cost of Service Revenue

The Company classifies expenses as service cost of revenue by estimating the portion of our total cost of revenue that relates to providing field support to our customers under contract.

The Company classifies expenses as service cost of revenue by estimating the portion of its total cost of revenue that relates to providing field support to its customers under contract.

These estimates are based upon a variety of factors, including the nature of the support activity and the level of infrastructure required to support the activities from which it earns service revenue.

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The Company expenses software-related research and development costs as incurred.

Research and development costs were $36.3 million , $32.1 million , and $38.6 million in fiscal 2020 , 2019 and 2018 , respectively.

Advertising Expense

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Income and expense accounts are translated at the average monthly exchange rates during the year.

Resulting translation adjustments are reported as a component of other comprehensive income (loss) and recorded in accumulated other comprehensive loss on our consolidated balance sheets.

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes in which deferred tax asset and liabilities are recognized based on differences between the financial reporting carrying values of assets and liabilities and the tax basis of those assets and liabilities, measured at the enacted tax rates expected to apply to taxable income in the years in which those tax assets or liabilities are expected to be realized or settled.

Resulting translation adjustments are reported as a component of other comprehensive income (loss) and recorded in accumulated other comprehensive loss on its consolidated balance sheets.

and liabilities and the tax basis of those assets and liabilities, measured at the enacted tax rates expected to apply to taxable income in the years in which those tax assets or liabilities are expected to be realized or settled.

A valuation allowance is provided if the Company believes it is more likely than not that all or some portion of the deferred tax asset will not be realized.

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Debt issuance costs for revolving credit agreements are capitalized and amortized over the term of the underlying agreements on a straight-line basis.

Amortization of these debt issuance costs is included in interest expense while the unamortized debt issuance cost balance is included in other current assets and other assets.

Debt issuance costs for the Company’s term loans are recorded as a reduction to the carrying amount and are amortized over their term using the effective interest method.

Amortization of these debt issuance costs is included in interest expense while the unamortized debt issuance cost balance is included in other current assets or other assets.

Debt issuance costs for the Company’s term loans are recorded as a reduction to the carrying amount and are amortized over their terms using the effective interest method.

Amortization of these debt issuance costs is included in interest expense.

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If the award is deemed probable of being earned, related compensation expense is recorded over the estimated service period.

To the extent the estimate of awards considered probable of being earned changes, the amount of stock-based compensation recognized will also change.

To the extent the estimate of

awards considered probable of being earned changes, the amount of stock-based compensation recognized will also change.

Concentration of Credit Risk

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During the fiscal years ended March 31, 2021, 2020 and 2019 no customers represented 10% or more of the Company’s total revenue.

The Company had one customer comprising approximately 7% of accounts receivable as of March 31, 2020, one customer comprising approximately 21% of accounts receivable as of March 31, 2019 and one customer comprising approximately 10% of accounts receivable as of March 31, 2018.

Two customers comprised approximately 22 % of accounts receivable as of March 31, 2021.

No customers comprised more than 10% of accounts receivable as of March 31, 2020.

One customer comprised approximately 21 % of accounts receivable as of March 31, 2019.

If the Company is unable to obtain adequate quantities of the inventory needed to sell its products, the Company could face costs increases or delays or discontinuations in product shipments, which could have a material adverse effect on the Company’s results of operations.

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International 264 558

Total $ 10,051 $ 9,046

Defined Contribution Plan

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Participants may voluntarily contribute to the plan up to the maximum limits established by Internal Revenue Service regulations.

No matching contributions were made in the fiscal years ended March 31, 2020 and 2019, and $0.8 million was incurred for the year ended March 31, 2018.

For the year ended March 31, 2021, the Company incurred $ 1.2 million in matching contributions.

No matching contributions were made in the fiscal years ended March 31, 2020 and 2019.

Recently Adopted Accounting Pronouncements

In April 2019, the Company adopted ASU 2016-02, Leases (Topic 842) , using the modified retrospective transition method under ASU 2018-11, Leases (Topic 842) Targeted Improvements .

The modified retrospective transition method applies to all leases existing at the date of initial application and recognizes a cumulative-effect adjustment

to the opening balance of retained earnings in the period of adoption.

The Company evaluated its portfolio of leases upon adoption and determined a cumulative-effect adjustment to the opening balance of retained earnings was not needed, as the portfolio of leases contained only operating leases.

Further description of the impact of this pronouncement is included in Note 5.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”).

ASU 2018-20 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.

The Company did not elect to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to accumulated deficit.

In June 2018, the FASB issued ASU No.

2018-07, Share-based Payments to Non-Employees (“ASU 2018-07”), to simplify the accounting for share- based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions.

For public business entities, this ASU is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that fiscal year.

The adoption of ASU 2018-07 did not impact the Company’s condensed consolidated financial statements and related disclosures.

The Company adopted the guidance in ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses of Financial Instruments ("CECL") on April 1, 2020.

The ASU requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses over the lifetime of the asset rather than incurred losses.

The adoption of ASU 2016-13 did not have a material impact on the condensed consolidated financial statements.

The Company adopted the guidance in ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software:

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract on April 1, 2020.

The ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises as authoritative guidance for internal-use software and deferred over the noncancelable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider.

The adoption of ASU 2018-15 did not have a material impact on the condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU No.

2018-15, Implementation Costs Incurred in Cloud Computing Arrangements (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

For public entities, ASU 2018-15 is effective for annual reporting periods beginning after December 15, 2019, and interim periods within that fiscal year.

The accounting guidance should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

The Company will apply the guidance in ASU 2018-15 prospectively and adoption will not have an impact on its historical consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU-2016-13”).

ASU 2016-13 will change how entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments.

ASU 2016-13 will replace the current “incurred loss” model with an “expected loss” model.

Under the “incurred loss” model, a loss (or allowance) is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that it is probable that a loss has occurred (i.e., that it has been “incurred”).

Under the “expected loss” model, a loss (or allowance) is recognized upon initial recognition of the asset that reflects all future events that leads to a loss being realized, regardless of whether it is probable that the future event will occur.

The “incurred loss” model considers past events and current conditions, while the “expected loss” model includes expectations for the future which have yet to occur.

ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses , was issued in November 2018 and excludes operating leases from the new guidance.

The standard will require entities to record a cumulative-effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective.

For public entities, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019.

The Company is currently evaluating the potential impact that ASU 2016-13 may have on the timing of recognition and measurement of future provisions for expected losses on its accounts receivable.

REVENUE RECOGNITION

In May 2014 the FASB issued ASU No.

2014-09, Revenue from Contracts with Customers (ASC 606 ), which is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.

On April 1, 2018, the Company adopted ASC 606, using the modified retrospective transition method applied to those contracts which were not completed as of April 1, 2018.

Results for reporting periods beginning after April 1, 2018 are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting policies.

The Company’s performance obligations are satisfied at a point in time or over time as stand ready obligations.

A majority of the Company’s revenue is recognized at a point in time when products are accepted, installed or delivered.

The Company’s revenue is derived from three main sources:

(1) Product, (2) Professional services, and (3) Royalties.

Sales tax collected on sales is netted against government remittances and thus, recorded on a net basis.

Product Revenue

The Company's product revenue is comprised of multiple storage solution hardware and software offerings targeted towards consumer and enterprise customers.

Revenue from product sales is recognized at the point in time when the customer takes control of the product.

If there are significant post-delivery obligations, the related revenue is deferred until such obligations are fulfilled.

Revenue from contracts with customer acceptance criteria are recognized upon end user acceptance.

The Company's standard contractual terms are F.O.B.

shipping point and net 30 days payment, with exceptions on a case by case basis.

Service Revenue

Service revenue primarily consists of three components:

(1) post-contract customer support agreements.

(2) installation, and (3) consulting & training.

Customers have the option to choose between different levels of hardware and software support.

Support plans provide additional services and assurance outside the scope of our primary product warranties.

Revenue from support plans are recognized ratably over the contractual term of the service contract.

The Company offers installation services on all its products.

Customers can opt to either have Quantum or a Quantum-approved third-party service provider install our products.

Installation services are typically completed within a short period of time and revenue from these services are recognized at the point when installation is complete.

A majority of our consulting and training revenue does not take significant time to complete therefore these obligations are satisfied upon completion of such services at a point in time.

Royalty Revenue

Licensees pay us a per-unit royalty for sales of their products that incorporate our intellectual property.

On a periodic and timely basis, the licensees provide the Company with reports containing units sold to end users subject to the royalties.

The reports substantiate that the performance obligation has been satisfied therefore revenue is recognized based on the reports or when amounts can be reasonably estimated.

Significant Judgments

The following significant judgments were used when applying ASC 606 to contracts with customers.

Identification of performance obligations

The Company generally enters into contracts with customers to provide storage solutions to meet their individual needs.

Most of the Company’s contracts contain multiple goods and services designed to meet each customers’ unique storage needs.

Stand-alone selling price

The SSP represents the amount for which the Company would sell the good or service to a customer on a standalone basis (i.e., not sold as a bundle with any other products or services).

SSP may not be directly observable (e.g., the performance obligation is not sold separately), the Company maximized the use of observable inputs by using information including reviewing discounting practices, performance obligations with similar customers and product groupings.

This judgment is based on;

(1) the fact that each storage solution is customizable to meet an individual customer’s needs (2) sales representatives use various discounting methods based on each purchase orders’ unique mix of product offerings (3) every products’ transaction price can vary depending on the mix of other products included in the same purchase order and (4) there are no identifiable trends that provide a good representation of expected margin for each product.

In addition, individual products may have multiple values for SSP depending on factors such as where they are sold, what channel they are sold through, and other products on the purchase order.

Due to the use of invoice price as SSP, Step 4 (Allocate Transaction Price) of ASC 606’s 5 step model creates no differences when compared to U.S.

Variable consideration

Product revenue includes multiple types of variable consideration, such as rebates, returns, or stock rotations.

All contracts with variable consideration require payment upon satisfaction of the performance obligation typically with net 30-day payment terms.

The Company does not include significant financing components in its contracts.

The expected value method is used to estimate the consideration expected to be returned to the customer.

The Company uses its large volume of historical data and current trends to drive its estimates.

The Company records a reduction to revenue to account for these programs.

ASC 606 requires entities to recognize a return asset and corresponding adjustment to cost of sales for its right to recover the goods returned by the customer, at the time of the initial sale.

Quantum initially measures this asset at the carrying amount of the inventory, less any expected costs to recover the goods including potential decreases in the value of the returned goods.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity , which simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share (EPS) calculations as a result of these changes.

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

The Company plans to adopt this pronouncement for our fiscal year ending March 31, 2022, and does not expect it to have a material effect on its consolidated financial statements.

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

Year Ended March 31,

2021 2020 2019 1

Primary storage systems $ 52,295 $ 54,211 $ 33,789

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Device and media 24,410 31,228 34,079

Service 76,039 82,607 87,040

Total revenue 194,692 225,238 227,604

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Device and media 20,881 25,484 19,064

Service 41,261 39,467 37,216

Total revenue 108,770 121,037 115,848

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Device and media 5,873 5,632 6,172

Service 7,604 8,976 10,440

Total revenue 31,250 35,943 35,898

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Device and media 51,164 62,344 59,315

Service 124,904 131,050 134,696

14,864 20,731 23,330

Total revenue $ 349,576 $ 402,949 $ 402,680

1 Primary and Secondary storage system revenue has been adjusted for fiscal years 2019 and 2018 due to certain reclassifications from Primary to Secondary storage systems.

1 Primary and Secondary storage system revenue has been adjusted for fiscal year 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.

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Contract Balances

Contract assets consist of unbilled receivables and are recorded when revenue is recognized in advance of scheduled billings to our customers.

Contract liabilities consist of deferred revenue which is recorded when customers have been billed for support services, but the Company hasn’t fulfilled its service obligation and revenue related to certain product sales.

The following table presents the Company’s contract liabilities and certain information related to this balance as of March 31, 2021 (in thousands):

2 unchanged sentences

Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period $ 79,921

Costs of Obtaining and Fulfilling Contracts with Customers

ASC 606 provides new guidance on capitalizing certain fulfillment costs and costs to obtain a contract.

The Company’s primary cost to obtain contracts is sales commissions earned by sales representatives.

These costs are incremental and expected to be recovered indirectly through the margin inherent within the contract.

A large portion of the Company’s contracts are completed within a one-year performance period, and for contracts with a specified term of one year or less, the Company has elected to apply a practical expedient available in ASC 606, which allows the Company to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company would otherwise have recognized is one year or less.

Only sales commissions attributed to service contracts qualify for capitalization after application of the practical expedient.

Total costs subject to capitalization were immaterial to the Company’s consolidated financial statements for the fiscal years ended March 31, 2020 and 2019.

The Company’s costs to fulfill contracts consist of shipping and handling activities.

The Company elected to apply the practical expedient available in ASC 606 which allows entities to expense the costs of shipping and handling in the period incurred.

Remaining Performance Obligations

Transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and contractually agreed upon amounts, yet to be invoiced, that will be recognized as revenue in future periods.

Remaining performance obligations are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, adjustments for revenue that have not materialized and foreign exchange adjustments.

The Company applied the practical expedient in accordance with 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 March 31, 2021 $ 102,468 $ 38,771 $ 141,239

1 unchanged sentence

The majority of the Company’s noncurrent remaining performance obligations is expected to be recognized in the next 13 to 60 months.

Revenue Recognition - Prior to the Adoption of ASC 606

The Company followed the guidance provided in ASC 605 prior to the adoption of ASC 606, which the Company adopted using the modified retrospective method beginning on April 1, 2018.

Under ASC 605, revenue is considered realized, earned, and recognized when all of the following occurs,

persuasive evidence of an arrangement exists,

delivery has occurred or services have been rendered,

the price to the buyer is fixed or determinable, and

when collectability is reasonably assured.

Royalty revenue is recognized when earned or when earned amounts can be reasonably estimated.

Multiple Element Arrangements

The Company enters into contracts with customers that contain multiple deliverables such as hardware, software and services, and these arrangements require assessment of each deliverable to determine its estimated selling price.

Additionally, the Company used judgment in order to determine the appropriate timing of revenue recognition and to assess whether any software and non-software components function together to deliver a tangible product’s essential functionality in order to ensure the arrangement is properly accounted for as software or hardware

The majority of the Company’s products are hardware products which contain software essential to the overall functionality of the product.

Hardware products are generally sold with customer support agreements.

Consideration in such multiple element arrangements is allocated to each non-software element based on the fair value hierarchy, where the selling price for an element is based on vendor-specific objective evidence (“VSOE”), if available;

third-party evidence (“TPE”) if VSOE is not available;

or the best estimate of selling price (“BESP”), if neither VSOE nor TPE is available.

The Company establishes VSOE based upon the selling price of elements when sold on a standalone basis and TPE is determined based upon competitor’s selling price for largely interchangeable products.

For BESP, the Company considers its discounting and internal pricing practices, external market conditions and competitive positioning for similar offerings.

For software deliverables, the Company allocates consideration between multiple elements based on software revenue recognition guidance, which requires revenue to be allocated to each element based on the relative fair values of those elements.

The fair value of an element must be based on VSOE.

Where fair value of delivered elements is not available, revenue is recognized on the “residual method” deferring the fair value of the undelivered elements and recognizing the balance as revenue for the delivered elements.

If evidence of fair value of one or more undelivered elements does not exist, all revenue is deferred and recognized at the earlier of the delivery of those elements or the establishment of fair value of the remaining undelivered elements.

Product Revenue — Hardware

Revenue for hardware products sold to distributors, VARs, DMRs, OEMs and end users is generally recognized upon shipment, consistent with the transfer of title and risk of loss.

When significant post-delivery obligations exist, the related revenue is deferred until such obligations are fulfilled (sell-through basis).

If there are customer acceptance criteria in the contract, the Company recognized revenue upon end user acceptance.

In the period revenue is recognized, allowances are provided for estimated future price adjustments, such as rebates, price protection and future product returns.

These allowances are based on programs in existence at the time revenue is recognized, plans regarding future price adjustments, the customers’ master agreements and historical product return rates.

Since the Company has historically been able to reliably estimate the amount of allowances required, the Company recognized revenue, net of projected allowances, upon shipment to its customers.

If the Company was unable to reliably estimate the amount of revenue adjustments in any specific reporting period, then it would be required to defer recognition of the revenue until the rights had lapsed and the Company was no longer under any obligation to reduce the price or accept the return of the product.

Product Revenue — Software

For software products, the Company generally recognized revenue upon delivery of the software.

Revenue from post-contract customer support agreements, which entitle software customers to both telephone support and any unspecified upgrades and enhancements during the term of the agreement, is classified as product revenue, as the value of these support arrangements are the upgrades and enhancements to the software licenses themselves and there is no on-site support.

The Company recognized revenue from its post-contract customer support ratably over the term of the agreement.

The Company licenses certain software to customers under licensing agreements that allow those customers to embed the Company’s software into specific products offered by the customer.

The Company also licenses its software to licensees who pay a fee based on the amount of sales of their products that incorporate the Company’s software.

On a periodic basis, the licensees provide the Company with reports listing their sales to end users for which they owe the Company license fees.

As the reports substantiate delivery has occurred, the Company recognized revenue based on the information in these reports or when amounts could be reasonably estimated.

Service Revenue

Revenue for service is generally recognized upon the services being rendered.

Service revenue primarily consists of customer field support agreements for the Company’s hardware products.

For customer field support agreements, revenue equal to the separately stated price of these service contracts is initially deferred and recognized as revenue ratably over the contract period.

Royalty Revenue

The Company licenses certain intellectual property to third party manufacturers under arrangements that are represented by master contracts.

The master contracts give the third-party manufacturers rights to the intellectual property which include allowing them to either manufacture or include the intellectual property in products for resale.

As consideration, the licensees pay the Company a per-unit royalty for sales of their products that incorporate the Company’s intellectual property.

On a periodic and timely basis, the licensees provide the Company with reports listing units sold to end users subject to the royalties.

As the reports substantiate delivery has occurred, the Company recognized revenue based on the information either in these reports or when amounts can be reasonably estimated.

BUSINESS ACQUISITION

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

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.

Contingently issuable restricted stock units in the amount of $ 5.3 million, which is subject to continuous employment, are being recognized as stock-based compensation over the related two years vesting period.

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.

The following table summarizes intangible assets related to the SBS acquisition as of March 31, 2021:

Intangible assets, net March 31, 2021

Gross Carrying Value Accumulated Amortization Net Carrying Amount

Developed technology $ 4,700 $ ( 473 ) $ 4,227

Customer lists 900 ( 90 ) 810

Intangible assets, net $ 5,600 $ ( 563 ) $ 5,037

There was no intangible amortization expense for fiscal years 2020 and 2019.

At the end of fiscal 2021, the weighted-average remaining amortization period was 2.7 years for developed technology and customer lists.

The Company recorded amortization of developed technology in cost of product revenue, and customer lists in sales and marketing expenses in the consolidated statements of operations.

As of March 31, 2021, the future expected amortization expense for intangible assets is as follows (in thousands):

Fiscal year ending Estimated future amortization expense

Total $ 5,037

Balance at March 31, 2020 $ —

Goodwill acquired 3,466

Balance at March 31, 2021 $ 3,466

BALANCE SHEET INFORMATION

Certain significant amounts included in the Company's consolidated balance sheets consist of the following (in thousands):

Manufacturing inventories

Manufacturing inventories March 31,

Finished goods

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Total manufacturing inventories $ 24,467 $ 29,196

Service inventories

Service inventories March 31,

Finished goods $ 18,773 $ 15,845

1 unchanged sentence

Total service inventories $ 23,421 $ 20,502

Other current assets

Insurance receivable

Total other current assets

Property and equipment, net

Property and equipment, net March 31,

Machinery and equipment $ 38,027 $ 33,804

1 unchanged sentence

Furniture and fixtures 847 1,862

Software 300 —

46,254 42,399

accumulated depreciation ( 36,203 ) ( 33,353 )

Total property, plant and equipment, net $ 10,051 $ 9,046

Other accrued liabilities

Depreciation and amortization expense for property and equipment amounted to $ 5.7 million, $ 4.3 million, and $ 4.3 million for the years ended March 31, 2021, 2020, and 2019, respectively.

Other accrued liabilities March 31,

Accrued expenses

$ 6,799 $ 3,338

Asset retirement obligation

Accrued settlement

Accrued warranty

1 unchanged sentence

Total other accrued liabilities $ 18,174 $ 17,535

Depreciation and amortization expense for property and equipment amounted to $4.3 million , $4.2 million , and $4.8 million for the years ended March 31, 2020, 2019, and 2018, respectively.

The following table details the change in the accrued warranty balance (in thousands):

Year Ended March 31,

2021 2020 2019

Balance as of April 1 $ 2,668 $ 3,456 2,422

3 unchanged sentences

Balance as of March 31 $ 2,383 $ 2,668 $ 3,456

The following table summarizes the Company's borrowing as of the dates presented (in thousands):

Year Ended March 31,

Senior Secured Term Loan $ 92,426 $ 165,208

Amended PNC Credit Facility — 2,620

Paycheck Protection Program 10,000 —

current portion ( 1,850 ) ( 7,321 )

Less unamortized debt issuance costs (1)

( 9,686 ) ( 13,660 )

Long-term debt, net $ 90,890 $ 146,847

(1) The unamortized debt issuance costs related to the Senior Secured Term Loan are presented as a reduction of the carrying amount of the corresponding debt balance on the accompanying consolidated balance sheets.

Unamortized debt issuance costs related to the PNC Credit Facility are presented within other assets on the accompanying consolidated balance sheets.

TCW Term Loan and PNC Credit Facility

On October 21, 2016 (the “Closing Date”), the Company entered into a term loan and security agreement (the “TCW Term Loan”) with TCW Asset Management Company LLC (“TCW”) and a revolving credit and security agreement (the “PNC Credit Facility” and together with the TCW Term Loan, the “Credit Agreements”) with PNC Bank, National Association (“PNC”).

Borrowings under the TCW Term Loan paid interest at a rate per annum equal to, at the Company’s option, either (a) the greater of (i) 3.00% , (ii) the federal funds rate plus 0.50% , (iii) the LIBOR rate based upon an interest period of 1 month plus 1.0% and (iv) the “prime rate” last quoted by the Wall Street Journal, plus a margin ranging from 6.00% to 7.25% based on the applicable senior net leverage ratio, as defined in the TCW Term Loan agreement, or (b) the LIBOR rate plus 7.00% to 8.25% based on the applicable senior net leverage ratio.

Borrowings under the PNC Credit Facility charged interest at a rate per annum equal to, at the Company’s option, either (a) the greater of (i) the base rate, as defined in the PNC Credit Facility Agreement, (ii) the federal funds rate plus 0.50% and (iii) the 1 month LIBOR rate, plus 1.0% , plus an applicable margin of 1.50% , or (b) the LIBOR rate plus an applicable margin of 2.50% .

Additionally, the Company was required to pay a 0.375% commitment fee on undrawn amounts under the PNC Credit Facility on a quarterly basis, which was recorded as interest expense in the period incurred.

February 2018 Amendment

In February 2018, the Company amended the Credit Agreements (the “February 2018 Amendment”) to, among other things, (a) provide for 2% paid-in-kind interest on the TCW Term Loan, (b) allow for the release of $7.0 million in restricted cash required under the terms of the PNC Credit Facility, and (c) modify certain covenants associated with the Credit Agreements.

In connection with the February 2018 Amendment, the Company issued warrants to purchase 150,000 shares of the Company’s common stock at an exercise price of $0.01 per share to TCW (“February 2018 Amendment Warrants”).

TCW immediately exercised 75,000 of the February 2018 Amendment Warrants and the remaining warrants to purchase 75,000 of the Company’s common stock were contingently exercisable if the Company failed to meet certain financial requirements.

The Company determined the fair value of the February 2018 Amendment Warrants to be approximately $0.6 million of which $0.3 million was allocated to the non-contingent warrants to purchase 75,000 shares of the Company’s common stock and recorded as additional paid in capital and $0.3 million was allocated to the remaining contingency exercisable warrants to purchase 75,000 shares of the Company’s common stock and was recorded as a liability with changes in fair value recorded in the consolidated statements of operations until the exercise contingencies were met.

The Company accounted for the February 2018 Amendment related to the TCW Term Loan as a debt extinguishment.

Accordingly, a $6.9 million loss on debt extinguishment was recorded during the year ended

March 31, 2018 which included unamortized debt issuance costs of approximately $3.8 million and fees paid to TCW of $3.1 million (including $0.6 million related to the value of the February 2018 Amendment Warrants).

The Company accounted for the February 2018 Amendment related to the PNC Credit Facility as a modification.

The Company paid PNC an amendment fee of $0.6 million which was included in other current assets and amortized to interest expense over the term of the PNC Credit Facility.

August 2018 Amendment

In August 2018, the Company amended the Credit Agreements (the “August 2018 Amendment”) to, among other things, (a) provide for an additional $20 million in available borrowings under an additional incremental delayed draw term loan with TCW (the “AIDDTL”) of which $6.7 million was immediately borrowed, (b) accelerate the maturity date of the TCW Term Loan to January 31, 2019, (c) defer required principal and interest payments until the January 31, 2019 maturity date, (d) modify certain financial covenants and related definitions, (e) extend the due date for the Company to provide audited financial statements, and (f) require the Company to meet certain milestones related to the Company completing a refinancing transaction, as defined in the August 2018 Amendment (the “Refinancing Transaction”).

In connection with the August 2018 Amendment, the Company issued warrants to purchase 1,099,533 of the Company’s common stock at an exercise price of $2.11 per share.

To the extent that the Company did not complete a Refinancing Transaction and repay the entire TCW Term Loan by September 30, 2018, October 31, 2018, November 30, 2018 and December 31, 2018, then on each such date the Company was required to issue additional warrants to purchase 3% of the then outstanding common stock of the Company with an exercise price equal to the closing price of the Company’s common stock on the business day immediately prior to the date of issuance of the warrants.

A total of 4,398,132 warrants to purchase the Company’s common stock were issued related to the August 2018 Amendment (the “August 2018 Amendment Warrants”) with warrants to purchase 1,099,533 shares issued on each of September 30, 2018, October 31, 2018 and November 30, 2018 with exercise prices of $2.40 per share, $2.39 per share and $2.40 per share, respectively.

In August 2018, the Company amended the Credit Agreements issued TCW warrants to purchase 1,099,533 of the Company’s common stock at an exercise price of $ 2.11 per share.

To the extent that the Company did not repay the entire TCW Term Loan by September 30, 2018, October 31, 2018, November 30, 2018 and December 31, 2018, then on each such date the Company was required to issue additional warrants to purchase 3 % of the then outstanding common stock of the Company with an exercise price equal to the closing price of the Company’s common stock on the business day immediately prior to the date of issuance of the warrants.

A total of 4,398,132 warrants to purchase the Company’s common stock were issued related to the amendment (the “August 2018 Amendment Warrants”) with warrants to purchase 1,099,533 shares issued on each of September 30, 2018, October 31, 2018 and November 30, 2018 with exercise prices of $ 2.40 per share, $ 2.39 per share and $ 2.40 per share, respectively.

The August 2018 Amendment Warrants were not exercisable until February 1, 2019, on which date, the exercise price of each of the warrants that were issued was reset to the lower of:

25 unchanged sentences

Principal payments of 0.25 % of the original balance of the Senior Secured Term Loan are due quarterly with the remaining principal balance due at maturity.

Additionally, on an annual basis beginning with the fiscal year ending March 31, 2020, the Company will be required to perform a calculation of excess cash flow, as defined in the Senior Secured Term Loan agreement, which may require an additional payment of the principal in certain circumstances (the "ECF Payment").

As of March 31, 2020, an ECF Payment of $5.3 million was payable during the quarter ended June 30, 2020 and has been included in the current portion of long-term debt in the accompanying consolidated balance sheets.

Borrowings under the Amended PNC Credit Facility bear interest, at the Company’s option, equal to, (a) the greater of (i) the base rate, as defined in the PNC Credit Facility, (ii) the daily Overnight Bank Funding Rate plus 0.5% and (iii) the daily LIBOR rate plus 1.0% , plus an applicable margin of (a) 4.50% for the period from the Amendment Date until the date quarterly financial statements are delivered to PNC for the fiscal quarter ending June 30, 2021 and (b) thereafter, ranging from 3.50% to 4.50% based on the Company’s applicable Total Leverage Ratio, as defined, or (b) the LIBOR Rate plus an applicable margin of (a) 5.00% for the period from the Amendment Date until the date quarterly financial statements are delivered to PNC for the fiscal quarter ending June 30, 2021 and (b) thereafter, ranging from 4.50% to 5.00% based on the Company’s applicable total leverage ratio, as defined in the Amended PNC Credit Facility agreement.

Additionally, on an annual basis the Company is required to perform a calculation of excess cash flow, as defined in the Senior Secured Term Loan agreement, which may require an additional payment of the principal in certain circumstances (the "ECF Payment").

Borrowings under the Amended PNC Credit Facility bear interest, at the Company’s option, equal to, (a) the greater of (i) the base rate, as defined in the PNC Credit Facility, (ii) the daily Overnight Bank Funding Rate plus 0.5 % and (iii) the daily LIBOR rate plus 1.0 %, plus an applicable margin of (a) 4.50 % for the period from the Amendment Date until the date quarterly financial statements are delivered to PNC for the fiscal quarter ending June 30, 2021 and (b) thereafter, ranging from 3.50 % to 4.50 % based on the Company’s applicable Total Leverage Ratio, as defined, or (b) the LIBOR Rate plus an applicable margin of (a) 5.00 % for the period from the Amendment Date until the date quarterly financial statements are delivered to PNC for the fiscal quarter ending June 30, 2021 and (b) thereafter,

ranging from 4.50 % to 5.00 % based on the Company’s applicable total leverage ratio, as defined in the Amended PNC Credit Facility agreement.

Interest on the Amended PNC Credit Facility is payable quarterly.

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The Company is permitted to prepay up to 50 % of the aggregate principal amount of the outstanding Senior Secured Term Loan balance with cash proceeds of a public offering of the Company’s common stock at a prepayment premium of 5 % of the principal amount being repaid (the "Equity Clawback").

On March 30, 2020 and March 31, 2020, the Company entered into amendments to the Senior Secured Term Loan which, among other things, included (a) payment deferral of the scheduled amortization payment of $0.4 million due on April 1, 2020 to June 30, 2020;

payment of $1.9 million of the interest due on April 1, 2020 in kind rather than in cash, and (b) the waiver of compliance with the total net leverage ratio covenant, as defined in the Senior Secured Term Loan agreement, for the quarter ended March 31, 2020.

In addition to the Prepayment Penalty, the Company is required to pay an exit fee of 2 % of the aggregate principal amount repaid excluding amounts repaid that are subject to the Equity Clawback.

On March 30, 2020, March 31, 2020 and April 3, 2020, the Company entered into amendments to the December 2018 Credit Agreements which, among other things, included (a) payment deferral of the scheduled amortization payment of $ 0.4 million due on April 1, 2020 to June 30, 2020;

payment of $ 1.9 million of the interest due on April 1,

2020 in-kind rather than in cash, and (b) the waiver of compliance with the total net leverage ratio covenant, as defined in the Senior Secured Term Loan agreement, for the quarter ended March 31, 2020.

On June 16, 2020, the Company entered into an amendment to the December 2018 Credit Agreements (the "June 2020 Amendment" and collectively with the March 30, 2020, March 31, 2020 and April 3, 2020 amendment, (the “2020 Amendments”).

The June 2020 Amendment provided an additional borrowing of $ 20.0 million which was immediately drawn in full.

The amendment also (a) waived the ECF Payment of $ 5.3 million for the year ended March 31, 2020;

(b) deferred payment of the scheduled amortization payments due on June 30, 2020, September 30, 2020, and December 31, 2020 until the maturity date;

(c) amended the definition of “EBITDA” to, among other things, add an add-back for certain costs, expenses and fees incurred in connection with the transactions contemplated by the amendment;

(d) waived compliance with the total net leverage ratio, fixed charge coverage ratio, minimum liquidity and minimum EBITDA financial covenants for the quarters ending on June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021;

(e) added a financial covenant that requires a minimum monthly average undrawn availability of $ 7.0 million under the Amended PNC Credit Facility during the period from June 30, 2020 through and including May 31, 2021;

and (f) amended the covenant levels for the total net leverage ratio, fixed charge coverage ratio, and minimum EBITDA financial covenants, commencing with the quarter ending June 30, 2021.

In connection with the June 2020 Amendment, the Company issued to the lenders warrants (the “2020 Term Loan Warrants”) to purchase 3,400,000 shares of the Company’s common stock, at an exercise price of $ 3.00 per share.

The exercise price and the number of shares underlying the 2020 Term Loan Warrants are subject to adjustment in the event of specified events, including dilutive issuances of common stock linked equity instruments at a price lower than the exercise price of the warrants, a subdivision or combination of the Company’s common stock, a reclassification of the Company’s common stock or specified dividend payments.

The 2020 Term Loan Warrants are exercisable until June 16, 2030.

Upon exercise, the aggregate exercise price may be paid, at each warrant holder’s election, in cash or on a net issuance basis, based upon the fair market value of the Company’s common stock at the time of exercise.

The 2020 Amendments related to the Senior Secured Term Loan were accounted for as modifications.

In connection with the modifications, the Company incurred $ 11.9 million in costs including $ 11.3 million related to the value of the 2020 Term Loan Warrants and $ 0.6 million in fees paid to the lenders.

These debt issuance costs are reflected as a reduction to the carrying amount of the Senior Secured Term Loan and are amortized to interest expense over the remaining loan term.

The 2020 Amendments related to the Amended PNC Credit Facility were accounted for as modifications.

Fees paid to PNC of approximately $ 0.5 million were recorded to other assets and are amortized to interest expense over the remaining term of the agreement.

Approximately $ 0.8 million in third party costs were expensed related to the 2020 Amendments.

As of March 31, 2021, the interest rates on the Senior Secured Term Loan and the Amended PNC Credit Facility were 12.0 % and 7.75 %, respectively, and the Amended PNC Credit Facility had a borrowing base of $ 32.7 million, all of which was available at that date.

The Company is required to maintain a $ 5.0 million restricted cash reserve as part of the Amended PNC Credit Facility, which is presented as long-term restricted cash within the accompanying consolidated balance sheet as of March 31, 2021

S enior Secured Term Debt Prepayment

On February 11, 2021 (the “Prepayment Date”), the Company prepaid $ 92.3 million of its outstanding Senior Secured Term Loan utilizing the proceeds of the secondary public offering discussed in Note 8:

Common Stock .

The Company utilized the Equity Clawback which allowed prepayment of up to 50 % of the aggregate principal amount of the outstanding Senior Secured Term Loan with net cash proceeds from a public equity offering at a prepayment penalty of 5 %.

The Company recognized a loss on debt extinguishment of $ 14.8 million which included the write-off of debt issuance costs of $ 10.1 million, a prepayment penalty of $ 4.6 million and other costs of $ 0.1 million.

Registration Rights Agreement

In connection with the 2018 Senior Secured Term Loan, the Company entered into a registration rights agreement with the holders of the 2018 Term Loan Warrants (the “Registration Rights Agreement”).

The Registration Rights Agreement grants the holders of the 2018 Term Loan Warrants certain registration rights for the shares of common stock issuable upon the exercise of the warrants.

The agreement calls for the Company to prepare and file a registration statement with the SEC and use commercially reasonable efforts to cause the registration statement to be declared effective as soon as practicable, but in no event later than October 31, 2019 (the “Registration Penalty Date”).

If the Company is unable to file and have a Form S-1 registration statement declared effective on the Registration Penalty Date (the “Filing Failure”), the Company is required to pay each holder of Term Loan Warrants an amount of cash equal to (i) $0.3 million multiplied by (ii) such holder’s pro rata share of all Term Loan Warrants (the “Registration Delay Payments”) on the day of a Registration Penalty Date and on every thirtieth day thereafter until such Filing Failure is cured.

In the event the Company fails to make Registration Delay Payments in a timely manner, such Registration Delay Payments shall bear interest at 5.0% of such unpaid Registration Delay Payment until paid in full.

The Company expects to meet all registration requirements and has determined that such a payment under the Registration Rights Agreement was not probable at the time the agreement was entered into, nor did such a payment become probable prior to or as of March 31, 2020 .

As of March 31, 2020 , the interest rates on the Senior Secured Term Loan and the Amended PNC Credit Facility were 12.0% and 6.25% , respectively.

The Company is required to maintain a $5.0 million restricted cash reserve

as part of the Amended PNC Credit Facility, which is presented as long-term restricted cash within the accompanying consolidated balance sheet as of March 31, 2020 .

The following table summarizes the Company's borrowing as of the periods presented (in thousands):

Year Ended March 31,

Senior Secured Term Loan

Amended PNC Credit Facility

current portion

Less unamortized debt issuance costs (1)

Long-term debt, net

Unamortized debt issuance costs related to the PNC Credit Facility are presented within other assets on the accompanying consolidated balance sheets.

See Note 12, Subsequent Events , for additional information related to amendments to the Company's Amended PNC Credit Facility and the Senior Secured Term Loan.

The Company adopted ASU No.

2016-02, Leases (“ASC 842”) effective April 1, 2019 using the optional transition method in ASU 2018-11, Targeted Improvements.

Therefore, the consolidated balance sheet and consolidated statements of operations as of and for the fiscal year ended March 31, 2020 reflect the application of Topic 842, while the consolidated balance sheet as of March 31, 2019 and consolidated statements of operations for the fiscal years ended March 31, 2019 and 2018 were not adjusted and continue to be reported under ASC 840, Leases, the accounting guidance in effect for the prior periods.

The a doption of ASC 842 resulted in the recording of right of use assets and corresponding lease liabilities of $13.5 million and $12.7 million , respectively, as of April 1, 2019, which include the impact of existing deferred rents and tenant improvement allowances on the consolidated balance sheet as of April 1, 2019.

Under ASC 842, the Company determines if an arrangement is a lease at inception.

The lease term begins on the commencement date, which is the date the Company takes possession of the property and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

The lease terms are used to determine lease classification as an operating or finance lease and is used to calculate straight-line lease expense for operating leases.

The Company elected the package of practical expedients permitted under the transition guidance within the standard, allowing it to carry forward the historical lease classification, carry forward the conclusions on whether current or expired contracts contain leases and carry forward the accounting for initial direct costs for existing leases.

Additionally, the Company elected the practical expedient for use of hindsight to determine the lease term for existing leases whereby the Company evaluated the performance of existing leases in relation to the Company's leasing strategy and determined that most renewal options would not be reasonably certain to be exercised.

This resulted in the shortening of lease terms for the existing leases.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

ROU assets also include prepaid lease payments and exclude lease incentives received.

As the Company’s leases typically do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date for its leases.

The Company determines the incremental borrowing rate using the Company’s current unsecured borrowing rate, adjusted for various factors such as collateralization and term to align with the terms of the lease.

The determination of the incremental borrowing rate requires judgment.

The Company elected the short-term lease recognition exemption for all leases that qualify.

Therefore, leases with an initial term of 12 months or less are not recorded on the balance sheet;

instead, lease payments are recognized as lease expense on a straight-line basis over the lease term.

The Company has operating leases for facilities, vehicles, computers, and other office equipment with various expiration dates.

The leases have remaining terms of 1 to 8 years.

Certain leases contain renewal options for varying periods, which are at the Company’s sole discretion.

The Company did not use hindsight when determining lease term, therefore, the Company carried forward the lease term as determined prior to the adoption of ASC 842.

For new leases with renewal or termination options, such option periods will be included in the determination of the Company’s ROU assets and lease liabilities if the Company is reasonably certain to exercise the option.

Certain leases require the Company to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset.

Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature.

These variable lease costs are recognized as a variable lease expense when incurred.

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 (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.

Paycheck Protection Program Loan

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.

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

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.

To the extent that all or a portion of the PPP Loan is not forgiven, payment of the outstanding balance will be required on April 11, 2022.

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

Operating leases

March 31, 2020

Operating lease right-of-use asset

Operating leases March 31, 2021 March 31, 2020

Operating lease right-of-use assets $ 9,383 $ 12,689

Other current liabilities $ 2,581 $ 3,065

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The components of lease expense were as follows (in thousands):

Lease expense

Year Ended March 31,

Lease expense 2021 2020

Operating lease expense $ 4,718 $ 4,901

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Total lease expense $ 5,670 $ 5,280

Maturity of Lease Liabilities

Operating Leases

Maturity of Lease Liabilities Operating Leases

Thereafter 1,002

Total lease payments $ 14,408

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Present value of lease liabilities $ 10,586

Lease Term and Discount Rate

March 31, 2020

Lease Term and Discount Rate March 31,

Weighted average remaining operating lease term (years) 4.53 4.99

Weighted average discount rate for operating leases 13.96 % 13.91 %

Operating cash outflows related to operating leases totaled $4.5 million for the twelve months ended March 31, 2020 .

Operating cash outflows related to operating leases totaled $ 4.9 million and $ 4.5 million for the fiscal years ended March 31, 2021 and March 31, 2020, respectively.

RESTRUCTURING CHARGES

During fiscal years 2021, 2020 and 2019, the Company approved certain restructuring plans to improve operational efficiencies and rationalize its cost structure.

These plans included a reduction in workforce of approximately 80 positions and 210 positions during the fiscal years 2019 and 2018, respectively, and the exit of certain facility space occurring throughout fiscal years 2018 through 2020.

The following tables show the activity and the estimated timing of future payouts for accrued restructuring (in thousands):

Severance and

Balance as of March 31, 2017

Restructuring costs

Cash payments

Other non-cash

benefits Facilities Total

Balance as of March 31, 2018 $ 1,430 $ 4,389 $ 5,819

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Balance as of March 31, 2020 — — —

Facility restructuring accruals will be paid in accordance with the respective facility lease terms and amounts above are net of estimated sublease amounts.

STOCK INCENTIVE PLANS AND SHARE-BASED COMPENSATION

Restructuring costs 3,701 — 3,701

Cash payments ( 3,121 ) — ( 3,121 )

Balance as of March 31, 2021 $ 580 $ — $ 580

Facility restructuring accruals were paid in accordance with the respective facility lease terms and amounts in the table above were recorded net of estimated sublease amounts.

Secondary Public Offering

On February 8, 2021, the Company closed a secondary public offering of 15,109,489 shares of its common stock for gross proceeds of $ 103.5 million.

The Company received net proceeds of $ 96.8 million after deducting underwriters' discounts and other offering related expenses.

Amended and Restated 2012 Long-Term Incentive Plan

The Company has a stockholder-approved 2012 Long-Term Incentive Plan (the “Plan”) which has 5.2 million shares authorized for issuance of new shares at March 31, 2021.

There were 2.7 million stock options, performance shares and restricted shares outstanding, and 3.6 million shares available for future issuance under the Plan as of March 31, 2020.

In February 2018, the Company enacted a deferral of release of all vested restricted stock units and performance share units granted prior to February 2018.

The deferral of release impacted only pre-February 2018 restricted stock units and performance share units and was intended to prevent the release of unregistered shares to grantees.

During the deferral period, a grantee retained the legal right to the awards they had vested in, but the Company deferred the release of the underlying shares until it could become current with its SEC reporting requirements.

The Company ended the deferral of release in February 2019.

The deferral of release and its removal were both modifications to the awards;

however, the impact of the modifications were not material and no incremental compensation expense was recorded.

All employees with outstanding stock-based awards were impacted by the modifications.

Stock options under the Plan are granted at prices determined by the Board of Directors, but at not less than the fair market value of our common stock on the date of grant.

There were 4.4 million performance shares and restricted shares outstanding, and 0.8 million shares available for future issuance under the Plan as of March 31, 2021.

Stock options under the Plan are granted at prices determined by the Board of Directors, but at not less than the fair market value of the Company's common stock on the date of grant.

The majority of performance share units, restricted stock units and stock options granted to employees vest over three to four years .

Stock options, performance shares and restricted stock grants to non-employee directors typically vest over one year .

The term of each stock option under the plan will not exceed seven years .

each stock option under the Plan will not exceed seven years .

Stock options, performance share units and restricted stock units granted under the Plan are subject to forfeiture if employment terminates.

The Company accounts for all forfeitures of stock-based awards when they occur.

2021 Inducement Plan

The Company's 2021 Inducement Plan became effective on February 1, 2021 and provides for issuance of inducement equity awards to individuals who were not previously an employee or non-employee director of the Company as an inducement material to such individual's entering into employment with the Company.

The number of shares of common stock reserved for issuance under the 2021 Inducement Plan was 0.8 million.

The term of each stock option and restricted stock unit under the plan will not exceed seven years , and each award generally vests between two and four years .

The Company accounts for all forfeitures of stock-based awards when they occur.

The Company have reserved shares of common stock for future issuance under its 2021 Inducement Plan as follows (in thousands):

March 31, 2021

Shares available for issuance at beginning of period —

Shares authorized during the period 770

Shares issued during the period ( 520 )

Total shares available for future issuance at end of period 250

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan (the "ESPP") has 9.7 million shares authorized at March 31, 2021.

The plan enables eligible employees to purchase shares of our common stock at a discount.

The plan enables eligible employees to purchase shares of its common stock at a discount.

Purchases will be accomplished through participation in discrete offering periods.

On each purchase date, eligible employees will purchase our common stock at a price per share equal to 85% of the lesser of (i) the fair market value of our common stock on the first trading day of the offering period, and (ii) the fair market value of our common stock on the purchase date.

We have reserved shares of common stock for future issuance under our ESPP as follows:

On each purchase date, eligible employees will purchase the Company's common stock at a price per share equal to 85 % of the lesser of (i) the fair market value of the Company's common stock on the first trading day of the offering period, and (ii) the fair market value of the Company's common stock on the purchase date.

The Company has reserved shares of common stock for future issuance under its ESPP as follows (in thousands):

Shares available for issuance at beginning of period 1,397 497

Additional shares authorized during the period — 900

Shares issued during the period ( 320 ) —

Total shares available for future issuance at end of period 1,077 1,397

The Company uses the Black-Scholes-Merton option-pricing model (“Black-Scholes”) to determine the fair value for stock options, shares forecasted to be issued pursuant to our ESPP, and warrants.

The Company uses the Black-Scholes-Merton option-pricing model (“Black-Scholes”) to determine the fair value for stock options, shares forecasted to be issued pursuant to its ESPP, and warrants.

This requires the use of assumptions about expected life, stock price, volatility, risk-free interest rates and expected dividends.

Expected Life —The expected term was based on historical experience with similar awards, giving consideration to the contractual terms, exercise patterns and post-vesting forfeitures.

Volatility —The expected stock price volatility for our common stock was based on the historical volatility of our common stock over the most recent period corresponding with the estimated expected life of the award.

Volatility —The expected stock price volatility for the Company's common stock was based on the historical volatility of its common stock over the most recent period corresponding with the estimated expected life of the award.

Risk-Free Rate —The risk-free interest rate is based on the yields of U.S.

Treasury securities with maturities similar to the expected term of the options for each option group.

Dividend Yield —We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.

Dividend Yield —The Company has never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.

Consequently, an expected dividend yield of zero was used.

The weighted-average grant date fair value and the assumptions used in calculating fair values of shares forecasted to be issued pursuant to our ESPP are as follows:

The weighted-average grant date fair value and the assumptions used in calculating fair values of shares forecasted to be issued pursuant to the Company's ESPP are as follows:

Year Ended March 31,

Expected life

2021 2020 2019

Expected life 0.5 years 0.5 years n/a

Volatility 55 % - 133 %

Risk-free interest rate 0.05 % - 0.11 %

Dividend yield

Weighted-average grant date fair value

Other Stock Incentive Plans

In addition to the Plan, we have other stock incentive plans which are mostly inactive for future share grant purposes, including plans assumed in acquisitions, under which stock options, stock appreciation rights, stock purchase rights, restricted stock awards and long-term performance awards to employees, consultants, officers and affiliates were authorized (“Other Plans”).

On April 1, 2019, we granted 0.3 million shares as an inducement to employment of our Chief Revenue Officer, half of which are time-based and the other half performance-based.

The shares have the same vesting and market performance conditions as the performance stock units we granted in 2020.

As of March 31, 2020 , there were 0.25 million shares outstanding pertaining to this grant.

Dividend yield — % — % n/a

Fair value of common stock $ 4.99 - $ 8.05

Performance Stock Units

The Company granted 0.9 million, 1.5 million and 0.7 million of performance share units with market conditions (“Market PSUs”) in fiscal 2021, 2020, and 2019, respectively.

The number of Market PSUs issued is dependent on Quantum’s common stock achieving certain average closing stock price targets as of specified dates.

Market PSUs vest one to three years after the issuance date based on the stock price targets achieved and are contingent upon continued service of the holder of the award during this period.

Market PSUs vest one to three years from the issuance date and become eligible for vesting based on the Company achieving certain stock price targets and are contingent upon continued service of the holder of the award during the vesting period.

The estimated fair value of these Market PSUs is determined at the issuance date using a Monte Carlo simulation model.

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The Company granted 0.5 million, 0.3 million and 0.0 million of performance share units with financial performance conditions (“Performance PSUs”) in the fiscal years ended March 31, 2021, 2020 and 2019, respectively.

Performance PSUs become eligible for vesting based on the Company achieving certain financial performance targets through the end of the fiscal year when the performance PSUs were granted, and are contingent upon continued service of the holder of the award during this period.

Performance PSUs are valued at the market closing share price on the date of grant and compensation expense for Performance PSUs is recognized when it is probable that the performance conditions will be achieved.

Compensation expense recognized related to Performance PSUs is reversed if the Company determines that it is no longer probable that the performance conditions will be achieved.

The following table summarizes activity for Market PSUs and Performance PSUs for the year ended March 31, 2020 :

Weighted-Average

The following table summarizes activity for Market PSUs and Performance PSUs for the year ended March 31, 2021 (shares in thousands) :

Shares Weighted-Average

Grant Date Fair Value per Share

Outstanding as of March 31, 2020 1,944 $ 4.09

Granted 1,346 $ 3.67

Vested ( 745 ) $ 3.94

Forfeited or cancelled ( 190 ) $ 4.66

Outstanding as of March 31, 2021 2,355 $ 3.85

As of March 31, 2020 , there was $4.9 million of total unrecognized stock-based compensation related to Market PSUs, which is expected to be recognized over a weighted-average period of 1.23 years .

As of March 31, 2020, there was no unrecognized stock-based compensation related to Performance PSUs.

As of March 31, 2021 , there was $ 4.1 million and $ 1.8 million of unrecognized stock-based compensation related to Market PSUs and Performance PSUs, respectively, which is expected to be recognized over a weighted-average period of one year .

The total fair value of shares vested during fiscal years ended March 31, 2021 , 2020, and 2019 was $ 2.9 million, $ 0.6 million, and $ 0.1 million, respectively.

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RSUs are valued at the market closing share price on the date of grant and compensation expense for RSUs is recognized ratably over the applicable vesting period.

The following table summarizes activity for restricted stock units for the year ended March 31, 2020 :

Weighted-Average

The following table summarizes activity for restricted stock units for the year ended March 31, 2021 (shares in thousands) :

Shares Weighted-Average

Grant Date Fair Value per Share

Outstanding as of March 31, 2020 986 $ 3.42

Granted 2,440 $ 4.41

Vested ( 518 ) $ 3.99

Forfeited or cancelled ( 198 ) $ 3.78

Outstanding as of March 31, 2021 2,710 $ 4.17

As of March 31, 2020 , there was $1.4 million of total unrecognized stock-based compensation related to restricted stock units, which is expected to be recognized over a weighted-average period of 1.03 years .

As of March 31, 2021 , there was $ 11.7 million of total unrecognized stock-based compensation related to RSUs, which is expected to be recognized over a weighted-average period of two years .

The total fair value of RSUs vested during fiscal years ended March 31, 2021, 2020, and 2019 was $ 2.1 million, $ 4.0 million, and $ 5.1 million, respectively.

Compensation Expense

The following table details the Company's stock-based compensation, net of forfeitures:

The following table details the Company's stock-based compensation expense, net of forfeitures (in thousands):

Year Ended March 31,

2021 2020 2019

Cost of revenue $ 672 $ 452 $ 334

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Year Ended March 31,

2021 2020 2019

Restricted stock units $ 4,041 $ 3,610 $ 3,178

Performance share units 4,904 3,103 231

Stock options

Employee stock purchase plan 679 35 —

Total share-based compensation

Total stock-based compensation $ 9,624 $ 6,748 $ 3,409

NET LOSS PER SHARE

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The Company has stock options, performance share units, restricted stock units and options to purchase shares under its ESPP, granted under various stock incentive plans that, upon exercise and vesting, respectively, would increase shares outstanding.

In addition, the Company had Convertible Notes, which were convertible at the option of the holders at any time prior to maturity into shares of Quantum common stock.

During November 2017, the Company paid all outstanding principal and accrued interest on the Convertible Notes.

The Company has also issued warrants to purchase shares of the Company’s stock that are related to the TCW Term Loan and the Senior Secured Term Loan as described within Note 4:

Debt to the consolidated financial statements.

The Company has also issued warrants to purchase shares of the Company’s stock.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per-share data):

Year Ended March 31,

2021 2020 2019

Net loss $ ( 35,459 ) $ ( 5,210 ) $ ( 42,797 )

Weighted average shares - basic and diluted 42,852 37,593 35,551

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Year Ended March 31,

2021 2020 2019

Stock awards 1,818 931 307

Warrants 6,573 6,312 4,657

ESPP 11 223 —

Total 8,402 7,466 4,964

The dilutive impact related to common shares from stock incentive plans and outstanding warrants is determined by applying the treasury stock method to the assumed vesting of outstanding performance share units and 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.

We had outstanding market based restricted stock units as of March 31, 2020 that were eligible to vest into shares of common stock subject to the achievement of certain average stock price targets in addition to a time-based vesting period.

The Company has outstanding market based restricted stock units as of March 31, 2021 that were eligible to vest into shares of common stock subject to the achievement of certain stock price targets in addition to a time-based vesting period.

These contingently issuable shares are excluded from the computation of diluted earnings per share if, based on current period results, the shares would not be issuable if the end of the reporting period were the end of the contingency period.

There were 0.5 million shares of contingently issuable market-based restricted stock units that were excluded from the table above as the market conditions were not satisfied as of March 31, 2021.

On November 18, 2019, 3.8 million warrants issued by the Company related to the TCW Term Loan agreement were exercised on a cashless basis, resulting in the issuance of 2.8 million shares of common stock.

Pre-tax loss reflected in the consolidated statements of operations for the years ended March 31, 2021, 2020 and 2019 is as follows (in thousands):

Year Ended March 31,

Income tax provision (benefit) consists of the following (in thousands):

2021 2020 2019

$ ( 36,648 ) $ ( 6,318 ) $ ( 40,935 )

Foreign 1,428 1,911 514

Total $ ( 35,220 ) $ ( 4,407 ) $ ( 40,421 )

Income tax provision consists of the following (in thousands):

Year Ended March 31,

2021 2020 2019

Current tax expense

Federal $ ( 76 ) $ ( 115 ) $ ( 217 )

State 339 106 31

Foreign 747 1,271 1,103

Total current tax expense 1,010 1,262 917

Deferred tax expense

Total deferred tax expense

Income tax provision (benefit)

The income tax provision differs from the amount computed by applying the federal statutory rate of 21% for 2020 and 2019, and 31.5% for 2018 to income (loss) before income taxes as follows (in thousands):

Federal ( 577 ) — —

State 9 33 32

Foreign ( 203 ) ( 492 ) 1,427

Total deferred tax expense (benefit) ( 771 ) ( 459 ) 1,459

Income tax provision $ 239 $ 803 $ 2,376

The income tax provision differs from the amount computed by applying the federal statutory rate of 21 % to loss before income taxes as follows (in thousands):

For the year ended March 31,

Expense (benefit) at the federal statutory rate

Equity compensation

2021 2020 2019

Expiration of attributes $ 9,862 $ 11,679 $ 12,268

Valuation allowance 5,444 ( 2,639 ) 10,913

Permanent items 1,295 914 359

Equity compensation 345 280 905

Tax reform — — ( 207 )

Credit monetization — — —

Foreign taxes ( 129 ) 1,612 ( 2,133 )

State income taxes ( 969 ) ( 20 ) ( 997 )

Valuation allowance

Uncertain tax positions

Credit monetization

Expiration of attributes

Research and development credits ( 1,829 ) ( 1,566 ) ( 879 )

Uncertain tax positions ( 6,695 ) ( 8,654 ) ( 9,278 )

Expense at the federal statutory rate ( 7396 ) ( 925 ) ( 8488 )

Other 311 122 ( 87 )

Income tax provision $ 239 $ 803 $ 2,376

2 unchanged sentences

Deferred tax assets

Inventory valuation method

Accrued warranty expense

Distribution reserves

Loss carryforwards $ 76,153 $ 85,638

Restructuring charge accruals

Deferred revenue 21,839 17,043

Acquired intangibles

Lease obligations

Tax credits 16,574 17,416

Disallowed interest 12,132 8,958

Other accruals and reserves not currently deductible for tax purposes 8,192 16,339

Capitalized research and development 7,811 —

Lease obligations 1,747 3,413

Inventory 1,374 924

Accrued warranty expense 569 650

Acquired intangibles 454 2,660

Gross deferred tax assets 146,845 153,041

2 unchanged sentences

Deferred tax liabilities

Depreciation $ ( 1,440 ) $ ( 1,440 )

Lease assets ( 1,670 ) ( 3,413 )

Other ( 1,013 ) ( 967 )

Total deferred tax liabilities $ ( 4,123 ) $ ( 5,820 )

Net deferred tax assets (liabilities) $ ( 541 ) $ 9,407

The valuation allowance decreased by $2,545 during the year ended March 31, 2020, increased by $10,311 during the year ended March 31, 2019, and decreased by $24,248 during the year ended March 31, 2018.

A reconciliation of the gross unrecognized tax benefits follows (in thousands):

The valuation allowance increased by $ 5,449 during the year ended March 31, 2021, decreased by $ 2,545 during the year ended March 31, 2020, and increased by $ 10,311 during the year ended March 31, 2019.

A reconciliation of the gross unrecognized tax benefits is as follows (in thousands):

For the year ended March 31,

2021 2020 2019

Beginning Balance $ 107,282 $ 116,032 $ 150,559

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Increase in balances related to tax positions in prior period — 144 —

Increase in balances related to acquisitions 511 — —

Decrease in balances related to tax positions in prior period ( 522 ) ( 4 ) ( 25,095 )

Decrease in balances due to lapse in statute of limitations ( 8,712 ) ( 11,165 ) ( 11,150 )

Settlement and effective settlements with tax authorities and related remeasurements

Ending balance $ 101,119 $ 107,282 $ 116,032

4 unchanged sentences

As of March 31, 2021, $ 95.5 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the consolidated balance sheets and $ 6.7 million (including interest and penalties) were included in other long-term liabilities in the consolidated balance sheets.

The Company files its tax returns as prescribed by the laws of the jurisdictions in which we operate.

The Company files its tax returns as prescribed by the laws of the jurisdictions in which it operates.

The Company's U.S.

tax returns have been audited for years through 2002 by the Internal Revenue Service.

12 unchanged sentences

The Company's income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, its valuation allowance.

The Company recorded an income tax benefit in the fiscal year ended March 31, 2021 of $ 0.6 million related to foreign currency-related gains recognized in other comprehensive income on U.S.

taxes previously imposed on certain income of its foreign subsidiaries.

Pursuant to an exception to the incremental method of intraperiod-tax allocation applicable for fiscal years beginning on or before December 15, 2020, tax benefit is recognized on a loss from continuing operations to the extent of income from other comprehensive income.

A commensurate amount of tax expense is charged to other comprehensive income for this gain.

COMMITMENTS AND CONTINGENCIES

Commitments to Purchase Inventory

The Company uses contract manufacturers for our manufacturing operations.

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

The Company uses contract manufacturers for its manufacturing operations.

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

The Company has similar arrangements with certain other suppliers.

The Company is responsible for the financial impact on the supplier or contract manufacturer of any reduction or product mix shift in the forecast relative to materials that the third party had already purchased under a prior forecast.

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

As of March 31, 2020 , the Company had issued non-cancelable commitments for $19.5 million to purchase inventory from our contract manufacturers and suppliers.

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 March 31, 2021, the Company had issued non-cancelable commitments for $ 39.6 million to purchase inventory from its contract manufacturers and suppliers.

Legal Proceedings

On July, 22 2016, Realtime Data LLC d/b/a IXO (“Realtime Data”) filed a patent infringement lawsuit against Quantum in the U.S.

On July 22, 2016, Realtime Data LLC d/b/a IXO (“Realtime Data”) filed a patent infringement lawsuit against the Company in the U.S.

District Court for the Eastern District of Texas, alleging infringement of U.S.

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District Court for the Northern District of California for further proceedings.

Realtime Data asserts that we have incorporated Realtime Data’s patented technology into our compression products and services.

Realtime Data asserts that the Company has incorporated Realtime Data’s patented technology into its compression products and services.

Realtime Data seeks unspecified monetary damages and other relief that the Court deems appropriate.

1 unchanged sentence

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.

§ 101 by Judge Connolly in the District of Delaware.

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

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

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 not eligible for patent protection under 35 U.S.C.

§ 101 (the “Delaware

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

On May 4, 2021, the Court in the Delaware Action reaffirmed its earlier ruling and granted defendants’ motions to dismiss under Section 101.

The Court also granted Realtime Data 14 days to file amended complaints in certain of the Delaware Actions where they sought leave to do so.

On May 19, 2021, Realtime Data filed amended complaints including revised bases for claims of infringement of the same patents.

Quantum is currently preparing its response to the amended complaints to be filed in the coming weeks.

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

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 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.

Gacek and Auvil and then-current management.

Gacek resigned from the board effective May 1, 2017 and as CEO effective November 7, 2017;

Auvil resigned from the board effective November 8, 2017.

The complaint’s accounting allegations largely repeat allegations made in now-concluded shareholder class actions, shareholder derivative actions and SEC investigation, the settlement of which we previously reported in the Company’s Form 10-Q filed with the SEC on January 29, 2020 and Form 10-K filed with the SEC on August 6, 2019 (among other SEC filings).

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

On November 19, 2020, Starboard filed a first amended complaint, in which Quantum was not named as a defendant and therefore, in effect Quantum had been dismissed from the California action.

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.

The amended complaint sought no relief from Quantum.

On January 8, 2021, Messrs.

Gacek and Auvil moved to dismiss the amended complaint in California on grounds of forum non conveniens and the mandatory Delaware forum selection clauses set forth in the contracts between Starboard and Quantum.

On March 11, 2021, the California Superior Court stayed the California action.

On April 14, 2021, Starboard filed a new action in the Delaware Court of Chancery, naming as defendants Messrs.

Gacek and Auvil and Quantum.

The new action largely repeats the allegations of the California action, alleging claims for fraud against all defendants, fraudulent concealment against all defendants, negligent misrepresentation against all defendants, breach of contract against Quantum, breach of the implied covenant of good faith and fair dealing against Quantum, and breach of fiduciary duty against Messrs.

Gacek and Auvil.

The complaint prays for unspecified damages in an amount to be determined at trial, costs and attorneys’ fees, and any other relief deemed just or appropriate by the court.

On May 10, 2021, Quantum filed a motion to dismiss this Delaware action, as did Messrs.

Gacek and Auvil.

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

Indemnifications

14 unchanged sentences

The carrying amounts reported in the accompanying consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their respective fair values because of the short-term nature of these accounts.

Warrants and Warrant Liability

The Company uses the Black-Scholes-Merton option valuation model for estimating fair value of common stock warrants.

The expected life of warrants granted represent the period of time that they are expected to be outstanding.

The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, exercise patterns, and post-vesting forfeitures.

The Company estimates volatility based on the historical volatility of the common stock over the most recent period corresponding with the estimated expected life of the award.

The Company bases the risk-free interest rate used in the Black-Scholes-Merton stock option valuation model on the implied yield currently available on U.S.

Treasury zero-coupon issues

with an equivalent term equal to the expected life of the award.

The Company has not paid any cash dividends on the common stock and does not anticipate paying any cash dividends in the foreseeable future.

During fiscal year 2018, the Company began issuing common stock warrants in connection with amendments to the TCW Term Loan.

The warrants were initially accounted for as a liability and recorded at estimated fair value on a recurring basis due to exercise price reset provisions contained in the warrant agreements.

As such, the Company estimated the fair value of the warrants at the end of each reporting period using the Black-Scholes-Merton valuation model.

At the end of each reporting period, the Company recorded the changes in the estimated fair value during the period in other (income) expense in the consolidated statements of operations and comprehensive income (loss).

The warrant liabilities are valued at issuance and each subsequent measurement date using the Black-Scholes-Merton option valuation model.

The following table shows the ranges of assumptions and estimates utilized within the Black-Scholes-Merton option valuation models for the period presented:

Year Ended March 31,

Company's stock price

$1.62 - $2.40

$3.64 - $5.63

Exercise prices

$0.01 - $2.40

Expected term (years)

64.1% - 71.8%

59.8% - 69.1%

Risk free interest rate

Dividend rate

During the three months ended March 31, 2019, the exercise price for these warrants reset and became fixed, at which time they were considered to be indexed to the Company’s own stock and met the scope requirements for equity classification.

The fair value of the warrants upon the exercise price reset was reclassified to stockholders’ deficit.

The Company classified the warrant liability subject to recurring fair value measurement as Level 3 prior to the reclassification to stockholders’ deficit.

As the outstanding warrants were reclassified to stockholders’ deficit in the three months ended March 31, 2019, there was no warrant liability as of March 31, 2020 and 2019 .

The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuations for the warrant liability for the periods presented (in thousands):

Warrant liability

As of March 31, 2018

Changes in fair value

Reclassifications to stockholders' deficit

As of March 31, 2019

The table below represents the carrying value and total estimated fair value of long-term debt as of March 31, 2021 and March 31, 2020, respectively.

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

Carrying Value

Carrying Value Fair Value Carrying Value Fair Value

Senior Secured Term Loan $ 92,426 $ 97,047 $ 165,208 $ 151,678

Amended PNC Credit Facility — — 2,620 2,226

SUBSEQUENT EVENTS

Paycheck Protection Program

On April 13, 2020, Quantum Corporation (the “Company”) entered into a Payment Protection Term Note (the “Note”) effective April 11, 2020 with PNC Bank, National Association as the lender (“Lender”) 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”).

Subject to the terms of the Note, the PPP Loan bears interest at a fixed rate of 1% per annum, with interest deferred up to a maximum of 10 months payable monthly thereafter, 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 Loan.

The Company intends to use the proceeds from the PPP Loan for qualifying expenses and to apply 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.

In order to apply for the PPP Loan, the Company was required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support its ongoing operations.

The Company made this certification in good faith after analyzing, among other things, its financial situation and access to alternative forms of capital, and believe that it satisfied all eligibility criteria for the PPP Loan, and that its receipt of the PPP Loan is consistent with the spirit and broad objectives of the PPP and of the CARES Act.

The certification described above does not contain any objective criteria and is subject to interpretation.

On April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith.

In addition, the SBA stated its intent to audit the PPP Loan application of any company, like the Company, that received proceeds under the PPP of more than $2 million.

Additionally, on May 8, 2020, the Company was one of five publicly traded companies to receive a letter from the United States House of Representatives’ Select Subcommittee on the Coronavirus Crisis ("the Subcommittee") requesting that the Company return the PPP Loan proceeds, and if it did not return the proceeds, requiring the Company to produce to the Subcommittee specified documentation related to its PPP Loan.

The Company intends to cooperate fully with the Subcommittee’s review of its PPP Loan.

If the Company is later determined to have violated any of the laws or governmental regulations that apply to it in connection with the PPP Loan, such as the False Claims Act, or it is otherwise determined that the Company was ineligible to receive the PPP Loan, the Company may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP Loan in its entirety.

Long-Term Debt Amendments

Amendment to the Senior Secured Term Loan

On June 16, 2020, the Company entered into an amendment to the Senior Secured Term Loan (the "June 2020 Term Loan Amendment").

The amendment provides an additional borrowing of $20.0 million which was immediately drawn in full.

The amendment also:

(a) waives the ECF Payment of $5.3 million for the year ended March 31, 2020;

(b) defers payment of the scheduled amortization payments due on June 30, 2020, September 30, 2020, and December 31, 2020 until the maturity date;

(c) amends the definition of “EBITDA” to, among other things, add an add-back for certain costs, expenses and fees incurred in connection with the transactions contemplated by the amendment;

(d) waives compliance with the total net leverage ratio, fixed charge coverage ratio, minimum liquidity and minimum EBITDA financial covenants for the quarters ending on June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021;

(e) adds a financial covenant that requires a minimum monthly average undrawn availability of $7.0 million under the Amended PNC Credit Facility during the period from June 30, 2020 through and including May 31, 2021;

and (f) amends the covenant levels for the total net leverage ratio, fixed charge coverage ratio, and minimum EBITDA financial covenants, commencing with the quarter ending June 30, 2021.

The amendment modified the Equity Clawback to allow the Company to prepay up to 50% of the aggregate principal amount of the outstanding Senior Secured Term Loan balance with cash proceeds of a public offering of the Company’s common stock at a prepayment premium of 5% of the principal amount being repaid.

The amendment also added an exit fee of 2% of the aggregate principal amount repaid excluding amounts repaid that are subject to the Equity Clawback.

In connection with the June 2020 Term Loan Amendment, the Company issued to the lenders warrants (the “2020 Term Loan Warrants”) to purchase 3,400,000 shares of the Company’s common stock, at an exercise price of $3.00

The 2020 Term Loan Warrants are exercisable until June 16, 2030.

Registration Rights Agreement

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 2018 Term Loan Warrants 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 on or after June 16, 2020;

(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.

Amendments to Amended PNC Credit Facility

On April 3, 2020, the Company entered into an amendment to the Amended PNC Credit Facility.

The amendment amends certain terms, including to waive compliance with the total net leverage ratio and total leverage ratio covenants for the quarter ending March 31, 2020.

On June 16, 2020, the Company entered into an amendment to the Amended PNC Credit Facility.

The amendment amends certain terms, including:

(a) amends the definition of “EBITDA” to, among other things, add an add-back for certain costs, expenses and fees incurred in connection with the transactions contemplated by the amendment;

(b) waives compliance with the total net leverage ratio, total leverage ratio, fixed charge coverage ratio, minimum liquidity and minimum EBITDA financial covenants for the quarters ending on June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021;

(c) adds a financial covenant that requires a minimum monthly average undrawn availability level of $7.0 million for the period from June 30, 2020 through and including May 31, 2021;

(d) adds a financial covenant that requires a minimum liquidity of not less than $10.0 million at the end of each quarter and a minimum average liquidity level $10.0 million for the ninety days preceding the last day of each quarter, beginning with the quarter ending June 30, 2021;

(e) amends the covenant levels for the total net leverage ratio, total leverage ratio, fixed charge coverage ratio, and minimum EBITDA financial covenants, commencing with the quarter ending June 30, 2021;

and (f) continues to includes a covenant that requires a minimum of $5.0 million of PNC qualified cash at all times.

The amendment also adjusts the applicable margin for advances under the Amended PNC Credit Facility such that (i) advances designated as “Domestic Rate Loans” and “Swing Loans” will have an applicable margin of (a) 4.50% for the period from the June 16, 2020 until the date quarterly financial statements are delivered to PNC for the fiscal quarter ending June 30, 2021 and (b) thereafter, ranging from 3.50% to 4.50% based on the Company’s applicable total leverage ratio and (ii) advances designated as “LIBOR Rate Loans” will have an applicable margin of (a) 5.50% for the period from June 16, 2020, until the date quarterly financial statements are delivered to PNC for the fiscal quarter ending June 30, 2021 and (b) thereafter, ranging from 4.50% to 5.50% based on the Company’s applicable total leverage ratio.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data