What changed in this filing

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Item 1. Financial Statements

2021-08-09 compared with 2021-01-27 · 165 added, 238 removed, 285 unchanged (59% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts, unaudited)

December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021

Current assets:

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Restricted cash 542 707

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

Accounts receivable, net of allowance for doubtful accounts of $ 422 and $ 406

57,895 73,102

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Deferred revenue 78,332 84,027

Accrued restructuring charges 126 580

Long-term debt, current portion 11,850 1,850

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Preferred stock, 20,000 shares authorized;

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

no shares issued and outstanding

Common stock, $ 0.01 par value;

125,000 shares authorized;

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

57,280 and 56,915 shares issued and outstanding

Additional paid-in capital 629,862 626,664

Accumulated deficit ( 742,776 ) ( 738,623 )

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

Accumulated other comprehensive loss ( 589 ) ( 856 )

Total stockholders’ deficit ( 112,930 ) ( 112,245 )

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts, unaudited)

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

2020 2019 2020 2019

Three Months Ended June 30,

Product $ 52,131 $ 39,687

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Total operating expenses 37,334 34,347

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

Loss from operations ( 56 ) ( 3,495 )

Other expense, net ( 198 ) ( 385 )

Interest expense ( 3,886 ) ( 6,437 )

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

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

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

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

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

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

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

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

Net loss before income taxes ( 4,140 ) ( 10,317 )

Income tax provision 13 419

Net loss $ ( 4,153 ) $ ( 10,736 )

Net loss per share - basic and diluted $ ( 0.07 ) $ ( 0.27 )

Weighted average shares - basic and diluted 57,129 39,905

Net loss $ ( 4,153 ) $ ( 10,736 )

Foreign currency translation adjustments, net 267 287

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

Total comprehensive loss $ ( 3,886 ) $ ( 10,449 )

See accompanying Notes to Condensed Consolidated Financial Statements.

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(in thousands, unaudited)

Nine Months Ended December 31,

Three Months Ended June 30,

Operating activities

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Stock-based compensation 3,201 1,958

Bad debt expense 123 220

Deferred income taxes ( 68 ) 13

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Purchases of property and equipment ( 1,150 ) ( 484 )

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

Net cash used in investing activities ( 1,150 ) ( 484 )

1 unchanged sentence

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

Repayments of long-term debt ( 463 ) —

Borrowings of credit facility 56,544 78,582

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Borrowings of payment protection program — 10,000

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

Proceeds from issuance of common stock 539 —

Net cash provided by financing activities 32,755 3,880

Net cash provided by (used) in financing activities ( 463 ) 26,329

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 14 ) ( 16 )

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Cash, cash equivalents, and restricted cash at end of period $ 24,644 $ 29,112

Cash, Cash Equivalents and Restricted Cash at end of period

Cash and cash equivalents $ 19,102 $ 23,307

Restricted cash, current 542 805

Restricted cash, long-term 5,000 5,000

Cash, cash equivalents and restricted cash at the end of period $ 24,644 $ 29,112

Supplemental disclosure of cash flow information

Cash paid for interest $ 2,860 $ 8,445

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

Cash paid (received) for income taxes, net $ 294 $ ( 1,964 )

Non-cash transactions

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Transfer of inventory to property and equipment $ 65 $ 159

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

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

Cash and cash equivalents $ 11,632 $ 7,542

Restricted cash, current 766 897

Restricted cash, long-term 5,000 5,000

Total cash, cash equivalents and restricted cash at the end of period $ 17,398 $ 13,439

See accompanying Notes to Condensed Consolidated Financial Statements.

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Three Months Ended Shares Amount

Balance, September 30, 2019

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

Net income — — — 4,749 — 4,749

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

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

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

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

Balance, December 31, 2019

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

Balance, September 30, 2020

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

Net loss — — — ( 2,669 ) — ( 2,669 )

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

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

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

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

Balance, December 31, 2020

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

See accompanying Notes to Condensed Consolidated Financial Statements.

Common Stock Additional

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

Nine Months Ended Shares Amount

Balance, March 31, 2020

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Foreign currency translation adjustments, net — — — — 287 287

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

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

Warrants issued related to long-term debt, net — — 11,348 — — 11,348

Warrants issued to consultants — — 167 — — 167

Stock-based compensation — — 1,958 — — 1,958

Balance, December 31, 2019

Balance, June 30, 2020

39,905 $ 399 $ 519,235 $ ( 713,900 ) $ ( 1,235 ) $ ( 195,501 )

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Net loss — — — ( 4,153 ) — ( 4,153 )

Foreign currency translation adjustments — — — — 1,984 1,984

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

Foreign currency translation adjustments, net — — — — 267 267

Shares issued under employee incentive plans, net 365 3 ( 3 ) — — —

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

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

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

Stock-based compensation — — 3,201 — — 3,201

Balance, December 31, 2020

Balance, June 30, 2021

57,280 $ 573 $ 629,862 $ ( 742,776 ) $ ( 589 ) $ ( 112,930 )

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Description of Business and Summary of Significant Accounting Policies

Business Combination

Balance Sheet Information

Long-Term Debt

Restructuring Charges

Net Income (Loss) Per Share

Net Loss Per Share

Commitments and Contingencies

Fair Value of Financial Instruments

Subsequent Events

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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

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

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

Description of Business

Quantum is a technology company whose mission is to deliver innovative solutions to organizations around the world.

We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades.

We emphasize innovative technology in the design and manufacture of our products to help our customers unlock the value in their video and unstructured data in new ways to solve their most pressing business challenges.

Basis of Presentation

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

The unaudited consolidated interim financial statements reflect all adjustments, consisting only of normal and recurring items, necessary to present fairly our financial position as of December 31, 2020, the results of operations and comprehensive income (loss) and changes in stockholder's deficit for the three and nine months ended December 31, 2020 and 2019, and the statement of cash flows for the nine months ended December 31, 2020 and 2019.

The unaudited consolidated interim financial statements reflect all adjustments, consisting only of normal and recurring items, necessary to present fairly our financial position as of June 30, 2021, the results of operations and comprehensive loss, statements of cash flows, and changes in stockholder's deficit for the three months ended June 30, 2021 and 2020.

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

COVID-19 Risks and Uncertainties

Quantum is subject to 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 the Company’s customers, the COVID-19 pandemic has significantly affected their business.

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

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

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

To date, the Company has 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.

Quantum believes that these social and economic impacts have had a negative effect on sales due to the decline in customers' ability or willingness to purchase its 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.

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

Use of Estimates

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

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.

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

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

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

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

Riley, as the Company’s sales agent.

The Company pays B.

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

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

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

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Unadjusted quoted prices in active markets for identical assets or liabilities.

Other than quoted prices that are observable in the market for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Inputs are unobservable and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

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 1 assets and Level 2 liabilities.

Recently Adopted Accounting Pronouncements

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

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

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

We plan to adopt this pronouncement for our fiscal year ending March 31, 2022, and we do not expect it to have a material effect on our consolidated financial statements.

Recent Accounting Pronouncements

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

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

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(a) Americas;

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

(b) Europe, Middle East and

Africa (“EMEA”);

and (c) Asia Pacific (“APAC”).

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

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

Three Months Ended June 30,

Primary storage systems $ 7,194 $ 6,859

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Service 32,831 30,386

3,833 3,988 10,543 15,700

Total revenue $ 89,099 $ 73,305

1 Primary and Secondary storage system revenue has been adjusted for December 31, 2019 due to certain reclassifications from Primary to Secondary storage systems.

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

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Contract Balances

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

December 31, 2020

The following table presents the Company’s contract liabilities and certain information related to this balance as of and for the three months ended June 30, 2021 (in thousands):

June 30, 2021

Contract liabilities (deferred revenue) $ 113,846

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

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

Current Non-Current Total

As of December 31, 2020

As of June 30, 2021

$ 112,462 $ 37,846 $ 150,308

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

Manufacturing and service inventories consist of the following (in thousands):

BALANCE SHEET INFORMATION

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

Manufacturing inventories

December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021

Finished goods:

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Service parts inventories

December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021

Finished goods $ 18,195 $ 18,773

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Total service parts inventories $ 23,532 $ 23,421

BUSINESS COMBINATION

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

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

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

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

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

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

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

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

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

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

Three and Nine Months Ended December 31, 2020

Gross Carrying Value Accumulated Amortization Net Carrying Amount

Intangibles, net

June 30, 2021 March 31, 2021

Gross Accumulated Amortization Net Gross Accumulated Amortization Net

Developed technology $ 4,700 $ ( 863 ) $ 3,837 $ 4,700 $ ( 473 ) $ 4,227

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Intangible assets, net $ 5,600 $ ( 1,028 ) $ 4,572 $ 5,600 $ ( 563 ) $ 5,037

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

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

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

Intangible assets amortization expense for the three months ended June 30, 2021 and 2020 was $ 0.5 million and $ 0 , respectively.

As of June 30, 2021, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 2.5 years.

As of June 30, 2021, the future expected amortization expense for intangible assets is as follows (in thousands):

Fiscal year ending Estimated future amortization expense

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

December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021

Senior Secured Term Loan $ 91,963 $ 92,426

Amended PNC Credit Facility 5,960 2,620

Paycheck Protection Program Loan 10,000 10,000

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

Senior Secured Term Loan

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

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

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

(a) $ 45.0 million or (b) the amount of the borrowing base (the “Amended PNC Credit Facility”).

The maturity date under the Senior Secured Term Loan and the Amended PNC Credit Facility (collectively, the “Credit Agreements”) is December 27, 2023.

On March 30, 2020, the Company entered into an amendment to the Senior Secured Term Loan (the “March 30, 2020 Amendment”) which included deferral of payment of the scheduled amortization payment of $ 0.4 million due on March 31, 2020 to April 1, 2020;

and, (b) deferral of payment of the interest due on March 31, 2020 to April 1, 2020.

On March 31, 2020, the Company entered into an additional amendment to the Senior Secured Term Loan (the “March 31, 2020 Amendment”) 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;

(b) payment of $ 1.9 million of the interest due on April 1, 2020 (of the total interest due of $ 5.0 million) in kind rather than in cash;

and (c) the waiver of compliance with the total net leverage ratio covenant, as defined in the Senior Secured Term Loan agreement.

On June 16, 2020, the Company entered into an amendment to the Senior Secured Term Loan (the "June 2020 Amendment" and collectively with the March 30, 2020 Amendment and March 31, 2020 Amendment, (the “Term Loan Amendments”).

Senior Secured Term Loan and Amended PNC Credit Facility

On December 27, 2018, the Company entered into a senior secured term loan of $ 150.0 million with U.S.

Bank, National Association (“U.S.

Bank”), drawn on the Closing Date, and a senior secured delayed draw term loan of $ 15.0 million (“Senior Secured Term Loan”) which was drawn in January 2019.

In connection with the Senior Secured Term Loan, the Company amended its existing PNC Credit Facility (the “Amended PNC Credit Facility”) providing for borrowings up to a maximum principal amount of the lesser of:

(a) $ 45.0 million or (b) the amount of the borrowing base, as defined in the PNC Credit Facility agreement.

Borrowings under the Senior Secured Term Loan and Amended PNC Credit Facility (collectively, the “December 2018 Credit Agreements”) mature on December 27, 2023.

Borrowings under the Senior Secured Term Loan bear interest at a rate per annum, at the Company’s option, equal to (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 as quoted by the Wall Street Journal, plus an applicable margin of 9.00 % or (b) LIBOR Rate plus an applicable margin of 10.00 %.

Interest on the Senior Secured Term Loan is payable quarterly.

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 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.

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 amendments, (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 excess cash flow payment (the “ECF Payment”), as defined in the Senior Secured Term Loan agreement, of $ 5.3 million for the year ended March 31, 2020;

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;

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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.

The June 2020 Amendment modified the equity clawback provision 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 “Equity Clawback”).

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 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.

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 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 Company accounted for the Term Loan Amendments as modifications of the Senior Secured Term Loan.

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.

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

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

Amended PNC Credit Facility

On April 3, 2020, the Company entered into an amendment to the Amended PNC Credit Facility (the “April 2020 PNC Amendment”), which amended 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 “June 2020 PNC Amendment” and collectively with the April 2020 PNC Amendment, the “PNC Amendments” and including the Term Loan Amendments, the “Amendments”).

The amendment amended certain terms, including:

(a) 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) waived 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) added 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) added 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) amended 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) continued to include a covenant that requires a minimum of $ 5.0 million of PNC qualified cash at all times.

The June 2020 PNC Amendment also adjusted 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.

The Company accounted for the PNC Amendments as modifications of the Amended PNC Credit Facility.

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

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

SBS acquisition.

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

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

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 June 30, 2021, the interest rates on the Senior Secured Term Loan and the Amended PNC Credit Facility were 12.0 % and 7.8 %, respectively, and Amended PNC Credit Facility had a borrowing base of $ 20.4 million, all of which was available at that date.

The Company was 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 condensed consolidated balance sheet as of June 30, 2021.

Registration Rights Agreement

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

As of December 31, 2020, the interest rates on the Senior Secured Term Loan and the Amended PNC Credit Facility were 12.0 % and 7.8 %, respectively.

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

As of December 31, 2020, the Company was required to maintain a $ 5.0 million restricted cash reserve as part of the Amended PNC Credit Facility.

This balance is presented as long-term restricted cash within the accompanying condensed consolidated balance sheet as of December 31, 2020.

Paycheck Protection Program

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

Paycheck Protection Program Loan

On April 13, 2020, the Company entered into a Paycheck Protection Program 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 PPP Loan has an initial term of two years and is unsecured and guaranteed by the U.S.

Small Business Administration (“SBA”).

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.

In July 2021, the Company received notice from PNC that the PPP Loan and related accrued interest was approved for forgiveness in full by the U.S.

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

Operating leases December 31, 2020 March 31, 2020

Operating leases June 30, 2021 March 31, 2021

Operating lease right-of-use asset $ 8,565 $ 9,383

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

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

Three Months Ended June 30,

Lease Cost 2021 2020

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Maturity of Lease Liabilities Operating Leases

For the fiscal year ended March 31,

2021, excluding the nine months ended December 31, 2020

2022, excluding the three months ended June 30, 2021

Thereafter 696

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Present value of lease liabilities $ 9,657

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

Lease Term and Discount Rate June 30, 2021 March 31, 2021

Weighted average remaining operating lease term (years) 4.25 4.53

Weighted average discount rate for operating leases 13.66 % 13.96 %

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

Operating cash outflows related to operating leases totaled $ 1.1 million and $ 1.4 million for the three months ended June 30, 2021 and 2020, respectively.

RESTRUCTURING CHARGES

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

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

The following table summarizes the restructuring activities for the three months ended June 30, 2021 and 2020 (in thousands):

Severance and Benefits Facilities Total

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Restructuring costs 266 — 266

Adjustments to prior estimates ( 49 ) — ( 49 )

Cash payments ( 671 ) — ( 671 )

Balance as of December 31, 2020

Balance as of June 30, 2021

$ 126 $ — $ 126

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Restructuring costs 1,052 — 1,052

Adjustments to prior estimates — 1,020 1,020

Cash payments ( 594 ) — ( 594 )

Other non-cash 63 63

Balance as of December 31, 2019

$ — $ 300 $ 300

NET INCOME (LOSS) PER SHARE

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

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

2020 2019 2020 2019

Balance as of June 30, 2020

$ 458 $ — $ 458

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

NET LOSS PER SHARE

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

Three Months Ended June 30,

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

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

For the three and nine months ended December 31, 2020, there were 1.5 million and 0.4 million contingently issuable market based and performance based restricted stock units, respectively, excluded from the calculation of diluted net income (loss) per share, as their market and performance conditions had not yet been achieved.

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

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

The effective tax rate for the three months ended June 30, 2021 and 2020 was ( 0.3 )% and 1.0 %, respectively.

The effective tax rates differed from the federal statutory tax rate of 21% during each of these periods due primarily to unbenefited losses experienced in jurisdictions with valuation allowances on deferred tax assets as well as the forecasted mix of earnings in domestic and international jurisdictions.

As of December 31, 2020, including interest and penalties, the Company had $ 110.4 million of unrecognized tax benefits, $ 92.1 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance.

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

As of June 30, 2021, including interest and penalties, the Company had $ 102.8 million of unrecognized tax benefits, $ 84.4 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance.

As of June 30, 2021, the Company had accrued interest and penalties related to these unrecognized tax benefits of $ 1.2 million.

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

As of December 31, 2020, $ 103.6 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the condensed consolidated balance sheets and $ 6.8 million (including interest and penalties) were recorded in other long-term liabilities in the condensed consolidated balance sheets.

As of June 30, 2021, $ 95.5 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the condensed consolidated balance sheets and $ 7.3 million (including interest and penalties) were recorded in other long-term liabilities in the condensed consolidated balance sheets.

During the next 12 months, it is reasonably possible that approximately $ 9.1 million of tax benefits, inclusive of interest and penalties, that are currently unrecognized could be recognized as a result of the expiration of applicable statutes of limitations.

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

As of June 30, 2021, the Company had issued non-cancelable commitments for $ 57.5 million to purchase inventory from its contract manufacturers and suppliers.

Legal Proceedings

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

On July 31, 2017, the District Court stayed proceedings in this litigation pending decision in Inter Partes Review proceedings before the Patent Trial and Appeal Board relating to the Realtime patents.

On July 31, 2017, the District Court stayed proceedings in this litigation pending the outcome of Inter Partes Review proceedings before the Patent Trial and Appeal Board relating to the Realtime patents.

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

§ 101 (the “Delaware Action”).

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

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

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

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 fourteen days to file amended complaints in the Delaware Action 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.

On June 29, 2021, Quantum filed a renewed motion to dismiss under Section 101.

Realtime Data filed its opposition to the motion to dismiss on July 13, 2021.

Quantum expects it will be late summer or early fall before the motion to dismiss is resolved.

Quantum 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.

as Quantum met certain performance objectives by the end of fiscal 2015.

The complaint further alleges that Quantum hid its failure to meet those performance objectives by improperly recognizing revenue in fiscal 2015.

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).

Based on these allegations, the complaint asserts putative claims for intentional misrepresentation/fraud in the inducement, intentional misrepresentation/fraud and negligent misrepresentation against Quantum, Gacek and Auvil, false promise/promissory fraud and unjust enrichment against Quantum and breach of fiduciary duty against Gacek and Auvil.

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

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

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

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

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

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

The amended complaint seeks no relief from Quantum.

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

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

The complaint’s accounting allegations largely repeat allegations made in now-concluded shareholder class actions, shareholder derivative actions and an SEC investigation, the settlement of which Quantum 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, defendants filed a motion to dismiss the California action 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, in effect dismissing Quantum from the California action.

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.

Briefing on the motion is underway, and oral arguments have been set for September 28, 2021.

The motion to dismiss is pending.

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

Other Commitments

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

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

No impairment charges were recognized for non-financial assets in the three months ended June 30, 2021 and 2020.

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

Long-term Debt

The table below represents the carrying value and total estimated fair value of long-term debt as of December 31, 2020 and 2019.

The table below represents the carrying value and total estimated fair value of long-term debt as of June 30, 2021 and 2020.

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

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Senior Secured Term Loan $ 91,963 $ 97,047 $ 185,208 $ 185,208

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

SUBSEQUENT EVENTS

Long-term Debt Refinancing

On August 5, 2021 (the “Closing Date”), the Company entered into a senior secured term loan of $ 100.0 million, million (the “Term Loan”).

A portion of the proceeds were used to prepay all outstanding borrowings under the Senior Secured Term Loan.

Borrowings under the Term Loan mature on August 5, 2026.

Principal is payable at a rate per annum equal to (a) 2.5% of the original principal balance thereof during the first year following the Closing Date and (b) 5% of the original principal balance thereof thereafter.

Principal and interest payments are payable on a quarterly basis.

Loans under the Term Loan Credit Agreement designated as “Prime Rate Loans” will bear interest at a rate per annum equal to the greatest of (i) 1.75 %, (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 an applicable margin of 5.00 %.

Loans designated as “LIBOR Rate Loans” will bear interest at a rate per annum equal to the LIBOR Rate plus an applicable margin of 6.00 %.

The “LIBOR Rate” is subject to a floor of 0.75 %.

The Company can designate a loan as a Prime Rate Loan or LIBOR Rate Loan in its discretion.

The Term Loan Credit Agreement contains certain customary covenants, including requirements to prepay the loans in an amount equal to (i) 100 % of the net cash proceeds from certain asset dispositions, extraordinary receipts, debt issuances and equity issuances, subject to certain reinvestment rights and other exceptions and (ii) 75 % of certain excess cash flow of the Company and its subsidiaries, subject to certain exceptions, including reductions to the percentage of such excess cash flow that is required to prepay the loans to 50 % and 0 %, based on the Company’s applicable total net leverage ratio.

Amounts outstanding under the Term Loan may become due and payable upon the occurrence of specified events, which among other things include (subject to certain exceptions and cure periods):

(i) failure to pay principal, interest, or any fees when due;

(ii) breach of any representation or warranty, covenant, or other agreement in the Term Loan and other related loan documents;

(iii) the occurrence of a bankruptcy or insolvency proceeding with respect to the Company or certain of its subsidiaries;

(iv) any “Event of Default” with respect to other indebtedness involving an aggregate amount of $ 3,000,000 or more;

(v) any lien created by the Term Loan or any related security documents ceasing to be valid and perfected;

(vi) the Term Loan Credit Agreement or any related security documents or guarantees ceasing to be legal, valid, and binding upon the parties thereto;

or (vii) a change of control shall occur.

Additionally, the Term Loan contains financial covenants relating to minimum liquidity and total net leverage ratio.

PPP Loan Forgiveness

In July 2021, the Company received notice from PNC that the PPP Loan and related accrued interest was approved for forgiveness in full by the U.S.

Asset Purchase

On July 20, 2021, the Company purchased specified assets related to the video surveillance business of PV3 (an ABC) LLC, a Delaware limited liability company as assignee for the benefit of Pivot3, Inc., a Delaware corporation (“Pivot3”).

The Company paid approximately $ 5.0 million in cash and 459,720 shares of common stock and assumed certain liabilities related to the video surveillance business.

Pivot3 has also agreed to license to the Company certain intellectual property rights related to the business.

The Company is currently in the process of determining the purchase price allocation and will record the estimated fair values when all required information has been obtained and evaluated.

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

What changed 10-Q

Item 1. Financial Statements