What changed in this filing

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Item 1. Financial Statements

2021-11-03 compared with 2021-08-09 · 160 added, 109 removed, 341 unchanged (44% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts, unaudited)

June 30, 2021 March 31, 2021

September 30, 2021 March 31, 2021

Current assets:

44 unchanged sentences

(in thousands, except per share amounts, unaudited)

Three Months Ended June 30,

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

2021 2020 2021 2020

Product $ 54,655 $ 50,850 $ 106,786 $ 90,537

13 unchanged sentences

Total operating expenses 39,325 35,234 76,661 69,580

Loss from operations ( 56 ) ( 3,495 )

Other expense, net ( 198 ) ( 385 )

Income (loss) from operations ( 938 ) 3,500 ( 995 ) 6

Other income (expense), net 126 ( 312 ) ( 71 ) ( 697 )

Interest expense ( 3,070 ) ( 7,578 ) ( 6,956 ) ( 14,015 )

Loss on debt extinguishment, net ( 4,960 ) — ( 4,960 ) —

Net loss before income taxes ( 8,842 ) ( 4,390 ) ( 12,982 ) ( 14,706 )

10 unchanged sentences

(in thousands, unaudited)

Three Months Ended June 30,

Six Months Ended September 30,

Operating activities

6 unchanged sentences

Stock-based compensation 6,273 4,550

Deferred income taxes ( 68 ) 13

Unrealized foreign exchange loss 394 482

Paycheck Protection Program loan forgiveness ( 10,000 ) —

Non-cash loss on debt extinguishment 8,471 —

Other ( 20 ) 1,268

Changes in assets and liabilities:

10 unchanged sentences

Purchases of property and equipment ( 2,396 ) ( 1,434 )

Business acquisition, net of cash acquired ( 5,000 ) —

Net cash used in investing activities ( 7,396 ) ( 1,434 )

5 unchanged sentences

Borrowings of payment protection program — 10,000

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

Proceeds from issuance of common stock 806 537

Net cash provided by financing activities 12,716 26,866

Effect of exchange rate changes on cash, cash equivalents and restricted cash 12 ( 96 )

19 unchanged sentences

Common Stock Additional

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

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

Three Months Ended Shares Amount

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

Net loss — — — ( 4,592 ) — ( 4,592 )

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

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

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

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

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

Balance, June 30, 2021 57,280 $ 573 $ 629,862 $ ( 742,776 ) $ ( 589 ) ( 112,930 )

Net loss — — — ( 9,253 ) — ( 9,253 )

Foreign currency translation adjustments, net — — — — ( 506 ) ( 506 )

Shares issued under employee stock purchase plan 145 1 805 — — 806

Shares issued under employee incentive plans, net 1,387 14 ( 14 ) — — —

Shares issued in connection with business acquisition 460 5 2,813 — — 2,818

Stock-based compensation — — 3,072 — — 3,072

Balance, September 30, 2021 59,272 $ 593 $ 636,538 $ ( 752,029 ) $ ( 1,095 ) $ ( 115,993 )

See accompanying Notes to Condensed Consolidated Financial Statements.

Common Stock Additional

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

Six Months Ended Shares Amount

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

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

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

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

Shares issued under employee stock purchase plan 133 2 537 539

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

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

Warrants issued to consultants — — 167 — — 167

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

Balance, June 30, 2020

Balance, September 30, 2020

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

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

56,915 $ 570 $ 626,664 $ ( 738,623 ) $ ( 856 ) $ ( 112,245 )

Net loss — — — ( 13,406 ) — ( 13,406 )

Foreign currency translation adjustments, net — — — — ( 239 ) ( 239 )

Shares issued under employee stock purchase plan 145 1 805 — 806

Shares issued under employee incentive plans, net 1,752 17 ( 17 ) — — —

Shares issued in connection with business acquisition 460 5 2,813 — — 2,818

Stock-based compensation — 6,273 — — 6,273

Balance, June 30, 2021

Balance, September 30, 2021

59,272 $ 593 $ 636,538 $ ( 752,029 ) $ ( 1,095 ) $ ( 115,993 )

2 unchanged sentences

Description of Business and Summary of Significant Accounting Policies

Business Combination

Balance Sheet Information

17 unchanged sentences

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

The unaudited consolidated interim financial statements reflect all adjustments, consisting only of normal and recurring items, necessary to present fairly our financial position as of 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.

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

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

13 unchanged sentences

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

Three Months Ended June 30,

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

2021 2020 2021 2020

Primary storage systems $ 11,264 $ 16,933 $ 18,458 $ 23,792

17 unchanged sentences

Service 34,359 31,494 67,189 61,880

4,166 3,477 8,303 6,709

Total revenue $ 93,180 $ 85,821 $ 182,278 $ 159,126

2 unchanged sentences

Contract Balances

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

June 30, 2021

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

September 30, 2021

Contract liabilities (deferred revenue) $ 118,871

3 unchanged sentences

Current Non-Current Total

As of June 30, 2021

As of September 30, 2021

$ 130,708 $ 42,855 $ 173,563

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

BUSINESS ACQUISITION

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 (“Pivot 3”).

The transaction costs associated with the acquisition were not material and expensed as incurred.

Goodwill generated from this acquisition is primarily attributable to the expected post-acquisition synergies from integrating Pivot3's video surveillance portfolio and assets with our platform to expand our video surveillance portfolio with hardware and software offerings that will be offered under the Quantum VS-Series portfolio.

Goodwill obtained in an asset acquisition is deductible for tax purposes.

The total purchase consideration for the acquisition of Pivot3 was $ 7.8 million, which consisted of the following (in thousands):

Fair value of stock consideration 2,818

Total $ 7,818

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of the acquisition (in thousands):

Amount Estimated Useful Life

Goodwill $ 6,796

Identified intangible assets:

Developed technology 1,700 2 years

Customer lists 3,700 4 years

Property, plant and equipment 4,300 3 years

Net liabilities assumed ( 8,678 )

Total $ 7,818

Pivot 3 has also agreed to license to the Company certain intellectual property rights related to the business.

The historical results of operations for Pivot 3 were not significant to the Company's consolidated results of operations for the periods presented.

BALANCE SHEET INFORMATION

1 unchanged sentence

Manufacturing inventories

June 30, 2021 March 31, 2021

September 30, 2021 March 31, 2021

Finished goods:

6 unchanged sentences

Service parts inventories

June 30, 2021 March 31, 2021

September 30, 2021 March 31, 2021

Finished goods $ 17,817 $ 18,773

2 unchanged sentences

Intangibles, net

June 30, 2021 March 31, 2021

September 30, 2021 March 31, 2021

Gross Accumulated Amortization Net Gross Accumulated Amortization Net

2 unchanged sentences

Intangible assets, net $ 11,000 $ ( 1,868 ) $ 9,132 $ 5,600 $ ( 563 ) $ 5,037

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):

Intangible assets amortization expense was $ 0.8 million and $ 0 for the three months ended September 30, 2021 and 2020, respectively, and $ 1.3 million and $ 0 for the six months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 2.8 years.

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

Fiscal year ending Estimated future amortization expense

Remainder of 2022 $ 1,796

Thereafter 1,205

Total $ 9,132

Balance at March 31, 2021 $ 3,466

Goodwill acquired 6,796

Balance at September 30, 2021

There were no impairments to goodwill during the second quarter and first two quarters of fiscal 2021 and 2022.

LONG-TERM DEBT

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

June 30, 2021 March 31, 2021

September 30, 2021 March 31, 2021

Term Loan $ 99,375 $ —

Senior Secured Term Loan — 92,426

PNC Credit Facility 10,000 —

Paycheck Protection Program Loan — 10,000

3 unchanged sentences

Long-term debt, net $ 101,368 $ 90,890

(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 condensed consolidated balance sheets.

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 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:

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

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

On December 27, 2018, the Company entered into a senior secured term loan to borrow an aggregate of $ 165.0 million (the “Senior Secured Term Loan”).

In connection with the Senior Secured Term Loan, the Company amended its existing revolving credit facility with PNC (the PNC Credit Facility together with the Senior Secured Term Loan, the “December 2018 Credit Agreements”) 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”).

On June 16, 2020, the Company entered into amendments to the December 2018 Credit Agreements (the "June 2020 Amendment" and collectively with the amendments to the December 2018 Credit Agreements occurring on March 30, 2020, March 31, 2020 and April 3, 2020, 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.

5 unchanged sentences

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.

The 2020 Amendments related to the 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.

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

A portion of the proceeds were used to repay in full 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.

The Company incurred $ 5.1 million in costs related to the Term Loan.

These debt issuance costs are reflected as a reduction of the carrying amount of the Term Loan and are being recognized as interest expense over the term of the Term Loan.

The Company recorded a loss on debt extinguishment of $ 15.0 million related to the repayment of the Senior Secured Term Loan which was comprised of $ 6.4 million in prepayment penalties, $ 0.1 million in legal fees, and the write-off of unamortized debt issuance costs of $ 8.4 million.

Loans under the Term Loan 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 one 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 contains certain covenants, including requirements to prepay the Term Loan 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 beginning in the fiscal year ended March 31, 2023, 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.

On September 30, 2021, the Company amended the PNC Credit Facility (the PNC Credit Facility together with the Term Loan, the “Credit Agreements”).

The amendment, among other things (a) extended the maturity date to August 5, 2026;

(b) reduced the principal amount of the revolving commitments to a maximum amount equal to the lesser of:

(i) $ 30.0 million or (ii) the amount of the borrowing base, as defined in the PNC Credit Facility agreement;(c) replaced existing debt covenants with net leverage ratio, minimum liquidity and fixed charges coverage ratio covenants;

and, (d) removed the requirement to maintain a $ 5.0 million restricted cash reserve with PNC.

The interest rate under the PNC Credit Facility is 2.25 % per annum for LIBOR Rate Loans and 1.25 % per annum for Domestic Rate Loans and Swing Loans through December 31, 2021, and effective as of January 1, 2022 on the first day of each fiscal quarter ending thereafter (the “Applicable Margin Adjustment Date”), between 1.75 % and 2.25 % per annum for LIBOR Rate Loans and between 0.75 % and 1.25 % per annum for Domestic Rate Loans and Swing Loans, based on the percentage of Average Undrawn Availability (as defined in the PNC Credit Agreement) for the most recently completed fiscal quarter prior to the Applicable Margin Adjustment Date (the “Applicable Interest Rate”).

With respect to any LIBOR Rate Loan, the Company has agreed to pay affiliates of certain Term Loan lenders a fee equal to a percentage per annum equal to the sum of (x) 6.00 %, minus (y) the Applicable Interest Rate, plus (z) if the LIBOR Rate applicable to such interest payment is less than 0.75 %, (i) 0.75 % minus (ii) such LIBOR Rate.

With respect to any Domestic Rate Loan or Swing Loan, the Company has agreed to pay an affiliate of Blue Torch a fee equal to a percentage per annum equal to the sum of (x) 5.00 %, minus (y) the Applicable Interest Rate, plus (z) if the Alternative Base Rate applicable to such interest payment is less than 1.00 %, (i) 1.00 % minus (ii) such Alternative Base Rate.

If on the last day of any calendar quarter, the average “Usage Amount” during such calendar quarter does not equal the “Maximum Revolving Advance Amount” (as such terms are defined in the PNC Credit

Facility), then the Company has agreed to pay affiliates of certain Term Loan lenders a fee at a rate per annum equal to 1.00 % minus a fee percentage between 0.25 % to 0.375 % on the amount by which the Maximum Revolving Advance Amount exceeds such average Usage Amount.

As of September 30, 2021, the interest rates on the Term Loan and the PNC Credit Facility were 6.75 % and 2.34 %, respectively, and PNC Credit Facility had a borrowing base of $ 20.0 million, of which $ 8.6 million was available at that date.

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

The September 30, 2021 amendment to the PNC Credit Facility removed the restricted cash reserve requirement.

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 warrants previously issued to the Senior Secured Term Loan lenders in December 2018 and the 2020 Term Loan Warrants (collectively, the “Term Loan Warrants”).

In connection with the June 2020 Amendment to the Senior Secured Term Loan, 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;

3 unchanged sentences

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 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.

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.

Small Business Administration (the “SBA”).

The Company recorded the amount forgiven as gain on debt extinguishment of $ 10.0 million in the three and six months ended September 30, 2021.

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

Operating leases June 30, 2021 March 31, 2021

Operating leases September 30, 2021 March 31, 2021

Operating lease right-of-use asset $ 7,917 $ 9,383

3 unchanged sentences

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

Three Months Ended June 30,

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

Lease Cost 2021 2020 2021 2020

4 unchanged sentences

Maturity of Lease Liabilities Operating Leases

2022, excluding the three months ended June 30, 2021

2022, excluding the six months ended September 30, 2021

Thereafter 698

2 unchanged sentences

Present value of lease liabilities $ 8,910

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

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

Weighted average remaining operating lease term (years) 4.15 4.53

Weighted average discount rate for operating leases 13.64 % 13.96 %

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.

Operating cash outflows related to operating leases totaled $ 1.0 million and $ 1.3 million for the six months ended September 30, 2021 and 2020, respectively.

RESTRUCTURING CHARGES

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

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

Severance and Benefits Facilities Total

3 unchanged sentences

Cash payments ( 784 ) — ( 784 )

Balance as of June 30, 2021

Balance as of September 30, 2021

$ 20 $ — $ 20

2 unchanged sentences

Cash payments ( 2,397 ) — ( 2,397 )

Balance as of June 30, 2020

Balance as of September 30, 2020

$ 240 $ — $ 240

1 unchanged sentence

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.

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

2021 2020 2021 2020

9,195 8,020 10,315 7,180

The dilutive impact related to common shares from restricted stock units and warrants is determined by applying the treasury stock method 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.

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

For the three and six months ended September 30, 2020, there were 1.6 million and 0.5 million of 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 were earned based on the Company’s achievement of certain average stock price and performance targets in addition to a time-based vesting period.

There were no contingently issuable market based and performance based restricted stock units excluded from the diluted net loss per share as of September 30, 2021.

The effective tax rate for the three and six months ended September 30, 2021 and 2020 was ( 4.6 )% and ( 3.2 )% and 1.0 % and 0.0 %, 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 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.

As of September 30, 2021, including interest and penalties, the Company had $ 108.4 million of unrecognized tax benefits, $ 89.9 million of which, if recognized, would favorably affect the effective tax rate without consideration of the valuation allowance.

After taking into account the valuation allowance, of the $ 89.9 million, only $ 7.5 million, if recognized, would favorably affect the effective tax rate.

As of September 30, 2021, the Company had accrued interest and penalties related to these unrecognized tax benefits of $ 1.3 million.

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

As of 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.

As of September 30, 2021, $ 100.9 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 $ 7.5 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 $ 14.0 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.

After taking into account the valuation allowance, of the $ 14.0 million, only $ 1.0 million would affect the effective tax rate.

COMMITMENTS AND CONTINGENCIES

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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 inventory.

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.

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

obsolete inventory.

As of September 30, 2021, the Company had issued non-cancelable commitments for $ 57.3 million to purchase inventory from its contract manufacturers and suppliers.

Legal Proceedings

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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.

On June 29, 2021, defendants in the Delaware Action 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.

On August 23, 2021, the Court again reaffirmed its earlier ruling and granted defendants’ motions to dismiss under Section 101.

Realtime Data has appealed that decision to the Federal Circuit.

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 hid its failure to meet those performance objectives by improperly recognizing revenue in fiscal 2015.

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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.

Under the briefing schedule agreed to by the parties and approved by the Court of

Chancery, briefing on the motions ended July 26, 2021.

The Court set oral argument on the motions for September 28, 2021, but on August 4, 2021, on its own motion, postponed the hearing to November 1, 2021.

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

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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 impairment charges were recognized for non-financial assets in the three months ended June 30, 2021 and 2020.

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

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

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

September 30,

Carrying Value Fair Value Carrying Value Fair Value

Senior Secured Term Loan $ 99,375 $ 99,375 $ 185,208 $ 185,208

Amended PNC Credit Facility 10,000 10,000 — —

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

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.

On October 1, 2021, the Company acquired the assets of EnCloudEn, an early stage hyperconverged infrastructure software company, for $ 2.3 million in cash.

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