What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-06-08 compared with 2021-05-26 · 248 added, 263 removed, 809 unchanged (39% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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Net sales for the fiscal year ended March 31, 2022 was $372.8 million, which principally consist of product sales.

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

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

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

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Service parts inventories 24,254 23,421

Prepaid expenses 7,853 3,893

Other current assets 4,697 3,046

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Deferred revenue 86,517 84,027

Accrued restructuring charges 580 —

Long-term debt, current portion 4,375 1,850

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Deferred revenue 41,580 36,126

Revolving credit facility 17,735 —

Long-term debt, net of current portion 89,448 90,890

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Product $ 223,761 $ 209,808 $ 251,168

Service 124,904 131,050 134,696

Service and subscription 133,689 124,904 131,050

Royalty 15,377 14,864 20,731

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Product 169,780 150,257 179,760

Service 48,566 50,681 55,220

Service and subscription 56,012 48,566 50,681

Total cost of revenue 225,792 198,823 230,441

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( 13,840 ) 8,403 21,204

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

Other expense, net ( 251 ) ( 1,312 ) ( 261 )

Interest expense ( 11,888 ) ( 27,522 ) ( 25,350 )

23 unchanged sentences

Provision for manufacturing and service inventories 5,740 6,334 6,255

Non-cash income tax benefit ( 577 ) — —

Gain on PPP loan extinguishment ( 10,000 ) — —

Stock-based compensation 13,829 9,624 6,748

Deferred income taxes 34 458 2,356

Bad debt expense ( 573 ) 1,221 315

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

Non-cash income tax benefit — ( 577 ) —

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

Gain on investment — — ( 2,729 )

Other non-cash ( 832 ) 704 1,807

Changes in assets and liabilities, net of effect of acquisition:

Changes in assets and liabilities, net of effect of acquisitions:

Accounts receivable 3,651 ( 1,625 ) 15,237

5 unchanged sentences

Accrued compensation ( 3,073 ) 4,257 ( 2,161 )

Other assets and liabilities ( 326 ) ( 4,132 ) 8,629

Prepaid expenses and other assets ( 6,561 ) 2,215 979

Other liabilities ( 3,003 ) ( 2,541 ) ( 5,111 )

Net cash used in operating activities

2 unchanged sentences

Purchases of property and equipment ( 6,316 ) ( 6,931 ) ( 2,633 )

Cash distributions from investments — — 2,943

Business acquisitions ( 7,808 ) ( 2,655 ) ( 1,966 )

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

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

Transfer of property and equipment to manufacturing inventory $ 818 $ 429 $ 400

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

15 unchanged sentences

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

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

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

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

Net loss — — — ( 5,210 ) — ( 5,210 )

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

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

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

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

Net loss — — — ( 32,280 ) — ( 32,280 )

Foreign currency translation adjustments, net of income taxes — — — — ( 567 ) ( 567 )

Shares issued under employee stock purchase plan 389 4 1,758 — — 1,762

Shares issued under employee incentive plans, net 2,308 23 ( 23 ) — — —

Shares issued in connection with business acquisition 821 8 2,810 — — 2,818

Stock-based compensation — — 13,829 — — 13,829

Balance, March 31, 2022 60,433 $ 605 $ 645,038 $ ( 770,903 ) $ ( 1,423 ) $ ( 126,683 )

The accompanying notes are an integral part of these consolidated financial statements.

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Revenue Recognition

Business Acquisition

Business Acquisitions

Balance Sheet Information

Restructuring Charges

Net Loss Per Share

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Fair Value of Financial Instruments

Subsequent Events

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The accompanying consolidated financial statements of the Company have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern.

The Company generated negative cash flows from operations of approximately $ 33.7 million, $ 0.8 million and $ 1.2 million for the fiscal years ended March 31, 2022, 2021 and 2020, respectively, and generated net losses of approximately $ 32.3 million, $ 35.5 million, and $ 5.2 million for the fiscal years ended March 31, 2022, 2021 and 2020, respectively.

The Company has funded operations through the sale of common stock, term debt borrowings, revolving credit facility borrowings and proceeds from the Paycheck Protection Program Loan described in Note 5:

Management believes that it has

the ability to obtain additional debt or equity financing, if required, and has historically been able to do so.

Management also believes that current working capital, borrowings available under the revolving credit facility and future equity financing (including the April 22, 2022 sale of 30 million shares of our common stock for gross proceeds of $ 67.5 million) or debt financing will provide the Company with sufficient capital to fund operations for at least one year from the consolidated financial statement issuance date.

There is no assurance that we would be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company.

Principles of Consolidation

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Restricted Cash

Restricted cash is primarily attributable to minimum cash reserve requirements under the Company’s revolving credit agreements.

The remaining restricted cash is comprised of bank guarantees and similar required minimum balances that serve as cash collateral in connection with various items including insurance requirements, value added taxes, ongoing tax audits and leases in certain countries.

Restricted cash is comprised of required minimum balances that serve as cash collateral in connection with various items including insurance requirements, value added taxes, ongoing tax audits and leases in certain countries.

Allowance for Doubtful Accounts

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The Company performs ongoing credit evaluations of its customers’ financial condition, and for the majority of its customers require no collateral.

For customers that do not meet the Company’s credit standards, the Company often requires a form of collateral, such as cash deposits or letters of credit, prior to the completion of a transaction.

For customers that do not meet the Company’s credit standards, the Company may require a form of collateral, such as cash deposits or letters of credit, prior to the completion of a transaction.

These credit evaluations require significant judgment and are based on multiple sources of information.

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

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

product pricing, physical deterioration and quality issues.

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

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

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Computer equipment 3 to 5 years

Enterprise resource planning software (1) 10 years

Other software 3 years

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Leasehold improvements Shorter of useful life or life of lease

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

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

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

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

The Company may elect to

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

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

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

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

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

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

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

Impairment of Long-Lived Assets

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

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

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

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

The Company measures the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate.

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

Operating Leases

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

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

For short-term leases which have a lease term less than twelve months and do not include an option to purchase the underlying asset that is reasonably certain to be exercised, the Company recognizes rent expense in the

consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term and record variable lease payments as incurred.

Deferred Revenue

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

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

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

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

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

Service Revenue

Service revenue primarily consists of three components:

(1) post-contract customer support agreements.

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

Service and Subscription Revenue

Service and subscription revenue consists of four components:

(a) post-contract customer support agreements,

(b) software subscriptions, (c) installation, and (d) consulting & training.

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

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

The Company also sells software subscriptions that include term licenses which are recognized as revenue when the license is delivered to the customer and related customer support which is recognized ratably over the service period.

The Company offers installation services on all its products.

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

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

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

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

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

Cost of Service Revenue

Cost of Service and Subscription Revenue

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

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

In the event its service business changes, its estimates of cost of service revenue may be impacted.

In the event its service business changes, its estimates of cost of service and subscription revenue may be impacted.

Research and Development Costs

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

Internal-use Software Costs

The Company capitalizes costs incurred to implement software solely for its internal use, including (i) hosted applications used to deliver the Company's support services, and (ii) certain implementation costs incurred in a hosting arrangement that is a service contract when the preliminary project stage is complete, management with the relevant authority authorizes and commits to the funding of the software project, and it is probable the project will be completed and used to perform the intended function.

Software implementation costs are capitalized to either other current assets or other long-term assets on the Company's consolidated balance sheet and amortized over 10 years.

Software implementation costs capitalized

were $ 3.1 million and $ 3.1 million for fiscal 2022 and 2021.

Related amortization expense for software implementation costs was $ 0.1 million and $ 0 during fiscal 2022 and 2021, respectively.

Advertising Expense

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

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

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes in which deferred tax asset and liabilities are recognized based on differences between the financial reporting carrying values of assets

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

Resulting translation adjustments are reported as a component of other comprehensive loss and recorded in accumulated other comprehensive loss in the accompanying consolidated balance sheets.

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

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

An increase or decrease in the valuation allowance, if any, that results from a change in circumstances, and which causes a change in the Company’s judgment about the realizability of the related deferred tax asset, is included in the tax provision.

The Company assesses whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.

The Company assesses whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position.

The tax benefit to be recognized in the financial statements from such a position is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

The tax benefit to be recognized in the consolidated financial statements from such a position is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

The Company reevaluates these uncertain tax positions on a quarterly basis.

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In periods subsequent to initial measurement, the Company recognizes changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate.

Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the estimated useful life of the asset.

Over time, the liability is accreted to its present value and the capitalized cost is

depreciated over the estimated useful life of the asset.

The Company’s obligations relate primarily to certain legal obligations to remediate leased property on which certain assets are located.

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

To the extent the estimate of

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

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

Concentration of Credit Risk

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During the fiscal years ended March 31, 2022, 2021 and 2020 no customers represented 10% or more of the Company’s total revenue.

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

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

One customer comprised approximately 21 % of accounts receivable as of March 31, 2022.

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

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

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

The chief operating decision maker focuses on consolidated results in assessing operating performance and allocating resources.

The chief operating decision maker focuses on

consolidated results in assessing operating performance and allocating resources.

Furthermore, the Company offers similar products and services and uses similar processes to sell those products and services to similar classes of customers.

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Defined Contribution Plan

The Company sponsors a qualified 401(k) retirement plan for its U.S employees.

The Company sponsors a qualified 401(k) retirement plan for its U.S.

The plan covers substantially all employees who have attained the age of 18.

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

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

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

For the years ended March 31, 2022 and 2021, the Company incurred $ 1.7 million and $ 1.2 million in matching contributions, respectively.

No matching contributions were made in the fiscal year ended March 31, 2020.

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 as authoritative guidance for internal-use software and deferred over the noncancelable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider.

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

Recently Issued Accounting Pronouncements Not Yet Adopted

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

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

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

In October 2021, the Financial Accounting Standards Board issued ASU 2021-08— Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which amends ASC 805 to “require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.” Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date.

As a result of the amendments made by ASU 2021-08, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its pre-acquisition financial statements.

The Company elected to early adopt this standard in the fourth quarter of fiscal 2022 using a retrospective approach that applies the new standard to all business acquisitions that occurred within the current fiscal year.

The impact of adoption was in increase of $ 2.7 million to deferred revenue and goodwill associated with the Pivot 3 acquisition described in Note 3:

Business Acquisitions .

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

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Device and media 24,849 24,410 31,228

Service 76,039 82,607 87,040

Service and subscription 81,608 76,039 82,607

Total revenue 206,560 194,692 225,238

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Device and media 19,467 20,881 25,484

Service 41,261 39,467 37,216

Service and subscription 44,187 41,261 39,467

Total revenue 114,917 108,770 121,037

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Device and media 5,714 5,873 5,632

Service 7,604 8,976 10,440

Service and subscription 7,894 7,604 8,976

Total revenue 35,973 31,250 35,943

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Device and media 50,030 51,164 62,344

Service 124,904 131,050 134,696

Service and subscription 133,689 124,904 131,050

15,377 14,864 20,731

Total revenue $ 372,827 $ 349,576 $ 402,949

1 Primary and Secondary storage system revenue has been adjusted for fiscal year 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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The majority of the Company’s noncurrent remaining performance obligations is expected to be recognized in the next 13 to 60 months.

BUSINESS ACQUISITION

BUSINESS ACQUISITIONS

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

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and (d) $ 1.0 million cash payable at the second anniversary of the closing date.

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

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

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

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

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

Intangible assets, net March 31, 2021

Gross Carrying Value Accumulated Amortization Net Carrying Amount

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

Customer lists 900 ( 90 ) 810

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

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

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

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

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

Fiscal year ending Estimated future amortization expense

In July 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 were 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 its platform to expand the 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

Balance at March 31, 2020 $ —

Goodwill acquired 3,466

Balance at March 31, 2021 $ 3,466

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 $ 9,503

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 ( 11,385 )

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.

In October 2021, the Company acquired all intellectual property rights and certain other assets of EnCloudEn, an early stage hyperconverged infrastructure software company.

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

The total purchase consideration for the acquisition was $ 2.8 million with $ 2.6 million paid at closing and an additional $ 0.2 million paid in three equal quarterly installments after closing.

The fair value of the assets acquired was allocated to developed technology with an estimate useful life of three years .

BALANCE SHEET INFORMATION

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Property and equipment, net March 31,

Machinery and equipment $ 38,027 $ 33,804

Machinery and equipment, and software $ 46,831 $ 38,327

Leasehold improvements 6,029 7,080

Furniture and fixtures 838 847

Software 300 —

53,698 46,254

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Depreciation and amortization expense for property and equipment amounted to $ 9.4 million, $ 5.7 million, and $ 4.3 million for the years ended March 31, 2022, 2021, and 2020, respectively.

Intangibles, net March 31, 2022 March 31, 2021

Gross Accumulated Amortization Net Gross Accumulated Amortization Net

Developed technology $ 9,208 $ ( 3,121 ) $ 6,087 $ 4,700 $ ( 473 ) $ 4,227

Customer lists 4,600 ( 1,103 ) 3,497 900 ( 90 ) 810

Intangible assets, net $ 13,808 $ ( 4,224 ) $ 9,584 $ 5,600 $ ( 563 ) $ 5,037

Intangible assets amortization expense was $ 3.7 million, $ 0.1 million for the years ended March 31, 2022 and 2021, respectively.

There was no amortization expense for the year ended March 31, 2020.

As of March 31, 2022, the remaining weighted-average amortization period for definite-lived intangible assets was approximately 2.4 years.

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

As of March 31, 2022, the future expected amortization expense for intangible assets is as follows (in thousands):

Fiscal year ending Estimated future amortization expense

Total $ 9,584

Goodwill Amount

Balance at March 31, 2021 $ 3,466

Goodwill acquired 9,503

Balance at March 31, 2022

Other accrued liabilities March 31,

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Accrued interest

Accrued restructuring — 580

Total other accrued liabilities $ 16,562 $ 18,754

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Senior Secured Term Loan $ — $ 92,426

Term Loan 98,723 —

Amended PNC Credit Facility 17,735 —

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Long-term debt, net $ 107,184 $ 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 consolidated balance sheets.

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

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

TCW Term Loan and PNC Credit Facility

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

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

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

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

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

(a) the applicable existing exercise price for such warrant or (b) the lowest of the 5-day volume-weighted average closing prices of the Company’s common stock for the last five trading days in the months of September 2018, October 2018, November 2018, December 2018 and January 2019.

The exercise price for all of the August 2018 Amendment Warrants was adjusted to $ 1.62 per share on February 1, 2019.

Due to the exercise price reset provision in the August 2018 Amendment Warrants, the Company initially recorded the value of the warrants as a liability with changes in fair value recorded as other income (expense) in the accompanying consolidated statements of operations.

The Company reclassified the fair value of the warrants of $ 5.6 million to additional paid in capital on February 1, 2019, the exercise price reset date.

A loss of approximately $ 0.4 million was recorded to other income (expense) during fiscal year 2019 before the reclassification to equity.

The August 2018 Amendment provided a repurchase right allowing the Company to repurchase 50 % of the August 2018 Amendment Warrants issued within 30 days of repayment of amounts due under the TCW Term Loan for $ 0.001 per warrant.

The Company repaid the TCW Term Loan on December 27, 2018 and repurchased 549,766 warrants for $ 550 which resulted in a reduction in the fair value of the August 2018 Amendment Warrants liability of $ 0.4 million which was recorded as other income (expense) in the accompanying consolidated statements of operations and comprehensive income.

On November 18, 2019, the 3.8 million outstanding August 2018 Amendment Warrants were exercised on a cashless basis, resulting in the issuance of 2.8 million shares of common stock.

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

Accordingly, a $ 14.9 million loss on debt extinguishment was recorded during the year ended March 31, 2019 related primarily to fees paid to TCW (including $ 5.7 million related to the value of the August 2018 Amendment Warrants).

The Company also accounted for the August 2018 Amendment related to the PNC Credit Facility as a debt extinguishment and recorded a loss on debt extinguishment of approximately $ 1.8 million related to a portion of the unamortized debt issuance costs.

The Company paid PNC an amendment fee of $ 1.7 million which was included into other current assets and amortized to interest expense over the original term of the PNC Credit Facility.

Senior Secured Term Loan and Amended PNC Credit Facility

On December 27, 2018 (the “Closing Date”), 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 (collectively, “the 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 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.

A portion of the proceeds from the Senior Secured Term Loan was used to repay all outstanding borrowings under the TCW Term Loan.

The Company recorded a loss on debt extinguishment of $ 0.8 million related to repayment of the TCW Term Loan including unamortized debt issuance costs of $ 0.1 million and costs paid to TCW of $ 0.7 million.

The Company accounted for the Amended PNC Credit Facility as a modification.

The Company incurred $ 1.4 million in costs related to the amendment which was recorded to other assets and is being recognized as interest expense over the term of the Amended PNC Credit Facility.

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.

In connection with the Senior Secured Term Loan agreement, the Company issued warrants to purchase 7,110,616 shares of the Company’s common stock, at an exercise price of $ 1.33 per share (the “2018 Term Loan Warrants”).

The exercise price and the number of shares underlying the 2018 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 (“Down Round Feature”), a subdivision or combination of the Company’s common stock, a reclassification of the Company’s common stock or specified dividend payments.

The 2018 Term Loan Warrants are exercisable until December 27, 2028.

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.

In accordance with ASU No.

2017-11, Earnings Per Share (Topic 260);

Distinguishing Liabilities from Equity (Topic 480);

Derivatives and Hedging (Topic 815):

(Part I) Accounting for Certain Financial Instruments with Down Round Features;

(Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”), the presence of the Down Round Feature does not preclude the Term Loan Warrants from being classified in stockholders’ deficit.

Accordingly, the Company determined that the fair value of the warrants of $ 8.8 million should be classified within stockholders’ deficit upon issuance.

The Company incurred $ 18.3 million in costs related to the Senior Secured Term Loan (including $ 8.8 million related to the value of the Term Loan Warrants).

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

The December 2018 Credit Agreements contain certain covenants, including requirements to prepay the loans in an amount equal to 100 % of the net cash proceeds from certain assets dispositions, subject to certain reinvestment rights and other exceptions and equity issuances.

Amounts outstanding under the December 2018 Credit Agreements 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, (iii) the occurrence of a bankruptcy or insolvency proceeding with respect to the Company or any of its subsidiaries, (iv) any event of default with respect to other indebtedness involving an aggregate amount of $ 1.0 million or more, (v) any lien created by the December 2018 Credit Agreements or any related security documents ceasing to be valid and perfected;

(vi) the December 2018 Credit Agreements or any related security documents or guarantees ceasing to be legal, valid, and binding upon the parties thereto;

or a change of control shall occur.

The December 2018 Credit Agreements contain financial covenants relating to a fixed charge coverage ratio, total net leverage ratio, minimum EBITDA, and minimum liquidity.

The Amended PNC Credit Facility also includes a total leverage ratio covenant.

As of March 31, 2021, the Company was in compliance with all covenants.

The Senior Secured Term Loan contains a prepayment penalty which is calculated based on (i) if prepayment occurs prior to 30-month anniversary of the Closing Date, the prepayment penalty is the present value of all required interest payments due on the Senior Secured Term Loan that are prepaid from the date of prepayment through and including the 30-month anniversary of the Closing Date calculated based on the 3 month LIBOR Rate plus 10 %, plus 5.0 % of the amount of principal prepaid, (ii) if prepayment occurs between the 30-month anniversary of Closing Date through the third anniversary of the Closing Date, the prepayment penalty is 5.0 % of the principal prepaid and (iii) if prepayment occurs between the third anniversary of the Closing Date through the fourth anniversary of Closing Date, the prepayment penalty is 2.0 % of the principal prepaid (the “Prepayment Penalty”).

There is no Prepayment Penalty after the fourth anniversary of the Closing Date.

In the event of a change in control, as defined in the Senior Secured Term Loan agreement, the Company is required to make a change in control premium payment equal to the greater of the Prepayment Penalty or 1.0 % of the principal amount being repaid.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

S enior Secured Term Debt Prepayment

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

On December 27, 2018, the Company entered into a senior secured term loan (the "Senior Secured Term Loan”) amended its existing PNC Bank Credit Facility Agreement (the "PNC Credit Facility").

On February 11, 2021, the Company prepaid $ 92.3 million of its outstanding Senior Secured Term Loan utilizing the proceeds of the secondary public offering discussed in Note 7:

Common Stock .

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

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

Registration Rights Agreement

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

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

applicable Term Loan Warrants, including (a) the ability of a holder to request that the Company file a Form S-1 registration statement with respect to at least 40 % of the registrable securities held by such holder as of the issuance date of the applicable Term Loan Warrants;

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

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

On August 5, 2021, the Company entered into a new 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 of the Term Loan 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.

On March 15, 2022, the Company entered into an amendment to the Term Loan, which, among other things (a) waived compliance with the total leverage ratio financial covenant for the four fiscal quarter period ended March 31, 2022;

(b) waived compliance with the minimum liquidity financial covenant as of March 31, 2022;

and (c) permitted the Company to retain a portion of the cash proceeds of a public offering of the Company's common stock.

Loans under the Term Loan designated as Prime Rate Loans 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 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 and the PNC Credit Agreement contain 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.

Revolving Credit Facility

On September 30, 2021, the Company amended the PNC Credit Facility.

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 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.

On March 15, 2022, the Company entered into an amendment to the PNC Credit Facility, which, among other things (a) waived compliance with the total leverage ratio financial covenant for the four fiscal quarter period ended March 31, 2022;

(b) waived compliance with the fixed charge coverage ratio;

and (c) waived compliance with the minimum liquidity financial covenant as of March 31, 2022.

Loans designated as PNC LIBOR Rate Loans bear interest at a rate per annum equal to the LIBOR Rate plus 2.25 % until December 31, 2021 and thereafter between 1.75 % and 2.25 % based on the percentage of Average Undrawn Availability (as defined in the PNC Credit Agreement) for the most recently completed fiscal quarter (the "PNC LIBOR Loan Interest Rate").

Loans under the PNC Credit Facility designated as PNC Domestic Rate Loans and Swing Loans bear interest at a rate per annum equal to the greatest of (i) the base commercial lending rate of PNC Bank;

(ii) the Overnight Bank Funding Rate plus 0.5 %;

and (iii) the daily LIBOR Rate plus 1.0 %, plus 1.25 % until December 31, 2021 and thereafter between 0.75 % and 1.25 % based on the percentage of Average Undrawn Availability (as defined in the PNC Credit Agreement) for the most recently completed fiscal quarter (the "PNC Domestic Loan Interest 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 will pay an undrawn commitment fee of between 0.25 % and 0.375 % (based on the percentage usage of the Maximum Revolving Advance Amount during that calendar quarter) on the amount by which the Maximum Revolving Advance Amount exceeds such average Usage Amount.

With respect to any PNC 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 PNC LIBOR Loan 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 PNC Domestic Loan 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 March 31, 2022, the interest rate on the Term Loan was 6.75 % and the interest rate on the PNC Credit Facility for Domestic Rate Loans and Swing Loans was 4.75 % and for LIBOR Loans was 2.61 %.

As of March 31, 2022, the

PNC Credit Facility had a borrowing base of $ 24.1 million, of which $ 5.0 million was available at that date.

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 consolidated balance sheet as of March 31, 2021.

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

Paycheck Protection Program Loan

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

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

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

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

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

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

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 fiscal year ended March 31, 2022.

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

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Operating cash outflows related to operating leases totaled $ 3.9 million and $ 4.9 million for the fiscal years ended March 31, 2022 and March 31, 2021, respectively.

RESTRUCTURING CHARGES

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

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

Severance and

benefits Facilities Total

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

Restructuring costs 4,708 862 5,570

Cash payments ( 6,138 ) ( 2,375 ) ( 8,513 )

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

Adjustments of prior estimates — 1,022 1,022

Cash payments — ( 3,961 ) ( 3,961 )

Other non-cash — 63 63

Balance as of March 31, 2020 — — —

Restructuring costs 3,701 — 3,701

Cash payments ( 3,121 ) — ( 3,121 )

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

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

Secondary Public Offering

2 unchanged sentences

Amended and Restated 2012 Long-Term Incentive Plan

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

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

The Company has a stockholder-approved 2012 Long-Term Incentive Plan (the “Plan”) that was amended and restated in fiscal year 2022 which added an additional 5.9 million shares.

The Plan has 9.0 million shares authorized for issuance of new shares, with 4.8 million performance shares and restricted shares outstanding, and 4.2 million shares available for future issuance under the Plan as of March 31, 2022.

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

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

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

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

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

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

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

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

2021 Inducement Plan

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

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

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

There were no shares available for future issuance as of March 31, 2022.

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

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

March 31, 2021

Shares available for issuance at beginning of period —

Shares authorized during the period 770

Shares issued during the period ( 520 )

Total shares available for future issuance at end of period 250

Employee Stock Purchase Plan

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

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

The Company's has an Employee Stock Purchase Plan (the "ESPP") which enables eligible employees to purchase shares of its common stock at a discount.

Purchases will be accomplished through participation in discrete offering periods.

11 unchanged sentences

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

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

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

Consequently, an expected dividend yield of zero was used.

2 unchanged sentences

2022 2021 2020

Expected life 0.5 years 0.5 years n/a

Expected life 0.5 years 0.5 years 0.5 years

Volatility 51 % - 57 %

Risk-free interest rate 0.06 % - 0.23 %

Dividend yield — % — % n/a

0.05 % - 0.11 %

Dividend yield — % — % — %

Fair value of common stock $ 4.60 - $ 6.40

$ 4.99 - $ 8.05

Performance Stock Units

21 unchanged sentences

As of March 31, 2022 , there was $ 2.7 million and $ 0.6 million of unrecognized stock-based compensation related to Market PSUs and Performance PSUs, respectively, which is expected to be recognized over a weighted-average period of one year .

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

The total grant date fair value of shares vested during fiscal years ended March 31, 2022 , 2021, and 2020 was $ 3.9 million, $ 2.9 million, and $ 0.6 million, respectively.

Restricted Stock Units

10 unchanged sentences

As of March 31, 2022 , there was $ 17.1 million of total unrecognized stock-based compensation related to RSUs, which is expected to be recognized over a weighted-average period of two years .

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

The total grant date fair value of RSUs vested during fiscal years ended March 31, 2022, 2021, and 2020 was $ 5.0 million, $ 2.1 million, and $ 4.0 million, respectively.

Compensation Expense

13 unchanged sentences

Total stock-based compensation $ 13,829 $ 9,624 $ 6,748

As of March 31, 2022 and 2021, the Company had outstanding warrants to purchase 7,110,616 shares of the Company’s common stock exercisable until December 27, 2028 at an exercise price of $ 1.33 per share and outstanding warrants to purchase 3,450,000 shares of the Company's common stock exercisable until June 16, 2030 at an exercise price of $ 3.00 per share (collectively, the "Warrants").

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

The Warrants grant the holders certain registration rights for the shares of common stock issuable upon the exercise of the applicable 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 warrants;

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

NET LOSS PER SHARE

Equity Instruments Outstanding

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

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

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

Year Ended March 31,

2021 2020 2019

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

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

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

The following outstanding shares of common stock equivalents were excluded from the computation of the diluted net loss per share attributable to common stock for the periods presented because their effect would have been anti-dilutive (in thousands):

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

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

The Company had outstanding market based restricted stock units as of March 31, 2022 that were eligible to vest into shares of common stock subject to the achievement of certain stock price targets in addition to a time-based vesting period.

These contingently issuable shares are excluded from the computation of diluted earnings per share

if, based on current period results, the shares would not be issuable if the end of the reporting period were the end of the contingency period.

There were 0.1 million shares of contingently issuable market-based restricted stock units that were excluded from the table above as the market conditions were not satisfied as of March 31, 2022.

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2022 2021 2020

Expense at the federal statutory rate $ ( 6,493 ) $ ( 7,396 ) $ ( 925 )

Expiration of attributes 18,345 9,862 11,679

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Equity compensation 195 345 280

Tax reform — — ( 207 )

Credit monetization — — —

Debt forgiveness ( 2,100 ) — —

Foreign taxes 1,761 ( 129 ) 1,612

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Uncertain tax positions ( 6,349 ) ( 6,695 ) ( 8,654 )

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

Other 1,436 311 122

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Net deferred tax assets (liabilities) $ ( 17 ) $ ( 541 )

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

The valuation allowance decreased by $ 4.9 million during the year ended March 31, 2022, increased by $ 5.4 million during the year ended March 31, 2021, and decreased by $ 2.5 million during the year ended March 31, 2020.

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

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

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

taxes previously imposed on certain income of its foreign subsidiaries.

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

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

COMMITMENTS AND CONTINGENCIES

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As of March 31, 2022, the Company had issued non-cancelable commitments for $ 64.6 million to purchase inventory from its contract manufacturers and suppliers.

At the end of fiscal year 2022, the Company had various non-cancelable operating for office facilities.

Refer to Note 6:

Leases for additional information regarding lease commitments.

Legal Proceedings

Realtime Data Matter

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

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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.

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

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

§ 101 (the “Delaware

§ 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.” The case pending against Quantum in the Northern District of California remains stayed pending the final outcome in the Delaware Action.

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

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

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.

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

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

On 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.

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.

On September 7, 2021, the case against Quantum in the Northern District of California was stayed pending the outcome of Realtime Data’s appeal in the Delaware Action.

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

Starboard Matter

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.

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).

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

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

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

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

Gacek and Auvil, alleging that they aided and abetted Quantum in committing a fraud on plaintiffs.

The amended complaint sought no relief from Quantum.

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.

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Gacek and Auvil.

Briefing on the motions ended July 26, 2021.

The Court held oral argument on the motions on November 1, 2021.

On January 28, 2022, via a bench ruling, the Court granted the motions to dismiss the breach of fiduciary duty claims against Messrs.

Gacek and Auvil and denied the motions to dismiss the remaining claims;

the bench ruling was confirmed in a written order filed February 24, 2022.

On March 28, 2022, Quantum filed an answer and affirmative defenses to the complaint, as did Messrs.

Gacek and Auvil.

Discovery is underway.

On May 3, 2022, the Court filed a stipulated order governing case schedule, setting trial for June 6-9, 2023, and also setting a number of pretrial deadlines.

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

On March 4, 2022, Starboard filed a request for dismissal without prejudice of the California action because the matter is proceeding in Delaware.

On March 10, 2022, the California Superior Court entered a minute order dismissing the action without prejudice.

Indemnifications

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Senior Secured Term Loan $ — $ — $ 92,426 $ 97,047

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

Term Loan 98,723 98,723 — —

PNC Credit Facility 17,735 17,735 — —

SUBSEQUENT EVENTS

Rights Offering

On April 22, 2022, the Company completed a rights offering of 30 million shares of its common stock for gross proceeds of $ 67.5 million.

The Company repaid $ 20.0 million of its outstanding Term Loan with the offering proceeds.

Debt Restructuring

On April 25, 2022, the Company entered into amendments to the Term Loan and the PNC Credit Facility.

The Term Loan amendment, among other things, (a) amended the total net leverage ratio financial covenant and the minimum liquidity financial covenant commencing with the fiscal quarter ended June 30, 2022;

(b) replaced the

benchmark rate for LIBOR Rate Loans with a rate based on the Secured Overnight Financing Rate ("SOFR").

The PNC Credit Facility amendment, among other things, (a) increased the principal amount of revolving commitments from $ 30.0 million to $ 40.0 million;

(b) waived compliance with the fixed charge coverage ratio financial covenant until the fiscal quarter ended March 31, 2025;

(c) amended the total net leverage ratio financial covenant and the minimum liquidity financial covenant commencing with the fiscal quarter ended June 30, 2022;

and (d) replaced the benchmark rate for PNC LIBOR Rate Loans with a rate based on the SOFR.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data