UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2021~~2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number 001-13449


Quantum Corporation
(Exact name of registrant as specified in its charter)

Delaware

94-2665054

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

224 Airport Parkway

Suite 550

San Jose

95110

(Address of Principal Executive Offices)

(Zip Code)


(408)			944-4000
Registrant's telephone number, including area code



(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value per share

QMCO

Nasdaq Global Market

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☐	Accelerated filer	x
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐

Yes

As of the close of business on ~~November~~August 1, ~~2021,~~2022, there were ~~59,281,377~~102,667,712 shares of Quantum Corporation’s common stock issued and outstanding.

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QUANTUM CORPORATION

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended ~~September~~June 30, ~~2021~~2022

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As used in this Quarterly Report on Form 10-Q, the terms "Quantum," "we," "us," and "our" refer to Quantum Corporation and its subsidiaries taken as a whole, unless otherwise noted or unless the context indicates otherwise.

Note Regarding Forward-Looking Statements

This report contains forward-looking statements. All statements contained in this report other than statements of historical fact, including statements regarding COVID-19's anticipated impacts on our business, our future operating results and financial position, our business strategy and plans, our market growth and trends, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “preliminary,” “likely,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described under Part II, Item 1A. Moreover, we operate in a competitive and changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, you should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking

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statements will be achieved or occur. We do not intend to update any of these forward-looking statements for any reason after the date of this report or to conform these statements to actual results or revised expectations, except as required by law.

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QUANTUM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts, unaudited)


		September 30, 2021		March 31, 2021			June 30, 2022		March 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	22,757	$	27,430	Cash and cash equivalents	$	26,528	$	5,210
Restricted cash	Restricted cash	450		707		Restricted cash	255		283

Accounts receivable, net of allowance for doubtful accounts of $350 and $406		63,098		73,102
Accounts receivable, net of allowance for doubtful accounts of $195 and $422						Accounts receivable, net of allowance for doubtful accounts of $195 and $422	64,909		69,354
Manufacturing inventories	Manufacturing inventories	28,848		24,467		Manufacturing inventories	32,642		33,546
Service parts inventories	Service parts inventories	23,564		23,421		Service parts inventories	25,129		24,254
Prepaid expenses						Prepaid expenses	10,715		7,853
Other current assets	Other current assets	11,451		6,939		Other current assets	4,574		4,697
Total current assets	Total current assets	150,168		156,066		Total current assets	164,752		145,197
Property and equipment, net	Property and equipment, net	12,295		10,051		Property and equipment, net	14,093		12,853
Intangible assets, net	Intangible assets, net	9,132		5,037		Intangible assets, net	8,420		9,584
Goodwill	Goodwill	10,262		3,466		Goodwill	12,969		12,969
Restricted cash		—		5,000

Right-of-use assets, net	Right-of-use assets, net	7,917		9,383		Right-of-use assets, net	10,641		11,107
Other long-term assets	Other long-term assets	8,684		5,921		Other long-term assets	10,796		9,925
Total assets	Total assets	$	198,458	$	194,924	Total assets	$	221,671	$	201,635
Liabilities and Stockholders’ Deficit	Liabilities and Stockholders’ Deficit					Liabilities and Stockholders’ Deficit
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	36,991	$	35,245	Accounts payable	$	33,867	$	34,220

Deferred revenue	Deferred revenue	78,105		84,027		Deferred revenue	74,267		86,517
Accrued restructuring charges		20		580

Long-term debt, current portion	Long-term debt, current portion	3,125		1,850		Long-term debt, current portion	5,000		4,375

Accrued compensation	Accrued compensation	15,435		19,214		Accrued compensation	14,531		16,141
Other accrued liabilities	Other accrued liabilities	18,750		18,174		Other accrued liabilities	14,157		16,562
Total current liabilities	Total current liabilities	152,426		159,090		Total current liabilities	141,822		157,815
Deferred revenue	Deferred revenue	40,766		36,126		Deferred revenue	40,196		41,580

Revolving credit facility						Revolving credit facility	17,300		17,735
Long-term debt, net of current portion	Long-term debt, net of current portion	101,368		90,890		Long-term debt, net of current portion	69,195		89,448

Operating lease liabilities	Operating lease liabilities	6,818		8,005		Operating lease liabilities	9,932		9,891
Other long-term liabilities	Other long-term liabilities	13,073		13,058		Other long-term liabilities	12,013		11,849
Total liabilities	Total liabilities	314,451		307,169		Total liabilities	290,458		328,318
Commitments and contingencies (Note 10)		0		0
Commitments and contingencies (Note 9)						Commitments and contingencies (Note 9)	0		0
Stockholders' deficit	Stockholders' deficit					Stockholders' deficit
Preferred stock, 20,000 shares authorized; no shares issued and outstanding	Preferred stock, 20,000 shares authorized; no shares issued and outstanding	—		—		Preferred stock, 20,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.01 par value; 125,000 shares authorized; 59,272 and 56,915 shares issued and outstanding		593		570
Common stock, $0.01 par value; 125,000 shares authorized; 90,606 and 60,433 shares issued and outstanding						Common stock, $0.01 par value; 125,000 shares authorized; 90,606 and 60,433 shares issued and outstanding	907		605
Additional paid-in capital	Additional paid-in capital	636,538		626,664		Additional paid-in capital	714,128		645,038
Accumulated deficit	Accumulated deficit	(752,029)		(738,623)		Accumulated deficit	(781,123)		(770,903)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,095)		(856)		Accumulated other comprehensive loss	(2,699)		(1,423)
Total stockholders’ deficit	Total stockholders’ deficit	(115,993)		(112,245)		Total stockholders’ deficit	(68,787)		(126,683)
Total liabilities and stockholders’ deficit	Total liabilities and stockholders’ deficit	$	198,458	$	194,924	Total liabilities and stockholders’ deficit	$	221,671	$	201,635

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts, unaudited)


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended June 30,
		2021		2020		2021		2020			2022		2021
Revenue:	Revenue:									Revenue:
Product	Product	$	54,655	$	50,850	$	106,786	$	90,537	Product	$	60,211	$	52,131
Service		34,359		31,494		67,189		61,880
Service and subscription										Service and subscription	33,423		32,831
Royalty	Royalty	4,166		3,477		8,303		6,709		Royalty	3,440		4,137
Total revenue	Total revenue	93,180		85,821		182,278		159,126		Total revenue	97,074		89,099
Cost of revenue:	Cost of revenue:									Cost of revenue:
Product	Product	41,124		34,998		79,864		65,380		Product	47,921		38,741
Service		13,669		12,089		26,748		24,160
Service and subscription										Service and subscription	15,105		13,080
Total cost of revenue	Total cost of revenue	54,793		47,087		106,612		89,540		Total cost of revenue	63,026		51,821
Gross profit	Gross profit	38,387		38,734		75,666		69,586		Gross profit	34,048		37,278
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	12,389		10,233		23,680		20,395		Research and development	12,125		11,291
Sales and marketing	Sales and marketing	15,462		13,153		29,414		24,723		Sales and marketing	15,962		13,952
General and administrative	General and administrative	11,466		10,263		23,293		21,825		General and administrative	12,314		11,825
Restructuring charges	Restructuring charges	8		1,585		274		2,637		Restructuring charges	725		266
Total operating expenses	Total operating expenses	39,325		35,234		76,661		69,580		Total operating expenses	41,126		37,334
Income (loss) from operations		(938)		3,500		(995)		6
Loss from operations										Loss from operations	(7,078)		(56)
Other income (expense), net	Other income (expense), net	126		(312)		(71)		(697)		Other income (expense), net	751		(198)
Interest expense	Interest expense	(3,070)		(7,578)		(6,956)		(14,015)		Interest expense	(2,091)		(3,886)
Loss on debt extinguishment, net		(4,960)		—		(4,960)		—
Loss on debt extinguishment										Loss on debt extinguishment	(1,392)		—
Net loss before income taxes	Net loss before income taxes	(8,842)		(4,390)		(12,982)		(14,706)		Net loss before income taxes	(9,810)		(4,140)
Income tax provision	Income tax provision	411		202		424		622		Income tax provision	410		13
Net loss	Net loss	$	(9,253)	$	(4,592)	$	(13,406)	$	(15,328)	Net loss	$	(10,220)	$	(4,153)
Deemed dividend on warrants										Deemed dividend on warrants	(389)		—
Net loss attributable to common stockholders										Net loss attributable to common stockholders	$	(10,609)	$	(4,153)

Net loss per share - basic and diluted		$	(0.16)	$	(0.11)	$	(0.23)	$	(0.38)

Net loss per share attributable to common stockholders										Net loss per share attributable to common stockholders	$	(0.13)	$	(0.07)
Weighted average shares - basic and diluted	Weighted average shares - basic and diluted	58,567		40,286		57,852		40,097		Weighted average shares - basic and diluted	83,641		57,129

Net loss	Net loss	$	(9,253)	$	(4,592)	$	(13,406)	$	(15,328)	Net loss	$	(10,220)	$	(4,153)
Foreign currency translation adjustments, net	Foreign currency translation adjustments, net	(506)		722		(239)		1,009		Foreign currency translation adjustments, net	(1,276)		267
Total comprehensive loss	Total comprehensive loss	$	(9,759)	$	(3,870)	$	(13,645)	$	(14,319)	Total comprehensive loss	$	(11,496)	$	(3,886)

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


		Six Months Ended September 30,					Three Months Ended June 30,
		2021		2020			2022		2021
Operating activities	Operating activities					Operating activities
Net loss	Net loss	$	(13,406)	$	(15,328)	Net loss	$	(10,220)	$	(4,153)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities	Adjustments to reconcile net loss to net cash provided by (used in) operating activities					Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization	Depreciation and amortization	3,967		2,580		Depreciation and amortization	2,586		1,809
Amortization of debt issuance costs	Amortization of debt issuance costs	1,629		3,015		Amortization of debt issuance costs	336		1,004
Long-term debt related costs		—		167
Loss on debt extinguishment						Loss on debt extinguishment	992		—
Provision for product and service inventories	Provision for product and service inventories	2,418		3,588		Provision for product and service inventories	1,631		976
Stock-based compensation	Stock-based compensation	6,273		4,550		Stock-based compensation	3,069		3,201
Paycheck Protection Program loan forgiveness		(10,000)		—

Non-cash loss on debt extinguishment		8,471		—

Other	Other	(20)		1,268		Other	(1,469)		326

Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	10,024		7,568		Accounts receivable, net	4,677		15,207
Manufacturing inventories	Manufacturing inventories	(5,199)		(8,858)		Manufacturing inventories	(412)		(3,769)
Service parts inventories	Service parts inventories	(1,818)		(4,333)		Service parts inventories	(1,384)		(588)

Accounts payable	Accounts payable	1,559		1,601		Accounts payable	(175)		(3,178)

Accrued restructuring charges	Accrued restructuring charges	(560)		240		Accrued restructuring charges	39		(454)
Accrued compensation	Accrued compensation	(3,779)		2,922		Accrued compensation	(1,610)		(4,852)
Deferred revenue	Deferred revenue	(9,032)		(12,584)		Deferred revenue	(13,634)		(6,306)
Other assets and liabilities		(5,789)		(5,693)
Other current assets						Other current assets	(2,739)		(5,291)
Other non-current assets						Other non-current assets	(261)		41
Other current liabilities						Other current liabilities	64		(1,545)
Other non-current liabilities						Other non-current liabilities	164		706
Net cash used in operating activities	Net cash used in operating activities	(15,262)		(19,297)		Net cash used in operating activities	(18,346)		(6,866)
Investing activities	Investing activities					Investing activities

Purchases of property and equipment	Purchases of property and equipment	(2,396)		(1,434)		Purchases of property and equipment	(3,036)		(1,150)
Business acquisition, net of cash acquired		(5,000)		—
Deferred business acquisition payment						Deferred business acquisition payment	(2,000)		—

Net cash used in investing activities	Net cash used in investing activities	(7,396)		(1,434)		Net cash used in investing activities	(5,036)		(1,150)
Financing activities	Financing activities					Financing activities
Borrowings of long-term debt, net of debt issuance costs		94,961		19,400
Repayments of long-term debt		(93,051)		—

Repayments of long-term debt and payment of amendment fees						Repayments of long-term debt and payment of amendment fees	(20,846)		(463)
Borrowings of credit facility	Borrowings of credit facility	126,084		140,987		Borrowings of credit facility	109,740		56,544
Repayments of credit facility		(116,084)		(144,058)
Borrowings of payment protection program		—		10,000
Repayments of credit facility and payment of amendment fees						Repayments of credit facility and payment of amendment fees	(110,575)		(56,544)

Proceeds from issuance of common stock		806		537

Proceeds from issuance of common stock, net						Proceeds from issuance of common stock, net	66,324		—

Net cash provided by financing activities	Net cash provided by financing activities	12,716		26,866		Net cash provided by financing activities	44,643		(463)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	12		(96)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	29		(14)
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(9,930)		6,039		Net change in cash, cash equivalents and restricted cash	21,290		(8,493)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	33,137		12,270		Cash, cash equivalents, and restricted cash at beginning of period	5,493		33,137
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	23,207	$	18,309	Cash, cash equivalents, and restricted cash at end of period	$	26,783	$	24,644
Cash, Cash Equivalents and Restricted Cash at end of period	Cash, Cash Equivalents and Restricted Cash at end of period					Cash, Cash Equivalents and Restricted Cash at end of period
Cash and cash equivalents	Cash and cash equivalents	$	22,757	$	12,517	Cash and cash equivalents	$	26,528	$	19,102
Restricted cash, current	Restricted cash, current	450		792		Restricted cash, current	255		542
Restricted cash, long-term	Restricted cash, long-term	—		5,000		Restricted cash, long-term	—		5,000
Cash, cash equivalents and restricted cash at the end of period	Cash, cash equivalents and restricted cash at the end of period	$	23,207	$	18,309	Cash, cash equivalents and restricted cash at the end of period	$	26,783	$	24,644
Supplemental disclosure of cash flow information	Supplemental disclosure of cash flow information					Supplemental disclosure of cash flow information
Cash paid for interest	Cash paid for interest	$	5,198	$	14,181	Cash paid for interest	$	1,863	$	2,860
Cash paid (received) for income taxes, net		$	480	$	(1,578)
Cash paid for income taxes, net						Cash paid for income taxes, net	$	115	$	294
Non-cash transactions	Non-cash transactions					Non-cash transactions
Purchases of property and equipment included in accounts payable	Purchases of property and equipment included in accounts payable	$	309	$	294	Purchases of property and equipment included in accounts payable	$	133	$	146
Purchases of property and equipment included in accrued liabilities		$	—	$	1,255
Transfer of inventory to property and equipment		$	76	$	207

Transferred of manufacturing inventory to services inventory						Transferred of manufacturing inventory to services inventory	$	890	$	411
Transfer of manufacturing inventory to property and equipment						Transfer of manufacturing inventory to property and equipment	$	193	$	65
Paid-in-kind interest						Paid-in-kind interest	$	319	$	—
Deemed dividend on warrants						Deemed dividend on warrants	$	389	$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

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QUANTUM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

(in thousands, unaudited)

Common Stock Additional
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
Three Months Ended	Shares	Amount
Balance, March 31, 2021	56,915	$	570	$	626,664	$	(738,623)	$	(856)	$	(112,245)
Net loss	—	—		—		(4,153)		—		(4,153)
Foreign currency translation adjustments, net	—	—		—		—		267		267
Shares issued under employee stock purchase plan	365	3		(3)		—		—		—



Stock-based compensation	—	—		3,201		—		—		3,201
Balance, June 30, 2021	57,280	$	573	$	629,862	$	(742,776)	$	(589)	$	(112,930)

Balance, March 31, 2022	60,433	$	605	$	645,038	$	(770,903)	$	(1,423)	$	(126,683)
Net loss	—	—		—		(10,220)		—		(10,220)
Foreign currency translation adjustments, net	—	—		—		—		(1,276)		(1,276)
Shares issued under employee stock purchase plan	173	2		(2)		—		—		—




Shares issued in connection with rights offering, net	30,000	300		66,023		—		—		66,323
Stock-based compensation	—	—		3,069		—		—		3,069
Settlement of warrant down round provision	—	—		389		—		—		389
Deemed dividend on warrants	—	—		(389)		—		—		(389)
Balance, June 30, 2022	90,606	$	907	$	714,128	$	(781,123)	$	(2,699)	$	(68,787)

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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)
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
Stock-based compensation — — 4,550 — — 4,550
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)
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, September 30, 2021 59,272 $ 593 $ 636,538 $ (752,029) $ (1,095) $ (115,993)

See accompanying Notes to Condensed Consolidated Financial Statements.

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INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


		Page
Note 1:	Description of Business and Summary of Significant Accounting Policies	76
Note 2:	Revenue	76
Note 3:	~~Business Combination~~Balance Sheet Information	98
Note 4:	~~Balance Sheet Information~~Long-Term Debt	9
Note 5:	~~Long-Term Debt~~Leases	10
Note 6:	Common Stock	11
Note 6:	~~Leases~~	13
~~Note~~ 7:	~~Restructuring Charges~~	14
~~Note 8:~~	Net Loss Per Share	1512

Note 9:8:	Income Taxes	1512
Note ~~10:~~9:	Commitments and Contingencies	1512
Note ~~11:~~10:	Fair Value of Financial Instruments	17
~~Note 12:~~	~~Subsequent Events~~	1714

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Quantum Corporation, together with its consolidated subsidiaries (“Quantum” or the “Company”), is a ~~technology company whose mission is to deliver innovative solutions to organizations~~leader in storing and managing digital video and other forms of unstructured data, delivering top streaming performance for video and rich media applications, along with low-cost, long-term storage systems for data protection and archiving. The Company helps customers around the ~~world. We design, manufacture and sell technology and services that help customers~~world capture, create and share digital ~~content,~~data and preserve and protect it for decades. ~~We emphasize innovative technology in~~The Company’s software-defined, hyperconverged storage solutions span from non-violate memory express (“NVMe”), to solid state drives, (“SSD”), hard disk drives, (“HDD”), tape, the ~~design~~cloud, and ~~manufacture~~video surveillance are tied together leveraging a single namespace view of ~~our products~~the entire data environment. The Company works closely with a broad network of distributors, value-added resellers (“VARs”), direct marketing resellers (“DMRs”), original equipment manufacturers (“OEMs”) and other suppliers to ~~help our customers unlock the value in their video and unstructured data in new ways to solve their most pressing business challenges.~~meet customers’ evolving needs.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. All intercompany balances and transactions have been eliminated. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. However, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included within the Company's most recent Annual Report on Form 10-K.

The unaudited consolidated interim financial statements reflect all adjustments, consisting only of normal and recurring items, necessary to present fairly our financial position as of ~~September~~June 30, ~~2021,~~2022, 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~~June 30, ~~2021~~2022 and ~~2020.~~2021. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.

Use of Estimates

~~Company~~The preparation of financial statements in conformity with U.S. GAAP requires management ~~has made~~to make estimates and assumptions ~~relating to~~that affect the ~~reporting of certain assets~~amounts reported and ~~liabilities~~disclosed in ~~conformity with GAAP. These estimates~~the financial statements and ~~assumptions have been applied using methodologies that are consistent throughout the periods presented with consideration given to the potential impacts of the COVID-19 pandemic. However, actual~~accompanying notes. Actual results could differ ~~materially~~ from these estimates and ~~be significantly affected by~~assumptions due to risks and uncertainties, including uncertainty in the ~~severity and duration of the pandemic, the extent of actions to contain or treat COVID-19, how quickly and to what extent normal~~current economic ~~and operating activity can resume, and the severity and duration of the global economic downturn that may result~~environment from the ongoing COVID-19 pandemic. Such estimates include, but are not limited to, the determination of standalone selling price for revenue arrangements with multiple performance obligations, useful lives of intangible assets and property and equipment, stock-based compensation and provision for income taxes including related reserves. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

~~Recent~~Recently Adopted Accounting ~~Pronouncements~~Pronouncement

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

None.

NOTE 2: REVENUE

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Based on how the Company manages its business, the Company has determined that it currently operates in 1 reportable segment. The Company operates in 3 geographic regions: (a) Americas; (b) Europe, Middle East and

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Africa (“EMEA”); and (c) Asia Pacific (“APAC”). Revenue by geography is based on the location of the customer from which the revenue is earned.

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


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended June 30,
		2021		2020		2021		2020			2022		2021
Americas1	Americas1									Americas1
Primary storage systems	Primary storage systems	$	11,264	$	16,933	$	18,458	$	23,792	Primary storage systems	$	11,414	$	7,194
Secondary storage systems	Secondary storage systems	12,174		9,317		28,886		17,993		Secondary storage systems	22,719		16,712
Device and media	Device and media	5,269		6,069		11,791		12,431		Device and media	4,972		6,521
Service		21,341		19,399		41,534		37,994
Service and subscription										Service and subscription	20,145		20,193
Total revenue	Total revenue	50,048		51,718		100,669		92,210		Total revenue	59,250		50,620

EMEA	EMEA									EMEA
Primary storage systems	Primary storage systems	4,244		2,798		7,020		5,094		Primary storage systems	2,846		2,777
Secondary storage systems	Secondary storage systems	9,720		6,352		17,479		12,968		Secondary storage systems	7,844		7,760
Device and media	Device and media	4,513		4,745		9,894		8,767		Device and media	5,063		5,381
Service		11,035		10,227		21,847		20,042
Service and subscription										Service and subscription	11,017		10,813
Total revenue	Total revenue	29,512		24,122		56,240		46,871		Total revenue	26,770		26,731

APAC	APAC									APAC
Primary storage systems	Primary storage systems	1,175		879		2,516		1,938		Primary storage systems	1,298		1,341
Secondary storage systems	Secondary storage systems	4,365		3,234		8,098		6,434		Secondary storage systems	2,475		3,733
Device and media	Device and media	1,931		523		2,644		1,120		Device and media	1,580		712
Service		1,983		1,868		3,808		3,844
Service and subscription										Service and subscription	2,261		1,825
Total revenue	Total revenue	9,454		6,504		17,066		13,336		Total revenue	7,614		7,611

Consolidated	Consolidated									Consolidated
Primary storage systems	Primary storage systems	16,683		20,610		27,994		30,824		Primary storage systems	15,558		11,312
Secondary storage systems	Secondary storage systems	26,259		18,903		54,463		37,395		Secondary storage systems	33,038		28,205
Device and media	Device and media	11,713		11,337		24,329		22,318		Device and media	11,615		12,614
Service		34,359		31,494		67,189		61,880
Service and subscription										Service and subscription	33,423		32,831
Royalty2	Royalty2	4,166		3,477		8,303		6,709		Royalty2	3,440		4,137
Total revenue	Total revenue	$	93,180	$	85,821	$	182,278	$	159,126	Total revenue	$	97,074	$	89,099

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

2 Royalty revenue is not allocable to geographic regions.

Contract Balances

The following table presents the Company’s contract liabilities and certain information related to this balance as of and for the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 (in thousands):


	~~September~~June 30, ~~2021~~2022
Contract liabilities (deferred revenue)	$	~~118,871~~114,463
Revenue recognized in the period from amounts included in contract liabilities at the beginning of the period	~~53,833~~31,789

Remaining Performance Obligations

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

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Current Non-Current Total
As of September 30, 2021 $ 130,708 $ 42,855 $ 173,563


	Current		Non-Current		Total
As of June 30, 2022	$	98,394	$	42,146	$	140,540

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

~~NOTE 3: 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):~~


~~Cash~~	$	~~5,000~~
~~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.

NOTE 4:3: BALANCE SHEET INFORMATION

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

Manufacturing inventories

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September 30, 2021 March 31, 2021
   Finished goods:
      Manufactured finished goods $ 11,013 $ 12,452
      Distributor inventory 136 238
         Total finished goods 11,149 12,690
   Work in progress 3,653 2,074
   Raw materials 14,046 9,703
Total manufacturing inventories $ 28,848 $ 24,467


	June 30, 2022		March 31, 2022



Finished goods	$	11,802	$	14,607
Work in progress	2,066		2,546
Raw materials	18,774		16,393
Total manufacturing inventories	$	32,642	$	33,546

Service parts inventories


		September 30, 2021		March 31, 2021			June 30, 2022		March 31, 2022
Finished goods	Finished goods	$	17,817	$	18,773	Finished goods	$	19,876	$	19,234
Component parts	Component parts	5,747		4,648		Component parts	5,253		5,020
Total service parts inventories	Total service parts inventories	$	23,564	$	23,421	Total service parts inventories	$	25,129	$	24,254

Intangibles, net


		September 30, 2021						March 31, 2021							June 30, 2022						March 31, 2022
		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net			Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net

Developed technology	Developed technology	$	6,400	$	(1,425)	$	4,975	$	4,700	$	(473)	$	4,227	Developed technology	$	9,208	$	(3,955)	$	5,253	$	9,208	$	(3,121)	$	6,087
Customer lists	Customer lists	4,600		(443)		4,157		900		(90)		810		Customer lists	4,600		(1,433)		3,167		4,600		(1,103)		3,497

Intangible assets, net	Intangible assets, net	$	11,000	$	(1,868)	$	9,132	$	5,600	$	(563)	$	5,037	Intangible assets, net	$	13,808	$	(5,388)	$	8,420	$	13,808	$	(4,224)	$	9,584

Intangible assets amortization expense was ~~$0.8~~$1.2 million and $0$0.5 for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020, respectively, and $1.3 million and $0 for the six months ended September 30,~~ 2021, ~~and 2020,~~ respectively. As of ~~September~~June 30, ~~2021,~~2022, the remaining weighted-average amortization period for definite-lived intangible assets was approximately ~~2.8~~2.2 years.

As of ~~September~~June 30, ~~2021,~~2022, the future expected amortization expense for intangible assets is as follows (in thousands):


Fiscal year ending	Fiscal year ending	Estimated future amortization expense		Fiscal year ending	Estimated future amortization expense
Remainder of 2022		$	1,796
2023		3,641
Remainder of 2023				Remainder of 2023	$	3,404
2024	2024	2,490		2024	3,417
2025				2025	1,599

Thereafter	Thereafter	1,205		Thereafter	—
Total	Total	$	9,132	Total	$	8,420

~~Goodwill~~



	~~Amount~~
~~Balance at March 31, 2021~~	$	~~3,466~~
~~Goodwill acquired~~	~~6,796~~
~~Balance at September 30, 2021~~	$	~~10,262~~

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

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Goodwill

As of June 30, 2022 and March 31, 2022, goodwill was $13.0 million. There were no impairments to goodwill during the quarters ended June 30, 2022 and 2021.

NOTE 5:4: LONG-TERM DEBT

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


		September 30, 2021		March 31, 2021			June 30, 2022		March 31, 2022
Term Loan	Term Loan	$	99,375	$	—	Term Loan	$	78,417	$	98,723
Senior Secured Term Loan		—		92,426

PNC Credit Facility	PNC Credit Facility	10,000		—		PNC Credit Facility	17,300		17,735
Paycheck Protection Program Loan		—		10,000
Less: current portion	Less: current portion	(3,125)		(1,850)		Less: current portion	(5,000)		(4,375)
Less: unamortized debt issuance costs (1)	Less: unamortized debt issuance costs (1)	(4,882)		(9,686)		Less: unamortized debt issuance costs (1)	(4,222)		(4,899)
Long-term debt, net	Long-term debt, net	$	101,368	$	90,890	Long-term debt, net	$	86,495	$	107,184

(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~~"Senior Secured Term Loan”) and amended its existing PNC Bank Credit Facility Agreement (the "PNC Credit Facility"). ~~In connection with~~On February 11, 2021, the Company prepaid $92.3 million of its outstanding 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.

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.

In connection with the June 2020 Amendment, the Company issued to the lenders warrants (the “2020 Term Loan Warrants”) to purchase 3,400,000 shares of the Company’s common stock, at an exercise price of $3.00 per share. The exercise price and the number of shares underlying the 2020 Term Loan Warrants are subject to adjustment in the event of specified events, including dilutive issuances of common stock linked equity instruments at a price lower than the exercise price of the warrants, a subdivision or combination of the Company’s common stock, a reclassification of the Company’s common stock or specified dividend payments. The 2020 Term Loan Warrants are exercisable until June 16, 2030. Upon exercise, the aggregate exercise price may be paid, at each warrant holder’s election, in cash or on a net issuance basis, based upon the fair market value of the Company’s common stock at the time of exercise.

The 2020 Amendments related to the Senior Secured Term Loan were accounted for as modifications. In connection with the modifications, the Company incurred $11.9 million in costs including $11.3 million related to the value of the 2020 Term Loan Warrants and $0.6 million in fees paid to the lenders. These debt issuance costs are reflected as a reduction to the carrying amount of the Senior Secured Term Loan and are amortized to interest expense over the remaining loan term. The 2020 Amendments related to the 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.

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Loan.

On August 5, 2021, ~~(the “Closing Date”),~~ 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~~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.

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; and; (b) replaced the benchmark rate for LIBOR Rate Loans with a rate based on the Secured Overnight Financing Rate ("SOFR"). The amendment to the Term Loan was accounted for as a modification. The Company incurred ~~$5.1~~$0.4 million in costs related to the ~~Term Loan. These debt issuance costs~~modification which are reflected as a reduction ofto the carrying amount of the Term Loan and ~~are being recognized as~~amortized to 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.

remaining loan term.

Loans under the Term Loan designated as ~~“Prime Rate Loans” will~~ABR 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~~SOFR 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~~SOFR Rate ~~Loans” will~~Loans bear interest at a rate per annum equal to the ~~LIBOR~~SOFR Rate plus an applicable margin of 6.00%. The ~~“LIBOR Rate”~~SOFR Rate is subject to a floor of 0.75%. The Company can designate a loan as ~~a Prime~~an ABR Rate Loan or ~~LIBOR~~SOFR 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~~increased the principal amount of ~~the~~ 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 ~~maximum amount~~rate based on SOFR. The amendment to the PNC Credit Facility was accounted for as a modification. The Company incurred $0.4 million in costs which were recorded to other assets and amortized to interest expense over the remaining term of the agreement.

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Loans designated as PNC SOFR Loans bear interest at a rate per annum equal to the ~~lesser of: (i) $30.0 million or (ii)~~SOFR Rate plus 2.75% until December 31, 2023 and thereafter between 2.25% and 2.75% determined based on the ~~amount of the borrowing base, as~~Company’s Total Net Leverage Ratio, (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~~(the "PNC SOFR 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 ~~Applicable Margin Adjustment Date~~greatest of (i) the base commercial lending rate of PNC Bank; (ii) the Overnight Bank Funding Rate plus 0.5%; and (iii) the daily SOFR Rate plus 1.0%, plus 1.75% until December 31, 2023 and thereafter between 1.25% and 1.75% determined based on the Company’s Total Net Leverage Ratio (the ~~“Applicable~~“PNC Domestic Loan Interest Rate”).

With respect to any ~~LIBOR~~PNC SOFR 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%~~6.50%, minus (y) the ~~Applicable~~PNC SOFR Loan Interest Rate, plus (z) if the ~~LIBOR~~SOFR Rate applicable to such interest payment is less than 0.75%, (i) 0.75% minus (ii) such ~~LIBOR~~SOFR Rate. With respect to any Domestic Rate Loan or Swing Loan, the Company has agreed to pay an affiliate of ~~Blue Torch~~certain Term Loan lenders a fee equal to a percentage per annum equal to the sum of (x) ~~5.00%~~5.50%, minus (y) the ~~Applicable~~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~~

During the ~~last day of any calendar~~first fiscal 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~~

~~Table of Contents~~

~~Facility), then~~ending June 30, 2022, the Company ~~has agreed~~recorded a loss on debt extinguishment of $1.4 million related to ~~pay affiliates~~a $20.0 million prepayment of ~~certain~~the Term Loan ~~lenders~~which was comprised of a ~~fee at a rate per annum equal to 1.00% minus a fee percentage between 0.25% to 0.375% on~~$0.4 million prepayment penalty and the ~~amount by which the Maximum Revolving Advance Amount exceeds such average Usage Amount.~~

write-off of unamortized debt issuance costs of $1.0 million.

As of ~~September~~June 30, ~~2021,~~2022, the interest ~~rates~~rate on the Term Loan was 7.01% and the interest rate on the PNC Credit Facility ~~were 6.75%~~for Domestic Rate Loans and ~~2.34%, respectively,~~Swing Loans was 6.50% and for LIBOR Loans was 2.61%. As of June 30, 2022, the PNC Credit Facility had a borrowing base of ~~$20.0~~$29.1 million, of which ~~$8.6~~$11.8 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 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; (b) the ability of a holder to request that the Company file a Form S-3 registration statement with respect to outstanding registrable securities if at any time the Company is eligible to use a Form S-3 registration statement; and (c) certain piggyback registration rights related to potential future equity offerings of the Company, subject to certain limitations.

~~Paycheck Protection Program Loan~~

On April 13, 2020, the Company entered into a Paycheck Protection Program 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. 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.

NOTE 6:5: LEASES

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


Operating leases	Operating leases	September 30, 2021		March 31, 2021		Operating leases	June 30, 2022		March 31, 2022
Operating lease right-of-use asset	Operating lease right-of-use asset	$	7,917	$	9,383	Operating lease right-of-use asset	$	10,641	$	11,107

Other accrued liabilities	Other accrued liabilities	2,092		2,581		Other accrued liabilities	1,521		1,727
Operating lease liability	Operating lease liability	6,818		8,005		Operating lease liability	9,932		9,891
Total operating lease liabilities	Total operating lease liabilities	$	8,910	$	10,586	Total operating lease liabilities	$	11,453	$	11,618

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


	Three Months Ended June 30,
Lease Cost	2022		2021
Operating lease cost	$	1,026	$	1,135
Variable lease cost	158		174

Total lease cost	$	1,184	$	1,309

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Three Months Ended September 30, Six Months Ended September 30,
Lease Cost 2021 2020 2021 2020
Operating lease cost    $ 994 $ 1,338 $ 2,129 $ 2,669
Variable lease cost    177 211 351 423
Short-term lease cost    4 39 4 92
Total lease cost    $ 1,175 $ 1,588 $ 2,484 $ 3,184


Maturity of Lease Liabilities	Maturity of Lease Liabilities	Operating Leases		Maturity of Lease Liabilities	Operating Leases
2022, excluding the six months ended September 30, 2021		$	1,734
2023		2,695
Remainder of 2023				Remainder of 2023	$	2,139
2024	2024	2,543		2024	2,203
2025	2025	2,264		2025	1,940
2026	2026	1,827		2026	1,512
2027				2027	1,411
Thereafter	Thereafter	698		Thereafter	14,560
Total lease payments	Total lease payments	$	11,761	Total lease payments	$	23,765
Less: imputed interest	Less: imputed interest	(2,851)		Less: imputed interest	(12,312)
Present value of lease liabilities	Present value of lease liabilities	$	8,910	Present value of lease liabilities	$	11,453


Lease Term and Discount Rate	Lease Term and Discount Rate	September 30, 2021		March 31, 2021		Lease Term and Discount Rate	June 30, 2022		March 31, 2022
Weighted average remaining operating lease term (years)	Weighted average remaining operating lease term (years)	4.15		4.53		Weighted average remaining operating lease term (years)	11.18		10.88
Weighted average discount rate for operating leases	Weighted average discount rate for operating leases	13.64	%	13.96	%	Weighted average discount rate for operating leases	12.9	%	12.9	%

Operating cash outflows related to operating leases totaled ~~$1.0~~$0.7 million and ~~$1.3~~$1.1 million for the ~~six~~three months ended ~~September~~June 30, 2022 and 2021, ~~and 2020,~~ respectively.

NOTE ~~7: RESTRUCTURING CHARGES~~6: COMMON STOCK

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

Severance and Benefits Facilities Total
Balance as of March 31, 2021 $ 580 $ — $ 580
   Restructuring costs 274    — 274
   Adjustments to prior estimates (50) — (50)
   Cash payments (784)    — (784)
Balance as of September 30, 2021 $ 20 $ — $ 20
Balance as of March 31, 2020 $ — $ — $ —
   Restructuring costs 2,637 — 2,637
   Cash payments (2,397) — (2,397)
Balance as of September 30, 2020 $ 240    $ — $ 240
On April 25, 2022, the Company completed a rights offering of 30 million shares of its common stock for $2.25 per share (the “Rights Offering”). The proceeds net of offering expenses was $66.3 million. A portion of the proceeds from the Rights Offering was used to prepay $20.0 million of the Company’s Term Loan.

Warrants

As of the date of the Rights Offering, the Company had outstanding warrants to purchase 7,110,616 shares of the Company’s common stock at an exercise price of $1.33 per share and outstanding warrants to purchase 3,400,000 shares of the Company's common stock at an exercise price of $3.00 per share (the “$3.00 Warrants"). The exercise price and the number of shares underlying these 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 “Down Round Feature”).

On April 25, 2022, the Down Round Feature was triggered for the $3.00 Warrants due to the price per share received in the Rights Offering. The exercise price for the $3.00 Warrants was adjusted to $2.79 per share and an additional 256,113 warrants were subsequently issued with an exercise price of $2.79. The Company calculated the difference between the $3.00 Warrants’ fair value before and after the Down Round Feature was triggered using the original exercise price and the new exercise price in addition to the value of the newly issued warrants. The difference in fair value of the effect of the Down Round Feature of $0.4 million was reflected as a deemed dividend and a reduction to income available to common stockholders in the basic earnings per share calculation. The Company used the Black-Scholes-Merton option-pricing model to determine the fair value of the deemed dividend. The assumptions used in the model are as follows: dividend rate of 0%;, expected term of 8 years; volatility of 56%; and a risk-free rate 2.85%.

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NOTE 8:7: NET LOSS PER SHARE

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

Three Months Ended September 30, Six Months Ended September 30,
2021 2020 2021 2020
9,195 8,020 10,315 7,180


Three Months Ended June 30,
2022						2021
2,849						11,436

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

For the three and six months ended September 30, 2020, there were 1.6 million and 0.5 million 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.

NOTE 9:8: INCOME TAXES

The effective tax rate for the three ~~and six~~ months ended ~~September~~June 30, 2022 and 2021 ~~and 2020~~ was ~~(4.6)~~(4.2)% and ~~(3.2)~~(0.3)% ~~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 ~~September~~June 30, ~~2021,~~2022, including interest and penalties, the Company had ~~$108.4~~$101.5 million of unrecognized tax benefits, ~~$89.9~~$82.9 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~~June 30, ~~2021,~~2022 the Company had accrued interest and penalties related to these unrecognized tax benefits of $1.3 million. The Company recognizes interest and penalties related to income tax matters in the income tax provision in the condensed consolidated statements of operations. As of ~~September~~June 30, ~~2021, $100.9~~2022, $94.0 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~~$10.8 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.~~

NOTE ~~10:~~9: COMMITMENTS AND CONTINGENCIES

Commitments to Purchase Inventory

The Company uses contract manufacturers for its manufacturing operations. Under these arrangements, the contract manufacturer procures inventory to manufacture products based upon the Company’s forecast of customer demand. The Company has similar arrangements with certain other suppliers. The Company is responsible for the financial impact on the supplier or contract manufacturer of any reduction or product mix shift in the forecast relative to materials that the third party had already purchased under a prior forecast. Such a variance in forecasted demand could require a cash payment for inventory in excess of current customer demand or for costs of excess or

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obsolete inventory. As of ~~September~~June 30, ~~2021,~~2022, the Company had issued non-cancelable commitments for ~~$57.3~~$50.9 million to purchase inventory from its contract manufacturers and suppliers.

Legal Proceedings

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On July 22, 2016, Realtime Data LLC d/b/a IXO (“Realtime Data”) filed a patent infringement lawsuit against the Company in the U.S. District Court for the Eastern District of Texas, alleging infringement of U.S. Patents Nos. 7,161,506, 7,378,992, 7,415,530, 8,643,513, 9,054,728, and 9,116,908. The lawsuit has been transferred to the U.S. District Court for the Northern District of California for further proceedings. Realtime Data asserts that the Company has incorporated Realtime Data’s patented technology into its compression products and services. Realtime Data seeks unspecified monetary damages and other relief that the Court deems appropriate. 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 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 fourteen days to file amended complaints in the Delaware Action where they sought leave to do so. On May 19, 2021, Realtime Data filed amended complaints including revised bases for claims of infringement of the same patents. On June 29, 2021, 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 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. Mr. Gacek resigned from the board effective May 1, 2017, and as CEO effective November 7, 2017; Mr. 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 an SEC investigation, the settlement of which Quantum previously reported in the Company’s Form 10-Q filed with the SEC on January 29, 2020 and Form 10-K filed with the SEC on August 6, 2019 (among other SEC filings). On September 14, 2020, defendants filed a motion to dismiss the California action on grounds of forum non conveniens and the mandatory Delaware forum selection clauses set forth in the contracts between Starboard and Quantum. On November 19, 2020, Starboard filed a first amended complaint in which Quantum was not named as a defendant, in effect dismissing Quantum from the California action. On January 8, 2021, Messrs. Gacek and Auvil moved to dismiss the amended complaint in California on grounds of forum non conveniens and the mandatory Delaware forum selection clauses set forth in the contracts between Starboard and Quantum. On March 11, 2021, the California Superior Court stayed the California action.

On April 14, 2021, Starboard filed a new action in the Delaware Court of Chancery, naming as defendants Messrs. Gacek and Auvil and Quantum. The new action largely repeats the allegations of the California action, alleging claims for fraud against all defendants, fraudulent concealment against all defendants, negligent misrepresentation against all defendants, breach of contract against Quantum, breach of the implied covenant of good faith and fair dealing against Quantum, and breach of fiduciary duty against Messrs. Gacek and Auvil. The complaint prays for unspecified damages in an amount to be determined at trial, costs and attorneys’ fees, and any other relief deemed just or appropriate by the court. On May 10, 2021, Quantum filed a motion to dismiss this Delaware action, as did Messrs. Gacek and Auvil. ~~Under~~Briefing on the ~~briefing schedule agreed to by~~motions ended July 26, 2021. The Court held oral argument on the ~~parties and approved by~~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

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~~Chancery, briefing on~~underway. On May 3, 2022, the ~~motions ended July 26, 2021. The~~ Court ~~set oral argument on~~filed a stipulated order governing case schedule, setting trial for June 6-9, 2023, and also setting a number of pretrial deadlines.

On March 4, 2022, Starboard filed a request for dismissal without prejudice of the ~~motions for September 28, 2021, but on August 4, 2021, on its own motion, postponed~~California action because the ~~hearing to November 1, 2021.~~matter is proceeding in Delaware. On March 10, 2022, the California Superior Court entered a minute order dismissing the action without prejudice. At this time, Quantum is unable to estimate the range of possible outcomes with respect to this matter.

Other Commitments

Additionally, from time to time, the Company is a party to various legal proceedings and claims arising from the normal course of business activities. Based on current available information, the Company does not expect that the ultimate outcome of any ~~of these other~~ currently pending unresolved matters, individually or in the aggregate, will have a material adverse effect on ~~the Company’s~~its results of operations, cash flows or financial position.

NOTE ~~11:~~10: FAIR VALUE OF FINANCIAL INSTRUMENTS

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 ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. The Company has no non-financial liabilities measured and recorded at fair value on a non-recurring basis.

Long-term Debt

The table below represents the carrying value and total estimated fair value of long-term debt as of ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. The fair value has been classified as Level 2 within the fair value hierarchy.

September 30,
2021 2020
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 — —


	June 30,
	2022				2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
Term Loan	$	78,417	$	78,417	$	91,963	$	97,047
PNC Credit Facility	17,300		17,300		—		—

~~NOTE 12: SUBSEQUENT EVENTS~~

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements, the accompanying notes, and other information included in this Quarterly Report and our ~~annual report~~Annual Report on Form 10-K for the year ended March 31, ~~2021.~~2022. In particular, the disclosure contained in Part I, Item 1A in our ~~annual report,~~Annual Report on form 10-K, as updated by Part II, Item 1A in this Quarterly Report, may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources.

The following discussion contains forward-looking statements, such as statements regarding COVID-19's anticipated impacts on our business, our future operating results and financial position, our business strategy and

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plans, and our objectives for future operations. Please see "Note Regarding Forward-Looking Statements" for more information about relying on these forward-looking statements.

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OVERVIEW

We are a technology company whose mission is to deliver innovative solutions to organizations across the world. We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades. We emphasize innovative technology in the design and manufacture of our products to help our customers unlock the value in their video and unstructured data in new ways to solve their most pressing business challenges.

We generate revenue by designing, manufacturing, and selling technology and services. Our most significant expenses are related to compensating employees; designing, manufacturing, marketing, and selling our products and services; data center costs in support of our cloud-based services; interest associated with our long term debt and income taxes.

~~Highlights from second quarter of fiscal year 2022 included:~~

•~~Revenue increased 5% from the prior quarter~~COVID-19 and ~~9% year-over-year to $93 million.~~

•~~We completed the Pivot3 assets acquisition, which adds a portfolio of industry leading hyperconverged infrastructure (HCI) and intelligent software solutions for the security and surveillance markets.~~

•We completed the EnClouden assets acquisition which will enable us to expand the addressable market for our video surveillance portfolio, offering customers a solution using their server hardware of choice with a flexible subscription-based software model.

•~~We completed the refinancing of our term loan, significantly reducing our annual debt service and greatly increasing our financial flexibility related to covenants and restrictions.~~

•~~We brought on industry veteran John Hurley as Chief Revenue Officer. John brings extensive experience working with the largest global enterprise, commercial, and service provider customers.~~Macroeconomic Conditions

~~COVID-19 IMPACT AND ASSOCIATED ACTIONS~~

~~Since the beginning of March 2020,~~ COVID-19 has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders. These measures may remain in place forcaused a significant ~~period of time.~~

~~In light of these events, we have taken actions~~disruption to protect the health and safety of our employees while continuing to serve our global customers as an essential business. We have implemented more thorough sanitation practices as outlined by health organizations and instituted social distancing policies at our locations around the world, including working from home, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, and suspending employee travel.

We have seen a gradual stabilization in our business during the second half of fiscal 2021 and into fiscal 2022 as customers increasingly adapted to the COVID-19 environment. The pervasive disruption in the global supply chain, which continues to have ana negative impact on our business. Before the current disruptions in the global supply chain our historical backlog was very limited and typically represented less than 5% of quarterly revenues. ~~During our second~~However, in fiscal ~~quarter~~2022 continuing into fiscal 2023, our backlog ~~grew~~has grown significantly, which has been driven primarily by our receipt of large purchase orders and our inability to ~~$50~~satisfy those orders within our typical shipping timeline due to supply chain constraints.For example, as of June 30, 2022, our backlog was $46.8 million ~~from $30~~and has increased to $67.2 million ~~at the end~~as of ~~the prior quarter. This unprecedented~~July 31, 2022. The changes in our backlog isare a result of the ~~strong~~timing of receipt of large purchase orders. We anticipate that supply chain constraints will remain challenging, limiting our ability to ship against all customer demand ~~we have been seeing across our business but limited by the ongoing supply constraints. Of the $50 million ending backlog, just over 70%~~and recognize a meaningful portion of the backlog was from hyperscaler customers and just over 85% of the backlog was related to tape products. Approximately two-thirds of the backlog is expected to be shipped in the second half of fiscal 2022 and the remaining one-third of the backlog has ship dates early in fiscal 2023.current backlog.

18In addition, the instability of global economic conditions, inflationary risks, military actions and armed conflicts and associated increased international trade regulations are adding to the uncertainty of our business. These adverse conditions could result in reductions in sales of our products and subscriptions for our services, longer sales cycles, increased costs to manufacture our products and increased price competition. Also, certain of our customers and partners have been and others may become credit or cash constrained, making it difficult for them to fulfill their payment obligations to us or require us to extend their payment terms. Given the dynamic nature of these macroeconomic conditions, we cannot reasonably estimate their full impact on our ongoing business, results of operations and overall financial performance.

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We will continue to actively monitor the impact of COVID-19 and global economic conditions and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. ~~See “The recent COVID-19 pandemic could adversely affect~~Global supply chain disruptions and the higher inflationary environment remain unpredictable and our ~~business,~~past results may not be indicative of ~~operations and financial condition” in~~future performance. See Part II, Item 1A, Risk Factors, of our most recent Annual Report on Form 10-K for ~~more~~ information regarding the risks we face as a result of the COVID-19 ~~pandemic.~~pandemic and an uncertain global economy.

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RESULTS OF OPERATIONS


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Total revenue	Total revenue	$	93,180	$	85,821	$	182,278	$	159,126	Total revenue	$	97,074	$	89,099
Total cost of revenue (1)	Total cost of revenue (1)	54,793		47,087		106,612		89,540		Total cost of revenue (1)	63,026		51,821
Gross profit	Gross profit	38,387		38,734		75,666		69,586		Gross profit	34,048		37,278
Operating expenses	Operating expenses									Operating expenses
Research and development (1)	Research and development (1)	12,389		10,233		23,680		20,395		Research and development (1)	12,125		11,291
Sales and marketing (1)	Sales and marketing (1)	15,462		13,153		29,414		24,723		Sales and marketing (1)	15,962		13,952
General and administrative (1)	General and administrative (1)	11,466		10,263		23,293		21,825		General and administrative (1)	12,314		11,825
Restructuring charges	Restructuring charges	8		1,585		274		2,637		Restructuring charges	725		266
Total operating expenses	Total operating expenses	39,325		35,234		76,661		69,580		Total operating expenses	41,126		37,334
Income (loss) from operations		(938)		3,500		(995)		6
Loss from operations										Loss from operations	(7,078)		(56)
Other income (expense), net	Other income (expense), net	126		(312)		(71)		(697)		Other income (expense), net	751		(198)
Interest expense	Interest expense	(3,070)		(7,578)		(6,956)		(14,015)		Interest expense	(2,091)		(3,886)
Loss on debt extinguishment, net		(4,960)		—		(4,960)		—
Loss on debt extinguishment										Loss on debt extinguishment	(1,392)		—
Net loss before income taxes	Net loss before income taxes	(8,842)		(4,390)		(12,982)		(14,706)		Net loss before income taxes	(9,810)		(4,140)
Income tax provision	Income tax provision	411		202		424		622		Income tax provision	410		13
Net loss	Net loss	$	(9,253)	$	(4,592)	$	(13,406)	$	(15,328)	Net loss	$	(10,220)	$	(4,153)

(1) Includes stock-based compensation as follows:


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Cost of revenue	Cost of revenue	$	298	$	227	$	591	$	396	Cost of revenue	$	310	$	293
Research and development	Research and development	1,331		591		2,863		1,062		Research and development	1,158		1,532
Sales and marketing	Sales and marketing	613		495		1,113		832		Sales and marketing	451		500
General and administrative	General and administrative	830		1,279		1,706		2,260		General and administrative	1,150		876
Total	Total	$	3,072	$	2,592	$	6,273	$	4,550	Total	$	3,069	$	3,201

Comparison of the Three Months Ended June 30, 2022 and 2021

Revenue


	Three Months Ended June 30,
(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Product revenue
Primary storage systems	$	15,558	16	$	11,312	13	$	4,246	38
Secondary storage systems	33,038		34	28,205		32	4,833		17
Devices and media	11,615		12	12,614		14	(999)		(8)
Total product revenue	60,211		62	52,131		59	8,080		15
Service and subscription	33,423		34	32,831		37	592		2
Royalty	3,440		4	4,137		5	(697)		(17)
Total revenue	$	97,074	100	$	89,099	101	$	7,975	9

Product revenue

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~~Comparison of the Three Months Ended September 30, 2021 and 2020~~

~~Revenue~~

Three Months Ended September 30,
(dollars in thousands) 2021 % of
revenue 2020 % of
revenue $ Change % Change
Product revenue
   Primary storage systems $ 16,683 18 $ 20,610 24 $ (3,927) (19)
   Secondary storage systems 26,259 28 18,903 22 7,356 39
   Devices and media 11,713 13 11,337 13 376 3
      Total product revenue 54,655 59 50,850 59 3,805 7
Service revenue 34,359 37 31,494 37 2,865 9
Royalty revenue 4,166 4 3,477 4 689 20
Total revenue $ 93,180 100 $ 85,821 100 $ 7,359 9

~~Product revenue~~

In the three months ended ~~September~~June 30, ~~2021,~~2022, product revenue increased ~~$3.8~~$8.1 million, or 7%15%, as compared to the same period in ~~2020.~~2021. Primary storage systems increased $4.2 million, or 38%, primarily driven from increased sales of our video surveillance solutions. Secondary storage systems ~~represented $7.4~~increased $4.8 million, or ~~a 39% increase,~~17%, driven by higher demand in ~~our~~ hyperscale ~~backup and archive~~ use cases. Primary storage systems decreased $3.9 million, or 19%, partially driven by our transition to a recurring software subscription licensing model which results in a shift from product to services revenue.

Service revenue

We offer a broad range of services including product maintenance, implementation, and training as well as software subscriptions. Service revenue is primarily comprised of customer field support contracts which provide standard support services for our hardware. Standard service contracts may be extended or include enhanced service, such as faster service response times.

Service and subscription revenue increased 9%2% in the three months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020~~2021 driven partially by growing sales of our recurring software subscription offerings as well as service revenue associated with newly acquired businesses.

Royalty revenue

We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium. Royalty revenue ~~increased~~decreased $0.7 million, or ~~20%~~17%, in the three months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020~~2021 due to ~~increased~~decreased market volume of older generation LTO media.

Gross Profit and Margin

Three Months Ended September 30,
(dollars in thousands) 2021 Gross
margin % 2020 Gross
margin % $ Change Basis point change
Product gross profit $ 13,531 24.8 $ 15,852 31.2 $ (2,321) (640)
Service gross profit 20,690 60.2 19,405 61.6 1,285 (140)
Royalty gross profit 4,166 100.0 3,477 100.0 689 —
Gross profit $ 38,387 41.2 $ 38,734 45.1 $ (347) (390)



	Three Months Ended June 30,
(dollars in thousands)	2022		Gross margin %	2021		Gross margin %	$ Change		Basis point change
Product	$	12,290	20.4	$	13,390	25.7	$	(1,100)	(530)
Service and subscription	18,318		54.8	19,751		60.2	(1,433)		(540)
Royalty	3,440		100.0	4,137		100.0	(697)		—
Gross profit	$	34,048	35.1	$	37,278	41.8	$	(3,230)	(670)

Product Gross Margin

Product gross margin decreased ~~640~~530 basis points for the three months ended ~~September~~June 30, ~~2021,~~2022, as compared with the same period in ~~2020.~~2021. This decrease was due primarily to ~~a product mix weighted towards lower margin offerings~~recent cost increases in materials across our global supply chain. We expect these cost increases to continue for the foreseeable future and are taking proactive measures to address the impact these cost ~~pressures as a result of constraints~~increases could have on our business in the ~~global supply chain.~~

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future.

Service and Subscription Gross Margin

Service and subscription gross margins decreased ~~140~~540 basis points for the three months ended ~~September~~June 30, ~~2021,~~2022, as compared with the same period in ~~2020.~~2021. This was partially driven by cost pressures as a result of certain constraints in the global supply chain.

Royalty Gross Margin

Royalties do not have significant related cost of sales.

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Operating expenses


		Three Months Ended September 30,										Three Months Ended June 30,
(dollars in thousands)	(dollars in thousands)	2021		% of revenue	2020		% of revenue	$ Change		% Change	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Research and development	Research and development	$	12,389	13.3	$	10,233	11.9	$	2,156	21	Research and development	$	12,125	12.5	$	11,291	12.7	$	834	7
Sales and marketing	Sales and marketing	15,462		16.6	13,153		15.3	2,309		18	Sales and marketing	15,962		16.4	13,952		15.7	2,010		14
General and administrative	General and administrative	11,466		12.3	10,263		12.0	1,203		12	General and administrative	12,314		12.7	11,825		13.3	489		4
Restructuring charges	Restructuring charges	8		—	1,585		1.8	(1,577)		(99)	Restructuring charges	725		0.7	266		0.3	459		173
Total operating expenses	Total operating expenses	$	39,325	42.2	$	35,234	41.1	$	4,091	12	Total operating expenses	$	41,126	42.4	$	37,334	41.9	$	3,792	10

In the three months ended ~~September~~June 30, ~~2021,~~2022, research and development expense increased ~~$2.2~~$0.8 million, or ~~21%~~7%, as compared with the same period in ~~2020.~~2021. This increase was primarily driven by an increase in personnel costs due to increased headcount ~~focused on new product development. This increase in headcount includes those employees added through acquisitions over the year.~~from acquisitions.

In the three months ended ~~September~~June 30, ~~2021,~~2022, sales and marketing expenses increased ~~$2.3~~$2.0 million, or ~~18%~~14%, as compared with the same period in ~~2020.~~2021. This increase was driven by increased headcount as we invest in strategic areas to accelerate growth. This increase in headcount includes those employees added through acquisitions over the year. Both marketing expense and travel expense have also increased over the prior year as COVID-19 restrictions ease.

In the three months ended ~~September~~June 30, ~~2021,~~2022, general and administrative expenses increased ~~$1.2~~$0.5 million, or ~~12%~~4%, as compared with the same period in ~~2020.~~2021. This increase was ~~due primarily to~~largely driven by increased ~~legal and other expenses related to our long-term debt amendments and business acquisition related activities.~~intangible amortization from recent acquisitions.

In the three months ended ~~September~~June 30, ~~2021,~~2022, restructuring expenses ~~decreased $1.6~~increased $0.5 million, or ~~99%~~173%, as compared with the same period in ~~2020.~~2021. The ~~decrease~~increase was the result of ~~one-time workforce reductions in the prior year.~~cost reduction initiatives.

Other Income (Expense)


		Three Months Ended September 30,										Three Months Ended June 30,
(dollars in thousands)	(dollars in thousands)	2021		% of revenue	2020		% of revenue	$ Change		% Change	(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Other income (expense)	Other income (expense)	$	126	0	$	(312)	—	$	438	140	Other income (expense)	$	751	1	$	(198)	—	$	949	479
Interest expense		(3,070)		3	(7,578)		9	4,508		59
Loss on debt extinguishment		(4,960)		5	—		—	(4,960)		n/a

The ~~increase~~decrease in other income (expense), net during the three months ended ~~September~~June 30, ~~2021~~2022 compared with the same period in ~~2020 was related primarily to fluctuations in foreign currency exchange rates.~~

~~In the three months ended September 30,~~ 2021 ~~interest expense decreased $4.5 million, or 59%, as compared with the same period in 2020 due to a lower principal balance and a lower effective interest rate.~~

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Loss on debt extinguishment, net during the three months ended September 30, 2021 was related to prepayment of our Senior Secured Term Loan that occurred during the period offset by the $10.0 million gain on the forgiveness of the Paycheck Protection Program Loan.

~~Income Taxes~~

Three Months Ended September 30,
(dollars in thousands) 2021 % of
revenue 2020 % of
revenue $ Change % Change
Income tax provision $ 411 — $ 202 — $ 209 103

The income tax provision for the three months ended September 30, 2021 and 2020 is primarily influenced by foreign and state income taxes. Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgement is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our 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, our valuation allowance.

~~Comparison of the Six Months Ended September 30, 2021 and 2020~~

~~Revenue~~
Six Months Ended September 30,
(dollars in thousands) 2021 % of
revenue 2020 % of
revenue $ Change % Change
Product revenue
   Primary storage systems 27,994 15 % $ 30,824 19 % $ (2,830) (9) %
   Secondary storage systems 54,463 30 37,395 24 17,068 46
   Devices and media 24,329 13 22,318 14 2,011 9
      Total product revenue $ 106,786 58 % $ 90,537 57 % $ 16,249 18
Service revenue 67,189 37 61,880 39 5,309 9
Royalty revenue 8,303 5 6,709 4 1,594 24
Total revenue $ 182,278 100 % $ 159,126 100 % $ 23,152 15

~~Product revenue~~

In the six months ended September 30, 2021, product revenue increased $16.2 million, or 18%, as compared to the same period in 2020. Secondary storage systems represented $17.1 million of the increase, driven primarily by a growing customer base in the hyperscale segment. Devices and media represented $2.0 million of the increase, driven by higher volume of LTO media sold through our high-volume channel partners. Primary storage systems decreased $2.8 million driven partially by driven by our transition to a recurring software subscription licensing model which results in a shift from product to services revenue.

~~Service revenue~~

Service revenue increased $5.3 million, or 9% in the six months ended September 30, 2021 compared to the same period in 2020, driven partially by the increase in recurring software subscription revenue. Growth is also driven by a higher level of installation and professional services attached to our product sales.

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~~Royalty revenue~~

We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium. Royalty revenue increased $1.6 million, or 24%, in the six months ended September 30, 2021 compared to the same period in 2020 due to higher overall market volume.

~~Gross Profit and Margin~~
Six Months Ended September 30,
(dollars in thousands) 2021 Gross
margin % 2020 Gross
margin % $ Change Basis point change
Product gross profit $ 26,922 25.2 % $ 25,157 27.8 % $ 1,765 (260)
Service gross profit 40,441 60.2 37,720 61.0 2,721 (80)
Royalty gross profit 8,303 100.0 6,709 100.0 1,594 —
Gross profit $ 75,666 41.5 % $ 69,586 43.7 % $ 6,080 (220)

~~Product Gross Margin~~

Product gross margin decreased 260 basis points for the six months ended September 30, 2021, as compared with the same period in 2020. This decrease was primarily the result of a less favorable product mix to our enterprise customers, as well as cost pressures as a result of constraints in the global supply chain.

~~Service Gross Margin~~

Service gross margin decreased 80 basis points for the six months ended September 30, 2021, as compared with the same period in 2020. This decrease was partially due to cost pressures as a result of constraints in the global supply chain.

~~Royalty Gross Margin~~

~~Royalties do not have significant related cost of sales.~~

~~Operating expenses~~
Six Months Ended September 30,
(dollars in thousands) 2021 % of
revenue 2020 % of
revenue $ Change % Change
Research and development $ 23,680 12.9 % $ 20,395 12.8 % $ 3,285 16 %
Sales and marketing 29,414 16.1 24,723 15.5 4,691 19
General and administrative 23,293 12.8 21,825 13.7 1,468 7
Restructuring charges 274 0.2 2,637 1.7 (2,363) (90)
Total operating expenses $ 76,661 42.1 % $ 69,580 43.7 % $ 7,081 10

In the six months ended September 30, 2021, research and development expense increased $3.3 million, or 16%, as compared with the same period in 2020. This increase was primarily driven by an increase in personnel costs due to increased headcount focused on new product development. This increase in headcount includes those employees added through acquisitions over the year.

In the six months ended September 30, 2021, sales and marketing expenses increased $4.7 million, or 19%, as compared with the same period in 2020. This increase was driven by increased headcount as we invest in strategic areas to accelerate growth. This increase in headcount includes those employees added through acquisitions over the year. Both marketing expense and travel expense have also increased over the prior year as COVID-19 restrictions ease.

In the six months ended September 30, 2021, general and administrative expenses increased $1.5 million, or 7% as compared with the same period in 2020. This increase was due primarily to increased legal and other expenses related to our long-term debt amendments and business acquisition related activities.

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In the six months ended September 30, 2021, restructuring expenses decreased $2.4 million, or 90% as compared with the same period in 2020. The decrease was the result of a reduction in workforce to improve operational efficiency and rationalize our cost structure in the prior year.

~~Other Income (Expense)~~
Six Months Ended September 30,
(dollars in thousands) 2021 % of
revenue 2020 % of
revenue $ Change % Change
Other income (expense) $ (71) 0 $ (697) — % $ 626 90 %
Interest expense (6,956) (4) (14,015) (9) 7,059 (50)
Loss on debt extinguishment (4,960) (3) — — (4,960) n/a

~~The change in other income (expense), net during the six months ended September 30, 2021 and 2020~~ was related primarily to fluctuations in foreign currency exchange rates.

Interest expense



	Three Months Ended June 30,
(dollars in thousands)	2022	% of revenue	2021	% of revenue	$ Change	% Change

Interest expense	(2,091)	2	(3,886)	4	1,795	46

In the ~~six~~three months ended ~~September~~June 30, ~~2021,~~2022, interest expense decreased ~~$7.1~~$1.8 million, or ~~50%~~46%, as compared with the same period in ~~2020~~2021 due ~~primarily~~ to a lower principal balance and a lower effective interest rate on ~~the term debt.~~our Term Loan.

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Loss on debt extinguishment ~~net during~~



	Three Months Ended June 30,
(dollars in thousands)	2022	% of revenue	2021	% of revenue	$ Change	% Change


Loss on debt extinguishment	(1,392)	1	—	—	(1,392)	n/a

In the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022, loss on debt extinguishment of $1.4 million was related to prepayment of our ~~Senior Secured~~ Term ~~Loan that occurred during the period offset by the $10.0 million gain on the forgiveness of the Paycheck Protection Program loan.~~Loan.

Income Taxes


		Six Months Ended September 30,													Three Months Ended June 30,
(dollars in thousands)	(dollars in thousands)	2021		% of revenue		2020		% of revenue		$ Change		% Change		(dollars in thousands)	2022		% of revenue	2021		% of revenue	$ Change		% Change
Income tax provision	Income tax provision	$	424	—	%	$	622	—	%	$	(198)	(32)	%	Income tax provision	$	410	—	$	13	—	$	397	3,054

The income tax provision for the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 is primarily influenced by foreign and state income taxes. Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgement is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our 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, our valuation allowance.

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LIQUIDITY AND CAPITAL RESOURCES

~~We had cash and cash equivalents of $22.8 million as of September 30, 2021, which consisted primarily of bank deposits and money market accounts.~~

We consider liquidity in terms of the sufficiency of internal and external cash resources to fund our operating, investing and financing activities. Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our PNC Credit Facility. We require significant cash resources to meet obligations to pay principal and interest on our outstanding debt, provide for our research and development activities, fund our working capital needs, and make capital expenditures. Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs. We are subject to the risks arising from COVID-19 ~~which have caused~~and substantial financial market volatility ~~and~~which have adversely affected both the U.S. and the global economy. We ~~believe that these social and economic~~have experienced negative impacts ~~have had a negative effect~~ on sales due to ~~disruptions~~global supply chain constraints, inflationary concerns and overall uncertainty in the macroeconomic environment which has resulted in a significant increase in our ~~supply chain and a decline in~~sales backlog compared to our ~~customers' ability or willingness to purchase our products and services.~~historical levels. The extent of the ~~impact~~impacts will depend, in part, on how long the negative trends in customer demand and supply chain levels will continue. We expect the impact of COVID-19 and market instability to continue to have a significant impact on our liquidity and capital resources.

We had cash and cash equivalents of $26.5 million as of June 30, 2022, which consisted primarily of bank deposits and money market accounts. As of June 30, 2022 we had $11.8 million available to borrow under the PNC Credit Facility.

We are subject to various debt covenants under our ~~Credit Agreements.~~debt agreements including a net leverage covenant and a $25 million minimum liquidity covenant . Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations. On April 25, 2022, we amended the covenant levels for our financial covenants under our term debt and PNC Credit Facility. We believe we were in compliance with all covenants under our debt agreements as of the date of filing of this Quarterly Report on Form 10-Q. For additional information about our debt, see the sections entitled “Risk Factors—Risks Related to Our Business Operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2021.~~

~~Term Loan~~

On August 5, 2021 (the “Closing Date”), we 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.

~~Revolving Credit Facility~~

On September 30, 2021, we 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 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.

~~Paycheck Protection Program Loan~~

In July 2021, we received notice from PNC that the Paycheck Protection Program Loan and related accrued interest was approved for forgiveness in full by the U.S. Small Business Administration. We recorded the amount forgiven as gain on debt extinguishment of $10.0 million in the three and six months ended September 30, 2021.2022.

Cash Flows

The following table summarizes our consolidated cash flows for the periods indicated.

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		Six Months Ended September 30,					Three Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Cash provided by (used in):	Cash provided by (used in):					Cash provided by (used in):
Operating activities	Operating activities	$	(15,262)	$	(19,297)	Operating activities	$	(18,346)	$	(6,866)
Investing activities	Investing activities	(7,396)		(1,434)		Investing activities	(5,036)		(1,150)
Financing activities	Financing activities	12,716		26,866		Financing activities	44,643		(463)
Effect of exchange rate changes	Effect of exchange rate changes	12		(96)		Effect of exchange rate changes	29		(14)
Net increase (decrease) in cash and cash equivalents and restricted cash	Net increase (decrease) in cash and cash equivalents and restricted cash	$	(9,930)	$	6,039	Net increase (decrease) in cash and cash equivalents and restricted cash	$	21,290	$	(8,493)

Cash Used In Operating Activities

Net cash used in operating activities was ~~$15.3~~$18.3 million for the ~~six~~three months ended ~~September~~June 30, ~~2021.~~2022. This use of cash was primarily attributable to changes in working capital of ~~$14.6~~$15.6 million driven by ~~increases in manufacturing and service part inventories of $7.0 million,~~ a decrease in deferred revenue of ~~$9.0 million and a net changes in other assets and liabilities of $5.8~~$13.6 million. ~~These were partially offset by cash generated by a $10.0 million decrease in accounts receivables.~~ The decrease in deferred revenue reflects the seasonal nature of service contract renewals.

Net cash used in operating activities was ~~$19.3~~$6.9 million for the ~~six~~three months ended ~~September~~June 30, ~~2020.~~2021. This use of cash ~~was~~is primarily attributable to changes in working capital of ~~$19.1~~$10.0 million driven by ~~the increases~~an increase in manufacturing and service ~~inventory~~parts inventories of ~~$13.2~~$4.4 million, ~~and a decrease~~an increase in accounts payable, accrued compensation, deferred revenue of ~~$12.6 million. These were~~$3.2 million, $4.9 million and $6.3 million, respectively, partially offset by a ~~decrease~~reduction in accounts receivable of ~~$7.6~~$15.2 million. The decrease in deferred revenue reflects the seasonal nature of service contract ~~renewals which peak in the fourth fiscal quarter.~~renewals.

Cash Used in Investing Activities

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Net cash used in investing activities ~~for~~was $5.0 million in the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022, which was primarily attributable to ~~cash paid for our acquisition of Pivot3 of $5.0 million and~~ capital expenditures of ~~$2.4 million.~~$3.0 million and a $2.0 million deferred business acquisition payment.

Net cash used in investing activities was ~~$1.4~~$1.2 million in the ~~six~~three months ended ~~September~~June 30, ~~2020~~2021, which included approximately $1.0 million related to capital expenditures.

Cash Provided by Financing Activities

Net cash provided by financing activities ~~for~~was $44.6 million in the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022, which was related primarily to ~~borrowings under our credit facility, and proceeds~~$66.3 million of cash received from the ~~new Term Loan~~Rights Offering of 30 million shares of our common stock offset by ~~the repayment in full~~a $20 million prepayment of ~~the Senior Secured Term Loan.~~our term debt and a term debt principal amortization payment of $0.6 million

Net cash ~~provided by~~used in financing activities was ~~$26.9~~$0.5 million in the ~~six~~three months ended ~~September~~June 30, ~~2020 which included Senior Secured Term Loan borrowings of $19.4 million, $10.0 million in borrowings under the Paycheck Protection Program and the net pay-down of our Amended PNC Credit Facility.~~2021 related to a term debt principal amortization payment.

Commitments and Contingencies

Our contingent liabilities consist primarily of certain financial guarantees, both express and implied, related to product liability and potential infringement of intellectual property. We have little history of costs associated with such indemnification requirements and contingent liabilities associated with product liability may be mitigated by our insurance coverage. In the normal course of business to facilitate transactions of our services and products, we indemnify certain parties with respect to certain matters, such as intellectual property infringement or other claims. We also have indemnification agreements with our current and former officers and directors. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of our indemnification claims, and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements have not had a material impact on our operating results, financial position or cash flows.

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We are also subject to ordinary course ~~litigation and potential costs related to our financial statement restatement activities and related legal costs.~~litigation.

Off Balance Sheet Arrangements

Except for the indemnification commitments described under “—Commitments and Contingencies” above, we do not currently have any other off-balance sheet arrangements and do not have any holdings in variable interest entities.

Contractual Obligations

We have contractual obligations and commercial commitments, some of which, such as purchase obligations, are not recognized as liabilities in our financial statements. There have not been any other material changes to the contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2021.~~2022.

Critical Accounting Estimates and Policies

The preparation of our consolidated financial statements in accordance with generally accepted accounting principles requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. On an ongoing basis, we evaluate estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We consider certain accounting policies to be critical to understanding our financial statements because the application of these policies requires significant judgment on the part of management, which could have a material impact on our financial statements if actual performance should differ from historical experience or if our assumptions were to change. Our accounting policies that include estimates that require management’s subjective or complex judgments about the effects of matters that are inherently uncertain are summarized in our most recently filed Annual Report on Form 10-K for the fiscal year ended March 31, ~~2021~~2022 under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Critical Accounting Estimates and Policies.” For additional information on our significant accounting policies, see Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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Recently Issued and Adopted Accounting Pronouncements

See Note 1 to the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and in our most recently filed Annual Report on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our quantitative and qualitative disclosures about market risk from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K, which such section is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this Quarterly Report. Based on such evaluation, our principal executive and principal financial officers have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level described below.

Changes in Internal Control

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In connection with the evaluation required by Rule 13a-15(d) under the Securities Exchange Act of 1934, there were no changes in our internal control over financial reporting that occurred during the quarter ended ~~September~~June 30, ~~2021~~2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 10 ,9, Commitments and Contingencies, of the notes to the unaudited condensed consolidated financial statements for a discussion of our legal matters.

ITEM 1A. RISK FACTORS

There have been no material changes to the previously disclosed risk factors discussed in ~~Part 1~~ “Part I, Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, ~~2021.~~2022. You should consider carefully these factors, together with all of the other information in this Quarterly Report on Form 10-Q, including our unaudited

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condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, before making an investment decision.

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ITEM 6. EXHIBITS

The exhibits required to be filed or furnished as part of this Quarterly Report are listed below. Notwithstanding any language to the contrary, exhibits 32.1 and 32.2 shall not be deemed to be filed as part of this Quarterly Report for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933, except to the extent that The Company specifically incorporates it by reference.

Incorporated by Reference
Exhibit
Number Exhibit Description Form Filing Date Exhibit Filed or Furnished Herewith
2.1
Purchase Agreement dated July 18, 2021 by and between PV3 (an ABC) LLC, a Delaware limited liability company as assignee for the benefit of Pivot3, Inc., a Delaware corporation, and Quantum Corporation.*
8-K 7/22/2021 2.1
10.1
Quantum Corporation 2012 Long Term Incentive Plan, as amended and restated on September 21, 2021.
X
10.2
Term Loan Credit and Security Agreement, dated August 5, 2021, between the Company, Quantum LTO, Square Box, the lenders party thereto, and Blue Torch Finance LLC, as disbursing and collateral agent.
8-K 8/5/21 10.1
10.3
First Amendment to Term Loan Credit and Security Agreement, dated September 30, 2021, among the Company, Quantum LTO Holdings, LLC, the borrowers and guarantors party thereto, the lenders party thereto, and Blue Torch Finance LLC, as disbursing agent and collateral agent.
8-K 10/6/21 10.2
10.4
Seventh Amendment to Amended and Restated Revolving Credit and Security Agreement, dated September 30, 2021, between the Company, Quantum LTO Holdings, LLC, the borrowers and guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as administrative agent.
8-K 10/6/21 10.1
31.1
Certification of the Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of the Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
X
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002
X
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002
X
101 Interactive data files X
104 Cover page interactive data file, submitted using inline XBRL (contained in Exhibit 101) X

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

Filing Date

Exhibit

Filed or Furnished Herewith

10.1

Ninth Amendment to Amended and Restated Revolving Credit and Security Agreement, dated as of April 25, 2022, among the Company, Quantum LTO Holdings, LLC, Square Box Systems Limited, the lenders party thereto, and PNC Bank, National Association, as administrative agent.

8-K

4/27/22

10.1

10.2

Third Amendment to Term Loan Credit and Security Agreement, dated as of April 25, 2022, among the Company, Quantum LTO Holdings, LLC, Square Box Systems Limited, the lenders party thereto, and Blue Torch Finance LLC, as disbursing agent and collateral agent.

8-K

4/27/22

10.2

31.1

Certification of the Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

31.2

Certification of the Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover page interactive data file, submitted using inline XBRL (contained in Exhibit 101)

* Schedules and attachments to the Purchase Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules and attachments upon request by the Securities and Exchange Commission.

2924

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Quantum Corporation

(Registrant)

~~November 3, 2021~~August 4, 2022

/s/ James J. Lerner

(Date)

James J. Lerner

President, Chief Executive Officer and Chairman of the Board

(Principal Executive Officer)

~~November 3, 2021~~August 4, 2022

/s/ J. Michael Dodson

(Date)

J. Michael Dodson

Chief Financial Officer

(Principal Financial Officer)

3025



		Page
~~Note about forward looking statements~~	1
PART I
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Cash Flows	3
	Condensed Consolidated Statements of Stockholders’ Deficit	4
	Index to Notes to Condensed Consolidated Financial Statements	65
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1714
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2722
Item 4.	Controls and Procedures	2722
PART II
Item 1.	Legal Proceedings	2822
Item 1A.	Risk Factors	2822
Item 6.	Exhibits	2924

Signatures		3025


	September 30, 2021		March 31, 2021
Finished goods:
Manufactured finished goods	$	11,013	$	12,452
Distributor inventory	136		238
Total finished goods	11,149		12,690
Work in progress	3,653		2,074
Raw materials	14,046		9,703
Total manufacturing inventories	$	28,848	$	24,467


	Severance and Benefits		Facilities		Total
Balance as of March 31, 2021	$	580	$	—	$	580
Restructuring costs	274		—		274
Adjustments to prior estimates	(50)		—		(50)
Cash payments	(784)		—		(784)

Balance as of September 30, 2021	$	20	$	—	$	20

Balance as of March 31, 2020	$	—	$	—	$	—
Restructuring costs	2,637		—		2,637

Cash payments	(2,397)		—		(2,397)

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


	September 30,
	2021				2020
	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		—		—