| | | | | | | |
| | Nine Months Ended | |
| | September 30,
2011 | | September 30,
2010 | |
| | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | |
Net loss | | $ | (3,702,373 | ) | $ | (3,624,073 | ) |
| | | | | | | |
Adjustments to net loss | | | | | | | |
Depreciation | | | 204,983 | | | 217,240 | |
Stock-based compensation | | | 57,656 | | | 65,245 | |
Amortization of loan issuance costs | | | 37,125 | | | 37,125 | |
Changes in operating assets and liabilities | | | | | | | |
Accounts receivable, net | | | (1,577,851 | ) | | (961,551 | ) |
Prepaid expenses | | | (63,134 | ) | | (68,989 | ) |
Inventory | | | (97,801 | ) | | (19,247 | ) |
Other assets | | | 4,614 | | | (637 | ) |
Accounts payable and accrued expenses | | | 447,063 | | | 695,162 | |
Accrued compensation | | | 515,329 | | | (66,092 | ) |
Deferred revenue | | | 627,974 | | | (668,834 | ) |
Other liability | | | - | | | 66,000 | |
| | | | | | | |
Net cash used by operating activities | | | (3,546,415 | ) | | (4,328,651 | ) |
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | |
Purchases of property and equipment | | | (81,841 | ) | | (186,027 | ) |
| | | | | | | |
Net cash used by investing activities | | | (81,841 | ) | | (186,027 | ) |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | |
Net borrowings on line of credit | | | 1,169,887 | | | 570,341 | |
Repayments of long term debt | | | (261,113 | ) | | (123,370 | ) |
Net proceeds from issuance of long term debt | | | - | | | 3,685,618 | |
Proceeds from issuance of convertible notes payable | | | 700,000 | | | 2,000,000 | |
Proceeds from issuance of common stock | | | 15,714 | | | 4,321 | |
| | | | | | | |
Net cash provided by financing activities | | | 1,624,488 | | | 6,136,910 | |
| | | | | | | |
NET CHANGE IN CASH AND EQUIVALENTS | | | (2,003,768 | ) | | 1,622,232 | |
| | | | | | | |
CASH AND EQUIVALENTS | | | | | | | |
Beginning of period | | | 2,063,139 | | | 667,880 | |
| | | | | | | |
End of period | | $ | 59,371 | | $ | 2,290,112 | |
| | | | | | | |
Supplemental disclosures of cash flow information | | | | | | | |
Cash paid during the year for: | | | | | | | |
Interest | | $ | 436,020 | | $ | 57,844 | |
Income taxes | | $ | 8,453 | | $ | 800 | |
Qumu, Inc
Notes to Unaudited Interim Condensed Financial Statements
Qumu, Inc. (Company) was founded in 2002 by former executives of Inktomi who acquired the technology from Yahoo! Inc. at approximately the time Yahoo! Inc. acquired Inktomi. Yahoo! Inc. retained a minority interest in the Company as of September 30, 2011. In February of 2008, the Company changed its name from Media Publisher, Inc. to Qumu, Inc. and has operated as Qumu, Inc. since that time.
The Company provides products that enable organizations to easily capture, manage, publish, and distribute live and on-demand video content utilizing Qumu appliances, hosted solutions, and enterprise video communications software. The Company’s web services based software solution seamlessly manages video applications and leverages the existing video, storage and distribution hardware and software infrastructure.
| |
2. | SIGNIFICANT ACCOUNTING POLICIES |
The accompanying condensed financial statements are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. However, in the opinion of management, the financial statements include all adjustments, including normal recurring accruals, necessary for a fair presentation of the financial position and results of operations and cash flows of the interim periods presented. Operating results for these interim periods are not necessarily indicative of results to be expected for the entire year, due to seasonal, operating and other factors. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Audited Financial Statements as of and for the year ended December 31, 2010.
Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company has an accounts receivable financing agreement with a bank whereby the Company can finance up to a maximum of $3,750,000 of its eligible accounts receivables with an 80% advance rate. The financing agreement incorporates a phase down of the maximum borrowing amount over the remainder of 2011 to $1,875,000. Borrowings under the line of credit bear interest at the bank’s prime rate plus 2% with a minimum rate of 4.00% (6% at September 30, 2011 and 5.75% at December 31, 2010). Under the financing agreement, the Company is required to repay advances upon the earlier of its receipt of payment on the financed accounts receivables from its customers, or the financed accounts receivable becoming aged greater than 90 days from date of invoice. The financing agreement expires August 26, 2012. The financing agreement also contains certain affirmative and negative covenants, and is secured by all assets and property of the Company. As of September 30, 2011 the Company is in compliance with all covenants. At September 30, 2011 and December 31, 2010, the Company had outstanding balances of $2,669,700 and $1,499,813, respectively under the financing agreement.
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Qumu, Inc
Notes to Unaudited Interim Condensed Financial Statements
| |
4. | CONVERTIBLE NOTES PAYABLE |
The Company had outstanding convertible notes payable amounting to $5,700,000 and $5,000,000 as of September 30, 2011 and December 31, 2010, respectively, funded from private investors. The convertible notes are subordinated to all bank debt and an outstanding note payable to a finance company. All convertible notes payable bear interest at 8%, have original maturities of less than one year and mature during 2011.
Long term debt, at September 30, 2011 and December 31, 2010 consists of the following:
| | | | | | | |
| | September 30,
2011 | | December 31,
2010 | |
| | | | | | | |
Note Payable to a finance company, net of discount of $59,125,
collateralized by all corporate assets, with interest fixed at
12.7% due in 11 monthly payments of interest only and 36
monthly installments of $125,881 until June 30, 2014 | | $ | 3,429,762 | | $ | 3,690,875 | |
| | | | | | | |
Total Long Term Debt | | | 3,429,762 | | | 3,690,875 | |
Less Current Portion | | | 1,130,976 | | | 530,608 | |
| | $ | 2,298,786 | | $ | 3,160,267 | |
In connection with the note payable entered into in 2010, the Company issued a warrant to the finance company to purchase 1,650,000 shares of Series C Preferred stock at an exercise price of $0.25 per share. The number and exercise price of the shares are subject to adjustment in certain circumstances. Because the exercise price and the number of shares to be issued under the warrants are subject to adjustment for causes other than standard anti-dilution events, the Company determined that it should be classified as a liability under ASC 815-40-15 and fair valued at each reporting period.
The Company recorded a liability of $66,000 associated with the warrant, which has been recorded as a discount to the note payable and will be amortized to interest expense over the life of the note. The value of the warrant was determined using the Black-Scholes model and the following assumptions: preferred stock price and exercise price of $0.25; volatility of 60%; interest rate of 0.62%; and expected term of 2 years. At December 31, 2010, the Company recognized an expense of $49,500 for the change in fair value. At September 30, 2011 and December 31, 2010, the warrant liability fair value was $115,500.
Common stock- The Company is authorized to issue up to 136,000,000 shares of common stock. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding. No dividends were declared as of September 30, 2011 and December 31, 2010.
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Qumu, Inc
Notes to Unaudited Interim Condensed Financial Statements
| |
6. | STOCKHOLDERS’ EQUITY – (CONTINUED) |
At September 30, 2011 and December 31, 2010, the Company had 420,565 common stock warrants issued and outstanding. The warrants are exercisable with a weighted average exercise price of $0.005.
Preferred stock – The Company is authorized to issue 107,542,217 shares of preferred stock. The holders of preferred stock have one vote for each share of common stock into which they may be converted.
As of September 30, 2011 and December 31, 2010, respectively, the Company had 6,310,876 preferred stock warrants for Series B Preferred stock and Series C Preferred stock issued and outstanding. The warrants are exercisable with a weighted average exercise price of $0.249 and have various expiration dates through July 2020.
Stock options – In 2003, the stockholders approved the Company’s Employee Stock Option Plan (Plan). The Plan permits the grant of share options and shares to its employees of up to 21,406,396 shares of common stock. The Company believes that such awards better align the interests of its employees with those of its stockholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant and generally vest over 4 years of continuous service, and have 10-year contractual terms.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. As a privately-held company, stock price is not easily determinable due to an absence of a marketplace. Expected volatilities are therefore based on analysis of similar companies’ stock volatilities. A monthly analysis of stock prices over a period of multiple years was used to calculate an average volatility, which was utilized in the Black-Scholes option valuation model. The Company uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
| | | | | | | |
| | Nine Months Ended September 30, | |
| | 2011 | | 2010 | |
Expected volatility | | | 60% | | | 65% | |
| | | | | | | |
Expected dividends | | | 0% | | | 0% | |
| | | | | | | |
Expected term (in years) | | | 4.85 | | | 4.85 | |
| | | | | | | |
Risk-free rate | | | 0.11% to 0.02% | | | 0.00% to 0.02% | |
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Qumu, Inc
Notes to Unaudited Interim Condensed Financial Statements
| |
6. | STOCKHOLDERS’ EQUITY – (CONTINUED) |
Other information pertaining to stock options is as follows:
| | | | | | | |
| | Nine Months Ended September 30 | |
| | 2011 | | 2010 | |
| | | | | | | |
Number of options granted | | | 2,465,000 | | | 1,302,775 | |
Fair value of options granted | | $ | 88,987 | | $ | 23,841 | |
Per share weighted average grant-date
fair value of options granted | | $ | 0.036 | | $ | 0.018 | |
Total fair value of stock options
vested | | $ | 54,310 | | $ | 66,603 | |
Total intrinsic value of stock options
exercised | | $ | - | | $ | 1,750 | |
| | | | | | | |
Total intrinsic value of stock options
outstanding at end of period | | $ | 225,563 | | $ | 8,900 | |
Compensation expense recognized
for stock options | | $ | 57,656 | | $ | 65,245 | |
As of September 30, 2011 and December 31, 2010, the Company had estimated cumulative federal net operating losses of approximately $29,000,000 and $25,300,000, respectively, and estimated deferred tax assets of $12,300,000 and $10,800,000, respectively. A valuation allowance has been established to fully offset net deferred tax assets as of September 30, 2011 and December 31, 2010 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.
Pursuant to Internal Revenue Code Section 382, use of the Company’s net operating loss and credit carryforwards may be limited if a cumulated change in ownership of more than 50% occurs within a three-year period. Management has not yet determined the impact such limitation may have on the utilization of its net operating loss (NOL) carryforwards against taxable income in future periods.
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