Quantum Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Mar. 31, 2020

The Company has certain non-financial assets that are measured at fair value on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when an impairment is recognized. These assets include property and equipment and amortizable intangible assets. The Company did not record impairments to any non-financial assets in the fiscal years ended March 31, 2020, 2019 and 2018. The Company does not have any non-financial liabilities measured and recorded at fair value on a non-recurring basis. The carrying amounts reported in the accompanying consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their respective fair values because of the short-term nature of these accounts.

Warrants and Warrant Liability

The Company uses the Black-Scholes-Merton option valuation model for estimating fair value of common stock warrants. The expected life of warrants granted represent the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, exercise patterns, and post-vesting forfeitures. The Company estimates volatility based on the historical volatility of the common stock over the most recent period corresponding with the estimated expected life of the award. The Company bases the risk-free interest rate used in the Black-Scholes-Merton stock option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent term equal to the expected life of the award. The Company has not paid any cash dividends on the common stock and does not anticipate paying any cash dividends in the foreseeable future.

During fiscal year 2018, the Company began issuing common stock warrants in connection with amendments to the TCW Term Loan. The warrants were initially accounted for as a liability and recorded at estimated fair value on a recurring basis due to exercise price reset provisions contained in the warrant agreements. As such, the Company estimated the fair value of the warrants at the end of each reporting period using the Black-Scholes-Merton valuation model. At the end of each reporting period, the Company recorded the changes in the estimated fair value during the period in other (income) expense in the consolidated statements of operations and comprehensive income (loss). The warrant liabilities are valued at issuance and each subsequent measurement date using the Black-Scholes-Merton option valuation model.

The following table shows the ranges of assumptions and estimates utilized within the Black-Scholes-Merton option valuation models for the period presented:



Inputs	Year Ended March 31,
	2019	2018
Company's stock price	$1.62 - $2.40	$3.64 - $5.63
Exercise prices	$0.01 - $2.40	$0.01
Expected term (years)	4.5 to 5.0	4.8 to 5.0
Volatility	64.1% - 71.8%	59.8% - 69.1%
Risk free interest rate	2.5% - 3.0%	2.1% - 2.7%
Dividend rate	—%	—%

During the three months ended March 31, 2019, the exercise price for these warrants reset and became fixed, at which time they were considered to be indexed to the Company’s own stock and met the scope requirements for equity classification. The fair value of the warrants upon the exercise price reset was reclassified to stockholders’ deficit. The Company classified the warrant liability subject to recurring fair value measurement as Level 3 prior to the reclassification to stockholders’ deficit. As the outstanding warrants were reclassified to stockholders’ deficit in the three months ended March 31, 2019, there was no warrant liability as of March 31, 2020 and 2019.

The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuations for the warrant liability for the periods presented (in thousands):



	Warrant liability
As of March 31, 2018	$	272
Issuances	5,683
Settlements	(615		)
Changes in fair value	297
Reclassifications to stockholders' deficit	(5,637		)
As of March 31, 2019	$	—

Debt

The table below represents the carrying value and total estimated fair value of long-term debt as of March 31, 2020 and March 31, 2019, respectively. The fair value has been classified as Level 2 within the fair value hierarchy.



	March 31,
	2020				2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Senior Secured Term Loan	$	165,208	$	151,678	$	164,588	$	160,259
Amended PNC Credit Facility	2,620		2,226		—		—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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