NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Qumu Corporation ("Qumu" or the "Company") provides the software solutions to create, manage, secure, distribute and measure the success of live and on-demand video for the enterprise. The Qumu platform enables global organizations to drive employee engagement, increase access to video, and modernize the workplace by providing a more efficient and effective way to share knowledge. The world’s largest organizations leverage the Qumu platform for a variety of cloud, on-premise and hybrid deployments. Use cases including self-service webcasting, sales enablement, internal communications, product training, regulatory compliance and customer engagement. The Company markets its products to customers primarily in North America, Europe and Asia.
The Company views its operations and manages its business as one segment and one reporting unit. Factors used to identify the Company's single operating segment and reporting unit include the financial information available for evaluation by the chief operating decision maker in making decisions about how to allocate resources and assess performance. The Company markets its products and services through regional sales representatives and independent distributors in the United States and international markets.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of 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.
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, for which the current carrying amounts approximate fair market values based on quoted market prices or net asset value; warrant liabilities, for which the fair value of $2.9 million at both December 31, 2020 and 2019 is based on the Company's estimates of assumptions that market participants would use in pricing the liabilities.
Revenue Recognition
The Company generates revenue through the sale of enterprise video content management software, hardware, maintenance and support, and professional and other services. Software sales may take the form of a perpetual software license, a cloud-hosted software as a service (SaaS) or a term software license. Software licenses and appliances revenue includes sales of perpetual software licenses and hardware. Service revenue includes SaaS, term software licenses, maintenance and support, and professional and other services. An individual sale can range from a single year agreement for thousands of dollars to a multi-year agreement for over a million dollars.
The Company follows a five-step model to assess each sale to a customer: identify the legally binding contract, identify the performance obligations, determine the transaction price, allocate the transaction price and determine whether revenue will be recognized at a point in time or over time.
Revenue is recognized upon transfer of control of promised products or services (i.e., performance obligations) to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over time (for cloud-hosted software as a service, maintenance and support, and other services) or at a point in time (for software licenses and hardware).
The Company enters into contracts that can include various combinations of software licenses, appliances, maintenance and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple
performance obligations, the Company allocates the transaction price of the contract to each distinct performance obligation, on a relative basis using its standalone selling price.
The Company determines the standalone selling price for software-related elements, including professional services and software maintenance and support contracts, based on the price charged for the deliverable when sold separately.
The Company's on-premise term software licenses and technical support for its on-premise term software licenses are distinct from each other. As a result, the software license is recognized upon transfer of control, which is at fulfillment. The revenue allocable to technical support is recognized ratably over the non-cancellable committed term of the agreement.
Other items relating to charges collected from customers include reimbursable expenses, shipping and handling charges and sales taxes charges. Charges collected from customers as part of the Company's sales transactions are included in revenues and the associated costs are included in cost of revenues. Sales taxes charged to and collected from customers as part of the Company’s sales transactions are excluded from revenues and recorded as a liability to the applicable governmental taxing authority.
Deferred Revenue
Deferred revenue consists of billings or payments received in advance of revenue recognition and is recognized as the revenue recognition criteria are met. The deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancellable subscription agreements. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as non-current deferred revenue.
Deferred Sales Commissions
Sales commissions represent the direct incremental costs related to the acquisition of customer contracts. The Company recognizes commissions as sales and marketing expense at the time the associated product revenue is recognized, requiring establishment of a deferred cost in the event a commission is paid prior to recognition of revenue. The deferred commission amounts are recoverable through the related future revenue streams under non-cancellable customer contracts and commission clawback provisions in the Company's sales compensation plans. Deferred commission costs included in prepaid expenses and other assets were $745,000 and $380,000 at December 31, 2020 and 2019, respectively. Deferred commission costs in other assets, non-current were $276,000 and $138,000 at December 31, 2020 and 2019, respectively. The Company recognized commissions expense of $2.2 million and $1.9 million during the years ended December 31, 2020 and 2019, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at fair value.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are initially recorded at a selling price, which approximates fair value upon the sale of goods or services to customers. The Company maintains an allowance for doubtful accounts to reflect accounts receivable at net realizable value. In judging the adequacy of the allowance for doubtful accounts, the Company considers multiple factors, including historical bad debt experience, the general economic environment, the need for specific client reserves and the aging of the Company’s receivables. A portion of this provision is included in operating expenses as a general and administrative expense and a portion of this provision is included as a reduction of license revenue. A considerable amount of judgment is required in assessing these factors. If the factors utilized in determining the allowance do not reflect future performance, then a change in the allowance for doubtful accounts would be necessary in the period such determination has been made, which would impact future results of operations.
Changes to the allowance for doubtful accounts consisted of the following (in thousands):
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Year Ended December 31,
|
Allowance for Doubtful Accounts:
|
|
2020
|
|
2019
|
|
2018
|
Balance at beginning of year
|
|
$
|
45
|
|
|
$
|
61
|
|
|
$
|
21
|
|
Write-offs
|
|
(28)
|
|
|
(6)
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|
|
—
|
|
Change in provision
|
|
25
|
|
|
(10)
|
|
|
40
|
|
Balance at end of year
|
|
$
|
42
|
|
|
$
|
45
|
|
|
$
|
61
|
|
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. The Company records provisions for potential excess, obsolete and slow-moving inventory. Results could be different if demand for the Company’s products decreased because of economic or competitive conditions, or if products became obsolete because of technical advancements in the industry or by the Company. Inventory included in prepaid expenses and other current assets was $184,000 and $350,000 as of December 31, 2020 and 2019, respectively.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line basis over estimated useful lives ranging from one to five years for most assets. Leasehold improvements are amortized using the straight-line method over the shorter of the property’s useful life or the term of the underlying lease. Repairs and maintenance costs are charged to operations as incurred. The asset cost and related accumulated depreciation or amortization are adjusted for asset retirement or disposal, with the resulting gain or loss, if any, credited or charged to results of operations.
Long-lived Assets
The Company continually monitors events and changes in circumstances that could indicate that carrying amounts of its long-lived assets, including property and equipment and intangible assets may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through their undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets.
Goodwill
The Company records goodwill when consideration paid in a purchase acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired. Goodwill is not amortized, but rather is tested for impairment annually or more frequently if facts and circumstances warrant a review. The Company has determined that there is a single reporting unit for the purpose of goodwill impairment tests. For purposes of assessing the impairment of goodwill, the Company annually, at its fiscal year end, estimates the fair value of the reporting unit and compares this amount to the carrying value of the reporting unit. If the Company determines that the carrying value of the reporting unit exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds its fair value. As of December 31, 2020, the Company completed its annual impairment test of goodwill. Based upon that evaluation, the Company determined that its goodwill was not impaired. See Note 3–"Intangible Assets and Goodwill."
Leases
The Company is a lessee in several non-cancellable operating leases, primarily for office space, and finance leases, for certain IT equipment. Beginning January 1, 2019, the Company accounts for leases in accordance with ASU 2016-02, Leases, and the related amendments (collectively, "Topic 842"). The Company determines if an arrangement is or contains a lease at contract inception and recognizes a right of use (ROU) asset and a lease liability at the lease commencement date.
For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and at the same date as for operating leases, and is subsequently measured at amortized cost using the effective interest method.
Key estimates and judgments in accounting for leases under Topic 842 include how the Company determines the discount rate it uses to discount the unpaid lease payments to present value, lease term and lease payments.
–ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s information. Therefore, the Company uses its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.
–The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor.
–Lease payments included in the measurement of the lease liability include the fixed payments owed over the lease term, termination penalties, amounts expected to be payable under a residual-value guarantee, and the exercise price of an option to purchase the asset if the Company is reasonably certain to exercise the option.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received.
For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus any prepaid lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term.
The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term.
Derivatives Liability
In conjunction with the debt financings completed in October 2016 and January 2018, the Company issued two warrants for the purchase of up to an aggregate of 1,239,286 shares of the Company's common stock, of which one representing 314,286 shares remained outstanding as of December 31, 2020. Subsequent to year end, a portion of the warrants were exercised in a cashless exercise. The exercise resulted in the issuance by the Company of 50,000 shares of common stock and an overall reduction of 75,703 warrant shares. On May 1, 2020, the Company canceled the ESW warrant in exchange for a note payable (see Note 4–"Commitments and Contingencies") which contained an embedded derivative liability that is measured on a recurring basis at fair value. On August 31, 2018, the Company issued a separate warrant to a sales partner for the purchase of up to 100,000 shares of the Company's common stock, which remained outstanding as of December 31, 2020. The Company accounts for the warrants, which are derivative financial instruments, as a current liability based upon the characteristics and provisions of the instruments. The warrants were determined to be ineligible for equity classification because of provisions that allow the holder under certain circumstances, essentially the sale of the Company as defined in the warrant agreements, to receive cash payment or other consideration at the option of the holder in lieu of the Company's common shares.
A warrant liability is recorded in the Company's consolidated balance sheets at its fair value on the date of issuance and is revalued on each subsequent balance sheet date until such instrument is exercised or expires, with any changes in the fair value between reporting periods recorded as other income or expense. The Company estimates the fair value of this liability using option pricing models that are based on the individual characteristics of the warrants on the valuation date, which include the Company’s stock price and assumptions for expected volatility, expected life and risk-free interest rate, as well as the present value of the minimum cash payment component of the instrument for the warrants, when applicable. Changes in the assumptions used could have a material impact on the resulting fair value of each warrant. The primary inputs affecting the value of the warrant liability are the Company’s stock price and volatility in the Company's stock price, as well as assumptions about the probability and timing of certain events, such as a change in control or future equity offerings. Increases in the fair value of the underlying stock or increases in the volatility of the stock price generally result in a corresponding increase in the fair value of the warrant liability; conversely, decreases in the fair value of the underlying stock or decreases in the volatility of the stock price generally result in a corresponding decrease in the fair value of the warrant liability.
Stock-Based Compensation
The Company measures stock-based compensation based on the fair value of the award at the date of grant. For awards subject to time-based vesting, the Company recognizes stock-based compensation on a straight-line basis over the requisite service period for the entire award. Compensation cost is recognized over the vesting period to the extent the requisite service requirements are met, whether or not the award is ultimately exercised. Conversely, when the requisite service requirements are not met and the award is forfeited prior to vesting, any compensation expense previously recognized for the award is reversed.
For awards subject to performance conditions, the Company accounts for compensation expense based upon the grant-date fair value of the awards applied to the best estimate of ultimate performance against the respective targets on a straight-line basis over the requisite vesting period of the awards. The performance conditions require management to make assumptions regarding the likelihood of achieving certain performance goals. Changes in these performance assumptions, as well as differences in actual results from management’s estimates, could result in estimated or actual values different from previously estimated fair values.
Research and Development Costs
Costs related to research, design and development of products are expensed to research and development as incurred. Software development costs are capitalized beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. The Company uses the working model approach to determine technological feasibility. The Company’s products are released soon after technological feasibility has been established. As a result, the Company has not capitalized any software development costs because such costs have not been significant.
Royalties for Third-Party Technology
Royalties for third-party technology are either paid in advance and capitalized as prepaid royalties or are accrued as incurred and subsequently paid. These royalties are generally expensed to cost of revenue at the greater of a rate based on the contractual or estimated term or an effective royalty rate based on the total projected net revenue for contracts with guaranteed minimums. Each quarter, the Company evaluates the expected future realization of its prepaid royalties, as well as any minimum commitments not yet paid to determine amounts it deems unlikely to be realized through product sales. Any impairments or losses determined before the launch of a product are generally charged to general and administrative expense, and any impairments or losses determined post-launch are charged to cost of revenue. Unrecognized minimum royalty-based commitments are accounted for as executory contracts and, therefore, any losses on these commitments are recognized when the underlying intellectual property is abandoned (i.e., cease use) or the contractual rights to use the intellectual property are terminated.
Income Taxes
The Company provides for income taxes using the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some component or all of the deferred tax assets will not be realized. Tax rate changes are reflected in income during the period such changes are enacted.
Foreign Currency Translation
The functional currency for each of the Company’s international subsidiaries is the respective local currency. The Company translates its financial statements of consolidated entities whose functional currency is not the U.S. dollar into U.S. dollars. The Company translates its assets and liabilities at the exchange rate in effect as of the financial statement date and translates statement of operations accounts using the average exchange rate for the period. Exchange rate differences resulting from translation adjustments are accounted for as a component of accumulated other comprehensive loss. Gains or losses, whether realized or unrealized, due to transactions in foreign currencies are reflected in the consolidated statements of operations under the line item other income (expense). The net losses on foreign currency transactions for the years ended December 31, 2020, 2019 and 2018 were $406,000, $260,000 and $55,000, respectively, and are included in other income (expense) in the consolidated statements of operations.
Net Loss Per Share
Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is calculated by adjusting both the numerator (net loss) and the denominator (weighted-average number of shares outstanding), giving effect to all potentially dilutive common shares from warrants. The treasury stock method is used for computing potentially dilutive common shares. Under this method, consideration that would be received upon exercise (as well as remaining compensation cost to be recognized for awards not yet vested) is assumed to be used to repurchase shares of stock in the market, with the net number of shares assumed to be issued added to the denominator. In addition, the numerator is adjusted to exclude the changes in the fair value of the dilutive warrants that are classified as a liability but may be settled in shares. For the years ended December 31, 2020, 2019 and 2018, the Company reported diluted net loss, as the impact of excluding the warrant income and related potentially dilutive shares was dilutive.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income and items defined as other comprehensive income, such as unrealized gains and losses on foreign currency translation adjustments. Such items are reported in the consolidated statements of comprehensive income (loss).
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which changes the fair value measurement disclosure requirements of ASC 820. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. The Company adopted ASU 2018-13 effective January 1, 2020. The impact of adopting this standard was not material to the Company's consolidated financial statements or disclosures.
Accounting Standards Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This update amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity and improves and amends the related EPS guidance for both Subtopics. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2021. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax) which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The purpose of the amendment is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The standard requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.
2) Property and Equipment
Property and equipment consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Computer, network equipment and furniture
|
$
|
1,602
|
|
|
$
|
2,381
|
|
Leasehold improvements
|
23
|
|
|
735
|
|
Total property and equipment
|
1,625
|
|
|
3,116
|
|
Less accumulated depreciation and amortization
|
(1,376)
|
|
|
(2,520)
|
|
Total property and equipment, net
|
$
|
249
|
|
|
$
|
596
|
|
Depreciation and amortization expense associated with property and equipment was $575,000, $314,000 and $438,000 for the years ended December 31, 2020, 2019 and 2018, respectively. During the year ended December 31, 2020, the Company surrendered leased office facilities in Minneapolis, London and Hyderabad and recorded an expense of $280,000 for depreciation and amortization related leasehold improvements and certain equipment and furniture resulting from the reduction in their estimated useful lives; see Note 4–"Commitments and Contingencies–Leases." In addition, during the year ended
December 31, 2020, the Company disposed of approximately $979,000 of cost and accumulated depreciation of fully depreciated fixed assets.
3) Intangible Assets and Goodwill
Intangible Assets
The Company’s amortizable intangible assets consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Customer Relationships
|
|
Developed Technology
|
|
Trademarks / Trade-Names
|
|
Total
|
Original cost
|
$
|
4,945
|
|
|
$
|
8,256
|
|
|
$
|
2,184
|
|
|
$
|
15,385
|
|
Accumulated amortization
|
(3,861)
|
|
|
(8,151)
|
|
|
(1,230)
|
|
|
(13,242)
|
|
Net identifiable intangible assets
|
$
|
1,084
|
|
|
$
|
105
|
|
|
$
|
954
|
|
|
$
|
2,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Customer Relationships
|
|
Developed Technology
|
|
Trademarks / Trade-Names
|
|
Total
|
Original cost
|
$
|
4,878
|
|
|
$
|
8,135
|
|
|
$
|
2,182
|
|
|
$
|
15,195
|
|
Accumulated amortization
|
(3,293)
|
|
|
(7,741)
|
|
|
(1,086)
|
|
|
(12,120)
|
|
Net identifiable intangible assets
|
$
|
1,585
|
|
|
$
|
394
|
|
|
$
|
1,096
|
|
|
$
|
3,075
|
|
Amortization expense of intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Amortization expense associated with the developed technology included in cost of revenues
|
$
|
286
|
|
|
$
|
455
|
|
|
$
|
1,024
|
|
Amortization expense associated with other acquired intangible assets included in operating expenses
|
657
|
|
|
757
|
|
|
904
|
|
Total amortization expense
|
$
|
943
|
|
|
$
|
1,212
|
|
|
$
|
1,928
|
|
The Company estimates that amortization expense associated with intangible assets will be as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
2021
|
$
|
752
|
|
2022
|
552
|
|
2023
|
309
|
|
2024
|
141
|
|
2025
|
141
|
|
Thereafter
|
248
|
|
Total
|
$
|
2,143
|
|
Goodwill
On October 3, 2014, the Company completed the acquisition of Kulu Valley, Ltd., subsequently renamed Qumu Ltd, and recognized $8.8 million of goodwill and $6.7 million of intangible assets. The goodwill balance of $7.5 million at December 31, 2020 reflects the impact of foreign currency exchange rate fluctuations since the acquisition date.
As of December 31, 2020, the Company’s market capitalization, without a control premium, was greater than its book value and, as a result, the Company concluded there was no goodwill impairment. Declines in the Company’s market capitalization or a downturn in its future financial performance and/or future outlook could require the Company to record goodwill and other impairment charges. While a goodwill impairment charge is a non-cash charge, it would have a negative impact on the Company's results of operations.
4) Commitments and Contingencies
Leases
The Company is obligated under finance leases covering certain IT equipment that expire at various dates over the next three years. The Company also has non-cancellable operating leases, primarily for office space, that expire over the next three years. The Company has two leases that each contain a renewal option for a period of five years. Because at the inception of the leases the Company was not reasonably certain to exercise the options, the options were not considered in determining the lease terms under Topic 842, which was adopted January 1, 2019. In December 2020, the Company notified landlords for the two leases that it was surrendering its right to occupy the office spaces and thereby would not be exercising its option to renew and would be exercising the leases early termination clauses allowing the lease terms to end in May 2022 and August 2022. The impact of the reduction of the lease terms reduced the Company's operating lease liabilities by $433,000.
During December 2020, the Company transitioned to permanent remote work for all of its personnel as part of its “Work from Wherever, Forever” policy. The Company closed three of its four offices due to its new remote work policy. As part of the policy, the Company’s management determined that, effective December 31, 2020, the Company will no longer occupy the leased office space in Minneapolis, Minnesota, and London, England, which were primarily used for engineering, service, sales, marketing and administration, and the leased office space in Hyderabad, India, which was primarily used for software development and testing. The Company will continue to occupy its leased space in Burlingame, California, primarily for technology storage and research and development. Given the transition to permanent remote work, the Company recorded in the fourth quarter of 2020 a non-cash expense of approximately $637,000 related to the right of use assets–operating leases for the three surrendered office leases. Additionally, the Company incurred a non-cash expense of $280,000 in the fourth quarter of 2020 related to the surrender of certain leasehold improvements, office and computer equipment, and furniture at the leased premises.
During December 2020, the Company also entered into lease agreements associated with flexible shared workspace arrangements in Minneapolis, Minnesota, and London, England, and Hyderabad, India. The flexible shared workspace arrangement in Minneapolis, Minnesota has a lease term of 18 months and therefore is considered a lease under Topic 842. The other two flexible shared workspace arrangements are 12 months or less, and thus the Company has elected the practical expedient method and recognize the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term.
The Company intends to continue to pay all rental payments due and payable by the Company pursuant to the leases governing the leased premises.
Many of the Company's leases include escalation clauses, renewal options and/or termination options that are factored into its determination of lease payments under Topic 842 when reasonably certain. These options to extend or terminate a lease are at the Company's discretion. The Company has elected to take the practical expedient and not separate lease and non-lease components of contracts. The Company estimates its incremental borrowing rate to discount the lease payments based on information available at lease commencement under Topic 842. The Company's lease agreements do not contain any material residual value guarantees.
The components of lease cost were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Operating lease cost
|
|
$
|
1,041
|
|
|
$
|
526
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right of use assets
|
|
112
|
|
|
106
|
|
Interest on lease liabilities
|
|
7
|
|
|
11
|
|
Total finance cost
|
|
119
|
|
|
117
|
|
Total lease cost
|
|
$
|
1,160
|
|
|
$
|
643
|
|
The Company's ROU assets and lease liabilities were reported in the consolidated balance sheet as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Leases
|
Classification on Balance Sheet
|
2020
|
|
2019
|
Assets
|
|
|
|
|
Operating
|
Right of use assets – operating leases
|
$
|
332
|
|
|
$
|
1,746
|
|
Finance
|
Property and equipment
|
124
|
|
|
130
|
|
Total lease assets
|
|
$
|
456
|
|
|
$
|
1,876
|
|
Liabilities
|
|
|
|
|
Current
|
|
|
|
|
Operating
|
Operating lease liabilities
|
$
|
735
|
|
|
$
|
587
|
|
Finance
|
Financing obligations
|
110
|
|
|
83
|
|
Non-current
|
|
|
|
|
Operating
|
Operating lease liabilities, non-current
|
554
|
|
|
1,587
|
|
Finance
|
Financing obligations, non-current
|
75
|
|
|
83
|
|
Total lease liabilities
|
|
$
|
1,474
|
|
|
$
|
2,340
|
|
Other information related to leases is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Supplemental cash flow information:
|
|
|
|
Reduction in operating lease right of use assets and lease liabilities due to reassessment of lease terms
|
$
|
433
|
|
|
$
|
—
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
Operating cash flow from operating leases
|
$
|
522
|
|
|
$
|
432
|
|
Financing cash flow from finance leases
|
83
|
|
|
77
|
|
ROU assets obtained in exchange for new lease obligations
|
|
|
|
Operating leases
|
$
|
47
|
|
|
$
|
—
|
|
Finance leases
|
106
|
|
|
148
|
|
Weighted-average remaining lease term:
|
|
|
|
Operating leases
|
1.7 years
|
|
3.8 years
|
Finance leases
|
2.2 years
|
|
2.0 years
|
Weighted-average discount rate:
|
|
|
|
Operating leases
|
10.0
|
%
|
|
10.0
|
%
|
Finance leases
|
6.2
|
%
|
|
6.2
|
%
|
Future payments used in the measurement of lease liabilities on the consolidated balance sheet as of December 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
Finance
leases
|
2021
|
$
|
811
|
|
|
$
|
117
|
|
2022
|
552
|
|
|
42
|
|
2023
|
—
|
|
|
37
|
|
2024
|
—
|
|
|
—
|
|
2025
|
—
|
|
|
—
|
|
Thereafter
|
—
|
|
|
—
|
|
Total undiscounted lease payments
|
1,363
|
|
|
196
|
|
Less amount representing interest
|
(74)
|
|
|
(11)
|
|
Present value of lease liabilities
|
$
|
1,289
|
|
|
$
|
185
|
|
Subleases
The Company determined that it had excess capacity at its Minneapolis, Minnesota headquarters and effective May 1, 2018 ceased using a portion of its leased space, subsequently making it available for occupancy by a sublessee. The Company also recorded a loss related to the exit activity of $177,000 (net of adjustments for the derecognition of leasehold improvement and deferred rent balances related to the exit activity), which is included in other income (expense) for the year ended December 31, 2018.
Sublease income from the Company's subleases was $105,000 and $160,000 for the years ended December 31, 2019 and 2018. No sublease income was recognized for the year ended December 31, 2020.
Credit Agreement – ESW Holdings, Inc.
During 2020, the Company entered into a secured promissory note to ESW Holdings, Inc. ("note payable") as consideration for cancellation of its outstanding warrant to ESW Holdings, Inc. ("ESW warrant"), On May 1, 2020, the Company canceled the ESW warrant, which was for the purchase of up to 925,000 shares of Qumu's common stock at an exercise price of $1.96 per share and expiring January 2028. Additionally, the terms of the warrant provided for a cash settlement in the event of a change of control transaction referred to as a Fundamental Transaction, computed using a Black-Scholes option pricing model with specified inputs stipulated in the warrant agreement. The fair value of the warrant instrument has historically been reported as a liability in Qumu's consolidated financial statements, and, for certain historical reporting periods since its issuance, the shares underlying the warrant instrument were dilutive in the calculation of earnings per share.
As consideration for the warrant cancellation, the Company entered into a note payable, having a face amount of $1,833,000, which was less than the cash settlement amount of $1,983,000 computed under the terms of the warrant agreement, due on April 1, 2021 and bearing no interest. The payment obligation of the note would be accelerated upon a Fundamental Transaction, and Qumu would be required to pay an additional $150,000 to ESW Holdings, Inc. upon the closing of a Fundamental Transaction. The note payable provided for prepayment at any time without penalty. The Company paid the note payable on January 12, 2021 (see Note 15–"Subsequent Events.")
The note payable was recorded at its present value of future cash flows of $1,833,000 discounted at 7.25% (prime plus 4.00%), which was $1,715,000 at May 1, 2020. The value of the note payable will be accreted up to its face value at maturity. As of December 31, 2020, the carrying value of the note payable was $1,800,000, which also approximated its fair value.
The note payable contains a $150,000 contingent payment obligation due upon the closing of a Fundamental Transaction on or prior to the April 1, 2021 maturity date. This contingent payment obligation qualifies as an embedded derivative in accordance with ASC Topic 815, Derivatives and Hedging. The embedded derivative is measured at fair value and is remeasured at fair value each subsequent reporting period and reported on the Company's consolidated balance sheet as a derivative liability. Changes in fair value are recognized in other income (expense) in the consolidated statement of operations as "Decrease (increase) in fair value of derivative liability." See Note 5–"Fair Value Measurements."
In connection with the note, the Company and ESW Holdings, Inc. entered into a security agreement dated May 1, 2020 providing for a future security interest in certain assets of the Company that would not attach unless and until the occurrence of the Triggering Event specified therein. The termination of the merger agreement with Synacor, Inc. represented a Triggering Event, resulting in ESW Holdings, Inc. securing an interest in certain of Qumu's cash deposit accounts.
Contingencies
The Company is exposed to a number of asserted and unasserted claims encountered in the normal course of business. Legal costs related to loss contingencies are expensed as incurred. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s financial position or results of operations.
The Company’s standard arrangements include provisions indemnifying customers against liabilities if the Company's products infringe a third-party’s intellectual property rights. The Company has not incurred any costs in its continuing operations as a result of such indemnifications and has not accrued any liabilities related to such contingent obligations in the accompanying consolidated financial statements.
5) Fair Value Measurements
A hierarchy for inputs used in measuring fair value is in place that distinguishes market data between observable independent market inputs and unobservable market assumptions by the reporting entity. The hierarchy is intended to maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available. Three levels within the hierarchy may be used to measure fair value:
•Level 1: Inputs are unadjusted quoted prices in active markets for identical assets and liabilities.
•Level 2: Inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as interest rates and yield curves that are observable for the asset or liability, either directly or indirectly.
•Level 3: Inputs are generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect an entity’s own estimates of assumptions that market participants would use in pricing the asset or liability.
As of December 31, 2020 and 2019, the following warrants for the purchase of Qumu's common stock were outstanding and exercisable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of underlying warrant shares
|
|
Warrant exercise price
(per share)
|
|
|
|
|
December 31,
|
|
|
Warrant expiration date
|
Description
|
|
2020
|
|
2019
|
|
|
Warrant issued in conjunction with October 2016 debt financing ("Hale warrant")
|
|
314,286
|
|
|
314,286
|
|
|
$
|
2.80
|
|
|
October 21, 2026
|
Warrant issued in conjunction with January 2018 debt financing ("ESW warrant")
|
|
—
|
|
|
925,000
|
|
|
$
|
1.96
|
|
|
January 12, 2028
|
Warrant issued to sales partner, iStudy Co., Ltd. ("iStudy warrant")
|
|
100,000
|
|
|
100,000
|
|
|
$
|
2.43
|
|
|
August 31, 2028
|
Total warrants outstanding
|
|
414,286
|
|
|
1,339,286
|
|
|
|
|
|
On May 1, 2020, the Company canceled the ESW warrant in exchange for a note payable (see Note 4–"Commitments and Contingencies") which contained an embedded derivative liability that is measured on a recurring basis at fair value. The Company recorded non-cash income of $103,000 for the year ended December 31, 2020 resulting from the change in fair value of the derivative liability.
The Hale warrant and ESW warrant contain a cash settlement feature upon the occurrence of a certain events, essentially the sale of the Company as defined in the warrant agreements. Upon a sale of the Company, the holder of the iStudy warrant may exercise the warrant or may elect to receive the same consideration as it would have been entitled to receive upon the occurrence of such transaction if it had been the holder of the shares then issuable upon such exercise of the warrant. All warrants are transferable. As a result of these features, the warrants are subject to derivative accounting as prescribed under ASC 815. Accordingly, a warrant liability was recorded in the Company's consolidated balance sheets at its fair value on the respective dates of the warrants' issuance and is revalued on each subsequent balance sheet date until such instrument is exercised or expires, with any changes in the fair value between reporting periods recorded as other income (expense) in the consolidated statement of operations as "Decrease (increase) in fair value of warrant liability." During 2020 and 2019, the Company recorded non-cash expense of $1,826,000 and $141,000, respectively, and during 2018 the Company recorded non-cash income of $368,000, resulting from the change in fair value of the warrant liability.
The Company estimates the fair value of this liability using option pricing models that are based on the individual characteristics of the warrants on the valuation date, which include the Company’s stock price and assumptions for expected volatility, expected life and risk-free interest rate, as well as the present value of the minimum cash payment component of the instrument for the warrants, when applicable. Changes in the assumptions used could have a material impact on the resulting fair value of each warrant. The primary inputs affecting the value of the warrant liability are the Company’s stock price and volatility in the Company's stock price, as well as assumptions about the probability and timing of certain events, such as a change in control or future equity offerings. Increases in the fair value of the underlying stock or increases in the volatility of the stock price generally result in a corresponding increase in the fair value of the warrant liability; conversely, decreases in the fair value of the underlying stock or decreases in the volatility of the stock price generally result in a corresponding decrease in the fair value of the warrant liability.
The Company’s liabilities measured at fair value on a recurring basis and the fair value hierarchy utilized to determine such fair values is as follows at December 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Total Fair
Value at
December 31, 2020
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Liabilities:
|
|
|
|
|
|
|
|
Warrant liability - Hale
|
$
|
2,245
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,245
|
|
Warrant liability - iStudy
|
665
|
|
|
—
|
|
|
—
|
|
|
665
|
|
Warrant liability
|
$
|
2,910
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,910
|
|
Derivative liability
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37
|
|
Total
|
$
|
2,947
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Total Fair
Value at
December 31, 2019
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative warrant liability - ESW warrant
|
$
|
2,149
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,149
|
|
Derivative warrant liability - Hale warrant
|
645
|
|
|
—
|
|
|
—
|
|
|
645
|
|
Derivative warrant liability - iStudy
|
145
|
|
|
—
|
|
|
—
|
|
|
145
|
|
Derivative warrant liability
|
$
|
2,939
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,939
|
|
The Company's evaluation of the probability and timing of a change in control represents an unobservable input (Level 3) that shortens or lengthens the expected term input of the option pricing model for all warrants, and generally correspondingly increases or decreases, respectively, the discounted value of the minimum cash payment component of the Hale warrant and, prior to its cancellation, the ESW warrant. Consequently, as of December 31, 2020 and 2019, the liability related to each warrant was classified as a Level 3 liability.
The Company's evaluation of the probability and timing of a change in control represents an unobservable input (Level 3) that increases or decreases the likelihood of triggering the note payable agreement's Fundamental Transaction contingency, resulting in Level 3 classification of the derivative liability.
The following table represents the significant unobservable input used in the fair value measurement of Level 3 warrant liability instruments:
|
|
|
|
|
|
|
December 31, 2020
|
Probability-weighted timing of change in control
|
4.9 years
|
The following table summarizes the changes in fair value measurements for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
Derivative liability
|
|
Total
|
Balance at December 31, 2019
|
|
$
|
2,939
|
|
|
$
|
—
|
|
|
$
|
2,939
|
|
Cancellation of ESW warrant liability (Note 4)
|
|
(1,855)
|
|
|
—
|
|
|
(1,855)
|
|
Issuance of derivative liability upon cancellation of ESW warrant
|
|
—
|
|
|
140
|
|
|
140
|
|
Change in fair value
|
|
1,826
|
|
|
(103)
|
|
|
1,723
|
|
Balance at December 31, 2020
|
|
$
|
2,910
|
|
|
$
|
37
|
|
|
$
|
2,947
|
|
6) Stockholders' Equity
Common Stock Offering
On November 7, 2019, the Company completed a public equity offering, selling a total of 3,652,000 shares of common stock, which included the full exercise of the underwriters' option to purchase additional shares, for net proceeds, after underwriting discounts and offering expenses, of $8.2 million. A portion of the net proceeds from this offering was used to repay the $4.8 million of outstanding principal, accrued interest and prepayment fee under the Company's term loan credit agreement with ESW Holdings, Inc. on November 12, 2019. The Company's use of the $3.4 million of remaining net proceeds from this offering is for working capital and general corporate purposes. Subsequent to December 31, 2020, in January 2021 the Company completed an additional public equity offering of 3,708,750 shares of its common stock which included the full exercise of the underwriters' option to purchase additional shares, for net proceeds, after underwriting discounts and offering expenses, of $23.1 million; see Note 15–"Subsequent Events."
Common Stock Repurchase Program
Since October 2010, the Company’s Board of Directors has approved common stock repurchases of up to 3,500,000 shares. Shares may be purchased at prevailing market prices in the open market or in private transactions, subject to market conditions, share price, trading volume and other factors. The repurchase program may be discontinued at any time. The repurchase program has been funded to date using cash on hand. The Company repurchased no shares under the share repurchase program during the years ended December 31, 2020, 2019 and 2018. As of December 31, 2020, there were 778,365 shares available under the Board authorizations.
7) Revenue
Nature of Products and Services
Perpetual software licenses
The Company’s perpetual software license arrangements grant customers the right to use the software indefinitely as it exists at the time of purchase. The Company recognizes revenue for distinct software licenses once the license period has begun and the software has been made available to the customer. Payments for perpetual software license contracts are generally received upon fulfillment of the software product.
Term software licenses
The Company's term software licenses differ from perpetual software licenses in that the customer's right to use the licensed product has a termination date. Term software licenses are recognized upon transfer of control, which is typically at fulfillment, resulting in up-front revenue recognition. The Company categorizes revenue from term software licenses as subscription, maintenance and support revenue in service revenues. Payments are generally received quarterly or annually in equal or near equal installments over the term of the agreement.
Cloud-hosted software as a service
Cloud-hosted software as a service (SaaS) arrangements grant customers the right to access and use the licensed products at the outset of an arrangement via third-party cloud providers. Updates are generally made available throughout the entire term of the arrangement, which is generally one to three years. The Company provides an online library and technical support resources in these cloud-hosted SaaS arrangements, which in conjunction with the SaaS license constitute a single, combined performance obligation, and revenue is recognized over the term of the license. Payments are generally received annually in advance of the service period.
Hardware
The Company sells appliances that are typically drop shipped from third-party suppliers selected by the Company. The transaction price allocated to the appliance is generally recognized as revenue at fulfillment when the customer obtains control of the product. Payments for appliances are generally received upon delivery of the hardware product.
Maintenance and support
Maintenance and support arrangements grant customers the right to software updates and technical support over the term of the maintenance and support contract. Revenue from maintenance and support is generally recognized ratably over the contract term beginning on the commencement date of each contract, which is upon fulfillment of the software obligation. Payments are generally received annually in advance of the service period.
Professional services and training
Professional services and training generally consist of software implementation, on-boarding services and best practices consulting. Revenue from professional services contracts is typically recognized as performed, generally using hours expended to measure progress. Services are generally invoiced monthly for work performed.
Revenues by product category and geography
The Company combines its products and services into three product categories and three geographic regions, based on customer location, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
2020
|
|
2019
|
|
2018
|
Software licenses and appliances
|
$
|
6,762
|
|
|
$
|
4,903
|
|
|
$
|
5,814
|
|
Service
|
|
|
|
|
|
Subscription, maintenance and support
|
19,555
|
|
|
18,249
|
|
|
17,132
|
|
Professional services and other
|
2,755
|
|
|
2,210
|
|
|
2,067
|
|
Total service
|
22,310
|
|
|
20,459
|
|
|
19,199
|
|
Total revenues
|
$
|
29,072
|
|
|
$
|
25,362
|
|
|
$
|
25,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
2020
|
|
2019
|
|
2018
|
North America
|
$
|
20,073
|
|
|
$
|
16,588
|
|
|
$
|
16,639
|
|
Europe
|
7,693
|
|
|
7,527
|
|
|
6,453
|
|
Asia
|
1,306
|
|
|
1,247
|
|
|
1,921
|
|
Total
|
$
|
29,072
|
|
|
$
|
25,362
|
|
|
$
|
25,013
|
|
Substantially all revenue from North America is sourced from customers in the United States. The Company has determined that reporting non-domestic revenue by country is not practicable.
Significant Judgments
The Company's contracts with customers typically contain promises to transfer multiple products and services to a customer. Judgment is required to determine whether each product and/or service is considered to be a distinct performance obligation that should be accounted for separately under the contract. The Company allocates the transaction price to the distinct performance obligations based on relative standalone selling price (“SSP”). The Company estimates SSP by maximizing use of observable prices such as the prices charged to customers on a standalone basis, established prices lists, contractually stated prices, profit margins and other entity-specific factors, or by using information such as market conditions and other observable inputs. However, the selling prices of its software licenses and cloud-hosted SaaS arrangements are highly variable. Thus, the Company estimates SSP for software licenses and cloud-hosted SaaS arrangements using the residual approach, determined based on total transaction price less the SSP of other goods and services promised in the contract.
Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. In some arrangements, such as most of the Company’s license arrangements, the Company has concluded that the licenses and associated services are distinct from each other. In others, like the Company’s cloud-hosted SaaS arrangements, the license and certain services are not distinct from each other and therefore the Company has concluded that these promised goods and services are a single, combined performance obligation.
If a group of agreements are so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. The Company exercises significant judgment to evaluate the relevant facts and circumstances in determining whether the separate agreements should be accounted for separately or as, in substance, a single arrangement. The Company’s judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.
The Company is required to estimate the total consideration expected to be received from contracts with customers. In limited circumstances, the consideration expected to be received is variable based on the specific terms of the contract or based on the Company’s expectations of the term of the contract. Generally, the Company has not experienced significant returns from or refunds to customers. These estimates require significant judgment and the change in these estimates could have an effect on its results of operations during the periods involved.
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables or contract liabilities (deferred revenue) on the Company’s consolidated balance sheet. The Company records deferred revenue when revenue is recognized subsequent to invoicing.
The Company’s balances for contract assets totaled $467,000 and $1.1 million as of December 31, 2020 and 2019, respectively. The Company’s balances for contract liabilities, which are included in current and non-current deferred revenue, totaled $16.4 million and $11.6 million as of December 31, 2020 and 2019, respectively.
During the year ended December 31, 2020, the Company recognized $9.8 million of revenue that was included in the deferred revenue balance at the beginning of the period. All other activity in deferred revenue is due to the timing of invoices in relation to the timing of revenue as described above.
Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but unsatisfied performance obligations were approximately $28.3 million as of December 31, 2020, of which the Company expects to recognize $16.0 million of revenue over the next 12
months and the remainder thereafter. During the years ended December 31, 2020, 2019 and 2018, no revenue was recognized from performance obligations satisfied in previous periods.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, and not to facilitate financing arrangements.
8) Stock-Based Compensation
The Company issues shares pursuant to the 2007 Stock Incentive Plan (the “2007 Plan”), a shareholder approved plan, which provides for the grant of stock incentive awards in the form of incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units and other awards in stock to certain key employees, non-employee directors and service providers. The exercise price of stock options granted under the 2007 Plan is equal to the market value on the date of grant. With the exception of the awards described in the following paragraph, the stock options, restricted stock awards and restricted stock units granted during the year ended December 31, 2020 and 2019 were granted under the 2007 Plan.
In addition to awards granted under the 2007 Plan, the Company granted a non-qualified option to purchase 457,692 shares of its common stock to a newly hired chief executive officer on July 22, 2020, which was the first date of an open window period following the first day of employment. The option was granted outside of any shareholder-approved plan as an inducement to accept employment with the Company. The option has an exercise price equal to the closing price of the Company’s common stock as reported by the Nasdaq Stock Market on the grant date, vest in three equal installments on each of the first three anniversaries of the date of grant and has a term of seven years. In other respects, the option was structured to mirror the terms of the options granted under the 2007 Plan and are subject to a stock option agreement between the Company and the employee.
During the year ended December 31, 2020, the Company's shareholders approved an amendment to the 2007 Plan to increase the number of shares authorized under the plan by 500,000 to a total of 3,730,320 shares, of which 640,205 were available for future grant.
The Company recognized the following amounts related to the Company’s share-based payment arrangements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Stock-based compensation cost charged against loss, before income tax benefit
|
|
|
|
|
|
Stock options
|
$
|
424
|
|
|
$
|
331
|
|
|
$
|
326
|
|
Restricted stock and restricted stock units
|
754
|
|
|
521
|
|
|
566
|
|
Performance stock units
|
—
|
|
|
5
|
|
|
190
|
|
Total stock-based compensation costs
|
$
|
1,178
|
|
|
$
|
857
|
|
|
$
|
1,082
|
|
Stock-based compensation cost included in:
|
|
|
|
|
|
Cost of revenues
|
$
|
36
|
|
|
$
|
26
|
|
|
$
|
34
|
|
Operating expenses
|
1,142
|
|
|
831
|
|
|
1,048
|
|
Total stock-based compensation costs
|
$
|
1,178
|
|
|
$
|
857
|
|
|
$
|
1,082
|
|
As of December 31, 2020, compensation expense of $1.9 million related to non-vested option awards was not yet recognized and is expected to be recognized over a weighted-average period of 2.8 years. As of December 31, 2020, compensation expense of $1.9 million related to non-vested shares and restricted share unit awards was not yet recognized and is expected to be recognized over a weighted-average period 2.9 years.
Stock Options
The fair value of each option award is estimated at the date of grant using the Black-Scholes option pricing model. The assumptions used to determine the fair value of stock option awards granted were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Expected life of options in years
|
4.50 - 4.75
|
|
4.70 - 4.75
|
|
4.54 - 4.75
|
Risk-free interest rate
|
0.2% - 0.4%
|
|
1.8% - 2.5%
|
|
2.6% - 2.9%
|
Expected volatility
|
75.3% - 76.3%
|
|
69.7% - 73.6%
|
|
69.6% - 70.5%
|
Expected dividend yield
|
—%
|
|
—%
|
|
—%
|
The Company reviews these assumptions at the time of each new option award and adjusts them as necessary to ensure proper option valuation. The expected life represents the period that the stock option awards are expected to be outstanding. The Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term, and therefore it uses the simplified method for determining the expected life of stock options granted to employees in 2020, 2019 and 2018, which bases the expected life calculation on the average of the vesting term and the contractual term of the awards. The risk-free interest rate is based on the yield of constant maturity U.S. treasury bonds with a remaining term equal to the expected life of the awards. The Company estimated the stock price volatility using weekly price observations over the most recent historical period equal to the expected life of the awards.
A summary of share option activity is presented in the table below (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted
Average
Remaining
Contractual Term
(in years)
|
|
Aggregate
Intrinsic Value(1)
|
Options outstanding at December 31, 2017
|
1,288
|
|
|
$
|
6.18
|
|
|
|
|
|
Granted
|
758
|
|
|
2.24
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
Canceled
|
(604)
|
|
|
7.60
|
|
|
|
|
|
Options outstanding at December 31, 2018
|
1,442
|
|
|
3.51
|
|
|
|
|
|
Granted
|
39
|
|
|
3.11
|
|
|
|
|
|
Exercised
|
(40)
|
|
|
2.55
|
|
|
|
|
|
Canceled
|
(381)
|
|
|
5.20
|
|
|
|
|
|
Options outstanding at December 31, 2019
|
1,060
|
|
|
2.93
|
|
|
|
|
|
Granted
|
658
|
|
|
4.90
|
|
|
|
|
|
Exercised
|
(295)
|
|
|
2.63
|
|
|
|
|
|
Canceled
|
(158)
|
|
|
4.31
|
|
|
|
|
|
Options outstanding at December 31, 2020
|
1,265
|
|
|
3.85
|
|
|
2.9
|
|
$
|
5,317
|
|
Total vested and expected to vest as of December 31, 2020
|
1,265
|
|
|
3.85
|
|
|
2.9
|
|
$
|
5,317
|
|
Options exercisable as of:
|
|
|
|
|
|
|
|
December 31, 2018
|
572
|
|
|
$
|
5.29
|
|
|
|
|
|
December 31, 2019
|
540
|
|
|
3.51
|
|
|
|
|
|
December 31, 2020
|
394
|
|
|
2.96
|
|
|
3.5
|
|
$
|
2,069
|
|
________________________________________________________________
(1)Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is below the market value).
Other information pertaining to options is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Fair value of options granted
|
$
|
1,891
|
|
|
$
|
71
|
|
|
$
|
982
|
|
Per share weighted average fair value of options granted
|
$
|
2.87
|
|
|
$
|
1.83
|
|
|
$
|
1.30
|
|
Total intrinsic value of stock options exercised
|
$
|
707
|
|
|
$
|
55
|
|
|
$
|
—
|
|
Restricted Stock and Restricted Stock Units
Restricted stock and restricted stock units are valued based on the market value of the Company’s shares on the date of grant, which was equal to the intrinsic value of the shares on that date. These awards vest and the restrictions lapse over varying periods from the date of grant. The Company recognizes compensation expense for the intrinsic value of the restricted awards ratably over the vesting period.
A summary of restricted stock and restricted stock units activity is presented in the table below (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average
Grant-Date Fair Value
|
Nonvested at December 31, 2017
|
218
|
|
|
$
|
3.87
|
|
Granted
|
279
|
|
|
2.17
|
|
Vested
|
(186)
|
|
|
3.66
|
|
Canceled
|
(3)
|
|
|
14.78
|
|
Nonvested at December 31, 2018
|
308
|
|
|
2.38
|
|
Granted
|
230
|
|
|
3.16
|
|
Vested
|
(198)
|
|
|
2.53
|
|
Canceled
|
(31)
|
|
|
2.25
|
|
Nonvested at December 31, 2019
|
309
|
|
|
2.87
|
|
Granted
|
577
|
|
|
4.50
|
|
Vested
|
(244)
|
|
|
2.23
|
|
Canceled
|
(114)
|
|
|
3.22
|
|
Nonvested at December 31, 2020
|
528
|
|
|
$
|
4.52
|
|
Other information pertaining to restricted stock and restricted stock units is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Per share weighted average grant-date fair value of restricted stock and restricted stock units granted
|
$
|
4.50
|
|
|
$
|
3.16
|
|
|
$
|
2.17
|
|
Total fair value of restricted stock and restricted stock units vested
|
$
|
903
|
|
|
$
|
749
|
|
|
$
|
377
|
|
Performance Stock Units
The Company granted performance stock units during 2018 ("2018 Performance Stock Units") and 2017 ("2017 Performance Stock Units"). In settlement of the performance stock units, the Company issues a number of shares equal to the number of performance stock units issued multiplied by the total percentage achievement of the performance goals for each award. The percentage achievement for the performance stock units may not exceed 100%.
A summary of performance stock units activity is presented in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
2018 Performance Stock Units
|
|
2017 Performance Stock Units
|
|
Total Performance Stock Units
|
Nonvested at December 31, 2017
|
—
|
|
|
140
|
|
|
140
|
|
Granted
|
169
|
|
|
—
|
|
|
169
|
|
Vested
|
—
|
|
|
(116)
|
|
|
(116)
|
|
Canceled
|
(21)
|
|
|
(24)
|
|
|
(45)
|
|
Nonvested at December 31, 2018
|
148
|
|
|
—
|
|
|
148
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
Vested
|
(98)
|
|
|
—
|
|
|
(98)
|
|
Canceled
|
(9)
|
|
|
—
|
|
|
(9)
|
|
Nonvested at December 31, 2019
|
41
|
|
|
—
|
|
|
41
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
Canceled
|
(41)
|
|
|
—
|
|
|
(41)
|
|
Nonvested at December 31, 2020
|
—
|
|
|
—
|
|
|
—
|
|
In settlement of vested performance stock units granted in 2018, during the year ended December 31, 2019 the Company issued 98,492 shares of restricted stock, which was equal to the number of vested 2018 performance stock units multiplied by the performance goals achievement of 100%. At December 31, 2019, there were 40,599 shares of common stock underlying the outstanding 2018 performance stock units that were subject to vesting upon the achievement of performance goals for the performance period of January 1, 2019 to December 31, 2019. The outstanding unvested 2018 performance stock units were canceled on February 10, 2020 upon determination by the Compensation Committee of the Company's Board of Directors that
the performance metric for the 2019 performance period was not achieved. Accordingly, as of December 31, 2020, there were no performance stock units outstanding.
The 2017 Performance Stock Units consisted of 140,493 units outstanding as of December 31, 2017, of which 116,168 vested during 2018. In settlement of the vested 2017 Performance Stock Units, during 2018 the Company issued 25,726 shares upon vesting, which was equal to the number of 2017 Performance Stock Units vested multiplied by the weighted percentage achievement of the performance goals for the 2017 Incentive Plan of approximately 22.1%. With the vesting and settlement of the 2017 Performance Stock Units in shares, the 2017 Performance Stock Units terminated.
9) 401(k) Savings Plan
The Company has a savings plan under Section 401(k) of the Internal Revenue Code. The plan allows employees to contribute up to 100% of pretax compensation subject to Internal Revenue Code limitations. The Company matches a percentage of employees’ contributions. Matching contributions totaled $303,000, $296,000 and $281,000 for the years ended December 31, 2020, 2019 and 2018, respectively.
10) Sale of Investment in Software Company
During 2018, Canon Inc. ("Canon") acquired all of the outstanding shares of BriefCam, Ltd. ("BriefCam"), a privately-held Israeli company, and the Company received $9.7 million from the closing proceeds for its convertible preferred shares of BriefCam, as well as received $100,000 following the satisfaction of a contingency, resulting in a gain on sale of $6.6 million during the year ended December 31,2018. Additionally, during the year ended December 31, 2019, the Company recognized a gain of $41,000 related to the release of cash from escrow in connection with the sale.
11) Income Taxes
The components of loss before income taxes consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Loss before income taxes:
|
|
|
|
|
|
Domestic
|
$
|
(7,435)
|
|
|
$
|
(5,466)
|
|
|
$
|
(1,631)
|
|
Foreign
|
(2,071)
|
|
|
(1,171)
|
|
|
(1,688)
|
|
Total loss before income taxes
|
$
|
(9,506)
|
|
|
$
|
(6,637)
|
|
|
$
|
(3,319)
|
|
The provision for income tax expense (benefit) consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Current:
|
|
|
|
|
|
U.S. Federal
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(8)
|
|
State
|
61
|
|
|
17
|
|
|
591
|
|
Foreign
|
(368)
|
|
|
(246)
|
|
|
(314)
|
|
Total current
|
(307)
|
|
|
(229)
|
|
|
269
|
|
Deferred:
|
|
|
|
|
|
U.S. Federal
|
—
|
|
|
—
|
|
|
—
|
|
State
|
(8)
|
|
|
8
|
|
|
11
|
|
Foreign
|
9
|
|
|
27
|
|
|
18
|
|
Total deferred
|
1
|
|
|
35
|
|
|
29
|
|
Total provision for income tax expense (benefit)
|
$
|
(306)
|
|
|
$
|
(194)
|
|
|
$
|
298
|
|
Total income tax expense (benefit) differs from the expected income tax expense (benefit), computed by applying the federal statutory rate of 21% in 2020, 2019 and 2018, to earnings before income taxes as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Expected income tax benefit
|
$
|
(1,997)
|
|
|
$
|
(1,393)
|
|
|
$
|
(697)
|
|
Federal R&D credit
|
(67)
|
|
|
(54)
|
|
|
(32)
|
|
Refundable AMT credit
|
—
|
|
|
—
|
|
|
(12)
|
|
Effect of deferred rate change
|
—
|
|
|
—
|
|
|
8
|
|
Foreign tax
|
76
|
|
|
27
|
|
|
38
|
|
Non-deductible equity expense
|
258
|
|
|
15
|
|
|
13
|
|
Non-deductible stock issuance costs
|
(82)
|
|
|
3
|
|
|
85
|
|
Foreign unremitted earnings
|
—
|
|
|
—
|
|
|
130
|
|
Change in valuation allowance
|
1,655
|
|
|
1,379
|
|
|
408
|
|
State income taxes, net of federal tax effect
|
(168)
|
|
|
(219)
|
|
|
455
|
|
Other, net
|
19
|
|
|
48
|
|
|
(98)
|
|
Total provision for income tax expense (benefit)
|
$
|
(306)
|
|
|
$
|
(194)
|
|
|
$
|
298
|
|
The tax effects of temporary differences that give rise to significant portions of deferred tax assets (liabilities) are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
Inventory provisions and uniform capitalization
|
$
|
1
|
|
|
$
|
—
|
|
Accounts receivable allowances
|
8
|
|
|
8
|
|
Non-qualified stock option and restricted stock expense
|
245
|
|
|
220
|
|
Deferred revenue
|
302
|
|
|
218
|
|
Lease liabilities
|
199
|
|
|
290
|
|
Loss and credit carryforwards of U.S. subsidiary
|
25,844
|
|
|
24,717
|
|
Loss carryforward of foreign subsidiaries
|
91
|
|
|
145
|
|
Excess interest expense
|
420
|
|
|
496
|
|
Other accruals and reserves
|
326
|
|
|
101
|
|
Total deferred tax assets before valuation allowance
|
27,436
|
|
|
26,195
|
|
Less valuation allowance
|
(26,999)
|
|
|
(25,406)
|
|
Total deferred tax assets
|
$
|
437
|
|
|
$
|
789
|
|
Deferred tax liabilities:
|
|
|
|
Acquired intangibles
|
$
|
(347)
|
|
|
$
|
(465)
|
|
Right of use assets
|
(78)
|
|
|
(207)
|
|
Fixed assets
|
7
|
|
|
(26)
|
|
Other
|
—
|
|
|
(70)
|
|
Total deferred tax liabilities
|
$
|
(418)
|
|
|
$
|
(768)
|
|
Total net deferred tax assets
|
$
|
19
|
|
|
$
|
21
|
|
As of December 31, 2020, the Company had $94.0 million of net operating loss carryforwards for U.S. federal tax purposes and $66.3 million of net operating loss carryforwards for various states. The loss carryforwards for state tax purposes will expire between 2021 and 2038 if not utilized. At December 31, 2020, $85.8 million of federal net operating loss carryforwards (losses originating in tax years beginning prior to January 1, 2018), expire in years 2022 through 2037, and federal net operating loss of $8.2 million generated since 2018 can be carryforward indefinitely and utilization is limited to 80% of taxable income. The net operating loss expiration related to the state income tax returns that the Company files varies by state.
As of December 31, 2020, the Company had federal and state research and development credit carryforwards of $3.5 million, net of Section 383 limitations, which will begin to expire in 2023 if not utilized.
As a result of its acquisition of Qumu, Inc. in October 2011, utilization of U.S. net operating losses and tax credits of Qumu, Inc. are subject to annual limitations under Internal Revenue Code Sections 382 and 383, respectively. The Company has not completed an IRC Section 382 study since 2011. It is possible additional ownership changes have occurred, which may result in
additional Section 382 and 383 limitations. Due to the valuation allowance, it is not expected that any such limitation will have an impact on the results of operations of the Company.
The Company assessed that the valuation allowance against its U.S. deferred tax assets is still appropriate as of December 31, 2020 and 2019, based on the consideration of all available positive and negative evidence, using the “more likely than not” standard required by ASC 740, Income Taxes. During 2019 the U.K. shifted from a net deferred tax liability to net deferred tax asset position. As such, the Company no longer believes that it is more likely than not that the future results of the operations in the U.K. will generate sufficient taxable income to utilize the deferred tax assets. As of December 31, 2020 and 2019, a full valuation allowance has been applied against its U.K. deferred tax assets. As of December 31, 2020, the Company had a cumulative foreign tax loss carryforward of $2.1 million in the U.K. This amount can be carried forward indefinitely. The valuation allowance will be reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of the valuation allowance.
On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted, significantly altering U.S. corporate income tax law. Many of the new elements of the Tax Act became effective during 2018, including limitations on the deductibility of interest expense, limitations on executive compensation, as well as international provisions. The Company has considered and incorporated the new provisions into its tax calculations. Such provisions included in the Tax Act did not significantly impact the Company in 2020 and 2019, due to the full valuation allowance on deferred tax assets.
The Company may repatriate cash associated with undistributed earnings of its foreign subsidiaries, such that they are not reinvested indefinitely. The repatriation of cash and cash equivalents held by the Company's international subsidiaries would not result in an adverse tax impact on cash given that the future tax consequences of repatriation are expected to be insignificant as a result of the Tax Cuts and Jobs Act of 2017.
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is presented in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Gross unrecognized tax benefits at beginning of year
|
$
|
1,780
|
|
|
$
|
1,724
|
|
Increases related to:
|
|
|
|
Prior year income tax positions
|
—
|
|
|
7
|
|
Current year income tax positions
|
57
|
|
|
49
|
|
Decreases related to:
|
|
|
|
Prior year income tax positions - closure of statute of limitations
|
(1)
|
|
|
—
|
|
Gross unrecognized tax benefits at end of year
|
$
|
1,836
|
|
|
$
|
1,780
|
|
Included in the balance of unrecognized tax benefits at December 31, 2020 are potential benefits of $608,000 that, if recognized, would affect the effective tax rate. The change in the liability for gross unrecognized tax benefits reflects an increase in reserves established for federal and state uncertain tax positions. The Company does not anticipate that the total amount of unrecognized tax benefits as of December 31, 2020 will change significantly by December 31, 2021.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Total accrued interest and penalties amounted to $50,000 and $28,000 on a gross basis at December 31, 2020 and 2019, respectively, and are excluded from the reconciliation of unrecognized tax benefits presented above. Interest and penalties recognized in the consolidated statements of operations related to uncertain tax positions amounted to net tax expense of $22,300 and $22,000 in 2020 and 2019, respectively.
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As of December 31, 2020, the Company was no longer subject to income tax examinations for taxable years before 2018 in the case of U.S. federal taxing authorities, and taxable years generally before 2016 in the case of major state and local taxing jurisdictions.
12) Computation of Net Loss Per Share of Common Stock
The following table identifies the components of net loss per basic and diluted share (in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Net loss per share – basic
|
|
|
|
|
|
Net loss
|
$
|
(9,200)
|
|
|
$
|
(6,443)
|
|
|
$
|
(3,617)
|
|
Weighted average shares outstanding – basic
|
13,612
|
|
|
10,395
|
|
|
9,499
|
|
Net loss per share – basic
|
$
|
(0.68)
|
|
|
$
|
(0.62)
|
|
|
$
|
(0.38)
|
|
|
|
|
|
|
|
Net loss per share – diluted
|
|
|
|
|
|
Loss attributable to common shareholders:
|
|
|
|
|
|
Net loss
|
$
|
(9,200)
|
|
|
$
|
(6,443)
|
|
|
$
|
(3,617)
|
|
Numerator effect of dilutive securities
|
|
|
|
|
|
Warrants
|
(294)
|
|
|
(105)
|
|
|
(161)
|
|
Loss attributable to common shareholders
|
$
|
(9,494)
|
|
|
$
|
(6,548)
|
|
|
$
|
(3,778)
|
|
Weighted averages shares outstanding – diluted:
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
13,612
|
|
|
10,395
|
|
|
9,499
|
|
Denominator effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
15
|
|
|
19
|
|
|
107
|
|
|
|
|
|
|
|
Weighted average shares outstanding – diluted
|
13,627
|
|
|
10,414
|
|
|
9,606
|
|
Net loss per share – diluted
|
$
|
(0.70)
|
|
|
$
|
(0.63)
|
|
|
$
|
(0.39)
|
|
Stock options, warrants and restricted stock units to acquire common shares excluded from the computation of diluted weighted-average common shares as their effect is anti-dilutive were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Stock options
|
1,150
|
|
|
1,299
|
|
|
1,273
|
|
Warrants
|
414
|
|
|
1,025
|
|
|
348
|
|
Restricted stock units
|
284
|
|
|
124
|
|
|
150
|
|
Total anti-dilutive
|
1,848
|
|
|
2,448
|
|
|
1,771
|
|
13) Significant Customers and Geographic Data
One customer accounting for more than 10% of the Company’s total revenue is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Revenues
|
|
2020
|
|
2019
|
|
2018
|
Customer A
|
|
$
|
6,442
|
|
|
*
|
|
*
|
_________________________________________________
* No customer exceeded 10% of total revenue
Customers accounting for more than 10% of the Company’s accounts receivable are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Accounts Receivable
|
|
2020
|
|
2019
|
Customer B
|
|
$
|
918
|
|
|
*
|
Customer C
|
|
$
|
535
|
|
|
$
|
677
|
|
Customer D
|
|
*
|
|
$
|
550
|
|
Customer E
|
|
*
|
|
$
|
471
|
|
_________________________________________________
* Accounts receivable balance did not exceed 10%
Net property and equipment of the Company were located as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
United States
|
|
$
|
180
|
|
|
$
|
442
|
|
United Kingdom
|
|
34
|
|
|
96
|
|
India
|
|
35
|
|
|
58
|
|
Total
|
|
$
|
249
|
|
|
$
|
596
|
|
14) Termination of Merger Agreement with Synacor, Inc.
As previously disclosed, on February 11, 2020, Qumu Corporation entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Synacor, Inc. (“Synacor”) and Quantum Merger Sub I, Inc., a direct, wholly owned subsidiary of Synacor (“Merger Sub”).
On June 29, 2020, Qumu, Synacor and Merger Sub entered into an agreement to terminate the Merger Agreement (the “Mutual Termination Agreement”). Pursuant to the Mutual Termination Agreement, the Merger Agreement was terminated and the parties provided a mutual release of claims relating to the Merger Agreement and related agreements.
Pursuant to the terms of the Mutual Termination Agreement, Qumu paid Synacor $250,000 on June 29, 2020 and is obligated to pay an additional $1.45 million if (a) within 15 months following June 29, 2020, an Acquisition Transaction in respect of Qumu is consummated with a Person other than Synacor or (b) (i) within 15 months following June 29, 2020, Qumu enters into a binding definitive agreement for an Acquisition Transaction with a Person other than Synacor and (ii) such Acquisition Transaction is ultimately consummated (whether or not during the foregoing 15 months period). For the purposes of the Mutual Termination Agreement, all references to 15% or 85% in the definition of “Acquisition Transaction” of the Merger Agreement shall be replaced by 50%.
During the year ended December 31, 2020, the Company recognized transaction-related expenses related to the Company's Merger Agreement with Synacor totaling $1.6 million, which is included within general and administrative expenses in the Company's consolidated statement of operations.
15) Subsequent Events
Hale Warrant Exercise
On January 12, 2021, HCP-FVD, LLC, the holder of the outstanding Hale warrant to purchase 314,286 shares of common stock, exercised a portion of the warrant in a cashless exercise. The exercise resulted in the issuance by the Company of 50,000 shares of common stock and an overall reduction of 75,703 warrant shares. Immediately following the exercise, HCP-FVD, LLC retains the right under the warrant to purchase 238,583 shares of the Company's common stock at an exercise price of $2.80 per share through October 21, 2026. The estimated fair value of the exercised warrants of $561,000 will be reflected as a reclassification from warrant liability to stockholders' equity in the Company's consolidated balance sheet.
Wells Fargo Credit Facility
On January 15, 2021, the Company entered into and closed on the Loan and Security Agreement (the “Loan Agreement”) with Wells Fargo Bank, National Association providing for a revolving line of credit.
Concurrently with the closing of the Loan Agreement, the Company received an advance of approximately $1,840,000 from the line of credit and used $1,832,888 to repay the face amount of that certain secured promissory note dated May 1, 2020 to ESW Holdings, Inc., which represented the deferred purchase price of the Company’s purchase and termination of the warrant to ESW Holdings, Inc. dated January 12, 2018 for 925,000 shares of the Company’s common stock. In connection with the repayment of the ESW Note, the related security agreement May 1, 2020 between the Company and ESW Holdings, Inc. was terminated. As provided in the ESW Note, the Company will be obligated to pay ESW Holdings, Inc. an additional $150,000 if a “Fundamental Transaction,” as defined in the ESW Note, occurs prior to April 1, 2021.
Under the Loan Agreement, the revolving line has a maximum availability for borrowing of the lesser of $10 million or a defined borrowing base, less any outstanding letters of credit and the outstanding principal balance of any advances. The borrowing base is six times the prior quarter’s monthly average recurring revenue from eligible customer accounts. The revolving line has a January 15, 2023 maturity date and amounts borrowed bear interest at a floating per annum rate equal to 1.25% above Wells Fargo's prime rate, currently 3.25%. The Company will also be obligated to pay Wells Fargo an unused
revolving line facility fee quarterly in arrears of 0.25% per annum of the average unused portion of the revolving line of credit during such quarterly period.
The Loan Agreement contains customary affirmative and negative covenants and requirements relating to the Company and its operations. The affirmative covenants also require the Company to maintain at all times minimum quarterly recurring revenue and minimum liquidity. As of the last day of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2021, the Company's recurring revenue may not less than the amounts reflected in a financial covenant side letter agreement entered into between the Company and Wells Fargo on January 15, 2021 (the “Letter Agreement”). The Letter Agreement specifies minimum quarterly recurring revenue for the first, second, third and fourth quarters of 2021 of $5 million, $5 million, $6 million and $8 million, respectively. The Letter Agreement also specifies minimum quarterly recurring revenue of $8 million for all quarters of 2022. The Loan Agreement provides that the Company liquidity, tested as of the last day of each fiscal quarter, of not less than $5 million, with liquidity generally defined as including the aggregate amount of unrestricted and unencumbered cash and cash equivalents held at such time by the Company in accounts maintained with Wells Fargo or its affiliates in the United States, and the availability under the line of credit.
Pursuant to the Loan Agreement, the Company granted a security interest in substantially all of its properties, rights and assets (including certain equity interests of the Company’s subsidiaries).
Public Offering
On January 29, 2021, the Company closed on the sale of its common stock in a follow-on public offering of the Company's common stock, par value $0.01 per share, with Craig-Hallum Capital Group LLC, as underwriter. In the follow-on offering, the Company issued and sold 3,225,000 base shares plus an additional 483,750 overallotment shares to the underwriter at a price of $6.31125 per share. The price to the public in the offering was $6.75 per share. The net proceeds to the Company for the issuance of the total 3,708,750 shares, after deducting underwriting discounts and commissions and other offering expenses, was approximately $23.1 million.