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.
Reclassification
Certain reclassifications have been made to prior period revenue in order to conform to the current period presentation. During the year ended December 31, 2021, the Company reclassified revenue recognized for term software license agreements from service revenue to software licenses and appliances revenue, similar to perpetual software licenses. These term software licenses have significant standalone functionality and, subsequent to delivery of the software, Qumu’s activities do not substantively change the functionality and do not significantly affect the use of the software delivered. The reclassifications had no effect on previously reported stockholders’ equity, net loss or net cash flows.
Revenue for the years ended December 31, 2020 and 2019 as reported and as reclassified were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
| As Reported | | As Reclassified | | As Reported | | As Reclassified |
Software licenses and appliances | $ | 6,762 | | | $ | 7,547 | | | $ | 4,903 | | | $ | 6,814 | |
Service | | | | | | | |
Subscription, maintenance and support | 19,555 | | | 18,770 | | | 18,249 | | | 16,338 | |
Professional services and other | 2,755 | | | 2,755 | | | 2,210 | | | 2,210 | |
Total service | 22,310 | | | 21,525 | | | 20,459 | | | 18,548 | |
Total revenues | $ | 29,072 | | | $ | 29,072 | | | $ | 25,362 | | | $ | 25,362 | |
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.
Liquidity and Going Concern Considerations
As of December 31, 2021, the Company's principal source of liquidity consisted of $20.6 million of cash and cash equivalents and potential availability under its Wells Fargo line of credit that had a maturity of January 2023. Additionally, the Company has experienced recurring operating losses and negative cash flows from operating activities.
In February 2022, the Company's board of directors adopted an operating plan designed to accelerate cash flow break even operations and continue to support the pivot from primarily a direct sales strategy to a targeted channel-led strategy. As part of the board approved operating plan, the Company implemented a cost optimization program that is in addition to the cash management actions the Company took in 2021.
The Company's capital needs are based upon management estimates as to future revenue and expense, which involves significant judgment. The success of the operating plan is dependent upon anticipated growth through Qumu's channel sales partners in the second half of 2022 and achieving and maintaining an expense structure that is aligned with management's revenue and cash flows. The focus on driving sales through Qumu’s channel sales partners is a relatively new element of the Company's sales strategy and management currently has limited sales pipeline visibility. Additionally, maintaining an aligned expense structure requires that management accurately forecast revenue and cash flow so that it can take timely action to reduce expenses in proportion to and concurrently with any shortfalls in revenue and cash flow.
As part of the Company's board-approved operating plan, on April 15, 2022, the Qumu entered into a Loan and Security Agreement (the “SVB Agreement”) with Silicon Valley Bank providing for a revolving line of credit having a maturity of April 2024. The maximum availability for borrowing under the SVB Agreement is the lesser of $7.5 million or the sum of a defined borrowing base of 85% of eligible accounts receivable plus a non-formula amount of $2.5 million. The non-formula amount will be eliminated from availability under the line of credit at the earlier of April 30, 2023 or the date on which the Company's net cash, as defined, is less than $5.0 million. No amounts are outstanding under the SVB Agreement as of April 15, 2022. The SVB Agreement requires the Company to maintain an adjusted quick ratio greater than or equal to 1.25 to 1.00. The adjusted quick ratio is the ratio of (a) unrestricted cash and cash equivalents in SVB deposit accounts or securities accounts plus net billed accounts receivable and (b) the sum of current liabilities less the current portion of deferred revenue. The Company's monthly operations and resulting adjusted quick ratio are subject to significant fluctuations due to a variety of factors, many of which are outside of management's control, and negative operating results may cause non-compliance with the adjusted quick ratio.
Based on management's sensitivity analysis of liquidity requirements, should the execution of its plans generate the financial results consistent with the February 2022 board-approved operating plan, the Company expects it will be able to maintain current operations and meet anticipated capital expenditure requirements for at least the next twelve months through any cash flows generated from current operations, cash reserves, and additional resources, including the availability of borrowings on the Company's revolving credit facility pursuant to the SVB Agreement.
However, if Qumu’s revenue growth is significantly lower than anticipated and Qumu does not actively manage expenses and cash consumption in advance of these significant revenue shortfalls, the Company will need additional capital to fund its business plan and under those circumstances, borrowing under its line of credit with SVB may be limited due to borrowing base availability or covenant non-compliance. The Company's cash resources and the limitations under the SVB Agreement on its available borrowing present the risk that the Company will not have sufficient cash available in the amount or at the time it needs it to fund its ongoing operations and execute its business plan over the next twelve months.
Accordingly, the Company's history of losses and its cash resources available to execute its business plan over the next twelve months raise substantial doubt about the Company's ability to continue as a going concern.
Management’s plans to address the doubt regarding the Company’s ability to continue as a going concern include positioning the targeted channel-led strategy for success through efforts to expand the number of high quality channel partners, educating channel partners on the Company’s platform, tools and differentiated features, and providing performance-based incentives to channel partners to accelerate customer deals, as well as continuous assessment of the sales pipeline to forecast SaaS revenue growth driven by new customer and expansion bookings sourced through the channel. Additionally, management will actively monitor eligible accounts for the purposes of the SVB Agreement borrowing base calculation and monitor doubtful accounts and write-offs of accounts receivable, which have historically been minimal. To the extent that increasing traction in the channel-led strategy is not realized, management would continue to manage its cost optimization program to further align expenditures with the timing and amount of cash receipts from new sales and renewals of existing sales contracts. These cost optimization measures may include reductions in the Company's personnel, reduced utilization of contractors, and decreases in other discretionary spend.
The Company may also increase its cash resources by drawing on the SVB line of credit to the extent of any availability. To the extent the Company requires additional capital, it may seek capital by refinancing its existing line of credit or from offering of the Company's equity securities or both. If the Company experiences a significant shortfall in performance as compared to plan and also is unable to secure additional capital in a sufficient amount or on acceptable terms, management may be required to implement more significant cost reduction and other cash-focused measures to manage liquidity and the Company may have to significantly delay, scale back, or cease operations, in part or in full.
The accompanying consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty. If the Company cannot continue as a going concern, adjustments to the carrying values and classification of its assets and liabilities and the reported amounts of income and expenses could be required and could be material.
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; a warrant liability, for which the fair value is based on the Company’s estimates of assumptions that market participants would use in pricing the liabilities (Level 3 inputs - see Note 5–"Fair Value Measurements"); and a line of credit and note payable for which the carrying amount approximates fair value (Level 2 inputs; see Note 4–"Commitments and Contingencies").
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, term software licenses, and hardware. Service revenue includes SaaS, 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 by first using its standalone selling price. The remaining performance obligations are allocated using the residual method.
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 $618,000 and $745,000 at December 31, 2021 and 2020, respectively. Deferred commission costs in other assets, non-current were $114,000 and $276,000 at December 31, 2021 and 2020, respectively. The Company recognized commissions expense of $1.9 million, $2.2 million and $1.9 million during the years ended December 31, 2021, 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):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
Allowance for Doubtful Accounts: | | 2021 | | 2020 | | 2019 |
Balance at beginning of year | | $ | 42 | | | $ | 45 | | | $ | 61 | |
Write-offs | | — | | | (28) | | | (6) | |
Change in provision | | — | | | 25 | | | (10) | |
Balance at end of year | | $ | 42 | | | $ | 42 | | | $ | 45 | |
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 $164,000 and $184,000 as of December 31, 2021 and 2020, 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, 2021, the Company completed its annual impairment test of goodwill. Based upon that evaluation, the Company determined that its goodwill was not impaired.
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 right of use (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 debt financing completed in October 2016, the Company issued a warrant for the purchase of up to an aggregate of 314,286 shares of the Company’s common stock, of which 238,583 shares remained outstanding as of December 31, 2021. In August 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, 2021. 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 gain on foreign currency transactions for the year ended December 31, 2021 was $2,000, and net losses on foreign currency transactions for the years ended December 31, 2020 and 2019 were $406,000 and $260,000, 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, 2021, 2020 and 2019, 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 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 Company adopted this guidance effective January 1, 2021, prospectively, and the adoption of this standard did not have a material impact to the 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. The Company adopted this guidance effective January 1, 2021, prospectively, and the adoption of this standard did not have a material impact to the consolidated financial statements and related disclosures.
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. The Company adopted this guidance effective January 1, 2021, prospectively, and the adoption of this standard did not have a material impact to the consolidated financial statements and related 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. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The objective of ASU 2021-10 is to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements. ASU 2021-10 is effective for all entities for annual periods beginning after December 15, 2021. The Company is currently evaluating ASU 2021-10 the impact of this standard on its financial statement disclosures.
2) Property and Equipment
Property and equipment consisted of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Computer, network equipment and furniture | $ | 1,858 | | | $ | 1,602 | |
Leasehold improvements | 23 | | | 23 | |
Total property and equipment | 1,881 | | | 1,625 | |
Less accumulated depreciation and amortization | (1,544) | | | (1,376) | |
Total property and equipment, net | $ | 337 | | | $ | 249 | |
Depreciation and amortization expense associated with property and equipment was $228,000, $575,000 and $314,000 for the years ended December 31, 2021, 2020 and 2019, 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):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Customer Relationships | | Developed Technology | | Trademarks / Trade-Names | | Total |
Original cost | $ | 4,927 | | | $ | 8,224 | | | $ | 2,183 | | | $ | 15,334 | |
Accumulated amortization | (4,352) | | | (8,224) | | | (1,370) | | | (13,946) | |
Net identifiable intangible assets | $ | 575 | | | $ | — | | | $ | 813 | | | $ | 1,388 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
Amortization expense of intangible assets consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Amortization expense associated with the developed technology included in cost of revenues | $ | 106 | | | $ | 286 | | | $ | 455 | |
Amortization expense associated with other acquired intangible assets included in operating expenses | 649 | | | 657 | | | 757 | |
Total amortization expense | $ | 755 | | | $ | 943 | | | $ | 1,212 | |
The Company estimates that amortization expense associated with intangible assets will be as follows (in thousands):
| | | | | |
Year Ending December 31, | |
2022 | $ | 550 | |
2023 | 308 | |
2024 | 142 | |
2025 | 141 | |
2026 | 141 | |
Thereafter | 106 | |
Total | $ | 1,388 | |
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 $7.4 million at December 31, 2021 reflects the impact of foreign currency exchange rate fluctuations since the acquisition date.
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 13 months.
During December 2020, the Company transitioned to permanent remote work for all of its personnel. The Company closed three of its four offices due to its new remote work policy and, effective December 31, 2020, the Company no longer occupied its permanent leased office spaces in Minneapolis, Minnesota, and London, England, which were primarily used for engineering, service, sales, marketing and administration, and its leased office space in Hyderabad, India, which was primarily used for software development and testing. The Company continues to occupy its leased space in Burlingame, California, primarily for technology storage and research and development, until the expiration of that lease in September 2022. The Company intends to continue to pay all rental payments due and payable by the Company pursuant to the leases governing the leased premises.
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.
Two of the surrendered office leases 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. The Company notified landlords for the two leases that it would not be exercising its option to renew but would be exercising the leases’ early termination clauses allowing the lease terms to end in May 2022 and August 2022. The impact of shortening the lease terms reduced the Company’s operating lease liabilities by $433,000 as of December 31, 2020.
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.
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, |
| | 2021 | | 2020 |
Operating lease cost | | $ | 187 | | | $ | 1,041 | |
Finance lease cost: | | | | |
Amortization of right of use assets | | 107 | | | 112 | |
Interest on lease liabilities | | 11 | | | 7 | |
Total finance cost | | 118 | | | 119 | |
Total lease cost | | $ | 305 | | | $ | 1,160 | |
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 | 2021 | | 2020 |
Assets | | | | |
Operating | Right of use assets – operating leases | $ | 146 | | | $ | 332 | |
Finance | Property and equipment | 119 | | | 124 | |
Total lease assets | | $ | 265 | | | $ | 456 | |
Liabilities | | | | |
Current | | | | |
Operating | Operating lease liabilities | $ | 597 | | | $ | 735 | |
Finance | Financing obligations | 55 | | | 110 | |
Non-current | | | | |
Operating | Operating lease liabilities, non-current | 21 | | | 554 | |
Finance | Financing obligations, non-current | 113 | | | 75 | |
Total lease liabilities | | $ | 786 | | | $ | 1,474 | |
Other information related to leases is as follows (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
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 | $ | 672 | | | $ | 522 | |
Financing cash flow from finance leases | 123 | | | 83 | |
ROU assets obtained in exchange for new lease obligations | | | |
Operating leases | $ | — | | | $ | 47 | |
Finance leases | 83 | | | 106 | |
Weighted-average remaining lease term: | | | |
Operating leases | 0.8 years | | 1.7 years |
Finance leases | 3.1 years | | 2.2 years |
Weighted-average discount rate: | | | |
Operating leases | 10.0 | % | | 10.0 | % |
Finance leases | 5.8 | % | | 6.2 | % |
Future payments used in the measurement of lease liabilities on the consolidated balance sheet as of December 31, 2021 are as follows (in thousands):
| | | | | | | | | | | |
| Operating leases | | Finance leases |
2022 | $ | 625 | | | $ | 63 | |
2023 | 21 | | | 58 | |
2024 | — | | | 58 | |
2025 | — | | | 4 | |
2026 | — | | | — | |
Thereafter | — | | | — | |
Total undiscounted lease payments | 646 | | | 183 | |
Less amount representing interest | (28) | | | (14) | |
Present value of lease liabilities | $ | 618 | | | $ | 169 | |
Sublease income from the Company’s subleases was $105,000 for the year ended December 31, 2019. No sublease income was recognized for the years ended December 31, 2021 and 2020.
Wells Fargo Credit Facility
On January 15, 2021, the Company entered into a Loan and Security Agreement (the “Wells Fargo line of credit”) with Wells Fargo Bank, National Association providing for a revolving line of credit. Pursuant to the Wells Fargo line of credit, the Company granted a security interest in substantially all of its properties, right and assets (including certain equity interest of the Company’s subsidiaries). As of December 31, 2021, the Company maintained an outstanding principal balance on the revolving line of $5.0 million and was in compliance with its covenants.
On August 6, 2021, the Company entered into a First Amendment ("First Amendment") to the Wells Fargo line of credit dated January 15, 2021. On March 30, 2022, the Company entered into the Second Amendment ("Second Amendment") to the Loan and Security Agreement. Further, on April 12, 2022, the Company repaid the outstanding balance on the revolving line and terminated its Loan and Security Agreement with Wells Fargo.
As of December 31, 2021, the revolving line under the terms of the First Amendment had 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 was four times if monthly recurring revenue declined from the preceding calendar quarter, five times if monthly recurring revenue increased up to 5% over the preceding calendar quarter, and six times if monthly recurring revenue increased at least 5% over the preceding calendar quarter. Under the terms of the Second Amendment on March 30, 2022 and prior to the termination of the Loan and Credit Agreement, the Wells Fargo line of credit had a maximum availability for borrowing of $10.0 million through March 31, 2022; $5.0 million from April 1, 2022 through June 30, 2022; $4.0 million from July 1, 2022 through September 30, 2022; and $3.0 million after September 30, 2022.
The revolving line had a January 15, 2023 maturity date and borrowed amounts incurred interest at a floating per annum rate equal to 1.25% above Wells Fargo’s prime rate, which was 3.25% at December 31, 2021. The Company was also 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 during such quarterly period.
The line of credit contained customary affirmative and negative covenants and requirements relating to the Company and its operations. The affirmative covenants required the Company to maintain at all times minimum quarterly recurring revenue and minimum liquidity. The Second Amended Loan Agreement specified minimum quarterly recurring revenue for the first, second, third and fourth quarters of 2022 of $4.3 million, $4.4 million, $4.5 million and $5.0 million, respectively. Previously, under the terms of the First Amendment, minimum quarterly recurring revenue amounts for the first, second, third and fourth quarters of 2022 were $5.0 million, $5.5 million, $6.0 million and $6.5 million, respectively.
The carrying amount of Company’s line of credit approximated its fair value as of December 31, 2021.
Note Payable
On January 15, 2021, the Company repaid the secured promissory note dated May 1, 2020 to ESW Holdings, Inc. in the amount of $1,833,000, which represented the deferred purchase price of the Company’s purchase and termination of a warrant to ESW Holdings, Inc. ("ESW warrant") dated January 12, 2018 for 925,000 shares of the Company’s common stock. The non-interest bearing note payable was reported at its present value of future cash flows of $1,833,000 discounted at 7.25% (prime plus 4.00%). As of December 31, 2020, the carrying value of the note payable was $1,800,000, which also approximated its fair value.
In connection with the repayment of the promissory note, the related security agreement dated May 1, 2020 between the Company and ESW Holdings, Inc. was terminated. As provided in the promissory note, the Company would have been obligated to pay ESW Holdings, Inc. an additional $150,000 if a Fundamental Transaction, as defined in the promissory note, occurred on or prior to April 1, 2021. The contingent payment obligation expired on April 1, 2021 as no such Fundamental Transaction occurred.
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, 2021 and 2020, 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 | | 2021 | | 2020 | | |
Warrant issued in conjunction with October 2016 debt financing ("Hale warrant") | | 238,583 | | | 314,286 | | | $ | 2.80 | | | October 21, 2026 |
Warrant issued to sales partner, iStudy Co., Ltd. ("iStudy warrant") | | 100,000 | | | 100,000 | | | $ | 2.43 | | | August 31, 2028 |
Total warrants outstanding | | 338,583 | | | 414,286 | | | | | |
On January 12, 2021, HCP-FVD, LLC, the holder of the outstanding Hale warrant to purchase 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 retained 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 $560,000 was reflected as a reclassification from warrant liability to stockholders’ equity in the Company’s consolidated balance sheet.
The Hale warrant contains a cash settlement feature upon the occurrence of 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. Both 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 2021 the Company recorded non-cash income of $1.5 million and during 2020 and 2019 the Company recorded non-cash expense of $1.8 million and $141,000, respectively, 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.
On May 1, 2020, the Company canceled a 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 recognized non-cash income of $37,000 for the year ended December 31, 2021 resulting from the change in fair value of the derivative liability. The derivative liability was derecognized on April 1, 2021 upon expiration of the contingent payment obligation without the contingency being triggered.
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, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
| Total Fair Value at December 31, 2021 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Liabilities: | | | | | | | |
Warrant liability - Hale | $ | 685 | | | $ | — | | | $ | — | | | $ | 685 | |
Warrant liability - iStudy | 116 | | | — | | | — | | | 116 | |
Warrant liability | $ | 801 | | | $ | — | | | $ | — | | | $ | 801 | |
Derivative liability | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Total | $ | 801 | | | $ | — | | | $ | — | | | $ | 801 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | |
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 both warrants, and generally correspondingly increases or decreases, respectively, the discounted value of the minimum cash payment component of the Hale warrant. Consequently, as of December 31, 2021 and 2020, the liability related to each warrant was classified as a Level 3 liability.
The following table represents the significant unobservable input used in the fair value measurement of Level 3 warrant liability instruments:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Probability-weighted timing of change in control | 3.7 years | | 4.9 years |
The following table summarizes the changes in Level 3 fair value measurements for the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| | Warrant liability | | Derivative liability | | Total |
Balance at December 31, 2020 | | $ | 2,910 | | | $ | 37 | | | $ | 2,947 | |
Reduction in warrant liability for partial exercise of Hale warrant | | (560) | | | — | | | (560) | |
Change in fair value | | (1,549) | | | (37) | | | (1,586) | |
Balance at December 31, 2021 | | $ | 801 | | | $ | — | | | $ | 801 | |
6) Stockholders’ Equity
Common Stock 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 and was for working capital and general corporate purposes.
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 was for working capital and general corporate purposes.
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, 2021, 2020 and 2019. As of December 31, 2021, 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 software licenses and appliances revenue. 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, |
| 2021 | | 2020 | | 2019 |
Software licenses and appliances | $ | 1,186 | | | $ | 7,547 | | | $ | 6,814 | |
Service | | | | | |
Subscription, maintenance and support | 20,074 | | | 18,770 | | | 16,338 | |
Professional services and other | 2,762 | | | 2,755 | | | 2,210 | |
Total service | 22,836 | | | 21,525 | | | 18,548 | |
Total revenues | $ | 24,022 | | | $ | 29,072 | | | $ | 25,362 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
North America | $ | 15,969 | | | $ | 20,073 | | | $ | 16,588 | |
Europe | 6,947 | | | 7,693 | | | 7,527 | |
Asia | 1,106 | | | 1,306 | | | 1,247 | |
Total | $ | 24,022 | | | $ | 29,072 | | | $ | 25,362 | |
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 $446,000 and $467,000 as of December 31, 2021 and 2020, respectively. The Company’s balances for contract liabilities, which are included in current and non-current deferred revenue, totaled $12.4 million and $16.4 million as of December 31, 2021 and 2020, respectively.
During the year ended December 31, 2021, the Company recognized $13.9 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 $22.9 million as of December 31, 2021, of which the Company expects to recognize $13.1 million of revenue over the next 12 months and the remainder thereafter. During the years ended December 31, 2021, 2020 and 2019, 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, 2021 and 2020 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 TJ Kennedy, the Company’s President and Chief Executive Officer, on July 22, 2020, which was the first date of an open window period following his first day of employment with Qumu, and for 200,000 shares to Thomas A. Krueger, the Company’s Chief Financial Officer, on December 6, 2021, which was his first day of employment with Qumu. The options were granted outside of any shareholder-approved plan as inducement to accept employment with the Company. Each option has exercise prices equal to the closing price of the Company’s common stock as reported by the Nasdaq Stock Market on the grant date, vests in three equal installments for Mr. Kennedy’s award and four equal installments for Mr. Krueger’s award on each of the first three and four anniversaries, respectively, and has a term of seven years. In other respects, the options were structured to mirror the terms of the options granted under the 2007 Plan and are subject to stock option agreements between the Company and the respective employee.
During 2021, 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 4,230,320 shares, of which 884,862 were available for future grant as of December 31, 2021.
The Company recognized the following amounts related to the Company’s share-based payment arrangements (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Stock-based compensation cost charged against loss, before income tax benefit | | | | | |
Stock options | $ | 658 | | | $ | 424 | | | $ | 331 | |
Restricted stock and restricted stock units | 1,176 | | | 754 | | | 521 | |
Performance stock units | 233 | | | — | | | 5 | |
Total stock-based compensation costs | $ | 2,067 | | | $ | 1,178 | | | $ | 857 | |
Stock-based compensation cost included in: | | | | | |
Cost of revenues | $ | 71 | | | $ | 36 | | | $ | 26 | |
Operating expenses | 1,996 | | | 1,142 | | | 831 | |
Total stock-based compensation costs | $ | 2,067 | | | $ | 1,178 | | | $ | 857 | |
As of December 31, 2021, compensation expense of $1.4 million related to non-vested option awards was not yet recognized and is expected to be recognized over a weighted-average period of 2.4 years. As of December 31, 2021, compensation expense of $1.8 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 2.8 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, |
| 2021 | | 2020 | | 2019 |
Expected life of options in years | 4.75 | | 4.50 - 4.75 | | 4.70 - 4.75 |
Risk-free interest rate | 1.2% | | 0.2% - 0.4% | | 1.8% - 2.5% |
Expected volatility | 71.8% | | 75.3% - 76.3% | | 69.7% - 73.6% |
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 2021, 2020 and 2019, 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, 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 | | | | | |
Granted | 200 | | | 2.12 | | | | | |
Exercised | (227) | | | 2.44 | | | | | |
Canceled | (139) | | | 3.48 | | | | | |
Options outstanding at December 31, 2021 | 1,099 | | | 3.88 | | | 2.9 | | $ | — | |
Total vested and expected to vest as of December 31, 2021 | 1,099 | | | 3.88 | | | 2.9 | | $ | — | |
Options exercisable as of: | | | | | | | |
December 31, 2019 | 540 | | | $ | 3.51 | | | | | |
December 31, 2020 | 394 | | | 2.96 | | | | | |
December 31, 2021 | 390 | | | 3.79 | | | 2.0 | | $ | — | |
________________________________________________________________
(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, |
| 2021 | | 2020 | | 2019 |
Fair value of options granted | $ | 244 | | | $ | 1,891 | | | $ | 71 | |
Per share weighted average fair value of options granted | $ | 1.22 | | | $ | 2.87 | | | $ | 1.83 | |
Total intrinsic value of stock options exercised | $ | 495 | | | $ | 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, 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 | |
Granted | 466 | | | 5.66 | |
Vested | (213) | | | 4.58 | |
Canceled | (305) | | | 5.30 | |
Nonvested at December 31, 2021 | 476 | | | $ | 5.12 | |
Other information pertaining to restricted stock and restricted stock units is as follows (in thousands, except per share data):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Per share weighted average grant-date fair value of restricted stock and restricted stock units granted | $ | 5.66 | | | $ | 4.50 | | | $ | 3.16 | |
Total fair value of restricted stock and restricted stock units vested | $ | 1,000 | | | $ | 903 | | | $ | 749 | |
Performance Stock Units
The Company granted performance stock units during 2021 ("2021 Performance Stock Units") and 2018 ("2018 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 |
| 2021 Performance Stock Units | | 2018 Performance Stock Units | | Total Performance Stock Units |
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 | — | | | — | | | — | |
Granted | 320 | | | — | | | 320 | |
Vested | — | | | — | | | — | |
Canceled | (87) | | | — | | | (87) | |
Nonvested at December 31, 2021 | 233 | | | — | | | 233 | |
At December 31, 2021, there were 233,418 shares of common stock underlying the outstanding 2021 performance stock units that were subject to vesting upon the achievement of performance goals for the performance period of January 1, 2021 to December 31, 2021. In settlement of performance stock units granted in 2021, on February 24, 2022, the Company issued 58,088 shares of restricted stock, which was equal to the number of vested 2021 performance stock units multiplied by the performance goals achievement of 66.0%.
In settlement of 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.
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 $413,000, $303,000 and $296,000 for the years ended December 31, 2021, 2020 and 2019, 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 in which Qumu held convertible preferred shares. During the years ended December 31, 2021 and 2019, the Company recognized gains of $50,000 and $41,000, respectively, 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, |
| 2021 | | 2020 | | 2019 |
Loss before income taxes: | | | | | |
Domestic | $ | (13,264) | | | $ | (7,435) | | | $ | (5,466) | |
Foreign | (3,493) | | | (2,071) | | | (1,171) | |
Total loss before income taxes | $ | (16,757) | | | $ | (9,506) | | | $ | (6,637) | |
The provision for income tax expense (benefit) consists of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Current: | | | | | |
U.S. Federal | $ | — | | | $ | — | | | $ | — | |
State | 61 | | | 61 | | | 17 | |
Foreign | (455) | | | (368) | | | (246) | |
Total current | (394) | | | (307) | | | (229) | |
Deferred: | | | | | |
U.S. Federal | — | | | — | | | — | |
State | 2 | | | (8) | | | 8 | |
Foreign | — | | | 9 | | | 27 | |
Total deferred | 2 | | | 1 | | | 35 | |
Total provision for income tax expense (benefit) | $ | (392) | | | $ | (306) | | | $ | (194) | |
Total income tax expense (benefit) differs from the expected income tax expense (benefit), computed by applying the federal statutory rate of 21% in 2021, 2020 and 2019, to earnings before income taxes as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Expected income tax benefit | $ | (3,519) | | | $ | (1,997) | | | $ | (1,393) | |
Federal R&D credit | (34) | | | (67) | | | (54) | |
Foreign tax | 279 | | | 76 | | | 27 | |
Non-deductible equity expense | (218) | | | 258 | | | 15 | |
Non-deductible stock issuance costs | (16) | | | (82) | | | 3 | |
Change in valuation allowance | 3,738 | | | 1,655 | | | 1,379 | |
State income taxes, net of federal tax effect | (619) | | | (168) | | | (219) | |
Other, net | (3) | | | 19 | | | 48 | |
Total provision for income tax expense (benefit) | $ | (392) | | | $ | (306) | | | $ | (194) | |
The tax effects of temporary differences that give rise to significant portions of deferred tax assets (liabilities) are presented below (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Deferred tax assets: | | | |
Inventory provisions and uniform capitalization | $ | — | | | $ | 1 | |
Accounts receivable allowances | 8 | | | 8 | |
Non-qualified stock option and restricted stock expense | 635 | | | 245 | |
Deferred revenue | 847 | | | 302 | |
Lease liabilities | 107 | | | 199 | |
Loss and credit carryforwards of U.S. subsidiary | 29,683 | | | 25,844 | |
Loss carryforward of foreign subsidiaries | 294 | | | 91 | |
Excess interest expense | 476 | | | 420 | |
Other accruals and reserves | 287 | | | 326 | |
Total deferred tax assets before valuation allowance | 32,337 | | | 27,436 | |
Less valuation allowance | (31,969) | | | (26,999) | |
Total deferred tax assets | $ | 368 | | | $ | 437 | |
Deferred tax liabilities: | | | |
Acquired intangibles | $ | (345) | | | $ | (347) | |
Right of use assets | (36) | | | (78) | |
Fixed assets | 30 | | | 7 | |
Other | — | | | — | |
Total deferred tax liabilities | $ | (351) | | | $ | (418) | |
Total net deferred tax assets | $ | 17 | | | $ | 19 | |
As of December 31, 2021, the Company had $104.8 million of net operating loss carryforwards for U.S. federal tax purposes and $77.2 million of net operating loss carryforwards for various states. The loss carryforwards for state tax purposes will expire between 2022 and 2041 if not utilized. At December 31, 2021, $85.7 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 $19.1 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, 2021, the Company had federal and state research and development credit carryforwards of $3.3 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, 2021 and 2020, 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, 2021 and 2020, a full valuation allowance has been applied against its U.K. deferred tax assets. As of December 31, 2021, the Company had a cumulative foreign tax loss carryforward of $3.7 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.
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.
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, |
| 2021 | | 2020 |
Gross unrecognized tax benefits at beginning of year | $ | 1,836 | | | $ | 1,780 | |
Increases related to: | | | |
Prior year income tax positions | 8 | | | — | |
Current year income tax positions | 36 | | | 57 | |
Decreases related to: | | | |
Prior year income tax positions - closure of statute of limitations | — | | | (1) | |
Gross unrecognized tax benefits at end of year | $ | 1,880 | | | $ | 1,836 | |
Included in the balance of unrecognized tax benefits at December 31, 2021 are potential benefits of $557,000 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, 2021 will change significantly by December 31, 2022.
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 $72,000 and $50,000 on a gross basis at December 31, 2021 and 2020, 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 in both 2021 and 2020.
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As of December 31, 2021, 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 2017 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, |
| 2021 | | 2020 | | 2019 |
Net loss per share – basic | | | | | |
Net loss | $ | (16,365) | | | $ | (9,200) | | | $ | (6,443) | |
Weighted average shares outstanding – basic | 17,514 | | | 13,612 | | | 10,395 | |
Net loss per share – basic | $ | (0.93) | | | $ | (0.68) | | | $ | (0.62) | |
| | | | | |
Net loss per share – diluted | | | | | |
Loss attributable to common shareholders: | | | | | |
Net loss | $ | (16,365) | | | $ | (9,200) | | | $ | (6,443) | |
Numerator effect of dilutive securities | | | | | |
Warrants | (1,548) | | | (294) | | | (105) | |
Loss attributable to common shareholders | $ | (17,913) | | | $ | (9,494) | | | $ | (6,548) | |
Weighted averages shares outstanding – diluted: | | | | | |
Weighted average shares outstanding – basic | 17,514 | | | 13,612 | | | 10,395 | |
Denominator effect of dilutive securities | | | | | |
| | | | | |
Warrants | 136 | | | 15 | | | 19 | |
| | | | | |
Weighted average shares outstanding – diluted | 17,650 | | | 13,627 | | | 10,414 | |
Net loss per share – diluted | $ | (1.01) | | | $ | (0.70) | | | $ | (0.63) | |
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, |
| 2021 | | 2020 | | 2019 |
Stock options | 1,113 | | | 1,150 | | | 1,299 | |
Warrants | — | | | 414 | | | 1,025 | |
Restricted stock units | 434 | | | 284 | | | 124 | |
Total anti-dilutive | 1,547 | | | 1,848 | | | 2,448 | |
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 | | 2021 | | 2020 | | 2019 |
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 | | 2021 | | 2020 |
Customer B | | $ | 606 | | | $ | 535 | |
Customer C | | $ | 525 | | | * |
Customer D | | $ | 523 | | | $ | 918 | |
_________________________________________________
* Accounts receivable balance did not exceed 10%
Net property and equipment of the Company were located as follows (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
United States | | $ | 277 | | | $ | 180 | |
United Kingdom | | 42 | | | 34 | |
India | | 18 | | | 35 | |
Total | | $ | 337 | | | $ | 249 | |
14) Termination of Merger Agreement with Synacor, Inc.
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 was obligated to pay an additional $1.45 million if (a) within 15 months following June 29, 2020, an Acquisition Transaction in respect of Qumu was consummated with a Person other than Synacor or (b) (i) within 15 months following June 29, 2020, Qumu entered into a binding definitive agreement for an Acquisition Transaction with a Person other than Synacor and (ii) such Acquisition Transaction was ultimately consummated (whether or not during the foregoing 15 months period). The Company did not trigger an obligation as an Acquisition Transaction did not occur in the 15 months following the termination of the merger agreement. The contingent obligation expired on September 29, 2021 as no such event occurred.
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
Wells Fargo Credit Facility
On March 30, 2022, the Company entered into the Second Amendment to Loan and Security Agreement with Wells Fargo Bank, National Association amending certain provisions of its revolving line of credit. See Note 4–"Commitments and Contingencies." Further, on April 12, 2022, the Company repaid the outstanding balance of the revolving line, which then totaled $5.0 million, and terminated its Loan and Security Agreement with Wells Fargo.
Silicon Valley Bank Credit Facility
On April 15, 2022, the Company entered into a Loan and Security Agreement (the “SVB Agreement”) with Silicon Valley Bank providing for a $7.5 million revolving line of credit. The maximum availability for borrowing under the SVB Agreement is the lesser of $7.5 million or the sum of a defined borrowing base of 85% of eligible accounts receivable plus a non-formula amount of $2.5 million. The non-formula amount will be eliminated from availability under the line of credit at the earlier of April 30, 2023 or the date on which the Company's net cash, as defined, is less than $5.0 million. The maturity of the SVB Agreement is April 15, 2024. No amounts are outstanding under the SVB Agreement as of April 15, 2022.
Any borrowings under the SVB Agreement bear interest, based on an interest rate dependent on Net Cash of above or below $5.0 million. Net Cash is defined as (a) the Company's cash maintained with Silicon Valley Bank less (b) the outstanding line of credit balance. If Net Cash is greater than $5.0 million, then the interest rate is the "prime rate” as published in The Wall Street Journal ("WSJ") for the relevant period plus 1.50%. If cash liquidity is less than $5.0 million, then the interest rate is the WSJ prime rate plus 2.00%. The SVB Agreement contains certain reporting requirements, conditions, and covenants, including a covenant requiring the Company to maintain an adjusted quick ratio greater than or equal to 1.25 to 1.00. The adjusted quick ratio is the ratio of (a) unrestricted cash and cash equivalents in SVB deposit accounts or securities accounts plus net billed accounts receivable and (b) the sum of current liabilities less the current portion of deferred revenue.
Pursuant to the SVB 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). The SVB Agreement contains customary events of default, upon the occurrence of which, the lender may accelerate repayment of any outstanding balance. Additionally, the line of credit
contains various provisions that limit our ability to, among other things, incur, create or assume certain indebtedness; create, incur or assume certain liens; make certain investments; make sales, transfers and dispositions of certain property; undergo certain fundamental changes, including certain mergers, liquidations and consolidations; purchase, hold or acquire certain investments; and declare or make certain dividends and distributions.