Company Quick10K Filing
Qumu
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 10 $37
10-Q 2019-11-05 Quarter: 2019-09-30
10-Q 2019-08-06 Quarter: 2019-06-30
10-Q 2019-05-08 Quarter: 2019-03-31
10-K 2019-03-15 Annual: 2018-12-31
10-Q 2018-11-07 Quarter: 2018-09-30
10-Q 2018-08-07 Quarter: 2018-06-30
10-Q 2018-05-15 Quarter: 2018-03-31
10-K 2018-03-23 Annual: 2017-12-31
10-Q 2017-11-13 Quarter: 2017-09-30
10-Q 2017-08-08 Quarter: 2017-06-30
10-Q 2017-05-09 Quarter: 2017-03-31
10-K 2017-03-31 Annual: 2016-12-31
10-Q 2016-11-08 Quarter: 2016-09-30
10-Q 2016-08-08 Quarter: 2016-06-30
10-Q 2016-05-09 Quarter: 2016-03-31
10-K 2016-03-15 Annual: 2015-12-31
10-Q 2015-11-09 Quarter: 2015-09-30
10-Q 2015-08-07 Quarter: 2015-06-30
10-Q 2015-05-08 Quarter: 2015-03-31
10-K 2015-03-24 Annual: 2014-12-31
10-Q 2014-11-10 Quarter: 2014-09-30
10-Q 2014-08-11 Quarter: 2014-06-30
10-Q 2014-05-09 Quarter: 2014-03-31
10-K 2014-03-14 Annual: 2013-12-31
10-Q 2013-11-08 Quarter: 2013-09-30
10-Q 2013-08-08 Quarter: 2013-06-30
10-Q 2013-05-09 Quarter: 2013-03-31
10-K 2013-03-15 Annual: 2012-12-31
10-Q 2012-08-08 Quarter: 2012-06-30
10-Q 2012-05-08 Quarter: 2012-03-31
10-K 2012-03-15 Annual: 2011-12-31
10-Q 2011-11-07 Quarter: 2011-09-30
10-Q 2011-08-08 Quarter: 2011-06-30
10-Q 2011-05-09 Quarter: 2011-03-31
10-K 2011-03-14 Annual: 2010-12-31
10-Q 2010-11-08 Quarter: 2010-09-30
10-Q 2010-08-06 Quarter: 2010-06-30
10-Q 2010-05-07 Quarter: 2010-03-31
10-K 2010-03-12 Annual: 2009-12-31
8-K 2019-11-12 Leave Agreement, Other Events, Exhibits
8-K 2019-11-06 Enter Agreement, Other Events, Exhibits
8-K 2019-10-31 Earnings, Exhibits
8-K 2019-10-31 Officers, Exhibits
8-K 2019-07-30 Earnings, Exhibits
8-K 2019-05-09 Shareholder Vote
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-03-19 Accountant, Exhibits
8-K 2019-03-05 Earnings, Officers, Exhibits
8-K 2019-02-27 Officers
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-10-25 Enter Agreement, Officers, Exhibits
8-K 2018-10-24 Officers
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-07-19 Regulation FD
8-K 2018-07-18 Regulation FD, Exhibits
8-K 2018-07-06 Regulation FD
8-K 2018-05-10 Shareholder Vote
8-K 2018-05-07 Regulation FD, Exhibits
8-K 2018-05-01 Earnings, Exhibits
8-K 2018-03-06 Earnings, Exhibits
8-K 2018-02-28 Enter Agreement, Exhibits
8-K 2018-02-09 Earnings, Exhibits
8-K 2018-01-12 Enter Agreement, Off-BS Arrangement, Leave Agreement, Sale of Shares, Exhibits
QUMU 2019-09-30
Part 1 - Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 qumuexhibit311q32019.htm
EX-31.2 qumuexhibit312q32019.htm
EX-32 qumuexhibit32q32019.htm

Qumu Earnings 2019-09-30

QUMU 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
NTWK 65 87 21 51 34 11 13 55 67% 4.3 12%
MTBC 61 65 0 -3 -0 50 0% -651.4 347,545,900%
AEYE 59 8 5 8 4 -7 -7 56 55% -8.2 -92%
TAOP 47 42 24 0 0 0 0 45 0%
GVP 46 69 41 160 39 -4 -2 53 25% -33.9 -6%
DTSS 45 6 0 -0 -0 -2 -2 39 347% -24.1 -27%
ZDGE 39 10 2 9 8 -2 -1 37 85% -45.5 -24%
QUMU 37 27 24 25 18 -2 1 33 72% 49.3 -8%
MYSZ 20 5 2 0 0 -5 -5 16 96% -3.1 -104%
BVSN 7 6 3 4 3 -3 -3 3 67% -0.9 -55%

10-Q 1 qumu10qq32019.htm FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 Document
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019; OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________TO ________.
Commission File Number: 000-20728
 
QUMU CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota
41-1577970
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
510 1st Avenue North, Suite 305, Minneapolis, MN 55403
(Address of principal executive offices)

(612) 638-9100
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading
Symbol
 
Name of each exchange on which registered
Common stock, par value $0.01
 
QUMU
 
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company x
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x
Common Stock outstanding at November 1, 20199,908,982 shares of $.01 par value Common Stock.
 



QUMU CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 2019
 
Description
Page
 
 
 
 
 
 
 
 
 
 
 
 


2


PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
QUMU CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
 
September 30,
2019
 
December 31,
2018
Assets
(unaudited)
 
 
Current assets:
 
 

Cash and cash equivalents
$
7,525

 
$
8,636

Receivables, net of allowance for doubtful accounts of $49 and $61, respectively
4,202

 
6,278

Contract assets
1,330

 
485

Income tax receivable
274

 
327

Prepaid expenses and other current assets
1,752

 
2,192

Total current assets
15,083

 
17,918

Property and equipment, net of accumulated depreciation of $2,864 and $2,809, respectively
633

 
545

Right of use assets – operating leases
1,783

 

Intangible assets, net
3,279

 
4,247

Goodwill
6,748

 
6,971

Deferred income taxes, non-current
45

 
55

Other assets, non-current
602

 
544

Total assets
$
28,173

 
$
30,280

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and other accrued liabilities
$
3,286

 
$
2,838

Accrued compensation
817

 
1,548

Deferred revenue
9,050

 
9,672

Operating lease liabilities
465

 

Deferred rent

 
45

Financing obligations
214

 
152

Term loan
3,834

 

Warrant liability
3,550

 
2,798

Total current liabilities
21,216

 
17,053

Long-term liabilities:
 

 
 

Deferred revenue, non-current
1,768

 
1,672

Income taxes payable, non-current
580

 
563

Deferred tax liability, non-current

 
2

Operating lease liabilities, non-current
1,735

 

Deferred rent, non-current

 
302

Financing obligations, non-current
104

 
57

Term loan, non-current

 
3,431

Other non-current liabilities

 
195

Total long-term liabilities
4,187

 
6,222

Total liabilities
25,403

 
23,275

Commitments and contingencies (Note 3)


 


Stockholders’ equity:
 

 
 

Preferred stock, $0.01 par value, authorized 250,000 shares, no shares issued and outstanding

 

Common stock, $0.01 par value, authorized 29,750,000 shares, issued and outstanding 9,908,782
 and 9,624,060, respectively
99

 
96

Additional paid-in capital
69,705

 
69,072

Accumulated deficit
(63,457
)
 
(58,875
)
Accumulated other comprehensive loss
(3,577
)
 
(3,288
)
Total stockholders’ equity
2,770

 
7,005

Total liabilities and stockholders’ equity
$
28,173

 
$
30,280

See accompanying notes to unaudited condensed consolidated financial statements.

3


QUMU CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited - in thousands, except per share data)
 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 

 
 

 
 

 
 

Software licenses and appliances
$
1,962

 
$
985

 
$
3,656

 
$
4,303

Service
4,709

 
4,668

 
15,478

 
13,807

Total revenues
6,671

 
5,653

 
19,134

 
18,110

Cost of revenues:
 

 
 

 
 

 
 

Software licenses and appliances
719

 
504

 
1,366

 
1,643

Service
1,294

 
1,611

 
3,747

 
4,990

 Total cost of revenues
2,013

 
2,115

 
5,113

 
6,633

Gross profit
4,658

 
3,538

 
14,021

 
11,477

Operating expenses:
 

 
 

 
 

 
 

Research and development
1,849

 
1,617

 
5,361

 
5,159

Sales and marketing
2,083

 
1,796

 
6,647

 
6,388

General and administrative
1,673

 
1,608

 
4,998

 
5,536

Amortization of purchased intangibles
168

 
224

 
587

 
680

Total operating expenses
5,773

 
5,245

 
17,593

 
17,763

Operating loss
(1,115
)
 
(1,707
)
 
(3,572
)
 
(6,286
)
Other income (expense):
 

 
 

 
 

 
 

Gain on sale of BriefCam, Ltd.
41

 
6,502

 
41

 
6,502

Loss on extinguishment of debt

 
(1,189
)
 

 
(1,189
)
Interest expense, net
(235
)
 
(262
)
 
(654
)
 
(1,616
)
Decrease (increase) in fair value of warrant liability
973

 
(401
)
 
(752
)
 
(292
)
Other, net
(3
)
 
(78
)
 
32

 
(481
)
Total other income (expense), net
776

 
4,572

 
(1,333
)
 
2,924

Income (loss) before income taxes
(339
)
 
2,865

 
(4,905
)
 
(3,362
)
Income tax expense (benefit)
(118
)
 
469

 
(133
)
 
303

Net income (loss)
$
(221
)
 
$
2,396

 
$
(4,772
)
 
$
(3,665
)
 
 
 
 
 
 
 
 
Net income (loss) per share – basic:
 
 
 
 
 
 
 
Net income (loss) per share
$
(0.02
)
 
$
0.25

 
$
(0.49
)
 
$
(0.39
)
Weighted average shares outstanding – basic
9,913

 
9,559

 
9,822

 
9,472

Net income (loss) per share – diluted:
 
 
 
 
 
 
 
Income (loss) attributable to common shareholders
$
(1,194
)
 
$
2,396

 
$
(4,772
)
 
$
(3,665
)
Net income (loss) per share – diluted
$
(0.11
)
 
$
0.25

 
$
(0.49
)
 
$
(0.39
)
Weighted average shares outstanding – diluted
10,413

 
9,709

 
9,822

 
9,472

See accompanying notes to unaudited condensed consolidated financial statements.


4


QUMU CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(unaudited - in thousands)
 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
(221
)
 
$
2,396

 
$
(4,772
)
 
$
(3,665
)
Other comprehensive loss:
 

 
 

 
 

 
 
Net change in foreign currency translation adjustments
(254
)
 
(87
)
 
(289
)
 
(233
)
Total other comprehensive loss
(254
)
 
(87
)
 
(289
)
 
(233
)
Total comprehensive income (loss)
$
(475
)
 
$
2,309

 
$
(5,061
)
 
$
(3,898
)

See accompanying notes to unaudited condensed consolidated financial statements.


5


QUMU CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited - in thousands)
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2018
9,624

 
$
96

 
$
69,072

 
$
(58,875
)
 
$
(3,288
)
 
$
7,005

Adoption of ASC Topic 842

 

 

 
190

 

 
190

Net loss

 

 

 
(950
)
 

 
(950
)
Other comprehensive income, net of taxes

 

 

 

 
243

 
243

Issuance of stock under employee stock plan, net of forfeitures
156

 
2

 
(1
)
 

 

 
1

Redemption of stock to cover withholdings on employee stock plan issuances
(15
)
 

 
(36
)
 

 

 
(36
)
Stock-based compensation

 

 
231

 

 

 
231

Balance at March 31, 2019
9,765

 
$
98

 
$
69,266

 
$
(59,635
)
 
$
(3,045
)
 
$
6,684

Net loss

 

 

 
(3,601
)
 

 
(3,601
)
Other comprehensive loss, net of taxes

 

 

 

 
(278
)
 
(278
)
Issuance of stock under employee stock plan, net of forfeitures
159

 
1

 
96

 

 

 
97

Redemption of stock to cover withholdings on employee stock plan issuances
(17
)
 

 
(72
)
 

 

 
(72
)
Stock-based compensation

 

 
194

 

 

 
194

Balance at June 30, 2019
9,907

 
$
99

 
$
69,484

 
$
(63,236
)
 
$
(3,323
)
 
$
3,024

Net loss

 

 

 
(221
)
 

 
(221
)
Other comprehensive loss, net of taxes

 

 

 

 
(254
)
 
(254
)
Issuance of stock under employee stock plan, net of forfeitures
2

 

 
4

 

 

 
4

Redemption of stock to cover withholdings on employee stock plan issuances

 

 
(2
)
 

 

 
(2
)
Stock-based compensation

 

 
219

 

 

 
219

Balance at September 30, 2019
9,909

 
$
99

 
$
69,705

 
$
(63,457
)
 
$
(3,577
)
 
$
2,770


6


 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2017
9,365

 
$
94

 
$
68,035

 
$
(56,197
)
 
$
(2,740
)
 
$
9,192

Adoption of ASC Topic 606

 

 

 
939

 
(5
)
 
934

Net loss

 

 

 
(4,530
)
 

 
(4,530
)
Other comprehensive income, net of taxes

 

 

 

 
623

 
623

Issuance of stock under employee stock plan, net of forfeitures
24

 

 

 

 

 

Redemption of stock to cover withholdings on employee stock plan issuances
(11
)
 

 
(19
)
 

 

 
(19
)
Stock-based compensation

 

 
210

 

 

 
210

Balance at March 31, 2018
9,378

 
$
94

 
$
68,226

 
$
(59,788
)
 
$
(2,122
)
 
$
6,410

Net loss

 

 

 
(1,531
)
 

 
(1,531
)
Other comprehensive loss, net of taxes

 

 

 

 
(769
)
 
(769
)
Issuance of stock under employee stock plan, net of forfeitures
155

 
1

 
(11
)
 

 

 
(10
)
Redemption of stock to cover withholdings on employee stock plan issuances
(4
)
 

 
(8
)
 

 

 
(8
)
Stock-based compensation

 

 
228

 

 

 
228

Balance at June 30, 2018
9,529

 
$
95

 
$
68,435

 
$
(61,319
)
 
$
(2,891
)
 
$
4,320

Net income

 

 

 
2,396

 

 
2,396

Other comprehensive loss, net of taxes

 

 

 

 
(87
)
 
(87
)
Issuance of stock under employee stock plan, net of forfeitures
(1
)
 

 
(1
)
 

 

 
(1
)
Stock-based compensation

 

 
329

 

 

 
329

Balance at September 30, 2018
9,528

 
$
95

 
$
68,763

 
$
(58,923
)
 
$
(2,978
)
 
$
6,957


See accompanying notes to unaudited condensed consolidated financial statements.


7


QUMU CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
 
Nine Months Ended
 September 30,
 
2019
 
2018
Operating activities:
 

 
 

Net loss
$
(4,772
)
 
$
(3,665
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
1,170

 
1,924

Stock-based compensation
644

 
767

Accretion of debt discount and issuance costs
403

 
1,194

Gain on sale of BriefCam, Ltd.
(41
)
 
(6,502
)
Loss on debt extinguishment

 
1,189

Gain on lease modification
(21
)
 

Loss on lease contract termination

 
177

Increase in fair value of warrant liability
752

 
292

Deferred income taxes
8

 
(99
)
Changes in operating assets and liabilities:
 
 
 
Receivables
2,038

 
1,363

Contract assets
(845
)
 
394

Income taxes receivable / payable
62

 
357

Prepaid expenses and other assets
573

 
291

Accounts payable and other accrued liabilities
546

 
(2,082
)
Accrued compensation
(732
)
 
(857
)
Deferred revenue
(431
)
 
2,283

Deferred rent

 
(121
)
Other non-current liabilities
(24
)
 
98

Net cash used in operating activities
(670
)
 
(2,997
)
Investing activities:
 

 
 

Proceeds from sale of BriefCam, Ltd.
41

 
9,678

Purchases of property and equipment
(137
)
 
(116
)
Net cash provided by (used in) investing activities
(96
)
 
9,562

Financing activities:
 

 
 

Proceeds from term loan and warrant issuance

 
10,000

Principal payments on term loans

 
(14,000
)
Payments for term loan issuance costs

 
(1,308
)
Principal payments on financing obligations
(242
)
 
(329
)
Proceeds from employee stock plans
46

 

Common stock repurchases to settle employee withholding liability
(54
)
 
(28
)
Net cash used in financing activities
(250
)
 
(5,665
)
Effect of exchange rate changes on cash
(95
)
 
(91
)
Net increase (decrease) in cash and cash equivalents
(1,111
)
 
809

Cash and cash equivalents, beginning of period
8,636

 
7,690

Cash and cash equivalents, end of period
$
7,525

 
$
8,499

Supplemental disclosures of net cash paid (received) during the period:
 

 
 

Income taxes, net
$
(207
)
 
$
52

Interest, net
$
14

 
$
502


See accompanying notes to unaudited condensed consolidated financial statements.

8


QUMU CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(1)
Nature of Business and Basis of Presentation
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 enterprises. 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 manages the marketing of its products and services through regional sales representatives and independent distributors in the United States and international markets.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. 
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.
The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in a complete set of financial statements have been condensed or omitted. However, in the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations and cash flows of the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2018.
Leases
The Company is a lessee in several non-cancellable (1) operating leases, primarily for office space, and (2) 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 (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and (3) 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.

9


The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor.
Lease payments included in the measurement of the lease liability include the fixed payments owed over the lease term, termination penalties, amounts expected to be payable under a residual-value guarantee, and the exercise price of an option to purchase the asset if the Company is reasonably certain to exercise the option.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received.
For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus any prepaid lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term.
The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term.
Recently Adopted Accounting Standards
Leases (Topic 842)
On January 1, 2019, the Company adopted ASU 2016-02, Leases, and the related amendments (collectively, "Topic 842"), using the modified retrospective transition approach as of the effective date. The comparative information in the condensed consolidated financial statements has not been revised and continues to be reported under the previously applicable lease accounting guidance.
In addition, the Company elected the package of practical expedients, which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not adopt the hindsight practical expedient, and therefore continues to utilize lease terms determined under pre-Topic 842 lease guidance.
As a result of adopting ASU 2016-02, the Company recognized additional operating lease liabilities of $1.9 million (of which $759,000 was current and $1.1 million was non-current) and corresponding ROU assets of $1.4 million as of January 1, 2019. Additionally, upon adoption of this standard, the Company recognized a cumulative-effect adjustment to accumulated deficit of $190,000, net of taxes, as of January 1, 2019. The new lease guidance did not have a material impact on the Company's condensed consolidated statements of operations or cash flows or compliance with debt covenants. For additional information regarding the Company's leases, see Note 3–"Commitments and Contingencies."
The cumulative effect of the changes made to our January 1, 2019 condensed consolidated balance sheet from the modified retrospective adoption of Topic 842 is as follows (in thousands):
 
December 31,
2018
 
Adjustments
 
January 1,
2019
Assets:
 
 
 
 


Property and equipment
$
545

 
$
124

 
$
669

Operating lease assets

 
1,367

 
1,367

Liabilities:
 

 
 

 


Accounts payable and other accrued liabilities
$
2,838

 
$
(211
)
 
$
2,627

Operating lease liabilities

 
759

 
759

Deferred rent
45

 
(45
)
 

Operating lease liabilities, non-current

 
1,100

 
1,100

Deferred rent, non-current
302

 
(302
)
 

Stockholders’ equity:
 

 
 

 


Accumulated deficit
$
(58,875
)
 
$
190

 
$
(58,685
)


10


Adjustments to accounts payable and other accrued liabilities include the derecognition of a contract termination obligation of $218,000 upon adoption of Topic 842. See Note 3–"Commitments and Contingencies" for additional information.
Income Statement – Reporting Comprehensive Income (Topic 220)
On January 1, 2019, the Company adopted ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings (accumulated deficit) for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 and requires certain disclosures regarding stranded tax effects in accumulated other comprehensive income (loss). The Company did not reclassify any income tax effects of the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive loss to accumulated deficit as a result of the adoption
of this standard.
Accounting Standards Not Yet Adopted
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which changes the fair value measurement disclosure requirements of ASC 820. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The purpose of the amendment is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements.
(2)
Intangible Assets and Goodwill
Intangible Assets
The Company’s amortizable intangible assets consisted of the following (in thousands):
 
September 30, 2019
 
Customer Relationships
 
Developed Technology
 
Trademarks / Trade Names
 
Total
Original cost
$
4,758

 
$
7,916

 
$
2,178

 
$
14,852

Accumulated amortization
(3,089
)
 
(7,437
)
 
(1,047
)
 
(11,573
)
Net identifiable intangible assets
$
1,669

 
$
479

 
$
1,131

 
$
3,279

 
December 31, 2018
 
Customer Relationships
 
Developed Technology
 
Trademarks / Trade Names
 
Total
Original cost
$
4,818

 
$
8,023

 
$
2,180

 
$
15,021

Accumulated amortization
(2,721
)
 
(7,110
)
 
(943
)
 
(10,774
)
Net identifiable intangible assets
$
2,097

 
$
913

 
$
1,237

 
$
4,247

Changes to the carrying amount of net amortizable intangible assets consisted of the following (in thousands):
 
Nine Months Ended
 September 30, 2019
Balance, beginning of period
$
4,247

Amortization expense
(927
)
Currency translation
(41
)
Balance, end of period
$
3,279


11


Amortization expense of intangible assets consisted of the following (in thousands):
 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
2019
 
2018
 
2019
 
2018
Amortization expense associated with the developed technology included in cost of revenues
$
109

 
$
288

 
$
340

 
$
879

Amortization expense associated with other acquired intangible assets included in operating expenses
168

 
224

 
587

 
680

Total amortization expense
$
277

 
$
512

 
$
927

 
$
1,559

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 $6.7 million at September 30, 2019 reflects the impact of foreign currency exchange rate fluctuations since the acquisition date.
As of September 30, 2019, the Company’s market capitalization, without a control premium, was greater than its book value and, as a result, the Company concluded there was no goodwill impairment. Declines in the Company’s market capitalization or a downturn in its future financial performance could require the Company to record goodwill and other impairment charges. While a goodwill impairment charge is a non-cash charge, it would have a negative impact on the Company's results of operations.
(3)
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 five years. The Company has two leases that each contain a renewal option for a period of five years. Because the Company is not reasonably certain to exercise this option, the option is not considered in determining the lease term under Topic 842, which was adopted January 1, 2019.
During the three months ended September 30, 2019, the Company commenced leases for office space in London, United Kingdom and Hyderabad, India.
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):
 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
Operating lease cost
$
154

 
$
432

Finance lease cost:
 
 
 
Amortization of right of use assets
31

 
75

Interest on lease liabilities
3

 
8

Total finance cost
34

 
83

Total lease cost
$
188

 
$
515


12


The Company's ROU assets and lease liabilities were reported in the condensed consolidated balance sheet as follows (in thousands):
Leases
Classification on Balance Sheet
September 30,
2019
Assets
 
 
Operating
Right of use assets – operating leases
$
1,783

Finance
Property and equipment
161

Total lease assets
 
$
1,944

Liabilities
 
 
Current
 
 
Operating
Operating lease liabilities
$
465

Finance
Financing obligations
82

Non-current
 
 
Operating
Operating lease liabilities, non-current
1,735

Finance
Financing obligations, non-current
104

Total lease liabilities
 
$
2,386


Other information related to leases is as follows (in thousands):
 
Nine Months Ended
 September 30,
Supplemental cash flow information:
 
Cash paid for amounts included in the measurement of lease liabilities
 
Operating cash flow from operating leases
$
348

Financing cash flow from finance leases
57

ROU assets obtained in exchange for new lease obligations
 
Finance leases
$
148

Weighted-average remaining lease term:
 
Operating leases
4.0 years

Finance leases
2.3 years

Weighted-average discount rate:
 
Operating leases
10.0
%
Finance leases
6.2
%
Future payments used in the measurement of lease liabilities on the condensed consolidated balance sheet as of September 30, 2019 are as follows (in thousands):
 
Operating
leases
 
Finance
leases
Remainder of 2019
$
138

 
$
23

2020
695

 
91

2021
703

 
80

2022
663

 
5

2023
286

 

Thereafter
170

 

Total undiscounted lease payments
2,655

 
199

Less amount representing interest
(455
)
 
(13
)
Present value of lease liabilities
$
2,200

 
$
186


13


Subleases
The Company determined that it had excess capacity at its Minneapolis, Minnesota headquarters and its London, United Kingdom office and effective May 1, 2018 and December 31, 2017, respectively, ceased using portions of its leased spaces, subsequently making them available for occupancy by sublessees. The Minneapolis sublease agreement had a term beginning May 1, 2018 and extending through January 2023. On January 17, 2019, the Company terminated the Minneapolis sublease agreement, effective February 15, 2019, and contemporaneously modified the Company's primary lease agreement to relinquish the sublet space to the lessor, and be relieved of future lease payments for the previously sublet space, effective March 1, 2019. Upon modification of the Minneapolis lease agreement, the Company recognized a gain of $21,000, which is reported in other income (expense) in the Company's condensed consolidated statement of operations for the nine months ended September 30, 2019. Sublease income from the Company's subleases was $32,000 and $105,000 for the three and nine months ended September 30, 2019, respectively, which is reported in other income (expense) in the Company's condensed consolidated statement of operations.
Prior to the adoption of Topic 842 on January 1, 2019, the Company accounted for the above subleases under guidance for exit and disposal activities (ASC 420). As such, the Company carried a lease contract termination liability of $218,000 as of December 31, 2018, representing the liability at fair value for the future contractual lease payments, net of expected sublease receipts.
Term Loan
The Company's term loan is reported in the condensed consolidated balance sheets as follows (in thousands):
 
September 30,
2019
 
December 31,
2018
Term loan, remaining principal balance
$
4,000

 
$
4,000

Unamortized original issue discount
(140
)
 
(481
)
Unamortized debt issuance costs
(26
)
 
(88
)
Term loan
$
3,834

 
$
3,431

Credit Agreement – ESW Holdings, Inc.
On January 12, 2018, the Company and its wholly-owned subsidiary, Qumu, Inc., entered into a $10.0 million term loan credit agreement (the “ESW credit agreement”) with ESW Holdings, Inc. as lender and administrative agent to replace its previous $8.0 million term loan credit agreement with HCP-FVD, LLC as lender and Hale Capital Partners, LP as administrative agent. Following the Company's $6.0 million principal payment on July 19, 2018, the term loan with ESW Holdings, Inc. has an outstanding principal balance of $4.0 million at September 30, 2019.
The term loan is scheduled to mature on January 10, 2020. The Company expects that it will be able repay the term loan from the Company’s existing cash and intends to raise additional capital to meet its continued operational needs through an offering of its securities or, in the alternative, an asset-based line of credit or other debt facility. Interest accrues and compounds monthly at a variable rate per annum equal to the prime rate plus 4.0%. As of September 30, 2019 and December 31, 2018, interest was payable at 9.0% and 9.5%, respectively. At September 30, 2019, there was $480,000 in accrued and unpaid interest. The Company may prepay the term loan at any time with the payment of a prepayment fee of 10.0% of the amount prepaid. However, no prepayment fee will be due for any prepayment made from the proceeds of the Company’s sale of its investment in BriefCam.
The term loan had an estimated fair value of $3.8 million as of September 30, 2019. The fair value of the term loan is estimated using a discounted cash flow analysis based on the Company’s current incremental borrowing rate. As the contractual terms of the loan provide all the necessary inputs for this calculation, the term loan is classified as Level 2 within the fair value hierarchy. The estimated fair value is not necessarily indicative of the amount that would be realized in a current market exchange.
Covenant Compliance
The ESW credit agreement contains affirmative and negative covenants and requirements relating to the Company and its operations. The Company was in compliance with all financial covenants during the three and nine months ended September 30, 2019.
The Company’s monthly, quarterly and annual results of operations are subject to significant fluctuations due to a variety of factors, many of which are outside of the Company’s control. These factors include the number and mix of products and solutions sold in the period, timing of customer purchase commitments, including the impact of long sales cycles and seasonal

14


buying patterns, and variability in the size of customer purchases and the impact of large customer orders on a particular period. The foregoing factors are difficult to forecast, and these, as well as other factors, could adversely affect the Company’s monthly, quarterly and annual results of operations. Failure to achieve its monthly, quarterly or annual forecasts may result in the Company being out of compliance with covenants or projecting noncompliance in the future. Management actively monitors its opportunity pipeline, forecast, and projected covenant compliance on an ongoing basis.
Contingencies
The Company is exposed to a number of asserted and unasserted claims encountered in the normal course of business. Legal costs related to loss contingencies are expensed as incurred. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s financial position or results of operations.
The Company’s standard arrangements include provisions indemnifying customers against liabilities if the Company's products infringe a third-party’s intellectual property rights. The Company has not incurred any costs in its continuing operations as a result of such indemnifications and has not accrued any liabilities related to such contingent obligations in the accompanying condensed consolidated financial statements.
(4)
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.
In conjunction with the debt financings completed in October 2016 and January 2018, the Company issued two warrants for the purchase of up to an aggregate of 1,239,286 shares of the Company's common stock, which remained unexercised and outstanding at September 30, 2019. The warrant issued in conjunction with the October 21, 2016 debt financing (Hale warrant) for the purchase of up to 314,286 shares of the Company's common stock expires on October 21, 2026, has an exercise price of $2.80 per share and is transferable. The warrant issued in conjunction with the January 12, 2018 debt financing (ESW warrant) for the purchase of up to 925,000 shares of the Company's common stock expires on January 12, 2028, has an exercise price of $1.96 per share and is transferable. Additionally, on August 31, 2018, the Company issued a warrant to a sales partner, iStudy Co., Ltd., (iStudy warrant) for the purchase of up to 100,000 shares of the Company's common stock; the warrant expires on August 31, 2028, has an exercise price of $2.43 per share and is transferable. The Hale warrant and ESW warrant contain a cash settlement feature upon the occurrence of a certain events, essentially the sale of the Company as defined in the warrant agreements. Upon a sale of the Company, the holder of the iStudy warrant may exercise the warrant or may elect to receive the same consideration as it would have been entitled to receive upon the occurrence of such transaction if it had been the holder of the shares then issuable upon such exercise of the warrant. As a result of these features, the warrants are subject to derivative accounting as prescribed under ASC 815. Accordingly, the fair value of the warrants on the dates of issuance was recorded in the Company’s condensed consolidated balance sheets as a liability.
The warrant liability was recorded in the Company's condensed consolidated balance sheets at its fair value on the respective dates 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 recorded non-cash income of $973,000 and non-cash expense of $401,000 for the three months ended September 30, 2019 and 2018, respectively, and non-cash expense of $752,000 and $292,000 for the nine months ended September 30, 2019 and 2018, respectively, resulting from the change in fair value of the warrant liability. The increase in fair value for the three months ended September 30, 2018, the nine months ended September 30, 2019 and the nine months ended September 30, 2018 was primarily driven by corresponding increases in the Company’s stock price of 23%, 72% and 14% for the respective periods. The decrease in fair value during the three months ended September 30, 2019 was primarily driven by a decrease in the Company’s stock price of 21% during the period.

15


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 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. The primary inputs affecting the value of the warrant liability are the Company’s stock price and volatility in the Company's stock price, as well as assumptions about the probability and timing of certain events, such as a change in control or future equity offerings. Increases in the fair value of the underlying stock or increases in the volatility of the stock price generally result in a corresponding increase in the fair value of the warrant liability; conversely, decreases in the fair value of the underlying stock or decreases in the volatility of the stock price generally result in a corresponding decrease in the fair value of the warrant liability.
The Company’s liabilities measured at fair value on a recurring basis and the fair value hierarchy utilized to determine such fair values is as follows at September 30, 2019 and December 31, 2018 (in thousands):
 
 
 
Fair Value Measurements Using
 
Total Fair
Value at
September 30, 2019
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Liabilities:
 
 
 
 
 
 
 
Derivative warrant liability - ESW warrant
$
2,603

 
$

 
$

 
$
2,603

Derivative warrant liability - Hale warrant
793

 

 

 
793

Derivative warrant liability - iStudy
154

 

 

 
154

Derivative warrant liability
$
3,550

 
$

 
$

 
$
3,550

 
 
 
Fair Value Measurements Using
 
Total Fair
Value at
December 31, 2018
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Liabilities:
 
 
 
 
 
 
 
Derivative warrant liability - ESW warrant
$
2,015

 
$

 
$

 
$
2,015

Derivative warrant liability - Hale warrant
750

 

 

 
750

Derivative warrant liability - iStudy
33

 

 

 
33

Derivative warrant liability
$
2,798

 
$

 
$

 
$
2,798

The Company classified the warrant liability as Level 3 due to the lack of relevant observable market data over fair value inputs such as the probability-weighting of the various scenarios in the arrangements. The following table represents a rollforward of the fair value of the Level 3 instruments (significant unobservable inputs):
Balance at December 31, 2018
 
$
2,798

Change in fair value
 
752

Balance at September 30, 2019
 
$
3,550

(5)
Revenue
The Company generates revenue through the sale of enterprise video content management software, hardware, maintenance and support, and professional and other services. Software sales may take the form of a perpetual software license, a cloud-hosted software as a service (SaaS) or a term software license. Software licenses and appliances revenue includes sales of perpetual software licenses and hardware. Service revenue includes SaaS, term software licenses, maintenance and support, and professional and other services.

16


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):
 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
2019
 
2018
 
2019
 
2018
Software licenses and appliances
$
1,962

 
$
985

 
$
3,656

 
$
4,303

Service
 
 
 
 
 
 
 
Subscription, maintenance and support
4,166

 
4,091

 
13,883

 
12,251

Professional services and other
543

 
577

 
1,595

 
1,556

Total service
4,709

 
4,668

 
15,478

 
13,807

Total revenues
$
6,671

 
$
5,653

 
$
19,134

 
$
18,110

 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
2019
 
2018
 
2019
 
2018
North America
$
4,916

 
$
3,766

 
$
12,416

 
$
11,593

Europe
1,505

 
1,618

 
5,650

 
4,693

Asia
250

 
269

 
1,068

 
1,824

Total
$
6,671

 
$
5,653

 
$
19,134

 
$
18,110

Contract Balances
The Company’s balances for contract assets totaled $1.3 million and $485,000 as of September 30, 2019 and December 31, 2018, respectively. The Company’s balances for contract liabilities, which are included in deferred revenue, totaled $10.8 million and $11.3 million as of September 30, 2019 and December 31, 2018, respectively.
During the three and nine months ended September 30, 2019, the Company recognized $3.4 million and $8.3 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the period. During the three and nine months ended September 30, 2018, the Company recognized $3.8 million and $7.3 million, respectively, 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 recognizable 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 $19.4 million as of September 30, 2019, of which the Company expects to recognize $11.1 million of revenue over the next 12 months and the remainder thereafter. During the three and nine months ended September 30, 2019 and 2018, no revenue was recognized from performance obligations satisfied in previous periods.
(6)
Stock-Based Compensation
The Company granted the following stock-based awards:
 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
2019
 
2018
 
2019
 
2018
Stock options
14,000

 
3,500

 
39,000

 
544,000

Restricted stock awards and restricted stock units
25,900

 

 
222,588

 
180,000

Performance stock units

 

 

 
168,500

The stock options and restricted stock awards granted during the three and nine months ended September 30, 2019 and 2018 were granted under the Company's Second Amended and Restated 2007 Stock Incentive Plan (the "2007 Plan"), a shareholder approved plan.
The Company granted performance stock units during 2018 ("2018 Performance Stock Units") and 2017 ("2017 Performance Stock Units"). The 2018 Performance Stock Units consisted of 147,741 units outstanding as of December 31, 2018, of which 98,492 vested during the nine months ended September 30, 2019. In settlement of the vested 2018 Performance Stock Units, during the nine months ended September 30, 2019, the Company issued 98,492 shares of restricted stock upon vesting, which was equal to the number of 2018 Performance Stock Units vested multiplied by the percentage achievement of the performance

17


goals of 100.0%. At September 30, 2019, there were 40,599 shares of common stock underlying the outstanding 2018 Performance Stock Units that may become vested upon the achievement of performance goals for the performance period of January 1, 2019 to December 31, 2019.
The 2017 Performance Stock Units consisted of 140,493 units outstanding as of December 31, 2017, of which 116,168 vested during the nine months ended September 30, 2018. In settlement of the vested 2017 Performance Stock Units, during the nine months ended September 30, 2018, the Company issued 25,726 shares upon vesting, which was equal to the number of 2017 Performance Stock Units vested multiplied by the weighted percentage achievement of the performance goals for the 2017 Incentive Plan of approximately 22.1%. With the vesting and settlement of the 2017 Performance Stock Units in shares, the 2017 Performance Stock Units terminated.
The Company recognized the following expense related to its share-based payment arrangements (in thousands):
 
 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
 
2019
 
2018
 
2019
 
2018
Stock-based compensation cost, before income tax benefit:
 
 

 
 

 
 

 
 

Stock options
 
$
85

 
$
105

 
$
255

 
$
225

Restricted stock awards and restricted stock units
 
134

 
140

 
384

 
458

Performance stock units
 

 
84

 
5

 
84

Total stock-based compensation
 
$
219

 
$
329

 
$
644

 
$
767

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
 
2019
 
2018
 
2019
 
2018
Stock-based compensation cost included in:
 
 

 
 

 
 

 
 

Cost of revenues
 
$
6

 
$
8

 
$
20

 
$
26

Operating expenses
 
213

 
321

 
624

 
741

Total stock-based compensation
 
$
219

 
$
329

 
$
644

 
$
767


(7)
Income Taxes
As of September 30, 2019 and December 31, 2018, the Company’s liability for gross unrecognized tax benefits (excluding interest and penalties) totaled $1.8 million and $1.7 million, respectively. The Company had accrued interest and penalties relating to unrecognized tax benefits of $22,300 and $5,600 on a gross basis at September 30, 2019 and December 31, 2018, respectively. The change in the liability for gross unrecognized tax benefits reflects an increase in interest and penalty reserves established for federal and state uncertain tax positions. The Company does not currently expect significant changes in the amount of unrecognized tax benefits during the next twelve months.

18


(8)
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):
 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss) per share – basic
 
 
 
 
 
 
 
Net income (loss)
$
(221
)
 
$
2,396

 
$
(4,772
)
 
$
(3,665
)
Weighted average shares outstanding
9,913

 
9,559

 
9,822

 
9,472

Net income (loss) per share – basic
$
(0.02
)
 
$
0.25

 
$
(0.49
)
 
$
(0.39
)
 
 
 
 
 
 
 
 
Net income (loss) per share – diluted
 
 
 
 
 
 
 
Income (loss) attributable to common shareholders:
 
 
 
 
 
 
 
Net income (loss)
$
(221
)
 
$
2,396

 
$
(4,772
)
 
$
(3,665
)
Numerator effect of dilutive securities
 
 
 
 
 
 
 
Warrants
(973
)
 

 

 

Income (loss) attributable to common shareholders
$
(1,194
)
 
$
2,396

 
$
(4,772
)
 
$
(3,665
)
Weighted average shares outstanding – diluted:
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
9,913

 
9,559

 
9,822

 
9,472

Denominator effect of dilutive securities
 
 
 
 
 
 
 
Unvested restricted stock units

 
150

 

 

Warrants
500

 

 

 

Diluted potential common shares
500

 
150

 

 

Weighted average shares outstanding – diluted
10,413

 
9,709

 
9,822

 
9,472

Net income (loss) per share – diluted
$
(0.11
)
 
$
0.25

 
$
(0.49
)
 
$
(0.39
)
Stock options, warrants and restricted stock units to acquire common shares that were excluded from the computation of diluted weighted-average common shares as their effect is anti-dilutive were as follows (in thousands):
 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
2019
 
2018
 
2019
 
2018
Stock options
1,268

 
1,334

 
1,337

 
1,261

Warrants

 
1,273

 
1,339

 
1,213

Restricted stock units
109

 

 
124

 
150

Total anti-dilutive
1,377

 
2,607

 
2,800

 
2,624


19


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with the section titled “Financial Information” and our audited financial statements and related notes which are included in our most recent Annual Report on Form 10-K. Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in “Risk Factors” included our most recent Annual Report on Form 10-K.
Overview
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 enterprises. Qumu's 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.
For the three months ended September 30, 2019 and 2018, the Company generated revenues of $6.7 million and $5.7 million, respectively. For the nine-month periods ended September 30, 2019 and 2018, the Company generated revenues of $19.1 million and $18.1 million, respectively. For the year ended December 31, 2018, the Company generated revenues of $25.0 million.
Critical Accounting Policies
The discussion of the Company's financial condition and results of operations is based upon its financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of the Company's financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, management evaluates its estimates and assumptions. Management bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that management believes to be reasonable. The Company's actual results may differ from these estimates under different assumptions or conditions.
Management utilizes its technical knowledge, cumulative business experience, judgment and other factors in the selection and application of the Company’s accounting policies. The accounting policies considered by management to be the most critical to the presentation of the condensed consolidated financial statements because they require the most difficult, subjective and complex judgments include revenue recognition, accounting for leases, derivative liabilities for outstanding warrants, and royalties for third party technology. Except for the accounting policies for lease accounting that were updated as a result of adopting Topic 842 effective January 1, 2019, our significant accounting policies applicable to the nine months ended September 30, 2019 are discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
See Note 1–"Nature of Business and Basis of Presentation" of the accompanying condensed consolidated financial statements for a description of the Company’s change in critical accounting policies with respect to lease accounting during the nine months ended September 30, 2019.

20


Results of Operations
The percentage relationships to revenues of certain income and expense items for the three and nine months ended September 30, 2019 and 2018, and the percentage changes in these income and expense items relative to the prior year periods, are contained in the following table:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Percentage of Revenues
 
Percent Increase (Decrease)
 
Percentage of Revenues
 
Percent Increase (Decrease)
 
2019
 
2018
 
2018 to 2019
 
2019
 
2018
 
2018 to 2019
Revenues
100.0
 %
 
100.0
 %
 
18
 %
 
100.0
 %
 
100.0
 %
 
6
 %
Cost of revenues
(30.2
)
 
(37.4
)
 
(5
)
 
(26.7
)
 
(36.6
)
 
(23
)
Gross profit
69.8

 
62.6

 
32

 
73.3

 
63.4

 
22

Operating expenses:
 

 
 

 
 
 
 

 
 

 
 
Research and development
27.7

 
28.6

 
14

 
28.0

 
28.4

 
4

Sales and marketing
31.2

 
31.8

 
16

 
34.7

 
35.3

 
4

General and administrative
25.1

 
28.4

 
4

 
26.1

 
30.6

 
(10
)
Amortization of purchased intangibles
2.5

 
4.0

 
(25
)
 
3.2

 
3.8

 
(14
)
Total operating expenses
86.5

 
92.8

 
10

 
92.0

 
98.1

 
(1
)
Operating loss
(16.7
)
 
(30.2
)
 
(35
)
 
(18.7
)
 
(34.7
)
 
(43
)
Other income (expense), net
11.6

 
80.9

 
(83
)
 
(6.9
)
 
16.1

 
(146
)
Income (loss) before income taxes
(5.1
)
 
50.7

 
(112
)
 
(25.6
)
 
(18.6
)
 
46

Income tax expense (benefit)
(1.8
)
 
8.3

 
(125
)
 
(0.7
)
 
1.6

 
(144
)
Net income (loss)
(3.3
)%
 
42.4
 %
 
(109
)%
 
(24.9
)%
 
(20.2
)%
 
30
 %
Revenues
The Company generates revenue through the sale of enterprise video content management software solutions, appliances, 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, which varies due to customer specifications and preferences. Software licenses and appliances revenue includes sales of perpetual software licenses and hardware. Service revenue includes term software licenses, SaaS, maintenance and support, and professional and other services.
The table below describes the Company's revenues by product category (dollars in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
Increase (Decrease)
 
Percent Increase (Decrease)
 
 
 
Increase (Decrease)
 
Percent Increase (Decrease)
 
2019
 
2018
 
2018 to 2019
 
2018 to 2019
 
2019
 
2018
 
2018 to 2019
 
2018 to 2019
Software licenses and appliances
$
1,962

 
$
985

 
$
977

 
99
 %
 
$
3,656

 
$
4,303

 
$
(647
)
 
(15
)%
Service
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subscription, maintenance and support
4,166

 
4,091

 
75

 
2

 
13,883

 
12,251

 
1,632

 
13

Professional services and other
543

 
577

 
(34
)