QUMU Qumu Corp - 10-K

ITEM 1A. RISK FACTORS

If any of the following risks actually occur, our business, results of operations and financial condition and the market price of our common stock could be negatively impacted. Although we believe that we have identified and discussed below the most significant risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our performance or financial condition. Any forecast regarding our future performance, including, but not limited to, forecasts regarding future revenue, product mix, cash flow and cash balances, are forward-looking statements. These forward-looking statements reflect various assumptions and are subject to significant uncertainties and risks that could cause the actual results to differ materially from those described in the forward-looking statement, including the risks reflected in the risk factors set forth below. Consequently, the future results expressed or implied by any forward-looking statement are not guaranteed and the variation of actual results or events from such statements may be material and adverse.

Risks Related to Our Business and Our Industry

We may not be successful at implementing our long-term strategic plan.

In July 2020, we began the process of developing our long-term strategic plan and late in the third quarter of 2020, we began the initial implementation phase of our long-term strategic plan. This strategy is aimed at transforming Qumu as a more focused, cloud-first organization driving improved, high-margin recurring SaaS revenues.

We cannot ensure that our continued execution of our long-term strategic plan will be successful either in the short-term or in the long-term, or that this strategy will generate the intended operational or financial results within the timeframes expected or at all. Further, if customer preferences and the use of video in the enterprise do not evolve as we believe they will, many of our strategic initiatives and investments may be of limited value.

Moreover, we may not execute our long-term strategic plan successfully because of errors in planning or timing, technical hurdles that we fail to overcome in a timely fashion, or lack of appropriate resources. Our failure to successfully execute on the initiatives within our long-term strategic plan, even if the strategy is sound, could result in loss of market share and sales. Additionally, if we do not effectively communicate our long-term strategic plan to our investors and stakeholders, we may not realize the full benefits that we would otherwise gain through successful execution of that strategy.

We have and intend to continue to execute our long-term strategic plan by investing in our cloud platform, in our go-to-market initiatives, targeted channel strategies, the development of new applications, products and features, and other initiatives that we have identified or that have yet to be developed. The process of identifying the specific initiatives to align with our long-term strategic plan and the process of implementing these initiatives is complex and uncertain. Additionally, we must commit

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significant resources to these initiatives before knowing whether our investments will result in the operational or financial results we expect or intend. The return on our investments in initiatives may be lower, or may develop more slowly, than we expect. For example, as Qumu expanded its SaaS salesforce in the first half of 2021, we expected our revenue growth rate to accelerate in the second half of 2021 as compared to the first half of 2021, which did not occur. While we have pivoted from primarily a direct sales strategy to a targeted channel-led strategy, our revenue growth may not accelerate as we expect. If we do not achieve the benefits anticipated from these investments or if the achievement of these benefits is delayed, our operating results may be adversely affected. There can be no assurance that we will develop and implement initiatives that will advance the goals of our long-term strategic plan in a cost-effective or timely manner or at all.

Our history of losses and our cash resources available to execute our business plan over the next twelve months raise substantial doubt about our ability to continue as a going concern.

We experienced consolidated net losses of $16.4 million, $9.2 million and $6.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. While we generated positive cash flows from operations during part of 2020, we have historically not generated sufficient operating cash flow to fund our operations.

As of December 31, 2021, our principal source of liquidity consisted of $20.6 million of cash and cash equivalents. In February 2022, our 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, we implemented a cost optimization program that is in addition to the cash management actions we took in 2021.

Also as part of this operating plan, on April 15, 2022, we 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 our 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 us 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. Our monthly operations and resulting adjusted quick ratio are subject to significant fluctuations due to a variety of factors, many of which are outside of our control, and negative operating results may cause non-compliance with the adjusted quick ratio.

Our capital needs are based upon management estimates as to future revenue and expense. Currently, management is anticipating revenue growth through Qumu’s channel sales partners in the second half of 2022 and is anticipating that expense will decreases over 2022 as a result of our prior cash management actions. 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, Qumu will need additional capital to fund its business plan and under those circumstances, borrowing under our line of credit with SVB may be limited due to borrowing base availability or covenant non-compliance. Our current cash resources and the limitations under the SVB Agreement on our available borrowing present the risk that we will not have sufficient cash available in the amount or at the time we need it to fund our ongoing operations and execute our business plan over the next twelve months.

Accordingly, our history of losses and our cash resources available to execute our business plan over the next twelve months raise substantial doubt about our ability to continue as a going concern.

Management’s plans to address the doubt regarding our ability to continue as a going concern are discussed in Note 1–"Nature of Business and Summary of Significant Accounting Policies – Liquidity and Going Concern Considerations." Our ability to continue as a going concern is dependent upon our success in achieving and maintaining an expense structure that is aligned with our revenue and cash flows, the availability of borrowing under the SVB Agreement, obtaining additional equity or debt financing, attaining further operating efficiencies, reducing expenditures and ultimately, generating significant revenue growth.

Our plans address the doubt regarding our ability to continue as a going concern may not be successful. There can be no assurance that the Company would be able to obtain additional liquidity when needed or under acceptable terms, if at all. Additionally, some of our plans, such as further reducing expenditures, could yield unintended consequences, such as distraction of management and employees, business disruption, reduced employee morale and productivity, unexpected additional employee attrition, and the inability to attract or retain key personnel. These consequences could further negatively affect our ability to grow revenue and generate cash flow.

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The perception of our ability to continue as a going concern may make it more difficult for us to obtain equity financing or alternative debt financing for the continuation of our operations and could result in the loss of confidence by investors, customers, and employees, any of which may have a material adverse effect on our business and the trading price of our common stock.

Competition for highly skilled personnel is intense, and if we fail to attract and retain talented employees, we may fail to compete effectively.

Our future success depends, in significant part, on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees, particularly in senior management, engineering, product development and sales, is intense and continues to become more competitive. In addition, our compensation arrangements may not be successful in attracting new employees and retaining and motivating our existing employees given the very high demand for these employees from other employers. Our ability to compete effectively depends on our ability to attract new employees and to compensate, retain and motivate our existing employees.

If we are unable to attract new customers, retain existing customers and sell additional products and services to our existing and new customers, our revenue growth and profitability will be adversely affected.

To increase our revenues and achieve profitability, we must regularly add new customers, retain our existing customers, ensure high rates of renewals among our existing customers, sell additional products and services to new and existing customers, or convert existing customers to our latest SaaS solution. Because we have pivoted from primarily a direct sales strategy to a targeted channel-led strategy, our success in adding new customers will be in part dependent upon our relationships with our channel partners and the success of the sales and marketing efforts of our channel partners.

We intend to grow our business by developing and improving our product offerings, ensuring high levels of customer satisfaction, competing effectively with products and services offered by others, retaining and attracting talent, developing relationships with channel partners and increasing our marketing activities.

If we fail to add new customers or lose existing customers, or if our existing customers do not renew their subscriptions at the same levels or do not increase their purchases of products and services, we will not grow our revenue as expected and our operating results will suffer.

We may need additional capital to support the execution of our strategic plan or to fund operations and any additional capital we seek may not be available in the amount or at the time we need it.

We experienced consolidated net losses of $16.4 million, $9.2 million and $6.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. While we generated positive cash flows from operations during part of 2020, we have historically not generated sufficient operating cash flow to fund our operations. In executing our long-term strategic plan, our strategy of driving improved, high-margin recurring revenues required us to invest in sales, marketing, research, and development initiatives, and implement new software programs and systems. Accordingly, we expect our operating expenses will continue to reflect the cost of those initiatives throughout 2022, and we expect our revenue growth rate to accelerate in the second half of 2022 as compared to the first half of 2022. However, even if SaaS revenues grow as expected in 2022, we may not achieve cash flow positivity until 2023.

Our capital needs are based upon management estimates as to future revenue and expense. If we are not able to significantly increase revenue and revenue growth in 2022 or if our expenses are higher than anticipated or do not correspond to our rate of revenue growth, we will need to raise funds in the future to execute our strategic plan, fund operations and pursue our growth objectives. As of December 31, 2021, Qumu maintained an outstanding balance of $5.0 million on the line of credit with Wells Fargo Bank and was in compliance with all covenants of the loan and security agreement. On April 15, 2022, we closed on a new Loan and Security Agreement (the “SVB Agreement”) with Silicon Valley Bank providing for new line of credit to replace the Wells Fargo facility. 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 our net cash, as defined, is less than $5.0 million.

We cannot assure you that additional financing will be available in the amount or at the time we need it, or that it will be available on acceptable terms or at all. We may obtain future additional financing by drawing on our line of credit, incurring indebtedness or from an offering of our equity securities or any of these.

If we raise additional equity financing, our shareholders may experience significant dilution of their ownership interests and the value of shares of our common stock could decline. Our efforts to raise additional funds from the sale of equity may be

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hampered by the currently depressed trading price of our common stock. If we raise additional equity financing, new investors may demand rights, preferences or privileges senior to those of existing holders of common stock. Our efforts to raise funds by incurring additional indebtedness may be hampered by the borrowing base limits of the SVB Agreement, by the covenants and restrictions of our existing outstanding indebtedness and the fact that our assets are pledged to our lender to secure existing debt. The covenants of our loan and security agreement restrict our ability to make dividends, create liens, incur indebtedness, and sell our assets and properties, subject to certain exceptions. Likewise, any additional debt we incur would likely have covenants that would affect the manner in which we conduct our business, including by restricting our ability to incur additional indebtedness, preventing us from creating liens or requiring specified financial covenants. In addition, we may face challenges in securing additional debt financing if our future cash flow from operations is not sufficient to support debt service payments. If we cannot timely raise any needed funds, we may be forced to make further substantial reductions in our operating expenses, which could limit our sales and marketing efforts, adversely affect our ability to attract and retain qualified personnel, limit our ability to develop and enhance our solutions, make it more difficult for us to respond to competitive pressures or unanticipated working capital requirements, and otherwise adversely affect our ability to pursue our strategic plan or growth objectives.

While we are investing heavily in sales, marketing and research and development to enhance revenue growth and become cash flow positive, we may not achieve those goals or achieve or sustain cash flows or profitability in the future.

In order to achieve our strategic plan, we must grow our cloud business, scale our SaaS recurring revenue base, and increase the SaaS recurring revenue as a proportion of our recurring revenue mix. In order to achieve cash flow positivity and profitability in the future, we must increase the revenues received from the sale of our enterprise video content management software solutions, hardware, maintenance and support, and professional and other services, as well as achieve and maintain an expense structure that is aligned with our forecasted revenue and cash flows. Our focus is on growing our SaaS business as we expect our on-premise hardware, license and maintenance business to continue to decline. Our ability to increase revenues depends upon increasing the number of new SaaS customers and expanding our sales to existing customers, maintaining high renewal rates among our existing customers, and maintaining our prices (despite pricing pressure due to competition). While Qumu expects operating expense in 2022 to decrease compared to 2021, Qumu expects cash flows from operating activities in 2022 to be significantly affected by expenditures associated with the continued execution of our strategic plan, as well as those factors that have historically impacted operating cash flows – fluctuations in revenues, timing of customer payments, personnel costs, outside service providers, and the amount and timing of royalty payments and equipment purchases as Qumu continues to support the growth of its business.

We cannot assure you that we will generate increases in our revenues consistent with our strategic plan, attain a level of profitable operations, generate cash from operations, or successfully implement our business plan or future business opportunities. Our business plan and capital needs are subject to change depending on, among other things, success of our efforts to grow revenue and our efforts to continue to effectively manage expenses. If we are ultimately unable to generate sufficient revenue to meet our financial targets, become profitable and have sustainable positive cash flows, we may be required to further reduce expenses, which could have a further negative effect on our ability to generate revenue.

The markets for video content and software to manage video content are each in early stages of development. If this market does not develop or develops more slowly than Qumu expects, including as a result of COVID-19 impacts, Qumu’s revenues may decline or fail to grow.

The use of video as a mainstream communication and collaboration platform and the market for video content management software is in an early stage of development, and it is uncertain whether the use of video will achieve high levels of long-term acceptance. Widespread adoption and use of video in the enterprise is critical to Qumu’s future growth and success. Likewise, it is uncertain whether video content management software will achieve high levels of demand and market adoption. Qumu’s success will depend on enterprises adopting video as a platform and upon enterprise demand for software to help them capture, organize and distribute this content. Qumu believes that the COVID-19 crisis will act as a tipping point for the use and acceptance of video as a primary communication channel within the enterprise. As video content and software to manage video content achieve high levels of acceptance within the enterprise, we believe this will drive demand and market adoption for Qumu’s video platform and tools. In particular, we have noted a trend toward new customers choosing Qumu’s cloud-based enterprise video solution or existing customers converting to a cloud-based solution.

Despite the changes in business practices caused by the COVID-19 pandemic, some customers may be reluctant or unwilling to use video as a medium within the enterprise for a number of reasons, including lack of perceived benefit of this new method of communication and existing investments in other enterprise-wide communications tools. Further, even if customers are using video as a medium, these customers may choose to rely upon their own IT infrastructure and resources to manage their video content. Because many companies generally are predisposed to maintaining control of their IT systems and infrastructure, there may be resistance to using software as a service provided by a third party. Privacy concerns and transition costs are also factors that may affect a potential customer’s decision to subscribe to an external solution.

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Additional factors that may limit market acceptance of Qumu’s video content management software include:

• competitive dynamics may cause pricing levels to change as the market matures and cause customers to seek out lower priced alternatives to Qumu’s video content management software or force Qumu to reduce the prices Qumu charges for its products or services; or

• existing and new market participants may introduce new types of solutions and different approaches to enable enterprises to address their enterprise communications or video communications needs and these disruptive technologies may reduce demand for Qumu’s video content management software.

If customers do not perceive the benefits of Qumu’s video content management software, or if customers are unwilling to accept video content as an alternative to other more traditional forms of enterprise communication, the market for Qumu’s software might not continue to develop or might develop more slowly than Qumu expects, either of which would significantly adversely affect Qumu’s financial results and prospects.

Further, there is no assurance that the COVID-19 crisis will result in substantial and sustained increased in use and acceptance of video as a primary communication channel or that this increased in use and acceptance of video will result in an increased demand among customers for Qumu’s video platform and tools, either of which would significantly adversely affect Qumu’s financial results and prospects.

We encounter long sales cycles with our enterprise video solutions, which could adversely affect our operating results in a given period.

Our ability to increase revenues and achieve profitability depends, in large part, on widespread adoption of our enterprise video content management software products by businesses and other organizations. As we target our sales efforts at these customers, we face greater costs, longer sales cycles and less predictability in completing sales. In the large enterprise market, the customer’s decision to use our products may be an enterprise-wide decision and, therefore, these types of sales require us to provide greater levels of education regarding the use and benefits of our applications. Further, given the constant innovation with our industry and our products, customers may delay purchasing decisions until certain features or products in development are brought to market. Longer sales cycles could cause our operating and financial results to suffer in a given period.

We are subject to financial and other covenants related to our debt financing and if we fail to meet such covenants, it could have a material adverse impact on our business.

On April 15, 2022, we entered into a loan and security agreement with Silicon Valley Bank providing for a revolving line of credit. The credit facility is available for cash borrowings, subject to a formula based upon 85% of eligible accounts receivable plus a portion not subject to such formula of $2.5 million. The non-formula amount is eliminated from available borrowings at the earlier of April 30, 2023 or the date on which the Company's net cash, as defined in the agreement, is less than $5.0 million.

Additionally, when the Company's net cash is less than $5.0 million, at which point the non-formula amount of $2.5 million would be eliminated from available borrowings and the interest rate on borrowed would increase from 1.50% above the prime rate to 2.00% above the prime rate. The loan and security agreement maintains certain reporting requirements, conditions, and covenants.

Pursuant to the loan and security 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 loan and security agreement contains customary events of default, upon the occurrence of which, the lender may accelerate repayment of any outstanding balance. The loan and security agreement contains customary affirmative and negative covenants and requirements relating to the Company and its operations, including a requirement that the Company maintain an adjusted quick ratio, as defined in the agreement, greater than or equal to 1.25 to 1.00. Our monthly operations and resulting adjusted quick ratio are subject to significant fluctuations due to a variety of factors, many of which are outside of our control, and negative operating results may cause non-compliance with the adjusted quick ratio.

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. These covenants may affect our ability to operate and finance our business as we deem appropriate.

If we are unable to meet our obligations as they become due or to comply with the financial covenants or other covenants contained in the line of credit, this could constitute an event of default under the loan and security agreement.

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If there were an event of default under the loan and security agreement, the lender could declare any indebtedness immediately due and payable. In that case, we may need to refinance the line of credit indebtedness or seek capital from other sources to repay any accelerated debt. Even if we could obtain additional financing, the terms of the financing may not be favorable to us. In addition, substantially all of our assets are subject to liens securing the line of credit. If amounts outstanding under the line of credit were accelerated, the lender could foreclose on these liens and we could lose substantially all of our assets. Any event of default under the loan and security agreement could have a material adverse effect on our business, financial condition and results of operations.

To compete effectively, we must continually improve existing products and introduce new products that achieve market acceptance.

In order to remain competitive and increase sales to customers, we must anticipate and adapt to the rapidly changing technologies in the enterprise video content management market, enhance our existing products and introduce new products to address the changing demands of our customers. If we fail to anticipate or respond to technological developments or customer requirements, or if we are significantly delayed in developing and introducing products, our revenues will decline.

If we fail to accurately predict customers’ changing needs and emerging technological trends, our business could be harmed. We must commit significant resources and may incur obligations (such as royalty obligations) to develop new products and features before knowing whether our investments will result in products the market will accept and without knowing the levels of revenue, if any, that may be derived from these products. Some of our competitors have greater engineering and product development resources than we have, allowing them to develop a greater number of products or improvements or to develop them more quickly.

If we fail to anticipate or respond in a cost-effective and timely manner to technological developments, changes in industry standards or customer requirements, or if we experience any significant delays in the development or introduction of new products or improvements to existing products, our business, operating results and financial condition could be affected adversely.

We face intense competition and such competition may result in price reductions, lower gross profits and loss of market share.

Our products face intense competition, both from other products and from other technologies, both in the U.S. and in international markets. We compete with others such as Kaltura, Brightcove, Vbrick and Vimeo who deliver video solutions to businesses. Qumu also encounters organizations utilizing Zoom, Cisco’s WebEx and Microsoft’s Teams and Streams technologies for video. While some view Zoom, WebEx and Teams as competitors to Qumu and some customers view their products as a partial alternative to Qumu’s technology, we believe that the Zoom, WebEx and Teams and Qumu technologies can be seamlessly integrated and provide the customer with greater scale, security and flexibility and improved manageability than use of those technologies alone. Further, because some prospective customers may choose to rely upon their own IT infrastructure and resources to manage their video content, we compete with customer-created solutions for video content management. We expect the intensity of competition we face to increase in the future from other established and emerging companies.

Many of our competitors have greater resources than we do, including greater sales, product development, marketing, financial, technical or engineering resources. In addition, because our enterprise video content management software business is operating within an evolving marketplace, our target customers may prefer to purchase software products that are critical to their business from one of our larger, more established competitors.

To remain competitive, we believe that we must continue to provide:

• technologically advanced products and solutions that anticipate and satisfy the demands of end-users;

• continuing advancements or innovations in our product offerings, including products with price-performance advantages or value-added features in security, reliability or other key areas of customer interest;

• innovations in video content creation, management, delivery and user experience;

• a responsive and effective sales force;

• a dependable and efficient sales distribution network;

• superior customer service; and

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• high levels of quality and reliability.

We cannot assure you that we will be able to compete successfully against our current or future competitors. Competition may result in price reductions, lower gross profit margins, increased discounts to customers and loss of market share, and could require increased spending by us on research and development, sales and marketing and customer support.

Economic and market conditions, particularly those affecting our customers, have harmed and may continue to harm our business.

Unfavorable changes in economic conditions, including recession, inflation, lack of access to capital, lack of consumer confidence or other changes have resulted and may continue to result in lower spending among our customers and target customers.

Further, we sell our products throughout the United States, as well as in several international countries to commercial and government customers. Our business may be adversely affected by factors in the United States and other countries such as disruptions in financial markets, reductions in government spending, or downturns in economic activity in specific countries or regions, or in the various industries in which we operate; social, political or labor conditions in specific countries or regions; or adverse changes in the availability and cost of capital, interest rates, tax rates, or regulations. These factors are beyond our control but may result in further decreases in spending among customers and softening demand for our products.

Further, challenging economic conditions also may impair the ability of our customers to pay for products and services they have purchased. As a result, our cash flow may be negatively impacted and our allowance for doubtful accounts and write-offs of accounts receivable may increase.

Our sales will decline, and our business will be materially harmed, if our sales and marketing efforts are not effective.

We will need to continue to grow and optimize our sales infrastructure in order to grow our customer base and our revenues. Identifying and recruiting qualified personnel and training them in the use and functionality of our software requires significant time, expense and attention. It can take six months or longer before our sales representatives are fully trained and productive. If we are unable to hire, develop and retain talented sales personnel or if new sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenues. We also intend to expand new sales and customer success models that focus on different sales strategies tailored to different customer types and stages of our customers lifecycles. Our business may be adversely affected if our efforts to train our internal sales force or execute our selling strategies do not generate a corresponding increase in revenues.

For sales that are made to customers through our channel partners, we depend on these businesses to provide effective sales and marketing support to our products. Our channel partners are independent businesses that we do not control. Our agreements with channel partners do not contain requirements that a certain percentage of such parties’ sales are of our products. These channel partners may choose to devote their efforts to other products in different markets or reduce or fail to devote the resources to provide effective sales and marketing support of our products, any of which could harm our business by reducing sales to customers.

We believe that our future growth and success will depend upon the success of our internal sales and marketing efforts as well as those of our channel partners.

We sell a significant portion of our products internationally, which exposes us to risks associated with international operations.

We sell a significant amount of our products to customers outside the United States, particularly in Europe and Asia. We expect that sales to international customers, including customers in Europe and Asia, will continue to account for a significant portion of our net sales. Sales outside the United States involve the following risks, among others:

• international governments may impose tariffs, quotas and taxes;

• public health emergencies, such as the recent coronavirus outbreak and the subsequent public health measures, may affect our employees, suppliers, customers and our ability to provide services and maintenance in the affected regions;

• the demand for our products will depend, in part, on local economic health;

• political and economic instability may reduce demand for our products;

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• restrictions on the export or import of technology may reduce or eliminate our ability to sell in certain markets;

• potentially limited intellectual property protection in certain countries may limit our recourse against infringing products or cause us to refrain from selling in certain markets;

• potential difficulties in managing our international operations;

• the burden and cost of complying with a variety of international laws, including those relating to data security and privacy;

• we may decide to price our products in foreign currency denominations;

• our contracts with international channel partners cannot fully protect us against political and economic instability;

• potential difficulties in collecting receivables; and

• we may not be able to control our international channel partners’ efforts on our behalf.

The financial results of our non-U.S. subsidiaries are translated into U.S. dollars for consolidation with our overall financial results. Currency translations and fluctuations may adversely affect the financial performance of our consolidated operations. Currency fluctuations may also increase the relative price of our product in international markets and thereby could also cause our products to become less affordable or less price competitive than those of international manufacturers. These risks associated with international operations may have a material adverse effect on our revenue from or costs associated with international sales.

The COVID-19 pandemic has significantly impacted worldwide business practices and economic conditions and could have a material effect on Qumu’s business, financial condition and operating results.

As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving measures to try to contain the virus, such as vaccine distribution, travel bans and restrictions, limits on gatherings, quarantines, shelter-in-place orders, and business shutdowns.

In response to these developments, we have modified our business practices by restricting employee travel, moving to remote work, cancelling in-person attendance at events and conferences, and implementing social distancing. The resources available to our employees working remotely may not enable them to maintain the same level of productivity and efficiency, particularly our sales employees whose in-person access to our customers and customer prospects has been significantly limited. While we have experienced only limited absenteeism from employees, absenteeism may increase in the future and may harm our productivity. Due to customer demand, Qumu has and may in the future rely upon outsourced professional services, which could negatively impact margins.

The COVID-19 pandemic also has changed worldwide business practices as companies have implemented COVID-19 vaccine requirements, travel restrictions and work-from-home requirements. As part of these changes, enterprises of all sizes are implementing technology plans to virtualize customer meetings, employee communications and major events – as well as record and store video assets for on-demand viewing.

Qumu believes that the COVID-19 crisis will act as a tipping point for the use and acceptance of video as a primary communication channel within the enterprise. As video content and software to manage video content achieve high levels of acceptance within the enterprise, we believe this will drive demand and market adoption for Qumu’s video platform and tools. Widespread adoption and use of video in the enterprise is critical to Qumu’s future growth and success. However, there is no assurance that the COVID-19 crisis will result in substantial and sustained increased in use and acceptance of video as a primary communication channel or that this increased in use and acceptance of video will result in an increased demand among customers for Qumu’s video platform and tools.

Restrictions on the manufacturing, operations or workforce of our vendors and suppliers could limit our ability to meet customer demand for hardware purchased as a component of the overall Qumu solution, which would harm our ability to meet our delivery and installation obligations to customers and result in delayed or lost revenue and cash flow from collections. Furthermore, restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, may result in higher costs and delays for supply of hardware, which could reduce our margins on hardware.

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The COVID-19 pandemic slowed business decisions around procurement and new digital transformations in 2021. These pullbacks were higher than Qumu's management anticipated. Although we feel hybrid and remote work will increase in 2022, we cannot predict the amount of return to office, versus hybrid, versus work from wherever polices that our primary enterprises will settle on. This makes predicting the speed of growth more difficult.

The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and geographic spread of the outbreak, its severity, the actions to contain the virus and address its impact, travel restrictions imposed, business closures or business disruption, and the actions taken throughout the world, to contain COVID-19 or treat its impact.

Risks Relating to Our Technology

Our enterprise video content management software products must be successfully integrated into our customers’ information technology environments and workflows, and changes to these environments, workflows or unforeseen combinations of technologies may harm our customers’ experience in using our software products.

A significant portion of our sales are made into applications that require our enterprise video content management software products to be integrated into other enterprise workflows, enterprise information technology environments or software functionalities. Any significant changes to enterprise workflows, IT environments or software programs may limit the use or functionality of or demand for our products. As our customers advance technologically, we must be able to effectively integrate our products to remain competitive. Further, current and potential customers may choose to use products offered by our competitors or may not purchase our products if our products would require changes in their existing enterprise workflows, IT environments or software.

The growth and functionality of our enterprise video content management software products depend upon the solution’s effective operation with mobile operating systems and computer networks.

Our products are currently compatible with various mobile operating systems including the iOS, Windows Mobile and Android operating systems. The functionality of our products depends upon the continued interoperability of these products with popular mobile operating systems. Any changes in these systems that degrade our products’ functionality or give preferential treatment to competitive offerings could adversely affect the operability and usage of our video management software products on mobile devices. Additionally, in order to deliver a high-quality user experience, it is important that our products work well with a range of mobile technologies, systems, and networks. We may not be successful in keeping pace with changes in mobile technologies, operating systems, or networks or in developing products that operate effectively within existing or future technologies, systems, and networks. Further, any significant changes to mobile operating systems by their respective developers may prevent our products from working properly or at all on these systems. In the event that it is more difficult for users to access content delivered by our solutions to their mobile devices, if our products do not operate effectively within the most popular operating systems or if popular mobile devices do not offer a high-quality user experience, sales of and customer demand for our software products could be harmed.

Computer malware, viruses, hacking, phishing attacks, spamming, and other cyber-threats could harm our business and cause customers to lose confidence in us and our products, which could significantly impact our business and results of operations .

Computer malware, viruses, computer hacking, phishing attacks, social engineering, and other electronic threats have become more prevalent, have occurred on our systems in the past, and may occur on our systems in the future. While we are taking measures to safeguard our solutions and services from cybersecurity threats and vulnerabilities, cyber-attacks and other security incidents continue to evolve in sophistication and frequency. The connection of our software solutions to our customers and their information technology environments could present the opportunity for an attack on our systems to serve as a way to obtain access into our customers’ systems, which could have a material adverse effect on our financial condition and growth prospects. Our security measures may also be breached due to employee or other error, intentional malfeasance and other third-party acts, and system errors or vulnerabilities, including vulnerabilities of our third-party vendors, customers, or otherwise. Businesses have experienced material sales declines after discovering data breaches, and our business could be similarly impacted. The costs to continuously improve the security of our solutions and reduce the likelihood of a successful attack are high and may continue to increase. Furthermore, some U.S. states and international jurisdictions have enacted laws requiring companies to notify consumers of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of the data security measures of our solutions. Any negative incidents can quickly erode trust and confidence, particularly if they result in adverse mainstream and social media publicity, governmental investigations or litigation. Though it

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is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security and availability of our products and technical infrastructure to the satisfaction of our customers may harm our reputation, impair our ability to retain existing customers and attract new customers and expose us to legal claims and government action, each of which could have a material adverse impact on our business, results of operations and financial condition.

Expanding laws, regulations and customer requirements relating to data security and privacy may adversely affect sales of our products and result in increased compliance costs.

Our customers can use our products to collect, use and store personal or identifying information regarding their employees, customers and suppliers. Federal, state and international government bodies and agencies have adopted, are considering adopting, or may adopt laws and regulations regarding data security, privacy and the collection, use, storage and disclosure of personal information obtained from consumers and individuals. These laws and regulations could reduce the demand for our software products if we fail to design or enhance our products to enable our customers to comply with the privacy and security measures required by the legislation.

We also must comply with the policies, procedures and business requirements of our customers relating to data privacy and security, which can vary based upon the customer, the customer’s industry or location, and the product the customer selects, and which may be more restrictive than the privacy and security measures required by law or regulation. In particular, the European Union and many countries in Europe have stringent privacy laws and regulations, which may impact our ability to profitably operate in certain European countries or to offer products that meet the needs of customers subject to European Union privacy laws and regulations. Likewise, the California Consumer Privacy Act is a state law intended to enhance privacy rights and consumer protection that may impact our ability to profitably operate across the United States given that our customers’ employees may be resident in California or to offer products that meet the needs of customers subject to California privacy laws and regulations.

The costs of compliance with, and other burdens imposed by, our customers’ own requirements and the privacy and security laws and regulations that are applicable to our customers’ businesses may limit the use and adoption of our products and reduce overall demand. Non-compliance with our customers’ specific requirements may lead to termination of contracts with these customers or liabilities to the customers; non-compliance with applicable laws and regulations may lead to significant fines, penalties or liabilities.

Furthermore, privacy concerns may cause our customers’ workers to resist providing the personal data necessary to allow our customers to use our products effectively. If a customer experiences a significant data security breach involving our software products, our customers could lose confidence in our software’s ability to protect the personal information of their employees, customers and suppliers, which could cause our customers to discontinue use of our products. The loss of confidence from a significant data security breach involving our software products could hurt our reputation, cause sales and marketing challenges to existing and new customers, cause loss of market share or exacerbate competitive pressures, result in an increase in our development costs to address any potential vulnerabilities in our software products, and may result in reduced demand and revenue. Even the perception of privacy concerns, whether or not valid, may inhibit market adoption of our products in certain industries.

Domestic and international legislative and regulatory initiatives and our customers’ privacy policies and practices may adversely affect our customers’ ability to process, handle, store, use and transmit demographic and personal information from their employees, customers and suppliers, which could reduce demand for our products.

In addition to government activity, privacy advocacy groups and the technology and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on our software products. If the processing of personal information were to be curtailed in this manner, our software products would be less effective, which may reduce demand for our products and adversely affect our business.

Any failure of major elements of our products could lead to significant disruptions in our ability to serve customers, which could damage our reputation, reduce our revenues or otherwise harm our business.

Our business is dependent upon providing customers with fast, efficient and reliable services. A reduction in the performance, reliability or availability of required network infrastructure may harm our ability to distribute content to our customers, as well as our reputation and ability to attract and retain customers. Our content management software solutions and operations are susceptible to, and could be damaged or interrupted by, outages caused by fire, flood, power loss, telecommunications failure, Internet or mobile network breakdown, earthquake and similar events. Our solutions are also subject to human error, security breaches, power losses, computer viruses, break-ins, “denial of service” attacks, sabotage, intentional acts of vandalism and tampering designed to disrupt our computer systems and network communications. Our failure to protect our network against

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damage from any of these events could have a material adverse effect on our business, results of operations and financial condition.

Our operations also depend on web browsers, ISPs (Internet service providers) and mobile networks to provide our customers’ end-users with access to websites, streaming and mobile content. Many of these providers have experienced outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our solutions. Any such outage, delay or difficulty could adversely affect our ability to effectively provide our products and services, which would harm our business.

If we lose access to third-party licenses, our software product development and production may be delayed or we may incur additional expense to modify our products or products in development.

Some of our solutions contain software licensed from third parties. Third-party licensing arrangements are subject to a number of risks and uncertainties, including:

• undetected errors or unauthorized use of another person’s code in the third party’s software;

• disagreement over the scope of the license and other key terms, such as royalties payable;

• infringement actions brought by third-party licensees;

• that third parties will create solutions that directly compete with our products; and

• termination or expiration of the license.

Because of these risks, some of these licenses may not be available to us in the future on terms that are acceptable to us or allow our products to remain competitive. The loss of these licenses or the inability to maintain any of them on commercially acceptable terms could delay development of future products or impair the functionality or enhancement of existing products, leading to increased expense associated with licenses of third-party software or development of alternative software to provide comparable functionality for our existing products and modification of our existing products. Further, if we lose or are unable to maintain any of these third-party licenses or are required to modify software obtained under third-party licenses, it could delay the release of new products, delay enhancements to our existing products or delay sales of our existing products. Any delays could result in loss of competitive position, loss of sales and loss of customer confidence, which could have a material adverse effect on our business, results of operations and financial condition.

If the limited amount of open source software that is incorporated into our products were to become unavailable or if we violate the terms of open source licenses, it could adversely affect sales of our products, which could disrupt our business and harm our financial results.

Our products incorporate a limited amount of “open source” software. Open source software is made available to us and to the public by its authors or other third parties under licenses that impose certain obligations on licensees that re-distribute or make derivative works of the open source software. We may not be able to replace the functionality provided by the open source software currently incorporated in our products if that software becomes unavailable, obsolete or incompatible with future versions of our products. In addition, we must carefully monitor our compliance with the licensing requirements applicable to that open source software. If we have failed or if in the future we fail to comply with the applicable license requirements, we might lose the right to use the subject open source software. The terms of some open source licenses would require us to give our customers significant rights to open source software that is subject to those licenses and is incorporated in our products. This would include the right to obtain from us the source code form of that open source software, and the right to use, modify and distribute that open source software to others. We may be required to provide these rights to customers on a royalty-free basis. Those rights might also extend to modifications and additions we make to the subject open source software. That open source software, and those modifications and additions, also might be obtained by our competitors and used in competing products.

The enforceability and interpretation of open source licenses remain uncertain under applicable law. Unfavorable court decisions could require us to replace open source software incorporated in our products. In some cases this might require us to obtain licenses to commercial software under terms that restrict our use of that commercial software and require us to pay royalties. In some cases we might need to redesign our software products, or to discontinue the sale of our software products if a redesign could not be accomplished on a timely basis. These same consequences result if our use of any open source software or commercial software is found to infringe any intellectual property right of another party. Any of these occurrences would harm our business, operating results and financial condition.

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If our domestic or international intellectual property rights are not adequately protected, others may offer products similar to ours or independently develop the same or similar technologies or otherwise obtain access to our technology and trade secrets, which could depress our product selling prices and gross profit or result in loss of market share.

We believe that protecting our proprietary technology is important to our success and competitive positioning. In addition to common law intellectual property rights, we rely on patents, trade secrets, trademarks, copyrights, know-how, license agreements and contractual provisions to establish and protect our intellectual property rights. However, these legal means afford us only limited protection and may not adequately protect our rights or remedies to gain or keep any advantages we may have over our competitors.

Our competitors, who may have or could develop or acquire significant resources, may make substantial investments in competing technologies, or may apply for and obtain patents that will prevent, limit or interfere with our ability to develop or market our products. Further, although we do not believe that any of our products infringe on the rights of others, third parties have claimed, and may claim in the future, that our products infringe on their rights, and these third parties may assert infringement claims against us in the future.

Costly litigation may be necessary to enforce patents issued to us, to protect trade secrets or “know-how” we own, to defend us against claimed infringement of the rights of others or to determine the ownership, scope, or validity of our proprietary rights and the rights of others. Any claim of infringement against us may involve significant liabilities to third parties, could require us to seek licenses from third parties, and could prevent us from manufacturing, selling, or using our products. The occurrence of this litigation, or the effect of an adverse determination in any of this type of litigation, could have a material adverse effect on our business, financial condition and results of operations. Further, the laws of some of the countries in which our products are or may be sold may not protect our products and intellectual property to the same extent as the United States or at all. Our failure to protect or enforce our intellectual property rights could have a material adverse effect on our business, results of operations and financial condition.

Changes in laws and regulations related to the Internet or changes in the Internet infrastructure itself may diminish the demand for our products and could have a negative impact on our business.

The future success of our business depends in part upon the continued use of the Internet as a primary medium for commerce, communication and business applications. Federal, state or international government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the Internet as a commercial medium. Changes in these laws or regulations could require us to modify our products in order to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the Internet or commerce conducted via the Internet. These laws or charges could limit the growth of Internet-related commerce or communications generally or result in reductions in the demand for Internet-based applications such as ours. The adoption of any laws or regulations that adversely affect the growth, popularity or use of the Internet could limit the growth of the video as a mainstream communication and collaboration tool, limit the market for video content management software generally, and limit the demand for our products.

Risks Related to our Common Stock

We may experience significant quarterly and annual fluctuations in our results of operations due to a number of factors and these fluctuations may negatively impact the market price of our common stock.

Our quarterly and annual results of operations may fluctuate significantly due to a variety of factors, many of which are outside of our control. This variability may lead to volatility in our stock price as research analysts and investors respond to quarterly fluctuations and this volatility may be exacerbated by the relatively illiquid nature of our common stock. In addition, comparing our results of operations on a period-to-period basis, particularly on a sequential quarterly basis, may not be meaningful. You should not rely on our past results as an indication of our future performance. Factors that may affect our results of operations include:

• the number and mix of products and solutions sold in the period;

• the timing and amount of our recorded revenue, which will depend upon the mix of products and solutions selected by our customers with revenue from paid-up perpetual software licenses being recognized upon delivery, revenue from term software licenses recognized over the term of the contract, and revenue from cloud-hosted services recognized over the term of the subscription agreement;

• timing of customer purchase commitments, including the impact of long sales cycles and seasonal buying patterns;

• timing of customer payments, including customer decisions to pre-pay;

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• variability in the size of customer purchases and the impact of large customer orders on a particular period;

• the timing of major development projects and market launch of new products or improvements to existing products;

• reductions in our customers’ budgets for information technology purchases and delays in their purchasing cycles, due to changing global economic or market conditions;

• the impact to the marketplace of competitive products and pricing;

• the timing and level of operating expenses;

• the impact on revenue and expenses of acquisitions by us or by our competitors;

• future accounting pronouncements or changes in our accounting policies; and

• the impact of a recession or any other adverse global economic conditions on our business, including uncertainties that may cause a delay in entering into or a failure to enter into significant customer agreements.

The foregoing factors are difficult to forecast, and these, as well as other factors, could adversely affect our quarterly and annual results of operations. Failure to achieve our quarterly or annual forecasts or to meet or exceed the expectations of research analysts or investors may cause our stock price to decline abruptly and significantly.

The limited trading volume of our common stock could affect your ability to sell your shares at a satisfactory price.

We have historically experienced a limited trading volume in our common stock. A more active public market for our common stock may not develop, which could adversely affect the trading price and liquidity of our common stock. Moreover, a thin trading market for our stock could cause the market price for our common stock to fluctuate significantly more than the stock market as a whole. Without a larger float, our common stock is less liquid than the stock of companies with broader public ownership. As a result, the trading prices of our common stock have been and may continue to be more volatile. In addition, in the absence of an active public trading market, shareholders may be unable to liquidate their shares of our common stock at a satisfactory price.

Provisions of Minnesota law, our bylaws and other agreements may deter a change of control of our company and may have a possible negative effect on our stock price.

Certain provisions of Minnesota law, our bylaws and other agreements may make it more difficult for a third-party to acquire, or discourage a third-party from attempting to acquire, control of our company, including:

• the provisions of Minnesota law relating to business combinations and control share acquisitions;

• the provisions of our bylaws regarding the business properly brought before shareholders;

• the right of our board of directors to establish more than one class or series of shares and to fix the relative rights and preferences of any such different classes or series;

• the provisions of our stock incentive plan allowing for the acceleration of vesting or payments of awards granted under the plan in the event of specified events that result in a “change in control” and the provisions of our outstanding awards requiring acceleration of vesting or payments of those awards in the event of a “change in control”; and

• the provisions of our agreements provide for severance payments to our executive officers and other officers and the accelerated vesting or payment of their awards in the event of certain terminations following a “change in control.”

These measures could discourage or prevent a takeover of our company or changes in our management, even if an acquisition or such changes would be beneficial to our shareholders. This may have a negative effect on the price of our common stock.

ITEM 7. 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 “Selected Financial Data” and our audited financial statements and related notes which are included elsewhere in this 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 in Item 1A in this Annual Report on Form 10-K.

Overview

The Company generates revenue through the sale of enterprise video content management software, hardware, maintenance and support, and professional and other services. Results of operations for 2021 and 2020 reflect the impact of the Company's implementation of its long-term strategic plan beginning in late 2020 as it transitions to a SaaS-first business model. This transition prioritizes the use of resources for initiatives that grow recurring cloud revenue through the acquisition of new customers from an increasingly broad target market, vertical expansion within Qumu's customer base, and conversion of existing customers from the Company's on-premise solution to its SaaS solution. Such prioritization is reflected in higher costs incurred during 2021 and 2020 for sales and marketing initiatives intended to build sales pipeline by creating engaging content, building brand visibility, securing top rankings with industry influencers and analysts, investing in top management and sales talent globally, and onboarding new channel partners with resources, training and ongoing support for immediate penetration into their client bases.

For the years ended December 31, 2021, 2020 and 2019, the Company generated revenues of $24.0 million, $29.1 million and $25.4 million, respectively.

Critical Accounting Estimates

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 these 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 believes that the assumptions, judgments and estimates involved in the accounting for revenue recognition and warrant liability have the greatest potential impact on the Company’s consolidated financial statements; therefore, management considers these to be critical accounting estimates. A critical accounting estimate is one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments for uncertain matters that could have a material effect on the Company’s financial condition and results of operations. Accordingly, these are the estimates management believes are the most critical to aid in fully understanding and evaluating the Company’s financial condition and results of operations. For information on the Company’s significant accounting policies, see Note 1–"Nature of Business and Summary of Significant Accounting Policies" of the accompanying consolidated financial statements.

Revenue Recognition

The Company enters into sales contracts that can include various combinations of software licenses, appliances, maintenance and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each distinct performance obligation, on a relative basis using its standalone selling price.

The Company determines the standalone selling price (SSP) 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 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.

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Warrant Liability

The Company accounts for its 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.

Reclassification of Recurring Term Software License Revenue

During 2021, the Company reclassified revenue recognized for recurring term software license agreements from service revenue to software licenses and appliances revenue, similar to perpetual software licenses. These recurring 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. Amounts and percentages following the reclassification for the prior years are as follows:

Year Ended December 31, 2020

Year Ended December 31, 2019

As Reported

As Reclassified

As Reported

As Reclassified

Software licenses and appliances

Service

Subscription, maintenance and support

Professional services and other

Total service

Total revenues

Gross profit:

Software licenses and appliances

Service

Total gross profit

Gross margin:

Software licenses and appliances

Service

Total gross margin

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Results of Operations

The percentage relationships to revenues of certain income and expense items for the years ended December 31, 2021, 2020 and 2019, and the percentage changes in these income and expense items between years, are contained in the following table:

Percentage of Revenues

Percent Increase (Decrease)

Revenues

Cost of revenues

Gross profit

Operating expenses:

Research and development

Sales and marketing

General and administrative

Amortization of purchased intangibles

Total operating expenses

Operating loss

Other income (expense), net

Loss before income taxes

Income tax expense (benefit)

Net loss

Revenues

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 cloud-hosted software as a service (SaaS), recurring term software license or perpetual software license. Software licenses and appliances revenue includes sales of perpetual software licenses, recurring term software licenses and hardware. Service revenue includes SaaS subscriptions, maintenance and support, and professional and other services.

The table below describes Qumu’s revenues by product category (dollars in thousands):

Year Ended December 31,

Increase (Decrease)

Percent Increase (Decrease)

Software licenses and appliances

Service

Subscription, maintenance and support

Professional services and other

Total service

Total revenues

Revenues can vary year to year based on the type of contract the Company enters into with each customer. The $5.1 million, or 17%, decrease in total revenues from 2020 to 2021 was primarily driven by the Company’s accelerated shift to a SaaS-first revenue model initiated in late 2020, the expected end of certain on-premise customer relationships and a large on-premises customer order in 2020. This resulted in a decrease of $6.4 million in software and appliance revenue, which primarily consisted of on-premise software and related hardware in 2020 and primarily consisted of recurring term software revenue in 2021. The $1.3 million increase in service revenues from 2020 to 2021 resulted from an increase in subscription, maintenance and support revenues due to on-premise to cloud conversions, incremental cloud customer expansion, new customers, and recurring revenue attributable to SaaS sales orders in recent quarters.

The $3.7 million, or 15%, increase in total revenues from 2019 to 2020 was primarily driven by revenue attributable to a large customer order received at the end of the first quarter 2020, resulting in increases in both software licenses and appliances revenues and service revenues, partially offset by the recognition of large term license sales in 2019 that were absent in the comparable 2020 period. Also contributing to the increase in service revenues was a $545,000, or 25%, increase in professional services revenues, which benefited from large software and appliances sales during 2020.

Future consolidated revenues will be dependent upon many factors, including the rate of adoption of the Company’s software solutions in its targeted markets and whether arrangements with customers are structured as a perpetual, term or SaaS licenses,

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which impacts the timing of revenue recognition. Other factors that will influence future consolidated revenues include the timing of customer orders and renewals, the product and service mix of customer orders, the impact of changes in economic conditions and the impact of foreign currency exchange rate fluctuations.

Gross Profit and Gross Margin

A comparison of gross profit and gross margin by revenue category is as follows (dollars in thousands):

Year Ended December 31,

Increase (Decrease)

Percent Increase (Decrease)

Gross profit:

Software licenses and appliances

Service

Total gross profit

Gross margin:

Software licenses and appliances

Service

Total gross margin

For the years ended December 31, 2021, 2020 and 2019, gross margins are inclusive of the impact of approximately $106,000, $286,000 and $455,000, respectively, in amortization expense associated with intangible assets. The Company had 22, 21 and 19 service personnel at December 31, 2021, 2020 and 2019, respectively.

Total gross margin percentage increased 3.0% in 2021, compared to 2020, primarily driven by a larger mix of higher margin services revenue, and an increase of 14.8% in software license and appliances gross margin, attributed to a higher mix of high margin recurring term license software revenue.

Total gross margin percentage decreased 0.9% in 2020, as compared to 2019, as software license and appliances gross margin decreased 5.5%, impacted in 2020 by a lower mix of term license revenue, which generally carries higher margins, compared to 2019.

Future gross profit margins will fluctuate quarter to quarter and will be impacted by the Company’s continued expansion into new market opportunities as well as the rate of growth and mix of the Company’s product and service offerings and foreign currency exchange rate fluctuations.

Operating Expenses

The following is a summary of operating expenses (dollars in thousands):

Year Ended December 31,

Increase (Decrease)

Percent Increase (Decrease)

Operating expenses:

Research and development

Sales and marketing

General and administrative

Amortization of purchased intangibles

Total operating expenses

Operating expenses represented 151%, 96%, and 93% of revenues for 2021, 2020 and 2019, respectively. Operating expenses for 2021 increased from 2020 by $8.1 million, or 29%, primarily driven by increased costs for outside services and consulting associated with the continued implementation of the Company’s strategic plan in 2021 and higher compensation costs associated with an increased number of personnel, offset by the inclusion in the prior year of $1.6 million of transaction-related expenses related to the Company’s merger agreement and subsequent merger termination with Synacor, Inc. totaling $1.6 million in 2020. In the third quarter 2021, the Company initiated a cost-optimization program to align expenses with anticipated revenue, which included initiatives designed to reduce the Company’s cash burn rate, slow hiring and implement other cost-control measures. As part of this program, the Company incurred severance expense within operating expenses of $451,000 for 2021; the Company incurred severance expense of $647,000 and $152,000 for 2020 and 2019, respectively, relating to other cost reduction initiatives and personnel transitions and, in 2020, the departure of the Company’s chief executive officer.

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Operating expenses for 2020 increased from 2019 by $4.4 million, primarily driven by approximately $1.6 million in one-time transaction expense associated with the Company’s now terminated merger with Synacor, Inc. and approximately $917,000 in one-time non-cash office lease charges resulting from adoption of the Company’s remote work policy in the fourth quarter 2020.

The Company had 86, 81 and 86 personnel in operating activities at December 31, 2021, 2020 and 2019, respectively.

Research and development

Research and development expenses were as follows (dollars in thousands):

Year Ended December 31,

Increase (Decrease)

Percent Increase (Decrease)

Compensation and employee-related

Overhead and other expenses

Outside services and consulting

Depreciation and amortization

Equity-based compensation

Total research and development expenses

Total research and development expenses for the years ended December 31, 2021, 2020 and 2019 represented 35%, 28% and 29% of revenues, respectively. The Company had 28, 36 and 36 research and development personnel at December 31, 2021, 2020 and 2019, respectively.

The $174,000 increase in total expenses in 2021, compared to 2020, was due to an increase in overhead and other expenses, primarily relating to cloud hosting expenses to support Qumu’s development initiatives and customers’ usage of Qumu’s cloud-based enterprise video solution, and an increase in outside services and consulting expenses resulting from higher third party development and support costs; these increases were partially offset by lower compensation and other employee-related expenses resulting from a decrease in research and development personnel. The $892,000 increase in total expenses in 2020, compared to 2019, was primarily due to increased costs related to the mix of research and development personnel, incentive compensation costs and projects to support customers’ increased usage of Qumu’s cloud-based enterprise video solution due to COVID-19.

Sales and marketing

Sales and marketing expenses were as follows (dollars in thousands):

Year Ended December 31,

Increase (Decrease)

Percent Increase (Decrease)

Compensation and employee-related

Overhead and other expenses

Outside services and consulting

Depreciation and amortization

Equity-based compensation

Total sales and marketing expenses

Total sales and marketing expenses for the years ended December 31, 2021, 2020 and 2019 represented 77%, 31% and 34% of revenues, respectively. The Company had 43, 28 and 32 sales and marketing personnel at December 31, 2021, 2020 and 2019, respectively.

The $9.4 million increase in total sales and marketing expense in 2021 as compared to 2020 was primarily driven by higher compensation and employee-related expenses associated with the hiring of sales and marketing personnel as management aggressively recruited personnel to expand and augment Qumu’s existing resources with experienced SaaS sales and marketing professionals. Additionally, outside services and consulting expenses increased due to the continued execution of the Company’s strategic plan in 2021, which included costs Qumu incurred honing its updated sales enablement and messaging, launching new products and expanding its go-to-market motions, with the majority of such costs occurring in the first half of 2021. Cost-optimization measures initiated in the third quarter 2021 resulted in lower sales and marketing expense during the second half of 2021 compared to the first half of 2021. Management plans to further reduce sales and marketing expenses to

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align resources with Qumu's strategic plan in 2022. The $346,000 increase in total sales and marketing expense in 2020 as compared to 2019 was primarily driven by increased costs for outside services and consulting associated with the implementation of the Company’s strategic plan in 2020, higher compensation costs associated with changes in sales and marketing personnel, and increased commissions expense, partially offset by cost savings resulting from sales activities and customer marketing events that were conducted virtually rather than in person. Sales and marketing expenses for 2021, 2020 and 2019 included severance expense of $301,000, $145,000 and $152,000, respectively, relating to cost reduction initiatives and personnel transitions.

General and administrative

General and administrative expenses were as follows (dollars in thousands):

Year Ended December 31,

Increase (Decrease)

Percent Increase (Decrease)

Compensation and employee-related

Overhead and other expenses

Outside services and consulting

Depreciation and amortization

Equity-based compensation

Non-cash office lease surrender costs

Transaction-related expenses

Total general and administrative expenses

n/m = not meaningful

Total general and administrative expenses for the years ended December 31, 2021, 2020 and 2019 represented 36%, 35% and 27% of revenues, respectively. The Company had 15, 17 and 18 general and administrative personnel at December 31, 2021, 2020 and 2019, respectively.

The $1.5 million decrease in total expenses in 2021 as compared to 2020 was driven primarily by inclusion in the prior year of $1.6 million of transaction-related expenses related to the Company’s merger agreement and subsequent merger termination with Synacor, Inc., $917,000 in non-cash charges resulting from the adoption of the Company’s remote work policy in the fourth quarter 2020, and $0.4 million of severance costs incurred with the departure of the Company’s chief executive officer in 2020. These decreases were partially offset by increases in outside services and consulting expenses and overhead and other expenses due to higher utilization of consultants and improvements to information systems in connection with the execution with Qumu’s long-term strategic plan during 2021. The $3.3 million increase in total expenses in 2020 as compared to 2019 was driven primarily by the transaction-related expenses, non-cash office lease surrender costs and executive severance costs noted above.

Amortization of Purchased Intangibles

Operating expenses include $649,000, $657,000 and $757,000 in 2021, 2020 and 2019, respectively, for the amortization of intangible assets acquired as part of the Company’s acquisition of Qumu, Inc. in October 2011 and Kulu Valley in October 2014. Operating expenses in 2022 are expected to include approximately $0.6 million of amortization expense associated with purchased intangibles.

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Other Income (Expense), Net

Other income (expense), net was as follows (dollars in thousands):

Year Ended December 31,

Increase (Decrease)

Percent Increase (Decrease)

Interest expense, net

Decrease in fair value of derivative liability

Decrease (increase) in fair value of warrant liability

Gain on sale of BriefCam, Ltd.

Loss on extinguishment of debt

Other expense, net

Total other income (expense), net

n/m = not meaningful

Interest expense, net

The Company recognized interest expense, net, of $100,000, $73,000 and $754,000 in 2021, 2020 and 2019, respectively, primarily related to its note payable, term loans and finance leases, including the amortization of deferred financing costs. The decrease in interest expense in 2020, compared to 2019, was primarily due to a decrease in term loan debt resulting from the Company’s $4.0 million remaining principal balance payment on November 12, 2019.

Change in fair values of derivative liability and warrant liability

In conjunction with debt financings completed in October 2016 and January 2018, the Company issued two transferable warrants for the purchase of up to an aggregate of 1,239,286 shares of the Company’s common stock, of which one representing 238,583 shares remained partially unexercised and outstanding at December 31, 2021. On May 1, 2020, the Company canceled a warrant in exchange for a note payable (see Note 5–"Fair Value Measurements" of the accompanying consolidated financial statements) 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.

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. See Note 4–"Commitments and Contingencies" of the accompanying consolidated financial statements for a description of inputs impacting changes in fair value. The non-cash expense of $1.8 million in 2020 primarily resulted from an increase in the Company’s stock price to $7.99 per share at December 31, 2020 from $2.61 per share at December 31, 2019. The non-cash income of $1.5 million in 2021 primarily resulted from a decrease in the Company’s stock price to $2.12 per share at December 31, 2021.

Gain on sale of BriefCam, Ltd.

During 2018, Canon Inc. 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.

Loss on extinguishment of debt

On November 12, 2019, the Company paid the remaining $4.8 million on its outstanding term loan from ESW Holdings, Inc. under its term loan credit agreement dated January 12, 2018. The payment was comprised of principal of $4.0 million and accrued interest of $528,000 for the period July 19, 2018 to the payment date of November 12, 2019. The Company used a portion of the $8.2 million in net proceeds from the issuance of common stock on November 7, 2019 to fund the payment. The Company determined that the payment of principal constituted an extinguishment of debt and, as such, recognized a $348,000 loss related to the write down of $98,000 of unamortized debt discount and issuance costs and recognition of a $250,000 prepayment fee upon payment of the remaining term loan balance.

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Other expense, net

Other expense, net, includes sublease income from the Company’s subleases of $105,000 for the year ended December 31, 2019. No sublease income was recognized for the years ended December 31, 2021 and 2020.

Other expense, net, also includes a net gain on foreign currency transactions of $2,000 in 2021 and net losses on foreign currency transactions of $406,000 and $260,000 in 2020 and 2019, respectively. See “Liquidity and Capital Resources” below for a discussion of changes in cash levels.

Income Taxes

The provision for income taxes represents federal, state, and foreign income taxes or income tax benefit on income or loss. Net income tax benefit was $392,000, $306,000 and $194,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

The net income tax benefit for 2021, 2020 and 2019 was impacted by the tax benefit for refundable research credits from the United Kingdom operations.

Liquidity and Capital Resources

The following table sets forth certain relevant measures of the Company’s liquidity and capital resources (in thousands):

December 31,

Cash and cash equivalents

Working capital

Line of credit

Financing obligations

Operating lease liabilities

Note payable

Line of credit, financing obligations, operating lease liabilities and note payable

As of December 31, 2021, the Company's principal source of liquidity consisted of $20.6 million of cash and cash equivalents as compared to $11.9 million as of December 31, 2020. As of December 31, 2021, the Company had $5.0 million in outstanding principal amount of indebtedness to Wells Fargo under the Company’s revolving line of credit. Each reporting period, the Company assesses its ability to meet its future contractual obligations and other conditions and events that may impact its liquidity.

Going Concern Considerations

As of December 31, 2021, our principal source of liquidity consisted of $20.6 million of cash and cash equivalents and potential availability under our Wells Fargo line of credit that had a maturity of January 2023. Additionally, we have experienced recurring operating losses and negative cash flows from operating activities.

In February 2022, our 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, we implemented a cost optimization program that is in addition to the cash management actions we took in 2021.

Our 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 our revenue and cash flows. The focus on driving sales through Qumu’s channel sales partners is a relatively new element of our sales strategy and management currently has limited sales pipeline visibility. Additionally, maintaining an aligned expense structure requires that we accurately forecast revenue and cash flow so that our management can take timely action to reduce expenses in proportion to and concurrently with any shortfalls in revenue and cash flow.

As part of our board-approved operating plan, on April 15, 2022, we 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 our net cash, as defined, is less

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than $5.0 million. No amounts are outstanding under the SVB Agreement as of April 15, 2022. The SVB Agreement requires us 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. Our monthly operations and resulting adjusted quick ratio are subject to significant fluctuations due to a variety of factors, many of which are outside of our 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, Qumu will need additional capital to fund its business plan and under those circumstances, borrowing under our line of credit with SVB may be limited due to borrowing base availability or covenant non-compliance. Our cash resources and the limitations under the SVB Agreement on our available borrowing present the risk that we will not have sufficient cash available in the amount or at the time we need it to fund our ongoing operations and execute our business plan over the next twelve months.

Accordingly, our history of losses and our cash resources available to execute our business plan over the next twelve months raise substantial doubt about our 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 we require additional capital, we may seek capital by refinancing our existing line of credit or from offering of our 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.

Cash and Cash Equivalents

As of December 31, 2021, the Company's principal source of liquidity consisted of $20.6 million of cash and cash equivalents as compared to $11.9 million as of December 31, 2020. As of December 31, 2021, the Company had $5.0 million in outstanding principal amount of indebtedness to Wells Fargo under the Company’s revolving line of credit, which was subsequently repaid in full on April 12, 2022.

The Company's primary sources of cash and cash equivalents during 2021 were proceeds from the issuance of common stock, cash generated from operations, and proceeds from the Company’s line of credit with Wells Fargo that was replaced on April 15, 2022 by a line of credit from Silicon Valley Bank. The Company’s cash generated from operations has been cash collections from sales of products and services to customers. The Company expects cash inflows from operations to be affected by increases or decreases in sales and timing of collections.

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The Company’s primary use of cash has been for personnel costs and outside service providers, other operating expenses, debt extinguishment, payment of royalties associated with third-party software licenses and purchases of equipment to fulfill customer orders. The Company expects its use of cash to be affected by fluctuations in revenues, personnel costs and outside service providers as the Company continues to support the growth of the business, which is expected to be impacted in the future by the Company’s cost-optimization program initiated in the third quarter 2021. The Company additionally expects to use cash to renew internal-use software subscriptions of approximately $682,000 in 2022 as well as to remit in the fourth quarter of 2022 approximately $160,000 of payroll tax withholdings deferred under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").

The amount of cash and cash equivalents held by the Company’s international subsidiaries that is available to fund domestic operations upon repatriation was $1.3 million as of December 31, 2021. 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.

Working Capital

At December 31, 2021, the Company had aggregate working capital of $5.2 million, compared to negative working capital of $2.9 million at December 31, 2020. Working capital includes current deferred revenue of $10.9 million and $12.9 million at December 31, 2021 and 2020, respectively. The increase in working capital as of December 31, 2021, as compared to December 31, 2020, was primarily due to $23.1 million net proceeds from the public offering in the first quarter 2021, a $5.0 million draw on the Company’s line of credit in the fourth quarter 2021 and cash receipts from customers, offset by disbursements made to vendors.

Other

In the fourth quarter 2021, the Company drew $5.0 million on its Wells Fargo line of credit entered into on January 15, 2021. Financing obligations as of December 31, 2021 and 2020 primarily consisted of financed insurance premiums and finance leases related to the acquisition of computer and network equipment. Operating lease liabilities consists of liabilities related to the Company’s office leases. The note payable to ESW Holdings, Inc., which was non-interest bearing having a face amount of $1.83 million and maturing on April 1, 2021, was repaid upon the Company’s closing of the Wells Fargo revolving credit facility in January 2021. This initial draw on the Wells Fargo line of credit was repaid within the first quarter 2021. The Wells Fargo line of credit was paid in full on April 12, 2022 in anticipation of the line of credit with Silicon Valley Bank entered into on April 15, 2022.

Summary of Cash Flows. A summary of cash flows is as follows (in thousands):

Year Ended December 31,

Cash flows from (used in):

Operating activities

Investing activities

Financing activities

Effect of exchange rate changes on cash

Net change in cash and cash equivalents

Operating activities

Net cash used in operating activities was $17.4 million for 2021 compared to net cash provided by operating activities of $1.6 million in 2020. The cash used in operations resulted primarily from costs the Company incurred in connection with the implementation of its long-term strategic plan beginning in late 2020 as it transitions to a SaaS-first business model. Impacting cash used in operations in 2021 was a net loss of $16.4 million and a decrease in deferred revenue of $4.0 million. The operating cash flows for the 2020 were favorably impacted by the change in deferred revenue, offset by the net loss for 2020.

Investing activities

Net cash used in investing activities for the purchases of property and equipment totaled $239,000, $128,000 and $168,000 in 2021, 2020 and 2019, respectively. Net cash provided by investing activities from the sale of the Company’s investment in BriefCam totaled $50,000 in 2021 and $41,000 in 2019.

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Financing activities

Financing activities provided net cash of $26.3 million in 2021, primarily consisting of $23.1 million in net proceeds from the issuance of common stock in January 2021 and proceeds from the Company’s line of credit of $5.0 million. Financing activities used net cash of $120,000 in 2020, primarily impacted by principal payments on finance leases and other financing obligations, offset by net proceeds from issuance of common stock under employee stock plans. During 2019, financing activities provided net cash of $3.6 million in 2019, primarily consisting $8.2 million in net proceeds from the issuance of common stock, partially offset by cash used for payments on the Company’s term note, finance leases and other financing obligations; financing cash outflows included a principal payment of $4.0 million, accrued interest of $528,000 for the period July 19, 2018 to the payment date of November 12, 2019, and prepayment fee of $250,000 on the outstanding term loan with ESW Holdings, Inc. Additionally, during 2019, the Company made principal payments of $320,000 on finance leases and other financing obligations.

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 has been funded to date using cash on hand and may be discontinued at any time. The Company did not repurchase any shares of its common stock under the repurchase program during the years ended December 31, 2021, 2020 and 2019. As of December 31, 2021, the Company had 778,365 shares available for repurchase under the authorizations. While the current authorization remains in effect, the Company expects its primary use of cash will be to fund operations in support of the Company’s goals for revenue growth and operating margin improvement associated with the Company's transition to a SaaS-first company.

The Company did not declare or pay any dividends during the years ended December 31, 2021, 2020 and 2019.

Other Factors Affecting Liquidity and Capital Resources

Wells Fargo Credit Facility

On January 15, 2021, the Company entered into a Loan and Security Agreement with Wells Fargo Bank, National Association (the “Wells Fargo line of credit”), 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. The Wells Fargo line of credit had a maturity date of January 15, 2023. The Wells Fargo line of credit was repaid in full and terminated on April 12, 2022.

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 our 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.

Recently Adopted Accounting Standards and Recently Issued Accounting Standards Not Yet Adopted

For information about our recently adopted accounting standards and recently issued accounting standards not yet adopted, see Note 1 of the accompanying Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.