QUANTUM CORP /DE/

NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s assets measured and recorded at fair value on a recurring basis may consist of money market funds, which are included in cash and cash equivalents in the condensed consolidated balance sheets. These instruments are valued using quoted market prices in active markets (Level 1 fair value measurements) at the respective balance sheet dates.

No impairment charges were recognized for non-financial assets for the three and nine months ended December 31, 2025 and 2024. The Company has no non-financial liabilities measured and recorded at fair value on a non-recurring basis.

Debt

Debt is generally recorded at amortized cost; however, the Company elected the fair value option for the Convertible Note, which is recorded at fair value on a recurring basis. The fair value of the Company’s debt is disclosed for informational purposes only and is not recognized in the condensed consolidated balance sheets.

The fair value of the Company’s debt was estimated using a discounted cash flow approach based on the Company’s current borrowing rates for similar types of debt instruments, adjusted for credit and nonperformance risk. The Company uses significant other observable market data and assumptions (Level 2 inputs, as defined in ASC 820, Fair Value Measurement) that it believes market participants would use in pricing such debt.

The carrying value and estimated fair value of the Company’s debt were as follows (in thousands):

Warrants

On September 23, 2025, the Company established the initial fair value for the Forbearance Warrant issued to Dialectic in connection with the Fifteenth Amendment. The fair value was subsequently remeasured as of December 31, 2025, and the resulting change in fair value was recognized in the condensed consolidated statement of operations and comprehensive loss under “Change in fair value of warrant liabilities.”

The Forbearance Warrant was valued using a Monte Carlo simulation model in conjunction with a Probability-Weighted Expected Return Model. This model incorporates various assumptions, including the Company’s common stock price, expected volatility, risk-free interest rate, and the remaining contractual term of the warrant.

Because the valuation relies on significant unobservable inputs, the fair value of the Forbearance Warrant is classified as Level 3 within the fair value hierarchy.

The following table summarizes the key assumptions used in estimating the fair value of the Forbearance Warrant at issuance and at December 31, 2025:

(1) Scenario probability as of issuance was based on timing expectations of management that a liquidation event occurring was estimated at 35%; a fundamental transaction occurring was estimated at 15%; and none of the previous events were estimated at 50%.

The table below sets forth a summary of changes in the fair value of the Company’s warrant liabilities for the period ended December 31, 2025:

The Company measures the Convertible Note at fair value using significant inputs that are not observable in active markets and therefore classifies the Convertible Note as a Level 3 measurement within the fair value hierarchy. Changes in the fair value of the Convertible Note resulting from updated assumptions and estimates are recognized as a fair value adjustment in the condensed consolidated statements of operations and comprehensive loss.

The Company estimated the fair value of the Convertible Note using a Monte Carlo simulation method, as the Convertible Note includes features for which the settlement outcome depends on the path of the Company’s stock price and other variables over time. In addition, the Company assigned probabilities to various possible settlement scenarios.

The significant assumptions used by the Company to estimate the fair value of the Convertible Note as of December 18, 2025 and December 31, 2025 are summarized below:

The table below sets forth a summary of changes in the fair value of the Convertible Note for the period ended December 31, 2025: