QUANTUM CORP /DE/

NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company follows the guidance in ASC 820, Fair Value Measurement, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The Company has certain non-financial assets that are measured at fair value on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when an impairment is recognized. These assets include property and equipment and amortizable intangible assets. The Company did not record impairments to any non-financial assets during the three and six months ended September 30, 2026 and 2025.

The carrying amounts reported in the accompanying condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and other current liabilities approximate their respective fair values because of the short-term nature of these accounts.

Debt

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):

On June 4, 2026, the Company paid the entire outstanding principal amount and terminated the Term Loan Credit Agreement, see Note 4 : Debt for further details,

Warrants

Forbearance Warrant

On September 23, 2025, the Company established the initial fair value for the Forbearance Warrant issued to Dialectic in connection with the Fifteenth Amendment, which allows the purchase of up to 2,653,308 shares of Common Stock at an exercise price of $8.81. The fair value was subsequently remeasured as of September 30, 2026 and March 31, 2026, and the resulting changes in fair value were recognized in the condensed consolidated statements 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 (as defined in ASC 820, Fair Value Measurement).

The following table summarizes the key assumptions used in estimating the fair value of the Forbearance Warrant at September 30, 2026 and March 31, 2026:

(1) Scenario probability at March 31, 2026 was based on timing expectations of management that a liquidation event occurring was estimated at 15%; a fundamental transaction occurring was estimated at 15%; and none of the previous events were estimated at 70%. Scenario probability at September 30, 2026 incorporated a 10% of a liquidation event occurring; a 15% of a fundamental transaction occurring; and none of the previous events were estimated at 75%.

The table below sets forth a summary of changes in the fair value of the Company’s Forbearance Warrant liability for the three and six months ended September 30, 2026:

Conversion Warrant

On June 1, 2026, the Company issued to Dialectic a warrant (the “Conversion Warrant”) to purchase up to 105,911 shares of Common Stock at an exercise price of $5.1940. The Company established the initial fair value for the Conversion Warrant issued to Dialectic in connection with the Sixteenth Amendment. The fair value was subsequently remeasured as of September 30, 2026, 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 Conversion 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 Conversion Warrant is classified as Level 3 within the fair value hierarchy (as defined in ASC 820, Fair Value Measurement). Significant changes in the Company's stock price, volatility, or changes in the key assumptions stated below could result in a significantly higher or lower fair value of the warrant liabilities.

The following table summarizes the key assumptions used in estimating the fair value of the Conversion Warrant at issuance and at September 30, 2026:

(1) Scenario probability as of issuance and at September 30, 2026 was based on timing expectations of management that a liquidation event occurring was estimated at 10%; a fundamental transaction occurring was estimated at 15%; and none of the previous events were estimated at 75%.

The table below sets forth a summary of changes in the fair value of the Company’s Conversion Warrant liability for the three and six months ended September 30, 2026:

Convertible Note

On June 4, 2026 and pursuant to the terms of the Conversion Agreement, the Company’s outstanding Convertible Note was canceled, and the Indenture was satisfied and discharged in full. At the time of settlement, the Company issued to Dialectic 14,104,620 shares of common stock with an aggregate fair value of $222.6 million, at a share price of $15.78. Of this amount, $219.7 million represents the fair value of the Convertible Note prior to conversion, and $2.8 million represents the deferred cash interest owed to Dialectic under the Term Loan Credit Agreement that was settled through the share issuance. The change in the fair value of the Convertible Note was recognized in the condensed consolidated statements of operations and comprehensive loss under “Change in fair value of Convertible Note”.

The table below sets forth a summary of changes in the fair value of the Company’s Convertible Note for the six months ended September 30, 2026:

NOTE 12: SEGMENT INFORMATION

The Company operates as a single operating segment and a single reportable segment. The Company's chief operating decision maker ("CODM") is its Chief Executive Officer. The measure of segment profit or loss that the CODM uses to allocate resources and assess performance is net income (loss). The CODM uses net income (loss) to make resource allocation decisions, evaluate budgets and forecasts, and assess the Company's overall performance, including monitoring budgeted versus actual results.

Disaggregation of Revenue

The following table depicts the disaggregation of revenue by geographic areas and major product offerings and geographies and is consistent with how the Company evaluates its financial performance (in thousands):

1 Revenue for Americas geographic region outside of the United States is not significant.

2 Royalty revenue is not allocable to geographic regions.

Revenue by Solution

1 Subscription revenue of $3.7 million and $6.4 million was allocated to Primary and Secondary storage systems for the six months ended September 30, 2026 and 2025, respectively. Subscription revenue of $1.7 million and $2.9 million was allocated to primary and secondary storage systems for the three months ended September 30, 2026 and 2025, respectively.

Net Loss

The following table shows reported segment revenue, segment profit or loss, and significant segment expenses were as follows (in thousands):

1 Salaries & fringe includes spend on contractors.

2 Outside services includes contractor, recruiting and legal expenses.

3 Infrastructure includes property related expenses, including fixed and variable lease expense, telecommunications and depreciation.

4 Operational costs include dues and subscriptions, computer expenses, office supplies and other miscellaneous items.

5 Other operating expenses includes travel related spend, marketing expense, taxes, fees and other miscellaneous items.