QMCO 10-K & 10-Q changes, risk factors and insider trading
Quantum Corp. · Nasdaq · Computer Storage Devices · CIK 709283 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Dependence on a single contract manufacturer and logistics provider”
Removed heading “Risks Related to Our Indebtedness and Liquidity”
Removed heading “We have significant indebtedness, which imposes upon us debt service obligations, and our term loan and revolving credit facilities contain various operating and financial covenants that limit our discretion in operating our business. If we are unable to generate sufficient cash flows from operations and overall operating results to meet these debt obligations or remain in compliance with the covenants, our business, financial condition and operating results could be materially and adversely affected.”
Removed heading “We must maintain compliance with the terms of our existing credit facilities or receive a waiver for any non-compliance. The failure to do so could have a material adverse effect on our ability to finance our ongoing operations and we may not be able to find an alternative lending source if a default occurs.”
Removed heading “It is not possible to predict the actual number of shares we will sell under the Standby Equity Purchase Agreement (the “SEPA”), or the actual gross proceeds resulting from those sales.”
Removed heading “We have restated certain of our prior consolidated financial statements, which has resulted in unanticipated costs and may lead to additional risks and uncertainties, including loss of investor confidence and negative impacts on our stock price.”
Largest changes
“In March 2024, June 2024, July 2024, August 2024 and again in December 2024, we fell out of compliance with certain financial covenants in our credit agreements, which resulted in defaults for which we received waivers of noncompliance from our lenders. Our credit agreements contain negative covenants and customary events of default provisions, including for payment default, covenant default, cross default to other material indebtedness, and judgment default. Each of these limitations are subject to certain liquidity levels, thresholds, or grace periods. …”see in full comparison
“If we do not maintain compliance with all of the continuing covenants imposed by the credit agreements and other terms and conditions of the credit facility, we could be required to repay outstanding borrowings on an accelerated basis, which could subject us to decreased liquidity and other negative impacts on our business, results of operations and financial condition. …”see in full comparison
“The restatement of our previously issued financial statements is time-consuming and expensive and could expose us to additional risks that could materially adversely affect our financial position, results of operations and cash flows, including unanticipated costs for accounting and legal fees in connection with or related to the restatement and the risk of potential stockholder litigation. If lawsuits are filed, we may incur additional substantial defense costs regardless of the outcome of such litigation. Likewise, such events might cause a diversion of our management’s time and attention. …”see in full comparison
“Our level of indebtedness presents significant risks to our business and investors, both in terms of the constraints that it places on our ability to operate our business and because of the possibility that we may not generate sufficient cash and operating results to remain in compliance with our covenants and pay the principal and interest on our indebtedness as it becomes due. As recently as December 2024, we fell out of compliance with certain financial covenants in our credit agreements, which resulted in defaults for which we received waivers of noncompliance from our lenders. …”see in full comparison
“We must maintain compliance with the terms of our existing credit facilities or receive a waiver for any non-compliance. The failure to do so could have a material adverse effect on our ability to finance our ongoing operations and we may not be able to find an alternative lending source if a default occurs.”see in full comparison
“We have significant indebtedness, which imposes upon us debt service obligations, and our term loan and revolving credit facilities contain various operating and financial covenants that limit our discretion in operating our business. If we are unable to generate sufficient cash flows from operations and overall operating results to meet these debt obligations or remain in compliance with the covenants, our business, financial condition and operating results could be materially and adversely affected.”see in full comparison
Full comparison: every changed paragraph (62)
Many aspects of our supply chain and operational results are dependent on the performance of third-party business partners, including contract manufacturers, service providers, and product integrators. We face a number of risks as a result of these relationships, any or all of which could have a material adverse effect on our business and harm our operating results and financial condition. For the years ended March 31, 2026 and 2025, the same two vendors represented more than 10% of total expenses.
Dependence on a single contract manufacturer and logistics provider
We currently rely on a single contract manufacturer to manufacture our products and to provide warehousing and logistics services for our spare parts. As a result, we are exposed to risks associated with concentrating these functions with a single provider, including potential disruptions in manufacturing, inventory management, warehousing and product delivery.
If our contract manufacturer is unable or fails to meet our production, quality, delivery, warehousing or logistics requirements, or otherwise experiences operational or financial difficulties, capacity constraints, natural disasters, severe weather events, fires, power outages or other disruptions affecting its manufacturing, warehousing or logistics operations, our ability to manufacture and deliver products, provide spare parts and support our customers could be adversely affected. If it becomes necessary to transition to a different contract manufacturer or logistics provider, such transition could be time-consuming and costly and could result in delays, increased expenses and operational disruptions. Any such events could adversely affect our business, results of operations and financial condition.
•war, military conflict, and geopolitical unrest, including the Russia-Ukraineconflicts in Iran and Hamas-Israelthe conflicts,Middle East and between Russia and Ukraine and Israel and Hamas, may affect our engineering and support teams outside the U.S. and their ability to perform as well as our sales and services delivery with sanctioned entities and countries;
We sell most of our branded products to distributors, value added resellers, and direct market resellers, who in turn sell our products to end users. We use different distribution channel partners in different countries and regions in the world. The success of these sales channels is hard to predict, particularly over time, and we have no purchase commitments or long-term orders from them that assure us of any baseline sales. Several of our channel partners carry competing product lineslines, which they may promote over ours. A channel partner might discontinue our products or fail to effectively market them, and each partner determines the type and amount of our products that it will purchase and the price at which it sells to end users. Establishing new indirect sales channels is an important part of our strategy to drive growth of our branded revenue. Our results of operations could be adversely affected by any number of factors related to our channel partners, including:
Our product sales have been and continue to be concentrated among a small number of channel partners, direct end-users,end users, and original equipment manufacturers. We sell to many end-userend user customers and channel partners on purchase orders, not under the terms of a binding long-term procurement agreement. Accordingly, they generally are not obligated to purchase any minimum product volume, and our relationships with them are terminable at will. In addition, we have focused our direct-sales business on the largest users of hierarchical storage architectures, the so-called “hyperscalers”; there are very few of these extremely large storage customers, but their order activity has a significant impact on our results from quarter to quarter.
During the fiscal year ended March 31, 20252026, one customer represented more than 10% of our total revenue and 2024,during the fiscal year ended March 31, 2025, no customer represented 10% or more of our total revenue. If any of our large customers should significantly decrease or stop purchasing our solutions, we would see a significant reduction in revenue that may result in a material adverse effect on our operating results.
Uncertainty about economic conditions poses risks as businesses may further reduce or postpone spending in response to reduced budgets, tightening of credit markets, increases in inflation and interest rates, negative financial news, and declines in income or asset values which could adversely affect our business, financial condition and operating results. Recent inflationary increases have driven up the prices at which we are able to purchase necessary components, products, and services, as well as the cost of contract labor. In addition, we continue to face risks related to uncertain tariff levels between countries where our products are manufactured and sold, unstable political and economic conditions, including conflicts in Iran and the Middle East, the war between Russia and UkraineUkraine, and the Hamas-Israel conflict, and concerns about sovereign debt, which could negatively impact the U.S. and global economies and adversely affect our financial results. In addition, our ability to access capital markets may be restricted or result in unfavorable financing terms, impacting our ability to react to changing economic and business conditions and could also materially and adversely affect our ability to sustain our operations at their current levels.
We have experienced significant changes to our leadership team in 2025,fiscal 2026, including changes to our Chief Executive Officer, Chief Financial Officer, Chief Revenue Officer and Chief Administrative Officer. Although we believe these leadership transitions are in the best interest of our stockholders, these transitions may result in the loss of personnel with deep institutional knowledge. Further, the transition could potentially disrupt our operations and relationships with employees, suppliers, partners, and customers due to added costs, operational inefficiencies, decreased employee morale and productivity and increased turnover. We must successfully recruit and integrate our new leadership team members within our organization to achieve our operating objectives. As such, the leadership transition may temporarily affect our business performance and results of operations while the new members of our leadership team become familiar with our business and acclimate into their new roles. Furthermore, these changes increase our dependency on the other members of our leadership team that remain with us, who are not contractually obligated to remain employed with us and may leave at any time. Any such departure could be particularly disruptive given that we are already experiencing leadership transitions and, to the extent we experience additional management turnover, competition for top management is high such that it may take some time to find candidates that meet our requirements. Our future operating results may depend upon the continued service of our key personnel and in significant part upon our ability to attract and retain qualified management personnel. If we are unable to mitigate these or other similar risks, our business, results of operations and financial condition may be materially and adversely affected.
•reduced demand, declines in large orders, royalty,royalty or software revenues, or other changes in product mix;
Disk, solid-state, and flash storage products, as well as various software solutions and alternative technologiestechnologies, have eroded the demand for tape products. We expect that, over time, many of our tape customers could migrate toward these other products and solutions and their proportionate contribution to our revenue will increase in the future. While we are making targeted investments in software, disk backup and flash storage systems, and other alternative technologies, these markets are characterized by rapid innovation, evolving customer demands, and strong competition, including competition with companies who are also significant customers. If we are not successful in our efforts, we may not be able to attract or retain customers, and our business, financial condition and results of operations could be materially and adversely affected.
Risks Related to Our Indebtedness and Liquidity
We have significant indebtedness, which imposes upon us debt service obligations, and our term loan and revolving credit facilities contain various operating and financial covenants that limit our discretion in operating our business. If we are unable to generate sufficient cash flows from operations and overall operating results to meet these debt obligations or remain in compliance with the covenants, our business, financial condition and operating results could be materially and adversely affected.
Our level of indebtedness presents significant risks to our business and investors, both in terms of the constraints that it places on our ability to operate our business and because of the possibility that we may not generate sufficient cash and operating results to remain in compliance with our covenants and pay the principal and interest on our indebtedness as it becomes due. As recently as December 2024, we fell out of compliance with certain financial covenants in our credit agreements, which resulted in defaults for which we received waivers of noncompliance from our lenders. For further description of our outstanding debt, see the section captioned “Liquidity and Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As a result of our indebtedness:
•Our ability to invest in growing our business is constrained by the financial covenants contained in our credit facilities, which require us to maintain certain maximum total net leverage ratio levels, a minimum fixed charge coverage ratio, and liquidity levels and restrict our ability to:
•Incur debt and liens;
•Acquire businesses or entities or sell certain assets;
•Make investments, including loans, guarantees, and advances;
•Engage in transactions with affiliates;
•Pay dividends or repurchase stock; and
•Enter into certain restrictive agreements;
•We must dedicate a significant portion of our cash flow from operations and other capital resources to debt service, thereby reducing our ability to fund working capital, capital expenditures, research and development, mergers and acquisitions, and other cash-based activities, all of which may place us at a competitive disadvantage;
•If we are not able to generate sufficient cash flows to meet our substantial debt service obligations or to fund our other liquidity needs, we may have to take actions such as selling assets or raising additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and joint ventures, restructuring our debt and other capital-intensive activities;
•We are subject to mandatory field audits and control of cash receipts by the lenders if we do not maintain liquidity above certain thresholds;
•We may be more vulnerable to adverse economic and industry conditions;
•We may not be able to fund future working capital, capital investments and other business activities; and
•We may be unable to make payments on other indebtedness or obligations.
Our ability to make scheduled payments of the principal, to pay interest on, or refinance our debt, or to make cash payments in connection with our credit facilities, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Further, as our debt reaches maturity, we will be required to make large cash payments or adopt one or more alternatives, such as restructuring indebtedness or obtaining additional debt or equity financing on terms that may be highly dilutive. Our ability to restructure or refinance our debt will depend on the capital markets and our financial condition at such time. We may be unable to incur additional debt or refinance our existing debt on acceptable terms, if at all, which could result in a default on our debt obligations.
We continue to review and discuss potential financial transactions, including with our current lenders, in an effort to restructure our currently outstanding debt and to improve our balance sheet. If we proceed with any of these potential financial transactions, they could be highly dilutive to our stockholders. If a potential financial transaction does not occur or we are unable to repay all our outstanding debt from the proceeds of this offering, then we intend to continue to explore one or more alternatives, such as restructuring remaining indebtedness or obtaining additional debt or equity financing on terms that may be highly dilutive.
Our credit facilities are collateralized by a pledge of all our assets. If we were to default and be unable to cure it within any applicable grace periods or obtain a waiver of such default, the lenders would have a right to foreclose on our assets to satisfy our obligations under these agreements. Any such action on the part of the lenders could have a materially adverse impact on our business, financial condition and results of operations.
In connection with entering into our prior credit facilities and certain amendments to our prior credit facilities, we were required to issue to our lenders thereunder, certain warrants to purchase our common stock. These warrants were exercised in December 2024 and January 2025 and resulted in significant dilution to our stockholders. Future sales of common stock issued upon the exercise of these warrants may cause our stock price to decline.
We must maintain compliance with the terms of our existing credit facilities or receive a waiver for any non-compliance. The failure to do so could have a material adverse effect on our ability to finance our ongoing operations and we may not be able to find an alternative lending source if a default occurs.
In March 2024, June 2024, July 2024, August 2024 and again in December 2024, we fell out of compliance with certain financial covenants in our credit agreements, which resulted in defaults for which we received waivers of noncompliance from our lenders. Our credit agreements contain negative covenants and customary events of default provisions, including for payment default, covenant default, cross default to other material indebtedness, and judgment default. Each of these limitations are subject to certain liquidity levels, thresholds, or grace periods. In addition, the credit agreement contains affirmative covenants, including certain financial covenants that require us to maintain minimum fixed charge coverage ratios. The applicable interest rate on the facility may increase if our total leverage ratio increases to specified amounts that would result in our interest expenses rising.
These covenants could materially adversely affect our ability to finance our future operations or capital needs. Furthermore, they may restrict our ability to expand and pursue our business strategies and otherwise conduct our business. There are no assurances that we can continue to maintain compliance with these covenants. Our ability to comply with these covenants may be affected by circumstances and events beyond our control, such as prevailing economic conditions and changes in regulations. The restrictions limit our ability to obtain future financings or to withstand a future downturn in our business or the economy in general, which may affect our ability to make the payments required of us under the waiver. Complying with these covenants may also cause us to take actions that may make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.
If we do not maintain compliance with all of the continuing covenants imposed by the credit agreements and other terms and conditions of the credit facility, we could be required to repay outstanding borrowings on an accelerated basis, which could subject us to decreased liquidity and other negative impacts on our business, results of operations and financial condition. There is no assurance that we will be able to negotiate an amendment that will provide for modified financial covenant levels that we can satisfy, or that we will be able to obtain an additional waiver to the credit agreement in the case of future events of default (including but not limited to those related to financial covenants). Any additional amendment or waiver will likely require concessions from the Company, such as prepayments, the imposition of other covenants or restrictions, limitations on future borrowing, or the payment of lender expenses. Furthermore, if the debt is accelerated, we may not be able to make all of the required payments or borrow sufficient funds to refinance such debt. We continue to review and discuss potential financial transactions, including with our current lenders, if an effort to restructure our currently outstanding debt and to improve our balance sheet. If we proceed with any of these potential financial transactions, they could be highly dilutive to our stockholders. If a potential financing transaction does not occur or we are unable to repay all our outstanding debt from the proceeds of this offering, then we intend to continue to explore one or more alternatives to restructure or repay our remaining debt. Without a sufficient credit facility, we would be adversely affected by a lack of access to liquidity needed to operate our business.
It is not possible to predict the actual number of shares we will sell under the Standby Equity Purchase Agreement (the “SEPA”), or the actual gross proceeds resulting from those sales.
On January 25, 2025, we entered into the SEPA with YA II PN, Ltd., a Cayman Islands exempt limited partnership (“YA”), pursuant to which YA committed to purchase up to $200.0 million in shares of our common stock, subject to certain limitations and conditions.
We generally have the right to control the timing and amount of any sales of our shares of common stock to YA under the SEPA. Because the purchase price per share to be paid by YA for the shares of common stock that we may elect to sell to YA under the SEPA will fluctuate based on the market prices of our common stock during the applicable purchase valuation period for each purchase made pursuant to the SEPA, it is not possible for us to predict the total number of shares of common stock that we will sell to YA under the SEPA, the purchase price per share that YA will pay for shares purchased from us in the future under the SEPA, or the aggregate gross proceeds that we will receive from those purchases by YA under the SEPA. Sales of shares of our common stock pursuant to the SEPA will be dilutive to stockholders.
Moreover, although the SEPA provides that we may sell up to an aggregate of $200.0 million of our common stock to YA, only an aggregate of 19,811,201 shares of our common stock under the SEPA have been registered for resale by YA. If it becomes necessary for us to issue and sell to YA under the SEPA more than the shares that were registered for resale under the Registration Statement in order to receive aggregate gross proceeds equal to the total commitment of aggregate of $200.0 million under the SEPA, we must file with the SEC one or more additional registration statements to register under the Securities Act of 1933 the resale by YA of any such additional shares of our common stock we wish to sell from time to time under the SEPA, which the SEC must declare effective.
In the last several years, we have recorded significant restructuring charges and made cash payments to reduce our cost of sales and operating expenses to respond to adverse economic and industry conditions, to execute strategic management decisions, and to rationalize our operations following acquisitions. These restructuring plans may result in decreases to our revenues or adversely affect our ability to grow our business in the future. Workforce reductions may also adversely affect employee morale and our ability to retain our employees, and may result in increased legal proceedings by terminated employees. We may take future steps to further reduce our operating costs, including additional restructurings in response to strategic decisions, increased operating and product costs due to inflation, supply chain constraints, and other external factors, adverse changes in our business or industry, or future acquisitions. We may be unable to reduce our cost of sales and operating expenses at a rate and to a level appropriate in relation to our future sales, which may materially and adversely affect our business, financial condition and results of operations.Conversely, if our cost-reduction initiatives are more extensive than necessary or result in the reduction of critical personnel or resources, they could impair our ability to execute our business strategy, support customers, develop products, respond to market opportunities, or otherwise operate effectively, which could adversely affect our business, financial condition and results of operations.
We maintain sensitive data on our own systems related to our employees, strategic partners, and customers, including personally identifiable information, intellectual property, and proprietary business information on our own systems.information. In addition, many of our customers and partners store sensitive data on our products.
It is critical to our business that our employees’, strategic partners’ and customers’ sensitive information remains and is perceived as secure. While we employ sophisticated security measures in our own environment and our product features, we may face internal and external threats including unauthorized access, ransomware attacks, security breaches, and other system disruptions. A cybersecurity breach of our own IT infrastructure or products sold to our customers could result in unauthorized access to, loss of, or unauthorized disclosure of such information and expose us to litigation, indemnity obligations, government investigations, and other possible liabilities. Additionally, a cyber-attack, whether actual or perceived, could result in negative publicity which could harm our reputation and reduce our customers’ confidence in the effectiveness of our solutions, which could materially and adversely affect our business and operating results. A breach could also expose us to increased costs from remediation, disruption of operations, or increased cybersecurity protection costs that may have a material adverse effect on our business. Although we maintain cybersecurity liability insurance, our insurance may not cover all or any portion of claims of these typestypes, or may not be adequate to indemnify us for inability that may be imposed. Any imposition or liability or litigation costs that are not covered by insurance could harm our business.
We could also potentially face claims for product liability from our customers if our products cause property damage or bodily injury. Although there are limitations of liability in our commercial agreements and we maintain technology errors and omissions liability and general liability insurance, our insurance may not cover potential claims of these typestypes, or may not be adequate to indemnify us for all liability that may be imposed. Any imposition of liability or litigation costs that are not covered by insurance or could harm our business.
In addition, we use our own open source project software in our proprietary products. As a result, there is a risk that we may inadvertently release as an open source certain code that was intended to be kept as proprietary, that reveals confidential information regarding the inner workings of our proprietary products, or that could enable competitors to more readily reverse engineer or replicate aspects of our proprietary technology that we would otherwise protect as trade secrets. We may also accept contributions from third parties to our open source projects, and it may be difficult for us to accurately determine the origin of the contributions and whether their use, including in our proprietary products, infringes, misappropriates, or violates third-party intellectual property or other rights. The availability of certain of our own software in source code form may also enable others to detect and exploit security vulnerabilities in our products. In addition, our use of open source software may harm our business and subject us to intellectual property claims, litigation, or proceedings in the future.
We are subject to numerous U.S. and international laws and requirements regarding corporate conduct, fair competition, corruption prevention, data protection and security, import and export practices, and hazardous or restricted material use, storage, discharge, and disposal, including laws applicable to U.S. government contractors. We have incurred, and will continue to incur, costs and business process changes to comply with such regulations. While we maintain a rigorous corporate ethics and compliance program, we may be subject to increased regulatory scrutiny, significant monetary fines or penalties, suspension of business opportunities, loss of jurisdictional operating rights, and increased litigation and investigation costs as a result of any failure to comply with those requirements. If we identify that we have fallen out of compliance, we may proactively take corrective actions, including the filing of voluntary self-disclosure statements with applicable agencies, which could cause us to incur additional expenses and subject us to penalties and other consequences that could adversely affect our business, financial condition, and operating results. Our supply and distribution models may be reliant upon the actions of our third-party business partners and we may also be exposed to potential liability resulting from their violation of these or other compliance requirements. Further, our U.S. and international business models are based on currently applicable regulatory requirements and exceptions. Changes in those requirements or exceptions could necessitate changes to our business model. Any of these consequences could materially and adversely impact our business and results of operations.
We were also notified on November 14, 2023 and February 13, 2024 that we were not in compliance with Nasdaq Listing Rule 5250(c)(1) (the “Filings Requirement”) as a result of our failure to timely file the Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30, 2023 and December 31, 2023. The Nasdaq Staff initially providedgave us until May 7, 2024 to regain compliance with the Filings Requirement.
On May 14, 2024, we had a hearing before the Panel to address the deficiencies in complying with the Minimum Bid Price Requirement and the Filings Requirement and to present a plan to regain compliance. On June 6, 2024, the Panel issued a ruling granting us an extension period for (i) the Minimum Bid Price Requirement until September 16, 2024 and (ii) the Filings Requirement until July 1, 2024. As a result of the filing of the Annual Report on Form 10-K for the fiscal year ended March 31, 2024 on June 28, 2024, which included the financial statements and other information required in the Quarterly Reports on Form 10-Q for the fiscal quarters ended December 31, 2023 and September 30, 2023, we complied with the Filings Requirement. In addition, on August 26, 2024, we effected a 1-for-20 reverse stock split of our common stock following stockholder approval at our annual meeting of stockholders in order to comply with the Minimum Bid Price Requirement. On September 17, 2024, we received a letter from the Nasdaq Staff confirming that we regained compliance and that our securities will continue to be listed on Nasdaq.
On September 17, 2024, we received a letter from the Nasdaq Staff confirming that we regained compliance and that our securities will continue to be listed on Nasdaq.
On July 17, 2025, we received written notice from Nasdaq that we were not in compliance with the Filings Requirement as a result of our failure to timely file the Annual Report on Form 10-K for the fiscal year ended March 31, 2025 (the "2025 10-K"). We regained compliance with the Filings Requirement with respect to the 2025 10-K on August 26, 2025, within the timeline prescribed by Nasdaq.
While we expect to regain compliance with the Filings Requirement with respect to the 2025 10-K within the timeline prescribed by Nasdaq, there can be no assurance that we will be able to regain compliance within such period. In addition, we have not been able to file our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2025 by August 14, 2025. If we fail to regainlose compliance again and Nasdaq determines to delist our common stock, our common stock would be traded on the over-the-counter market, and the value and liquidity of our stockholders’ investments would be materially impacted. Furthermore, there can be no assurance that we will maintain compliance with theall other Nasdaq listing requirements.
We have restated certain of our prior consolidated financial statements, which has resulted in unanticipated costs and may lead to additional risks and uncertainties, including loss of investor confidence and negative impacts on our stock price.
In this Annual Report on Form 10-K, we restated certain of our financial statements. Also, in the Annual Report on Form 10-K for the fiscal year ended March 31, 2024 (the “2024 Annual Report”), we restated certain of our financial statements. The determination to restate the financial statements was made by our Audit Committee of the Board of Directors upon management’s recommendation. Our management concluded that certain of our previously issued financial statements should no longer be relied upon.
The restatement of our previously issued financial statements is time-consuming and expensive and could expose us to additional risks that could materially adversely affect our financial position, results of operations and cash flows, including unanticipated costs for accounting and legal fees in connection with or related to the restatement and the risk of potential stockholder litigation. If lawsuits are filed, we may incur additional substantial defense costs regardless of the outcome of such litigation. Likewise, such events might cause a diversion of our management’s time and attention. If we do not prevail in any such litigation, we could be required to pay substantial damages or settlement costs. In addition, the restatement may lead to a loss of investor confidence and have negative impacts on the trading price of our common stock.
We have concluded that our internal control over financial reporting and disclosure controls and procedures were not effective as of March 31, 2026 and 2025 due to the existence of material weaknesses in our internal control over financial reporting, as described in Item 9A. Controls and Procedures of the this Annual Report on Form 10-K.
Some of these material weaknesses resulted in the restatement of the unaudited condensed quarterly financial information for the quarterly period ended December 31, 2024.
We cannot provide assurance that the material weaknesses and deficiencies identified in the 2025 Annual Report and the consolidated financial statements appearing elsewheredescribed in this Annual Report on Form 10-K will not recur, or that additional material weaknesses in our internal control over financial reporting will not arise or be identified in the future. We intend to continue our control remediation activities and to continue to improve our financial reporting process, and our operational, information technology, financial systems, compliance and infrastructure procedures and controls. We also intend to continue to expand, train, retain and manage our personnel who are essential to effective internal control and compliance. In doing so, we will continue to incur expenses and expend management time.time and resources.
If our remediation measures are insufficient to address the identified deficiencies, or if additional deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results in the future. We have previously restated our financial statements, including in August 2025 with respect to the fiscal quarter ended December 31, 2024 and in May 2024 with respect to the fiscal years ended March 31, 2023 and 2022 and the fiscal quarter ended June 30, 2023. Moreover, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all. If we are unable to provide reliable and timely financial reports in the future, our business and reputation may be further harmed. Restated financial statements and failures in internal control may also cause us to fail to timely meet reporting obligations or debt covenants,obligations, negatively affect investor confidence in our management and the accuracy of our financial statements and disclosures, or result in adverse publicity, any of which could have a negative effect on the price of our common stock, subject us to further regulatory investigations and penalties or stockholder litigation, and materially and adversely impact our business and financial condition.
We face risks related to health epidemicsepidemics, pandemics and other outbreaks, which couldhave had and may in the future have a material adverse effect on our business and results of operations.
Management's Discussion & Analysis (MD&A)
New heading “Comparison of the Years Ended March 31, 2026 and 2025”
New heading “Other expense, net”
New heading “Convertible note”
New heading “Loss on debt extinguishment, net”
New heading “Convertible Note”
Removed heading “Comparison of the Three Months Ended December 31, 2024 (Restated) and 2023”
Removed heading “Gross Profit and Margin”
Removed heading “Operating Expenses”
Removed heading “Other Income (Expense)”
Removed heading “Interest Expense”
Removed heading “Warrant liabilities”
Removed heading “Comparison of the Nine Months Ended December 31, 2024 (Restated) and 2023”
Removed heading “Other Income (Expense)”
Removed heading “Loss on Debt Extinguishment”
Largest changes
“We are subject to various debt covenants under our credit agreements. Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations. As discussed in Note 1: Description of Business and Significant Accounting Policies—Going Concern, we believe we will be in violation of our net leverage covenant as of the September 30, 2025 testing date and the violation will cause the Term Loan outstanding balance to become due as an event of default. …”see in full comparison
“Subsequent to March 31, 2026, we completed several transactions which have significantly impacted our future liquidity. On June 1, 2026, the Company entered into Securities Purchase Agreements to issue and sell to certain accredited investors an aggregate of 10,615,712 shares of the Company’s Common Stock. After deducting placement agent fees and other offering expenses payable by the Company, the Company received net proceeds of $94.7 million. On June 4, 2026, the Company paid an aggregate of $57.8 million in connection with the termination of the Term Loan Credit Agreement. …”see in full comparison
“The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement adjustments made to the previously reported consolidated financial statements for the quarter ended December 31, 2024. For additional information related to the quarterly restatement, see Note 14: Restatement of Unaudited Quarterly Financial Statements in the Notes to our consolidated financial statements included in this Annual Report on Form 10-K under the caption Item 8. Financial Statements and Supplementary Data.”see in full comparison
“In fiscal 2026, interest expense decreased by $2.0 million, or 9%, as compared to fiscal 2025. This decrease was primarily due to the restructuring of our Term Loan (as defined herein) in September 2025.”see in full comparison
“In the nine months ended December 31, 2024, general and administrative expense increased $14.4 million, or 41%, compared with the same period in fiscal 2024. This increase was primarily driven by non-recurring costs related to our previously announced restatement of our historical financial statements, and other related projects.”see in full comparison
“Comparison of the Three Months Ended December 31, 2024 (Restated) and 2023”see in full comparison
Full comparison: every changed paragraph (94)
The following discussion of our financial condition and results of operations covers fiscal 2026 and fiscal 2025 items and year-over-year comparisons between fiscal 2026 and fiscal 2025. Discussions of fiscal 2024 items and year-over-year comparisons between fiscal 2025 and fiscal 2024. Discussions of fiscal 2023 items and year-over-year comparisons between fiscal 2024 and 2023 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024,2025, that was filed with the SEC on JuneAugust 28,26, 2024.2025.
Restatement
The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement adjustments made to the previously reported consolidated financial statements for the quarter ended December 31, 2024. For additional information related to the quarterly restatement, see Note 14: Restatement of Unaudited Quarterly Financial Statements in the Notes to our consolidated financial statements included in this Annual Report on Form 10-K under the caption Item 8. Financial Statements and Supplementary Data.
Comparison of the Years Ended March 31, 2026 and 2025
Product Revenue
In fiscal 2026, product revenue increased $18.2 million, or 12%, as compared to fiscal 2025. The primary driver of this increase was strong demand across all secondary storage product lines including Scalar tape storage products, DXi backup appliances, and ActiveScale object storage appliances. Demand growth increased worldwide with product revenues increasing across all regions. Overall secondary storage revenue increased by $27.1 million, or 36.7% as compared to fiscal 2025. Devices and media revenues also increased by $6.1 million, or 17.7% as compared to fiscal 2025. These increases were partially offset by continuing declines in primary storage.
Service and Subscription Revenue
Service and subscription revenue decreased $11.4 million, or 10%, in fiscal 2026 compared to fiscal 2025. This decrease was due in part to certain long-lived products reaching their end-of-service-life, partially offset by new support bookings and the transition towards subscription-based licensing.
Royalty Revenue
We receive royalties from third parties that license our linear-tape open media patents through our membership in the linear-tape open consortium. Royalty revenue decreased $1.2 million, or 14%, in fiscal 2026, as compared to fiscal 2025, related to lower overall unit shipments.
Product gross margin decreased 130 basis points for fiscal 2026, as compared to fiscal 2025. This decrease was due primarily to a revenue mix slightly more weighted towards lower margin devices and media products. Product costs also fluctuated through the year from external factors such as import tariffs and component material costs.
Service and subscription gross margin decreased 50 basis points for fiscal 2026, as compared to fiscal 2025. This decrease was due primarily to higher shipping and handling costs and inventory carrying charges, partially offset by lowered internal costs from continued improvement in operational design.
In fiscal 2026, sales and marketing expenses decreased $0.3 million, or 1%, as compared with fiscal 2025. This decrease was primarily driven by an improved organizational structure following management changes in fiscal 2026.
In fiscal 2026, general and administrative expenses decreased $20.0 million, or 31%, as compared with fiscal 2025 This decrease was primarily driven by large non-recurring projects not recurring in fiscal 2026 including the launch of a new ERP system in the prior year. Expenses also decreased as administrative efficiency gains were realized through more streamlined functions and process automation.
In fiscal 2026, research and development expenses decreased $7.6 million, or 25%, as compared with fiscal 2025. This decrease was the result of the efficiencies realized through improved organization design, better aligning commonalities between major products.
In fiscal 2026, restructuring charges increased $4.0 million, or 98%, as compared with fiscal 2025. This increase is driven by corporate restructuring activities as we consolidated our physical footprint and operations in certain markets.
Other expense, net
In fiscal 2026, the change in other expense resulted in a net increase of $0.8 million or 113%, compared to fiscal 2025. The increase was primarily related to differences in foreign currency gains and losses during each period.
In fiscal 2026, interest expense decreased by $2.0 million, or 9%, as compared to fiscal 2025. This decrease was primarily due to the restructuring of our Term Loan (as defined herein) in September 2025.
In fiscal 2026, we recorded a non-cash loss of $11.3 million related to the change in fair value of our forbearance warrant which was issued in September 2025. The loss was primarily driven by fluctuations in our stock price. We recorded a non-cash gain of $45.3 million in the same period in fiscal 2025 related to lender warrants issued to the holders of our Term Loan. These warrants were exercised in December 2024 and January 2025. This gain was primarily driven by fluctuations in our stock price.
Convertible note
In fiscal 2026, we recorded a non-cash gain of $4.1 million related to the change in fair value of our convertible note issued in December 2025. This change was primarily driven by fluctuations in our stock price.
Loss on debt extinguishment, net
In fiscal 2026, we recorded a loss of $59.6 million on debt extinguishment primarily related to the September 2025 and December 2025 debt transactions, partially offset by a gain on termination of our revolving credit facility in August 2025. In fiscal 2025, loss on debt extinguishment, net was related to prepayment of our long-term debt.
In fiscal 2026, the income tax provision increased $0.2 million or 23%, compared to fiscal 2025. The income tax provision increased in 2026 primarily due to a higher valuation allowance and a significant warrant mark-to-market adjustment, which together offset the federal statutory tax benefit from pre-tax losses. Additionally, the expiration of tax attributes contributed to the increase, as previously available deferred tax assets could no longer be used.
Product Revenue
In fiscal 2025, product revenue decreased $20.7 million, or 12%, as compared to fiscal 2024. The primary driver of the decrease was a drop in demand from our large hyperscale customers in the first quarter of the prior year, as well as more general decreases in the overall tape market. Outside of the Tape and Hyperscale business, our remaining Secondary and Primary storage systems are also offered as a subscription. We anticipate the product revenue portion of our Primary and Secondary storage systems to decrease as we continue to transition to subscription-based offerings.
Service and Subscription Revenue
Royalty Revenue
In fiscal 2025, general and administrative expenses increased $12.4 million, or 24%, as compared with fiscal 2024 This increase was primarily driven by large non-recurring costs related to our re-evaluation of Topicrevenue 606,recognition, and other non-recurring projects.
Other expense,Income net(Expense)
Loss on debt extinguishment, netextinguishment
In fiscal 2025, the income tax provision increased $110$0.1 thousandsmillion, or 15%, compared to fiscal 2024. The income tax provision increased in 2025 primarily due to a higher valuation allowance and a warrant mark-to-market adjustment, which together offset the federal statutory tax benefit from pre-tax losses. Additionally, the expiration of tax attributes contributed to the increase, as previously available deferred tax assets could no longer be used.
Comparison of the Three Months Ended December 31, 2024 (Restated) and 2023
In the three months ended December 31, 2024, product revenue increased $1.5 million, or 4%, as compared to the same period in fiscal 2024. The primary driver of the increase was in Primary storage systems with higher sales of our StorNext based solutions.
Service and subscription revenue decreased $5.0 million, or 15%, in the three months ended December 31, 2024 compared to the same period in fiscal 2024. This decrease was due to certain long-lived products reaching their end-of-service-life.
We receive royalties from third parties that license our linear-tape open media patents through our membership in the linear-tape open consortium. Royalty revenue saw a small increase of $0.3 million, or 14%, in the three months ended December 31, 2024 compared to the same period in fiscal 2024 due to product mix.
Gross Profit and Margin
Gross profit and margin percentages are key metrics that management monitors to assess the performance on the business.
Product Gross Margin
Product gross margin increased by $0.6 million, or by 100 basis points, for the three months ended December 31, 2024, as compared with the same period in fiscal 2024. This increase was primarily due to a more favorable mix of revenues, weighted towards our higher margin product lines, as well as improvements in our operational efficiency and logistics costs.
Service and Subscription Gross Margin
Service and subscription gross margins increased 320 basis points for the three months ended December 31, 2024, as compared with the same period in fiscal 2024. This increase was primarily driven by improvements in our operations efficiency.
Royalty Gross Margin
Royalties do not have significant related cost of sales.
Operating Expenses
In the three months ended December 31, 2024, sales and marketing expenses decreased $1.8 million, or 13%, as compared with the same period in fiscal 2024. This decrease was primarily driven by improved operational efficiency and increased leverage of our channel.
In the three months ended December 31, 2024, general and administrative expenses increased $2.2 million, or 19%, as compared with the same period in fiscal 2024 This increase was primarily driven by higher expense in compliance focused outside services related to ongoing projects.
In the three months ended December 31, 2024, research and development expenses decreased $1.1 million, or 12%, as compared with the same period in fiscal 2024 This decrease was the result of the continued consolidation of acquisition costs, and efficiencies realized through improved organization design.
In the three months ended December 31, 2024, restructuring expenses increased $0.8 million, or 170% as compared with the same period in fiscal 2024 The increase was the result of cost reduction initiatives in the current year.
Other Income (Expense)
The change in other income (expense), net during the three months ended December 31, 2024 compared with the same period in fiscal 2024 was related primarily to fluctuations in foreign currency exchange rates during the three months ended December 31, 2024.
Interest Expense
In the three months ended December 31, 2024, interest expense increased $2.9 million, or 74%, as compared with the same period in fiscal 2024 due to a higher effective interest rate on our Term Loan.
Warrant liabilities
In December 31, 2024, we recorded a non-cash loss of $61.6 million related to the change in fair value of our warrant liabilities, compared to a non-cash gain of $4.4 million in the same period in fiscal 2024. This change was primarily driven by fluctuations in our stock price.
The income tax provision for the three months ended December 31, 2024 and 2023 is primarily influenced by foreign and state income taxes. Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgment is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.
Comparison of the Nine Months Ended December 31, 2024 (Restated) and 2023
In the nine months ended December 31, 2024, product revenue decreased $18.1 million, or 13%, as compared to the same period in fiscal 2024. The primary driver of the decrease was a $20 million decrease in demand from our large hyperscale customers, as well as more general decreases in the overall tape market with declines in media and devices revenue. Outside of the Tape and Hyperscale business, our remaining Secondary and Primary storage systems are also offered as a subscription. We expect the product revenue portion of our Primary and Secondary storage systems to decrease as we continue to transition to subscription-based offerings.
We offer a broad range of services including product maintenance, implementation, and training as well as software subscriptions. Service revenue is primarily comprised of customer field support contracts which provide standard support services for our hardware. Standard service contracts may be extended or include enhanced service, such as faster service response times.
What changed in the latest 10-Q
Risk Factors
There have been no material changes to the previously disclosed risk factors discussed in “Part I, Item 1A, Risk Factors” in the Annual Report. You should consider carefully these factors, together with all of the other information in this Quarterly Report, including our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report, before making an investment decision.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Convertible note”
New heading “Net Cash Used in Investing Activities”
New heading “Net Cash Provided by Financing Activities”
New heading “Off-Balance Sheet Arrangements”
Removed heading “Interest Income”
Removed heading “Comparison of the Nine Months Ended December 31, 2025 and 2024”
Removed heading “Gross Profit and Margin”
Removed heading “Operating Expenses”
Removed heading “Other Income (Expense), net”
Removed heading “Interest Income”
Removed heading “Interest Expense”
Removed heading “Warrant Liabilities”
Removed heading “Loss on Debt Extinguishment”
Removed heading “Cash Used in Investing Activities”
Removed heading “Cash Provided by Financing Activities”
Removed heading “Off Balance Sheet Arrangements”
Largest changes
“In the nine months ended December 31, 2025, restructuring expenses increased $4.2 million, or 145%, as compared with the same period in fiscal 2025. The increase was the result of significant changes in management structure, and overall consolidation of resources designed to improve operational efficiencies and rationalize its cost structure. These actions are part of management’s ongoing efforts to align the Company’s organizational structure and resources with its strategic priorities and to streamline operations across business units. …”see in full comparison
“In the three months ended December 31, 2025, restructuring expenses increased $0.2 million, or 14%, as compared with the same period in fiscal 2025. This increase in restructuring expenses primarily involves workforce reductions and related severance and termination benefits. These actions are part of management’s ongoing efforts to align the Company’s organizational structure and resources with its strategic priorities and to streamline operations across business units.”see in full comparison
In the three months endedsee in full comparisonDecemberJune31,30,2025,2026, interest expense decreased$0.9by $4.4 million, or13%,68%, as comparedwith the same period into fiscal2025,2025. This decrease was primarily due to theexchangerestructuring and subsequent repayment ofDialectic’s portion of theour Term Loanfor(asthedefinedConvertibleherein)NoteinonSeptemberDecember202518,and2025,inwhichJunereduced2026,the amount of Term Loan principal outstanding during the quarter.respectively.
“On December 18, 2025, we completed an exchange of Dialectic’s portion of the Term Loan for one or more senior secured Convertible Note with a three-year maturity. This exchange reduced the amount of the Term Loan principal scheduled to mature on August 5, 2026. However, we remain obligated to repay the remaining Term Loan balance at maturity. As discussed in Note 1: Description of Business and Summary of Significant Accounting Policies—Going Concern, we do not expect to be able to repay the Term Loan at maturity using cash generated from operating activities. …”see in full comparison
“Product gross margin decreased by $3.0 million, or by 70 basis points, for the nine months ended December 31, 2025, as compared with the same period in fiscal 2025. This decrease was primarily due to an inventory provision accrued for certain end-of-life products, as well as supply chain logistics costs including import tariffs.”see in full comparison
“Comparison of the Nine Months Ended December 31, 2025 and 2024”see in full comparison
Full comparison: every changed paragraph (98)
The following discussion and analysis compares the change in the condensed consolidated financial statements for quartersthe quarter ended June 30, 2026 and nineJune months30, ended December 31, 2025 and December 31, 2024,2025, and should be read together with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 20252026 (the “Annual Report”). In particular, the risk factors contained in Part I, Item 1A of the Annual Report under the heading “Risk Factors” may reflect trends, demands, commitments,demands,commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources. For comparisons of quarters and nine months ended DecemberJune 31,30, 20242025 and DecemberJune 31,30, 2023,2024, see our Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 72 of our AnnualQuarterly Report on Form 10-K10-Q for the yearquarter ended MarchJune 31,30, 2025, filed with the SEC on AugustSeptember 26,11, 2025 and amended on September 23, 2025 and incorporated herein by reference. Our fiscal year ends on March 31 of each calendar year. "Fiscal 20252027" refers to the fiscal year ending March 31, 2027, and "Fiscal 2026" refers to the fiscal year ended March 31, 2025.2026.
OVERVIEWOverview and Highlights
We are a technology company whose mission is to deliver innovative solutions to forward-thinking organizations across the world. We design, manufacture and sell technology and services that help customers capture, create and share digital content, and protect it for decades. We emphasize innovative technology in the design and manufacture of our products to help our customers unlock the value in their video and unstructured data in new ways to solve their most pressing business challenges.
We generate revenue by designing, manufacturing, and selling technology and services. Our most significant expenses are related to compensating employees; designing, manufacturing, marketing, and selling our products and services; data center costs in support of our cloud-based services; and interest associated with our long-term debt and income taxes.
Comparison of the Three Months Ended DecemberJune 31,30, 20252026 and 20242025
In the three months ended June 30, 2026, product revenue increased $16.3 million, or 44%, as compared to the same period in fiscal 2026. The primary driver of this increase was strong demand across all secondary storage product lines including Scalar tape storage products, DXi backup appliances, and ActiveScale object storage appliances. Demand growth increased worldwide with product revenues increasing across all regions. Overall secondary storage revenue increased by $18.5 million, or 100.1% as compared to the same period in fiscal 2026. Devices and media revenues also increased by $0.4 million, or 4.2% as compared to fiscal 2026. These increases were partially offset by declines in primary storage.
In the three months ended December 31, 2025, product revenue increased $7.8 million, or 20%, as compared to the same period in fiscal 2025. The primary driver of the increase was due to higher sales across secondary storage, devices and media product lines.
Service and subscription revenue decreasedwas $1.2essentially flat with a small decrease of $0.3 million, or 4%,1%, in the three months ended DecemberJune 31,30, 20252026, compared to the same period in fiscal 2025. This decrease was due to a strong quarter for support renewals and related revenue recognition.2026.
We receive royalties from third parties that license our linear-tape open media patents through our membership in the linear-tape open consortium. Royalty revenue decreasedincreased $0.7$0.5 million, or 31%,25%, in the three months ended DecemberJune 31,30, 20252026, as compared to the same period in fiscal 20252026, duerelated to bothhigher loweroverall marketunit volume and a mix weighted towards linear-tape-open (“LTO”) types with lower royalty rates.shipments.
Gross profit and margin percentages are key metrics that management monitors to assess the performance ofon the business.
Product gross margin increased by $3.1 million, or by 340820 basis points,points for the three months ended DecemberJune 31,30, 2025,2026, as compared with the same period into fiscal 2025.2026. This increase was due primarily due to salesa during the quartermix more heavily weighted towards higher margin products.products, as well as a temporary benefit from higher pricing.
Service and subscription gross marginsmargin decreasedincreased by $1.4 million, or by 230550 basis points,points for the three months ended DecemberJune 31,30, 2025,2026, as compared with the same period into fiscal 2025.2026. This decreaseincrease was primarily drivendue byto higherlower serviceoperational inventorycosts and logisticsefficiency costsgains asin wethe rebalancesupport spare parts supply worldwide.organization.
In the three months ended DecemberJune 31,30, 2025,2026, sales and marketing expenses increaseddecreased $0.5$1.6 million, or 4%,13%, as compared with the same period in fiscal 2025.2026. This increasedecrease was primarily driven by higheran commissionimproved expenseorganizational relatedstructure tofollowing productmanagement andchanges servicein sales.fiscal 2026.
In the three months ended DecemberJune 31,30, 2025,2026, general and administrative expenses decreased $4.1$4.0 million, or 29%, as compared with the same period in fiscal 2025.2026 This decrease was primarily driven by higherlarge expensenon-recurring projects in the prior year related to restructuring and compliance focusedrelated outsideactivities. services.Expenses also decreased as administrative efficiency gains were realized through more streamlined functions and process automation.
In the three months ended DecemberJune 31,30, 2025,2026, research and development expenses decreased $2.1$0.6 million, or 27%,10%, as compared with the same period in fiscal 2025.2026. This decrease was the result of the efficiencies realized through improved organization design, includingfurther thealigning consolidationcommonalities ofbetween commonmajor functions.products.
In the three months ended June 30, 2026, restructuring charges decreased $2.4 million, or 99%, as compared with fiscal 2025. This decrease is because the corporate restructuring activities are largely complete.
In the three months ended December 31, 2025, restructuring expenses increased $0.2 million, or 14%, as compared with the same period in fiscal 2025. This increase in restructuring expenses primarily involves workforce reductions and related severance and termination benefits. These actions are part of management’s ongoing efforts to align the Company’s organizational structure and resources with its strategic priorities and to streamline operations across business units.
The Company expects these initiatives to result in future cost savings and productivity improvements beginning in fiscal 2026. The restructuring activities are expected to be substantially completed by the end of fiscal year 2026; however, the timing and total amount of charges are subject to change as implementation progresses.
Other Income (Expense),Expense, net
In the three months ended June 30, 2026, the change in other expense resulted in a net increase of $0.6 million or 149%, compared to fiscal 2025. The increase was primarily related to differences in foreign currency gains and losses during each period.
The change in other income (expense), net during the three months ended December 31, 2025 compared with the same period in fiscal 2025 was related primarily to fluctuations in foreign currency exchange rates during the three months ended December 31, 2025.
Interest Income
The change in interest income during the three months ended December 31, 2025 compared with the same period in fiscal 2025 was related primarily to higher average cash balances and prevailing interest rates during the three months ended December 31, 2025.
In the three months ended DecemberJune 31,30, 2025,2026, interest expense decreased $0.9by $4.4 million, or 13%,68%, as compared with the same period into fiscal 2025,2025. This decrease was primarily due to the exchangerestructuring and subsequent repayment of Dialectic’s portion of theour Term Loan for(as thedefined Convertibleherein) Notein onSeptember December2025 18,and 2025,in whichJune reduced2026, the amount of Term Loan principal outstanding during the quarter.respectively.
In the three months ended DecemberJune 31,30, 2025,2026, we recorded a non-cash gainloss of $7.6$16.3 million related to the change in fair value of our Forbearanceforbearance Warrantwarrant liabilities.which Inwas theissued threein monthsSeptember ended2025 Decemberand 31,conversion 2024,warrant wewhich recordedwas aissued non-cashin June 2026. The loss of $61.6 million related to the change in fair value of our Lender Warrant liabilities. These changes werewas primarily driven by fluctuations in our stock price.
Convertible note
In the three months ended DecemberJune 31,30, 2025,2026, we recorded a non-cash gainloss of $1.6$(129.7) million related to the change in fair value of our Convertibleconvertible Note,note issued in December 2025. This change was primarily driven by changesfluctuations in market inputs, including a lowerour stock price and updatedthe volatilityconversion assumptions, andof the Decemberconvertible 31note exchangein priceJune reset based on the 30-day VWAP.2026.
(Loss) gain on Debtdebt Extinguishmentextinguishment, net
In the three months ended December 31, 2025, loss on debt extinguishment was related to the exchange of Dialectic’s portion of the Term Loan for the Convertible Note.
Income Taxes
The income tax provision for the three months ended December 31, 2025 and 2024 is primarily influenced by foreign and state income taxes. Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. and certain foreign net deferred tax assets. Significant management judgment is required in assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.
Comparison of the Nine Months Ended December 31, 2025 and 2024
Revenue
Product Revenue
In the nine months ended December 31, 2025, product revenue decreased $1.2 million, or 1%, as compared to the same period in fiscal 2025. The primary driver of the decrease was in primary storage systems with a large video surveillance order in the prior period.
Service and Subscription Revenue
Service and subscription revenue decreased $7.6 million, or 9%, in the nine months ended December 31, 2025 compared to the same period in fiscal 2025. This decrease was due to certain long-lived products reaching their end-of-service-life.
Royalty Revenue
We receive royalties from third parties that license our linear-tape open media patents through our membership in the linear-tape open consortium. Royalty revenue saw a decrease of $2.5 million, or 32%, in the nine months ended December 31, 2025 compared to the same period in fiscal 2025 due to both lower market volume and a mix weighted towards LTO types with lower royalty rates.
Gross Profit and Margin
Gross profit and margin percentages are key metrics that management monitors to assess the performance on the business.
Product Gross Margin
Product gross margin decreased by $3.0 million, or by 70 basis points, for the nine months ended December 31, 2025, as compared with the same period in fiscal 2025. This decrease was primarily due to an inventory provision accrued for certain end-of-life products, as well as supply chain logistics costs including import tariffs.
Service and Subscription Gross Margin
Service and subscription gross margins decreased by $4.9 million, or by 220 basis points for the nine months ended December 31, 2025, as compared with the same period in fiscal 2025. This decrease was primarily driven by the reduction of service costs across the organization, including logistics, repair, and labor.
Royalty Gross Margin
Royalties do not have significant related cost of sales.
Operating Expenses
In the nine months ended December 31, 2025, sales and marketing expenses decreased $1.9 million, or 5%, as compared with the same period in fiscal 2025. This decrease was primarily driven by improved operational efficiency and increased leverage of our channel.
In the nine months ended December 31, 2025, general and administrative expenses decreased $14.6 million, or 30%, as compared with the same period in fiscal 2025. This decrease was primarily driven by higher expense in the prior year related to compliance focused outside services.
In the nine months ended December 31, 2025, research and development expenses decreased $6.3 million, or 26%, as compared with the same period in fiscal 2025. This decrease was the result of efficiencies realized through improved organization design, including the consolidation of common functions.
In the nine months ended December 31, 2025, restructuring expenses increased $4.2 million, or 145%, as compared with the same period in fiscal 2025. The increase was the result of significant changes in management structure, and overall consolidation of resources designed to improve operational efficiencies and rationalize its cost structure. These actions are part of management’s ongoing efforts to align the Company’s organizational structure and resources with its strategic priorities and to streamline operations across business units. The restructuring plan primarily involves workforce reductions and related severance and termination benefits.
The Company expects these initiatives to result in future cost savings and productivity improvements beginning in fiscal 2026. The restructuring activities are expected to be substantially completed by the end of the fourth quarter of fiscal year 2026; however, the timing and total amount of charges are subject to change as implementation progresses.
Other Income (Expense), net
The change in other income (expense), net during the nine months ended December 31, 2025 compared with the same period in fiscal 2025 was related primarily to fluctuations in foreign currency exchange rates during the nine months ended December 31, 2025.
Interest Income
The change in interest income during the nine months ended December 31, 2025 compared with the same period in fiscal 2025 was related primarily to higher average cash balances and prevailing interest rates during the nine months ended December 31, 2025.
Interest Expense
In the ninethree months ended DecemberJune 31,30, 2025,2026, interestwe expenserecorded increaseda $1.9loss million,of or$11.7 11%,million ason compareddebt withextinguishment, primarily related to the repayment of our Term Loan in June 2026. In the same period in fiscal 20252025, duethe gain on debt extinguishment, net was related to the net of discount on issuance of term loans to a highernew effectivelender interestand rate on our Term Loan as well as increased amortizationwrite-off of deferredall unamortized debt issuance costs.costs and fees.
Warrant Liabilities
QMCO insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 3 filings (3 insiders, 2 trade dates, 7,970 shares, about $84.1K). Net open-market shares: -7,970 (purchases minus sales); net value about -$84.1K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-10-01 | White Yue Zhou |
Grant/award | 12,000 | — | — |
| 2026-10-01 | Blevins Tony J |
Grant/award | 12,000 | — | — |
| 2026-10-01 | Tracy John R. |
Grant/award | 12,000 | — | — |
| 2026-10-01 | Fichthorn John |
Grant/award | 12,000 | — | — |
| 2026-10-01 | Clancy James C |
Grant/award | 150,000 | — | — |
| 2026-10-01 | Patel Hiral |
Grant/award | 50,000 | — | — |
| 2026-10-01 | Jaworksi Don |
Grant/award | 12,000 | — | — |
| 2026-08-03 | Craythorne Anthony |
Open-market sale | 1,478 | $10.73 | $15.9K |
| 2026-07-02 | Nash Laura A. |
Open-market sale | 260 | $10.51 | $2.7K |
| 2026-07-02 | Meyrath Hugues |
Open-market sale | 6,232 | $10.51 | $65.5K |
| 2026-06-04 | Fichthorn John |
Grant/award | 3,083,975 | $5.19 | $16.0M |
| 2026-06-04 | Fichthorn John |
Conversion | 11,020,645 | $5.19 | $57.2M |
| 2026-06-04 | Dialectic Technology Spv Llc |
Grant/award | 3,083,975 | $5.19 | $16.0M |
| 2026-06-04 | Dialectic Technology Spv Llc |
Conversion | 11,020,645 | $5.19 | $57.2M |
Well-known investors holding QMCO (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Oaktree Capital Management (Howard Marks) | 2026-06-30 | 2,011,678 | $22.1M | 0.42% | New position |
| Renaissance Technologies | 2026-06-30 | 154,516 | $1.7M | 0.0% | New position |
| Millennium Management (Israel Englander) | 2026-06-30 | 21,755 | $239.3K | 0.0% | New position |