Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements (Notes)

v3.20.1
Fair Value Measurements (Notes)
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
Assets and liabilities measured at fair value are classified into the following categories:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2: Inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as interest rates and yield curves that are observable for the asset or liability, either directly or indirectly.
Level 3: Inputs are generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect an entity’s own estimates of assumptions that market participants would use in pricing the asset or liability.
As of March 31, 2020 and December 31, 2019, the following warrants for the purchase of Qumu's common stock were outstanding and exercisable:
Description
 
Number of underlying warrant shares
 
Warrant exercise price
(per share)
 
Warrant expiration date
Warrant issued in conjunction with January 2018 debt financing ("ESW warrant")
 
925,000

 
$
1.96

 
January 12, 2028
Warrant issued in conjunction with October 2016 debt financing ("Hale warrant")
 
314,286

 
$
2.80

 
October 21, 2026
Warrant issued to sales partner, iStudy Co., Ltd. ("iStudy warrant")
 
100,000

 
$
2.43

 
August 31, 2028
Total warrants outstanding
 
1,339,286

 
 
 
 

The warrant liability was recorded in the Company's consolidated balance sheets at its fair value on the respective dates of issuance and is revalued on each subsequent balance sheet date until such instrument is exercised or expires, with any changes in the fair value between reporting periods recorded as other income or expense. The Company recorded non-cash income of $36,000 and non-cash expense of $289,000 for the three months ended March 31, 2020 and 2019, respectively, resulting from the change in fair value of the warrant liability.
The Company’s liabilities measured at fair value on a recurring basis and the fair value hierarchy utilized to determine such fair values is as follows at March 31, 2020 and December 31, 2019 (in thousands):
 
 
 
Fair Value Measurements Using
 
Total Fair
Value at
March 31, 2020
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Liabilities:
 
 
 
 
 
 
 
Derivative warrant liability - ESW warrant
$
1,983

 
$

 
$

 
$
1,983

Derivative warrant liability - Hale warrant
915

 

 

 
915

Derivative warrant liability - iStudy
5

 

 

 
5

Derivative warrant liability
$
2,903

 
$

 
$

 
$
2,903

 
 
 
Fair Value Measurements Using
 
Total Fair
Value at
December 31, 2019
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Liabilities:
 
 
 
 
 
 
 
Derivative warrant liability - ESW warrant
$
2,149

 
$

 
$

 
$
2,149

Derivative warrant liability - Hale warrant
645

 

 

 
645

Derivative warrant liability - iStudy
145

 

 

 
145

Derivative warrant liability
$
2,939

 
$

 
$

 
$
2,939


The Company's evaluation of the probability and timing of a change in control or future equity offering represents an unobservable input (Level 3) that shortens or lengthens the expected term input of the option pricing model for all warrants, and generally correspondingly increases or decreases the discounted value of the minimum cash payment component of the ESW warrant and Hale warrant. Consequently, as of March 31, 2020 and December 31, 2019, the liability related to each warrant was classified as a Level 3 liability.
The following table represents the significant unobservable input used in the fair value measurement of Level 3 instruments:
 
March 31, 2020
Probability-weighted timing of change in control or financing event
0.3 years

In connection with the merger agreement with Synacor, Inc., each holder of a warrant will have the right to receive, upon exercise of the warrant, 1.61 newly issued shares of common stock of Synacor for each share of Qumu common stock then issuable upon such exercise of the warrant. Alternatively, the ESW warrant and Hale warrant each provide that at the request of the holder, Qumu must purchase the warrant from such holder for a purchase price, payable in cash, equal to the greater of the original issuance value in respect of the remaining unexercised portion of the warrant and the Black-Scholes value of the remaining unexercised portion of the warrant through the date of the consummation of the merger as determined in accordance the warrant. The iStudy warrant holder has no right to require a cash purchase of the warrant and the portion of the iStudy warrant not exercised prior to the closing of the merger will expire at the time of the closing of the merger. The rights of the ESW warrant holder and the Hale warrant holder to exercise the warrants will expire at the closing of the merger and any cash purchase price must be paid within five trading days of the request that Qumu purchase the warrant.
The following table summarizes the changes in fair value measurements for the three months ended March 31, 2020:
Balance at December 31, 2019
 
$
2,939

Change in fair value
 
(36
)
Balance at March 31, 2020
 
$
2,903