NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
|
(1)
|
Nature of Business and Basis of Presentation
|
Qumu Corporation ("Qumu" or the "Company") provides the software solutions to create, manage, secure, distribute and measure the success of live and on-demand video for enterprises. The Qumu platform enables global organizations to drive employee engagement, increase access to video, and modernize the workplace by providing a more efficient and effective way to share knowledge. The world’s largest organizations leverage the Qumu platform for a variety of cloud, on-premise and hybrid deployments. Use cases including self-service webcasting, sales enablement, internal communications, product training, regulatory compliance and customer engagement. The Company markets its products to customers primarily in North America, Europe and Asia.
The Company views its operations and manages its business as one segment and one reporting unit. Factors used to identify the Company's single operating segment and reporting unit include the financial information available for evaluation by the chief operating decision maker in making decisions about how to allocate resources and assess performance. The Company manages the marketing of its products and services through regional sales representatives and independent distributors in the United States and international markets.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in a complete set of financial statements have been condensed or omitted. However, in the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations and cash flows of the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2019.
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which changes the fair value measurement disclosure requirements of ASC 820. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. The Company adopted ASU 2018-13 effective January 1, 2020. The impact of adopting this standard was not material to the Company's consolidated financial statements or disclosures.
Accounting Standards Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax) which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The purpose of the amendment is to simplify how an entity is required to test goodwill for impairment
by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The standard requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.
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|
(2)
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Intangible Assets and Goodwill
|
Intangible Assets
The Company’s amortizable intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
Customer Relationships
|
|
Developed Technology
|
|
Trademarks / Trade Names
|
|
Total
|
Original cost
|
$
|
4,756
|
|
|
$
|
7,912
|
|
|
$
|
2,178
|
|
|
$
|
14,846
|
|
Accumulated amortization
|
(3,347
|
)
|
|
(7,612
|
)
|
|
(1,117
|
)
|
|
(12,076
|
)
|
Net identifiable intangible assets
|
$
|
1,409
|
|
|
$
|
300
|
|
|
$
|
1,061
|
|
|
$
|
2,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Customer Relationships
|
|
Developed Technology
|
|
Trademarks / Trade Names
|
|
Total
|
Original cost
|
$
|
4,878
|
|
|
$
|
8,135
|
|
|
$
|
2,182
|
|
|
$
|
15,195
|
|
Accumulated amortization
|
(3,293
|
)
|
|
(7,741
|
)
|
|
(1,086
|
)
|
|
(12,120
|
)
|
Net identifiable intangible assets
|
$
|
1,585
|
|
|
$
|
394
|
|
|
$
|
1,096
|
|
|
$
|
3,075
|
|
Changes to the carrying amount of net amortizable intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
Balance, beginning of period
|
$
|
3,075
|
|
Amortization expense
|
(236
|
)
|
Currency translation
|
(69
|
)
|
Balance, end of period
|
$
|
2,770
|
|
Amortization expense of intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
Amortization expense associated with the developed technology included in cost of revenues
|
|
$
|
72
|
|
|
$
|
117
|
|
Amortization expense associated with other acquired intangible assets included in operating expenses
|
|
164
|
|
|
218
|
|
Total amortization expense
|
|
$
|
236
|
|
|
$
|
335
|
|
Goodwill
On October 3, 2014, the Company completed the acquisition of Kulu Valley, Ltd., subsequently renamed Qumu Ltd., and recognized $8.8 million of goodwill and $6.7 million of intangible assets. The goodwill balance of $6.7 million at March 31, 2020 reflects the impact of foreign currency exchange rate fluctuations since the acquisition date.
As of March 31, 2020, the Company’s market capitalization, without a control premium, was greater than its book value and, as a result, the Company concluded there was no goodwill impairment. Sustained declines in the Company’s market capitalization or a downturn in its future financial performance and/or future outlook could require the Company to record goodwill and other impairment charges. While a goodwill impairment charge is a non-cash charge, it would have a negative impact on the Company's results of operations.
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(3)
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Commitments and Contingencies
|
Leases
The Company is obligated under finance leases covering certain IT equipment that expire at various dates over the next three years. The Company also has non-cancellable operating leases, primarily for office space, that expire at various dates over the next four years. The Company has two leases that each contain a renewal option for a period of five years. Because the Company is not reasonably certain to exercise this option, the option is not considered in determining the lease term.
The components of lease cost were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
Operating lease cost
|
$
|
96
|
|
|
$
|
193
|
|
Finance lease cost:
|
|
|
|
Amortization of right of use assets
|
31
|
|
|
13
|
|
Interest on lease liabilities
|
2
|
|
|
2
|
|
Total finance cost
|
33
|
|
|
15
|
|
Total lease cost
|
$
|
129
|
|
|
$
|
208
|
|
Future payments used in the measurement of lease liabilities on the condensed consolidated balance sheet as of March 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
Finance
leases
|
Remainder of 2020
|
$
|
589
|
|
|
$
|
68
|
|
2021
|
712
|
|
|
80
|
|
2022
|
672
|
|
|
5
|
|
2023
|
294
|
|
|
—
|
|
2024
|
114
|
|
|
—
|
|
Thereafter
|
—
|
|
|
—
|
|
Total undiscounted lease payments
|
2,381
|
|
|
153
|
|
Less amount representing interest
|
(455
|
)
|
|
(7
|
)
|
Present value of lease liabilities
|
$
|
1,926
|
|
|
$
|
146
|
|
Subleases
On January 17, 2019, the Company terminated a sublease agreement related to its Minneapolis, Minnesota headquarters and contemporaneously modified the Company's primary lease agreement. Upon modification, the Company recognized a gain of $21,000, which is reported in other income (expense) in the Company's condensed consolidated statement of operations for the three months ended March 31, 2019. Sublease income was $38,000 for the three months ended March 31, 2019, which is reported in other income (expense) in the Company's condensed consolidated statement of operations. The Company reported no sublease income for the three months ended March 31, 2020.
Contingencies
The Company is exposed to asserted and unasserted claims encountered in the normal course of business. Legal costs related to loss contingencies are expensed as incurred. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s financial position or results of operations.
The Company’s standard arrangements include provisions indemnifying customers against liabilities if the Company's products infringe a third-party’s intellectual property rights. The Company has not incurred any costs in its continuing operations as a result of such indemnifications and has not accrued any liabilities related to such contingent obligations in the accompanying condensed consolidated financial statements.
|
|
(4)
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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
|
|
The Company generates revenue through the sale of enterprise video content management software, hardware, maintenance and support, and professional and other services. Software sales may take the form of a perpetual software license, a cloud-hosted software as a service (SaaS) or a term software license. Software licenses and appliances revenue includes sales of perpetual software licenses and hardware. Service revenue includes SaaS, term software licenses, maintenance and support, and professional and other services.
Revenues by product category and geography
The Company combines its products and services into three product categories and three geographic regions, based on customer location, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
Software licenses and appliances
|
|
$
|
1,540
|
|
|
$
|
1,005
|
|
Service
|
|
|
|
|
Subscription, maintenance and support
|
|
4,160
|
|
|
5,563
|
|
Professional services and other
|
|
527
|
|
|
530
|
|
Total service
|
|
4,687
|
|
|
6,093
|
|
Total revenues
|
|
$
|
6,227
|
|
|
$
|
7,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
North America
|
|
$
|
4,050
|
|
|
$
|
4,308
|
|
Europe
|
|
1,874
|
|
|
2,241
|
|
Asia
|
|
303
|
|
|
549
|
|
Total
|
|
$
|
6,227
|
|
|
$
|
7,098
|
|
Contract Balances
The Company’s balances for contract assets totaled $907,000 and $1.1 million as of March 31, 2020 and December 31, 2019, respectively. The Company’s balances for contract liabilities, which are included in deferred revenue, totaled $11.4 million and $11.6 million as of March 31, 2020 and December 31, 2019, respectively.
During each of the three-month periods ended March 31, 2020 and 2019, the Company recognized $3.7 million of revenue that was included in the deferred revenue balance at the beginning of the respective period. All other activity in deferred revenue is due to the timing of invoices in relation to the timing of recognizable revenue as described above.
Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but unsatisfied performance obligations were approximately $27.6 million as of March 31, 2020, of which the Company expects to recognize $11.3 million of revenue over the next 12 months and the remainder thereafter. During the three months ended March 31, 2020 and 2019, no revenue was recognized from performance obligations satisfied in previous periods.
|
|
(6)
|
Stock-Based Compensation
|
The Company granted the following stock-based awards:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
Stock options
|
|
—
|
|
|
17,000
|
|
Restricted stock awards and restricted stock units
|
|
53,600
|
|
|
98,492
|
|
The stock options and restricted stock awards and units granted during the three months ended March 31, 2020 and 2019 were granted under the Company's Second Amended and Restated 2007 Stock Incentive Plan (the "2007 Plan"), a shareholder approved plan.
In settlement of vested performance stock units granted in 2018, during the three months ended March 31, 2019 the Company issued 98,492 shares of restricted stock, which was equal to the number of vested 2018 performance stock units multiplied by the performance goals achievement of 100.0%. At December 31, 2019, there were 40,599 shares of common stock underlying the outstanding 2018 performance stock units that were subject to vesting upon the achievement of performance goals for the performance period of January 1, 2019 to December 31, 2019. The outstanding unvested 2018 performance stock units were canceled on February 10, 2020 upon determination by the Compensation Committee of the Company's Board of Directors that the performance metric for the 2019 performance period was not achieved. Accordingly, as of March 31, 2020, there were no performance stock units outstanding.
The Company recognized the following expense related to its share-based payment arrangements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
Stock-based compensation cost, before income tax benefit:
|
|
|
|
|
|
|
Stock options
|
|
$
|
69
|
|
|
$
|
94
|
|
Restricted stock awards and restricted stock units
|
|
176
|
|
|
132
|
|
Performance stock units
|
|
—
|
|
|
5
|
|
Total stock-based compensation
|
|
$
|
245
|
|
|
$
|
231
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
Stock-based compensation cost included in:
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
5
|
|
|
$
|
8
|
|
Operating expenses
|
|
240
|
|
|
223
|
|
Total stock-based compensation
|
|
$
|
245
|
|
|
$
|
231
|
|
As of both March 31, 2020 and December 31, 2019, the Company’s liability for gross unrecognized tax benefits (excluding interest and penalties) totaled $1.8 million. The Company had accrued interest and penalties relating to unrecognized tax benefits of $33,000 and $28,000 on a gross basis at March 31, 2020 and December 31, 2019, respectively. The change in the liability for gross unrecognized tax benefits reflects an increase in reserves established for federal and state uncertain tax positions. The Company does not currently expect significant changes in the amount of unrecognized tax benefits during the next twelve months.
|
|
(8)
|
Computation of Net Loss Per Share of Common Stock
|
The following table identifies the components of net loss per basic and diluted share (in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
Net loss per share – basic
|
|
|
|
|
Net loss
|
|
$
|
(2,672
|
)
|
|
$
|
(950
|
)
|
Weighted average shares outstanding
|
|
13,552
|
|
|
9,688
|
|
Net loss per share – basic
|
|
$
|
(0.20
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
Net loss per share – diluted
|
|
|
|
|
Loss attributable to common shareholders:
|
|
|
|
|
Net loss
|
|
$
|
(2,672
|
)
|
|
$
|
(950
|
)
|
Numerator effect of dilutive securities
|
|
|
|
|
Warrants
|
|
(166
|
)
|
|
—
|
|
Loss attributable to common shareholders
|
|
$
|
(2,838
|
)
|
|
$
|
(950
|
)
|
Weighted average shares outstanding – diluted:
|
|
|
|
|
Weighted average shares outstanding – basic
|
|
13,552
|
|
|
9,688
|
|
Denominator effect of dilutive securities
|
|
|
|
|
Warrants
|
|
37
|
|
|
—
|
|
Diluted potential common shares
|
|
37
|
|
|
—
|
|
Weighted average shares outstanding – diluted
|
|
13,589
|
|
|
9,688
|
|
Net loss per share – diluted
|
|
$
|
(0.21
|
)
|
|
$
|
(0.10
|
)
|
Stock options, warrants and restricted stock units to acquire common shares that were excluded from the computation of diluted weighted-average common shares as their effect is anti-dilutive were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
Stock options
|
|
1,056
|
|
|
1,416
|
|
Warrants
|
|
414
|
|
|
1,339
|
|
Restricted stock units
|
|
125
|
|
|
150
|
|
Total anti-dilutive
|
|
1,595
|
|
|
2,905
|
|
(9) Merger Agreement with Synacor, Inc.
On February 11, 2020, Qumu entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) for a proposed “merger of equals” transaction with Synacor, Inc. (“Synacor”), and Quantum Merger Sub I, Inc., a direct, wholly owned subsidiary of Synacor (“Merger Sub”). Pursuant to the Merger Agreement, and subject to the conditions in the Merger Agreement, Merger Sub will merge with and into Qumu (the “Merger”), with Qumu surviving the Merger as a wholly owned subsidiary of Synacor. At the effective time of the Merger, by virtue of the Merger and without any action on the part of Synacor, Qumu, Merger Sub or any holder of any of the securities of Synacor, Qumu or Merger Sub, each share of common stock of Qumu issued and outstanding immediately prior to the effective time (other than the shares that are owned by Qumu, Synacor or Merger Sub) will be converted into the right to receive 1.61 newly issued shares of common stock of Synacor.
The consummation of the Merger is subject to customary closing conditions, including, among others, the approval of the Merger Agreement by Qumu shareholders and the approval of the issuance of shares of Synacor common stock pursuant to the Merger Agreement by the Synacor stockholders. The parties expect the Merger will be completed in mid-2020.
During the three months ended March 31, 2020, the Company recognized transaction-related expenses related to the Company's Merger Agreement with Synacor, Inc. totaling $811,000, which are included within general and administrative expenses in the Company's condensed consolidated statement of operations.
The foregoing description of the Merger and Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 to our Current Report on Form 8-K, filed with the SEC on February 11, 2020.
(10) Subsequent Event
Subsequent to March 31, 2020, the Company entered into an agreement to cancel its outstanding warrant to ESW Holdings, Inc. effective May 1, 2020, for a deferred purchase price of $1.83 million reflected in a note maturing on April 1, 2021 and bearing no interest. The warrant to ESW Holdings, Inc. was for the purchase of up to 925,000 shares of Qumu's common stock and was subject to a minimum cash settlement provision in the event of a change of control transaction referred to as a Fundamental Transaction, which included Qumu’s proposed merger with Synacor, Inc. The payment obligations of the note will be accelerated upon a Fundamental Transaction, which includes Qumu’s proposed merger with Synacor, Inc., and Qumu would be required to pay an additional $150,000 to ESW Holdings, Inc. upon the closing of a Fundamental Transaction. In connection with the note, the Company and ESW Holdings, Inc. entered into a security agreement dated May 1, 2020 providing for a future security interest in certain assets of the Company that will not attach unless and until the occurrence of the Triggering Event specified therein. The fair value of the warrant instrument has historically been reported as a liability in Qumu's consolidated financial statements, and, for certain historical reporting periods since its issuance, including the three months ended March 31, 2020, the warrant instrument was dilutive in the calculation of earnings per share.