UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q



(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED ~~JUNE 30, 2018~~MARCH 31, 2019; OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________TO ________.

Commission File Number: 000-20728

QUMU CORPORATION

(Exact name of registrant as specified in its charter)



Minnesota	41-1577970
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

510 1st Avenue North, Suite 305, Minneapolis, MN 55403

(Address of principal executive offices)

(612) 638-9100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes xNo o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act):



Large accelerated filer o		Accelerated filer o
Non-accelerated filer ox	~~(Do no check if a smaller reporting company)~~	Smaller reporting company x
		Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.01	QUMU	The NASDAQ Stock Market LLC

Common Stock outstanding at ~~August~~May 2, ~~2018~~2019 – ~~9,529,153~~9,790,392 shares of $.01 par value Common Stock.

Table of Contents

QUMU CORPORATION

FORM 10-Q

TABLE OF CONTENTS

FOR THE QUARTER ENDED ~~JUNE 30, 2018~~MARCH 31, 2019



	Description	Page

PART 1	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss	5
	Condensed Consolidated Statements of Stockholders' Equity	6
	Condensed Consolidated Statements of Cash Flows	67
	Notes to Condensed Consolidated Financial Statements	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2018
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2825
Item 4.	Controls and Procedures	2825
PART II	OTHER INFORMATION	2926
Item 1.	Legal Proceedings	2926
Item 1A.	Risk Factors	2926
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2926
Item 3.	Defaults Upon Senior Securities	2926
Item 4.	Mine Safety Disclosures	2926
Item 5.	Other Information	2926
Item 6.	Exhibits	3027
SIGNATURES		3128

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

QUMU CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data)


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Assets	(unaudited)						(unaudited)
Current assets:
Cash and cash equivalents	$	5,202		$	7,690		$	8,571		$	8,636
Receivables, net of allowance for doubtful accounts of $81 and $21, respectively	4,954			5,529
Receivables, net of allowance for doubtful accounts of $79 and $61, respectively							4,380			6,278
Contract assets	339			—			1,661			485
Income tax receivable	277			156			339			327
Prepaid expenses and other current assets	1,934			1,830			2,140			2,192
Total current assets	12,706			15,205			17,091			17,918
Property and equipment, net of accumulated depreciation of $2,697 and $4,678, respectively	533			911
Property and equipment, net of accumulated depreciation of $2,912 and $2,809, respectively							680			545
Right of use assets – operating leases							1,128			—
Intangible assets, net	5,202			6,295			3,956			4,247
Goodwill	7,224			7,390			7,134			6,971
Deferred income taxes, non-current	69			77			53			55
Other assets, non-current	4,200			4,398			476			544
Total assets	$	29,934		$	34,276		$	30,518		$	30,280
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and other accrued liabilities	$	2,961		$	3,878		$	2,640		$	2,838
Accrued compensation	1,216			1,824			1,150			1,548
Deferred revenue	8,514			8,923			9,558			9,672
Operating lease liabilities							549			—
Deferred rent	49			181			—			45
Financing obligations	226			1,047			131			152
Term loan							3,559			—
Warrant liability	2,886			819			3,087			2,798
Total current liabilities	15,852			16,672			20,674			17,053
Long-term liabilities:
Deferred revenue, non-current	947			141			1,425			1,672
Income taxes payable, non-current	—			3			568			563
Deferred tax liability, non-current	76			153			—			2
Operating lease liabilities, non-current							1,021			—
Deferred rent, non-current	298			507			—			302
Financing obligations, non-current	—			3			146			57
Term loan, non-current	7,956			7,605			—			3,431
Other non-current liabilities	485			—			—			195
Total long-term liabilities	9,762			8,412			3,160			6,222
Total liabilities	25,614			25,084			23,834			23,275
Commitments and contingencies (Note 4)
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 250,000 shares, no shares issued and outstanding	—			—			—			—
Common stock, $0.01 par value, authorized 29,750,000 shares, issued and outstanding 9,529,153 and 9,364,804, respectively	95			94
Common stock, $0.01 par value, authorized 29,750,000 shares, issued and outstanding 9,765,392 and 9,624,060, respectively							98			96
Additional paid-in capital	68,435			68,035			69,266			69,072
Accumulated deficit	(61,319		)	(56,197		)	(59,635		)	(58,875		)
Accumulated other comprehensive loss	(2,891		)	(2,740		)	(3,045		)	(3,288		)
Total stockholders’ equity	4,320			9,192			6,684			7,005
Total liabilities and stockholders’ equity	$	29,934		$	34,276		$	30,518		$	30,280

See accompanying notes to unaudited condensed consolidated financial statements.

QUMU CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited - in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues:
Software licenses and appliances	$	2,867		$	929		$	3,318		$	2,149		$	1,005		$	451
Service	4,759			5,725			9,139			11,216			6,093			4,380
Total revenues	7,626			6,654			12,457			13,365			7,098			4,831
Cost of revenues:
Software licenses and appliances	804			368			1,139			862			311			335
Service	1,602			1,918			3,379			4,008			1,226			1,777
Total cost of revenues	2,406			2,286			4,518			4,870			1,537			2,112
Gross profit	5,220			4,368			7,939			8,495			5,561			2,719
Operating expenses:
Research and development	1,639			1,798			3,542			3,907			1,674			1,903
Sales and marketing	2,412			2,524			4,592			4,975			2,352			2,180
General and administrative	1,747			2,009			3,928			4,469			1,746			2,181
Amortization of purchased intangibles	227			226			456			449			218			229
Total operating expenses	6,025			6,557			12,518			13,800			5,990			6,493
Operating loss	(805		)	(2,189		)	(4,579		)	(5,305		)	(429		)	(3,774		)
Other income (expense):
Interest expense, net	(510		)	(334		)	(1,354		)	(651		)	(205		)	(844		)
Decrease (increase) in fair value of warrant liability	(278		)	11			109			(67		)	(289		)	387
Other, net	(16		)	(124		)	(403		)	(179		)	(31		)	(387		)
Total other expense, net	(804		)	(447		)	(1,648		)	(897		)	(525		)	(844		)
Loss before income taxes	(1,609		)	(2,636		)	(6,227		)	(6,202		)	(954		)	(4,618		)
Income tax benefit	(78		)	(25		)	(166		)	(29		)	(4		)	(88		)
Net loss	$	(1,531	)	$	(2,611	)	$	(6,061	)	$	(6,173	)	$	(950	)	$	(4,530	)

Net loss per share – basic:
Net loss per share – basic	$	(0.16	)	$	(0.28	)	$	(0.64	)	$	(0.66	)
Weighted average shares outstanding – basic	9,484			9,356			9,427			9,301
Net loss per share – diluted:
Loss attributable to common shareholders	$	(1,531	)	$	(2,622	)	$	(6,061	)	$	(6,173	)
Net loss per share – diluted	$	(0.16	)	$	(0.28	)	$	(0.64	)	$	(0.66	)
Weighted average shares outstanding – diluted	9,484			9,357			9,427			9,301
Net loss per share – basic and diluted:
Net loss per share													$	(0.10	)	$	(0.48	)
Weighted average shares outstanding													9,688			9,370

See accompanying notes to unaudited condensed consolidated financial statements.

QUMU CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss

(unaudited - in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Net loss	$	(1,531	)	$	(2,611	)	$	(6,061	)	$	(6,173	)	$	(950	)	$	(4,530	)
Other comprehensive income (loss):
Net change in foreign currency translation adjustments	(769		)	559			(146		)	696			243			623
Total other comprehensive income (loss)	(769		)	559			(146		)	696
Total other comprehensive income													243			623
Total comprehensive loss	$	(2,300	)	$	(2,052	)	$	(6,207	)	$	(5,477	)	$	(707	)	$	(3,907	)

See accompanying notes to unaudited condensed consolidated financial statements.

QUMU CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited - in thousands)



	Common Stock				Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
	Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance at December 31, 2018	9,624		$	96	$	69,072		$	(58,875	)	$	(3,288	)	$	7,005
Adoption of ASC Topic 842	—		—		—			190			—			190
Net loss	—		—		—			(950		)	—			(950		)
Other comprehensive income, net of taxes	—		—		—			—			243			243
Issuance of stock under employee stock plan, net of forfeitures	156		2		(1		)	—			—			1
Redemption of stock to cover tax withholding for employee stock plan	(15	)	—		(36		)	—			—			(36		)
Stock-based compensation	—		—		231			—			—			231
Balance at March 31, 2019	9,765		$	98	$	69,266		$	(59,635	)	$	(3,045	)	$	6,684



	Common Stock				Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
	Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance at December 31, 2017	9,365		$	94	$	68,035		$	(56,197	)	$	(2,740	)	$	9,192
Adoption of ASC Topic 606	—		—		—			939			(5		)	934
Net loss	—		—		—			(4,530		)	—			(4,530		)
Other comprehensive income, net of taxes	—		—		—			—			623			623
Issuance of stock under employee stock plan, net of forfeitures	24		—		—			—			—			—
Redemption of stock to cover tax withholding for employee stock plan	(11	)	—		(19		)	—			—			(19		)
Stock-based compensation	—		—		210			—			—			210
Balance at March 31, 2018	9,378		$	94	$	68,226		$	(59,788	)	$	(2,122	)	$	6,410

See accompanying notes to unaudited condensed consolidated financial statements.

QUMU CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)


	Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2019			2018
Operating activities:
Net loss	$	(6,061	)	$	(6,173	)	$	(950	)	$	(4,530	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	1,347			1,548			408			699
Stock-based compensation	438			783			231			210
Accretion of debt discount and issuance costs	1,035			236			128			746
Loss on lease contract termination	177			—
Gain on lease modification							(21		)	—
Change in fair value of warrant liability	(109		)	67			289			(387		)
Deferred income taxes	(72		)	(71		)	—			(37		)
Changes in operating assets and liabilities:
Receivables	588			2,425			1,914			1,645
Contract assets	211			—			(1,176		)	14
Income taxes receivable / payable	(130		)	135			(3		)	(62		)
Prepaid expenses and other assets	197			710			125			(317		)
Accounts payable and other accrued liabilities	(1,019		)	315			(75		)	(444		)
Accrued compensation	(604		)	(522		)	(405		)	—
Deferred revenue	938			(368		)	(424		)	603
Deferred rent	(144		)	(150		)	—			(75		)
Other non-current liabilities	436			—			(24		)	186
Net cash used in operating activities	(2,772		)	(1,065		)
Net cash provided by (used in) operating activities							17			(1,749		)
Investing activities:
Purchases of property and equipment	(73		)	(20		)	(14		)	(2		)
Net cash used in investing activities	(73		)	(20		)	(14		)	(2		)
Financing activities:
Proceeds from term loan and warrant issuance	10,000			—			—			10,000
Principal payments on term loan	(8,000		)	—
Principal payments on term loans							—			(8,000		)
Payments for term loan issuance costs	(1,308		)	(125		)	—			(1,308		)
Principal payments on financing obligations	(247		)	(255		)	(80		)	(99		)
Common stock repurchases to settle employee withholding liability	(27		)	(11		)	(36		)	(19		)
Net cash provided by (used in) financing activities	418			(391		)	(116		)	574
Effect of exchange rate changes on cash	(61		)	94			48			45
Net decrease in cash and cash equivalents	(2,488		)	(1,382		)	(65		)	(1,132		)
Cash and cash equivalents, beginning of period	7,690			10,364			8,636			7,690
Cash and cash equivalents, end of period	$	5,202		$	8,982		$	8,571		$	6,558
Supplemental disclosures of net cash paid (received) during the period:
Income taxes, net	$	37		$	(106	)	$	(17	)	$	6
Interest, net	$	35		$	420		$	4		$	33

See accompanying notes to unaudited condensed consolidated financial statements.

QUMU CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


(1)	Nature of Business and Basis of Presentation

Qumu Corporation ~~(the~~("Qumu" or the "Company") provides the software ~~applications businesses use~~solutions to create, manage, secure, ~~deliver~~distribute and measure the success of ~~their videos.~~live and on-demand video for the enterprise. The ~~Company's innovative solutions release~~Qumu platform enables global organizations to drive employee engagement, increase access to video, and modernize the ~~power~~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 ~~video~~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 ~~engage~~customers primarily in North America, Europe and empower employees, partners and clients, allowing organizations around the world to realize the greatest possible value from video they create and publish. Whatever the audience size, viewer device or network configuration, the Company's solutions are how business does video.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, ~~2017.~~2018.

Leases

The Company is a lessee in several non-cancellable (1) operating leases, primarily for office space, and (2) finance leases, for certain IT equipment. Beginning January 1, 2019, the Company accounts for leases in accordance with ASU 2016-02, Leases, and the related amendments (collectively, "Topic 842"). The Company determines if an arrangement is or contains a lease at contract inception and recognizes a right of use (ROU) asset and a lease liability at the lease commencement date.

For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and at the same date as for operating leases, and is subsequently measured at amortized cost using the effective interest method.

Key estimates and judgments in accounting for leases under Topic 842 include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.

–

ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s information. Therefore, the Company uses its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.


–	The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor.


–	Lease payments included in the measurement of the lease liability include the fixed payments owed over the lease term, termination penalties, amounts expected to be payable under a residual-value guarantee, and the exercise price of an option to purchase the asset if the Company is reasonably certain to exercise the option.

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received.

For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus any prepaid lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term.

The Company has ~~continued~~elected not to ~~experience recurring~~recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term.

Recently Adopted Accounting Standards

Leases (Topic 842)

On January 1, 2019, the Company adopted ASU 2016-02, Leases, and the related amendments (collectively, "Topic 842"), using the modified retrospective transition approach as of the effective date. The comparative information in the condensed consolidated financial statements has not been revised and continues to be reported under the previously applicable lease accounting guidance.

In addition, the Company elected the package of practical expedients, which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. However, the Company did not adopt the hindsight practical expedient, and therefore continues to utilize lease terms determined under pre-Topic 842 lease guidance.

As a result of adopting ASU 2016-02, the Company recognized additional operating ~~losses~~lease liabilities of $1.9 million (of which $759,000 was current and ~~negative~~$1.1 million was non-current) and corresponding ROU assets of $1.4 million as of January 1, 2019. Additionally, upon adoption of this standard, the Company recognized a cumulative-effect adjustment to accumulated deficit of $190,000, net of taxes, as of January 1, 2019. The new lease guidance did not have a material impact on the Company's condensed consolidated statements of operations or cash flows ~~from operating activities. The ability of the Company to continue as a going concern is dependent upon the Company maintaining~~or compliance with ~~its term loan covenants beginning September 30, 2018. The~~debt covenants. For additional information regarding the Company's ~~credit agreement is described in~~leases, see Note 4–"Commitments and Contingencies." If an event of default occurs due to the Company not maintaining compliance with its covenants, the lender may accelerate the repayment of outstanding principal, which could negatively impact the Company’s ability to fund its working capital requirements, capital expenditures and general corporate expenses. The Company is projecting future compliance with its covenants under its current operating plan and, as described in Note 10–"Subsequent Events," the sale of BriefCam and partial prepayment of the term loan.

~~Recently Adopted Accounting Standards~~

~~Revenue from Contracts with Customers~~

~~On January 1, 2018, the Company adopted ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ and the related amendments ("Topic 606") using the modified retrospective transition method. Under this method, the Company evaluated contracts that were in effect at the beginning of fiscal 2018 as if those contracts had been accounted for under Topic 606. The Company did not evaluate individual modifications for those periods prior to the adoption date, but the aggregate effect of all modifications as of the adoption date and such effects are provided below. Under the modified retrospective transition approach, periods prior to the adoption date were not adjusted and continue to be reported in accordance with historical, pre-Topic 606 accounting. A cumulative catch up adjustment was recorded to beginning accumulated deficit to reflect the impact of all existing arrangements under Topic 606.

At the adoption date, the Company adjusted accumulated deficit by $939,000, primarily driven by uncompleted contracts for which revenue will not be recognized in future periods under Topic 606, partially offset by the incremental originating costs

~~associated with those contracts.~~ The cumulative effect of the changes made to our January 1, ~~2018~~2019 condensed consolidated balance sheet from the modified retrospective adoption of Topic ~~606 was~~842 is as follows (in thousands):

December 31,
2017 Adjustments January 1,
2018
Assets:
Contract assets $ —
$ 550
$ 550
Prepaid expenses and other current assets 1,830
(99 ) 1,731
Other assets, non-current 4,398
(10 ) 4,388
Liabilities:

Deferred revenue 8,923
(493 ) 8,430
Deferred revenue, non-current 141
—
141
Stockholders’ equity:

Accumulated deficit (56,197 ) 939
(55,258 )
Accumulated other comprehensive loss (2,740 ) (5 ) (2,745 )



	December 31, 2018			Adjustments			January 1, 2019
Assets:
Property and equipment	$	545		$	124		$	669
Operating lease assets	—			1,367			1,367
Liabilities:
Accounts payable and other accrued liabilities	$	2,838		$	(211	)	$	2,627
Operating lease liabilities	—			759			759
Deferred rent	45			(45		)	—
Operating lease liabilities, non-current	—			1,100			1,100
Deferred rent, non-current	302			(302		)	—
Stockholders’ equity:
Accumulated deficit	$	(58,875	)	$	190		$	(58,685	)

~~The most significant impact~~

Adjustments to accounts payable and other accrued liabilities include the derecognition of ~~the~~a contract termination obligation of $218,000 upon adoption of Topic 606 was on the Company's term software licenses that, under the Company's previous revenue accounting ("Topic 605"), would have continued to be recognized into revenue ratably in 2018 and beyond. However, under Topic 606 the standalone selling price attributable to the license is recognized upon transfer of control resulting in up-front recognition, typically upon fulfillment. The timing of revenue recognition for perpetual software licenses, hardware, and professional services is expected to remain substantially unchanged.842. See Note 2–4–"~~Revenue"~~Commitments and Contingencies" for ~~the Company's revenue recognition policy after the adoption of Topic 606.~~additional information.

Revenue generated under Topic 606 is expected to be approximately $1.1 million lower than revenue would have been under Topic 605 for the year ending December 31, 2018. The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated statement of operations and comprehensive income (loss) for the three and six months ended June 30, 2018:

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
As reported under Topic 606 Adjustments Balances without adoption of Topic 606 As reported under Topic 606 Adjustments Balances without adoption of Topic 606
Revenues $ 7,626
$ 240
$ 7,866
$ 12,457
$ 424
$ 12,881
Cost of revenues 2,406
10
2,416
4,518
18
4,536
Sales and marketing 2,412
14
2,426
4,592
38
4,630
Net loss (1,531 ) 216
(1,315 ) (6,061 ) 368
(5,693 )
Net change in foreign currency translation adjustments (769 ) 14
(755 ) (146 ) 10
(136 )
Total comprehensive loss (2,300 ) 230
(2,070 ) (6,207 ) 378
(5,829 )
Income Statement – Reporting Comprehensive Income (Topic 220)

~~The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated balance sheet as of June 30, 2018:~~

June 30, 2018
As reported under Topic 606 Adjustments Balances without adoption of Topic 606
Assets:
Contract assets 339
(339 ) —
Prepaid expenses and other current assets 1,934
50
1,984
Other assets, non-current 4,200
3
4,203
Liabilities:

Deferred revenue 8,514
275
8,789
Deferred revenue, non-current 947
(5 ) 942
Stockholders’ equity:

Accumulated deficit (61,319 ) (571 ) (61,890 )
Accumulated other comprehensive loss (2,891 ) 15
(2,876 )

The Company’s net cash used in operating activities for the six months ended June 30, 2018 did not change due to the adoption of Topic 606. The following table summarizes the effects of adopting Topic 606 on the financial statement line items of the Company’s condensed consolidated statement of cash flows for the six months ended June 30, 2018:

Six Months Ended June 30, 2018
As reported under Topic 606 Adjustments Balances without adoption of Topic 606
Operating activities:

Net loss $ (6,061 ) $ 368
$ (5,693 )
Adjustments to reconcile net loss to net cash used in operating activities:

Changes in operating assets and liabilities:

Contract assets 211
(211 ) —
Prepaid expenses and other assets 197
56
253
Deferred revenue 938
(213 ) 725

~~Financial Instruments~~

InOn January ~~2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments – Overall, which~~1, 2019, the Company adopted ~~on January 1, 2018, modifying its accounting and required disclosures for its equity investment previously accounted for under the cost basis method of accounting.~~

The Company’s equity investment consists of its investment totaling $3.1 million in convertible preferred stock of privately-held BriefCam, Ltd. (“BriefCam”), as described in Note 9–"Investment in Software Company," which is included in other assets in the condensed consolidated balance sheets. The new standard eliminated the cost method of accounting for investments in equity securities that do not have readily determinable fair values and permits the election of a measurement alternative that allows such securities to be recorded at cost, less impairment, if any, plus or minus changes resulting from observable price changes in market-based transactions for an identical or similar investment of the same issuer. The Company adopted the provisions of the new standard applicable to its investment in BriefCam on a prospective basis and elected the measurement alternative for non-marketable investments previously accounted for under the cost method of accounting. Gains and losses resulting from observable price changes in market-based transactions for an identical or similar investment of the same issuer or impairment will be recorded through net income (loss) in the period incurred.

The Company’s investment in BriefCam had a carrying value of $3.1 million as of June 30, 2018 and December 31, 2017. During the six months ended June 30, 2018, there were no observable price changes or impairments related to the Company’s non-marketable investment in the equity security. See Note 10–"Subsequent Events" for information relating to the sale of the Company’s investment in BriefCam subsequent to June 30, 2018.

~~Income Taxes~~

~~In March 2018, the Company adopted ASU 2018-05,~~ ~~Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118~~, which updates the income tax accounting in U.S. GAAP to reflect the SEC interpretive guidance released on December 22, 2017, when the Tax Cuts and Jobs Act of 2017 was signed into law. Additional information regarding the adoption of this standard is contained in Note 7–"Income Taxes."

~~Accounting Standards Not Yet Adopted~~

~~In February 2018, the FASB issued~~ ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings (accumulated deficit) for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 and requires certain disclosures regarding stranded tax effects in accumulated other comprehensive income (loss). ~~This guidance~~The Company did not reclassify any income tax effects of the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive loss to accumulated deficit.

Accounting Standards Not Yet Adopted

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 ~~fiscal years, and interim periods within those~~all entities for fiscal years beginning after December 15, ~~2018, with early~~2019, including interim periods therein. Early adoption is permitted ~~during interim~~for any eliminated or ~~annual periods.~~modified disclosures upon issuance of this ASU. The Company does not believe the impact of adopting this standard will be material to its consolidated financial ~~statements.~~statements 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, 2019. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~, which will supersede the existing lease guidance and will require all leases with a term greater than 12 months to be recognized in the statements of financial position and eliminate current real estate-specific lease guidance, while maintaining substantially similar classification criteria for distinguishing between finance leases and operating leases. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statements of adopting this standard, which will require right-of-use assets and lease liabilities be recorded in the consolidated balance sheet for operating leases.


(2)	Revenue

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. ~~An individual sale can range from single year agreements for thousands of dollars to multi-year agreements for over a million dollars.~~

The Company follows a five-step model to assess each contract of a sale or service to a customer: identify the legally binding contract, identify the performance obligations, determine the transaction price, allocate the transaction price, and determine whether revenue will be recognized at a point in time or over time basis.

Revenue is recognized upon transfer of control of promised products or services (i.e., performance obligations) to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over time (for cloud-hosted software as a service, maintenance and support, and other services) or at a point in time (for software licenses and hardware).

The Company enters into contracts that can include various combinations of software licenses, appliances, maintenance and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each distinct performance obligation, on a relative basis using its standalone selling price.

The Company determines the standalone selling price for software-related elements, including professional services and software maintenance and support contracts, based on the price charged for the deliverable when sold separately.

With the adoption of Topic 606 beginning January 1, 2018, the Company had a change in the accounting for revenue of its on-premise term software license arrangements. Under Topic 605, the term software license and technical support elements of the combined bundle were recognized over time. In contrast, Topic 606 requires the Company to identify the performance obligations in the contract – that is, those promised goods and services (or bundles of promised goods or services) that are distinct – and allocate the transaction price of the contract to those performance obligations on the basis of standalone selling prices. The transaction price allocated to each performance obligation is then recognized either at a point in time or over time using an appropriate measure of progress. Under Topic 606, the Company has concluded that its on-premise term software licenses and technical support for its on-premise term software licenses are distinct from each other. As a result, the software license is now recognized upon transfer of control, which is at fulfillment, resulting in earlier revenue recognition. The revenue allocable to technical support continues to be recognized ratably over the non-cancellable committed term of the agreement.

Other items relating to charges collected from customers include shipping and handling charges and sales taxes charges. Shipping and handling charges collected from customers as part of the Company's sales transactions are included in revenues and the associated costs are included in cost of revenues. Sales taxes charged to and collected from customers as part of the Company’s sales transactions are excluded from revenues and recorded as a liability to the applicable governmental taxing authority.

~~Nature of Products and Services~~

~~Perpetual software licenses~~

The Company’s perpetual software license arrangements grant customers the right to use the software indefinitely as it exists at the time of purchase. The Company recognizes revenue for distinct software licenses once the license period has begun and the software has been made available to the customer. Payments for perpetual software license contracts are generally received upon fulfillment of the software product.

~~Term software licenses~~

The Company's term software licenses differ from perpetual software licenses in that the customer's right to use the licensed product has a termination date. Prior to the adoption of Topic 606, these licenses were recognized ratably over the contractual term, beginning on the commencement date of each contract, which is typically the date the Company’s product has been fulfilled. Under the provisions of Topic 606, term software licenses are now recognized upon transfer of control, which is typically at fulfillment, resulting in up-front revenue recognition. The Company categorizes revenue from term software licenses as subscription, maintenance and support revenue in service revenues. Payments are generally received quarterly or annually in equal or near equal installments over the term of the agreement.

~~Cloud-hosted software as a service~~

Cloud-hosted software as a service (SaaS) arrangements grant customers the right to access and use the licensed products at the outset of an arrangement via third-party cloud providers. Updates are generally made available throughout the entire term of the arrangement, which is generally one to three years. The Company provides an online library and technical support resources in these cloud-hosted SaaS arrangements, which in conjunction with the SaaS license constitute a single, combined performance obligation, and revenue is recognized over the term of the license. Payments are generally received annually in advance of the service period.

~~Hardware~~

The Company sells appliances that are typically drop shipped from third-party suppliers selected by the Company. The transaction price allocated to the appliance is generally recognized as revenue at fulfillment when the customer obtains control of the product. Payments for appliances are generally received upon delivery of the hardware product.

~~Maintenance and support~~

Maintenance and support arrangements grant customers the right to software updates and technical support over the term of the maintenance and support contract. Revenue from maintenance and support is generally recognized ratably over the contract term beginning on the commencement date of each contract, which is upon fulfillment of the software obligation. Payments are generally received annually in advance of the service period.

~~Professional services and training~~

Professional services and training generally consist of software implementation, on-boarding services and best practices consulting. Revenue from professional services contracts is typically recognized as performed, generally using hours expended to measure progress. Services are generally invoiced monthly for work performed.

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 June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
Software licenses and appliances	$	2,867	$	929	$	3,318	$	2,149	$	1,005	$	451
Service
Subscription, maintenance and support	4,122		5,110		8,160		9,948		5,563		4,038
Professional services and other	637		615		979		1,268		530		342
Total service	4,759		5,725		9,139		11,216		6,093		4,380
Total revenues	$	7,626	$	6,654	$	12,457	$	13,365	$	7,098	$	4,831

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
North America $ 5,017
$ 4,606
$ 7,827
$ 9,423
Europe 1,465
1,863
3,075
3,608
Asia 1,144
185
1,555
334
Total $ 7,626
$ 6,654
$ 12,457
$ 13,365

~~Significant Judgments~~

More judgments and estimates are required under Topic 606 than were required under Topic 605. Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.

Our contracts with customers typically contain promises to transfer multiple products and services to a customer. Judgment is required to determine whether each product and/or service is considered to be a distinct performance obligation that should be accounted for separately under the contract. We allocate the transaction price to the distinct performance obligations based on relative standalone selling price (“SSP”). We estimate SSP by maximizing use of observable prices such as the prices charged to customers on a standalone basis, established prices lists, contractually stated prices, profit margins and other entity-specific factors, or by using information such as market conditions and other observable inputs. However, the selling prices of the Company's software licenses and cloud-hosted SaaS arrangements are highly variable. Thus, we estimate SSP for software licenses and cloud-hosted SaaS arrangements using the residual approach, determined based on total transaction price less the SSP of other goods and services promised in the contract.

Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. In some arrangements, such as most of the Company’s license arrangements, the Company has concluded that the licenses and associated services are distinct from each other. In others, like the Company’s cloud-hosted SaaS arrangements, the license and certain services are not distinct from each other and therefore the Company has concluded that these promised goods and services are a single, combined performance obligation.

If a group of agreements are so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. The Company exercises significant judgment to evaluate the relevant facts and circumstances in determining whether the separate agreements should be accounted for separately or as, in substance, a single arrangement. The Company’s judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.

The Company is required to estimate the total consideration expected to be received from contracts with customers. In limited circumstances, the consideration expected to be received is variable based on the specific terms of the contract or based on the Company’s expectations of the term of the contract. Generally, the Company has not experienced significant returns from or refunds to customers. These estimates require significant judgment and the change in these estimates could have an effect on its results of operations during the periods involved.



	Three Months Ended March 31,
	2019		2018
North America	$	4,308	$	2,810
Europe	2,241		1,610
Asia	549		411
Total	$	7,098	$	4,831

Contract Balances

The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables or contract liabilities (deferred revenue) on the Company’s condensed consolidated balance sheet. The Company records deferred revenue when revenue is recognized subsequent to invoicing.

The Company’s balances for contract assets totaled ~~$550,000~~$1.7 million and ~~$339,000~~$485,000 as of ~~January 1, 2018~~March 31, 2019 and ~~June 30,~~December 31, 2018, respectively. The Company’s balances for contract liabilities, which are included in deferred revenue, totaled ~~$8.6~~$11.0 million and ~~$9.5~~$11.3 million as of ~~January 1,~~March 31, 2019 and December 31, 2018, ~~and June 30, 2018,~~ respectively.

During the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, the Company recognized $3.7 ~~million and $5.5~~ million of revenue that was included in the deferred revenue balance ~~as adjusted for Topic 606,~~ at the beginning of the 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. ~~The Company has elected to exclude the future billable professional services from the remaining performance obligations.~~ Contracted but unsatisfied performance obligations were approximately ~~$18.6~~$19.8 million as of ~~June 30, 2018,~~March 31, 2019, of which the Company expects to recognize ~~$10.9~~$11.3 million of revenue over the next 12 months and the remainder thereafter.

~~Payment terms~~ During the three months ended March 31, 2019 and ~~conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of~~2018, no revenue ~~recognition differs~~was recognized from ~~the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing~~

~~terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, and not to facilitate financing arrangements.~~performance obligations satisfied in previous periods.

Deferred Sales Commissions

Sales commissions represent the direct incremental costs related to the acquisition of customer contracts. The Company recognizes commissions as sales and marketing expense at the time the associated product revenue is recognized, requiring establishment of a deferred cost in the event a commission is paid prior to recognition of revenue. The deferred commission amounts are recoverable through the related future revenue streams under non-cancellable customer contracts and commission clawback provisions in the Company's sales compensation plans. Deferred commission costs included in prepaid expenses and other assets were ~~$326,000~~$491,000 and ~~$308,000~~$527,000 at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. Deferred commission costs in other assets, non-current were ~~$46,000~~$24,000 and ~~$47,000~~$33,000 at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The Company recognized commissions expense of ~~$505,000~~$555,000 and ~~$387,000~~$226,000 during the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $731,000 and $788,000 during the six months ended June 30, 2018 and 2017,~~ respectively.


(3)	Intangible Assets and Goodwill

Intangible Assets

The Company’s amortizable intangible assets consisted of the following (in thousands):


	June 30, 2018												March 31, 2019
	Customer Relationships			Developed Technology			Trademarks / Trade-Names			Total			Customer Relationships			Developed Technology			Trademarks / Trade-Names			Total
Original cost	$	4,883		$	8,145		$	2,182		$	15,210		$	4,860		$	8,102		$	2,181		$	15,143
Accumulated amortization	(2,465		)	(6,669		)	(874		)	(10,008		)	(2,876		)	(7,332		)	(979		)	(11,187		)
Net identifiable intangible assets	$	2,418		$	1,476		$	1,308		$	5,202		$	1,984		$	770		$	1,202		$	3,956


	December 31, 2017												December 31, 2018
	Customer Relationships			Developed Technology			Trademarks / Trade-Names			Total			Customer Relationships			Developed Technology			Trademarks / Trade-Names			Total
Original cost	$	4,928		$	8,225		$	2,184		$	15,337		$	4,818		$	8,023		$	2,180		$	15,021
Accumulated amortization	(2,194		)	(6,043		)	(805		)	(9,042		)	(2,721		)	(7,110		)	(943		)	(10,774		)
Net identifiable intangible assets	$	2,734		$	2,182		$	1,379		$	6,295		$	2,097		$	913		$	1,237		$	4,247

Changes to the carrying amount of net amortizable intangible assets ~~for the six months ended June 30, 2018~~ consisted of the following (in thousands):


	Six Months Ended June 30, 2018			Three Months Ended March 31, 2019
Balance, beginning of period	$	6,295		$	4,247
Amortization expense	(1,047		)	(335		)
Currency translation	(46		)	44
Balance, end of period	$	5,202		$	3,956

Amortization expense of intangible assets consisted of the following (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
Amortization expense associated with the developed technology included in cost of revenues	$	293	$	298	$	591	$	591	$	117	$	298
Amortization expense associated with other acquired intangible assets included in operating expenses	227		226		456		449		218		229
Total amortization expense	$	520	$	524	$	1,047	$	1,040	$	335	$	527

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 ~~$7.2~~$7.1 million at ~~June 30, 2018~~March 31, 2019 reflects the impact of foreign currency exchange rate fluctuations since the acquisition date.

As of ~~June 30, 2018,~~March 31, 2019, 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. 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.


(4)	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 several non-cancellable operating leases, primarily for office space, that expire over the next four years. The Company has one lease that contains 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 under Topic 842, which was adopted January 1, 2019.

Many of the Company's leases include escalation clauses, renewal options and/or termination options that are factored into its determination of lease payments under Topic 842 when reasonably certain. These options to extend or terminate a lease are at the Company's discretion. The Company has elected to take the practical expedient and ~~Other Financing Obligations~~not separate lease and non-lease components of contracts. The Company estimates its incremental borrowing rate to discount the lease payments based on information available at lease commencement under Topic 842. The Company's lease agreements do not contain any material residual value guarantees.

~~Balances for assets acquired under capital~~The components of lease ~~obligations and included in property and equipment~~cost were as follows (in thousands):

June 30,
2018 December 31,
2017
Computer and network equipment $ 511
$ 511
Furniture 287
287
Assets acquired under capital lease obligations 798
798
Accumulated depreciation (705 ) (613 )
Assets acquired under capital lease obligations, net $ 93
$ 185



	Three Months Ended March 31,
Operating lease cost	$	193
Finance lease cost:
Amortization of right of use assets	13
Interest on lease liabilities	2
Total finance cost	15
Total lease cost	$	208

The ~~current~~Company's ROU assets and ~~long-term portions of capital~~lease liabilities were reported in the condensed consolidated balance sheet as follows (in thousands):



Leases	Classification on Balance Sheet	March 31, 2019
Assets
Operating	Right of use assets – operating leases	$	1,128
Finance	Property and equipment	224
Total lease assets		$	1,352
Liabilities
Current
Operating	Operating lease liabilities	$	549
Finance	Financing obligations	79
Non-current
Operating	Operating lease liabilities, non-current	1,021
Finance	Financing obligations, non-current	146
Total lease liabilities		$	1,795

Other information related to leases ~~and other financing obligations~~ were as follows (in thousands):

June 30,
2018 December 31,
2017
Capital leases and other financing obligations, current $ 226
$ 1,047
Capital leases and other financing obligations, non-current —
3
Total capital leases and other financing obligations $ 226
$ 1,050



	Three Months Ended March 31,
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flow from operating leases	$	96
Operating cash flow from finance leases	13
Financing cash flow from finance leases	11
ROU assets obtained in exchange for new lease obligations
Finance leases	$	148
Weighted-average remaining lease term:
Operating leases	3.3 years
Finance leases	2.8 years
Weighted-average discount rate:
Operating leases	10.0		%
Finance leases	6.2		%

~~The Company leases certain~~Future payments used in the measurement of ~~its facilities and some of its equipment under non-cancelable operating~~ lease ~~arrangements. The rental payments under these leases are charged to expense~~liabilities on ~~a straight-line basis over~~ the non-cancelable term of the lease. Future minimum payments under capital lease obligations, other financing obligations, and non-cancelable operating leases, excluding property taxes and other operating expenses,condensed consolidated balance sheet as of ~~June 30, 2018~~March 31, 2019 are as follows (in thousands):

Capital leases and other financing obligations Operating leases Total
Remainder of 2018 $ 230
$ 310
$ 540
2019 3
500
503
2020 —
266
266
2021 —
268
268
2022 —
273
273
Thereafter —
23
23
Total minimum lease payments 233
$ 1,640
$ 1,873
Less amount representing interest (7 )
Present value of net minimum lease payments $ 226



	Operating leases			Finance leases
Remainder of 2019	$	566		$	68
2020	427			91
2021	435			80
2022	393			5
2023	20			—
Total undiscounted lease payments	1,841			244
Less amount representing interest	(271		)	(19		)
Present value of lease liabilities	$	1,570		$	225

Subleases

~~Lease Contract Termination~~

The Company determined that it had excess capacity at its Minneapolis, Minnesota headquarters and its London, United Kingdom office and effective May 1, 2018 and December 31, 2017, respectively, ceased using ~~a portion~~portions of its leased ~~space,~~spaces, subsequently making itthem available for ~~sublessee occupancy. During the three months ended June 30, 2018, the Company entered into a~~occupancy by sublessees. The Minneapolis sublease agreement ~~having~~had a term beginning May 1, 2018 and extending through January 2023. ~~Accordingly,~~On January 17, 2019, the Company ~~recorded~~terminated the Minneapolis sublease agreement, effective February 15, 2019, and contemporaneously modified the Company's head lease agreement to relinquish to the lessor, and be relieved of future lease payments for, the previously sublet space, effective March 1, 2019. Upon modification of the Minneapolis lease agreement, the Company recognized a gain of $21,000, which is reported in other income (expense) in the Company's condensed consolidated statement of operations. Sublease income from the Company's subleases 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.

Prior to the adoption of Topic 842 on January 1, 2019, the Company accounted for the above subleases under guidance for exit and disposal activities (ASC 420). As such, the Company carried a lease contract termination liability of $218,000 as of December 31, 2018, representing the liability at fair value of ~~$224,000~~ for the future contractual lease payments, net of expected sublease receipts. Included in other income (expenses) for three and six months ended June 30, 2018 is the loss related to the exit activity of $177,000, which is net of adjustments for the derecognition of leasehold improvement and deferred rent balances related to the exit activity. A reconciliation of the beginning and ending contract termination obligation balances, including the obligation for exit activities related to a portion of the Company's London, England leased office facilities in December 2017, is as follows (in thousands):

Three Months Ended
June 30, 2018 Six Months Ended
June 30, 2018
London, England Minneapolis, Minnesota Total London, England Minneapolis, Minnesota Total
Contract termination obligation, beginning of period $ 149
$ —
$ 149
$ 194
$ —
$ 194
Lease termination costs incurred —
224
224
—
224
224
Accretion expense 4
4
8
9
4
13
Payments on obligations (50 ) (14 ) (64 ) (100 ) (14 ) (114 )
Contract termination obligation, end of period $ 103
$ 214
$ 317
$ 103
$ 214
$ 317

~~The contract termination obligation is included in other accrued liabilities in the Company's consolidated balance sheets.~~

Term Loans

The Company's term ~~loans are~~loan is reported in the condensed consolidated balance sheets as follows (in thousands):


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Term loan, at face value	$	10,000		$	8,000		$	4,000		$	4,000
Unamortized original issue discount	(1,729		)	(121		)	(373		)	(481		)
Unamortized debt issuance costs	(315		)	(274		)	(68		)	(88		)
Term loan	$	7,956		$	7,605		$	3,559		$	3,431

Credit Agreement – ESW Holdings, Inc.

On January 12, 2018, the Company and its wholly-owned subsidiary, Qumu, Inc., entered into a $10.0 million term loan credit agreement (the “ESW credit agreement”) with ESW Holdings, Inc. as lender and administrative agent ~~pursuant~~ to ~~which the Company borrowed $10.0~~replace its previous $8.0 million ~~in the form of a~~ term ~~loan. Proceeds from the ESW~~loan credit agreement ~~were used to pay~~with HCP-FVD, LLC as lender and Hale Capital Partners, LP as administrative agent. Following the ~~remaining~~Company's $6.0 million principal payment on July 19, 2018, the term loan with ESW Holdings, Inc. has an outstanding principal balance of ~~$8.0 million on the Hale term note plus a 10% prepayment penalty of $800,000 on January 12, 2018.~~$4.0 million.

The term loan is scheduled to mature on January 10, 2020. Interest accrues and compounds monthly at a variable rate per annum equal to the prime rate plus 4.0%. As of both March 31, 2019 and December 31, 2018, interest was payable at 9.50%. The Company may prepay the term loan at any time with the payment of a ~~pre-payment~~prepayment fee of 10% of the amount prepaid. However, no ~~pre-payment~~prepayment fee will be ~~incurred~~due for any ~~pre-payment~~prepayment made from the proceeds of the Company’s sale of its investment in ~~BriefCam, Ltd.~~BriefCam.

The term loan had an estimated fair value of ~~$8.0~~$3.6 million as of ~~June 30, 2018.~~March 31, 2019. The fair value of the term loan is estimated using a discounted cash flow analysis based on the Company’s current incremental borrowing rate. As the contractual terms of the loan provide all the necessary inputs for this calculation, the term loan is classified as Level 2 within the fair value hierarchy. The estimated fair value is not necessarily indicative of the amount that would be realized in a current market exchange.

~~Credit Agreement – Hale Capital Partners, LP~~

The term loan balance as of December 31, 2017 consisted of a term loan credit agreement (the “Hale credit agreement”) with HCP-FVD, LLC as lender and Hale Capital Partners, LP as administrative agent, under which the Company borrowed $8.0 million as a term loan on October 21, 2016. The term loan was scheduled to mature on October 21, 2019 and required payment of interest monthly at the prime rate plus 6.0%.

Covenant Compliance

The ESW credit agreement contains affirmative and negative covenants and requirements relating to the Company and its operations. The ~~negative covenants of the ESW credit agreement require the~~ Company ~~to meet~~was in compliance with all financial covenants ~~beginning with~~during the ~~quarter~~three months ended September 30, 2018 relating to minimum core bookings, maximum deferred revenue non-current, minimum subscription, and maintenance and support revenue, and minimum subscription and maintenance and support dollar renewal rates.March 31, 2019.

The Company’s monthly, quarterly and annual results of operations are subject to significant fluctuations due to a variety of factors, many of which are outside of the Company’s control. These factors include the number and mix of products and solutions sold in the period, timing of customer purchase commitments, including the impact of long sales cycles and seasonal buying patterns, and variability in the size of customer purchases and the impact of large customer orders on a particular period. The foregoing factors are difficult to forecast, and these, as well as other factors, could adversely affect the Company’s monthly, quarterly and annual results of operations. Failure to achieve its monthly, quarterly or annual forecasts may result in the Company being out of compliance with covenants or projecting noncompliance in the future. Management actively monitors its opportunity pipeline, forecast, and projected covenant compliance on an ongoing basis.

Contingencies

The Company is exposed to a number of 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.


(5)	Fair Value Measurements

A hierarchy for inputs used in measuring fair value is in place that distinguishes market data between observable independent market inputs and unobservable market assumptions by the reporting entity. The hierarchy is intended to maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available. Three levels within the hierarchy may be used to measure fair value:

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.

In conjunction with the debt financings completed in October 2016 and January 2018, the Company issued two warrants for the purchase of up to an aggregate of 1,239,286 shares of the Company's common stock, which remained unexercised and outstanding at ~~June 30, 2018.~~March 31, 2019. The warrant issued in conjunction with the October 21, 2016 debt financing (Hale warrant) for the purchase of up to 314,286 shares of the Company's common stock expires on October 21, 2026, has an exercise price of $2.80 per share and is transferable. The warrant issued in conjunction with the January 12, 2018 debt financing (ESW warrant) for the purchase of up to 925,000 shares of the Company's common stock expires on January 12, 2028, has an exercise price of $1.96 per share and is transferable. Additionally, on August 31, 2018, the Company issued a warrant to a sales partner, iStudy Co., Ltd., (iStudy warrant) for the purchase of up to 100,000 shares of the Company's common stock; the warrant expires on August 31, 2028, has an exercise price of $2.43 per share and is transferable. The ~~warrants~~Hale warrant and ESW warrant contain a cash settlement feature upon the occurrence of a certain events, essentially the sale of the Company as defined in the warrant agreements. Upon a sale of the Company, the holder of the iStudy warrant may exercise the warrant or may elect to receive the same consideration as it would have been entitled to receive upon the occurrence of such transaction if it had been the holder of the shares then issuable upon such exercise of the warrant. As a result of ~~this feature,~~these features, the warrants are subject to derivative accounting as prescribed under ASC 815. Accordingly, the fair value of the warrants on the dates of issuance ~~were~~was recorded in the Company’s condensed consolidated balance sheets as a liability.

The warrant liability was recorded in the Company's condensed 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 a non-cash ~~gain (loss)~~loss of ~~$(278,000) and $11,000~~$289,000 during the three months ended ~~June 30, 2018 and 2017, respectively,~~March 31, 2019 and a non-cash gain ~~(loss) of $109,000 and $(67,000) during~~$387,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2018 ~~and 2017, respectively,~~ from the change in fair value of the warrant liability. The increase in fair value for the three months ended ~~June 30, 2018 and decrease in fair value for the six~~

~~months ended June 30, 2018~~March 31, 2019 was primarily driven by a corresponding increase ~~and decrease, respectively,~~ in the Company’s stock price. The decrease in fair value during the three months ended ~~June 30, 2017~~March 31, 2018 was primarily driven by ~~decreased volatility~~decreases in both the Company’s stock price and related volatility impacting the ~~increase in~~ fair value ~~during the six months ended June 30, 2017 was primarily driven by an increase in the Company’s stock price impacting~~of both of the Hale warrant ~~which was~~and the ~~only warrant outstanding as of such date.~~ESW warrant.

The Company estimates the fair value of this liability using option pricing models that are based on the individual characteristics of the warrants on the valuation date, which ~~includes~~include assumptions for expected volatility, expected life and risk-free interest rate, as well as the present value of the minimum cash payment component of the ~~instrument.~~instrument for the warrants, when applicable. Changes in the assumptions used could have a material impact on the resulting fair value. The primary inputs affecting the value of the warrant liability are the Company’s stock price and volatility in the Company's stock price, as well as assumptions about the probability and timing of certain events, such as a change in control or future equity offerings. Increases in the fair value of the underlying stock or increases in the volatility of the stock price generally result in a corresponding increase in the fair value of the warrant liability; conversely, decreases in the fair value of the underlying stock or decreases in the volatility of the stock price generally result in a corresponding decrease in the 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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (in thousands):


			Fair Value Measurements Using								Fair Value Measurements Using
	Total Fair Value at June 30, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value at March 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	$	2,202	$	—	$	—	$	2,202	$	2,266	$	—	$	—	$	2,266
Derivative warrant liability - Hale warrant	684		—		—		684		761		—		—		761
Derivative warrant liabilities	$	2,886	$	—	$	—	$	2,886
Derivative warrant liability - iStudy									60		—		—		60
Derivative warrant liability									$	3,087	$	—	$	—	$	3,087


			Fair Value Measurements Using								Fair Value Measurements Using
	Total Fair Value at December 31, 2017		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value at December 31, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Derivative warrant liability - ESW warrant									$	2,015	$	—	$	—	$	2,015
Derivative warrant liability - Hale warrant	$	819	$	—	$	—	$	819	750		—		—		750
Derivative warrant liability - iStudy									33		—		—		33
Derivative warrant liability									$	2,798	$	—	$	—	$	2,798

The Company classified the warrant liability as Level 3 due to the lack of relevant observable market data over fair value inputs such as the probability-weighting of the various scenarios in the ~~arrangement.~~arrangements. The following table represents a rollforward of the fair value of the Level 3 ~~instrument~~instruments (significant unobservable inputs):

Balance at December 31, 2017 $ 819
Addition of warrant liability 2,176
Change in fair value (109 )
Balance at June 30, 2018 $ 2,886



Balance at December 31, 2018	$	2,798
Change in fair value	289
Balance at March 31, 2019	$	3,087


(6)	Stock-Based Compensation

The Company granted the following stock-based awards:


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended March 31,
	2018	2017	2018	2017	2019	2018
Stock options	540,500	10,000	540,500	135,000	17,000	—
Restricted stock awards and restricted stock units	180,000	150,000	180,000	212,500	98,492	—
Performance stock units	—	—	—	166,149

The stock options and restricted stock awards ~~and performance stock units~~ granted during the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ were granted under the Company's Second Amended and Restated 2007 Stock Incentive Plan (the "2007 Plan"), a shareholder approved plan. ~~Of the 166,149~~

The Company granted performance stock units ~~granted in connection with~~during 2018 ("2018 Performance Stock Units") and 2017 ("2017 Performance Stock Units"). The 2018 Performance Stock Units consisted of 147,741 units outstanding as of December 31, 2018, of which 98,492 vested during the ~~Company's~~three months ended March 31, 2019. In settlement of the vested 2018 Performance Stock Units, during the three months ended March 31, 2019, the Company issued 98,492 shares of restricted stock upon vesting, which is equal to the number of 2018 Performance Stock Units vested multiplied by the percentage achievement of the performance goals of 100.0%.

The 2017 ~~short-term incentive plan ("~~Performance Stock Units consisted of 140,493 units outstanding as of December 31, 2017, ~~Incentive Plan"),~~of which 116,168 vested during the three months ended March 31, 2018. In settlement of

the ~~performance stock units,~~vested 2017 Performance Stock Units, during the three months ended March 31, 2018, the Company issued 25,726 shares upon vesting, which is equal to the number of ~~performance stock units~~2017 Performance Stock Units vested multiplied by the weighted percentage achievement of the performance goals for the 2017 Incentive Plan of approximately 22.1%.

During the three months ended June 30, 2018, the Company’s shareholders approved an amendment to the 2007 Plan to increase the number of shares authorized under the plan by 500,000 to a total of 3,230,320 shares.

The Company recognized the following expense related to its share-based payment arrangements (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
Stock-based compensation cost, before income tax benefit:
Stock options	$	73	$	118	$	120	$	244	$	94	$	47
Restricted stock awards and restricted stock units	155		210		318		419		132		163
Performance stock units	—		42		—		120		5		—
Total stock-based compensation	$	228	$	370	$	438	$	783	$	231	$	210

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
Stock-based compensation cost included in:
Cost of revenues	$	8	$	18	$	18	$	32	$	8	$	10
Operating expenses	220		352		420		751		223		200
Total stock-based compensation	$	228	$	370	$	438	$	783	$	231	$	210


(7)	Income Taxes

As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company’s liability for gross unrecognized tax benefits totaled ~~$1.2~~$1.7 million and ~~$1.1~~$1.7 million, respectively (excluding interest and penalties). The Company had no accrued interest and penalties relating to unrecognized tax benefits ~~at June 30, 2018~~of $11,100 and ~~had $1,400 of accrued interest and penalties relating to unrecognized tax benefits~~$5,600 on a gross basis at March 31, 2019 and December 31, ~~2017.~~2018, respectively. The change in the liability for gross unrecognized tax benefits reflects an increase in interest and penalty reserves established for federal and state research and development credits. Additionally, the Company continues to analyze the different aspects of the Tax Cuts and Jobs Act of 2017 which could potentially affect the provisional estimates that were recorded at December 31, 2017. During the six months ended June 30, 2018, there were no changes made to the provisional amounts recognized in 2017.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
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
Net loss per share – basic
Net loss $ (1,531 ) $ (2,611 ) $ (6,061 ) $ (6,173 )
Weighted average shares outstanding – basic 9,484
9,356
9,427
9,301
Net loss per share – basic $ (0.16 ) $ (0.28 ) $ (0.64 ) $ (0.66 )

Net loss per share – diluted
Loss attributable to common shareholders:
Net loss $ (1,531 ) $ (2,611 ) $ (6,061 ) $ (6,173 )
Numerator effect of dilutive securities
Warrant —
(11 ) —
—
Loss from attributable to common shareholders $ (1,531 ) $ (2,622 ) $ (6,061 ) $ (6,173 )
Weighted average shares outstanding – diluted:
Weighted average shares outstanding – basic 9,484
9,356
9,427
9,301
Denominator effect of dilutive securities
Warrant —
1
—
—
Diluted potential common shares —
1
—
—
Weighted average shares outstanding – diluted 9,484
9,357
9,427
9,301
Net loss per share – diluted $ (0.16 ) $ (0.28 ) $ (0.64 ) $ (0.66 )



	Three Months Ended March 31,
	2019			2018
Net loss per share – basic and diluted
Net loss	$	(950	)	$	(4,530	)
Weighted average shares outstanding	9,688			9,370
Net loss per share	$	(0.10	)	$	(0.48	)

Stock options, warrants and restricted stock units to acquire common shares excluded from the computation of diluted weighted-average common shares as their effect is anti-dilutive were as follows (in thousands):

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
Stock options 1,283
1,562
1,225
1,545
Warrants 1,239
—
1,183
314
Restricted stock units 120
135
135
128
Total anti-dilutive 2,642
1,697
2,543
1,987


~~(9)~~	~~Investment in Software Company~~

As of June 30, 2018 and December 31, 2017, the Company held an investment totaling $3.1 million in convertible preferred stock of BriefCam, Ltd. (“BriefCam”), a privately-held Israeli company that develops video synopsis technology to augment security and surveillance systems to facilitate review of surveillance video. The investment does not have a readily determinable fair value and is recorded at cost, less impairment, if any, plus or minus changes resulting from observable price changes in market-based transactions for an identical or similar investment of the same issuer and is included in other non-current assets. The Company's ownership interest is less than 20%. The security is reviewed quarterly for observable price changes in market-based transactions for an identical or similar investment of the same issuer, as well as for changes in circumstances or the occurrence of events that suggest the Company’s investment may not be fully recoverable. If the fair value of the investment is determined to be less than its carrying amount, the Company writes down the investment to its fair value and recognizes the write-down in net income. The Company monitors BriefCam's results of operations, business plan and capital raising activities and is not aware of any events or circumstances that would indicate a decline in the fair value below the carrying value of its investment. During the six months ended June 30, 2018, there were no observable price changes in market-based transactions for an identical or similar investment of the same issuer or impairments related to the Company’s non-marketable investment in the equity security.

~~See Note 10–"Subsequent Events” for information relating to the sale of the Company’s investment in BriefCam subsequent to June 30, 2018.~~



	Three Months Ended March 31,
	2019	2018
Stock options	1,416	1,316
Warrants	1,339	1,126
Restricted stock units	150	150
Total anti-dilutive	2,905	2,592


~~(10)~~	~~Subsequent Events~~

~~Sale of BriefCam~~

On May 7, 2018, BriefCam, Canon Inc. (“Canon”), and the shareholders of BriefCam, including the Company, entered into a stock purchase agreement by which Canon would acquire all of the outstanding shares of BriefCam. On July 3, 2018, BriefCam announced that Canon had completed its acquisition of BriefCam. On July 6, 2018, the Company received approximately $9,678,000 from the closing proceeds for its shares of BriefCam Ltd.

~~Partial Prepayment of ESW Term Loan~~

On July 19, 2018, the Company paid $6,463,000 on its outstanding term loan from ESW Holdings, Inc. under its term loan credit agreement dated January 12, 2018. The payment was comprised of principal of $6.0 million and accrued interest of $463,000 for the period January 12, 2018 to the payment date of July 19, 2018. The Company used a portion of the $9,638,000 in net proceeds from the sale of its investment in BriefCam to fund the prepayment. Under the term loan credit agreement, any voluntary prepayment by the Company from the net proceeds received from the disposition of the Company’s investment in BriefCam will not trigger a prepayment fee.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with the section titled “Financial Information” and our audited financial statements and related notes which are included in our most recent Annual Report on Form 10-K. Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in “Risk Factors” included our most recent Annual Report on Form 10-K.

Overview

Qumu Corporation ("Qumu" or the "Company") provides the software ~~applications~~solutions businesses use to create, manage, secure, distribute and measure the success of live and on-demand video for the enterprise. The Company's 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.

For the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, the Company recognized revenues of $7.6 million and $6.7 million, respectively. For the six months ended June 30, 2018 and 2017,~~ the Company generated revenues of ~~$12.5~~$7.1 million and ~~$13.4~~$4.8 million, respectively. For the ~~years~~year ended December 31, ~~2017 and 2016,~~2018, the Company generated revenues of ~~$28.2 million and $31.7 million, respectively.~~$25.0 million.

Critical Accounting Policies

The discussion of the Company's financial condition and results of operations is based upon its financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of the Company's financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, management evaluates its estimates and assumptions. Management bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that management believes to be reasonable. The Company's actual results may differ from these estimates under different assumptions or conditions.

Management utilizes its technical knowledge, cumulative business experience, judgment and other factors in the selection and application of the Company’s accounting policies. The accounting policies considered by management to be the most critical to the presentation of the condensed consolidated financial statements because they require the most difficult, subjective and complex judgments include revenue recognition, ~~investment in nonconsolidated company,~~accounting for leases, derivative liabilities for outstanding warrants, and royalties for third party technology. Except for the accounting policies for ~~revenue recognition~~lease accounting that were updated as a result of adopting Topic ~~606~~842 effective January 1, ~~2018,~~2019, our significant accounting policies applicable to the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 are discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

See Note 1–"Nature of Business and Basis of Presentation" of the accompanying condensed consolidated financial statements for a description of the Company’s change in critical accounting policies with respect to ~~revenue recognition~~lease accounting during the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019.

Results of Operations

The percentage relationships to revenues of certain income and expense items for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ and the percentage changes in these income and expense items relative to the prior year ~~periods,~~period, are contained in the following table:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	Percentage of Revenues				Percent Increase (Decrease)		Percentage of Revenues				Percent Increase (Decrease)		Percentage of Revenues				Percent Increase (Decrease)
	2018		2017		2017 to 2018		2018		2017		2017 to 2018		2019		2018		2018 to 2019
Revenues	100.0	%	100.0	%	15	%	100.0	%	100.0	%	(7	)%	100.0	%	100.0	%	47	%
Cost of revenues	(31.5	)	(34.4	)	5		(36.3	)	(36.4	)	(7	)	(21.7	)	(43.7	)	(27	)
Gross profit	68.5		65.6		20		63.7		63.6		(7	)	78.3		56.3		105
Operating expenses:
Research and development	21.5		27.0		(9	)	28.4		29.2		(9	)	23.6		39.4		(12	)
Sales and marketing	31.7		37.9		(4	)	36.9		37.2		(8	)	33.1		45.1		8
General and administrative	22.9		30.2		(13	)	31.5		33.5		(12	)	24.6		45.2		(20	)
Amortization of purchased intangibles	3.0		3.4		—		3.7		3.4		2		3.0		4.7		(5	)
Total operating expenses	79.1		98.5		(8	)	100.5		103.3		(9	)	84.3		134.4		(8	)
Operating loss	(10.6	)	(32.9	)	(63	)	(36.8	)	(39.7	)	(14	)	(6.0	)	(78.1	)	(89	)
Other expense, net	(10.5	)	(6.7	)	80		(13.2	)	(6.7	)	84		(7.4	)	(17.5	)	(38	)
Loss before income taxes	(21.1	)	(39.6	)	(39	)	(50.0	)	(46.4	)	—		(13.4	)	(95.6	)	(79	)
Income tax benefit	(1.0	)	(0.4	)	212		(1.3	)	(0.2	)	472		—		(1.8	)	(95	)
Net loss	(20.1	)%	(39.2	)%	(41	)%	(48.7	)%	(46.2	)%	(2	)%	(13.4	)%	(93.8	)%	(79	)%

Revenues

The Company generates revenue through the sale of enterprise video content management software solutions, appliances, maintenance and support, and professional and other services. Software sales may take the form of a perpetual software license, a term software license or a cloud-hosted software as a service (SaaS). Software licenses and appliances revenue includes sales of perpetual software licenses and hardware. Service revenue includes term software licenses, SaaS, maintenance and support, and professional and other services.

The table below describes the Company's revenues by product category (dollars in thousands):


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended March 31,
					Increase (Decrease)			Percent Increase (Decrease)						Increase (Decrease)			Percent Increase (Decrease)						Increase		Percent Increase
	2018		2017		2017 to 2018			2017 to 2018		2018		2017		2017 to 2018			2017 to 2018		2019		2018		2018 to 2019		2018 to 2019
Software licenses and appliances	$	2,867	$	929	$	1,938		209	%	$	3,318	$	2,149	$	1,169		54	%	$	1,005	$	451	$	554	123	%
Service
Subscription, maintenance and support	4,122		5,110		(988		)	(19	)	8,160		9,948		(1,788		)	(18	)	5,563		4,038		1,525		38
Professional services and other	637		615		22			4		979		1,268		(289		)	(23	)	530		342		188		55
Total service	4,759		5,725		(966		)	(17	)	9,139		11,216		(2,077		)	(19	)	6,093		4,380		1,713		39
Total revenues	$	7,626	$	6,654	$	972		15	%	$	12,457	$	13,365	$	(908	)	(7	)%	$	7,098	$	4,831	$	2,267	47	%

Revenues can vary period to period based on the type and size of contract into which the Company enters with each customer. The ~~increases~~quarterly software licenses and appliances revenues are also subject to the timing of fulfillment of products, which can result in large fluctuations when compared to the prior quarters. The increase in software licenses and appliances revenues in the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 compared to the same ~~periods~~period in ~~2017 were~~2018 was driven by increases in perpetual software license and appliance sales to both new and existing customers.

The ~~decreases~~increase in subscription, maintenance and support revenues in the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 compared to the corresponding ~~2017 periods~~2018 period primary resulted from significant term software license sales for which revenue is recognized up front, as well as the ~~loss of a large customer~~revenue attributable to maintenance contracts entered into in the fourth quarter of 2017, representing approximately $800,000 and $1.6 million of the three and six month variance, respectively. Additionally, revenues decreased $240,000 and $424,000 in the three and six months ended June 30, 2018 due to the Company's retrospective adoption of ASC 606 effective January 1,late 2018.

Professional services revenues, which generally move directionally with changes in perpetual license sales and are impacted by custom work and the timing customer acceptance, increased ~~slightly~~ in the three months ended ~~June 30, 2018~~March 31, 2019, compared to the corresponding ~~2017 period, and decreased in the six months ended June 30,~~ 2018 ~~compared to the corresponding 2017~~ period, due primarily to ~~the inclusion of a large former customer in the six months ended June 30, 2017 and to lower~~higher utilization ~~and reduced size~~ of the Company's global professional services team in ~~the first quarter of 2018.~~2019.

Future consolidated revenues will be dependent upon many factors, including the rate of adoption of the Company's software solutions in its targeted markets and whether arrangements with customers are structured as a software license or a SaaS, which impacts the timing of revenue recognition. Other factors that will influence future consolidated revenues include the timing of customer orders and renewals, the product and service mix of customer orders, the impact of changes in economic conditions and the impact of foreign currency exchange rate fluctuations.

Cost of Revenues and Gross Profit

A comparison of gross profit and gross margin by revenue category is as follows (dollars in thousands):


	Three Months Ended June 30,											Six Months Ended June 30,											Three Months Ended March 31,
							Increase (Decrease)			Percent Increase (Decrease)								Increase (Decrease)			Percent Increase (Decrease)								Increase			Percent Increase
	2018			2017			2017 to 2018			2017 to 2018		2018			2017			2017 to 2018			2017 to 2018		2019			2018			2018 to 2019			2018 to 2019
Gross profit:
Software licenses and appliances	$	2,063		$	561		$	1,502		268	%	$	2,179		$	1,287		$	892		69	%	$	694		$	116		$	578		498	%
Service	3,157			3,807			(650		)	(17	)	5,760			7,208			(1,448		)	(20	)	4,867			2,603			2,264			87
Total gross profit	$	5,220		$	4,368		$	852		20	%	$	7,939		$	8,495		$	(556	)	(7	)%	$	5,561		$	2,719		$	2,842		105	%

Gross margin:
Software licenses and appliances	72.0		%	60.4		%	11.6		%			65.7		%	59.9		%	5.8		%			69.1		%	25.7		%	43.4		%
Service	66.3		%	66.5		%	(0.2		)%			63.0		%	64.3		%	(1.3		)%			79.9		%	59.4		%	20.5		%
Total gross margin	68.5		%	65.6		%	2.9		%			63.7		%	63.6		%	0.1		%			78.3		%	56.3		%	22.0		%

Gross ~~margins include $293,000~~profit includes $117,000 and $298,000 for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, ~~and $591,000 for each six-month period ended June 30, 2018 and 2017,~~ for the amortization of intangible assets acquired as a result of the acquisition of Qumu, Inc. in the fourth quarter of 2011 and Kulu Valley in the fourth quarter of 2014. Cost of revenues for the full year ~~2018~~2019 is expected to include approximately ~~$1.2~~$0.5 million of amortization expense for purchased intangibles. The Company had 19 and 2123 service personnel at ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

The ~~2.9% and 0.1% increases in~~ total gross margin ~~percentage~~percentages in the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019 improved 22.0% compared to the corresponding ~~2017 periods, resulted from the~~period in 2018. The 43.4% increase ~~in both software licenses and appliance gross margin. The 11.6% and 5.8% increases~~ in software licenses and ~~appliance~~appliances gross margin in the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019, compared to the corresponding ~~2017 periods,~~2018 period, was driven primarily by strong sales ~~including a few large perpetual license sales,~~ in ~~the three months ended June 30, 2018,~~2019 while costs of sales consist generally of fixed amortized prepaid royalties for embedded OEM licenses. The ~~0.2% and 1.3% decreases~~20.5% improvement in service gross margin ~~in the three and six months ended June 30, 2018~~ was primarily ~~driven by higher gross margin attributable~~due to ~~services to a large former customer~~an increase in ~~the six months ended June 30, 2017~~term software license revenue, fewer service personnel, decreased amortization expense as certain purchased intangible assets became fully amortized during 2018 and to lower ~~utilization and reduced size of the Company's global professional services team in the first quarter of 2018.~~royalty expense associated with third-party software licenses.

Future gross profit margins will fluctuate quarter to quarter and will be impacted by the rate of growth and mix of the Company's product and service offerings, utilization of service personnel, and foreign currency exchange rate fluctuations.

Operating Expenses

The following is a summary of operating expenses (dollars in thousands):


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended March 31,
					Increase (Decrease)			Percent Increase (Decrease)						Increase (Decrease)			Percent Increase (Decrease)						Increase (Decrease)			Percent Increase (Decrease)
	2018		2017		2017 to 2018			2017 to 2018		2018		2017		2017 to 2018			2017 to 2018		2019		2018		2018 to 2019			2018 to 2019
Operating expenses:
Research and development	$	1,639	$	1,798	$	(159	)	(9	)%	$	3,542	$	3,907	$	(365	)	(9	)%	$	1,674	$	1,903	$	(229	)	(12	)%
Sales and marketing	2,412		2,524		(112		)	(4	)	4,592		4,975		(383		)	(8	)	2,352		2,180		172			8
General and administrative	1,747		2,009		(262		)	(13	)	3,928		4,469		(541		)	(12	)	1,746		2,181		(435		)	(20	)
Amortization of purchased intangibles	227		226		1			—		456		449		7			2		218		229		(11		)	(5	)
Total operating expenses	$	6,025	$	6,557	$	(532	)	(8	)%	$	12,518	$	13,800	$	(1,282	)	(9	)%	$	5,990	$	6,493	$	(503	)	(8	)%

Operating expenses for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 compared to the corresponding ~~2017 periods~~2018 period reflected lower employee costs due to fewer personnel and continued improvement in the Company's operational efficiency. The Company had 7980 and 9883 personnel in operating activities at ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. The Company incurred severance

expense relating to cost reduction initiatives of ~~$6,000 and $17,000~~$171,000 in the three months ended ~~June 30, 2018 and 2017, respectively, and $177,000 and $119,000~~March 31, 2018; nominal severance expense was incurred within operating expense in ~~the six~~three months ended June 30, 2018 and 2017, respectively. During the six months ended June 30, 2018, the Company executed on its cost reduction initiatives by reducing it facility costs, including the sublet of portions of its London and Minneapolis facilities and the reduction in the size of its California office from 14,000 square feet to 3,800 square feet.March 31, 2019.

Research and development

Research and development expenses were as follows (dollars in thousands):


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended March 31,
					Increase (Decrease)			Percent Increase (Decrease)						Increase (Decrease)			Percent Increase (Decrease)						Increase (Decrease)			Percent Increase (Decrease)
	2018		2017		2017 to 2018			2017 to 2018		2018		2017		2017 to 2018			2017 to 2018		2019		2018		2018 to 2019			2018 to 2019
Compensation and employee-related	$	1,197	$	1,351	$	(154	)	(11	)%	$	2,670	$	2,986	$	(316	)	(11	)%	$	1,197	$	1,473	$	(276	)	(19	)%
Overhead and other expenses	310		269		41			15		611		564		47			8		335		301		34			11
Outside services and consulting	91		98		(7		)	(7	)	176		191		(15		)	(8	)	108		85		23			27
Depreciation and amortization	6		36		(30		)	(83	)	23		74		(51		)	(69	)	1		17		(16		)	(94	)
Equity-based compensation	35		44		(9		)	(20	)	62		92		(30		)	(33	)	33		27		6			22
Total research and development expenses	$	1,639	$	1,798	$	(159	)	(9	)%	$	3,542	$	3,907	$	(365	)	(9	)%	$	1,674	$	1,903	$	(229	)	(12	)%

Total research and development expenses as a percent of revenues were ~~22%~~24% and ~~27%~~39% for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and 28% and 29% for the six months ended June 30, 2018 and 2017,~~ respectively. The Company had 3435 and 4036 research and development personnel at ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

The ~~decreases~~decrease in expenses of ~~$159,000 and $365,000~~$229,000 in the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019 compared to the corresponding ~~2017 periods, were~~2018 period was driven primarily by lower employee costs due to fewer research and development ~~personnel, and continued improvement~~personnel. The Company incurred $61,000 of severance expense in the ~~Company's operational efficiency~~prior year period relating to cost reduction initiatives; no severance expense included within research and development expense was incurred in the three ~~and six~~ months ended ~~June 30, 2018 compared to the corresponding 2017 periods.~~

March 31, 2019.

Sales and marketing

Sales and marketing expenses were as follows (dollars in thousands):


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended March 31,
					Increase (Decrease)			Percent Increase (Decrease)						Increase (Decrease)			Percent Increase (Decrease)						Increase (Decrease)			Percent Increase (Decrease)
	2018		2017		2017 to 2018			2017 to 2018		2018		2017		2017 to 2018			2017 to 2018		2019		2018		2018 to 2019			2018 to 2019
Compensation and employee-related	$	1,779	$	1,960	$	(181	)	(9	)%	$	3,432	$	3,859	$	(427	)	(11	)%	$	1,826	$	1,653	$	173		10	%
Overhead and other expenses	375		262		113			43		707		528		179			34		291		332		(41		)	(12	)
Outside services and consulting	224		241		(17		)	(7	)	396		448		(52		)	(12	)	209		172		37			22
Depreciation and amortization	3		15		(12		)	(80	)	9		34		(25		)	(74	)	1		6		(5		)	(83	)
Equity-based compensation	31		46		(15		)	(33	)	48		106		(58		)	(55	)	25		17		8			47
Total sales and marketing expenses	$	2,412	$	2,524	$	(112	)	(4	)%	$	4,592	$	4,975	$	(383	)	(8	)%	$	2,352	$	2,180	$	172		8	%

Total sales and marketing expenses as a percent of revenues were ~~32%~~33% and ~~38%~~45% for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and 37% for both six-month periods ended June 30, 2018 and 2017.~~respectively. The Company had 2827 and 3630 sales and marketing personnel at ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

The ~~decreases~~increase in expenses of ~~$112,000 and $383,000~~$172,000 in the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019 compared to the corresponding ~~2017 periods, were~~2018 period was primarily driven by increased commissions expense, partially offset by lower salaries and related employee costs due to fewer sales and marketing ~~personnel, and continued improvement in the Company's operational efficiency in the three and six months ended June 30, 2018 compared to the corresponding 2017 periods.~~personnel. The Company incurred $45,000 of severance expense in the prior year period relating to cost reduction initiatives; severance expense included within sales and marketing ~~cost reduction initiatives of $6,000 and $25,000 in~~expense was not significant for the three months ended ~~June 30, 2018 and 2017, respectively, and $51,000 and $101,000 for the six months ended June 30, 2018 and 2017, respectively.~~March 31, 2019.

General and administrative

General and administrative expenses were as follows (dollars in thousands):


	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended March 31,
					Increase (Decrease)			Percent Increase (Decrease)						Increase (Decrease)			Percent Increase (Decrease)						Increase (Decrease)			Percent Increase (Decrease)
	2018		2017		2017 to 2018			2017 to 2018		2018		2017		2017 to 2018			2017 to 2018		2019		2018		2018 to 2019			2018 to 2019
Compensation and employee-related	$	647	$	892	$	(245	)	(27	)%	$	1,442	$	1,869	$	(427	)	(23	)%	$	719	$	795	$	(76	)	(10	)%
Overhead and other expenses	233		215		18			8		559		577		(18		)	(3	)	341		326		15			5
Outside services and consulting	596		450		146			32		1,354		1,089		265			24		450		758		(308		)	(41	)
Depreciation and amortization	117		190		(73		)	(38	)	263		381		(118		)	(31	)	71		146		(75		)	(51	)
Equity-based compensation	154		262		(108		)	(41	)	310		553		(243		)	(44	)	165		156		9			6
Total general and administrative expenses	$	1,747	$	2,009	$	(262	)	(13	)%	$	3,928	$	4,469	$	(541	)	(12	)%	$	1,746	$	2,181	$	(435	)	(20	)%

Total general and administrative expenses as a percent of revenues were ~~23%~~25% and ~~30%~~45% for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and 32% and 34% for the six months ended June 30, 2018 and 2017,~~ respectively. The Company had 1718 and 2217 general and administrative personnel at ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

The decrease in expenses of ~~$262,000 and $541,000~~$435,000 in the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019 compared to the corresponding ~~2017 periods,~~2018 period was driven primarily by lower ~~employee~~outside services costs ~~due~~resulting from a reduction in audit fees incurred in the three months ended March 31, 2019 and the inclusion in the prior year period of legal and accounting fees related to ~~fewer~~the refinancing of the Company's term loan in the three months ended March 31, 2018. The Company incurred $65,000 of severance expense in the prior year period relating to cost reduction initiatives; no severance expense included in general and administrative ~~personnel, and continued improvement in the Company's operational efficiency~~expense was incurred in the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019.

Amortization of Purchased Intangibles

Operating expenses include ~~$227,000~~$218,000 and ~~$226,000~~$229,000 for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $456,000 and $449,000 for the six months ended June 30, 2018 and 2017,~~ respectively, for the amortization of intangible assets acquired as part of the Company’s acquisition of Qumu, Inc. in October 2011 and Kulu Valley in October 2014. Operating expenses for the full year ~~2018~~2019 are expected to include approximately ~~$0.9~~$0.8 million of amortization expense associated with purchased intangibles, exclusive of the portion classified in cost of revenue.

Other Income (Expense), Net

Other income (expense), net was as follows (dollars in thousands):


	Three Months Ended June 30,											Six Months Ended June 30,											Three Months Ended March 31,
							Increase (Decrease)			Percent Increase (Decrease)								Increase (Decrease)			Percent Increase (Decrease)		2019			2018
	2018			2017			2017 to 2018			2017 to 2018		2018			2017			2017 to 2018			2017 to 2018
Interest income (expense), net	$	(510	)	$	(334	)	$	(176	)	53	%	$	(1,354	)	$	(651	)	$	(703	)	108	%
Interest expense, net																							$	(205	)	$	(844	)
Decrease (increase) in fair value of warrant liability	(278		)	11			(289		)	(2,627	)	109			(67		)	176			(263	)	(289		)	387
Other, net	(16		)	(124		)	108			(87	)	(403		)	(179		)	(224		)	125		(31		)	(387		)
Total other expense, net	$	(804	)	$	(447	)	$	(357	)	80	%	$	(1,648	)	$	(897	)	$	(751	)	84	%
Total other income (expense), net																							$	(525	)	$	(844	)

The Company recognized interest expense on its term loan and ~~capital~~finance leases of ~~$510,000~~$205,000 and ~~$334,000~~$844,000 for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $1,354,000 and $651,000 for the six months ended June 30, 2018 and 2017,~~ respectively, which includes the accrual of interest on the Company's term loans, as well as the amortization of deferred financing costs. Amortization of deferred financing costs for the ~~six~~three months ended ~~June 30,~~March 31, 2018 includes $395,000 of expense related to the Company's acceleration of the amortization of deferred financing costs in connection with the modification of its term loan credit agreement with Hale Capital Partners, LP in the fourth quarter of 2017 and subsequent ~~refinancing~~repayment in full of this debt with the ~~debt~~proceeds from the ESW Holdings, Inc. term loan in the first quarter of 2018.

~~In conjunction with~~ Additionally, interest expense on the ~~debt financings completed~~Company' term loan was lower in ~~October 2016 and January~~three months ended March 31, 2019, compared to the corresponding 2018 ~~the Company issued two warrants for the purchase of up~~period, due to ~~314,286 shares and 925,000 shares, respectively, of~~ the Company's ~~common stock, which remained unexercised and outstanding at June 30,~~$6.0 million paydown on its term loan principal balance in July 2018. The warrants contain a cash settlement feature upon the occurrence of a certain events, essentially the sale of the Company as defined in the warrant agreements. As a result of this feature, the warrants are subject to derivative accounting as prescribed under ASC 815. Accordingly, the fair value of the warrants on the respective dates of issuance were recorded in the Company’s consolidated balance sheets as a liability. The fair value of the warrant liability is estimated at the end of each reporting period and the change in the fair value is recorded as a non-operating gain or loss in the Company’s consolidated statements of operations.

The Company recorded a non-cash ~~gain (loss)~~loss of ~~$(278,000) and $11,000~~$289,000 during the three months ended ~~June 30, 2018 and 2017, respectively,~~March 31, 2019 and a non-cash gain ~~(loss) of $109,000 and $(67,000) during~~$387,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2018 ~~and 2017, respectively,~~ from the change in fair value of the warrant liability. The increase in fair value for the three months ended ~~June 30, 2018 and decrease in fair value for the six months ended June 30, 2018~~March 31, 2019 was primarily driven by a corresponding increase ~~and decrease, respectively,~~ in the Company’s stock price. The decrease in fair value during the three months ended ~~June 30, 2017~~March 31, 2018 was primarily driven by ~~decreased volatility~~decreases in both the Company’s stock price and related volatility impacting the ~~increase in~~ fair value ~~during the six months ended June 30, 2017 was primarily driven by an increase in the Company’s stock price impacting~~of both of the Hale warrant ~~which was~~and the ~~only warrant outstanding as of such date.~~ESW warrant.

Other expense included ~~net gains on foreign currency transactions of $169,000 and~~ net losses on foreign currency transactions of ~~$128,000~~$94,000 and $271,000 for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $102,000 and $176,000 for the six months ended June 30, 2018 and 2017,~~ respectively. Other expense also included debt issuance costs of $110,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2018 related to ~~the~~a warrant issued in the first quarter of 2018. See “Liquidity and Capital Resources” below for a discussion of changes in cash levels.

Income Taxes

The provision for income taxes represents federal, state, and foreign income taxes or income tax benefit on income or loss. Net income tax benefit ~~amounted to $78,000~~was $4,000 and ~~$25,000~~$88,000 for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $166,000 and $29,000~~respectively. The net income tax benefit for the ~~six~~three months ended ~~June 30,~~March 31, 2019, was impacted by the tax benefit for refundable research credits from United Kingdom operations offset by an increase in reserves for unrecognized tax benefits. The net income tax benefit for the three months ended March 31, 2018, ~~and 2017, respectively, and~~ is primarily attributable to refundable research credits from United Kingdom ~~operations, which include refundable research credits.~~operations.

Liquidity and Capital Resources

The following table sets forth certain relevant measures of the Company's liquidity and capital resources (in thousands):


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Cash and cash equivalents	$	5,202		$	7,690		$	8,571		$	8,636
Working capital	$	(3,146	)	$	(1,467	)	$	(3,583	)	$	865
Financing obligations	$	226		$	1,050		$	277		$	209
Operating lease liabilities							1,570			—
Term loan	7,956			7,605			3,559			3,431
Financing obligations and term loan	$	8,182		$	8,655
Financing obligations, operating lease liabilities and term loan							$	5,406		$	3,640

The Company expects it will be able to maintain current operations and anticipated capital expenditure requirements for at least the next 12 months through its cash reserves, which includes the proceeds of the debt financing completed in the first quarter of 2018, and proceeds received in July 2018 from the sale of the Company’s interest in BriefCam, as well as any cash flows that may be generated from current operations.reserves. Based on expected revenue performance and continued management of expenses, ~~to scale with revenue,~~ the Company expects that it will be cash flow breakeven ~~for~~in the ~~fourth~~third quarter of ~~2018.~~2019. The Company expects that it will be able repay the principal and accrued interest due to ESW Holdings on January 10, 2020, and if required, the Company would secure a facility sufficient to meet working capital requirements. If the Company is unable to meet its revenue expectations or secure an alternative facility, it is positioned to further reduce costs to mitigate the impact on its cash reserves for at least the next 12 months.

At ~~June 30, 2018,~~March 31, 2019, the Company had aggregate negative working capital of ~~$3.1~~$3.6 million, compared to ~~negative~~positive working capital of ~~$1.5 million~~$865,000 at December 31, ~~2017.~~2018. Working capital includes current deferred revenue of ~~$8.5~~$9.6 million and ~~$8.9~~$9.7 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The primary contributor to the change in working capital was the ~~decrease in cash~~reclassification of the carrying value of the Company's term loan of $3.6 million and ~~cash equivalents by $2.5 million driven by~~related accrued interest of $272,000 from long-term liabilities to current liabilities, as the ~~$4.6 million operating loss for the six months ended June 30, 2018.~~loan and accrued interest is due and payable on January 10, 2020.

Financing obligations as of December 31, 2018 primarily ~~consist~~consists of ~~capital~~finance leases related to the acquisition of computer and network equipment and furniture.

~~During~~ Upon adoption of Topic 842 on January 1, 2019, operating lease liabilities consists of liabilities primarily related to the six months ended June 30, 2018, the Company used $8.8 million of the $10.0 million term loan proceeds provided through the credit agreement with ESW Holdings, Inc. to pay all outstanding obligations under the term loan credit agreement dated as of October 21, 2016 among the Company, Qumu, Inc., HCP-FVD, LLC, as lender and Hale Capital Partners, LP, as administrative agent. Concurrently with such repayment, the October 21, 2016 term loan credit agreement terminated by its terms effective January 12, 2018.Company's operating leases for office space.

The term loan with ESW Holdings, Inc. consists of a ~~two-year~~ note having a face value of ~~$10.0~~$4.0 million ~~and~~at March 31, 2019 that is scheduled to mature on January 10, 2020. Interest accrues and compounds monthly at a variable rate per annum equal to the prime rate plus 4%. As of ~~June 30, 2018,~~March 31, 2019, interest accrued at ~~9.0%~~9.50% and accrued and unpaid interest was ~~$414,000.~~

Subsequent to June 30, 2018, on July 19, 2018, the Company paid $6,463,000 on its outstanding term loan from ESW Holdings, Inc. under that certain Term Loan Credit Agreement dated January 12, 2018. The payment was comprised of principal of $6.0 million and accrued interest of $463,000 for the period January 12, 2018 to the payment date of July 19, 2018. The Company used a portion of the $9,638,000 in net proceeds from the sale of its investment in BriefCam to fund the prepayment. Under the term loan credit agreement, any voluntary prepayment by the Company from the net proceeds received from the disposition of the Company’s investment in BriefCam will not trigger a prepayment fee.$272,000.

The Company's primary source of cash from operating activities has been cash collections from sales of products and services to customers. The Company expects cash inflows from operating activities to be affected by increases or decreases in sales and timing of collections. The Company's primary use of cash for operating activities has been for personnel costs and outside service providers, payment of royalties associated with third-party software licenses and purchases of equipment to fulfill customer orders. The Company expects cash flows from operating activities to be affected by fluctuations in revenues, personnel costs, outside service providers, and the amount and timing of royalty payments and equipment purchases as the Company continues to support the growth of the business. The amount of cash and cash equivalents held by the Company's international subsidiaries that is not available to fund domestic operations unless repatriated was ~~$1.5~~$1.9 million as of ~~June 30, 2018.~~March 31, 2019. The repatriation of cash and cash equivalents held by the Company's international subsidiaries would not result in an adverse tax impact on cash given that the future tax consequences of repatriation are expected to be insignificant as a result of the Tax Cuts and Jobs Act of 2017.

Summary of Cash Flows

A summary of cash flows is as follows (in thousands):


	Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2019			2018
Cash flows provided by (used in):
Operating activities	$	(2,772	)	$	(1,065	)	$	17		$	(1,749	)
Investing activities	(73		)	(20		)	(14		)	(2		)
Financing activities	418			(391		)	(116		)	574
Effect of exchange rate changes on cash	(61		)	94			48			45
Net change in cash and cash equivalents	$	(2,488	)	$	(1,382	)	$	(65	)	$	(1,132	)

Operating activities

Net cash provided by operating activities was $17,000 for the three months ended March 31, 2019 compared to net cash used in operating activities ~~was $2.8 million for the six months ended June 30, 2018 compared to $1.1~~of $1.7 million for the corresponding ~~2017~~2018 period. The operating cash flows for the 2019 period were favorably impacted by the change in receivables, offset by unfavorable changes in contract assets, deferred income and customer deposits, and accrued compensation. The operating cash flows for the 2018 period were ~~unfavorably~~favorably impacted by ~~the change in accounts payable and other accrued liabilities. The change in operating cash flows period over period was unfavorably impacted by the~~ changes in ~~receivables and accounts payable and other accrued liabilities, partially offset by the change in deferred revenue.~~receivables.

Investing activities

Net cash used in investing activities for the purchases of property and equipment totaled ~~$73,000~~$14,000 for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 compared to ~~$20,000~~$2,000 used also for the purchases of property and equipment in the corresponding ~~2017~~2018 period.

Financing activities

Financing activities used net cash of $116,000 for the three months ended March 31, 2019 and provided net cash of ~~$418,000 for the six months ended June 30, 2018 and used net cash of $391,000~~$574,000 in the comparable ~~2017~~2018 period. Primarily impacting the current period use of cash were principal payments of $80,000 on finance leases and other financing obligations. Primarily impacting the 2018 period provision of cash ~~was~~were the cash proceeds from the Company's refinancing of its $10.0 million term loan in January 2018, offset by ~~principal payments on capital leases and other financing obligations of $247,000, a~~the principal payment on the Hale term loan of $8.0 million and a debt prepayment fee of $800,000.

In October 2010, the Company’s Board of Directors approved a common stock repurchase program of up to 3,500,000 shares. Shares may be purchased at prevailing market prices in the open market or in private transactions, subject to market conditions, share price, trading volume and other factors. The repurchase program has been funded to date using cash on hand and may be discontinued at any time. The Company did not repurchase any shares of its common stock under the repurchase program during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018. As of ~~June 30, 2018,~~March 31, 2019, the Company had 778,365 shares available for repurchase under the authorizations. While the current authorization remains in effect, the Company expects its primary use of cash will be to fund operations in support of the Company’s goals for revenue growth and operating margin improvement. Under the credit agreement, the Company is prohibited from repurchasing or redeeming its stock, subject to certain exceptions relating to the exercise or vesting of equity awards.

The Company did not declare or pay any dividends during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018. Under the credit agreement, the Company is prohibited from declaring or paying any dividends.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties. The Company's actual results could differ significantly from those discussed in the forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, the following, as well as other factors not now identified: the markets for video content and software to manage video content are each in early stages of development, and if these markets do not develop or develop more slowly than we expect, our revenues may decline or fail to grow; if we are unable to attract new customers, retain existing customers and sell additional products and services to our existing and new customers, our revenue growth and profitability will be adversely affected and we may violate our covenants under the ESW Holdings credit agreement; we will need additional capital to fund repayment of our term loan due in January

2020 and any additional capital we seek may not be available in the amount or at the time we need it; we have a history of losses and while our goal is to become cash flow breakeven in the ~~fourth~~third quarter of ~~2018,~~2019, we may not achieve that goal or achieve or sustain cash flows or profitability in the future; ~~if we are unable to retain our existing customers, our revenue and results of operations will be adversely affected;~~ we encounter long sales cycles with our Qumu enterprise video solutions, which could adversely affect our operating results in

a given period; to compete effectively, we must continually improve existing products and introduce new products that achieve market acceptance; we face intense competition and such competition may result in price reductions, lower gross profits and loss of market share; ~~adverse~~ economic and market conditions, particularly those affecting our customers, have harmed and may continue to harm our business; our sales will decline, and our business will be materially harmed, if our sales and marketing efforts are not effective; competition for highly skilled personnel is intense and if we fail to attract and retain talented employees, we may fail to compete effectively; our enterprise video content management software products must be successfully integrated into our customers’ information technology environments and workflows and changes to these environments, workflows or unforeseen combinations of technologies may harm our customers’ experience in using our software products; the growth and functionality of our enterprise video content management software products depend upon the solution’s effective operation with mobile operating systems and computer networks; any failure of major elements of our products could lead to significant disruptions in the ability to serve customers, which could damage our reputation, reduce our revenues or otherwise harm our business; if we lose access to third-party licenses, our software product development and production may be delayed or we may incur additional expense to modify our products or products in development; if the limited amount of open source software that is incorporated into our products were to become unavailable or if we violate the terms of open source licenses, it could adversely affect sales of our products, which could disrupt our business and harm our financial results; we sell a significant portion of our products internationally, which exposes us to risks associated with international operations; if our domestic or international intellectual property rights are not adequately protected, others may offer products similar to ours or independently develop the same or similar technologies or otherwise obtain access to our technology and trade secrets which could depress our product selling prices and gross profit or result in loss of market share; changes in laws and regulations related to the internet or changes in the internet infrastructure itself may diminish the demand for our products, and could have a negative impact on our business; expanding laws, regulations and customer requirements relating to data security and privacy may adversely affect sales of our products and result in increased compliance costs; we may face circumstances in the future that could result in impairment charges, including, but not limited to, significant goodwill impairment charges; we may experience significant quarterly and annual fluctuations in our results of operations due to a number of factors and these fluctuations may negatively impact the market price of our common stock; the limited liquidity for our common stock could affect your ability to sell your shares at a satisfactory price; and provisions of Minnesota law, our bylaws and other agreements may deter a change of control of our company and may have a possible negative effect on our stock price. These forward-looking statements are made as of the date of this report and the Company assumes no obligation to update such forward-looking statements, or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~Foreign Currency Translation.~~As ~~of June 30, 2018,~~a smaller reporting company, the Company is ~~exposed~~not required to market risk primarily from foreign exchange rate fluctuations of the British Pound Sterling and Japanese Yen to the U.S. Dollar as the financial position and operating results of the Company’s foreign subsidiaries are translated into U.S. dollars for consolidation. Resulting translation adjustments are recorded as a separate component of stockholders’ equity.

~~Interest Rates.~~ The Company's term loan requires payment of interest monthly at the prime rate plus 4% and changes in interest rates would impact the Company's monthly interest payment and cash reserves. A 100-basis point increase in the prime rate would increase our annual pre-tax interest expense by approximately $40,000.provide information typically disclosed under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer, Vernon J. Hanzlik, and the Company’s Chief Financial Officer, David G. Ristow, have evaluated the Company’s disclosure controls and procedures as of ~~June 30, 2018.~~March 31, 2019. Based upon such evaluation, they have concluded that these disclosure controls and procedures are effective. The Company’s Chief Executive Officer and Chief Financial Officer used the definition of “disclosure controls and procedures” as set forth in Rule 13a-15(e) under the Exchange Act in making their conclusion as to the effectiveness of such controls and procedures.

Changes in Internal Control Over Financial Reporting

NoDuring the fiscal quarter ended March 31, 2019, we implemented internal controls for the new lease accounting standard, but no changes in internal controls over financial reporting have occurred during the quarter ended ~~June 30, 2018~~March 31, 2019 that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Not Applicable.

Item 1A. Risk Factors

Not Applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

In October 2010, the Company’s Board of Directors approved a common stock repurchase program of up to 3,500,000 shares of the Company’s common stock. Shares may be purchased at prevailing market prices in the open market or in private transactions, subject to market conditions, share price, trading volume and other factors. The repurchase program may be discontinued at any time. The repurchase program has been funded to date using cash on hand. During the three months ended ~~June 30, 2018,~~March 31, 2019, no repurchases were made under the repurchase program. While the current authorization remains in effect, the Company expects its primary use of cash will be to fund operations in support of the Company’s goals for revenue growth and operating margin improvement. Under the credit agreement with ESW Holdings, the Company is prohibited from repurchasing or redeeming its stock, subject to certain exceptions relating to the exercise or vesting of equity awards.

In addition to shares that may be purchased under the Board authorization, the Company purchases shares of common stock held by employees who wish to tender owned shares to satisfy the exercise price or tax withholding on stock option exercises or vesting of restricted awards and performance stock units. ~~All of the~~No share repurchase activity ~~included in~~occurred for the ~~table below for~~ three months ended ~~June 30, 2018 was associated with~~March 31, 2019 for the satisfaction of employee tax withholding requirements on the vesting of restricted stock awards and performance stock units.

Information on the Company’s repurchases of its common stock during each month of the quarter ended ~~June 30, 2018~~March 31, 2019 is as follows:

Monthly Period
Total Number of
Shares Purchased

Average Price
Paid per Share
Total Number of Shares Purchased as part of Publicly Announced Plans or Programs Maximum Number of Shares that may yet be Purchased under the Plans or Programs (at end of period)
April 2018 — $— — 778,365
May 2018 3,644 $2.27 — 778,365
June 2018 — $— — 778,365



Monthly Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as part of Publicly Announced Plans or Programs	Maximum Number of Shares that may yet be Purchased under the Plans or Programs (at end of period)
January 2019	—	$—	—	778,365
February 2019	357	$2.19	—	778,365
March 2019	14,534	$2.40	—	778,365

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

~~None.~~On January 18, 2019, Qumu Corporation (the “Company”) entered into an amendment to its building lease with Butler North, LLC (“landlord”) under which the Company and the landlord have agreed to exclude effective March 1, 2019 approximately 3,481 rentable square feet from the Company's leased premises in its headquarters located at 510 1st Avenue North, Minneapolis, Minnesota.

The foregoing summary of the amendment does not purport to be complete and is subject to and qualified in its entirety by reference to the amendment attached hereto as Exhibit 10.1 and incorporated herein by reference.

Item 6. Exhibits


(a)	The following exhibits are included herein:

10.1 Amendment No. 3 dated January 18, 2019 to Building Lease dated March 5, 2015 by and between Qumu Corporation, as Tenant, and Butler North, LLC, as Landlord.

31.1 Certificate of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act.

31.2 Certificate of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act.

32 Certifications pursuant to 18 U.S.C. §1350.

SIGNATURES

In accordance with the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.



			QUMU CORPORATION
			Registrant

Date:	~~August~~May 7, ~~2018~~2019	By:	/s/ Vernon J. Hanzlik
			Vernon J. Hanzlik
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	~~August~~May 7, ~~2018~~2019	By:	/s/ David G. Ristow
			David G. Ristow
			Chief Financial Officer
			(Principal Financial Officer)
			(Principal Accounting Officer)

3128



	December 31, 2017			Adjustments			January 1, 2018
Assets:
Contract assets	$	—		$	550		$	550
Prepaid expenses and other current assets	1,830			(99		)	1,731
Other assets, non-current	4,398			(10		)	4,388
Liabilities:
Deferred revenue	8,923			(493		)	8,430
Deferred revenue, non-current	141			—			141
Stockholders’ equity:
Accumulated deficit	(56,197		)	939			(55,258		)
Accumulated other comprehensive loss	(2,740		)	(5		)	(2,745		)



	Three Months Ended June 30, 2018								Six Months Ended June 30, 2018
	As reported under Topic 606			Adjustments		Balances without adoption of Topic 606			As reported under Topic 606			Adjustments		Balances without adoption of Topic 606
Revenues	$	7,626		$	240	$	7,866		$	12,457		$	424	$	12,881
Cost of revenues	2,406			10		2,416			4,518			18		4,536
Sales and marketing	2,412			14		2,426			4,592			38		4,630
Net loss	(1,531		)	216		(1,315		)	(6,061		)	368		(5,693		)
Net change in foreign currency translation adjustments	(769		)	14		(755		)	(146		)	10		(136		)
Total comprehensive loss	(2,300		)	230		(2,070		)	(6,207		)	378		(5,829		)



	June 30, 2018			December 31, 2017
Computer and network equipment	$	511		$	511
Furniture	287			287
Assets acquired under capital lease obligations	798			798
Accumulated depreciation	(705		)	(613		)
Assets acquired under capital lease obligations, net	$	93		$	185



	Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
	London, England			Minneapolis, Minnesota			Total			London, England			Minneapolis, Minnesota			Total
Contract termination obligation, beginning of period	$	149		$	—		$	149		$	194		$	—		$	194
Lease termination costs incurred	—			224			224			—			224			224
Accretion expense	4			4			8			9			4			13
Payments on obligations	(50		)	(14		)	(64		)	(100		)	(14		)	(114		)
Contract termination obligation, end of period	$	103		$	214		$	317		$	103		$	214		$	317



Balance at December 31, 2017	$	819
Addition of warrant liability	2,176
Change in fair value	(109		)
Balance at June 30, 2018	$	2,886