What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2021-05-21 compared with 2020-05-22 · 118 added, 283 removed, 292 unchanged (58% of the section changed)

4 unchanged sentences

We did not pay dividends in fiscal 2021 or 2020 on our common stock and are unlikely to do so in the foreseeable future.

We pay preferred stock dividends as described in Note 14, Preferred Stock , to our Consolidated Financial Statements under Item 8 of this Annual Report.

The current policy of the Board of Directors is to retain any available earnings for use in the operations of our business.

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This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or incorporated by reference into any of our filings under the Securities Act of 1933, as amended, of the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Selected Financial Data.

The following selected consolidated financial and operating data was derived from our audited consolidated financial statements.

The selected financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto, and Item 7 contained in Part II of this Annual Report.

Year ended March 31,

(In thousands, except per share data)

Operating results

Operating loss

Operating loss, net of taxes

Per share data (1)

Basic and diluted

Weighted-average shares outstanding - basic and diluted

Balance sheet data at year end

Cash and cash equivalents

Working capital

Total shareholders’ equity

When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards because doing so would be anti-dilutive.

In addition, when a loss from continuing operations is reported, adjusting the denominator of diluted earnings per share would also be anti-dilutive to the loss per share, even if the entity has net income after adjusting for a discontinued operation.

Therefore, for all periods presented, basic weighted-average shares outstanding were used in calculating the diluted net loss per share.

Managements’ Discussion and Analysis of Financial Condition and Results of Operations.

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COVID-19 Pandemic

During the fourth quarter ended March 31, 2020, concerns related to the spread of COVID-19 began to create global business disruptions as well as disruptions in our operations and to cause negative impacts on our revenues and other financial results.

COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020.

The extent to which COVID-19 will impact our financial condition or results of operations is currently uncertain and depends on various factors, including the impact on our customers, partners, and vendors and on the operation of the global markets in general.

The World Health Organization declared COVID-19 a pandemic on March 11, 2020.

COVID-19 has had a significant impact on our business during the year ended March 31, 2021.

The extent to which COVID-19 will continue impacting our financial condition and results of operations remains uncertain and depends on various factors, including the ongoing or recurring impact on our customers, partners, and vendors and on the operation of the global markets in general.

Because an increasing portion of our business is based on a subscription model, the effect of COVID-19 on our results of operations may also not be fully reflected for some time.

We have taken actions to mitigate the impact on our business.

We are currently conducting business with substantial modifications to employee travel, employee work locations, virtualization or cancellation of customer and employee events, and remote sales, implementation, and support activities, among other modifications.

These modifications may delay or reduce sales and harm productivity and collaboration.

We have observed other organizations making similar alterations to their normal business operations, including restrictions imposed by our customers on our ability to access their sites for implementations and support.

The pandemic could have an adverse impact on demand for our customers’ products and services, which in turn could negatively impact the willingness of our customers to enter into or renew contracts with us.

The pandemic has impacted our ability to complete certain implementations, negatively impacting our ability to recognize revenue, and could also negatively impact the payment of accounts receivable and collections.

In addition, during the first quarter of our fiscal 2021, we have reduced discretionary costs, implemented a hiring freeze on non-essential positions and reduced payroll and related costs through layoffs, employee furloughs, employee retirement benefit limitations, and salary decreases for executive team members and certain other employees of the Company.

We may take further actions that alter our business operations as the situation evolves.

We continue to conduct business with substantial modifications to employee travel, employee work locations, virtualization or cancellation of customer and employee events, and remote sales, implementation, and support activities, among other modifications.

These modifications may continue to delay or reduce sales and harm productivity and collaboration.

The pandemic could have an ongoing adverse impact on demand for our customers’ products and services, which in turn could continue to negatively impact the willingness of our customers to enter into or renew contracts with us.

The pandemic has impacted our ability to complete certain implementations, negatively impacting our ability to recognize revenue, and could also negatively impact the ongoing collection of accounts receivable from our customers.

During our fiscal 2021, we reduced discretionary costs through actions including hiring freezes on non-essential positions, layoffs, employee furloughs, employee retirement benefit limitations, and salary decreases for executive team members and certain other employees of the Company.

While we have eased certain cost reduction measures recently, we may take further actions that alter our business operations as the situation continues to evolve.

As a result, the ultimate impact of the COVID-19 pandemic and the effects of the operational alterations we have made in response on our business, financial condition, liquidity, and financial results cannot be predicted at this time.

Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative guest-centric technology solutions for casinos, hotels, resorts, cruise ships, managed foodservice providers, sports and entertainment, and healthcare.

Agilysys offers the most comprehensive software solutions in the industry, including point-of-sale (POS), property management (PMS), inventory and procurement, payment solutions, and related hospitality applications, to manage the entire guest journey.

Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative cloud-native SaaS and on-premise guest-centric technology solutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadia and healthcare.

Agilysys offers the most comprehensive software solutions in the industry, including point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications, to manage the entire guest journey.

Agilysys is known for its leadership in hospitality, its broad product offerings and its customer-centric service.

Some of the largest hospitality companies around the world use Agilysys solutions to help improve guest loyalty, drive revenue growth, increase operational efficiencies and support social distancing.

Some of the largest hospitality companies around the world use Agilysys solutions to help improve guest loyalty, drive revenue growth and increase operational efficiencies.

The Company has just one reportable segment serving the global hospitality industry.

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Our top priority is increasing shareholder value by improving operating and financial performance and profitably growing the business through superior products and services.

To that end, we expect to invest a certain portion of our cash on hand to fund enhancements to existing software products, to develop and market new software products, and to expand our customer breadth, both vertically and geographically.

To that end, we expect to invest a certain portion of our cash on hand to fund enhancements to

existing software products, to develop and market new software products, and to expand our customer breadth, both vertically and geographically.

Our strategic plan specifically focuses on:

Putting the customer first

Accelerating our product development

Focusing on product innovation and development

Improving our liquidity

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Developing our employees and leaders

Growing revenue by improving the breadth and depth of our product set across both our well-established products and our newer rGuest platform

Growing revenue by improving the breadth and depth of our product set across both point-of-sale and property management applications

Growing revenue through international expansion

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Amortization of intangibles

Restructuring, severance and other charges

Severance and other charges, net

Legal settlements, net

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Amortization of intangibles

Restructuring, severance and other charges

Severance and other charges, net

Legal settlements, net

Operating loss

Total revenue increased $19.9 million, or 14.1%, in fiscal 2020 compared to fiscal 2019.

Products revenue increased $5.2 million, or 13.4%, due to increased sales in third-party hardware sales including new customers and expansion with existing customers.

Support, maintenance and subscription services revenue increased $8.2 million, or 10.8%, driven by continued growth in subscription-based service revenue, which increased 24.3% in fiscal 2020 compared to fiscal 2019.

Professional services revenue increased $6.5 million, or 24.7%, due to ongoing installations and integration of our software solutions for our growing customer base.

Total revenue decreased $23.6 million, or 14.7%, in fiscal 2021 compared to fiscal 2020.

Products revenue decreased $17.5 million, or 39.6%, due to delayed customer purchasing decisions as the timing of the hospitality recovery from the COVID-19 pandemic remains unclear.

Support, maintenance and subscription services revenue increased $4.9 million, or 5.8%, driven by continued growth in subscription-based revenue, which increased 15.5% in fiscal 2021 compared to fiscal 2020.

Subscription revenue sales were led by our add on software modules, including modules enabling social distancing and contactless capabilities.

Professional services revenue decreased $11.0 million, or 33.3%, due to delays in implementation services due to customer property restrictions, property closures and lower sales from delayed customer purchasing decisions as the timing of the hospitality recovery from the COVID-19 pandemic remains unclear.

Gross profit and gross profit margin.

Our total gross profit increased $7.1 million, or 9.6%, in fiscal 2020 and total gross profit margin decreased from 52.5% to 50.4%.

Products gross profit increased $0.6 million and gross profit margin decreased slightly from 18.4% to 17.6% due to a higher mix of third party hardware and software and due to certain allowances established against revenues earned in March 2020 related to products that have been or could be returned from customer locations closed in response to COVID-19 guidelines.

Support, maintenance and subscription services gross profit increased $4.8 million and gross profit margin decreased 195 basis points to 77.0% due to increased costs associated with hosting our customers.

Professional services gross profit increased $1.6 million and gross profit margin decreased slightly from 26.9% to 26.5% after we established allowances against revenues earned in March 2020 due to uncertainties related to COVID-19 conditions.

Our total gross profit increased $8.4 million, or 10.4%, in fiscal 2021 and total gross profit margin increased from 50.4% to 65.2%.

Products gross profit increased $5.4 million and gross profit margin increased from 17.6% to 49.4% driven mostly by the absence of software development cost amortization during fiscal 2021.

Support, maintenance and subscription services gross profit increased $6.1 million and gross profit margin increased 269 basis points to 79.7% due to increased subscription revenue on a relatively flat cost base.

Professional services gross profit decreased $3.1 million and gross profit margin decreased slightly from 26.5% to 25.5% due to the delay in professional service projects and the fixed costs of maintaining a minimum required professional services team as customers continued to work towards re-opening their locations and accept implementations and installations.

Operating expenses

Operating expenses, excluding the charges for legal settlements, impairments and restructuring, severance and other charges, increased $5.2 million, or 6.0%, in fiscal 2020 compared with fiscal 2019.

As a percent of total revenue, operating expenses have decreased 4.3% in fiscal 2020 compared with fiscal 2019.

Operating expenses, excluding the charges for legal settlements, impairments, severance and other charges, increased $16.8 million, or 18.5%, in fiscal 2021 compared with fiscal 2020.

As a percent of total revenue, operating expenses have increased 22.0% in fiscal 2021 compared with fiscal 2020.

Product development.

Product development includes all expenses associated with research and development.

Product development increased $3.6 million, or 9.6%, during fiscal 2020 as compared to fiscal 2019 primarily due to the reduction of cost capitalization.

The products in our rGuest platform for which we had capitalized costs reached general availability by the beginning of the second quarter of fiscal 2019.

These products joined our well-established products with the application of agile development practices in a more dynamic development process that involves higher frequency releases of product features and functions.

We capitalized $2.0 million of external use software development costs, and $0.3 million of internal use software development costs during fiscal 2019, with the full balance capitalized in Q1 fiscal 2019.

We did not capitalize any costs associated with product development during fiscal 2020.

Total product development costs, including operating expenses and capitalized amounts, were $41.5 million during fiscal 2020 compared to $40.1 million in fiscal 2019.

The $1.4 million increase is mostly due to continued expansion of our R&D teams and infrastructure.

Product development increased $13.9 million, or 33.5%, during fiscal 2021 as compared to fiscal 2020 due to the continued expansion of our R&D teams and significant share-based compensation charges resulting from the accelerated vesting of stock-settled appreciation rights (SSARs) upon their market condition satisfaction in February 2021.

Sales and marketing.

Sales and marke ting in creased $ 0.

2 million, or 1 .

1 %, in fiscal 20 20 compared with fiscal 20 19 .

The change is due primarily to an increase in our allowance for doubtful accounts due to an increase collection risk of our accounts receivable as of March 31, 2020 as a result of the negative impacts of the COVID-19 pandemic on the operations of our customers , partially offset by a decrease in costs associated with our annual bonus incentive plan that has declined in value due to a significant decrease in target achievements af ter reduced fourth quarter revenue activity with concentration in March 2020 .

Sales and marketing de creased $ 5.7 million, or 28.5 %, in fiscal 20 2 1 compared with fiscal 20 20 due to reduced commission expense as a result of lower sales levels, significantly reduced travel, layoffs, temporary reductions in employee benefits, and the absence of in-person trade shows and conference activity .

The decrease was slightly offset by an increase in stock-based compensation charges resulting from the accelerated vesting of SSARs .

General and administrative.

General and administrative increased $9.0 million, or 37.0%, in fiscal 2021 compared to fiscal 2020.

The change is due primarily to software investments in third-party applications to host our network and infrastructure.

The change is due primarily to significant share-based compensation charges resulting from the accelerated vesting of SSARs.

Depreciation of fixed assets.

Depreciation of fixed assets increased $0.1 million or 2.8% in fiscal 2020 as compared to fiscal 2019.

Depreciation of fixed assets increased $0.3 million or 10.0% in fiscal 2021 as compared to fiscal 2020 due to an increased level of assets with shorter useful lives.

Amortization of intangibles.

Amortization of intangibles remained consistent in fiscal 2020 as compared to fiscal 2019.

Impairments totaled $23.7 million in fiscal 2020.

Amortization of intangibles decreased $0.6 million or 22.9% in fiscal 2021 as compared to fiscal 2020 due to a lower unamortized cost base following the impairment of intangibles in fiscal 2020.

There were no impairments in fiscal 2021.

The impairments result from specific capitalized software development costs supporting our rGuest solutions.

The impact of the COVID-19 pandemic on the hospitality industry resulted in economic conditions which make it difficult to project future sales and revenue accurately for the related rGuest solutions.

Impairments totaled $23.7 million in fiscal 2020.

The impairments resulted from specific capitalized software development costs supporting certain software applications.

The impact of the COVID-19 pandemic on the hospitality industry resulted in economic conditions which made it difficult to project future sales and revenue accurately for the impacted solutions at the time of impairment determination.

After evaluating the Company’s strategy for market development and continued costs to support the software, an impairment charge was required.

We have recorded impairment charges to reduce the net realizable value of the related assets to zero.

Restructuring, severance and other charges.

Restructuring, severance, and other charges decreased $0.6 million due to a reduction in non-restructuring severance activity during fiscal 2020 compared to fiscal 2019.

We recorded impairment charges to reduce the net realizable value of the related assets to zero during the 2020 fiscal year.

Severance and other charges.

Severance and other charges increased $1.9 million due to an increase in non-restructuring severance activity during fiscal 2021 compared to fiscal 2020.

Legal settlements.

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Other expense, net

Total other (income), net

Total other expense (income), net

nm – not meaningful

Interest income.

Interest income consists of interest earned on short-term investments in certificates of deposit, commercial paper, money market funds and corporate-owned life insurance policies.

Interest income consists of interest earned on short-term investments in certificates of deposit, commercial paper, money market funds, corporate-owned life insurance policies and interest-bearing bank accounts.

Interest expense.

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(Dollars in thousands)

Income tax expense

Income tax expense (benefit)

Effective tax rate

For fiscal 2020, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, state taxes and other U.S.

permanent book to tax differences.

For fiscal 2021, the effective tax rate was different than the statutory rate due primarily to adjustments to deferred tax assets including increases in valuation allowances that reduce deferred tax assets and to the recording of net operating losses in a number of foreign jurisdictions offset by current year expense in other foreign jurisdictions.

Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months an immaterial reduction in unrecognized tax benefits may occur as a result of the expiration of various statutes of limitations.

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Because of our losses in prior periods, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets.

The ultimate realization of deferred tax assets depends on the gener ation of future taxable income during the periods in which those temporary differences are deductible.

Because of our losses in prior periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible dif ferences.

The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible.

Because of our losses in prior periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences.

At March 31, 2021, we had $199.1 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2031 to 2038, and $46.8 million of federal net operating loss carryforwards that can be carried forward indefinitely.

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Amortization of intangibles

Restructuring, severance and other charges

Severance and other charges, net

Legal settlements, net

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Amortization of intangibles

Restructuring, severance and other charges

Severance and other charges, net

Legal settlements, net

1 unchanged sentence

Total revenue increased $19.9 million, or 14.1%, in fiscal 2020 compared to fiscal 2019.

Products revenue increased $5.3 million or 15.7%, due to growth in third-party hardware sales and in on premise software sales, which grew more than 20% compared to the prior year.

Support, maintenance and subscription services revenue increased $6.4 million, or 9.3%, driven by growth in customers using our on premise software products that require the payment of support and maintenance along with continued increases in subscription based revenue, which increased 23.5% in fiscal 2019 compared to fiscal 2018.

Subscription based revenue comprised 17.7% of total consolidated revenues in 2019 compared to 15.8% in 2018.

Professional services revenue increased $1.8 million, or 7.1%, as a result of growth in our customer based including installations of our traditional on premise and subscription based software solutions and increased responses to customer service requests.

Products revenue increased $5.2 million, or 13.4%, due to increased sales in third-party hardware sales including new customers and expansion with existing customers.

Professional services revenue increased $6.5 million, or 24.7%, due to ongoing installations and integration of our software solutions for our growing customer base.

Gross profit and gross profit margin.

Our total gross profit increased $9.5 million, or 14.7%, in fiscal 2019 and total gross margin increased from 50.6% to 52.5%.

Products gross profit decreased $0.1 million and gross profit margin decreased 3.3% to 18.4% primarily as a result of increased developed technology amortization.

Support, maintenance and subscription services gross profit increased $7.2 million and gross profit margin increased 310 basis points to 78.9% due to the scalable nature of our infrastructure supporting and hosting customers.

Professional services gross profit increased $2.4 million and gross profit margin increased 7.7% to 26.9% due to increased revenue with lower costs from the restructuring of our professional services workforce during the first quarter of 2018 into a more efficient operating structure with limited use of contract labor.

Our total gross profit increased $7.1 million, or 9.6%, in fiscal 2020 and total gross profit margin decreased from 52.5% to 50.4%.

Operating expenses

Operating expenses, excluding legal settlements and restructuring, severance and other charges, increased $11.1 million, or 14.9%, in fiscal 2019 compared with fiscal 2018.

As a percent of total revenue, operating expenses have increased 2.3% in fiscal 2019 compared with fiscal 2018.

Operating expenses, excluding the charges for legal settlements, impairments and restructuring, severance and other charges, increased $5.2 million, or 6.0%, in fiscal 2020 compared with fiscal 2019.

As a percent of total revenue, operating expenses have decreased 4.3% in fiscal 2020 compared with fiscal 2019.

Product development.

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Product development increased $3.6 million, or 9.6%, during fiscal 2020 as compared to fiscal 2019 primarily due to the reduction of cost capitalization.

The products in our rGuest platform for which we had capitalized costs reached general availability by the beginning of the second quarter of fiscal 2019.

These products join our well-established products with the application of agile development practices in a more dynamic development process that involves higher frequency releases of products features and functions.

Certain software applications for which we had capitalized costs reached general availability by the beginning of the second quarter of fiscal 2019.

We capitalized approximately $8.9 million in total development costs during fiscal 2018.

Total product development costs, including operating expenses and capitalized amount, were $40.1 million during fiscal 2019 compared to $38.4 million in fiscal 2018.

The $1.7 million increase is mostly due to continued expansion of our R&D teams and increased compensation expense as a result of bonus earnings.

We did not capitalize any costs associated with product development during fiscal 2020.

Total product development costs, including operating expenses and capitalized amounts, were $41.5 million during fiscal 2020 compared to $40.1 million in fiscal 2019.

The $1.4 million increase is mostly due to continued expansion of our R&D teams and infrastructure.

Sales and marketing.

Sales and marketing in creased $ 1.6 million, or 8.7 %, in fiscal 20 19 compared with fiscal 20 18 .

The change is due primarily to a n in crease of $ 1.6 million in incentive compensation related to an increase in sales, revenue and profitability during fiscal 2019.

Sales and marketing increased $0.2 million, or 1.1%, in fiscal 2020 compared with fiscal 2019.

The change is due primarily to an increase in our allowance for doubtful accounts due to an increase collection risk of our accounts receivable as of March 31, 2020 as a result of the negative impacts of the COVID-19 pandemic on the operations of our customers, partially offset by a decrease in costs associated with our annual bonus incentive plan that has declined in value due to a significant decrease in target achievements after reduced fourth quarter revenue activity with concentration in March 2020.

General and administrative.

General and administrative decreased $0.9 million, or 3.8%, in fiscal 2019 compared to fiscal 2018.

The change is due primarily to reduced outside professional costs for legal and accounting services.

General and administrative increased $1.3 million, or 5.4%, in fiscal 2020 compared to fiscal 2019.

The change is due primarily to software investments in third-party applications to host our network and infrastructure.

Depreciation of fixed assets.

Depreciation of fixed assets decreased $0.1 million or 5.0% in fiscal 2019 as compared to fiscal 2018.

Depreciation of fixed assets increased $0.1 million or 2.8% in fiscal 2020 as compared to fiscal 2019.

Amortization of intangibles.

Amortization of intangibles increased $0.7 million, or 36.6%, in fiscal 2019 as compared to fiscal 2018 due to our remaining rGuest suite of products being placed into service on June 30, 2018.

Restructuring, severance and other charges.

Restructuring, severance, and other charges decreased $1.8 million due to non-recurring 2018 restructuring activities while charges for non-restructuring severance increased $1.2 million, resulting in a net decrease of $0.6 million during fiscal 2019.

Legal settlements.

Amortization of intangibles remained consistent in fiscal 2020 as compared to fiscal 2019.

Impairments totaled $23.7 million in fiscal 2020.

There were no impairments in fiscal 2019.

The impairments result from specific capitalized software development costs supporting certain software applications.

The impact of the COVID-19 pandemic on the hospitality industry resulted in economic conditions which make it difficult to project future sales and revenue accurately for the impacted solutions.

After evaluating the Company’s strategy for market development and continued costs to support the software, an impairment charge was required.

We have recorded impairment charges to reduce the net realizable value of the related assets to zero.

Severance and other charges.

Severance, and other charges decreased $0.6 million due to a reduction in non-restructuring severance activity during fiscal 2020 compared to fiscal 2019.

Legal settlements, net.

Legal settlements consist of settlements of employment and other business-related matters.

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Interest expense

Other expense (income), net

Other expense, net

Total other (income), net

1 unchanged sentence

Interest income.

Interest income consists of interest earned on short-term investments in certificates of deposit, commercial paper, corporate bonds and corporate-owned life insurance policies.

Interest income consists of interest earned on short-term investments in certificates of deposit, commercial paper, money market funds and corporate-owned life insurance policies.

Interest expense.

Interest expense consists of costs associated with finance leases.

Other (income) expense, net.

Other (income) expense, net consists mainly of the impact of foreign currency due to movement of European and Asian currencies against the US dollar.

Other expense, net.

Other expense, net consists mainly of the impact of foreign currency due to movement of European and Asian currencies against the US dollar.

Year ended March 31,

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(Dollars in thousands)

Income tax expense (benefit)

Income tax expense

Effective tax rate

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For fiscal 2019, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, certain foreign and state taxes and other U.S.

permanent book to tax differences.

The 2018 tax provision results primarily from a reduction in the deferred rate and the ability to offset indefinite lived deferred tax liabilities with certain deferred tax assets due to the passage of the Tax Cuts and Jobs Act ("Tax Act").

The 2018 effective tax rate was different than the statutory rate due primarily to the impact of the Tax Act, recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, certain foreign and state tax effects including a benefit of $0.4 million related to a settlement with the California Franchise Tax Board and other U.S.

permanent book to tax differences.

Although the timing and outc ome of tax settlements are uncertain, it is reasonably possible that during the next 12 months an immaterial reduction in unrecognized tax benefits may occur based on the outcome of tax examinations and as a result of the expiration of various statutes of limitations.

We are routinely audited;

due to the ongoing nature of current examinations in multiple jurisdictions, other changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.

We are consistently subject to tax audits;

due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.

Because of our losses in prior periods, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets.

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Because of our losses in prior periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences.

At March 31, 2019, we had $210.6 million of federal net operating loss carryforwards of which $199.1 million will expire, if unused, in fiscal years 2031 to 2038.

At March 31, 2020, we had $199.1 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2031 to 2038, and $24.7 million of federal net operating loss carryforwards that can be carried forward indefinitely.

We also had $141.6 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2021 through 2040.

Liquidity and Capital Resources

Our operating cash requirements consist primarily of working capital needs, operating expenses, capital expenditures, and payments of principal and interest on indebtedness outstanding, which primarily consists of lease and rental obligations at March 31, 2020.

Our cash requirements consist primarily of working capital needs, capital expenditures, payments of preferred stock dividends, and operating expenses including payments of lease obligations.

At March 31, 2021, all $99.2 million of our cash on hand was deposited in bank accounts, of which 96% are located in the United States.

We believe there is limited credit risk with respect to our cash balances.

While we expect the COVID-19 pandemic will have a significant adverse impact on our results of operations, we cannot presently estimate its financial impact, which we expect will be highly dependent on the severity and duration of the pandemic.

As such, due to the uncertainties associated with the COVID-19 pandemic and the indeterminate length of time it will affect the hospitality industry, we have taken certain proactive measures to secure our liquidity position to be able to meet our requirements for the foreseeable future.

These measures have included implementing strict cost management measures, such as temporarily halting marketing programs, temporarily eliminating non-essential expenses, including capital expenditures and reducing payroll and related costs through layoffs and furloughs as well as salary and retirement benefit reductions.

In addition, we recently entered into an agreement to sell to MAK Capital One, LLC (“MAK Capital”) $35 million of convertible preferred stock carrying a 5.25% dividend that will be convertible into shares of the Company’s common stock at a price of $20.1676 per share.

The transaction is subject to customary closing conditions and is anticipated to close during May 2020.

The close of the transaction will add $35 million in preferred stock to the Company’s balance sheet and increase our cash balance by the $35 million investment less estimated closing costs of approximately $1 million.

We believe that cash flow from operating activities, cash on hand of $46.7 million as of March 31, 2020, the additional $34 million in net proceeds from the preferred stock sales and access to capital markets will provide adequate funds to meet our short-and long-term liquidity requirements.

While the COVID-19 pandemic has had a significant adverse impact on our results of operations during our entire fiscal 2021, we cannot presently estimate its ongoing financial impact, which will be highly dependent on the severity and duration of the pandemic.

As such, due to the ongoing uncertainties associated with the COVID-19 pandemic and the indeterminate length of time it will affect the hospitality industry, we have maintained certain proactive measures to secure our liquidity position to be able to meet our requirements for the foreseeable future.

These measures have included strict cost management actions, such as halting and altering our marketing programs, eliminating non-essential expenses including capital expenditures and reducing payroll and related costs through layoffs and furloughs as well as salary and retirement benefit reductions.

We believe that cash flow from operating activities, cash on hand of $99.2 million as of March 31, 2021, and access to capital markets will provide adequate funds to meet our short-and long-term liquidity requirements.

As of March 31, 2021 and March 31, 2020, our total debt was approximately $0.1 million, comprised of finance lease obligations in both periods.

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Effect of exchange rate changes on cash

Cash flows provided by (used in) operations

Increase in cash

Cash flow provided by operating activities.

Cash flows provided by operating activities were $28.4 million in fiscal 2021.

The provision of cash was due primarily to our operating loss of $34.1 million adjusted for $46.2 million in non-cash expense including impairment charges, depreciation, amortization, and share based compensation and a decrease of approximately $1.5 million in net operating assets and liabilities.

The provision of cash was due primarily to our operating loss of $21.0 million adjusted for $44.0 million in non-cash expense including depreciation, amortization, and share-based compensation and an increase of approximately $5.4 million from the changes in operating assets and liabilities.

Cash flows provided by operating activities were $10.6 million in fiscal 2020.

The provision of cash was due primarily to our operating loss of $13.2 million adjusted for $22.4 million in non-cash expense including depreciation, amortization, and share based compensation and an increase of approximately $2 million in net operating assets and liabili ties.

The provision of cash was due primarily to our operating loss of $34.1 million adjusted for $46.2 million in non-cash expense including impairment charges, depreciation, amortization, and share-based compensation and a decrease of approximately $1.5 million in net operating assets and liabilities.

Cash flows provided by operating activities were $7.2 million in fiscal 2019.

The provision of cash was due primarily to our operating loss of $12.1 million adjusted for $19.2 million in non-cash expense including depreciation, amortization, and share based compensation.

The provision of cash was due primarily to our operating loss of $13.2 million adjusted for $22.4 million in non-cash expense including depreciation, amortization, and share-based compensation and an increase of approximately $2 million in net operating assets and liabilities.

Cash flow used in investing activities.

Cash flows used in investing activities in fiscal 20 2 1 were $ 1 .4 million due primarily to the purchase of property and equipment, including internal use software.

Cash flows used in investing activities in fiscal 2019 were $5.5 million.

This is primarily attributed to $2.2 million in capitalized development costs of proprietary software and $3.3 million for purchase of property and equipment, including internal use software.

Cash flows used in investing activities in fiscal 2020 were $3.4 million due primarily to the purchase of property and equipment, including internal use software.

Cash flows used in investing activities in fiscal 2019 were $5.5 million.

This is primarily attributed to $2.2 million in capitalized development costs of proprietary software and $3.3 million for purchase of property and equipment, including internal use software.

Cash flow used in financing activities.

Respectively, in fiscal 2020, 2019, and 2018, the $1.1 million, $0.8 million, and $1.3 million cash flows used in financing activities were primarily comprised of the repurchase of shares to satisfy employee tax withholding and to cover the exercise price of the options.

Cash flow provided by (used in) financing activities.

During fiscal 2021, the $25.3 million provided by financing activities consisted primarily of $34.0 million in preferred stock issuance proceeds from the MAK Capital investment, net of issuance costs, offset by $7.5 million for the repurchase of shares to satisfy employee tax withholding on share-based compensation and $1.1 million in preferred stock dividends.

Cash flows used in financing activities of $1.1 million and $0.8 million, respectively, in fiscal 2020 and 2019 were primarily comprised of share repurchases to satisfy employee tax withholding on share-based compensation.

Investments in Corporate-Owned Life Insurance Policies

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Contractual Obligations

The following table provides aggregate information regarding our contractual obligations as of March 31, 2020.

(In thousands)

Operating leases (1)

Finance leases

Asset retirement obligation

Total contractual obligations (2)

Operating lease obligations are presented net of contractually binding sub-lease arrangements.

Additional information regarding our operating lease obligations is contained in Note 6, Leases.

At March 31, 2020, we had a $0.6 million liability reserve for unrecognized income tax positions which is not reflected in the table above.

The timing of potential cash outflows related to the unrecognized tax positions is not reasonably determinable and therefore, is not scheduled.

Substantially all of this reserve is included in Other non-current liabilities.

Additional information regarding unrecognized tax positions is provided in Note 9, Income Taxes.

We believe that cash on hand, funds from operations, and access to capital markets will provide adequate funds to finance capital spending and working capital needs and to service our obligations and other commitments arising during the foreseeable future.

Our contractual obligations consist primarily of operating leases for office space and preferred stock dividends.

We disclose our lease obligations in Note 6, Leases, and preferred stock dividends in Note 14, Preferred Stock, to our Consolidated Financial Statements included under Item 8 of this Annual Report.

We believe our cash on hand, funds from operations, and access to capital markets will provide adequate funds to finance capital spending and working capital needs and to service our obligations and other commitments arising during the foreseeable future.

Critical Accounting Policies

MD&A is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S.

Managements’ Discussion and Analysis is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S.

generally accepted accounting principles.

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For all of these policies, management cautions that future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment.

Reclassification.

Certain prior year balances have been reclassed to conform to the current year presentation.

Specifically, we reclassed certain employee benefit obligations from current to non-current liabilities.

Revenue recognition.

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2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method applied to those contracts that were not completed as of the adoption date.

Results for reporting periods beginning after the adoption date are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under prior guidance.

Revenue recognition under Topic 606

Our customary business practice is to enter into legally enforceable written contracts with our customers.

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we account for these support and maintenance services as a single performance obligation recognized over the term of the maintenance agreement.

Our subscription service revenue is comprised of fees for cont racts that provide customers a right to access our software for a subscribed period.

Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period.

We do not provide the customer the contractual right to license the software at any time outside of the subscription period under these contracts.

The customer can only be nefit from the software and software maintenance when provided the right to access the software.

The customer can only benefit from the software and software maintenance when provided the right to access the software.

Accordingly, each of the rights to access the software, the maintenance services, and any hosting services is not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation to be recognized over the contract period.

The Company recognizes subscription revenue over a one-month period based on the typical monthly invoicing and renewal cyc le in accordance with our customer agreement terms.

The Company recognizes subscription revenue over a one-month period based on the typical monthly invoicing and renewal cycle in accordance with our customer agreement terms.

Professional services revenues primarily consist of fees for consulting, installation, integration and training and are generally recognized over time as the customer simultaneously receives and consumes the benefits of the professional services as the services are being performed.

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Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative SSP basis.

Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold.

Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies.

Allowance for Doubtful Accounts.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability or unwillingness of our customers to make required payments.

These allowances are based on both recent trends of certain customers estimated to be a greater credit risk, as well as historic trends of the entire customer pool.

If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

To mitigate this credit risk we perform periodic credit evaluations of our customers.

Allowance for e xpected c redit l osses .

We maintain allowances for expected credit losses for estimated losses resulting from the inability or unwillingness of our customers to make required payments.

We base our expected credit loss model on historical experience, adjusted for current conditions and reasonable and supportable forecasts .

To help mitigate the associated credit risk we perform periodic credit evaluations of our customers.

Customer credit allowance .

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We will issue a credit after agreeing to the service or coverage adjustment as requested by the customer within the terms of our contract.

Our inventories are comprised of finished goods.

Inventories are stated at the lower of cost or market, net of related reserves.

The cost of inventory is computed using a weighted-average method.

Our inventory is monitored to ensure appropriate valuation.

Adjustments of inventories to the lower of cost or market, if necessary, are based upon contractual provisions such as turnover and assumptions about future demand and market conditions.

If assumptions about future demand change and/or actual market conditions are less favorable than those projected by management, additional adjustments to inventory valuations may be required.

We provide a reserve for obsolescence, which is calculated based on several factors including an analysis of historical sales of products and the age of the inventory.

Actual amounts could be different from those estimated.

Income Taxes.

Income tax expense includes U.S.

and foreign income taxes and is based on reported income before income taxes.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities.

The deferred tax assets and liabilities are determined based on the enacted tax rates expected to apply in the periods in which the deferred tax assets or liabilities are anticipated to be settled or realized.

We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized.

The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence.

This evidence includes historical taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies.

We recorded a valuation allowance of $66.8 million as of March 31, 2020 and $57.9 million as of March 31, 2019, related to substantially all of our deferred income tax assets in jurisdictions where there is uncertainty as to the ultimate realization of a benefit from those assets.

In the event that we determine that we would be able to realize our deferred tax assets in the future in excess of our

net recorded amount, an adjustment to the tax valuation allowance would decrease tax expense in the period such determination was made.

We recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized from uncertain tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

No tax benefits are recognized for positions that do not meet this threshold.

Interest related to uncertain tax positions is recognized as part of the provision for income taxes and is accrued beginning in the period that such interest would be applicable under relevant tax law until such time that the related tax benefits are recognized.

Our income taxes are described further in Note 9, Income Taxes .

We determine if an arrangement is or contains a lease at inception.

Operating leases are presented as Right-of-Use (“ROU”) assets and the corresponding lease liabilities are included in operating lease liabilities – current and operating lease liabilities – non-current on our Consolidated Balance Sheet.

Finance leases are included in property and equipment, net and corresponding liabilities are included in finance lease obligations – current and non-current on our Consolidated Balance Sheet.

ROU assets represent our right to use the underlying asset and lease liabilities represent our obligation for lease payments in exchange for the ability to use the asset for the duration of the lease term.

ROU assets and lease liabilities are recognized at commencement date and determined suing the present value of the remaining lease payments over the lease term.

We use an incremental borrowing rate based on estimated rate of interest for collateralized borrowing since our leases do not include an implicit interest rate.

The estimated incremental borrowing rate considers market data, actual lease economic environment, and actual lease term at commencement date.

The lease term may include options to extend when it is reasonably certain that we will exercise that option.

ROU assets include lease payments made, and excludes any incentives received or initial direct costs incurred.

Lease expense is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components which we account for as a single lease component.

We also have leases which include variable lease payments, which are expensed as incurred.

Our variable lease payments are not based on an index or rate and therefore are exclude from the calculation of lease liabilities.

We have elected to not recognize short term leases that have a term of twelve months or less as ROU assets or lease liabilities.

Our short-term leases are not material and do not have a material impact on our ROU assets or lease liabilities.

Additionally, we do not have any covenants, residual value guarantees, or related party transactions associated with our lease agreements.

Goodwill and Other Indefinite-Lived Intangible Assets.

Goodwill represents the excess purchase price paid over the fair value of the net assets of acquired companies.

Goodwill is tested for impairment on an annual basis, or in interim periods if indicators of potential impairment exist.

The Company is also required to compare the fair values of other indefinite-lived intangible assets to their carrying amounts at least annually, or when current events and circumstances require an interim assessment.

If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized.

Restructuring Charges.

We recognize restructuring charges when a plan that materially changes the scope of our business, or the manner in which that business is conducted, is adopted and communicated to the impacted parties, and the expenses have been incurred or are reasonably estimable.

Our restructuring reserves principally include estimates related to employee separation costs and the consolidation and impairment of facilities that will no longer be used in continuing operations.

Actual amounts could be different from those estimated.

Facility reserves are calculated using a present value of future minimum lease payments, offset by an estimate for future sublease income provided by external brokers.

Present value is calculated using a credit-adjusted risk-free rate with a maturity equivalent to the lease term.

During fiscal 2021, we have included allowances for various one-time recurring revenue related and other concessions we have given to customers to help them while they deal with the impact of the COVID-19 pandemic on their operational priorities.

Share-based compensation.

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The fair value of stock option and stock-settled appreciation right awards is estimated on the grant date using the Black-Scholes-Merton option pricing model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of our common shares.

The fair value for stock-settled appreciation right awards tied to a market condition are estimated using the Lattice option pricing model which utilizes a binomial tree to forecast option pricing.

The fair value for stock-settled appreciation rights with a market condition are estimated using a Lattice option pricing model which utilizes a binomial tree to forecast option pricing.

Forfeitures of awards are recognized as they occur.

Additional information regarding the assumptions used to value share-based compensation awards is provided in Note 13, Share-Based Compensation .

Capitalized Software Development Costs.

The capitalization of software development cost for external use begins when a product’s technological feasibility has been established.

Capitalization ends when the resulting product is available for general market release.

Amortization of the capitalized software is classified within products cost of goods sold in the Consolidated Statements of Operations.

For each capitalized software product, the annual amortization is equal to the greater of:

(i) the amount c omputed using the ratio that the software product’s current fiscal year gross revenue bears to the total current fiscal year and anticipated future gross revenues for that product or (ii) the amount computed based on straight-line method over the remaining estimated economic life of the product, which is a range between three and eight years.

The amount by which unamortized software costs exceeds the net realizable value, if any, is recognized as a charge to income in the period it is determined.

We did not capitalize any software development costs during fiscal 2020.

We capitalized approximately $2.0 million and $8.2 million during fiscal 2019 and 2018, respectively.

Amortization of developed capitalized software was $12.6 million, $1 2.6 million and $ 10 .0 million during fiscal 20 20 , 201 9 and 201 8 , respectively.

During the fourth quarter of fiscal 2020, the world pandemic related to COVID-19 and the resulting global economic environment impacted the expected growth of revenue related to our rGuest suite of products.

The unamortized costs exceeded the net realizable value resulting in a charge to income during the fiscal year.

Additional information regarding our intangible assets is provided in Note 5, Intangible Assets and Software Development Costs .

Adopted and Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU No.

2020-03, Codification Improvements to Financial Instruments .

ASU 2020-03 provides clarifications for questions and comments received regarding how changes to specific guidance related to financial instruments as a result of ASU No.

2016-13 interacts with other areas of the codification.

The guidance was effective upon issuance of the ASU and correlates to the adoption of each of the applicable ASUs.

Consistent with the documentation below, we are still assessing the impact of the adoption of ASU 2016-13 and will apply applicable changes from ASU 2020-03 in the period of adoption.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes.

ASU 2019-12 removes certain exceptions previously allowed in the standard and simplifies the accounting for income taxes by providing additional guidance for certain tax situations.

The update is effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted.

We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In April 2019, the FASB issued ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.

ASU 2019-04 provides corrections, updates and clarifications to the previously issued updates ASU 2016-13, ASU 2017-12 and ASU 2016-01.

Various areas of the codification were impacted from the update.

The standard follows the effective dates of the previously issued ASUs, unless an entity has already early adopted the previous ASUs, in which case the effective date will vary according to each specific ASU adoption.

Consistent with the documentation below, we are still assessing the impact of the adoption of ASU 2016-13, and the other two ASUs affected by ASU 2019-04 are not applicable to us.

We are currently reviewing this standard to assess the impact on our future consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract .

ASU 2018-15 addresses the treatment of implementation costs incurred in a hosting arrangement that is a service contract.

The update does not impact the accounting for the service element of a hosting arrangement that is a service contract.

The update is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted.

We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement .

ASU 2018-13 addresses the required disclosures around fair value measurement.

The disclosure requirements of the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed.

Certain modifications were made to required disclosures and additional requirements were established.

The standard is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods.

Early adoption is permitted.

We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU No.

2018-02, Income Statement-Reporting Comprehensive Income (Topic 220) .

ASU 2018-02 addresses the effect of the change in the U.S.

federal corporate tax rate on items within accumulated other comprehensive income or loss due to the enactment of the Tax Act on December 22, 2017.

The new standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted.

We have adopted this standard as of April 1, 2019.

While we have elected to reclassify any amount out of other comprehensive income, we do not have any amounts to reclassify and therefore the adoption had no impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No.

2017-04 , Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment .

2017-04 eliminates Step 2 of the goodwill impairment test and requires goodwill impairment to be measured as

the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.

The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

While we are still assessing the impact of this standard, we do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326) .

This new standard changes the impairment model for most financial assets and certain other instruments.

Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other instruments.

For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities.

The new standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted.

We are currently reviewing this standard to assess the impact on our future consolidated financial statements.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) , which requires lessees to recognize assets and liabilities for leases with lease terms of more than 12 months.

Unlike Accounting Standard Codification Topic 840 (“Topic 840”), which requires only capital leases to be recognized on the balance sheet, the new guidance requires both types of leases to be recognized on the balance sheet.

The most prominent change for lessees is the requirement to recognize both Right-of-Use (ROU) assets and lease liabilities for leases classified as operating leases under Topic 840.

We adopted Topic 842 as of April 1, 2019 using the current period adjustment method of adoption.

Refer to Note 6, Leases for further details.

Management continually evaluates the potential impact, if any, of all recent accounting pronouncements on our consolidated financial statements or related disclosures and, if significant, makes the appropriate disclosures required by such new accounting pronouncements.

See Note 2, Summary of Significant Accounting Policies , to our Consolidated Financial Statements included under Item 8 of this Annual Report for additional information about recent accounting pronouncements recently adopted and those not yet effective.

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What changed 10-K

Item 5. Market for Registrant’s Common Equity