AGILYSYS INC 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We have assets, liabilities, and cash flows in foreign currencies creating foreign exchange risk. We sell products and services internationally and enter into transactions denominated in foreign currencies. As a result, we are subject to the variability that arises from exchange rate movements. For the fiscal years 2021, 2020 and 2019, revenue from international operations was 8%, 9% and 9%, respectively of total revenue. The effects of foreign currency on operating results did not have a material impact on our results of operations for the 2021, 2020 and 2019 fiscal years. Fluctuations in the value of other currencies could materially impact our revenue, expenses, operating profit and net income. 34 Item 8. Financial Statemen ts and Supplementary Data. Agilysys, Inc. and Subsidiaries ANNUAL REPORT ON FORM 10-K Year Ended March 31, 2021 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm – Grant Thornton LLP 36 Consolidated Balance Sheets as of March 31, 2021 and 2020 38 Consolidated Statements of Operations for the years ended March 31, 2021, 2020, and 2019 39 Consolidated Statements of Comprehensive Loss for the years ended March 31, 2021, 2020, and 2019 40 Consolidated Statements of Cash Flows for the years ended March 31, 2021, 2020, and 2019 41 Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2021, 2020, and 2019 42 Notes to Consolidated Financial Statements 43 Schedule II – Valuation and Qualifying Accounts for the years ended March 31, 2021, 2020, and 2019 61 35 Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Agilysys, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Agilysys, Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of March 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2021, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of March 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated May 21, 2021 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2016. Atlanta, Georgia May 21, 2021 36 Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Agilysys, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Agilysys, Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of March 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended March 31, 2021, and our report dated May 21, 2021 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Atlanta, Georgia May 21, 2021 37 AGILYSYS, INC. CONSOLIDATED BALANCE SHEETS As of March 31, (In thousands, except share data) 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 99,180 $ 46,653 Accounts receivable, net of allowance for expected credit losses of $ 1,220 and for doubtful accounts of $ 1,634 , respectively 25,732 35,869 Contract assets 2,364 2,125 Inventories 1,177 3,887 Prepaid expenses and other current assets 4,797 4,874 Total current assets 133,250 93,408 Property and equipment, net 8,789 12,230 Operating lease right-of-use assets 12,210 13,829 Goodwill 19,622 19,622 Intangible assets, net 8,400 8,400 Deferred income taxes, non-current 1,802 764 Other non-current assets 5,800 6,309 Total assets $ 189,873 $ 154,562 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,346 $ 13,403 Contract liabilities 38,394 42,244 Accrued liabilities 11,233 9,033 Operating lease liabilities, current 5,009 4,719 Finance lease obligations, current 19 24 Total current liabilities 61,001 69,423 Deferred income taxes, non-current 923 880 Operating lease liabilities, non-current 8,597 10,617 Finance lease obligations, non-current 6 25 Other non-current liabilities 4,011 1,860 Commitments and contingencies (see Note 11) Series A convertible preferred stock, no par value 35,459 — Shareholders' equity: Common shares, without par value, at $ 0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 24,010,727 and 23,609,398 shares outstanding at March 31, 2021 and March 31, 2020, respectively 9,482 9,482 Treasury shares, 7,596,104 and 7,997,433 at March 31, 2021 and March 31, 2020, respectively ( 2,278 ) ( 2,401 ) Capital in excess of stated value 37,257 5,491 Retained earnings 35,376 58,984 Accumulated other comprehensive income 39 201 Total shareholders' equity 79,876 71,757 Total liabilities and shareholders' equity $ 189,873 $ 154,562 See accompanying notes to consolidated financial statements. 38 AGILYSYS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended March 31, (In thousands, except per share data) 2021 2020 2019 Net revenue: Products $ 26,714 $ 44,230 $ 39,003 Support, maintenance and subscription services 88,565 83,680 75,496 Professional services 21,897 32,847 26,343 Total net revenue 137,176 160,757 140,842 Cost of goods sold: Products (inclusive of developed technology amortization) 13,506 36,427 31,811 Support, maintenance and subscription services 17,985 19,248 15,895 Professional services 16,309 24,130 19,256 Total cost of goods sold 47,800 79,805 66,962 Gross profit 89,376 80,952 73,880 Gross profit margin 65.2 % 50.4 % 52.5 % Operating expenses: Product development 55,345 41,463 37,817 Sales and marketing 14,196 19,864 19,646 General and administrative 33,273 24,374 23,118 Depreciation of fixed assets 2,832 2,574 2,504 Amortization of intangibles 1,959 2,541 2,567 Impairments - 23,740 - Severance and other charges, net 2,529 582 1,168 Legal settlements, net 200 ( 125 ) 141 Total operating expense 110,334 115,013 86,961 Operating loss ( 20,958 ) ( 34,061 ) ( 13,081 ) Other (income) expense: Interest income ( 107 ) ( 380 ) ( 339 ) Interest expense 20 9 10 Other expense, net 338 176 191 Loss before taxes ( 21,209 ) ( 33,866 ) ( 12,943 ) Income tax expense (benefit) ( 208 ) 201 221 Net loss $ ( 21,001 ) $ ( 34,067 ) $ ( 13,164 ) Series A convertible preferred stock issuance costs ( 1,031 ) - - Series A convertible preferred stock dividends ( 1,576 ) - - Net loss attributable to common shareholders $ ( 23,608 ) $ ( 34,067 ) $ ( 13,164 ) Weighted average shares outstanding - basic and diluted 23,458 23,233 23,037 Net loss per share - basic and diluted: $ ( 1.01 ) $ ( 1.47 ) $ ( 0.57 ) See accompanying notes to consolidated financial statements. 39 AGILYSYS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended March 31, (In thousands) 2021 2020 2019 Net loss $ ( 21,001 ) $ ( 34,067 ) $ ( 13,164 ) Other comprehensive income (loss), net of tax: Unrealized foreign currency translation adjustments ( 162 ) 460 ( 4 ) Total comprehensive loss $ ( 21,163 ) $ ( 33,607 ) $ ( 13,168 ) See accompanying notes to consolidated financial statements. 40 AGILYSYS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended March 31, (In thousands) 2021 2020 2019 Operating activities Net loss $ ( 21,001 ) $ ( 34,067 ) $ ( 13,164 ) Adjustments to reconcile net loss to net cash provided by operating activities: Impairments — 23,740 — Loss (gain) on disposal of property & equipment 44 ( 5 ) 17 Depreciation 2,832 2,574 2,504 Amortization of intangibles 1,959 2,541 2,567 Amortization of developed technology — 12,561 12,602 Deferred income taxes ( 959 ) ( 356 ) 309 Share-based compensation 40,093 5,205 4,376 Changes in operating assets and liabilities: Accounts receivable 10,363 ( 8,974 ) ( 7,536 ) Contract assets ( 228 ) 794 1,662 Inventories 2,746 ( 1,830 ) ( 50 ) Prepaid expense and other current assets ( 201 ) 1,545 ( 1,158 ) Accounts payable ( 7,016 ) 8,585 ( 3,512 ) Contract liabilities ( 3,971 ) 3,563 4,845 Accrued liabilities 1,187 ( 4,227 ) 5,029 Income taxes payable 340 ( 153 ) ( 564 ) Other changes, net 2,219 ( 921 ) ( 686 ) Net cash provided by operating activities 28,407 10,575 7,241 Investing activities Capital expenditures ( 1,389 ) ( 3,420 ) ( 3,318 ) Capitalized software development costs — — ( 2,189 ) Additional (investments in) corporate-owned life insurance policies ( 2 ) ( 27 ) ( 27 ) Net cash used in investing activities ( 1,391 ) ( 3,447 ) ( 5,534 ) Financing activities Preferred stock issuance proceeds, net of issuance costs 33,969 — — Payment of preferred stock dividends ( 1,117 ) — — Repurchase of common shares to satisfy employee tax withholding ( 7,512 ) ( 1,092 ) ( 647 ) Principal payments under long-term obligations ( 24 ) ( 24 ) ( 120 ) Net cash provided by (used in) financing activities 25,316 ( 1,116 ) ( 767 ) Effect of exchange rate changes on cash 195 ( 130 ) ( 112 ) Net increase in cash and cash equivalents 52,527 5,882 828 Cash and cash equivalents at beginning of period 46,653 40,771 39,943 Cash and cash equivalents at end of period $ 99,180 $ 46,653 $ 40,771 See accompanying notes to consolidated financial statements. 41 AGILYSYS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Common Shares Capital in Accumulated Issued In Treasury excess of other (In thousands, except share data) Shares Stated value Shares Stated value stated value Retained earnings comprehensive income (loss) Total Balance at March 31, 2018 31,607 $ 9,482 ( 8,283 ) $ ( 2,486 ) $ ( 1,911 ) $ 103,601 $ ( 255 ) $ 108,431 Cumulative effect of change in accounting policy — — — — — 2,614 — 2,614 Share-based compensation — — — — 3,971 — — 3,971 Restricted shares issued, net — — 180 54 ( 54 ) — — — Shares issued upon exercise of stock options and SSARs — — 60 18 ( 18 ) — — — Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares — — ( 62 ) ( 19 ) ( 1,207 ) — — ( 1,226 ) Net loss — — — — — ( 13,164 ) — ( 13,164 ) Unrealized translation adjustments — — — — — — ( 4 ) ( 4 ) Balance at March 31, 2019 31,607 $ 9,482 ( 8,105 ) $ ( 2,433 ) $ 781 $ 93,051 $ ( 259 ) $ 100,622 Cumulative effect of change in accounting policy — — — — — — — — Share-based compensation — — — — 5,682 — — 5,682 Restricted shares issued, net — — 140 41 ( 41 ) — — — Shares issued upon exercise of stock options and SSARs — — 21 6 ( 6 ) — — — Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares — — ( 53 ) ( 15 ) ( 925 ) — — ( 940 ) Net loss — — — — — ( 34,067 ) — ( 34,067 ) Unrealized translation adjustments — — — — — — 460 460 Balance at March 31, 2020 31,607 $ 9,482 ( 7,997 ) $ ( 2,401 ) $ 5,491 $ 58,984 $ 201 $ 71,757 Share-based compensation — — — — 40,066 — — 40,066 Restricted shares issued, net — — 90 28 ( 28 ) — — — Shares issued upon exercise of SSARs — — 467 141 ( 141 ) — — — Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares — — ( 156 ) ( 46 ) ( 8,131 ) — — ( 8,177 ) Net loss — — — — — ( 21,001 ) — ( 21,001 ) Series A convertible preferred stock issuance costs — — — — — ( 1,031 ) — ( 1,031 ) Series A convertible preferred stock dividends — — — — — ( 1,576 ) — ( 1,576 ) Unrealized translation adjustments — — — — — — ( 162 ) ( 162 ) Balance at March 31, 2021 31,607 $ 9,482 ( 7,596 ) $ ( 2,278 ) $ 37,257 $ 35,376 $ 39 $ 79,876 See accompanying notes to consolidated financial statements. 42 Agilysys, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Table amounts in thousands, except per share data) 1. Nature of Operations Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative guest-centric technology solutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadia, airport foodservice and healthcare. Agilysys offers the most comprehensive solutions in the industry, including point of sale (POS), property management systems (PMS), inventory and procurement, payments, and related applications, to manage the entire guest journey. The Company has just one reportable segment serving the global hospitality industry. Agilysys operates across North America, Europe, Asia-Pacific, and India with headquarters located in Alpharetta, GA. Reference herein to any particular year or quarter refers to periods within the fiscal year ended March 31. For example, fiscal 2021 refers to the fiscal year ended March 31, 2021. COVID-19 Pandemic The World Health Organization declared novel coronavirus (“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 suppliers 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. 2. Summary of Significant Accounting Policies Principles of consolidation. The consolidated financial statements include the accounts of Agilysys, Inc. and subsidiaries. Investments in affiliated companies are accounted for by the equity or cost method, as appropriate. All inter-company accounts have been eliminated. Use of estimates. Preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates. In particular, the economic disruption related to the COVID-19 pandemic had a material adverse impact on our results for the year ended March 31, 2021, and we expect it to continue to have a material adverse impact on our results. As such, this annual period, as well as upcoming interim periods, are unlikely to be comparable to past performance or indicative of future performance. Cash and cash equivalents. We consider all highly liquid investments purchased with an original maturity from date of acquisition of three months or less to be cash equivalents. Other highly liquid investments considered cash equivalents with no established maturity date are fully redeemable on demand (without penalty) with settlement of principal and accrued interest on the following business day after instruction to redeem. Such investments are readily convertible to cash with no penalty and can include certificates of deposit, commercial paper, treasury bills, money market funds and other investments. Allowance for expected credit losses. 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 . We maintain allowances for estimated customer credits. Credits are typically due to the timing or amount of customer invoices processed for specific services, including professional and subscription, and maintenance coverage. In many cases, there has not been clear or timely communication of the need to adjust coverage or service at a location in advance of when we invoice for the associated coverage or service. We will issue a credit after agreeing to the service or coverage adjustment as requested by the customer within the terms of our contract. 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. 43 Inventories. Our inventories are comprised of finished goods. Inventories are stated at the lower of cost or net realizable value, 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 net realizable value, 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. Leases. 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 using 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 in advance, and excludes any incentives received or initial direct costs incurred. We recognize lease expense on a straight-line basis over the lease term and sublease income on a straight-line basis over the sublease 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 excluded 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. The carrying amount of goodwill was $ 19.6 million as of March 31, 2021 and 2020. Goodwill is tested for impairment on an annual basis, or in interim periods if indicators of potential impairment exist. The Company evaluates whether goodwill is impaired by comparing its market capitalization based on its closing stock price (Level 1 input) to the book value of its equity on the annual evaluation date. Based on testing performed, the Company concluded that no impairment of its goodwill has occurred for the years ended March 31, 2021, 2020 and 2019. 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. Long-lived assets. Property and equipment are recorded at cost. Major renewals and improvements are capitalized. Minor replacements, maintenance, repairs, and reengineering costs are expensed as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is recognized. Depreciation and amortization are provided in amounts sufficient to amortize the cost of the assets, including assets recorded under finance leases, which make up less than one percent of total assets, over their estimated useful lives using the straight-line method. The estimated useful lives for depreciation and amortization are as follows: buildings and building improvements – 7 to 30 years ; furniture – 7 to 10 years ; equipment – 3 to 10 years ; software – 3 to 10 years ; and leasehold improvements over the shorter of the economic life or the lease term. Internal use software costs are expensed or capitalized depending on the project stage. Amounts capitalized are amortized over the estimated useful lives of the software, ranging from 3 to 10 years, beginning with the project’s completion. Depreciation for capitalized project expenditures does not begin until the underlying project is completed. We evaluate the recoverability of our long-lived assets whenever changes in circumstances or events may indicate that the carrying amounts may not be recoverable. An impairment loss is recognized in the event the carrying value of the assets exceeds the future undiscounted cash flows attributable to such assets. Our long-lived assets and impairments considerations are discussed further in Note 4, Property and Equipment, Net. Foreign currency translation. The financial statements of our foreign operations are translated into U.S. dollars for financial reporting purposes. The assets and liabilities of foreign operations whose functional currencies are not in U.S. dollars are translated at the period-end exchange rates, while revenue and expenses are translated at weighted-average exchange rates during the fiscal year. The cumulative translation effects are reflected as a component of “Accumulated other comprehensive loss” within shareholders’ equity in the Consolidated Balance Sheets. Gains and losses on monetary transactions denominated in other than the functional currency of an 44 operation are reflected within “Other (income) expenses, net” in the Consolidated Statements of Operations. Foreign currency gains and losses from changes in exchange rates have not been material to our consolidated operating results. Revenue recognition. We derive revenue from the sale of products (i.e., software, third party hardware and operating systems), support, maintenance and subscription services and professional services. For the fiscal years 2021, 2020 and 2019, revenue from international operations was 8 %, 9 % and 9 %, respectively of total revenue. Our customer base is highly fragmented. On April 1, 2018, we adopted ASU No. 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. Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master service agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund. Typically, our customer contracts contain one or more of the following goods or services which constitute performance obligations. Our software licenses typically provide for a perpetual right to use our software. Generally, our contracts do not provide significant services of integration and customization and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or made available for download to the customer. Revenue for hardware sales is recognized when the product is shipped to the customer and when obligations that affect the customer’s final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we ship or are notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site. Support and maintenance revenue is derived from providing telephone and on-line technical support services, bug fixes, and unspecified software updates and upgrades to customers on a when-and-if-available basis. These services represent a stand-ready obligation that is concurrently delivered and has the same pattern of transfer to the customer; 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 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 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 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. Professional services can be provided by internal or external providers, do not significantly affect the customer’s ability to access or use other provided goods or services, and provide a measure of benefit beyond that of other promised goods or services in the contract. As a result, professional services are considered distinct in the context of the contract and represent a separate performance obligation. Professional services that are billed on a time and materials basis are recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time using an input method based on labor hours expended to date relative to the total labor hours expected to be required to satisfy the related performance obligation. We use the market approach to derive standalone selling price (“SSP”) by maximizing observable data points (in the form of recently executed customer contracts) to determine the price customers are willing to pay for the goods and services transferred. If the contract contains a single performance obligation, the entire transaction price is allocated to that performance obligation. Contracts that contain 45 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. Comprehensive (loss) income. Comprehensive (loss) income is the total of net (loss) income, as currently reported under GAAP, plus other comprehensive (loss) income. Other comprehensive (loss) income considers the effects of additional transactions and economic events that are not required to be recorded in determining net (loss) income, but rather are reported as a separate statement of comprehensive (loss) income. Fair value measurements . We measure the fair value of financial assets and liabilities on a recurring or non-recurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. In determining fair value of financial assets and liabilities, we use various valuation techniques. Investments in corporate-owned life insurance policies. Agilysys invests in corporate-owned life insurance policies, for which some are endorsement split-dollar life insurance arrangements. We entered into agreements with certain former executives, whereby we must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their respective designated beneficiary. Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance sheet date. In the Consolidated Balance Sheets at the balance sheet date, the cash surrender value of $ 1.0 million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed to those executives’ designated beneficiary of $ 0.1 million, which approximates fair value, were recorded within “Other non-current liabilities.” Additional information regarding the investments in corporate-owned life insurance policies is provided in Note 10, Employee Benefit Plans . 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 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 . 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 computed 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. Annually, or more frequent as required by triggering events, an analysis of the net realizable value of the capitalized software is completed and 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. See further discussion regarding our capitalized software development costs in Note 5, Intangible Assets and Software Development Costs. Advertising and Promotion Expense. We expense advertising and promotion expense as incurred. Advertising and promotion expense was $ 0.4 million, $ 2.7 million and $ 2.0 million in fiscal 2021, 2020 and 2019, respectively . Adopted and Recently Issued Accounting Pronouncements In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and 46 Contracts in an Entity’s Own Equity , which simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging , or that do not result in substantial premiums accounted for as paid-in capital. By removing the separation model, a convertible debt instrument will be reported as a single liability instrument with no separate accounting for embedded conversion features. This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification and simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. The new standard will be effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. We are currently assessing the impact of adopting this standard on our consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes , which affects general principles within Topic 740, Income Taxes , and is meant to simplify and reduce the cost of accounting for income taxes. The new standard will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently reviewing this standard but do not expect it will have a material impact on our 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. We adopted ASU 2018-15 as of April 1, 2020 with no 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. We adopted ASU 2018-13 as of April 1, 2020 with 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 . ASU No. 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. We adopted ASU 2017-04 as of April 1, 2020 with no 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 requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company’s financial instruments within the scope of this guidance primarily includes accounts receivable and contract assets. We adopted ASU 2016-13 as of April 1, 2020 under the modified retrospective approach. As a result, comparative information has not been restated and continues to be reported under accounting standards applicable for those periods. The adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements. 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. 47 3. Revenue Recognition On April 1, 2018, we adopted ASU No. 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. The cumulative impact of applying the new guidance to all contracts with customers that were not completed as of April 1, 2018 was recorded as an adjustment to retained earnings as of the adoption date. As a result of applying the modified retrospective method to adopt the new standard, we also impacted accounts receivable, net, contract assets, prepaid expenses and other current assets, other non-current assets, contract liabilities and retained earnings on our Consolidated Balance Sheet as of April 1, 2018. For in depth discussion regarding our revenue recognition procedures for our revenue streams, see Note 2, Summary of Significant Accounting Policies . Disaggregation of Revenue We derive and report our revenue from the sale of products (software licenses, third party hardware and operating systems), support, maintenance and subscription services and professional services. Revenue recognized at a point in time (products) totaled $ 26.7 million, $ 44.2 million, and $ 39.0 million during fiscal 2021, 2020 and 2019. Revenue recognized over time (support, maintenance and subscription services and professional services) totaled $ 110.5 million, $ 116.5 million, and $ 101.8 million during fiscal 2021, 2020 and 2019. Contract Balances Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to products and professional services. We expect billing and collection of our contract assets to occur within the next twelve months. We receive payments from customers based upon contractual billing schedules and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is unconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract. Revenue recognized from amounts included in contract liabilities at the beginning of the period was $ 40.9 million and $ 37.0 million during fiscal 2021 and 2020. During fiscal 2021 and 2020, we transferred from contract assets at the beginning of the period, $ 2.0 million and $ 2.8 million, respectively, to accounts receivable because the right to the transaction became unconditional. Our arrangements are for a period of one year or less. As a result, unsatisfied performance obligations as of March 31, 2021 are expected to be satisfied and the allocated transaction price recognized in revenue within a period of 12 months or less. Assets Recognized from Costs to Obtain a Contract Sales commission expenses that would not have occurred absent the customer contracts are considered incremental costs to obtain a contract. We have elected to take the practical expedient available to expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we capitalize commission expenses and amortize as we satisfy the underlying performance obligations, generally based on the contract terms and anticipated renewals. For first year support and maintenance service contracts, commission expenses are immaterial and therefore expenses as incurred. Other sales commission expenses are not material or have a period of benefit of one year or less, and are therefore expensed as incurred in line with the practical expedient elected. 48 W e had $ 2.9 million and $ 3.2 million of capitalized sales incentive costs as of March 31, 2021 and 20 20 , respectively . These balances are included in other non-current assets on our Consolidated Balance Sheet s . During fiscal 202 1 and 20 20 , we expensed $ 2.8 million and $ 4.7 million, respectively, of sales commission s , which included amortization of capitalized amounts of $ 1.4 million and $ 1.4 million, respectively. These expenses are included in operating expenses – sales and marketing in our Consolidated Statement of Operations. All other costs to obtain a contract are not considered incremental and therefore are expensed as incurred. 4. Property and Equipment, Net Property and equipment at March 31, 2021 and 2020 is as follows: Year ended March 31, (In thousands) 2021 2020 Furniture and equipment $ 14,899 $ 14,358 Software 16,891 17,136 Leasehold improvements 7,097 7,012 Project expenditures not yet in use 210 50 39,097 38,556 Accumulated depreciation and amortization ( 30,308 ) ( 24,592 ) Accumulated impairment — ( 1,734 ) Property and equipment, net $ 8,789 $ 12,230 Total depreciation expense on property and equipment was $ 2.8 million, $ 2.6 million, and $ 2.5 million during fiscal 2021, 2020 and 2019, respectively. The Company capitalizes internal-use software, including software used exclusively in providing services or that is only made available to customers as a software service, as property and equipment under ASC 350-40, Internal-Use Software. Total amortization expense on capitalized internal-use software was $ 2.0 million, $ 2.5 million and $ 2.5 million during fiscal 2021, 2020, and 2019, respectively. The global economic impact of the COVID-19 pandemic triggered management to review property and equipment held by the Company for indicators of impairment. The carrying value of our capitalized costs for internal-use software related to our rGuest Seat solution did not exceed the estimated undiscounted cash flows, and utilizing a market approach, was determined to be fully impaired, resulting in $ 1.7 million of asset impairment charges in the Consolidated Statement of Operations during the fiscal year ended March 31, 2020. Assets under financing leases are included in property and equipment categories above and further disclosed with Note 6. Leases . 5. Intangible Assets and Software Development Costs The following table summarizes our intangible assets and software development costs at March 31, 2021, and 2020: March 31, 2021 and 2020 Gross Net carrying Accumulated Accumulated carrying (In thousands) amount amortization Impairment amount Amortized intangible assets: Customer relationships $ 10,775 $ ( 10,775 ) $ - $ - Non-competition agreements 2,700 ( 2,700 ) — — Developed technology 10,398 ( 10,398 ) — — Trade names 230 ( 230 ) — — Patented technology 80 ( 80 ) — — 24,183 ( 24,183 ) — — Trade names 8,400 N/A — 8,400 Total intangible assets $ 32,583 $ ( 24,183 ) $ - $ 8,400 (In thousands) Software development costs $ 67,541 $ ( 45,535 ) $ ( 22,006 ) $ - Indefinite-lived intangible assets, comprised of our purchased trade name InfoGenesis™ as of March 31, 2021 and 2020 are tested for impairment upon identification of impairment indicators or at least annually. An impairment loss is recognized if the carrying amount is greater than fair value. The InfoGenesis™ indefinite-lived purchased trade name impairment testing resulted in a fair value exceeding the carrying amount for the years ending March 31, 2021, 2020 and 2019. Management compares the unamortized capitalized software development costs for each external use product to its net realizable value by analyzing critical inputs such as costs necessary to bring the software to market, costs necessary to maintain the software, life of the software, and market capacity. As of March 31, 2020, management determined the net realizable value of the remaining 49 capitalized software development costs for certain solutions within out rGuest suite of products no longer exceeded the ir carrying value, and as a result, recorded non-cash impairment charges of $ 22.0 million. 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 . A fter evaluating the Company’s strategy for market development and continued costs to support the software , an impairment charge was required . The amount of impairment recognized during the period reduced the carry ing value of capitalized software development costs to zero with no remaining amortization expense to be recognized in future periods. Amortization expense related to software development costs related to assets to be sold, leased, or otherwise marketed was $ 12.6 million for each of the fiscal years ended March 31, 2020 and 2019. These charges are included as Products cost of goods sold within the Consolidated Statements of Operations. 6. Leases The majority of our leases are comprised of real estate leases for our respective offices around the globe. Our finance leases consist of office equipment. We have no residual value guarantees or restrictions or covenants imposed by or associated with our active leases. As of March 31, 2021, we do not have any leases which have not yet commenced. We do not have any related party leases. We have variable payments for expenses such as common area maintenance and taxes. We do not have variable payments that are based on an index or rate. As a result, we do not include variable payments in the calculation of the lease liability. Any variable costs are expensed as incurred. We sublease one of our office leases located in Bellevue, Washington with a lease term that will expire during fiscal year 2024. The components of lease expenses, which are included in operating expenses in our Consolidated Statements of Operations, were as follows: Year ended March 31, (in thousands) 2021 2020 Operating leases expense $ 4,440 $ 4,193 Finance lease expense: Amortization of ROU assets 26 23 Interest on lease liabilities 5 6 Total finance lease expense 31 29 Variable lease costs 443 271 Short term lease expense 120 88 Sublease income ( 129 ) — Total lease expense $ 4,905 $ 4,581 Other information related to leases for fiscal 2021 and 2020 was as follows: Year ended March 31, Supplemental cash flow information 2021 2020 Cash paid for amounts included in the measurement of lease liabilities (in thousands): Operating cash flows for operating leases $ 5,987 $ 4,873 Operating cash flows for finance leases 30 8 Financing cash flows for finance leases 24 24 ROU assets obtained in exchange for lease obligations (in thousands): Operating leases $ 1,573 $ 2,734 Finance leases — 17 Weighted average remaining lease terms Operating leases 4.39 5.04 Finance leases 1.44 2.16 Weighted average discount rates Operating leases 10.51 % 10.37 % Finance leases 4.46 % 4.38 % 50 The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the Consolidated Balance Sheet as of March 31, 2021: Year ending (in thousands) Operating leases (1) Finance leases 2022 $ 5,211 $ 21 2023 3,494 5 2024 2,859 2 2025 2,144 — 2026 1,584 — Thereafter 2,431 — Total undiscounted future minimum lease payments 17,724 28 Less: difference between undiscounted lease payments and discounted lease liabilities ( 4,119 ) ( 3 ) Total lease liabilities $ 13,606 $ 25 (1) Non-cancellable sublease proceeds for the fiscal years ending March 31, 2022, 2023, and 2024 of $ 0.7 million, $ 0.8 million, and $ 0.7 million, respectively, are not included in the table above. 7. Supplemental Disclosures of Cash Flow Information Additional information related to the Consolidated Statements of Cash Flows is as follows: Year ended March 31, (In thousands) 2021 2020 2019 Cash (receipts) for interest, net $ ( 87 ) $ ( 371 ) $ ( 329 ) Cash payments for income tax, net 459 694 409 Acquisition of property and equipment under lease obligations — 17 — Accrued capital expenditures 103 187 56 Leasehold improvements acquired under operating lease arrangement — — 62 8. Additional Balance Sheet Information Additional information related to the Consolidated Balance Sheets is as follows: (In thousands) March 31, 2021 March 31, 2020 Accrued liabilities: Salaries, wages, and related benefits $ 8,454 $ 6,945 Other taxes payable 1,796 1,649 Accrued legal settlements 200 — Severance liabilities 79 32 Professional fees 97 50 Other 607 357 Total $ 11,233 $ 9,033 Other non-current liabilities: Uncertain tax positions $ 1,129 $ 1,103 Deferred rent and asset retirement obligations 170 170 Employee benefit obligations 2,639 511 Other 73 76 Total $ 4,011 $ 1,860 51 9. Income Taxes For the year ended March 31, loss before income taxes consisted of the following: (In thousands) 2021 2020 2019 Income (loss) before income taxes United States $ ( 26,272 ) $ ( 36,373 ) $ ( 13,621 ) Foreign 5,063 2,507 678 Total loss before income taxes $ ( 21,209 ) $ ( 33,866 ) $ ( 12,943 ) For the year ended March 31, income tax expense (benefit) consisted of the following: (In thousands) 2021 2020 2019 Income tax expense (benefit) Current: Federal $ 9 $ 59 $ 54 State and local 30 21 ( 383 ) Foreign 731 463 514 Deferred: Federal 12 11 79 State and local 32 7 277 Foreign ( 1,022 ) ( 360 ) ( 320 ) Total income tax expense (benefit) $ ( 208 ) $ 201 $ 221 The following table presents the principal components of the difference between the effective tax rate to the U.S. federal statutory income tax rate for the years ended March 31: (In thousands) 2021 2020 2019 Income tax benefit at the US Federal statutory rate $ ( 4,454 ) $ ( 7,112 ) $ ( 2,718 ) Benefit for state taxes ( 803 ) ( 856 ) ( 304 ) Impact of foreign operations ( 841 ) ( 514 ) ( 310 ) Indefinite life assets 43 19 130 Change in valuation allowance 7,271 8,406 3,302 Change in liability for unrecognized tax benefits 26 22 ( 400 ) Impact of Tax Act, net — — 226 Share-based compensation ( 2,232 ) ( 312 ) 2 Global intangible low-taxed income 985 460 94 Deferred adjustments ( 478 ) — — Provision to return 278 ( 35 ) 53 Other ( 3 ) 123 146 Total income tax expense (benefit) $ ( 208 ) $ 201 $ 221 We have elected to account for global intangible low-taxed income (GILTI) inclusions in the period in which they are incurred. Our tax provision includes a provision for income taxes in certain foreign jurisdictions where subsidiaries are profitable, but only a minimal benefit is reflected related to U.S. and certain foreign tax losses due to the uncertainty of the ultimate realization of future benefits from these losses. The fiscal 2021 tax provision results primarily from foreign tax benefit. The fiscal 2021 tax provision differs from the statutory rate primarily due to adjustments to deferred tax assets and the recording of net operating losses in a number of foreign jurisdictions offset by current year expense in other foreign jurisdictions. 52 The fiscal 2020 tax provision results primarily from foreign tax expense. The fiscal 2020 tax provision differs from the statutory rate primarily due 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. Deferred tax assets and liabilities as of March 31, are as follows: (In thousands) 2021 2020 Deferred tax assets: Accrued liabilities $ 9,141 $ 3,059 Allowance for expected credit losses and doubtful accounts 279 331 Federal losses and credit carryforwards 51,856 47,218 Foreign losses and credit carryforwards 2,103 1,523 State losses and credit carryforwards 11,642 10,911 Deferred revenue 464 582 Property and equipment and software amortization 171 163 Operating lease liabilities 2,694 1,297 Goodwill and other intangible assets 1,889 4,914 Other 90 88 80,329 70,086 Less: valuation allowance ( 74,631 ) ( 66,819 ) Total 5,698 3,267 Deferred tax liabilities: Operating lease right-of-use assets ( 2,312 ) ( 948 ) Goodwill and other intangible assets ( 2,514 ) ( 2,426 ) Other 7 ( 9 ) Total ( 4,819 ) ( 3,383 ) Total deferred tax assets (liabilities) $ 879 $ ( 116 ) 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. Our Hong Kong, Malaysia, and Singapore subsidiaries have $ 0.4 million, $ 0.1 million, and $ 0.2 million of net operating loss carryforwards, respectively. The losses for Hong Kong, Malaysia and Singapore can be carried forward indefinitely. Our India subsidiary operates in a “Special Economic Zone (“SEZ”)”. One of the benefits associated with the SEZ is that the India subsidiary is not subject to regular India income taxes during its first 5 years of operations which includes fiscal 2018 through fiscal 2022. The India subsidiary is then subject to 50 % of regular India income taxes during the second five years of operations which includes fiscal 2023 through fiscal 2027. The aggregate value of the benefit of the SEZ during the current fiscal year is $ 1.4 million as of March 31, 2021. The Company has paid minimum alternative taxes during the period of regular tax relief resulting in a credit of $ 1.4 million as of March 31, 2021. At March 31, 2021 we also had $ 165.6 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2022 through 2041. We recorded valuation allowances related to certain deferred income tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. At March 31, 2021, the total valuation allowance against deferred tax assets of $ 74.6 million was comprised of $ 73.7 million for federal and state deferred tax assets, and $ 0.9 million associated with deferred tax assets in Hong Kong, Malaysia, Singapore and the Philippines. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some, or all, of the deferred tax assets will not be realized. We have recorded a valuation allowance offsetting substantially all of our deferred tax assets. 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. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax assets, we will need to generate future taxable income before the expiration of the deferred tax assets governed by the tax code. Because of our losses in current and prior periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences. The amount of the valuation allowance, however, could be reduced in the near term. The exact timing will be based on the level of profitability that we are able to achieve and our visibility into future results. Our recorded tax rate may increase in subsequent periods following a valuation release. Any valuation allowance release will not affect the amount of cash paid for income taxes. 53 The undistributed earnings of our foreign subsidiaries are not subject to U.S. federal and state income taxes unless such earnings are distributed in the form of dividends or otherwise to the extent of current and accumulated earnings and profits. The undistributed earnings of foreign subsidiaries are permanently reinvested and totaled $ 8.4 million and $ 6.3 million as of March 31, 2021 and 2020, respectively. We made the determination of permanent reinvestment on the basis of sufficient evidence that demonstrates we will invest the undistributed earnings overseas indefinitely for use in working capital, as well as foreign acquisitions and expansion. The determination of the amount of the unrecognized deferred U.S. income tax liability related to the undistributed earnings is not practicable. We recorded a liability for uncertain tax positions. The aggregate changes in the balance of our uncertain tax positions were as follows for the years ended March 31: (In thousands) 2021 2020 2019 Balance at April 1 $ 575 $ 580 $ 687 Reductions relating to lapse in statute — ( 5 ) ( 107 ) Balance at March 31 $ 575 $ 575 $ 580 As of March 31, 2021, we had a liability of $ 0.6 million related to uncertain tax positions, the recognition of which would affect our effective income tax rate. 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. 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. We recognize interest accrued on any uncertain tax positions as a component of income tax expense. Penalties are recognized as a component of general and administrative expenses. We recognized interest and penalty expense of less than $ 0.1 million for the years ended March 31, 2021, 2020 and 2019. As of March 31, 2021 and 2020, we had approximately $ 0.5 million and $ 0.5 million, respectively, of interest and penalties accrued in other non-current liabilities on our Consolidated Balance Sheets. In the U.S. we file consolidated federal and state income tax returns where statutes of limitations generally range from three to five years. Although we have resolved examinations with the IRS through tax year ended March 31, 2010, U.S. federal tax years are open from 2006 forward due to attribute carryforwards. The statute of limitations is open from fiscal year 2014 forward in certain state jurisdictions. We also file income tax returns in international jurisdictions where statutes of limitations generally range from three to seven years. Years beginning after 2010 are open for examination by certain foreign taxing authorities. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act includes provisions addressing the carryback of net operating losses for specific periods, refunds of alternative minimum tax credits, temporary modification to the limitation placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property. Additionally, the CARES Act provides, among other provisions, for the deferral of the employer-paid portion of social security taxes through the end of 2020, with 50 % of the deferred amount due December 31, 2021 and the remaining 50 % due December 31, 2022; the CARES Act also provides for certain employee retention tax credits. As of March 31, 2021, these provisions are expected to provide us with approximately $ 0.1 million of additional liquidity due to the ability to accelerate outstanding alternative minimum tax credit refunds. Due to the net loss position of the Company, we do not anticipate impacts from net loss carryback or deductibility provisions. We deferred the employer-paid portion of social security taxes through December 31, 2020, but do not anticipate qualifying for employee retention tax credits. As of March 31, 2021, significant uncertainty continues to exist regarding the magnitude and duration of the impact of the COVID-19 pandemic; therefore, we cannot predict at this time the ultimate extent of its impact on our business operations, financial results and resulting effects to income taxes in future periods. See Part II, Item 1A. of this Annual Report for further discussion regarding risks associated with the COVID-19 pandemic. 10. Employee Benefit Plans Defined Contribution Plans We maintain 401(k) plans for employees located in the United States meeting certain service requirements. Generally, the plans allow eligible employees to contribute a portion of their compensation, and we match 100 % of the first 1% of the employee's pre-tax contributions and 50 % of the next 5% of the employee's pre-tax contributions. We may also make discretionary contributions each year for the benefit of all eligible employees under the plans. During fiscal 2021, we suspended matching contributions as part of the 54 cost reduction measures we have taken in response to uncertainties about the impact COVID-19 will have on our results of operations. Agilysys matching contributions were $ 0.1 million, $ 1.8 million, and $ 1.6 million in fiscal 20 2 1 , 20 20 , and 201 9 , respectively. We also maintain defined contribution retirement plans for employees located in the United Kingdom and in the Asia Pacific region in accordance with local statutory requirements and business practices. Defined Benefit Plan We maintain a defined benefit retirement plan (the “Gratuity Plan”) covering eligible employees of our India subsidiary in accordance with local statutory requirements and business practices. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation, or termination of employment, of an amount based on the respective employee’s salary and the tenure of employment with the Company. The Gratuity Plan is unfunded with obligation amounts recorded in the Consolidated Balance Sheets as “Employee benefit obligations” within “Other non-current liabilities.” Endorsement Split-Dollar Life Insurance Agilysys provides certain former executives with life insurance benefits through endorsement split-dollar life insurance arrangements. We entered into agreements with each of the former executives, whereby we must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their designated beneficiary. Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance sheet date. In the Consolidated Balance Sheets as of March 31, 2021 and 2020, the cash surrender value of $ 1.0 million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed to those executives' designated beneficiaries of $ 0.1 million, which approximates fair value, were recorded within "Other non-current liabilities." Changes in the cash surrender value of these policies related to gains and losses incurred on these investments are classified within “Other (income) expenses, net” in the accompanying Consolidated Statements of Operations. We recorded a gain of $ 31,000 , $ 14,000 and $ 15,000 in fiscal 2021, 2020, and 2019, respectively, related to the corporate-owned life insurance policies. 11. Commitments and Contingencies Legal Contingencies We are involved in legal actions that arise in the ordinary course of business. It is the opinion of management that the resolution of any current pending litigation will not have a material adverse effect on our financial position or results of operations. On April 6, 2012, Ameranth, Inc. filed a complaint against us in the U.S. District Court for the Southern District of California alleging that certain of our products infringe patents owned by Ameranth directed to configuring and transmitting hospitality menus (e.g., restaurant menus) for display on electronic devices, and synchronizing the menu content between devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. All but one of the patents at issue in the case were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. In September 2018, the District Court found the one surviving Ameranth patent invalid, and granted summary judgment in favor of the movant co-defendants. In November 2019, the U.S. Court of Appeals for the Federal Circuit affirmed the lower court’s summary judgement with respect to all claims except for two, which were not asserted against Agilysys. Ameranth’s writ of certiorari to the United States Supreme Court was denied in October 2020. Subsequently, Ameranth filed further pleading amendments and discovery requests with the District Court, which were opposed by the defendants. We were not a party to the appeal, and it is currently unclear what impact the summary judgment ruling or writ of certiorari may have on our case. Ameranth seeks monetary damages, injunctive relief, costs and attorneys’ fees from us. At this time, we are not able to predict the outcome of the remaining claims in the lawsuit, or any possible monetary exposure associated with the lawsuit. However, we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter. 55 12. Loss per Share The following data shows the amounts used in computing loss per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares. Year Ended March 31, (In thousands, except per share data) 2021 2020 2019 Numerator: Net loss $ ( 21,001 ) $ ( 34,067 ) $ ( 13,164 ) Series A convertible preferred stock issuance costs ( 1,031 ) — — Series A convertible preferred stock dividends ( 1,576 ) — — Net loss attributable to common shareholders $ ( 23,608 ) $ ( 34,067 ) $ ( 13,164 ) Denominator: Weighted average shares outstanding - basic and diluted 23,458 23,233 23,037 Loss per share - basic and diluted: $ ( 1.01 ) $ ( 1.47 ) $ ( 0.57 ) Anti-dilutive stock options, SSARs, restricted shares, performance shares and preferred shares 4,228 1,510 1,433 Basic earnings (loss) per share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 132,198 , 208,581 and 300,437 of restricted shares and performance shares at March 31, 2021, 2020 and 2019, respectively, as these shares were issued but were not vested and, therefore, not considered outstanding for purposes of computing basic earnings per share at the balance sheet dates. Diluted earnings (loss) per share includes the effect of all potentially dilutive securities on earnings per share. We have stock-settled appreciation rights ("SSARs") and unvested restricted shares that are potentially dilutive securities. 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 net loss 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. 13. Share-based Compensation We may grant non-qualified stock options, incentive stock options, SSARs, restricted shares, and restricted share units under our shareholder-approved 2020 Stock Incentive Plan (the 2020 Plan) for up to 2.25 million common shares, plus 868,864 common shares, the number of shares that were remaining for grant under the 2016 Stock Incentive Plan (the 2016 Plan) as of the effective date of the 2020 Plan, plus the number of shares remaining for grant under the 2016 Plan that are forfeited, settled in cash, canceled or expired. The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2020 Plan is 3.1 million. We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right exercises or restricted share and performance share awards. For SSARs, the exercise price must be set at least equal to the closing market price of our common shares on the date of grant. The maximum term of SSARs is seven years from the date of grant. The Compensation Committee of the Board of Directors establishes the period over which SSARs subject to a service condition vest and the vesting criteria for SSARs subject to a market condition. Restricted shares and restricted share units, whether time-vested or performance-based, may be issued at no cost or at a purchase price that may be below their fair market value, but are subject to forfeiture and restrictions on their sale or other transfer. Performance-based awards may be conditioned upon the attainment of specified performance objectives and other conditions, restrictions, and contingencies. Restricted shares and restricted share units have the right to receive dividends, or dividend equivalents in the case of restricted share units, if any, upon vesting, subject to the same forfeiture provisions that apply to the underlying awards. 56 We record compensation expense related to SSARs , restricted shares, and performance shares granted to certain employees and non-employee directors based on the fair value of the awards on the grant date. The fair value of restricted share s is based on the closing price of our common shares on the grant date. Under the 2020 Plan, the fair value of performance shares is based on the closing price of our common shares on the settlement date of the performance award, which is consistent with our annual bonus incentive plan as approved by the Compensation Committee of the Board of Directors. The fair value of SSAR s subject to a service condition 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 of SSARs subject to a market condition is estimated using a Lattice option pricing model that utilizes a binary tree and includes multiple assumptions including the volatility and life of the award to determine an appropriate fair value based on the award grant date. The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the Consolidated Statements of Operations for fiscal 2021, 2020 and 2019: Year Ended March 31, (In thousands) 2021 2020 2019 Product development 21,634 2,241 1,478 Sales and marketing 4,254 321 469 General and administrative 14,206 2,643 2,429 Total share-based compensation expense 40,093 5,205 4,376 Stock-Settled Stock Appreciation Rights SSARs are rights granted to an employee to receive value equal to the difference in the price of our common shares on the date of the grant and on the date of exercise. This value is settled only in common shares of Agilysys. We use a Black-Scholes-Merton option pricing model to estimate the fair value of service condition SSARs. The following table summarizes the principal assumptions utilized in valuing service condition SSARs granted in fiscal 2021, 2020 and 2019: 2021 2020 2019 Risk-free interest rate 0.31 % 1.38%-1.74% 2.68 % Expected life (in years) 4 4.5-5 5 Expected volatility 42.99 % 31.7%-32.42% 32.42 % Weighted-average grant date fair value $ 22.57 $ 10.01 $ 4.72 The risk-free interest rate is based on the yield of a zero coupon U.S. Treasury bond whose maturity period approximates the expected life of the SSARs. The expected life is estimated using historical data representing the period of time the awards are expected to be outstanding. The estimated fair value of the SSARs granted is recognized over the vesting period of the awards utilizing the graded vesting method. Under this method, the compensation cost related to unvested amounts begins to be recognized as of the grant date. We use a Lattice option pricing model to estimate the fair value of market condition SSARs. The following table summarizes the principal assumptions utilized in valuing market condition SSARs granted in fiscal 2021 and 2020: 2021 2020 Risk-free interest rate over contractual term 0.60 % 1.40 % Expected volatility 40.00 % 31.70 % Suboptimal exercise factor 2.50x 3.0x Weighted-average grant date fair value $ 19.55 $ 9.60 57 The following table summarizes the activity during fiscal 2021 for SSARs awarded under the 2020 and 2016 Plans: (In thousands, except share and per share data) Number of Rights Weighted- Average Exercise Price Remaining Contractual Term Aggregate Intrinsic Value (per right) (in years) Outstanding at April 1, 2020 1,644,888 $ 21.07 Granted 2,234,858 20.02 Exercised ( 736,778 ) 18.75 Forfeited ( 72,207 ) 19.80 Cancelled/expired ( 2,508 ) 14.22 Outstanding at March 31, 2021 3,068,253 $ 20.90 5.1 $ 83,038 Exercisable at March 31, 2021 1,913,692 $ 17.74 4.6 $ 57,829 Vested and expected to vest at March 31, 2021 3,068,253 $ 20.90 5.1 $ 83,038 The following table presents additional information related to SSARs activity during fiscal 2021, 2020 and 2019: (In thousands) 2021 2020 2019 Compensation expense $ 35,808 $ 1,666 $ 943 Total intrinsic value of SSARs exercised $ 25,153 $ 519 $ 907 Total fair value of SSARs vesting $ 31,380 $ 1,328 $ 1,165 As of March 31, 2021, total unrecognized share-based compensation expense related to non-vested service condition SSARs was $ 15.1 million, which is expected to be recognized over the weighted-average vesting period of 2.0 years. A total of 466,471 shares, net of 127,047 shares withheld to cover the employee’s minimum applicable income taxes, were issued from treasury shares to settle SSARs exercised during the twelve months ended March 31, 2021. The shares withheld were returned to treasury shares. Restricted Shares We granted shares to certain of our Directors, executives and key employees under the 2020 and 2016 Plans, the vesting of which is service-based. The following table summarizes the activity during the twelve months ended March 31, 2021 for restricted shares awarded under the 2020 and 2016 Plans: Number of Shares Weighted- Average Grant- Date Fair Value (per share) Outstanding at April 1, 2020 178,462 $ 19.89 Granted 145,210 45.97 Vested ( 159,905 ) 28.72 Forfeited ( 31,569 ) 20.68 Outstanding at March 31, 2021 132,198 $ 37.67 The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of our common shares on the grant date. During fiscal 2021, a total of 132,444 shares, net of 28,330 shares withheld from the vested restricted shares to cover the employee's minimum applicable income taxes, were issued from treasury. The shares withheld were returned to treasury shares. The following table presents additional information related to restricted stock activity during fiscal years 2021, 2020, and 2019: (In thousands) 2021 2020 2019 Compensation expense $ 4,285 $ 3,385 $ 2,803 Total fair value of restricted share vesting $ 7,669 $ 4,004 $ 4,383 58 As of March 31, 2021, total unrecognized share-based compensation expense related to non-vested restricted stock was $ 4.0 million, which is expected to be recognized over a weighted-average vesting period of 1.9 years. We do not include restricted stock in the calculation of earnings per share until the shares are vested. Performance Shares The following table summarizes the activity during fiscal 2021 for performance shares awarded under the 2016 Plan: Number of Shares Weighted- Average Grant- Date Fair Value (per share) Outstanding at April 1, 2020 30,120 $ 22.41 Granted — — Vested ( 6,714 ) 22.41 Forfeited ( 23,406 ) 22.41 Outstanding at March 31, 2021 — $ — Based on the performance goals, management estimates a liability of $ 180,000 to be settled through the granting of performance shares under the 2020 plan after March 31, 2021. The number of shares granted will be based on the closing price of our common shares on the settlement date. As of March 31, 2021, total share-based compensation expense related to performance shares has been fully recognized. The following table presents additional information related to performance share activity during fiscal 2021, 2020 and 2019: (In thousands) 2021 2020 2019 Compensation expense $ 180 $ 153 $ 630 Total fair value of performance share vesting $ 115 $ 513 243 Once attainment of the performance goals becomes probable, compensation expense related to performance share awards is recognized ratably over the vesting period based upon the closing market price of our common shares on the grant date. 14. Preferred Stock Series A Convertible Preferred Stock On May 22, 2020, we completed the sale of 1,735,457 shares of our preferred stock, without par value, designated as “Series A Convertible Preferred Stock” (the “Convertible Preferred Stock”) to MAK Capital Fund L.P. and MAK Capital Distressed Debt Fund I, LP (the “Holders”) each, in its capacity as a designee of MAK Capital One LLC (the “Purchaser”), pursuant to the terms of the Investment Agreement, dated as of May 11, 2020, between the Company and the Purchaser, for an aggregate purchase price of $ 35 million. We incurred issuance costs of $ 1.0 million. We added all issuance costs that were netted against the proceeds upon issuance of the Convertible Preferred Stock to its redemption value. As disclosed in our Annual Report for the fiscal year ended March 31, 2020, Michael Kaufman, the Chairman of the Company’s Board of Directors, is the Chief Executive Officer of MAK Capital One LLC. Accounting Policy We classify convertible preferred stock as temporary equity in the consolidated balance sheets due to certain contingent redemption clauses that are at the election of the Holders. We increase the carrying value of the convertible preferred stock to its redemption value (described below) for all undeclared dividends using the interest method. The Convertible Preferred Stock has the following rights, preferences and restrictions (the Certificate of Amendment included as Exhibit 3.1 to our Current Report on Form 8-K, filed on May 26, 2020, defines all terms not otherwise defined below): Voting The Holders will be entitled to one vote for each share of Convertible Preferred Stock upon all matters presented to the common shareholders of the Company , and except as otherwise provided by the Amended Articles of Incorporation of the Company or required 59 by law, the Holders and common shareholders will vote together as one class on all matters. Additionally, certain matters specific to the Convertible Preferred Stock will require the approval of two-thirds of the outstanding Convertible Preferred Stock, voting as a separate class. Liquidation Preference Upon a liquidation, dissolution or winding up of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the purchase price paid by the Purchaser, plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock. Redemption On and after the fifth anniversary of the date the Convertible Preferred Stock is initially issued, the Company will have the right, and the Holders will have the right to require the Company, in each case, at the initiating party’s election, to redeem all, but not less than all, of the then-outstanding Convertible Preferred Stock for an amount equal to the Liquidation Preference. Conversion Each Holder will have the right, at its option, to convert its Convertible Preferred Stock, in whole or in part, into fully paid and non-assessable shares of common stock at a conversion price equal to $ 20.1676 per share (as may be adjusted from time to time, as described in the Certificate of Amendment). Subject to certain conditions, the Company may, at its option, require conversion of all of the outstanding shares of Convertible Preferred Stock to common stock if, at any time after November 22, 2023 , the daily volume-weighted average price of the Company’s common stock is at least 150 % of the conversion price for at least 20 trading days during the 30 consecutive trading days immediately preceding the date the Company notifies the Holders of the election to convert. Dividends The Holders are entitled to dividends on the Liquidation Preference at the rate of 5.25 % per annum, payable semi-annually either (i) 50% in cash and 50% in kind as an increase in the then-current Liquidation Preference or (ii) 100% in cash, at the option of the Company. The Holders are not entitled to participate in dividends declared or paid on the common stock on an as-converted basis; however, certain anti-dilution adjustments to the Convertible Preferred Stock may be made in the event of such dividends. The Convertible Preferred Stock ranks senior to the Company’s common stock with respect to dividends and distributions on liquidation, winding-up and dissolution. Upon a liquidation, dissolution or winding up of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the Liquidation Preference and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock. Change in Control Events Upon certain change of control events involving the Company, the Company has the right, and each Holder has the right, in each case, at the initiating party’s election, to require the Company to repurchase all or a portion of its then-outstanding shares of Convertible Preferred Stock for cash consideration equal to (i) 150% of the then-current Liquidation Preference for a change of control occurring prior to the third anniversary of the date the Convertible Preferred Stock is initially issued, (ii) 125% of the then-current Liquidation Preference for a change of control occurring on or following the third anniversary and prior to the fifth anniversary of the date the Convertible Preferred Stock is initially issued and (iii) 100% of the then-current Liquidation Preference for a change of control occurring on or following the fifth anniversary of the date the Convertible Preferred Stock is initially issued. Standstill Restrictions The Purchaser and its affiliates are subject to certain customary standstill provisions that restrict them from, among other actions, acquiring additional securities of the Company if such acquisition would result in the Purchaser beneficially owning in excess of 25 % of the outstanding shares of common stock of the Company until the later of the third anniversary of the date the Convertible Preferred Stock is initially issued and the date on which the Purchaser no longer has record or beneficial ownership of common stock and Convertible Preferred Stock that constitute at least 10 % of the outstanding common stock. 60 15. Subsequent Events None. 16. Related Party Transaction See Note 14. Preferred Stock , for description of the MAK Capital investment in the Company. Michael Kaufman, the Chairman of the Company’s Board of Directors, is the Chief Executive Officer of MAK Capital. Schedule II - Valuation and Qualifying Accounts Years ended March 31, 2021, 2020 and 2019 (In thousands) Balance at beginning of year Charged to costs and expenses Deductions Balance at end of year 2021 Deferred tax valuation allowance $ 66,819 $ 7,812 $ — $ 74,631 Allowance for expected credit losses $ 1,634 $ 508 $ ( 922 ) $ 1,220 2020 Deferred tax valuation allowance $ 57,852 $ 8,967 $ — $ 66,819 Allowance for doubtful accounts $ 788 $ 1,434 $ ( 588 ) $ 1,634 2019 Deferred tax valuation allowance $ 54,260 $ 3,592 . $ 57,852 Allowance for doubtful accounts $ 900 $ 539 $ ( 651 ) $ 788 61 Item 9. Change in and Disagreements With Accountants on Accounting and Financial Disclosures. None.