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Item 7. Management’s Discussion and Analysis

2023-06-06 compared with 2022-06-08 · 59 added, 191 removed, 217 unchanged (54% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements, the accompanying notes, and other information included in this Annual Report.

The following discussion and analysis compares the change in the consolidated financial statements for fiscal years 2023 and 2022 and should be read together with our consolidated financial statements, the accompanying notes, and other information included in this Annual Report.

In particular, the risk factors contained in Item 1A may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources.

The following discussion contains forward-looking statements, such as statements regarding COVID-19's anticipated impacts on our business, our future operating results and financial position, our business strategy and plans, our market growth and trends, and our objectives for future operations.

For comparisons of fiscal years 2022 and 2021, see our Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, , Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the SEC on June 8, 2022, and incorporated herein by reference.

The following discussion contains forward-looking statements, such as statements regarding anticipated impacts on our business, our future operating results and financial position, our business strategy and plans, our market growth and trends, and our objectives for future operations.

Please see "Note Regarding Forward-Looking Statements" for more information about relying on these forward-looking statements.

Overview and Fiscal Year 2022 Highlights

Overview and Highlights

We are a technology company whose mission is to deliver innovative solutions to forward-thinking organizations across the world.

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and income taxes.

Highlights from fiscal year 2022 included:

• We announced a new partnership with Supermicro and our ActiveScale 6.0 software and storage platform, as we expand our Object Storage line of business.

• We completed the Pivot3 business acquisition, which adds a portfolio of industry leading hyperconverged infrastructure (HCI) and intelligent software solutions for the security and surveillance markets.

• We completed the EnClouden assets acquisition which will enable us to expand the addressable market for our video surveillance portfolio, offering customers a solution using their server hardware of choice with a flexible subscription-based software model.

• We completed the refinancing of our term loan, significantly reducing our annual debt service and greatly increasing our financial flexibility related to covenants and restrictions.

• We brought on industry veteran John Hurley as Chief Revenue Officer.

John brings extensive experience working with the largest global enterprise, commercial, and service provider customers.

• We announced a new collaboration and Remote Editing Solution for Adobe Premiere Pro Users.

• We announced a partnership with IBM on the next generation of LTO technology in which we will collaborate with IBM in its development of LTO-10 tape drives and media in order to accelerate time-to-market, capacity, and performance.

• We were awarded one Platinum and one Gold 'ASTORS' Homeland Security Award from American Security Today.

The Annual 'ASTORS' Awards Program, is specifically designed to honor distinguished government and vendor solutions that deliver enhanced value, benefit, and intelligence to end-users in a variety of government, homeland security, enterprise, and public safety vertical markets.

COVID-19 IMPACT AND ASSOCIATED ACTIONS

Since the beginning of March 2020, COVID-19 has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread,

including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders.

These measures may remain in place for a significant period of time.

In light of these events, we have taken actions to protect the health and safety of our employees while continuing to serve our global customers as an essential business.

We have implemented more thorough sanitation practices as outlined by health organizations and instituted mitigation practices at our locations around the world, including working from home, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, and decreasing employee travel.

We have seen a gradual stabilization in our business during the second half of fiscal 2021 and into fiscal 2022 as customers increasingly adapted to the COVID-19 environment.

However, COVID-19 has caused a significant disruption to the global supply chain, which continues to have a negative impact on our business.

Before the current disruptions in the global supply chain our historical backlog was very limited and typically represented less than 5% of quarterly revenues.

During our fourth fiscal quarter our backlog remained above $60 million for the second consecutive quarter, up from $50 million as of September 30, 2021, and $30 million as of June 30, 2021.

Approximately 80% of the ending backlog represented tape products a majority of which is for orders from our hyperscale customers.

We anticipate that supply chain constraints will remain challenging, limiting our ability to ship against all customer demand and recognize a meaningful portion of the current backlog.

We will continue to actively monitor the impact of COVID-19 and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

See “The recent COVID-19 pandemic could adversely affect our business, results of operations and financial condition” in Item 1A for more information regarding the risks we face as a result of the COVID-19 pandemic.

RESULTS OF OPERATIONS

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Total operating expenses 159,946 160,875

Income (loss) from operations (13,840) 8,403 21,204

Other expense, net (251) (1,312) (261)

Loss from operations (26,007) (13,840)

Other income (expense), net 1,956 (251)

Interest expense (10,560) (11,888)

Loss on debt extinguishment, net (1,392) (4,960)

Loss before income taxes (30,939) (35,220) (4,407)

Net loss before income taxes (36,003) (30,939)

Income tax provision 1,940 1,341

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Product revenue $ 266,537 65 % $ 223,761 60 % $ 42,776 19 %

Secondary storage systems $ 117,688 32 % $ 89,000 25 % $ 28,688 32 %

Primary storage systems 56,043 15 % 69,644 20 % $ (13,601) (20) %

Devices and media 50,030 13 % 51,164 15 % (1,134) (2) %

Total product revenue $ 223,761 60 % $ 209,808 60 % $ 13,953 7 %

Service and subscription revenue 132,510 32 % 133,689 36 % (1,179) (1) %

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In fiscal 2023, product revenue increased $42.8 million, or 19%, as compared to fiscal 2022.

Secondary storage systems increased by 32%, driven by increased demand from our large hyperscale customers, as well as continued strong demand globally for data protection and archive solutions.

Primary storage systems decreased 20%, driven by large end-of-life purchases in the prior year.

Devices and media decreased $1.1 million driven partially by decreased supply of LTO tape drives.

The primary driver of the increase was demand from our large hyperscale customers, as well as continued strong demand globally for data protection and archive solutions.

Outside of the Tape and Hyperscale business, our remaining Secondary and Primary storage systems are also offer as a subscription.

We anticipate the product revenue portion of our Primary and Secondary storage systems to decrease as we continue to transition to subscription-based offerings.

The Devices and media also decreased partially driven by lower volume of LTO® media sales.

Service and Subscription Revenue

Service and subscription revenue increased $8.8 million, or 7%, in fiscal 2022 compared to fiscal 2021.

This increase was due in part to acquisitions made during fiscal 2022.

The increase also reflects a shift to subscription-based software licensing.

Service and subscription revenue decreased $1.2 million, or 1%, in fiscal 2023 compared to fiscal 2022.

This decrease was due in part to certain long-lived products reaching their end-of-service-life, partially offset by new support bookings and the transition towards subscription-based licensing.

Royalty Revenue

We receive royalties from third parties that license our LTO® media patents through our membership in the LTO® consortium.

Royalty revenue increased $0.5 million, or 3%, in fiscal 2022, as compared to fiscal 2021, related to shifts in market unit volumes towards more recent technologies such as LTO9 and LTO8.

Royalty revenue decreased $1.7 million, or 11%, in fiscal 2023, as compared to fiscal 2022, related to lower overall unit shipments.

Gross Profit and Margin

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Product Gross Margin

Product gross margin decreased 430 basis points for fiscal 2022, as compared with the same period in 2021.

This decrease was due primarily to an increase in materials cost and freight, as global supply chain constraints disrupted normal procurement channels.

Product gross margin decreased 670 basis points for fiscal 2023, as compared to fiscal 2022.

This decrease was due primarily to a $9.8 million inventory provision recorded during fiscal 2023.

Due to longer purchasing lead times and other factors caused by the global supply chain disruptions occurring since the beginning of the COVID-19 pandemic, certain inventory has become obsolete due to next generation products being released and legacy products being discontinued.

In addition, following our integration of several past acquisitions, certain legacy products were discontinued and replaced with updated product offerings rendering the related inventory obsolete.

We do not believe that the magnitude of this inventory provision is indicative of our ongoing operations and is not expected to be repeated in the near term.

Excluding this non-recurring adjustment, product gross margin has declined approximately 370 basis points for fiscal 2023, as compared to fiscal 2022 primarily due to the continuation of pricing pressure on materials cost and freight, as global supply chain constraints disrupted normal procurement channels.

Our product mix was also more heavily weighted to lower margin solutions.

Service and subscription gross margin decreased 300 basis points for fiscal 2022, as compared with the same period in 2021.

This decrease was due primarily to increased costs for freight and repair on replacement parts.

Service and subscription Gross Margin

Service and subscription gross margin decreased 250 basis points for fiscal 2023, as compared to fiscal 2022.

This decrease was due partially to increased costs for freight and repair on replacement parts in addition to additional inventory write downs required for service parts caused by the transition of certain service logistics activities to a third party provider.

Royalty Gross Margin

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Total operating expenses $ 159,946 39 % $ 160,875 43 % $ (929) (1) %

In fiscal 2022, research and development expense increased $10.1 million, or 24%, as compared with fiscal 2021.

This increase was partially attributable to acquisitions made during fiscal 2022 which broaden our portfolio in the video surveillance and media and entertainment markets.

We have also invested in a partnership with IBM to develop the next generation LTO technology.

In fiscal 2023, research and development expense decreased $7.3 million, or 14%, as compared with fiscal 2022.

This decrease was the result of one-time acquisition-related costs that occurred in the prior year, as well as the overall consolidation of those acquisitions.

In fiscal 2023, sales and marketing expenses increased $3.1 million, or 5%, as compared with fiscal 2022.

This increase was partially driven by acquisitions made during fiscal 2022, expanding us into new markets.

Marketing program spend also increased as in-person events started to occur again after a halt in the previous year.

This increase was partially driven by increased investment in sales resources in key strategic markets, as well as the resumption of large trade shows and other events that are a key driver of our marketing activities.

In fiscal 2023, general and administrative expenses increased $2.5 million, or 6%, as compared with fiscal 2022.

This increase was driven primarily by one-time legal and financial expenses related to acquisitions.

In fiscal 2022, restructuring expenses decreased $2.9 million, or 77%, as compared with fiscal 2021.

This decrease is driven by corporate restructuring activities in the prior year as we consolidated our physical footprint and operations in certain markets.

This increase was driven primarily by transition costs as we complete large projects in our IT and facilities infrastructure.

In fiscal 2023, restructuring expenses increased $0.8 million, or 89%, as compared with fiscal 2022.

This increase is driven by corporate restructuring activities as we consolidated our physical footprint and operations in certain markets.

Other expense, net

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revenue $ Change % Change

Other expense, net $ (251) 0 % $ (1,312) 0 % $ (1,061) (81) %

In fiscal 2022, other expense, net decreased $1.1 million or 81%, compared to fiscal 2021.

The decrease was primarily related to differences in foreign currency gains and losses during each period.

Other income (expense), net $ 1,956 1 % $ (251) 0 % $ (2,207) (879) %

In fiscal 2023, other income (expense), net increased $2.2 million or 879%, compared to fiscal 2022.

The increase was primarily related to differences in foreign currency gains and losses during each period, as well as the sale of IP licenses.

Interest expense

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In fiscal 2023, interest expense decreased $1.3 million, or 11%, as compared to fiscal 2022.

This decrease was primarily due to a lower principal balance and a lower effective interest rate on our Term Loan.

This decrease was primarily due to a lower principal balance on our Term Loan.

Loss on debt extinguishment, net

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Loss on debt extinguishment, net (1,392) — % (4,960) (1) % (3,568) (72) %

In fiscal 2022, loss on debt extinguishment, net was related to prepayment of our Senior Secured Term Loan that occurred during the period offset by the $10.0 million gain on the forgiveness of the Paycheck Protection Program loan.

In fiscal 2021, we incurred a loss on debt extinguishment related to our Senior Secured Term Loan.

In fiscal 2023, loss on debt extinguishment, net was related to prepayment of our long-term debt.

Income tax provision

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Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.

Comparison of the Years Ended March 31, 2021 and 2020

Year Ended March 31,

(in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Product revenue

Secondary storage systems $ 89,000 25 % $ 111,672 28 % $ (22,672) (20) %

Primary storage systems 69,644 20 % 77,152 19 % $ (7,508) (10) %

Devices and media 51,164 15 % 62,344 15 % (11,180) (18) %

Total product revenue $ 209,808 60 % $ 251,168 62 % $ (41,360) (16) %

Service and subscription revenue 124,904 36 % 131,050 33 % (6,146) (5) %

Royalty revenue 14,864 4 % 20,731 5 % (5,867) (28) %

Total revenue $ 349,576 100 % $ 402,949 100 % $ (53,373) (13) %

Product Revenue

In fiscal 2021, product revenue decreased $41.4 million, or 16%, as compared to fiscal 2020.

Secondary storage systems decreased by 20%, driven by fluctuating purchase cycles with our hyperscale customers.

Primary storage systems decreased 10%, driven by early disruption in the media and entertainment market as COVID-19 significantly decreased major television and film production.

Devices and media decreased $11.2 million driven partially by unusually high demand in fiscal 2020 following the resolution of a legal dispute, which had caused a constraint on LTO tape supply between the two principal suppliers in the market.

Service and Subscription Revenue

Service revenue decreased $6.1 million, or 5%, in fiscal 2021 compared to fiscal 2020.

This decrease was due to reduced support renewals from our legacy backup customers, partially offset by new customer support agreements and installations.

Royalty Revenue

We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium.

Royalty revenue decreased $5.9 million, or 28%, in fiscal 2021, as compared to fiscal 2020, related to overall declines in market unit volumes as the primary use of tape transitions from backup to archive workflows.

Gross Profit and Margin

Year Ended March 31,

(in thousands) 2021 Gross

margin % 2020 Gross

margin % $ Change Basis point change

Product gross profit $ 59,551 28.4 % $ 71,408 28.4 % $ (11,857) —

Service and subscription gross profit 76,338 61.1 % 80,369 61.3 % (4,031) (20)

Royalty gross profit 14,864 100.0 % 20,731 100.0 % (5,867) —

Gross profit $ 150,753 43.1 % $ 172,508 42.8 % $ (21,755) 30

Product Gross Margin

Product gross margin was flat comparing fiscal 2021 to fiscal 2020.

Service and Subscription Gross Margin

Service and subscription gross margin decreased 20 basis points for fiscal 2021, as compared with the same period in 2020.

This decrease was due primarily to reduced service and subscription revenues from some of our legacy backup customers, partially offset by a reduction in service and subscription costs.

Royalty Gross Margin

Royalties do not have significant related cost of sales.

Operating expenses

Year Ended March 31,

(in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Research and development $ 41,703 12 % $ 36,301 9 % $ 5,402 15 %

Sales and marketing 54,945 16 % 59,524 15 % (4,579) (8) %

General and administrative 42,001 12 % 54,457 14 % (12,456) (23) %

Restructuring charges 3,701 1 % 1,022 — % 2,679 262 %

Total operating expenses $ 142,350 41 % $ 151,304 38 % $ (8,954) (6) %

In fiscal 2021, research and development expense increased $5.4 million, or 15%, as compared with fiscal 2020.

This increase was partially attributable to an increase in research and development headcount and professional services cost related to new product development.

Most notably this includes headcount related to business acquisitions and integration of the associated development teams.

In fiscal 2021, sales and marketing expenses decreased $4.6 million, or 8%, as compared with fiscal 2020.

This decrease was driven by a decrease in compensation as the result of lower sales performance and a decrease in marketing programs and professional services costs.

Travel expenses were also significantly reduced during the fiscal year due to restrictions from the COVID-19 pandemic.

In fiscal 2021, general and administrative expenses decreased $12.5 million, or 23%, as compared with fiscal 2020.

This decrease was driven primarily by lower costs related to our prior financial restatement and related activities, which we primarily incurred during fiscal 2019 and fiscal 2020 and decreased facilities expenses as we consolidate our physical footprint.

These decreases were partially offset by increases to software expense as we modernize our existing IT infrastructure.

In fiscal 2021, restructuring expenses increased $2.7 million, or 262%, as compared with fiscal 2020.

This increase was primarily due to footprint and associated headcount reductions that occurred in fiscal 2021, as well as changes in key leadership positions.

Other expense, net

Year Ended March 31,

(in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Other expense $ (1,312) 0 % $ (261) 0 % $ 1,051 403 %

Interest expense (27,522) (8) % (25,350) (6) % 2,172 9 %

Loss on debt extinguishment, net (14,789) (4) % — — % 14,789 100 %

In fiscal 2021, other expense, net increased $1.1 million or 403%, compared to fiscal 2020.

The increase was primarily related to differences in foreign currency gains and losses during each period.

Interest expense

Year Ended March 31,

(in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Interest expense (27,522) (8) % (25,350) (6) % 2,172 9 %

In fiscal 2021, interest expense increased $2.2 million, or 9%, as compared to fiscal 2020.

This increase was primarily due to a higher average principal balance of our outstanding debt.

Loss on debt extinguishment, net

Year Ended March 31,

(in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Loss on debt extinguishment, net (14,789) (4) % — — % 14,789 100 %

In fiscal 2021, we incurred a loss on debt extinguishment related to our Senior Secured Term Loan.

Income tax provision

Year Ended March 31,

(in thousands) 2021 % of

revenue 2020 % of

revenue $ Change % Change

Income tax provision $ 239 — % $ 803 — % $ (564) (70) %

Our income tax provision is primarily influenced by foreign and state income taxes.

In fiscal 2021, the income tax provision decreased $0.6 million or 70%, compared to fiscal 2020, related primarily to a valuation allowance recorded in fiscal 2020 for certain foreign deferred tax assets.

Due to our history of net losses in the U.S., the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets.

Accordingly, we have established a full valuation allowance against our U.S.

and certain foreign net deferred tax assets.

Significant management judgement is required in assessing our ability to realize any future benefit from our net deferred tax assets.

We intend to maintain this valuation allowance until sufficient positive evidence exists to support its reversal.

Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.

Liquidity and Capital Resources

We consider liquidity in terms of the sufficiency of internal and external cash resources to fund our operating, investing and financing activities.

Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our Amended PNC Credit Facility (as defined below).

Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our balance sheet and amounts available under our credit facility with PNC Bank, National Association (as amended from time to time, the “PNC Credit Facility”) pursuant to the Amended Restated Revolving Credit and Security Agreement dated December 27, 2018.

We require significant cash resources to meet obligations to pay principal and interest on our outstanding debt, provide for our research and development activities, fund our working capital needs, and make capital expenditures.

Our future liquidity requirements will depend on multiple factors, including our research and development plans and capital asset needs.

We are subject to the risks arising from COVID-19 which have caused substantial financial market volatility and have adversely affected both the U.S.

and the global economy.

We believe that these social and economic impacts have had a negative effect on sales due to the decline in certain of our customers' ability or willingness to purchase our products and services.

We have also experienced negative impacts on sales due to global supply chain constraints which has resulted in a significant increase in our sales backlog compared to our historical levels.

The extent of the impacts will depend, in part, on how long the negative trends in customer demand and supply chain levels will continue.

We expect the impact of COVID-19 to continue to have a significant impact on our liquidity and capital resources.

We had cash and cash equivalents of $5.2 million as of March 31, 2022, compared to $27.4 million as of March 31, 2021.

These amounts exclude $0.0 and $5.0 million in long-term restricted cash that we were required to maintain under our PNC Credit Facility, and $0.3 million and $0.7 million of short-term restricted cash as of March 31, 2022 and March 31, 2021, respectively.

As of March 31, 2022 we had $5.0 million available to borrow under the PNC Credit Agreement.

We generated negative cash flows from operations of approximately $33.7 million, $0.8 million and $1.2 million for the fiscal years ended March 31, 2022, 2021 and 2020, respectively, and generated net losses of approximately

$32.3 million, $35.5 million, and $5.2 million for the fiscal years ended March 31, 2022, 2021 and 2020, respectively.

We have funded operations through the sale of common stock, term debt borrowings, revolving credit facility borrowings and proceeds from the Paycheck Protection Program Loan described in Note 5:

Management believes that it has the ability to obtain additional debt or equity financing, if required, and has historically been able to do so.

Management also believes that current working capital, borrowings available under the revolving credit facility and future equity financing (including the April 22, 2022 sale of 30 million shares of our common stock for gross proceeds of $67.5 million) or debt financing will provide the Company with sufficient capital to fund operations for at least one year from the financial statement issuance date.

There is no assurance that we would be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to us.

Our outstanding long-term debt amounted to $107.2 million as of March 31, 2022, net of $4.9 million in unamortized debt issuance costs and $4.4 million in current portion of long-term debt, and $90.9 million as of March 31, 2021 net of $9.7 million in unamortized debt issuance costs and $1.9 million in current portion of long-term debt.

We had cash and cash equivalents of $26.0 million as of March 31, 2023, which excludes $0.2 million.

of short-term restricted cash as of March 31, 2023.

Our total outstanding Term Loan debt was $74.7 million, and we had $20.0 million available to borrow under the PNC Credit Facility as of March 31, 2023.

We generated negative cash flows from operations of approximately $4.9 million and $33.7 million for the fiscal years ended March 31, 2023 and 2022, respectively, and generated net losses of approximately $37.9 million and $32.3 million for the fiscal years ended March 31, 2023 and 2022, respectively.

We have funded operations through the sale of common stock, term debt borrowings and revolving credit facility borrowings described in Note 5:

On June 1, 2023, the Company entered into amendments to the Term Loan and the PNC Credit Facility.

The amendments, among other things, (a) amended the total net leverage ratio financial covenant commencing with the fiscal quarter ended June 30, 2023;

(b) amended the minimum liquidity financial covenant to decrease the minimum liquidity to $15 million;

and (c) amended the “EBITDA” definition to increase the add-back cap on non-recurring items including restructuring charges during the fiscal years ended March 31, 2024 and 2025.

The Term Loan amendment also provided an advance of $15 million in additional Term Loan borrowings.

With the additional term debt borrowings, in addition to the amendments to the credit agreements, we forecasted that operating performance, cash, current working capital and borrowings available under the PNC Credit Facility will provide us with sufficient capital to fund operations for at least one year from the financial statement issuance date.

If required, there is no assurance that we would be able to obtain sufficient additional funds when needed or that such funds, if available, would be obtainable on terms satisfactory to us.

Our outstanding long-term debt amounted to $83.1 million as of March 31, 2023, net of $3.3 million in unamortized debt issuance costs and $5.0 million in current portion of long-term debt.

We are subject to various debt covenants under our debt agreements.

Our failure to comply with our debt covenants could materially and adversely affect our financial condition and ability to service our obligations.

On March 15, 2022, we received waivers of our financial covenants under our term debt and PNC Credit Facility.

We believe we were in compliance with all covenants under our debt agreements as of the date of filing of this Annual Report on Form 10-K.

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Net Cash Used in Operating Activities

Net cash used in operating activities was $33.7 million for the year ended March 31, 2022, primarily attributable to $30.5 million of changes in assets and liabilities due primarily to working capital requirements due to higher inventories and prepaid expenses.

Net cash used in operating activities was $0.8 million for the year ended March 31, 2021, primarily attributable to cash provided by operating activities excluding changes in assets and liabilities of $3.6 million offset by working capital changes.

Net cash used in operating activities was $1.2 million for the year ended March 31, 2020, primarily attributable $20.9 million of changes in assets and liabilities due primarily to lower deferred revenue and an increase in manufacturing inventories offset by cash provided by operating activities excluding changes in assets and liabilities.

Net cash used in operating activities was $4.9 million for the year ended March 31, 2023, primarily attributable to cash provided by operating activities excluding changes in assets and liabilities of $1.5 million offset by cash used associated with working capital changes of $6.4 million including cash used related to manufacturing and service inventories of $5.3 million.

Net Cash Used in Investing Activities

Net cash used in investing activities was $15.6 million for the year ended March 31, 2023, primarily attributable to $12.6 million of capital expenditures and $3.0 million of cash paid related to the deferred purchase price for a prior business acquisition.

Net cash used in investing activities was $14.1 million for the year ended March 31, 2022, primarily attributable to $7.8 million of business acquisitions and $6.3 million of capital expenditures.

Net cash used in investing activities was $9.6 million for the year ended March 31, 2021, primarily attributable to $6.9 million of capital expenditures and $2.7 million for a business acquisition.

Net cash used in investing activities was $4.6 million for the year ended March 31, 2020, primarily attributable to $2.6 million of capital expenditures and $2.0 million for a business acquisition.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $20.2 million for the year ended March 31, 2022 due primarily to $17.7 million of borrowings under PNC Credit Facility.

Net cash provided by financing activities was $31.3 million for the year ended March 31, 2021 due primarily to a secondary equity offering which generated net proceeds of $96.8 million, term loan borrowings of $19.4 million (net of lender fees of $0.6 million), $10.0 million in borrowings under the Paycheck Protection Program, offset in part by the prepayment of $92.3 million of our term debt.

Net cash provided by financing activities was $1.2 million for the year ended March 31, 2020 related primarily to net borrowings under the Amended PNC Credit Facility offset by principal repayments on our term debt.

Net cash provided by financing activities was $41.2 million for the year ended March 31, 2023 due primarily to $66.2 million of net cash received from the Rights Offering of 30 million shares of our common stock offset in part by a $20.0 million prepayment of our term debt and term debt principal amortization payments and amendment fees totaling $3.3 million.

Net cash provided by financing activities was $20.2 million for the year ended March 31, 2022, primarily related to borrowings under our credit facility, and proceeds from the new Term Loan offset by the repayment in full of the Senior Secured Term Loan.

Commitments and Contingencies

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(1) Consists of (i) principal and interest payments on our term loan based on the amount outstanding and interest rates in effect at March 31, 2023, and (ii) principal, interest, and unused commitment fees on our PNC Credit Facility based on the amount outstanding and rates in effect at March 31, 2023.

Term loan debt matures on August 5, 2026.

(2) Represents aggregate future minimum lease payments under non-cancelable operating leases.

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CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The preparation of our consolidated financial statements in accordance with U.S.

GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K.

The preparation of our consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K.

On an ongoing basis, we evaluate estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

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Installation services are typically completed within a short period of time and revenue from these services are recognized at the point when installation is complete.

A majority of the Company's consulting and training revenue does not take significant time to complete therefore these obligations are satisfied upon completion of such services at a point in time.

A majority of our consulting and training revenue does not take significant time to complete therefore these obligations are satisfied upon completion of such services at a point in time.

We license certain products under royalty arrangements, pursuant to which our licensees periodically provide us with reports containing units sold to end users subject to the royalties.

The reports substantiate that our performance obligation has been satisfied and we recognize royalty revenue based on the reports or when amounts can be reasonably estimated.

There are significant judgements used when applying ASC Topic 606 to contracts with customers.

There are significant judgements used when applying Accounting Standards Codification (“ASC”) Topic 606 to contracts with customers.

Most of our contracts contain multiple goods and services designed to meet each customers’ unique storage needs.

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While we use our best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments

to the estimated fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to the consolidated statements of operations.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis