PAR Technology Corporation, through its wholly-owned subsidiaries - ParTech, Inc. and PAR Government Systems Corporation - operates in two distinct reporting segments, Restaurant/Retail and Government.  Our Restaurant/Retail segment provides point-of-sale (“POS”), food safety, and management technology solutions; and, our Government segment provides intelligence, surveillance, and reconnaissance (“ISR”) solutions and mission systems support. Information about our segment revenues, operating income, and identifiable assets (including certain information by geographic areas) is set forth in Note 11 - Segment and Related Information - of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Annual Report).

In this Annual Report, the terms “PAR”, “the Company”, “we”, “us”, and “our” refer to PAR Technology Corporation and its consolidated subsidiaries, unless the context indicates otherwise.

“PAR”, “Brink POS”, “SureCheck”, “Pixelpoint”, “PAR EverServ” and other trademarks of PAR’s appearing in this Annual Report belong to PAR. This Annual Report contains trade names and trademarks of other companies. Our use of such other companies’ trade names or trademarks is not intended to imply any endorsement or sponsorship by these companies of PAR or its products or services.

In addition to Brink is sold as a cloud software-as-a-Service (“SaaS”).

The restaurant market is fragmented and we support businesses of all sizes, from large corporations and their franchisees to single store operators. We believe our ability to offer comprehensive services including training, installation, maintenance, and technical support to a diverse set of customers differentiates us from our competitors.

Using a suite of software applications, our experienced service organization provides customers with knowledge based diagnostic solutions to resolve customer service issues. Our service providers compile information about potential customer or product trends and opportunities, and provide this information to our remote service technicians, to assist them in diagnosing - in real-time - issues occurring at customer locations, reducing the need for physical on-site service calls. Our customer relationship management system allows our call center personnel to maintain customer profiles, including customer hardware and software details, service history, and database of problem-resolutions, to maximize our service resolution effectiveness and customer satisfaction.

We work closely with our customers to identify and address the latest restaurant or retail technology requirements by creating interfaces to the latest innovations in operational equipment, including Europay, MasterCard and Visa (EMV), digital, and additional solutions located inside and outside of customer premises. PAR provides systems integration expertise to interface specialized components, including but not limited to video monitors, wireless networks, and video surveillance, to meet requirements of its global customers.

In the U.S., we market and sell our products through our dedicated sales teams, whowhich directly interface with our tier 1 customers (owner and/or operator of 2,000 or more sites), tier 2 customers (owner and/or operator of 101-1,999 sites) and tier 3 customers (owner and/or operator of a 2 - 100 sites). Our international sales teams also market and sell our products and services to tier 1 customers outside of the U.S., as well as local/regional customers, from in-country offices. We also use channel partners to market and sell our products and services both in the U.S. and internationally.

Our products are also offered and sold through sales representatives, who enlist and support many well-regarded value-added resellers serving multi-unit operators, the independent restaurant category, and the non-foodservice markets such as retail, convenience, amusement parks, movie theaters, cruise lines, spas and other ticketing and entertainment venues.

PAR has developed and nurtured long-term relationships with several of the largest organizations in the Restaurant/Retail segment, including McDonald’s Corporation, Yum! Brands, Inc., and the SUBWAY franchisees of Doctor’s Associates Inc. Since 1980, PAR has been an approved provider to McDonald’s and its franchisees of restaurant technology systems and support services. PAR has been an approved supplier of Yum! Brands, which includes Taco Bell, Kentucky Fried Chicken, and Pizza Hut, since 1983 and is a major supplier of in-store technology systems to concepts within the Yum! Brands portfolio. Other significant restaurant chains that use PAR POS products and related services include SUBWAY, Baskin-Robbins unit of Dunkin’ Brands Group, Inc., the Hardee’s and Carl’s Jr. units of CKE Restaurants, Inc., Five Guys, Jack-in-the-Box, and franchisees of these organizations. The SureCheck solution is used by one of the largest tier 1 global retailers.

POS software and hardware offerings to the restaurant and retail markets is highly competitive.competitive and rapidly evolving. Most of our significant customers have several approved suppliers of software and/or hardware similar to one or more of our products. We compete in these markets directly with some product offerings from Oracle Corporation, NCR Corporation, and Panasonic Corporation among others. We compete on the basis of product delivery (cloud-based v. traditional on-premises software applications), existing and planned product design, features and functionality, software application and integration capabilities, quality and reliability, product development capabilities, price, and customer service. Our competitive advantages include our integrated solutions offerings, including our cloud (SaaS delivery model) and on-premise software, ergonomic purpose-built hardware, advanced development capabilities, extensive domain knowledge and expertise, excellent product reliability, a customer dedicated direct sales force organization, and world class and responsive customer service and support. The food safety and workforce efficiency market is an expanding and evolving market. As relevant technologies evolve and customer demands and expectations increase, and mature, so do the competitive pressures in the market, with new companies entering and existing companies expanding their product and service portfolios. SureCheck competes for customers onWe expect competition in the same basis as ourrestaurant POS solution.market to continue to increase, including competition from both cloud-based and traditional on-premise POS software and hardware providers, payment processing companies expanding into the POS market, and other business software and solution providers. As to many of our product and service offerings, we face competition from companies who have access to significantly more financial and technical resources than we possess.

Continuous product research, innovation, and product development are an integral part of our business. We continuously evaluate customer needs, and new and relevant technologies, to enable us to develop innovative products together with enhancements to our existing products that improve and/or add to their functionality, performance, operation, and integration capabilities; from leveraging the latest innovations in cloud computing to hand-held wireless devices to advances in internet performance, our professional services unit is available for consultation on a wide variety of topics including network infrastructures, system functionality, operating system platforms, and hardware expandability.performance. Research and development expenses were $13.8$12.4 million in 20172018 and $11.6$12.0 million in 2016.2017. We capitalize certain software costs in accordance with Financial Accounting Standards Board (FASB), Accounting Standards Codification (“ASC”) Topic No. 985 and in accordance with FASB ASC Topic No. 350. See Note 1 - Summary of Significant Accounting Policies, Identifiable intangible assets - of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Annual Report) for further discussion.

We assemble our ES 8000 series internally in the U.S., and we source other hardware products and related components from third parties. Although we purchase most of the materials, supplies, product sub-assemblies and full assemblies for our internal assembling from several suppliers, we do rely on sole sources for certain of our assembly components and hardware products. As a result, we periodically review and evaluate potential risks of disruption to our supply chain operations in the event one or more supplier should fail to perform.

PAR’s Government segment provides a range of solutions and services for the U.S. Department of Defense (“DoD”) and federal agencies. It is focused on two principal offerings - Solutions and Services and Mission Support.

We are actively engaged in the development of mobility applications that support the needs of mobile teams with real-time situation awareness and distributed communications. ISR has a strong legacy in the advanced research, development and productization of geospatial information assurance (“GIA”) technology involving steganography, steg analysis, digital watermarking, and imagedigital media forensics. These enabling technologies have been used to provide increased protection and security of geospatial data. Intelligence, Surveillance, and Reconnaissance also provides scientific and technical support to the U.S. Intelligence Community.

The Mission Systems group supports critical information systems which operate elements of the DoDIN to support the National Command Authority (President & Joint Chiefs of Staff), DoD and other government agencies. The Company provides ITOur system troubleshooting and regulatory experts support services ranging from advanced systems management to help desk support-with morethe customer mission around the globe. More than 50% of its globalour footprint is outside the continental U.S. with contracts in Europe, Africa, Australia, and U.S. commonwealths and territories in the Pacific and Caribbean.

We obtain contracts primarily through competitive proposals in response to solicitations from government organizations and prime contractors. In addition, PAR sometimesoften obtains contracts by submitting unsolicited proposals. Although we believe we are well positioned in our business areas, competition for government contracts is intense. Many of our competitors are major corporations, or subsidiaries thereof, that are significantly larger and have substantially greater financial resources. We also compete with many smaller, economically disadvantaged companies, many of which are designated by the government for preferential “set aside” treatment, that target segments of the government contract market. The principal competitive factors are past performance, the ability to perform the statement of work, price, technological capabilities, management capabilities and service. Many of our department of defense customers are migrating to low-price/technically acceptable procurements while leveraging commercial software standards, applications, and solutions.

The value of existing Government contracts at December 31, 2018, net of amounts relating to work performed to that date, was approximately $138.6 million, of which $30.2 million was funded. The value of existing Government contracts at December 31, 2017, net of amounts relating to work performed to that date, was approximately $111.1 million, of which $38.2 million was funded. The value of existing Government contracts at December 31, 2016, net of amounts relating to work performed to that date, was approximately $126.0 million, of which $36.4 million was funded. Funded amounts represent those amounts committed under contract by Government agencies and prime contractors. TheOf the December 31, 20172018 Government contract backlog of $111.1$138.6 million, represents firm, existing contracts. Of this backlog amount, approximately $55.8$53.6 million is expected to be completed in calendar year 2018,2019, as funding is committed.

As of December 31, 2017,2018, we employed approximately 1,1371,000 full-time employees, including approximately 54%51% in our Restaurant/Retail segment, 39%44% in our Government segment (27% of which are covered by collective bargaining agreements), and 7%5% who are corporate employees.  We consider our relationship with our employees to be good.

We collect, process, transmit, and store (on our operating systems and those of third-party providers) customer transactional data and their customers’ and employees' personally identifiable information or other data.  Our operating systems, and those of our third-party providers, could become subject to cyber-attacks, including using computer viruses, credential harvesting, dedicated denial of services attacks, malware, social engineering and other means for obtaining unauthorized access to or disrupting the operation of our systems and those of our third-party providers. Any failure or interruption of our operating systems or those of our third-party providers could result in operational disruptions or misappropriation of information, including interruption of systems availability or denial of access to and misuse of applications or information required by our customers to conduct their business. Any operational disruptions or misappropriation of information could harm our relationship with our customers and could have a material adverse effect on our business, financial condition, and results of operations.

Moreover, personally identifiable information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy, accuracy and security of personally identifiable information and personal data that is collected, processed, stored, maintained and transmitted in or from certain governing jurisdictions. Compliance with these laws and regulations, or changes in these laws and regulations, may be onerous and expensive and may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance. Our failure, and/or the failure by the various third party vendors and service providers with which we do business, to comply with applicable privacy and data protection laws and regulations, or any compromise of security that results in the unauthorized release of personally identifiable information or personal data could damage our reputation, discourage current and potential customers from using our products and services, and/or result in fines and/or proceedings by governmental agencies, and/or the payment of penalties to consumers, any one or all of which could adversely affect our business, financial condition and results of operations.

A number of factors can impact the trading price of our common stock, many of which are outside our control. Trading in our stock does not generally occur in high volumes and the market for our stock cannot always be characterized as active. Thin trading in our stock may exaggerate fluctuations in the stock’s value, leading to price volatility in excess of that which would occur in a more active trading market. In addition, theThe stock market in general is subject to fluctuations that affect the share prices and trading volumes of many companies, and these broad market fluctuations could adversely affect the market price of our common stock. Factors that could affect our common stock price in the future include but are not necessarily limited to the following:

In the third quarter of 2016, our Audit Committee commenced an internal investigation into conduct at our China and Singapore offices to determine whether certain import/export and sales documentation activities were improper and in violation of the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable laws, and certain of our internal policies. WeIn the fourth quarter of 2016, we voluntarily notified the SEC and the U.S. Department of Justice, or DOJ, of the internal investigation and we are fully cooperating with these agencies. On May 1, 2017, we received a subpoena from the SEC for documents relating to the internal investigation. As we previously disclosed in our Quarterly Reports on Form 10-Q for fiscal quarters ended March 31, 2017, June 30, 2017 and September 30, 2017, as a result of the investigation we determined that certain members of our China and Singapore staff participated in or were aware of improper activities in China and Singapore involving the improper bypassing of applicable customs laws of various countries. Such activities in China and Singapore included the failure to properly label items for import into various non-U.S. countries and the failure to properly document the declared value of certain items exported to various non-U.S. countries, as well as questionable payments made to customs officials in China without sufficient documentation to evidence or confirm the legitimacy of their purpose. The investigation also revealed that certain members of senior management knew or should have known of the questionable conduct, but failed to take action to prevent or correct such conduct. In response, we engaged in significant remedial actions including termination or, if appropriate, providing additional training to certain employees. Following the conclusion of the Audit Committee's internal investigation, we voluntarily reported the relevant findings of the investigation to the China and Singapore authorities and we are fully cooperating with these authorities.  In addition to our communications with China and Singapore authorities, we expect to engage in further discussions with the SEC and/or DOJ regarding our findings in due course.  If the SEC, DOJ, or other governmental agencies (including foreign governmental agencies) China and Singapore authorities)

determine that violations of certain laws or regulations occurred, then we could be exposed to a broad range of civil and criminal sanctions, including injunctive relief, disgorgement, fines, penalties, modifications to our business practices, including the termination or modification of existing business relationships, the imposition of compliance programs and

We reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 that the material weaknesses in our internal control over financial reporting initially reported in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016 and in our subsequent periodic reports filed through our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017 our managementhad been remediated; and we described the various actions we had undertaken, adopted, and implemented to remediate the identified material weaknesses in our internal control over financial reporting. While we have remedied these material weaknesses, ifweaknesses.

If we fail to maintain appropriateeffective internal controls, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC could be adversely affected, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we may be subject us to investigation or sanctions by the SEC, DOJ, or DOJ.other governmental agencies (including foreign government agencies). Any such consequence or other negative effect could adversely affect our business, results of operations, and financial condition.

Although only 7% and 8% for both2018 and 2017, and 2016respectively, of our total consolidated revenues were derived from sales outside of the U.S., we have operations across the globe, and our international operations subject us to a variety of risks and challenges, including:

A portion of Government segment revenue is derived from U.S. governmentGovernment contracts, which contain provisions unique to public sector customers, including the U.S. government’sGovernment’s right to modify or terminate these contracts at any time.

PAR’sOur Restaurant/Retail segment provides point-of-sale (“POS”) and restaurant management technology solutions; and our Government segment provides intelligence, surveillance, and reconnaissance ("ISR") solutions forand mission systems support.

We are a leading provider of POS solutions to restaurants and retail outlets and we expect our Brink line of business, including our Brink POS SaaS software solution, inclusive of related hardware, installation and technical support and other customer services, to be the primary focus and driver of growth in the Restaurant/Retail segment featuressegment. Our ability to capitalize on the digital revolution disrupting the restaurant space by leveraging our cloud-based integrated solutions depends on a number of factors, including: our ability to access capital, including under our Credit Agreement (see “Liquidity and on-premiseCapital Resources” discussion below), other sources of debt financings or the future sale of equity or equity-linked securities; and the timing and size of our investments and expenditures in areas that will drive growth, including: product development, consisting primarily of expenses in software applications, hardware platforms,engineering, product development and related installation, technical,personnel costs; sales and maintenancemarketing, consisting primarily of advertising, marketing, general promotional expenditures, and sales and marketing personnel costs; customer support, services tailored for the needsconsisting primarily of restaurantshelp-desk and retailers.  related personnel costs; and general and administrative, including IT infrastructure expenditures.

Our Government segment provides technical expertise in contract development of advanced systems and software solutions for the U.S. Department of Defense and other federal agencies, as well as management technology and communications support services to the U.S. Department of Defense.

The strategy for our PAR Government segment is to build on our sustained outstanding performance ofon existing service contracts, coupled with investments in enhanced business development capabilities. We believe we are well positioned to realize continued renewals of expiring contracts and extensions of existing contracts, and secure service and solution contracts in expanded areas within the U.S. Department of Defense and other federal agencies. We believe our highly relevant technical competencies, intellectual property, and investments in new technologies provide opportunities to offer systems integration, products, and highly-specialized service solutions to the U.S. Department of Defense and other federal agencies.  The general uncertainty in U.S. defense total workforce policies (military, civilian, and contract), procurement cycles, and spending levels for the next several years are factors we monitor as we develop and implement our business strategy for the PAR Government segment.

On June 5, 2018, the Company paid the third installment associated with its purchase of Brink Software, Inc. of $2.0 million.

The Credit Facility also includes a $15.0 million uncommitted accordion option, which the Company can request in $5.0 million increments provided no events of default exist. In connection with entering into the Credit Agreement, the Company repaid in full all outstanding obligations owed under the credit agreement dated November 29, 2016 (as subsequently amended, modified, and (ii) a borrowing base (equalsupplemented) with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), and terminated the JPMorgan Chase credit agreement and all commitments by JPMorgan Chase to extend further credit thereunder. The Credit Facility matures three (3) years from the sum of 80% eligible accounts, 50% eligible raw materials inventory and 35% eligible finished goods inventory, with no more than 50% of total eligible inventory included in the borrowing base), less the aggregate principal amount outstanding (the “Credit Facility”). Interest accrues on outstanding principal balances at an applicable rate per annum determined, asdate of the endCredit Agreement and is guaranteed by the Company's U.S. subsidiaries that are parties thereto. The Credit Facility is secured by substantially all of each fiscal quarter, by reference to the CBFR Spread orassets of the Eurodollar Spread based onCompany and the Company’s consolidated indebtedness ratio as at the determination date.subsidiary guarantors. The Credit Agreement contains customary representations and warranties and affirmative and negative covenants, including certain financial maintenance covenants consisting of maximum consolidated leverage ratios and minimum consolidated EBITDA, and covenants that restrict the Company's ability of the Company and its subsidiaries to incur additional indebtedness, incur or permit to exist liens on assets, make investments loans, advances, guarantees and acquisitions, consolidate or merge, engage in asset sales, pay dividends, and make distributions, and financial covenants, requiring thatdistributions. The revolving loans bear interest at the Company’s consolidated indebtedness ratio not exceed 3.0 to 1.0 and, a fixed charge coverage ratio of not less than 1.25 to 1.0 for each fiscal quarter. In August 2017, we entered into an Omnibus Amendment Number 1 to Loan Documents with JPMorgan Chase to provide the Company with more flexibility in its use of its assets and a waiver of any default relating to the location of certain collateral. In March 2018, JPMorgan Chase granted the Company a Waiver of an event of defaultLIBOR rate plus 1.5%. Obligations under the Credit Agreement duemay be accelerated upon certain customary events of default (subject to grace or cure periods, as appropriate).

On March 4, 2019, the Company, together with its failureU.S. subsidiaries that are parties to meet the required fixed charge coverage ratioCredit Agreement, entered into a First Amendment to Credit Agreement with Citizens (the “Amendment”).  Pursuant to the Amendment, Citizens waived the Company’s noncompliance with the financial maintenance covenants contained in the Credit Agreement for the fiscal quarter ended December 31, 2017.2018. With the waiver, the Company was in compliance with the Credit Agreement at December 31, 2018. The Amendment provides the Company with temporary relief from the financial maintenance covenants contained in the Credit Agreement, including suspending application of the consolidated leverage ratio and consolidated EBITDA covenants until the fiscal quarter ending September 30, 2019. Beginning February 28, 2019 and for each calendar month thereafter through August 31, 2019, the Company must maintain a minimum liquidity and minimum unadjusted EBITDA based on the Company’s annual budget and annual consolidated forecasts submitted to Citizens on the Amendment date; and amends the Borrowing Base to include a portion of the value of our corporate headquarters as additional borrowing base collateral, which will be available upon the mortgage on such property being recorded.

On December 31, 2017, the applicable rate2018, there was a $7.8 million principal amount outstanding under the Credit Facility was 3.25% plusFacility.

The Company previously had a loan secured by a mortgage on certain real estate. On October 1, 2018, the CBFR Spread or LIBOR plusCompany finalized a sale of the Eurodollar Spread basedreal estate held as security and the remaining balance on the Company’s consolidated indebtedness ratio.loan was paid in full. There was $0.95 millionno amount outstanding and up to $14.05 million available underon the Credit Agreementloan as of December 31, 2017.2018.

In connection with the Company's acquisition of Brink Software, Inc. in September 2014, the Company has recorded contingent consideration that may be payable to the former owners of Brink Software, Inc. based on future performance metrics. As of December 31, 2017,2018, the fair value of the contingent consideration included within the Company's consolidated balance sheets is $3.0$2.5 million.

While the Company anticipates that borrowings under the Credit Facility together with operating cash flows and available capacity under our Credit Facility will be sufficient to meet ourthe Company’s current, near term, operating needsneeds; whether the Company will have sufficient cash to meet its obligations for the next 12 months. Our actual cash needsmonths will depend on many factors,the Company’s ability to secure additional or alternative sources of cash, including our rate offrom operating efficiencies; revenue growth, including growthand capital from debt financings and/or future sales of our SaaS revenues,equity or equity-linked securities. If the timing and extentCompany is not successful, its source of spending to support our product development efforts, the timing of introductions of new products and enhancements to existing products, market acceptance of our products, and  potential fines and penalties that, while currently inestimable, could be material (see Item 1A – “Risk Factors” for further discussion about the potential adverse effect of such fines and penalties on our business).  If we are required or otherwise elect to seek additional funding, we cannot be certain that such additional fundingliquidity will be available onthe Credit Facility and cash generated from operations. There is no guarantee that the Company will be able to comply with the terms of the Amendment or with the financial maintenance covenants under the Credit Agreement once the interim financial covenants expire. The Company’s failure to comply, in the absence of alternative or additional cash to allow it to come into compliance or refinance and conditions acceptablerepay the debt under the Credit Agreement may result in an event of default. If an event of default were to us, if at all. occur, Citizens may accelerate the payment of amounts outstanding and otherwise exercise any remedies to which it may be entitled. In addition, in such a case, the Company may no longer have access to the liquidity provided by the Credit Agreement. Without a sufficient credit facility, the Company would be adversely affected by a lack of access to liquidity needed to operate its business; and, as a result, the Company might not be able to continue as a going concern (see Note 1 - Going Concern Assessment - of Notes to the Consolidated Financial Statements (Part II, Item 8 of this Annual Report)).

Our future principal payments under the mortgage loan and operating leases are as follows (in thousands):

Our Restaurant/Retail segment’s revenues consist ofrevenue is derived from Software as a Service (SaaS), hardware and software sales, of our POS systems. We derive revenue from the following sources: (1)software activation, hardware sales, (2) software license agreements, including perpetual licenses and SaaS, (3)support, installations, maintenance, professional services, (4) hosting servicescontracts and (5) post-contractprograms. ASC 606 requires us to distinguish and measure performance obligations under customer support (“PCS”).

We evaluated the potential performance obligations within our Restaurant/Retail reporting segment and evaluated whether each deliverable or promise met the ASC 606 criteria have been met: persuasive evidence of an arrangement exists, we have deliveredto be considered distinct performance obligations. Revenue in the product or performed the service, the feeRestaurant/Retail reporting segment is fixed or determinablerecognized at a point in time for software, hardware, installations and collection is reasonably assured. Determining whether and“pass through licenses”. Revenue on these items are recognized when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report.

recognized over time as the customer simultaneously receives and consumes the benefits of the Company’s performance obligations. Our support services are stand-ready obligations that are provided over the life of the contract, generally 12 months. We offer installation services to our customers for hardware and software for which we primarily hire third-party contractors to install the equipment on our behalf. We pay the third-party contractors an installation service fee based on an hourly rate as agreed upon between us and contractor. When third party installers are used, we determine whether the nature of our promises are performance obligations to provide the specified goods or services ourselves (principal) or to arrange for the third party to provide the goods or services (agent). In our customer arrangements, we are primarily responsible for providing a good or service, we have inventory risk before the good or service is transferred to the customer, when persuasive evidenceand we have discretion in establishing prices. We are the principal in the arrangement and record installation revenue on a gross basis.

At times we will offer maintenance services at different prices for customers based on the life of an arrangement exists, the price is fixed or determinable,service, generally 12 months. The support services associated with hardware and collectability is reasonably assured.  For software sales soldare a ‘stand-ready obligation’ satisfied over time on the basis that customer consumes and receives a benefit from having access to our support resources, when and as a perpetual license, typically our Pixel software offering, where we areneeded, throughout the sole party that hascontract term. For this reason, the proprietary knowledge to install the software, revenue is recognized upon installation and when the system is ready to go live.

Our contracts typically require payment within 30 to 90 days from the shipping date or installation date, depending on our terms with our Brink and SureCheck software offerings, is recorded as deferred revenue when billed and collected and recognized ratably over the contract term.

Our revenue in accordance with authoritative guidance on software revenue recognition.  For the software and software-related elements of such transactions, revenueGovernment reporting segment is allocated based on the relative fair value of each element, and fair valuerecognized over time as control is determined by vendor specific objective evidence, where available.  If VSOE is not available for all elements, we use the residual methodgenerally transferred continuously to separate the elements as long as we have VSOE for the undelivered elements.  If we cannot objectively determine the fair value of any undelivered element included in such multiple-element arrangements, we defer the revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements.

In determining when to provide labor hours to conduct research or to staff facilities with no other deliverables orrecognize revenue, we analyze whether our performance obligations. Anticipated losses on allobligations in our contracts are recordedsatisfied over a period of time or at a point in full when identified. Unbilled accounts receivable is stated intime. In general, our performance obligations are satisfied over a period of time. However, there may be circumstances where the Company’s consolidated financial statements at their estimated realizable value. Contract costs, including indirect expenses, are subjectlatter or both scenarios could apply to audit and adjustment through negotiations betweena contract.

We usually expect payment within 30 to 90 days from the Company and U.S. Government representatives.date of service, depending on our terms with the customer. None of our contracts as of December 31, 2018 contained a significant financing component.

PAR Technology Corporation

New Hartford, New York

March 16, 2018

PAR Technology Corporation ("we", "the Company"), together with its consolidated subsidiaries, provides management technology solutions, including software, hardware, and related services, integral to the point-of-sale (“POS”) infrastructure and task management, information gathering, assimilation and communications services. We deliver our management technology solutions through two operating segments – our Restaurant/Retail segment and our Government segment. In addition, the consolidated financial statements include Corporate and Eliminations, which is comprised of enterprise-wide functional departments.

The consolidated financial statements include the accounts of PAR Technology Corporation and its consolidated subsidiaries (ParTech, Inc., ParTech (Shanghai) Company Ltd., PAR Springer-Miller Systems, Inc., Springer-Miller Canada, ULC, PAR Canada ULC, Brink Software, Inc., PAR Government Systems Corporation and Rome Research Corporation), collectively referred to as the “Company”. All significant intercompany transactions have been eliminated in consolidation.

During fiscal year 2015, the Company entered into an asset purchase agreement to sell substantially all of the assets of its Hotel/Spa technology business operated under PAR Springer-Miller Systems, Inc. (“PSMS”).  The transaction closed on November 4, 2015.  Accordingly, the results of operations of PSMS have been classified as discontinued operations in accordance with Accounting Standards Codification (“ASC”) 205-20, Presentation of Financial Statements – Discontinued Operations.  See Note 2 – Divestiture and Discontinued Operations - in the Notes to Consolidated Financial Statements for further discussion.

The Company accounts for business combinations pursuant ASC 805, Business Combinations, which requires that assets acquired and liabilities assumed be recorded at their respective fair values on the date of acquisition. The fair value of the consideration paid is assigned to the underlying net assets of the acquired business based on their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is allocated to goodwill (the “Acquisition Method”). The purchase price allocation process requires the Company to make significant assumptions and estimates in determining the purchase price and the assets acquired and liabilities assumed at the acquisition date. The Company’s assumptions and estimates are subject to refinement and, as a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period, any subsequent adjustments are recorded to the Company’s consolidated statements of operations. The Company’s consolidated financial statements and results of operations reflect an acquired business after the completion of the acquisition.

The Company determines the acquisition date fair value of contingent consideration using a discounted cash flow method, with

significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC Topic 820, Fair Value Measurement.  The significant inputs in the Level 3 measurement not supported by market activity included the Company’s probability assessments of expected future cash flows related to the Company’s acquisition of Brink Software Inc. in September 2014 (the "Brink Acquisition") during the contingent consideration period, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the terms of the definitive agreement.agreement governing the Brink Acquisition.  The liabilitiesliability for the contingent consideration arewas established at the time of the acquisition and will behas been evaluated on a quarterly basis based on additional information as it becomes available.  Any change in the fair value adjustment is recorded in the earnings of that period.  During 2017,2018, we recorded a $1.0$0.5 million adjustment to decrease the fair value of ourthe contingent consideration related to the acquisition of Brink Software Inc., versus a $1.1$1.0 million adjustment to decrease the fair value during 2016.2017.  This reduction in expense is reflected within other income on the consolidated statements of operations. Changes in the fair value of the contingent consideration obligations may result from changes in probability assumptions with respect to the likelihood of achieving the various contingent payment obligations. Significant increases or decreases in the inputs noted above in isolation would result in a significantly lower or higher fair value measurement.

Our Restaurant/Retail segment’s revenues consist of salesSee note 3 of the Company’s standard POS system to the Restaurant/Retail segment. We derive revenue from the following sources: (1) hardware sales, (2) software license agreements, including perpetual licenses and software as a service, (3) professional services, (4) hosting services and (5) post-contract customer support (“PCS”).

Warranty provisions for product warranties are recorded in the period in which the Company becomes obligated to honor the related right,warranty, which generally is the period in which the related product revenue is recognized. The Company accrues warranty reserves based upon historical factors such as labor rates, average repair time, travel time, number of service calls per machine and cost of replacement parts. When a sale is consummated, a warranty reserve is recorded based upon the estimated cost to provide the service over the warranty period.period which can range from 12 months to 36 months.

The Company considers all highly liquid investments, purchased with a remaining maturity of three months or less, to be cash equivalents.

Allowances for doubtful accounts are based on estimates of probable losses related to accounts receivable balances.  The establishment of allowances requires the use of judgment and assumptions regarding probable losses on receivable balances.  The Company continuously monitors collections and payments from our customers and maintainmaintains a provision for estimated credit losses based on our historical experience and any specific customer collection issues that we have identified.  Thus, if the financial condition of our customers were to deteriorate, our actual losses may exceed our estimates, and additional allowances would be required.

The Company’s inventories are valued at the lower of cost orand net realizable value, with cost determined using the first-in, first-out (“FIFO”) method.  The Company uses certain estimates and judgments and considers several factors including product demand, changes in customer requirements and changes in technology to provide for excess and obsolescence reserves to properly value inventory.

Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to twenty-five years.  Expenditures for maintenance and repairs are expensed as incurred.

Other assets primarily consist of cash surrender value of life insurance related to the Company’s Deferred Compensation Plan eligible to certain employees.  The funded balance is reviewed on an annual basis.

The provision for income taxes is based upon pretax earnings with deferred income taxes provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities.  The Company records a valuation allowance when necessary to reduce deferred tax assets to their net realizable amounts.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Other long-term liabilities represent amounts owed to employees that participate in the Company’s Deferred Compensation Plan and the estimated fair value of the contingent consideration payable related to the Brink Software Inc. acquisition. The amount of the amountsPlan. Amounts owed to employees participating in the Deferred Compensation Plan at December 31, 2017 was $3.92018 were $3.4 million as compared to $3.8$3.9 million at December 31, 2016.2017. During 2017, we recorded a $1.0 million adjustment to decrease the fair value of our contingent consideration related to the acquisition of Brink Software Inc. compared to an adjustment to decrease the fair value of $1.1 million in 2016. At December 31, 2017, the amount remaining in other long-term liabilities related toBrink Acquisition contingent consideration is $3.0 million compared to $4.0 million at December 31, 2016. This is reflected within other income on the statements of operations. Changes in the fair value of the contingent consideration obligations may result from changes in probability assumptions with respect to the likelihood of achieving the various contingent payment obligations.payable by $1.0 million.

The assets and liabilities for the Company’s international operations are translated into U.S. dollars using year-end exchange rates. Income statement items are translated at average exchange rates prevailing during the year. The resulting translation adjustments are recorded as a separate component of shareholders’ equity under the heading Accumulated Other Comprehensive Income (Loss).Loss.  Exchange gains and losses on intercompany balances of permanently invested long-term loans are also recorded as a translation adjustment and are included in Accumulated Other Comprehensive Income (Loss).Loss.  Foreign currency transaction gains and losses are recorded in other income, net in the accompanying statements of operations.

The components of other income, (expense)net from continuing operations for the years endingended December 31 are as follows:

In 2018, we recorded a $0.5 million adjustment to decrease the fair value of the Company's contingent consideration related to the acquisition of Brink Software Inc.  Also, during 2018, the Company incurred a net loss on rental contracts of approximately $0.9 million.

During 2017, we recorded a $1.0 million adjustment to decrease the fair value of the Company's contingent consideration related to the acquisition of Brink Software Inc. Also, during 2017, the Company incurred a net loss on rental contracts of approximately $0.7 million.

Annual amortization charged to cost of sales when a product is available for general release to customers is computed using the greater of (a) the straight-line method over the remaining estimated economic life of the product, generally three to seven years or (b) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product.  Amortization of capitalized software costs from continuing operations amounted to $3.5 million and $2.7 million, in 2018 and $1.1 million, in 2017, and 2016, respectively. There was no impairment charge recorded as of December 31, 2017. In 2016, the Company assessed its recoverability of capitalized software assets noting an impairment charge of $0.5 million to accelerate one of its software modules. 

The expected future amortization of these intangible assets assuming straight-line amortization of capitalized software costs and acquisition related intangibles is as follows (in thousands):

The Company has elected to test for impairment of indefinite lived intangible assets during the fourth quarter of its fiscal year.  To value the indefinite lived intangible assets, the Company utilizes the royalty method to estimate the fair values of the trademarks and trade names. There was no impairment to indefinite lived intangible assets in 2018 or 2017. The Company recorded an impairment charge of $1.6 million on capitalized software related to its food safety software solution which had been included in costs of service for the year ended December 31, 2018. No impairment charges were recorded as offor the year ended December 31, 2017.

The Company recognizes all stock-based compensation to employees, including awards of employee stock options and restricted stock, in the financial statements as compensation cost over the applicable vesting periods using an accelerateda straight-line expense recognition method, based on their fair value on the date of grant.

Basic earningsearnings/loss per share are computed based on the weighted average number of common shares outstanding during the period.  Diluted earningsearnings/loss per share reflect the dilutive impact of outstanding stock options and restricted stock awards.

The following is a reconciliation of the weighted average shares outstanding for the basic and diluted earningsearnings/loss per share computations (in thousands, except share and per share data):

At 20172018 and 20162017 there were 265,000750,000 and 38,000266,000 incremental shares, respectively, from the assumed exercise of stock options that were excluded from the computation of diluted earnings per share because of the anti-dilutive effect on earnings per share.  There were no113,000 restricted stock awards excluded from the computation of diluted earnings per share for each of the fiscal yearsyear ended 20172018 and 2016.49,000 for the fiscal year ended 2017.

The Company tests goodwill for impairment on an annual basis, which is on the first day of the fourth quarter, or more often if events or circumstances indicate there may be impairment.  The Company operates in two reportable operating segments, which are the reporting units used in the test for goodwill impairment - Restaurant/Retail and Government.  Goodwill impairment testing is performed at the sub-segment level (referred to as a reporting unit).  The two reporting units utilized by the Company are: Restaurant/Retail and Government.  Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to a reporting unit, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support the value of the goodwill. Goodwill impairment analysis is a two-step test. The first step, used to identify potential impairment, involves comparing each reporting unit’s fair value to its carrying value including goodwill. If the fair value of an reporting unit exceeds its carrying value, applicable goodwill is considered not to be impaired. If the carrying value exceeds fair value, there is an indication of impairment, at which time a second step would be performed to measure the amount of impairment.  The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated an impairment. We utilize different methodologies in performing the goodwill impairment test for each reporting unit.  For both the Restaurant/Retail and Government reporting units, these methodologies include an income approach, namely a discounted cash flow method, and multiple market approaches and the guideline public company method and quoted price method.  The valuation methodologies and weightings used in the current year are generally consistent with those used in our past annual impairment tests.

The discounted cash flow method derives a value by determining the present value of a projected level of income stream, including a terminal value.  This method involves the present value of a series of estimated future cash flows at the valuation date by the application of a discount rate, one which a prudent investor would require before making an investment in our equity.  We consider this method to be most reflective of a market participant’s view of fair value given the current market conditions, as it is based on our forecasted results and, therefore, established this method's weighting at 80% of the fair value calculation. Key assumptions within our discounted cash flow model include projected financial operating results, a long-term growth rate of 3% and, depending on the reporting unit, discount rates ranging from 14.5%14.0% to 27.0%29.0%.  As stated above, because the discounted cash flow method derives value from the present value of a projected level of income stream, a modification to our projected operating results, including changes to the long-term growth rate, could impact the fair value.  The present value of the cash flows is determined using a discount rate based on the capital structure and capital costs of comparable public companies, as well as company-specific risk premium, as identified by us.  A change to the discount rate could impact the fair value determination.

The market approach is a generally-accepted way of determining a value indication of a business, business ownership interest, security or intangible asset by using one or more methods that compare the reporting unit to similar businesses, business ownership interests, securities or intangible assets that have been sold.  There are two methodologies considered under the market approach: the public company method and the quoted price method. The public company method and quoted price method of valuation are

based on the premise that pricing multiples of publicly traded companies can be used as a tool to be applied in valuing closely held companies.  The mechanics of the methods require the use of the stock price in conjunction with other factors to create a pricing multiple that can be used, with certain adjustments, to apply against the reporting unit’s similar factor to determine an estimate of value for the subject company.  We consider these methods appropriate because they provide an indication of fair value supported by current market conditions.  We established our weighting at 10% of the fair value calculation for the public company method and quoted price method for both the Restaurant/Retail and Government reporting units. The most critical assumption underlying the market approaches we use are the comparable companies selected.  Each market approach described above estimates revenue and earnings multiples based on the comparable companies selected.  As such, a change in the comparable companies could have an impact on the fair value determination.

The amount of goodwill within continuing operations was $11.1 million at December 31, 20172018 and December 31, 2016.2017.  There was no impairment of goodwill for the years endingended December 31, 20172018 or December 31, 2016.2017.

The Company evaluates the accounting and reporting for the impairment of long-lived assets in accordance with the reporting requirements of ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets.  The Company will recognize impairment of long-lived assets or asset groups if the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to such assets.  If the carrying value of a long-lived asset or asset group is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset or asset group for assets to be held and used, or the amount by which the carrying value exceeds the fair market value less cost to sell for assets to be sold.  There was no impairment charge in 2017. During 2016,2018, the Company recorded an impairment charge of $0.5$1.6 million to accelerate onereduce the carrying value of two previously released versions of its food safety software modules. no longer in service. 

The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period.  Significant items subject to such estimates and assumptions include revenue recognition, stock based compensation, the recognition and measurement of assets acquired and liabilities assumed in business combinations at fair value, the carrying amount of property, plant and equipment, identifiable intangible assets and goodwill, valuation allowances for receivables, inventories and deferred income tax assets, and measurement of contingent consideration at fair value. Actual results could differ from those estimates.

The Company is finalizing its adoption of the new standard effective January 1, 2019 and earlywill be adopting the standard using the optional transition method by recognizing a cumulative-effect adjustment to the balance sheet at January 1, 2019 and not revising prior period presented amounts. The processes that are in final refinement related to our full implementation of the standard include: i) finalizing our estimates related to the applicable incremental borrowing rate at January 1, 2019 and ii) process enhancements for refining our financial reporting procedures to develop the additional required qualitative and quantitative disclosures required beginning in 2019. The Company has elected the following practical expedients: i) it has not reassessed whether any expired or existing contracts are or contain leases, ii) it has not reassessed lease classification for any expired or existing leases, iii) it has not reassessed initial direct costs for any existing leases, and iv) it has not separated lease and nonlease components. In preparation for adoption is permitted, although unlikely at this time. We are currently evaluatingof the impactstandard, the Company has implemented internal controls to enable the preparation of these amendmentsfinancial information.

The standard will have a material impact on our financial statements.consolidated balance sheets, but will not have a material impact on our consolidated statements of operations. The most significant impact will be the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases.

Two adoption methods are permitted under ASU 2014-09. The new standard may be adopted through either retrospective application to all periods presented in our consolidated financial informationstatements (full retrospective) or through a cumulative effect adjustment to retained earnings at the effective date (modified retrospective). The Company adopted the new standard effective January 1, 2018 using the modified retrospective method. In evaluating the impact of adoption, we reviewed significant open arrangements with customers for each revenue source and adoption did not have a material impact.

the Restaurant/Retail reporting segment relating to SaaS, Advanced Exchange programs, on-site support and other services is recognized over time as the customer simultaneously receives and consumes the benefits of the Company’s performance obligations. Our support services are stand-ready obligations that are provided over the life of the contract, generally 12 months. We offer installation services to our customers for hardware and software for which we primarily hire third-party contractors to install the equipment on our behalf. We pay the third-party contractors an installation service fee based on an hourly rate as agreed upon between us and contractor. When third party installers are used, we determine whether the nature of our promises are performance obligations to provide the specified goods or services ourselves (principal) or to arrange for the Company’s discontinued operationsthird party to provide the goods or services (agent). In our customer arrangements, we are primarily responsible for providing a good or service, we have inventory risk before the good or service is transferred to the customer, and we have discretion in establishing prices. We are the principal in the arrangement and record installation revenue on a gross basis.