The accompanying unaudited interim consolidated financial statements of PAR Technology Corporation (the “Company” or “PAR”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statementstatements and the instructions to Form 10-Q and Regulation S-X pertaining to interim financial statements.  Accordingly, they do not include all information and footnotes required by GAAP for annual financial statements.  In the opinion of the Company,management, such unaudited interim consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the results for the interim periods included in this Quarterly Report on Form 10Q10-Q (“Quarterly Report”).  Operating results for the three and nine months ended September 30, 2016March 31, 2017 are not necessarily indicative of the results of operations that may be expected for any future period.  Certain amounts for prior periods have been reclassified to conform to the current period classification.

The preparation of consolidated financial statements requires management of the Company to make a number of estimates, judgements and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the period.  Significant items subject to such estimates, judgements and assumptions include:  the carrying amount of property, plant and equipment, identifiable intangible assets and goodwill, equity based compensation, and valuation allowances for receivables, inventories and deferred income taxes.  Actual results could differ from those estimates.

In connectionOn November 4, 2015, ParTech, Inc. (“PTI”), a wholly owned subsidiary of PAR Technology Corporation, PAR Springer-Miller Systems, Inc. (“PSMS”), Springer-Miller International, LLC (“SMI”), and Springer-Miller Canada, ULC (“SMC”) (PTI, PSMS, SMI and SMC are collectively referred to herein as the “Group”), entered into an asset purchase agreement (the “APA”)  with Gary Jonas Computing Ltd., SMS Software Holdings LLC, and Jonas Computing (UK) Ltd. (the “Purchasers”), for the sale of substantially all of the hotel/spa technology business,assets of PSMS. Accordingly, the totalresults of operations of PSMS have been classified as discontinued operations in the Consolidated Statements of Operations (unaudited) and Consolidated Statements of Cash Flows (unaudited) in accordance with Accounting Standards Codification (“ASC”) ASC 205-20 (Presentation of Financial Statements – Discontinued Operations). Additionally, the assets and associated liabilities have been classified as discontinued operations in the Consolidated Balance Sheets (unaudited).  Total consideration to be received from the sale is $16.6 million in cash (the “Base Purchase Price”), with $12.1 million received at the time of closing and $4.5 million receivable eighteen months after the closing date, a portion of whichsuch amount willto be available  to payfor the payment of certain indemnification obligations of PSMS.  the Group and/or adjusted based on the net tangible asset calculation, as defined in the APA  The estimated fair value of the remaining portion of the note receivable, less any estimated working capital adjustments, due on May 4,5, 2017 iswas approximately $4.4$3.8 million and accordingly has been reported as ais included in current assetassets in PAR’s September 30, 2016the Company’s Consolidated Balance Sheet.Sheets (unaudited).  During 2017, the Company increased the receivable by $284,000 based on the terms of the net tangible asset calculation as the working capital shortfall was less than previously estimated.

In addition to the Base Purchase Price, contingent consideration of up to $1,500,000 is payable to PAR$1.5 million could be received by the Company based on the achievement of certain agreed-upon revenue and earnings targets for calendar years 2016 through 2018.2018, as set forth in the APA. As of September 30, 2016,March 31, 2017, the Company hashad not recorded any amount associated with this contingent consideration as it doeswe do not believe achievement of the related targets is probable.

At September 30, 2016 and December 31, 2015 there were $5,000 and $441,000 of accrued liabilities ofSummarized financial information for the Company’s discontinued operations recorded onis as follows (in thousands):

Summarized financial information for the consolidated balance sheet.Company’s discontinued operations is as follows (in thousands):

During the ninethree months ended September 30, 2016,March 31, 2017, the Company paid a $977,000 working capital adjustment,recognized income on discontinued operations of which $939,000 was included in accrued expenses at December 31, 2015 and the difference paid resulted in a loss$0.2 million (net of tax) mainly due to an increase of $26,000.

Inventories are primarily used in the manufacture, maintenance and service of hospitalityRestaurant/Retail products.  The components of inventories net(net) consist of the following:

At September 30, 2016March 31, 2017 and December 31, 2015,2016, the Company had recorded inventory reserves of $8.7$7.0 million and $8.8$9.2 million, respectively, against hospitalityRestaurant/Retail inventories, which relates primarily to service parts.

The Company’s identifiable intangible assets represent intangible assets acquired in connection with the Brink Software Inc. acquisition in 2014 and internally developed software costs.  The Company capitalizes certain costs related to the development of computer software used in its hospitalityRestaurant/Retail segment. Software development costs incurred prior to establishing technological feasibility are charged to operations and are included in research and development costs.  The technological feasibility of a computer software product is established when the Company has completed all planning, designing, coding, and testing activities that are necessary to establish that the product meets its design specifications including functions, features, and technical performance requirements. Software development costs incurred after establishing feasibility for software sold as a perpetual license, as defined within ASC 985-20 (Software(Software – Costs of Software to be sold, Leased, or Marketed)Marketed) and for software sold as a service (“SAAS”), as defined within ASC-350-40 (Intangibles(Intangibles – Goodwill and Other – Internal – Use Software)Software) are capitalized and amortized on a product-by-product basis when the product is available for general release to customers. Software costs capitalized within continuing operations during the three and nine months ended September 30,March 31, 2017 and 2016 were $729,000$1.0 million and $1,949,000, respectively.  Software costs capitalized within continuing operations during the three and nine months ended September 30, 2015 were $532,000 and $1,500,000,$0.7 million, respectively.

 

Annual amortization, charged to cost of sales when thea 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 athe product bear to the total of current and anticipated future gross revenues for thatthe product.  Amortization of capitalized software costs from continuing operations amounted to $0.3 million for the three and nine months ended September 30, 2016 were $292,000March 31, 2017 and $825,000, respectively.  Amortization of capitalized software costs from continuing operations for the three and nine months ended September 30, 2015 were $221,000 and $615,000, respectively.2016.

In 2014, the Company acquired identifiable intangible assets in connection with its acquisition of Brink Software Inc.  Amortization of intangible assets acquired infrom the Brink Software Inc. acquisition amounted to $0.2 million for the three and nine months ended September 30, 2016 were $241,000March 31, 2017 and $724,000, respectively.   Amortization of intangible assets acquired in the Brink Software Inc. acquisition for the three and nine months ended September 30, 2015 were $248,000 and $746,000, respectively.2016.

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 tests goodwill for impairment on an annual basis, on the first day of the fourth quarter or more often if events or circumstances indicate that there may be impairment.  The Company operates in two reportable business segments, hospitalityRestaurant/Retail and government.Government.  Goodwill impairment testing is performed at the sub-segment level (referred to as a reporting unit).  The two reporting units within continuing operations utilized by the Company for its impairment testing are: restaurant and government.segment level.  Goodwill is assigned to a specific reporting unitsegment at the date the goodwill is initially recorded.  Once goodwill has been assigned to a specific reporting unit,segment, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit,segment, whether acquired or organically grown, are available to support the value of the goodwill.  The amount of goodwill carried by the restaurantRestaurant/Retail and governmentGovernment reporting unitssegments is $10.3 million and $0.8$0.7 million, respectively, at both September 30, 2016March 31, 2017 and December 31, 2015.2016.

The Company applies the fair value recognition provisions of ASC Topic 718 Stock-Based Compensation.  The Company recorded stock based compensation of $190,000$0.2 million and $398,000$0.1 million for the three and nine months ended September 30,March 31, 2017 and 2016, respectively.  The Company recorded stock based compensation of $214,000 and $487,000 for the three and nine months ended September 30, 2015, respectively.  The amount recorded for the three and nine months ended September 30,March 31, 2017 and 2016 was recorded net of (expense) benefits of $0$13,000 and $48,000, respectively, as a result of forfeitures of unvested stock awards prior to the completion of the requisite service period.  The amount recorded for the three and nine months ended September 30, 2015 was recorded net of benefits of $3,000 and $186,000,$26,000, respectively, as a result of forfeitures of unvested stock awards prior to the completion of the requisite service period.  At September 30, 2016,March 31, 2017, the aggregate unrecognized compensation expense related to non-vestedunvested equity awards was $1,262,000$0.4 million (net of estimated forfeitures), which is expected to be recognized as compensation expense in fiscal years 20162017 through 2019.

For the three and nine month period ended September 30, 2016,March 31, 2017, the Company recognized compensation expense related to performance awards based on its estimate of the probability of achievement in accordance with ASC Topic 718.

 

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

The Company is subject to legal proceedings, which arise in the ordinary course of business. Additionally, U.S. Government contract costs are subject to periodic audit and adjustment. Further, as disclosed in Item 4. Controls and Procedures, theThe Company is currently investigating potential improperwhether certain import/export and/or documentation of sales activities arising out of conduct inat the Company’s China and Singapore offices.offices were improper and in possible violation of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other applicable laws and certain Company policies. The Company has reported this mattervoluntarily notified, and is fully cooperating with, the SEC and the U.S. Department of Justice (“DOJ”) of these activities. On May 1, 2017, the Company received a subpoena for documents from the SEC relating to the SEC. We are presently unableCompany’s investigation. The SEC’s investigation is a non-public, fact-finding inquiry and it is not clear what action, if any, the SEC intends to predict whethertake with respect to the information it gathers. If the SEC, DOJ, or other governmental agencies (including foreign governmental agencies) will commence their own investigation. If the SEC or other governmental agencies were to open an investigation and ultimately determine the Company violatedthat violations of certain laws or regulations occurred, the Company maycould be exposed to a broad range of civil and criminal sanctions. The potential liability arising out of the China and Singapore matters or the SEC investigation cannot currently be reasonably estimated; however, the imposition of sanctions, including fines penalties, disgorgement and/or injunctive relief. Such an investigation, even if it were not to result in anyremedial measures could have a material adverse determination, could be costly and burdensome to our management, and could adversely impacteffect on the Company’s business, prospects, reputation, financial condition, liquidity, results of operations or cash flows.

Information noted as “Other” primarily relates to the Company’s corporate, home office operations.

Information as to the Company'sCompany’s segments is set forth below. Amounts below exclude discontinued operations.

The following table represents identifiable assets by business segment. Amounts below exclude discontinued operations.

The following table represents assets by country based on the location of the assets. Amounts below exclude discontinued operations.

The following table represents goodwillGoodwill by business segment. Amounts below exclude discontinued operations.

Customers comprising 10% or more of the Company'sCompany’s total revenues, excluding discontinued operations, are summarized as follows:

No other customer within All Others represented more than 10% of the Company’s total revenue for the three and nine months ended September 30, 2016March 31, 2017 or 2015.2016.

The deferred compensation assets and liabilities primarily relate to the Company’s deferred compensation plan, which allows for pre-tax salary deferrals for certain key employees. Changes in the fair value of the deferred compensation liabilities are derived using quoted prices in active markets of the asset selections made by the participants. The deferred compensation liabilities are classified within Level 2, as defined under U.S. GAAP, because their inputs are derived principally from observable market data by correlation to the hypothetical investments. The Company holds insurance investments to partially offset the Company’s liabilities under the deferred compensation plan,Deferred Compensation Plan, which are recorded at fair value each period using the cash surrender value of the insurance investments.

The Company has obligations, to be paid in cash, to the former owners of Brink Software Inc., which are payable in cash ifbased on the achievement of certain conditions outlineddefined in the September 18, 2014 stock purchase agreement amonggoverning the Company and Brink Software, Inc. (together with others) dated September 18, 2014 (the “Brink SPA”) are satisfied.acquisition.  The fair value of this contingent consideration payable was estimated 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 820, (Fair Value Measurements and Disclosures).Disclosures. The significant inputs in the Level 3 measurement not supported by market activity includeincluded the Company’s probability assessments of expected future cash flows related to the Company’s acquisition of Brink Software Inc. during the contingent consideration period, appropriately discounted considering the uncertainties associated with the contingent obligation, and calculated in accordance with the terms of the Brink SPA.definitive agreement.  Any change in the fair value adjustment is recorded in the earnings forof that period.  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.

The following table presents a summary of changes in fair value of the Company’s Level 3 assets and liabilities that are measured at fair value on a recurring basis (in thousands):

There are no subsequent eventsThe Company leases its corporate wellness facility to reportrelated parties at a current rate of $9,775 per month. The Company receives a complimentary membership to this time.facility which is provided to all employees.  During the quarters ended March 31, 2017 and March 31, 2016  the Company received rental income amounting to $29,325 for the lease of the facility in each year.

This Quarterly Report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934.  Any1934, as amended (“Exchange Act”), and the Private Litigation Reform Act of 1995. Forward-looking statements are not historical in this Quarterly Reportnature, but rather are predictive of our future operations, financial condition, business strategies and prospects. Forward-looking statements are generally identified by words such as “anticipate”, “believe,” “belief,” “continue,” “could”, “expect,” “estimate,” “intend,” “may,” “opportunity,” “plan,” “should,” “will,” “would,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that do not describe historical facts are subject to risks and uncertainties, which could cause our actual results to differ materially from those expressed in, or implied by, the forward-looking statements. Forward-looking statements (including forward-looking statements relatingFactors that could cause or contribute to such differences include, but are not limited to, delays in new product development and/or product introduction, changes in customer product and service demands, concentration of revenues from a small group of customers, product and service competition, risks associated with the ongoing investigation into possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) and similar laws, including sanctions, fines or remedial measures that may be imposed by the U.S. Department of Justice (“DOJ”) or the U.S. Securities and Exchange Commission (“SEC”), additional expenses related to remedial actions taken or to be taken by us to address themeasures, risks associated with our identified material weaknesses in our internal control over financial reporting described in Item 4. Control and Procedures below, the continued health of segments of the hospitality industry, future information technology outsourcing opportunities, an expected increase or decrease in contract funding by the U.S. Government, the impact of current world events on our results of operations, the effects of inflation on our margins,any other failure to maintain effective internal controls, and the effects of interest rate and foreign currency fluctuations on our results of operations) are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  When we use words such as “intend,” “anticipate,” “believe,” “estimate,” “plan,” “will,” or “expect”, we are making forward-looking statements.  We believe the assumptions and expectations reflected in such forward-looking statements are reasonable based on information available to us on the date hereof, but we cannot assure you these assumptions and expectations will prove to have been correct or we will take any action that we presently may be planning.  We have disclosed certain importantother factors that could cause our actual future results to differ materially from our current expectations, including: the ineffectiveness or insufficiency of our remedial actions to correct identified material weaknessesdiscussed in our internal control over financial reporting, a decline inmost recent Annual Report on Form 10-K and other filings with the volume of purchases made by one or a group of our major customers; risks in technology development and commercialization; risks of downturns in economic conditions generally, and in the quick-service sector of the hospitality market specifically; risks associated with government contracts; risks associated with competition and competitive pricing pressures; and risks related to foreign operations.  Forward-looking statements made in connection with this report are necessarily qualified by these factors.SEC. We are not undertakingundertake no obligation to update or revise publicly any forward-looking statements, if we obtainwhether as a result of new information, or upon the occurrence of future events, or otherwise.otherwise, except as may be required under applicable securities law.

PAR'sOur management technology solutions for the hospitalityRestaurant/Retail segment featurefeatures cloud and on-premise software applications, hardware platforms, and related installation, technical, and maintenance support services designedtailored for the needs of restaurants and retailers.  The Company's governmentOur 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 informationmanagement technology and communications support services to the U.S. Department of Defense.

The Company'sOur products sold in the hospitalityRestaurant/Retail segment are utilized in a wide range of applications by thousands of customers.  The Company facescustomers worldwide.  We face competition across all of its markets withincategories in the hospitalityRestaurant/Retail segment competingin which we compete based on the basis of product design, innovative features and functionality, quality and reliability, price, customer service, and delivery capability.  PAR'sOur strategy is to provide complete integrated management technology solutions, together withsupported by industry leading customer service.  The Company’sOur research and development efforts are focused on creatingtimely identifying changes in customer needs and/or relevant technologies, to rapidly and effectively develop innovative scalable technologynew products and enhancements to our existing products that not only meetsmeet and exceed customer requirements, but exceeds customer expectationsrequirements.

Our strategy is to expand our Restaurant/Retail business by continuing to invest in our existing products - Brink and also have a high probability for broader market appealSureCheck - including the development of enhancements to our existing software applications and success.

Currently, PAR’s primary market is the Quick Serve Restaurant market,quick serve restaurant category and hardware sales to tier 1 customers in that category. Our strategy continues to perform well for the majorityfocus on growth of large, international companies.  PAR primarily sells itsour software offerings, including our cloud software as a service (SaaS) and related hardware platforms and lifecycle support services, consistent with our strategy to expand our product offerings beyond restaurant and retail markets. As we implement our strategies, we continuously monitor the trends in the markets we currently operate and the markets we intend to operate in the future. We know POS hardware is becoming a commodity, as more POS devices (tablets, kiosks and bring your own device) are introduced, competition will increase, driven by pricing, scalability, functionality, and economies of scale, resulting in smaller margins. Our strategy acknowledges this market,trend, and we intend to grow our recurring revenues from software contracts, specifically within PAR’s Tier 1 clients.SaaS, reducing the impact of this eventual commoditization of POS hardware.

The focus of the Company’sstrategy for our PAR Government businesssegment is to expand its servicesbuild on our sustained outstanding performance of 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 solutions business lines. With its investmentextensions 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 the Company providesprovide opportunities to offer systems integration, products, and highly-specialized service solutions to the U.S. Department of Defense and other federal/state agencies with systems integration, products and highly-specialized services.  Through outstanding performance on existing contracts, the Company has been able to consistently win follow-ons and extensions of existing contracts.   The Company has grown beyond many of the size standards that advantage small businesses.  To sustain growth, the Company is expanding a set of key partnerships that enable the pursuit of both follow-on and new contracts within the current portfolio while expanding into adjacent customer and technology spaces.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 may impact the performance of this business.

 

Product revenues were $25.8$37.2 million for the quarter ended September 30, 2016,March 31, 2017, an increase of 5.5%68.5% from the $24.4$22.1 million recorded for the same period in 2015.2016.  This increase was primarily driven by an increasedemand for our hardware solutions due to the timing of major project installations with a tier 1 customer in our Restaurant/Retail segment.  Also, contributing to the growth in the quarter was continued deployments of hardware sales sold towith our largest global customers and new accounts won through deployments of Brink POS with related hardware.  The increase was offset by lower volume through our network of channel partners selling our Pixel Point product.software.

Service revenues were $12.6$14.3 million for the quarter ended September 30, 2016,March 31, 2017, an increase of 8.6%22.5% from the $11.6$11.7 million reported for the same period in 2015.2016.  During the quarter, ended September 30, 2016, the Companywe experienced an increase in installation services driven mostly by an increase in product revenue, and an increase in continued to experience growth in recurring revenuedeployments of our Brink POS software.  Additionally, there was an increase associated with our depot repair operation resulting from software related services, primarily revenue generated from software as anew service (SaaS).  In addition, service revenue generated by the Company’s hardware repair center increased compared to the same period in 2015, driven by a higher volume of contracts.

 

Contract revenues were $23.1$14.3 million for the quarter ended September 30, 2016,March 31, 2017, compared to $22.0$21.5 million reported for the same period in 2015, an increase2016, a decrease of 5.0%33.5%.  This isdecrease was driven by the wind down of a result of an increase in materials and subcontract revenue in the quarter across all lines of government business.large multi-year contract within our Program Management Office (“PMO”) product offering.

 

Product margins for the quarter ended September 30, 2016March 31, 2017 were 28.4%25.9%, compared to 28.5%25.5% for the same period in 2015.  During the quarter ended September 30, 2016, the Company maintained a stable product mix in sales of its hardware and software offerings.2016.

Service margins were 28.9%31.1% for the quarter ended September 30, 2016,March 31, 2017; an increase from the 26.9%26.5% recorded for the same period in 2015.  Service margins during the quarter ended September 30, 2016 were2016. Our favorable due to an increase in software related services during the period,margin rates are primarily driven by highergrowth in our software sold as a service.service platforms, depot repair, and call center product offerings.

Contract margins were 7.0%11.0% for the quarter ended September 30, 2016,March 31, 2017, compared to 7.5%8.7% for the same period in 2015.2016.  This decreasefavorable variance is duethe result of a shift in revenue mix from PMO to a less profitable contract mix, associated with lower margin on increased materialsthe higher value added product offerings of Intelligence, Surveillance, and subcontract revenue in the quarter.Reconnaissance (“ISR’) and Mission Support.

Selling, general and administrative (SG&A) expenses were $8.7$9.6 million, for the quarter ended September 30, 2016, an increase of 27.4%, compared to the $6.8$7.5 million for the period ended September 30, 2015.ending March 31, 2016. The increase is driven by the write-off of the previously capitalized human capital management system of $0.8 million and $0.4 million of investigationprimarily due to costs related to the Company’s former CFO’s unauthorized transactions.favorable year-over-year financial performance such as commissions and bonus accrual.

 

Research and development (R&D) expenses were $2.9$3.6 million for the quarter ended September 30, 2016,March 31, 2017, up from  the $2.7$2.8 million recorded for the same period in 2015.2016.  This increase was primarily due to an increase in software development costs for products within the hospitalityRestaurant/Retail segment, R&D expensesprimarily associated with the Company’sour Brink POS Software and SureCheck software applications.

 

During each of the quarters ended September 30,March 31, 2017 and March 31, 2016, and 2015, the Companywe recorded $241,000 and $248,000, respectively,$0.2 million of amortization expense associated with acquired identifiable intangible assets from the acquisition of Brink Software Inc.

Other expense, net, was $38,000$0.2 million for the quarter ended September 30, 2016March 31, 2017 compared to other income, net of $128,000$0.1 million for the same period in 2015.2016.  Other expense/incomeincome/expense primarily includes, fair market value fluctuations of the Company'sour deferred compensation plan, rental income, and foreign currency fair value adjustments.  The increased expense in 2016 is primarily due to foreign currency adjustments and lower rental income.

Interest expense, net, of $12,000(expense) income, was $(32,000) for quarter ended March 31, 2017 and $29,000 for quarter ended March 31, 2016. The 2016 interest income represents interest payable of $52,000 on the Company’s short-term borrowings and long-term debt offset by interest income recorded on the note receivable in the amount of $67,000 related to the sale of the hotel/spa technology businessPSMS in November 2015, offset by interest charged on our short-term borrowings and from long-term debt of $40,000.  Interest expense was $81,000 for the quarter ended September 30, 2015.  This decrease in interest expense is associated with lower outstanding borrowing in 2016 as compared to the same period in 2015.$38,000.

For the three months ended September 30, 2016, the Company'sMarch 31, 2017, our effective income tax expense was 32.8%35.5%, compared to 34.1%34.8% for the same period in 2015.  The variances from the federal statutory rate for the three months ended September 30, 2016 and 2015 were due to the mix of projected taxable income from the Company's domestic and foreign jurisdictions expected for the full 2016 fiscal year and 2015 fiscal year.2016.

The Company'sOur primary sources of liquidity have been cash flow from operations and its Credit Facility, described below.a line of credit with our bank.  Cash used in operating activities offrom continuing operations was $2.4$1.2 million for the ninethree months ended September 30, 2016March 31, 2017, compared to cash generatedused in operating activities of continuing operations of $2.3$1.0 million for the same period in 2015.

Cash used in investing activities from continuing operations was $4.7$3.3 million for the ninethree months ended September 30, 2016March 31, 2017 versus $3.0$1.0 million used in investing activities for the same nine month period in 2015.three months ended March 31, 2016.  In 2016,the three months ended March 31, 2017, our capital expenditures of $1.8$2.3 million were primarily for PAR’s newrelated to the implementation of our enterprise resource planning system and capital improvements made to the Company’sour owned and leased properties. We capitalized $1.0 million in costs associated with investments in our Restaurant/Retail software platforms.  In the three months ended March 31, 2016, our capital expenditures of $1.0 million were primarily  related to capital improvements to leased properties as well as purchases of computer equipment associated with the Company’sour software support service offerings.  Capitalized software was $1.9We capitalized $0.7 million and wasin costs associated with investments for various hospitality software platforms.  Additionally, the Company made an agreed upon working capital payment of $977,000 in regard to the sale of the hotel/spa technology business.  For the nine months ended September 30, 2015 capital expenditures of $1.5 million were primarily for capital improvements made to the Company’s leased properties as well as purchases of computer equipment associated with the Company’s software support service offerings.  Capitalized software was $1.5 million and was associated with investments for various Hospitalityour Restaurant/Retail software platforms.

Cash provided by financing activities from continuing operations was $2.7$1.0 million for the ninethree months ended September 30, 2016March 31, 2017 versus cash used of $4.8 million$45,000 for the same nine month periodthree months ended March 31, 2016.  This change was a result of borrowings on the Credit Facility.

On November 29, 2016, we, together with certain of our U.S. subsidiaries, as “Loan Guarantors” (together, the “Loan Parties”) entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as the “Lender”. The Credit Agreement provides for revolving loans in 2015.  In 2016,an aggregate principal amount of up to $15.0 million to be made available to the Company; availability at any time being equal to the lesser of (i) $15.0 million and (ii) a borrowing base (equal to 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, as of the end of each fiscal quarter, by reference to the CBFR Spread or the Eurodollar Spread based on the Company’s consolidated indebtedness ratio as at the determination date.

The Credit Facility matures three (3) years from the date of the Credit Agreement and is guaranteed by the Loan Guarantors. The Credit Facility is secured by substantially all of the assets of the Company received cash from an increaseand of the other Loan Parties; provided, that the Credit Facility is not secured by any liens on more than 65% of the voting stock of the Company’s foreign subsidiaries. The Credit Agreement contains representations and warranties and affirmative and negative covenants that are usual and customary, including representations, warranties and covenants that, among other things, restrict the 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 with or into any other company, engage in net borrowings onasset sales and pay dividends and make distributions. The Credit Agreement requires that the Company’s consolidated indebtedness ratio at the end of each of its linefiscal quarters to be greater than 3.0 to 1.0 and 1.25 to 1.0 for the quarter ending March 31, 2017 and each quarter thereafter. Obligations under the Credit Agreement may be accelerated upon certain customary events of credit by $4.8 million, received proceeds from stock awardsdefault (subject to grace periods, as appropriate), including among others: nonpayment of $26,000, offset byprincipal, interest or fees; breach of the third installment paymentaffirmative or negative covenants; breach of $2.0 millionthe representations or warranties in any material respect; event of default under, or acceleration of, other material indebtedness; bankruptcy or insolvency; material judgments entered against the Company or any of its subsidiaries; invalidity or unenforceability of any collateral documentation associated with the purchaseCredit Facility; and a change of Brink Software Inc. and payments on long-term debtcontrol of $151,000.  In 2015, the Company paid the second installment paymentCompany. We were in compliance with these covenants as of $3.0 million associated with the purchase of Brink Software Inc.,  paid down its credit facility by $1.6 million and its long-term debt by $129,000.March 31, 2017.

 

On September 9, 2014,March 31, 2017, the Company, together with certain of its subsidiaries, entered into a three-year credit facility (as amended, restated, renewed, supplemented, extended or otherwise modified from time to time, the “Credit Facility”) with J.P. Morgan Chase Bank, N.A. (the “Lender”).  The Credit Facility provides for a line of credit of up to $25 million, with borrowing availability based on a percentage of value of various assets of the Company and its subsidiaries. Loans outstandingapplicable rate under the Credit Facility bear interest at the applicable bank rate (3.50% at September 30, 2016), plus an applicable interest rate spread (range of 0.0% - 0.25%) or, at the Company's option, at LIBOR rate,was 3.25% plus the applicable interest rate spread (range of 1.5% – 2.0%).  The weighted average interest rate paid byCBFR Spread or LIBOR plus the CompanyEurodollar Spread based on the Company’s consolidated indebtedness ratio.  There was approximately 3.75% during the first nine months ended 2016.   The Credit Facility contains customary asset based loan covenants, including financial covenants requiring the Company to maintain a minimum EBITDA and fixed charge coverage ratio.

In addition to the Credit Facility, the Company has a mortgage loan, collateralized by certain real estate, with a balance of $598,000$0.5 million and $746,000 at September 30,$0.7 million as of March 31, 2017 and 2016, and December 31, 2015, respectively.  This loanmortgage matures on November 1, 2019 and bears interest2019.  Interest is fixed at 4.0% (fixed)4.00% through maturity.  The annual loanmortgage payment, including interest through November 1, 2019, totals $206,000.is $0.2 million.

Our Consolidated Financial Statements are based on the application of liquidity beyond twelve months,U.S. generally accepted accounting principles (“GAAP”).  GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported.  We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied.  Valuations based on estimates are reviewed for reasonableness and adequacy on a consistent basis.  Primary areas where financial information is subject to the use of estimates, assumptions and the application of judgment include revenue recognition, accounts receivable, inventories, accounting for business combinations, contingent consideration, goodwill and intangible assets, and taxes. Our critical accounting policies have not changed materially from the discussion of those policies included under “Critical Accounting Policies and Estimates” in management’s opinion, will be its cash balancesour Annual Report on hand at that time, funds provided by operations, funds available under its Credit Facility and any long-term credit facilities that it can arrange.Form 10-K for the year ended December 31, 2016.

In March 2016,May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2016-09FASB amended the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized to simplify several aspectsdepict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized.  The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.  In July 2015, the FASB affirmed its proposal of a one-year deferral of the accounting for employee share-based payment transactions standard, includingeffective date of the classification of excess tax benefits and deficiencies andnew revenue standard.  As a result, the accounting for employee forfeitures. Thenew guidance iswill be effective for the Company beginning in the first quarter of 2017.2018. The updatesamendments may be applied retrospectively to each prior period presented or with the accounting standard include the following:

In February 2016, the FASB issued ASU 2016-02 impacting the accounting for leases intending to increase transparency and comparability of organizations by requiring balance sheet presentation of leased assets and increased financial statement disclosure of leasing arrangements. The revised standard will require entities to recognize a liability for its lease obligations and a corresponding asset representing the right to use the underlying asset over the lease term. Lease obligations are to be measured at the present value of lease payments and accounted for using the effective interest method. The accounting for the leased asset will differ slightly depending on whether the agreement is deemed to be a financing or operating lease. For finance leases, the leased asset is depreciated on a straight-line basis and recorded separately from the interest expense in the income statement resulting in higher expense in the earlier part of the lease term. For operating leases, the depreciation and interest expense components are combined, recognized evenly over the term of the lease, and presented as a reduction to operating income. The ASU requires that assets and liabilities be presented or disclosed separately and classified appropriately as current and noncurrent. The ASU further requires additional disclosure of certain qualitative and quantitative information related to lease agreements. The new standard is effective for the Company beginning in the first quarter 2019 and early adoption is permitted, although unlikely at this time.of 2019. We are currently evaluating the impact of these amendments on our financial statements.

The adoption of the new standard in the first quarter of 2017 did not have a significant impact on our unaudited interim consolidated financial statements.

In November 2015, the FASB issued new guidance related to the balance sheet classification of deferred taxes.  This standard requires an entity to classify all deferred tax assets, along with any valuation allowance, as noncurrent on the balance sheet. As a result, each jurisdiction will have one net noncurrent deferred tax asset or liability.  The newCompany adopted this standard is effectivein the first quarter of 2017, which resulted in the Company’s reclassification of deferred tax assets from current assets to non-current assets in the amount of $7.8 million for the Company for fiscal years beginning afterquarters ended March 31, 2017 and December 15,31, 2016.  The adoption of this standard, which may be applied either prospectively or retrospectively, is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2015, the FASB issued new guidance related to the measurement of inventory.  This standard changes the inventory valuation method from the lower of cost or market to the lower of cost or net realizable value for inventory valued under the first-in, first-out or average cost methods.  The new standard is effective forimplementation of the Company beginning in its first quarter of fiscal 2017, and requires prospective adoption with early adoption permitted. The Company is evaluating theamended accounting guidance did not have a significant impact the adoption of this standard will have on itsour consolidated financial statements.

In August 2014, the FASB issued new guidance related to disclosures around going concern, including management'smanagement’s responsibility to evaluate whether there is substantial doubt about an entity'sentity’s ability to continue as a going concern and to provide related disclosures when conditions or events raise substantial doubt about an entity'sentity’s ability to continue as a going concern. The adoption of the new standard is effective forin the Company beginning in its first quarter of fiscal 2017, with early adoption permitted although the Company willdid not early adopt. The impact of adopting this guidance on January 1, 2017 is not expected to have a materialsignificant impact on our consolidated financial statements.