PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

~~Wayside Technology Group,~~Climb Global Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share and per share amounts)

September 30,

December 31,


2017

2016


(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$
4,065

$
13,524

Accounts receivable, net of allowances of $2,641 and $2,293, respectively

63,683

83,317

Inventory, net

2,403

2,324

Vendor prepayments

7,471

—

Prepaid expenses and other current assets

788

948

Total current assets

78,410

100,113

Equipment and leasehold improvements, net

1,924

1,937

Accounts receivable-long-term, net

10,243

11,119

Other assets

204

113

Deferred income taxes

235

416

$
91,016

$
113,698

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

$
50,922

$
76,087

Revolving credit facility

2,000

—

Total current liabilities

52,922

76,087

Commitments and Contingencies

Stockholders’ equity:

Common Stock, $.01 par value; 10,000,000 shares authorized; 5,284,500 shares issued; 4,481,964 and 4,555,434 shares outstanding, respectively

53

53

Additional paid-in capital

30,694

30,683

Treasury stock, at cost, 802,536 and 729,066 shares, respectively

(13,855)

(12,029)

Retained earnings

22,152

20,515

Accumulated other comprehensive loss

(950)

(1,611)

Total stockholders’ equity

38,094

37,611

$
91,016

$
113,698


	(Unaudited)
	June 30,		December 31,
	2023		2022

ASSETS
Current assets:
Cash and cash equivalents	$	43,869	$	20,245
Accounts receivable, net of allowance for doubtful accounts of $736 and $842, respectively		130,027		154,596
Inventory, net		3,228		4,766
Vendor prepayments and advances		—		890
Prepaid expenses and other current assets		7,651		4,141
Total current assets		184,775		184,638

Equipment and leasehold improvements, net		6,262		3,515
Goodwill		19,637		18,963
Other intangibles, net		19,423		19,693
Right-of-use assets, net		1,040		1,235
Accounts receivable-long-term, net		1,259		3,114
Other assets		868		350
Deferred income tax assets		434		348
Total assets	$	233,698	$	231,856
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	157,471	$	160,650
Lease liability, current portion		471		521
Term loan, current portion		530		520
Total current liabilities		158,472		161,691

Lease liability, net of current portion		1,087		1,296
Deferred income tax liabilities		4,290		4,137
Term loan, net of current portion		1,024		1,292
Non-current liabilities		1,843		2,866
Total liabilities		166,716		171,282

Commitments and contingencies

Stockholders’ equity:
Common stock, $.01 par value; 10,000,000 shares authorized; 5,284,500 shares issued: 4,568,914 and 4,478,432 shares outstanding, respectively		53		53
Additional paid-in capital		33,476		32,715
Treasury stock, at cost, 715,586 and 806,068 shares, respectively		(12,402)		(13,230)
Retained earnings		47,106		43,904
Accumulated other comprehensive loss		(1,251)		(2,868)
Total stockholders’ equity		66,982		60,574
Total liabilities and stockholders' equity	$	233,698	$	231,856

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

~~Wayside Technology Group,~~Climb Global Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(Unaudited)

(Amounts in thousands, except per share data)

Nine months ended

Three months ended

September 30,

September 30,


2017

2016

2017

2016


Net sales

$
322,423

$
298,167

$
106,646

$
99,586

Cost of sales

302,848

278,842

100,403

93,214

Gross profit

19,575

19,325

6,243

6,372

Selling, general, and administrative expenses

14,261

13,570

4,451

4,351

Income from operations

5,314

5,755

1,792

2,021

Other income:

Interest, net

466

183

145

58

Foreign currency transaction gain (loss)

22

(1)

73

3

Income before provision for income taxes

5,802

5,937

2,010

2,082

Provision for income taxes

1,867

2,008

669

704

Net income

$
3,935

$
3,929

$
1,341

$
1,378

Income per common share-Basic (Restated) Notes 1 and 9

$
0.87

$
0.83

$
0.30

$
0.29

Income per common share-Diluted (Restated) Notes 1 and 9

$
0.87

$
0.83

$
0.30

$
0.29

Weighted average common shares outstanding — Basic (Restated) Notes 1 and 9

4,303

4,537

4,283

4,507

Weighted average common shares outstanding — Diluted
(Restated) Notes 1and 9

4,303

4,537

4,283

4,507

Dividends paid per common share

$
0.51

$
0.51

$
0.17

$
0.17


	Six months ended				Three months ended
	June 30,				June 30,
	2023		2022		2023		2022

Net sales	$	166,771	$	139,182	$	81,732	$	67,863

Cost of sales		137,870		114,716		68,039		55,377

Gross profit		28,901		24,466		13,693		12,486

Selling, general, and administrative expenses		21,837		16,183		11,576		7,934

Amortization and depreciation expense		1,317		802		604		445

Income from operations		5,747		7,481		1,513		4,107

Other income:

Interest, net		441		(17)		330		(7)

Foreign currency transaction gain (loss)		40		(298)		(4)		(442)

Income before provision for income taxes		6,228		7,166		1,839		3,658

Provision for income taxes		1,523		1,663		458		867

Net income	$	4,705	$	5,503	$	1,381	$	2,791

Income per common share-Basic	$	1.05	$	1.24	$	0.31	$	0.63

Income per common share-Diluted	$	1.05	$	1.24	$	0.31	$	0.63

Weighted average common shares outstanding — Basic		4,381		4,315		4,396		4,321

Weighted average common shares outstanding — Diluted		4,381		4,315		4,396		4,321

Dividends paid per common share	$	0.34	$	0.34	$	0.17	$	0.17

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

~~Wayside Technology Group,~~Climb Global Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(Amounts in thousands)

Nine months ended

Three months ended

September 30,

September 30,


2017

2016

2017

2016


Net income

$
3,935

$
3,929

$
1,341

$
1,378

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment

661

(60)

274

(130)

Other comprehensive income (loss)

661

(60)

274

(130)

Comprehensive income

$
4,596

$
3,869

$
1,615

$
1,248


	Six months ended				Three months ended
	June 30,				June 30,
	2023		2022		2023		2022

Net income	$	4,705	$	5,503	$	1,381	$	2,791

Other comprehensive income (loss):
Foreign currency translation adjustments		1,617		(2,335)		1,004		(1,709)
Other comprehensive income (loss)		1,617		(2,335)		1,004		(1,709)

Comprehensive income	$	6,322	$	3,168	$	2,385	$	1,082

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

~~Wayside Technology Group,~~Climb Global Solutions, Inc. and Subsidiaries

Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity

(Unaudited)

(Amounts in thousands, except share amounts)

Accumulated

Additional

Other

Common Stock

Paid-In
��
Treasury

Retained

Comprehensive


Shares

Amount

Capital

Shares

Amount

Earnings

(loss) income

Total

Balance at January 1, 2017

5,284,500

$
53

$
30,683

729,066

$
(12,029)

$
20,515

$
(1,611)

$
37,611

Net income

—

—

—

—

—

3,935

—

3,935

Translation adjustment

—

—

—

—

—

—

661

661

Dividends paid

—

—

—

—

—

(2,298)

—

(2,298)

Share-based compensation expense

—

—

1,026

—

—

—

—

1,026

Restricted stock grants (net of forfeitures)

—

—

(1,015)

(83,440)

1,015

—

—

—

Treasury shares repurchased

—

—

—

156,910

(2,841)

—

—

(2,841)

Balance at September 30, 2017

5,284,500

$
53

$
30,694

802,536

$
(13,855)

$
22,152

$
(950)

$
38,094


											Accumulated
				Additional							Other
	Common Stock			Paid-In		Treasury			Retained		Comprehensive
	Shares	Amount		Capital		Shares	Amount		Earnings		(Loss) Income		Total
Balance at January 1, 2023	5,284,500	$	53	$	32,715	806,068	$	(13,230)	$	43,904	$	(2,868)	$	60,574
Net income	—		—		—	—		—		3,324		—		3,324
Translation adjustment	—		—		—	—		—		—		613		613
Dividends paid	—		—		—	—		—		(749)		—		(749)
Share-based compensation expense	—		—		546	—		—		—		—		546
Restricted stock grants (net of forfeitures)	—		—		(765)	(43,824)		765		—		—		—
Treasury shares repurchased	—		—		—	5,604		(214)		—		—		(214)
Balance at March 31, 2023	5,284,500	$	53	$	32,496	767,848	$	(12,679)	$	46,479	$	(2,255)	$	64,094
Net income	—		—		—	—		—		1,381		—		1,381
Translation adjustment	—		—		—	—		—		—		1,004		1,004
Dividends paid	—		—		—	—		—		(754)		—		(754)
Share-based compensation expense	—		—		2,238	—		—		—		—		2,238
Restricted stock grants (net of forfeitures)	—		—		(1,258)	(71,965)		1,258		—		—		—
Treasury shares repurchased	—		—		—	19,703		(981)		—		—		(981)
Balance at June 30, 2023	5,284,500		53		33,476	715,586		(12,402)		47,106		(1,251)		66,982

											Accumulated
				Additional							Other
	Common Stock			Paid-In		Treasury			Retained		Comprehensive
	Shares	Amount		Capital		Shares	Amount		Earnings		(Loss) Income		Total
Balance at January 1, 2022	5,284,500		53		32,087	859,828		(13,870)		34,396		(250)	$	52,416
Net income	—		—		—	—		—		2,712		—		2,712
Translation adjustment	—		—		—	—		—		—		(626)		(626)
Dividends paid	—		—		—	—		—		(746)		—		(746)
Share-based compensation expense	—		—		369	—		—		—		—		369
Restricted stock grants (net of forfeitures)	—		—		(502)	(29,499)		502		—		—		—
Treasury shares repurchased	—		—		—	7,118		(216)		—		—		(216)
Balance at March 31, 2022	5,284,500		53		31,954	837,447		(13,584)		36,362		(876)	$	53,909
Net income	—		—		—	—		—		2,791		—		2,791
Translation adjustment	—		—		—	—		—		—		(1,709)		(1,709)
Dividends paid	—		—		—	—		—		(746)		—		(746)
Share-based compensation expense	—		—		345	—		—		—		—		345
Restricted stock grants (net of forfeitures)	—		—		(308)	(17,194)		308		—		—		—
Treasury shares repurchased	—		—		—	5,151		(177)		—		—		(177)
Balance at June 30, 2022	5,284,500		53		31,991	825,404		(13,453)		38,407		(2,585)		54,413

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents~~Wayside Technology Group,~~

Climb Global Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

Nine months ended

September 30,


2017

2016

Cash flows from operating activities

Net income

$
3,935

$
3,929

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization expense

359

192

Deferred income tax expense

181

32

Share-based compensation expense

1,026

1,168

Benefit for doubtful accounts receivable

(95)

(57)

Changes in operating assets and liabilities:

Accounts receivable

21,101

(2,271)

Inventory

(69)

62

Prepaid expenses and other current assets

169

(204)

Vendor prepayments

(7,471)

—

Accounts payable and accrued expenses

(25,405)

1,312

Other assets

(96)

(45)

Net cash  (used in) provided by operating activities

(6,365)

4,118

Cash flows used in investing activities

Purchase of equipment and leasehold improvements

(339)

(779)

Net cash used in investing activities

(339)

(779)

Cash flows used in financing activities

Purchase of treasury stock

(2,841)

(3,612)

Tax benefit from share-based compensation

—

115

Dividends paid

(2,298)

(2,420)

Net borrowings under  revolving credit facility

2,000

—

Net cash used in financing activities

(3,139)

(5,917)

Effect of foreign exchange rate on cash

384

(287)

Net decrease  in cash and cash equivalents

(9,459)

(2,865)

Cash and cash equivalents at beginning of period

13,524

23,823

Cash and cash equivalents at end of period

$
4,065

$
20,958

Supplementary disclosure of cash flow information:

Income taxes paid

$
1,944

$
1,915

Leasehold improvements funded by tenant allowance

$
-

$
840


	Six months ended
	June 30,
	2023		2022
Cash flows from operating activities
Net income	$	4,705	$	5,503
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation and amortization expense		1,317		802
Provision for doubtful accounts		24		11
Deferred income tax benefit		(91)		14
Share-based compensation expense		2,735		714
Amortization of discount on accounts receivable		(29)		(10)
Amortization of right-of-use assets		203		220
Changes in operating assets and liabilities:
Accounts receivable		27,735		5,929
Inventory		1,541		316
Prepaid expenses and other current assets		(3,450)		1,851
Vendor prepayments		890		(263)
Accounts payable and accrued expenses		(6,482)		(13,585)
Lease liability, net		(266)		(276)
Other assets and liabilities		788		43
Net cash and cash equivalents provided by operating activities		29,620		1,269

Cash flows from investing activities
Purchase of equipment and leasehold improvements		(3,025)		(652)
Net cash and cash equivalents used in investing activities		(3,025)		(652)

Cash flows from financing activities
Purchase of treasury stock		(1,193)		(394)
Borrowings under revolving credit facility		10,000		—
Repayments of borrowings under revolving credit facility		(10,000)		—
Borrowings under revolving term loan		—		2,148
Repayments of borrowings under term loan		(258)		(83)
Dividends paid		(1,503)		(1,492)
Payments of deferred financing costs		(584)		—
Net cash and cash equivalents (used in) provided by financing activities		(3,538)		179

Effect of foreign exchange rate on cash and cash equivalents		567		(753)

Net increase in cash and cash equivalents		23,624		43
Cash and cash equivalents at beginning of period		20,245		29,272
Cash and cash equivalents at end of period	$	43,869	$	29,315

Supplementary disclosure of cash flow information:
Income taxes paid	$	1,947	$	1,520
Interest paid	$	22	$	29

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

~~Wayside Technology Group,~~Climb Global Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2017~~2023

(Unaudited)

(Amounts in tables in thousands, except share and per share amounts)

~~Basis of Presentation:~~

1. Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements of ~~Wayside Technology Group,~~Climb Global Solutions, Inc. and its subsidiaries (collectively, the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, as permitted by the rules and regulation of the Securities and Exchange Commission, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete audited financial statements.

The preparation of these condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, stock-based compensation, evaluation of performance obligations and allocation of revenue to distinct items, contingencies and litigation. The Company bases its estimates on its historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In the opinion of the Company’s management, all adjustments that are of a normal recurring nature, considered necessary for fair presentation of the results for the periods presented, have been included in the accompanying condensed consolidated financial statements. The Company’s actual results may differ from these estimates under different assumptions or conditions. The unaudited condensed consolidated statements of earnings for the interim periods are not necessarily indicative of results for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K filed with the Securities Exchange Commission for the year ended December 31, ~~2016.~~2022.

~~Earnings per share two class method~~

Earnings per share for the three and nine months ended September 30,2016 were recalculated and restated using the two class method and presented on a comparable basis with the same periods in 2017. In 2017 the Company determined it should be reporting earnings per share using the two-class method in accordance with ASC 260-10-45-60, which treats unvested restricted shares granted under our 2012 Stock-Based Compensation Plan that are entitled to receive non-forfeitable dividends as participating securities. While the Company has determined the impact of applying the two-class method does not have a material impact on previously issuedThe consolidated financial statements ~~it is appropriate to recalculate~~include the accounts of Climb Global Solutions, Inc. and ~~restate amounts presented on a comparative~~its wholly owned subsidiaries. All intercompany transactions and consistent basis with current period results. The table below summarizes previously reported and restated amounts on a comparative basis. Footnote 9, Earnings Per Share provides more detail on the two-class method calculation.balances have been eliminated.

Nine months ended

Three months ended

September 30,

September 30,

2016

2016
As Previously Reported:

Income per common share - Basic

$
0.87

$
0.31
Income per common share - Diluted

$
0.86

$
0.31

Weighted average common shares outstanding - Basic

4,537

4,507
Weighted average common shares outstanding - Diluted

4,548

4,518

As Restated:

Income per common share - Basic

$
0.83

$
0.29
Income per common share - Diluted

$
0.83

$
0.29

Weighted average common shares outstanding – Basic

4,537

4,507
Weighted average common shares outstanding – Diluted

4,537

4,507

2. Recently Issued Accounting Standards:

2. ~~Recently issued accounting standards:~~

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements, along with most existing industry-specific guidance. In March, April, May and December 2016, the FASB issued additional updates to the new accounting standard which provide supplemental adoption guidance and clarifications. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue in order to depict 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 new standard will also result in enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers. Entities are permitted to transition to the new standard by either recasting prior periods or recognizing the cumulative effect as of the beginning of the period of adoption. The standard and related amendments will be effective for the Company for its annual reporting period beginning January 1, 2018, including interim periods within that reporting period. The Company has engaged with outside advisors to assist in its assessment and is in the process of finalizing its conclusions on several aspects of the standard including principal versus agent considerations, identification of performance obligations, the determination of when control of goods and services transfers to the Company’s customer, which transition approach will be applied and the estimated impact it will have on our consolidated financial statements. While its assessment is still underway, the Company has determined that it may have material adjustments related to accounting for certain third-party maintenance, subscription and support agreements based on the assessment of whether the Company is acting as a principal or an agent in the transaction. Those adjustments, if any, are expected to impact whether the related sales are recognized on a gross or on a net basis, however such adjustments are not expected to have a material impact on net earnings. Our disclosures related to revenue recognition may be significantly different under the new accounting guidance. The Company has not yet determined which method of adoption it will adopt, pending the outcome of its final assessment.

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, "Simplifying the Measurement of Inventory (Topic 330)", ("ASU 2015-11"). Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market, with market value represented by replacement cost, net realizable value or net realizable value less a normal profit margin. The amendments in ASU 2015-11 require an entity to measure inventory at the lower of cost or net realizable value. ASU 2015-11 is effective for reporting periods beginning after December 15, 2016. We adopted ASU 2015-11 during the quarter ended March 31, 2017 and it did not have a material impact on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the accounting for

share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Effective January 1, 2017, the Company adopted the provisions of ASU 2016-09 related to the recognition of excess tax benefits in the income statement and classification in the statement of cash flows were adopted on a prospective basis and the prior periods were not retrospectively adjusted. The Company has elected to account for forfeitures of share-based awards when they occur in determining compensation cost to be recognized each period. The adoption of ASU 2016-09 did not have a material impact on our consolidated financial statements

In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 supersedes the lease guidance under FASB Accounting Standards Codification ("ASC") Topic 840, Leases, resulting in the creation of FASB ASC Topic 842, Leases. ASU 2016-02 requires a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. Leases will be classified as either finance or operating leases with classification affecting the pattern of expense recognition in the statement of earnings. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the potential impact of adopting ASU 2016-02 on its consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” ("ASU ~~No.~~ 2016-13"). ASU ~~No.~~ 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, ASU ~~No.~~ 2016-13 iswas effective for ~~the Company in the first quarter of 2020, with early adoption permitted,~~fiscal years, and is to be applied using a modified retrospective approach. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its consolidated financial statements, particularly its recognition for ~~accounts receivable.~~

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (“ASU 2016-15”) ASU 2016-15 which reduces diversity in practice in how certain transactions are classified in the statement of cash flows. The new standard will become effective for the Company beginning with the first quarter of 2018, with early adoption permitted. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~“Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”~~ This amendment is intended to improve accounting for the income tax consequences of intra-entity transfers of assets other than inventory. In accordance with this guidance, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The ASU is effective for the Company beginning in fiscal 2019. Early adoption is permitted in fiscal 2018 with modified retrospective application. The Company is continuing to evaluate the impact of the adoption of this guidance on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Scope of Modification Accounting”, to reduce diversity in practice and provide clarity regarding existing guidance in ASC 718, “Stock Compensation”. The amendments in this updated guidance clarify that an entity should apply modification accounting in response to a change in the terms and conditions of an entity’s share-based payment awards unless three newly specified criteria are met. This guidance is effective forinterim periods within those fiscal years, beginning after December 15, ~~2017, including interim periods within that reporting period. Early~~2019, with early adoption is permitted. The Company has evaluated the potential impacts of this updated guidance, and it does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.

In ~~August 2017, the~~November 2019, FASB issued ASU ~~No. 2017-12,~~ 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) –~~Targeted Improvements~~, and Leases (Topic 842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to ~~Accounting for Hedging Activities~~, which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this update also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. ASU No. 2017-12 is effective for fiscal years beginning after December 15, ~~2018,~~2022, including interim periods within those fiscal ~~years;~~years. Effective January 1, 2023, the ~~ASU allows for early adoption in any interim period after issuance of~~Company adopted the ~~update. The company is currently assessing~~new credit loss standard and it did not have an impact on the ~~impact this ASU will have on its consolidated~~Company’s financial statements.

3.Foreign Currency Translation:

Assetsand liabilities of the Company’s foreign subsidiaries have been translated ~~at current~~using the end of the reporting period exchange rates, and related ~~sales~~revenues and expenses have been translated at average rates of exchange in effect during the period. Transactions denominated in currencies other than the applicable functional currency are converted to the functional currency at the exchange rate on the transaction date. Foreign currency transaction gains and losses are recorded as income or expenses as amounts are settled. The net sales from our foreign operations for the ~~first nine~~three months ~~of 2017~~ended June 30, 2023 and 2022 were ~~$34.9~~$16.5 million ~~as compared to $31.6~~and $14.2 million, ~~in the first nine months of 2016.~~respectively. The net sales from our foreign operations for the ~~third quarter~~six months ended June 30, 2023 and 2022 were $41.1 million and $29.9 million, respectively.

Table of ~~2017 were $11.3 million as compared to $10.7 million in the third quarter of 2016~~. Contents

4. Comprehensive Income:

Cumulative translation adjustments have been classified within accumulated other comprehensive loss, which is a separate component of stockholders’ equity in accordance with FASB ASC Topic 220, “Comprehensive Income.”

5.Revenue Recognition:

~~Revenue on product (software~~The Company’s revenues primarily result from the sale of various technology products and ~~hardware)~~services, including third-party products, third-party software and third-party maintenance, software support and subscription agreement sales are recognized once four criteria are met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed and determinable, (3) delivery (software and hardware) or fulfillment (maintenance and subscription) has occurred, and (4) there is reasonable assurance of collectionservices. The Company recognizes revenue as control of the ~~sales proceeds. Revenues from~~third-party products and third-party software is transferred to customers, which generally happens at the point of shipment or fulfilment and at the point that our customers and vendors accept the terms and conditions of the arrangement for third-party maintenance, software support and services.

The Company has contracts with certain customers where the Company’s performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as the Company assumes an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent. These arrangements primarily relate to third party maintenance, cloud services and certain security software whose intended functionality is dependent on third party maintenance.

The Company allows its customers to return product for exchange or credit subject to certain limitations. A liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded in inventory upon product return. The Company also provides rebates and other discounts to certain customers which are considered variable consideration. A provision for customer rebates and other discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience.

The Company considers shipping and handling activities as costs to fulfill the sales of ~~hardware~~products. Shipping revenue is included in net sales when control of the product is transferred to the customer, and the related shipping and handling costs are included in the cost of products sold. Taxes imposed by governmental authorities on the Company’s revenue producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales.

The Company disaggregates its operating revenue by segment, geography and timing of revenue recognition, which the Company believes provides a meaningful depiction of the nature of its revenue. See Note 16 – Segment Information.

Hardware and software products ~~and licenses, maintenance and subscription agreements~~sold by the Company are generally ~~recognized~~delivered via shipment from the Company’s facilities, drop shipment directly from the vendor, or by electronic delivery of keys for software products. The majority of the Company’s business involves shipments directly from its vendors to its customers. In these transactions, the Company is generally responsible for negotiating price both with the vendor and customer, payment to the vendor, establishing payment terms with the customer, product returns, and has risk of loss if the customer does not make payment. As the principal with the customer, the Company recognizes revenue upon receiving notification from the vendor that the product was shipped. Control of software products is deemed to have passed to the customer when they acquire the right to use or copy the software under license as substantially all product functionality is available to the customer at the time of sale.

The Company performs an analysis of the number of days of sales in-transit to customers at the end of each reporting period based on an analysis of commercial delivery terms that include drop-shipment arrangements. This analysis is the basis upon which the Company estimates the amount of net sales in-transit at the end of the period and adjusts revenue and the related costs to reflect only what has been delivered to the customer. Changes in delivery patterns may result in a different number of business days estimated to make this adjustment. The Company also performs a weighted average analysis of the estimated number of days between order fulfillment and beginning of the renewal term for term licenses recorded on a gross basis, ~~upon delivery or fulfillment~~and a deferral estimate is recorded for term license renewals fulfilled prior to commencement date.

Generally, software products are sold with ~~the selling price to the customer recorded as sales and the acquisition cost of the~~accompanying third-party delivered software assurance, which is a product ~~recorded as cost of sales.~~

~~Product delivery to~~that allows customers occur in a variety of ways, including (i) as physical product shipped from the Company’s warehouse, (ii) via drop-shipment by the vendor, or (iii) via electronic delivery for software licenses. The Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products to customers without having to physically hold the inventory at its warehouse, thereby increasing efficiency and reducing costs. The Company generally recognizes revenue for drop-ship arrangements on a gross basis. Furthermore, in such drop-ship arrangements, the Company negotiates price with the customer, pays the supplier directly for the product shipped and bears credit risk of collecting payment from its customers. Maintenance and subscription agreements allow customers to access software and obtain technical support directly from the software publisher and to upgrade, at no additional cost, to the latest technology if new ~~applications~~capabilities are introduced ~~by the software publisher~~ during the period that the ~~maintenance and subscription agreement~~software assurance is in effect. The Company ~~generally serves as~~evaluates whether the ~~principal with~~software assurance is a separate performance obligation by assessing if the third-party delivered software assurance is critical or essential to the core functionality of the software itself. This involves considering if the software provides its original intended functionality to the customer without the updates, if the customer would ascribe a higher value to the upgrades versus the up-front deliverable, if the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality), and ~~therefore, recognizes~~if the ~~sale~~customer chooses to not delay or always install upgrades. If the Company determines that the accompanying third-party delivered software assurance is critical or essential to the core functionality of the software license,

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the software license and ~~cost of sale~~the accompanying third-party delivered software assurance are recognized as a single performance obligation. The value of the product ~~upon receiving notification from~~is primarily the ~~supplier~~accompanying support delivered by a third party and therefore the Company is acting as an agent in these transactions and recognizes them on a net basis at the point the associated software license is delivered to the customer. The Company sells cloud computing solutions that utilize third-party vendors to enable customers to access data center functionality in a cloud-based solution, including storage, computing and networking and access to software in the ~~product has shipped~~cloud that enhances office productivity, provides security or assists in collaboration. The Company recognizes revenue for cloud computing solutions for arrangements with one-time invoicing to the ~~contract with respect to maintenance and subscription agreements has been fulfilled~~customer at the time of invoice on a net basis as the Company ~~has no future~~is acting as an agent in the transaction. For monthly subscription-based arrangements, the Company is acting as an agent in the transaction and recognizes revenue as it invoices the customer for its monthly usage on a net basis. For software licenses where the accompanying third-party delivered software assurance is not critical or essential to the core functionality, the software assurance is recognized as a separate performance obligation, with the associated revenue recognized on a net basis at the point the related software license is delivered to the customer.

The Company also sells some of its products and services as part of bundled contract arrangements containing multiple deliverables, which may include a combination of products and services. For each deliverable that represents a distinct performance obligation, total arrangement consideration is allocated based upon the standalone selling prices (“SSP”) of each performance obligation. SSP is determined based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through established standard prices, we use judgement and estimate the standalone selling price considering available information such as market pricing and pricing related to similar products.

The Company records freight billed to its customers as net sales and the related freight costs as cost of sales when the underlying product revenue is recognized. For freight not billed to its customers, the Company records the freight costs as cost of sales. The Company’s typical shipping terms result in shipping being performed before the customer obtains control of the product. The Company considers shipping to be a fulfillment activity and not a separate performance obligation.

~~Sales~~The Company pays commissions and related payroll taxes to sales personnel when customers are invoiced. These costs are recorded ~~net of discounts, rebates,~~as selling, general and ~~returns. Vendor rebates and price protection are recorded when earned as a reduction to cost of sales or merchandise inventory, as applicable.~~

~~Cooperative reimbursements from vendors, which are earned and available, are recorded~~administrative expenses in the period earned as all our performance obligations are complete within a short window of processing the order.

6. Acquisition:

On August 18, 2022, the Company entered into a Share Purchase Agreement and purchased the entire share capital of Spinnakar Limited (“Spinnakar”) for an aggregate purchase price of approximately £9.8 million (equivalent to $11.8 million USD), subject to certain working capital and other adjustments, paid at closing plus a potential post-closing earn-out. The allocation of the purchase price was based upon the estimated fair value of Spinnakar’s net tangible and identifiable intangible assets as of the date of the acquisition. The transaction was accounted for under the purchase method of accounting. The purchase price allocation is final, with no measurement period adjustment made to the account balances recorded at the acquisition date.

The purchase consideration included approximately $1.9 million fair value for potential earn-out consideration if certain targets are achieved, payable in cash, with $1.1 million included in accounts payable and accrued expenses and $0.8 million included in non-current liabilities as of June 30, 2023.

7. Goodwill and Other Intangible Assets:

The following table summarizes the changes in the carrying amount of goodwill for the six months ended June 30, 2023:


Balance at January 1, 2023	$	18,963
Translation adjustments		674
Balance June 30, 2023	$	19,637

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Information related ~~advertising expenditure~~to the Company’s other intangibles, net is ~~incurred. Cooperative reimbursements~~as follows:


	As of June 30, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer and vendor relationships	$	22,228	$	3,205	$	19,023
Trade name		486		86		400
Total	$	22,714	$	3,291	$	19,423

	As of December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer and vendor relationships	$	21,457	$	2,165	$	19,292
Trade name		468		67		401
Total	$	21,925	$	2,232	$	19,693

Customer relationships are amortized over thirteen years. Vendor relationships are amortized between eight and fifteen years. Trade name is amortized over fifteen years.

During the three months ended June 30, 2023 and 2022, the Company recognized total amortization expense for other intangibles, net of $0.5 million and $0.2 million, respectively. During the six months ended June 30, 2023 and 2022, the Company recognized total amortization expense for other intangibles, net of $1.0 million and $0.4 million, respectively.

Estimated future amortization expense of the Company’s other intangibles, net as of June 30, 2023 is as follows:


2023 (excluding the six months ended June 30, 2023)	$	969
2024		1,938
2025		1,938
2026		1,938
2027		1,938
Thereafter		10,702
Total	$	19,423

8. Right-of-use Asset and Lease Liability:

The Company has entered into operating leases for office and warehouse facilities, which have terms at lease commencement that range from 2 years to 11 years. The Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets and lease expense for these leases is recognized on a straight-line basis over the lease term.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of the lease payments over the lease term. As our leases do not provide a readily determinable implicit rate, we use an incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term and included in selling, general and administrative expenses.

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Information related to the Company’s ROU assets and related lease liabilities were as ~~a reduction~~follows:


	Six months ended
	June 30,
		2023		2022
Cash paid for operating lease liabilities	$	312	$	314
Right-of-use assets obtained in exchange for new operating lease obligations	$	—	$	63
Weighted-average remaining lease term		3.6 years		4.6 years
Weighted-average discount rate		3.5%		3.4%

Maturities of ~~cost~~lease liabilities as of ~~sales in accordance with FASB ASC Topic 605-50 “Accounting by a Customer (including reseller) for Certain Consideration Received from a Vendor~~.” June 30, 2023 were as follows:


2023 (excluding the six months ended June 30, 2023)	$	315
2024		543
2025		550
2026		548
2027		116
		2,072
Less: imputed interest		(514)
Total lease liabilities	$	1,558

Lease liabilities, current portion		471
Lease liabilities, net of current portion		1,087
Total lease liabilities	$	1,558

~~Provisions for doubtful accounts~~

9. Fair Value:

The carrying amounts of financial instruments, including ~~long-term~~cash and cash equivalents, short-term accounts receivable and ~~returns are estimated based on historical write offs, sales returns~~accounts payable approximated fair value at June 30, 2023 and ~~credit memo analysis which are adjusted to actual on a periodic basis.~~

~~Accounts receivable-long-term result from product sales with extended payment terms that~~December 31, 2022 because of the relative short maturity of these instruments. The Company’s accounts receivable long-term are discounted to their present ~~values~~value at ~~the~~ prevailing market rates at the time of sale.

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10. Balance Sheet Detail:

Equipment and leasehold improvements consist of the following:



	June 30,		December 31,
	2023		2022
Equipment	$	2,181	$	2,720
Capitalized software		5,064		2,997
Leasehold improvements		2,375		1,848
		9,620		7,565
Less accumulated depreciation and amortization		(3,358)		(4,050)
	$	6,262	$	3,515

During the three months ended June 30, 2023, and 2022, the Company recorded depreciation and amortization expense of $0.1 million and $0.2 million, respectively. During the six months ended June 30, 2023 and 2022, the Company recorded depreciation and amortization expense of $0.3 million, respectively.

In limited circumstances, the Company offers extended payment terms to customers for periods of 12 to 24 months. The related customer receivables are classified as accounts receivable long-term and discounted to their present value at prevailing market rates at the time of sale. In subsequent periods, the accounts receivable ~~are~~is increased to the amounts due and payable by the customers through the accretion of interest income on the unpaid accounts receivable due in future years. The amounts ~~due~~ under these long-term accounts receivable due within one year are reclassified to the current portion of accounts receivable. Accounts receivable ~~and are shown~~long term, net ~~of reserves.~~

6.~~Fair Value:~~

~~The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximated fair value at September 30, 2017 and December 31, 2016 because~~consists of the ~~relative short maturity of~~following:



	June 30,		December 31,
	2023		2022
Total amount due from customer	$	2,145	$	5,213
Less: unamortized discount		(32)		(188)
Less: current portion included in accounts receivable		(854)		(1,911)
	$	1,259	$	3,114

The undiscounted cash flows to be received by the Company relating to these ~~instruments. The Company’s~~ accounts receivable long-term is ~~discounted~~expected to ~~their present value at prevailing market rates at the date of sale so the balances approximate fair value.~~

7.~~Balance Sheet Detail:~~

~~Equipment and leasehold improvements consist of the following:~~

September 30,

December 31,

2017

2016

Equipment

$
1,972

$
1,638

Leasehold improvements

1,330

1,317

3,302

2,955

Less accumulated depreciation and amortization

(1,378)

(1,018)

$
1,924

$
1,937

~~For the nine months ended September 30, 2017 and 2016, the Company recorded depreciation and amortization expense of~~be $0.9 million, $0.5 million, $0.4 million and ~~$0.2~~$0.4 million ~~respectively, which is included in~~during each of the ~~Company’s general~~12-month periods ending June 30, 2024, 2025, 2026 and ~~administrative expense.~~2027, respectively.

Accounts payable and accrued expenses consist of the ~~following~~following:


	September 30,		December 31,
	2017		2016


					June 30,		December 31,
					2023		2022
Trade accounts payable	$	47,876	$	72,093	$	146,516	$	151,180
Accrued expenses		3,046		3,994		10,955		9,470
	$	50,922	$	76,087
					$	157,471	$	160,650

8.11. Credit Facility:

On ~~January 4, 2013,~~May 18, 2023, the Company entered into a ~~$10,000,000~~revolving credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPM”), providing for a revolving credit facility ~~(the “Credit Facility”)~~of up to $50.0 million, including the issuance of letters of credit and swingline loans not to exceed $2.5 million and $5.0 million, respectively, at any time outstanding. In addition, subject to certain conditions enumerated in the Credit Agreement, the Company has the right to increase the revolving credit facility by a total amount not to exceed $20.0 million. The proceeds of the revolving loans, letters of credit and swingline loans under the Credit Agreement may be used for working capital needs, general corporate purposes and for acquisitions permitted by the terms of the Credit Agreement.

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All outstanding loans issued pursuant to the Credit Agreement become due and payable, on May 18, 2028. There were no amounts outstanding under the Credit Agreement as of June 30, 2023.

Outstanding Loans comprising (i) ABR Borrowings bear interest at the ABR plus the Applicable Rate, (ii) Term Benchmark Borrowings bear interest at the Adjusted Term SOFR Rate or the Adjusted EURIBOR Rate, as applicable, plus the Applicable Rate and (iii) RFR Loans bear interest at a rate per annum equal to the applicable Adjusted Daily Simple RFR plus the Applicable Rate. The Applicable Rate for borrowings varies (i) in the case of ABR Borrowings, from 0.50% to 0.75% and (ii) in the case of Term Benchmark Borrowings and RFR Loans, from 1.50% to 1.75%.

The Credit Agreement contains customary affirmative covenants, such as financial statement and collateral reporting requirements. The Credit Agreement also contains customary negative covenants that limit the ability of the Company to, among other things, incur indebtedness, create liens or permit encumbrances, or undergo certain fundamental changes. Additionally, under certain circumstances, the Company is required to maintain a minimum fixed charge coverage ratio.

In connection with entering into the Credit Agreement, the Company voluntarily terminated its existing revolving credit agreement, dated November 15, 2017 with Citibank N.A. (“~~Citibank”~~Previous Credit Facility”). As of December 31, 2022, the Company has no borrowings outstanding under the Previous Credit Facility.

On April 8, 2022, the Company entered into a $2.1 million term loan (the “Term Loan”) with First American Commercial Bancorp, Inc. (“First American”) pursuant to a ~~Business~~Master Loan ~~Agreement (the “Loan Agreement”), Promissory Note (the “Note”), Commercial~~and Security ~~Agreements (the “Security Agreements”) and Commercial Pledge Agreement (the “Pledge Agreement”).~~Agreement. The ~~Credit Facility matures on January 31, 2019, at which time~~proceeds from the ~~Company must pay this loan in one payment of any outstanding principal plus all accrued unpaid interest.~~Term Loan will be used to fund certain capital expenditures. The ~~interest rate for any borrowings~~borrowing under the Credit Facility is subject to change from time to time based on the changes in an independent index which is the LIBOR Rate (the “Index”). If the Index becomes unavailable during the term of this loan, Citibank may designate a substitute index after notifying the Company. Interest on the unpaid principal balance of the Note will be calculated usingTerm Loan bears interest at a rate of ~~1.500 percentage points~~3.73% per annum and is being repaid over ~~the Index. The Credit Facility is secured by the assets~~forty-eight monthly installments of ~~the Company.~~principal and interest through April 2026.

Among other affirmative covenants set forth in the Loan Agreement, the Company must maintain (i) a ratio of Total Liabilities to Tangible Net Worth (each as defined in the Loan Agreement) of not greater than 2.50 to 1.00, to be tested quarterlyAt June 30, 2023 and (ii) a minimum Debt Service Coverage Ratio (as defined in the Loan Agreement) of 2.00 to 1.00. Additionally, the Loan Agreement contains negative covenants related to, among other items, prohibitions against the creation of certain liens, engaging in any business activities substantially different than those currently engaged in by the Company, and paying dividends on the Company’s stock other than (i) dividends payable in its stock and (ii) cash dividends in amounts and frequency consistent with past practice, without first securing the written consent of Citibank. The Company is in compliance with all covenants at September 30, 2017.

~~At September 30, 2017,~~December 31, 2022, the Company had ~~$2.0~~$1.6 million ~~of borrowings~~and $1.8 million outstanding under the ~~Credit Facility. The Company incurred interest expense of $0.1 million during~~Term Loan, respectively. At June 30, 2023, future principal payments under the ~~third quarter of 2017. The average interest rate for the quarter was approximately 2.74%.~~Term Loan are as follows:


2023 (excluding the six months ended June 30, 2023)		307
2024		542
2025		562
2026		143
Total	$	1,554

12. Earnings Per Share:

Our basic and diluted earnings per share are computed using the two-class ~~method.~~ method in accordance with ASC 260. The two-class method is an earnings allocation that determines net income per share for each class of common ~~sto~~ckstock and participating securities according to their participation rights in dividends and undistributed earnings or losses. Non-vested restricted stock awards that include non-forfeitable rights to dividends are considered participating securities. Per share amounts are computed by dividing net income available to common shareholders by the weighted average shares outstanding during each period. Diluted and basic earnings per share are the same because the restricted shares are the only potentially dilutive security.

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A reconciliation of the numerators and denominators of the basic and diluted per share computations follows:


	Nine months ended				Three months ended
	September 30,				September 30,
	2017		2016		2017		2016

										(Unaudited)			(Unaudited)
									Six months ended				Three months ended
									June 30,				June 30,
									2023		2022		2023		2022
Numerator:
Net income	$	3,935	$	3,929	$	1,341	$	1,378	$	4,705	$	5,503	$	1,381	$	2,791


Less distributed and undistributed income allocated to participating securities		179		171		57		58		108		143		25		73

Net Income Attributable to Common Shareholders		3,756		3,758		1,284		1,320


Net income attributable to common shareholders										4,597		5,360		1,356		2,718

Denominator:
Weighted average common shares (Basic)		4,303		4,537		4,283		4,507		4,381		4,315		4,396		4,321


Weighted average common shares including assumed conversions (Diluted)		4,303		4,537		4,283		4,507		4,381		4,315		4,396		4,321


Basic net income per share	$	0.87	$	0.83	$	0.30	$	0.29	$	1.05	$	1.24	$	0.31	$	0.63
Diluted net income per share	$	0.87	$	0.83	$	0.30	$	0.29	$	1.05	$	1.24	$	0.31	$	0.63

~~10.~~13. Major Customers and Vendors:

The Company had ~~two~~one major ~~vendors~~vendor that accounted for ~~27.0% and 14.1%, respectively,~~12% of total purchases during the ~~nine~~three months ended ~~September~~June 30, ~~2017,~~2023, and ~~27.9% and 14.1%~~16% of total purchases ~~for~~during the three months ended ~~September~~June 30, ~~2017.~~2022. The Company had ~~two~~one major ~~vendors~~vendor that accounted for ~~23.8% and 10.2%, respectively,~~17% of ~~its~~ total purchases during the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2023 and ~~23.6%, and 10.5%~~19% of total ~~net~~ purchases ~~for~~during the ~~three~~six months ended ~~September~~June 30, ~~2016.~~ 2022.

The Company had two major customers that accounted for ~~22.5%~~22% and ~~19.3%~~14%, respectively, of its ~~total~~ net sales during the ~~nine~~three months ended ~~September~~June 30, ~~2017,~~2023, and ~~24.4%~~21% and 20%, ~~and 18.5%~~respectively, of ~~total~~its net sales ~~for~~during the three months ended ~~September~~June 30, ~~2017.~~2022. The Company had two major customers that accounted for 21% and 14%, respectively, of its net sales during the six months ended June 30, 2023, and 23% and 18%, respectively, of its net sales during the six months ended June 20, 2022. These same customers accounted for ~~14.8%~~19% and ~~25.5%~~12%, respectively, of total net accounts receivable as of ~~September~~June 30, ~~2017. The Company had two major customers that accounted for 19.8%~~2023, and ~~17.8%~~16% and 18%, respectively, of ~~its~~ total net ~~sales during the nine months ended September 30, 2016, and 21.4%, and 17.5%~~accounts receivable as of ~~total net sales for the three months ended September 30, 2016.~~December 31, 2022.

14. Income Taxes:

The Company ~~entered into a distribution agreement~~has analyzed filing positions in ~~July 2017,~~all of the federal and ~~made a nonrefundable prepayment of $8.0 million~~state jurisdictions where it is required to ~~be applied against any amounts due under this agreement. The amount will be recorded as a prepaid and will be reduced as purchases are made under the agreement.~~

~~11.Income Tax:~~

~~The Company and its subsidiaries~~ file income tax returns, as well as all open tax years in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. The Company has identified its federal consolidated tax return and its state tax return in New Jersey and its Canadian tax return as major taxthese jurisdictions. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company believes that it has

appropriate support for the income tax positions it takes and expects to take on its tax returns, and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

~~The effective tax rate for the nine and three months ended September 30, 2017 was 32.2% and 33.3%, respectively, compared to 33.8% for the same periods last year.~~

~~12.~~15. Stockholders’ Equity and Stock Based Compensation:

The 2021 Omnibus Incentive Plan (the “2021 Plan”) authorizes the grant of Stock Options, Stock Units, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Bonuses and other equity-based awards. The 2021 Plan was approved by the Company’s stockholders at the 2021 Annual Meeting in June 2021. The total number of shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) initially available for award under the 2021 Plan was 500,000 shares. As of June 30, 2023, the number of shares of Common Stock available for future award grants to employees, officers and directors under the 2021 Plan is 257,805.

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The 2012 Stock-Based Compensation Plan (the “2012 Plan”) authorizes the grant of Stock Options, Stock Units, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Bonuses and other equity-based awards. The total number of shares of the Company’s Common Stock initially available for award under the 2012 Plan was ~~600,000.~~600,000, which was increased to 1,000,000 shares by stockholder approval at the Company’s 2018 Annual Meeting in June 2018. Immediately prior to the replacement of the 2012 Plan by the 2021 Plan, there were 352,158 shares of Common Stock available under the 2012 Plan. The 2012 Plan has been replaced by the 2021 Plan and none of the remaining shares of Common Stock authorized under the 2012 Plan will be transferred to or used under the 2021 Plan nor will any awards under the 2012 Plan that are forfeited increase the shares available for awards under the 2021 Plan. As of ~~September~~June 30, ~~2017,~~2023, the number of shares of Common ~~stock~~Stock available ~~for future award grants to employees and directors~~ under the 2012 Plan ~~is 226,788.~~was zero.

During ~~2012,~~the six months ended June 30, 2023, the Company granted a total of 92,000 shares of Restricted Stock to officers, directors, and employees. These shares of Restricted Stock vest over 20 equal quarterly installments. A total of 3,525 shares of Restricted Stock were forfeited as a result of employees terminating employment with the Company.

During 2013, the Company granted a total of 56,500 shares of Restricted Stock to officers and employees. Included in these grants were 40,000 Restricted Shares granted to the Company’s CEO in accordance with the satisfaction of certain performance criteria included in his compensation plan. These 40,000 Restricted Shares vest over 16 equal quarterly installments. The remaining grants of Restricted Stock vest over 20 equal quarterly installments. A total of 775 shares of Restricted Stock were forfeited as a result of employees terminating employment with the Company.

During 2014, the Company granted a total of 98,689 shares of Restricted Stock to officers, directors and employees. These shares of Restricted Stock vest between one and twenty equal quarterly installments. A total of 34,487 shares of Restricted Stock were forfeited as a result of officers and employees terminating employment with the Company.

During 2015, the Company granted a total of 44,000 shares of Restricted Stock to officers. These shares of Restricted Stock vest over sixteen equal quarterly installments. In 2015, a total of 4,465 shares of Restricted Stock were forfeited as a result of officers and employees terminating employment with the Company.

During 2016, the Company granted a total of 171,252 shares of Restricted Stock to officers, directors, and employees. These shares of Restricted Stock vest between one and twenty equal quarterly installments. A total of 7,167 shares of Restricted Stock were forfeited as a result of officers and employees terminating employment with the Company.

~~During 2017, the Company granted a total of 87,076~~115,789 shares of Restricted Stock to officers and employees. These shares of Restricted Stock vest ~~between eight and twenty~~immediately, over time in three equal installments or over time in sixteen equal quarterly installments. A

During the six months ended June 30, 2022, the Company granted a total of ~~3,636~~50,749 shares of Restricted Stock to officers. These shares of Restricted Stock vest over time in sixteen equal quarterly installments. During the six months ended June 30, 2022, a total of 4,056 shares of Restricted Stock were ~~forfeited as a result of employees terminating employment with the Company.~~forfeited.

A summary of nonvested shares of Restricted Stock awards outstanding under the ~~Company’s the~~ 2012 ~~Plan~~and 2021 Plans as of ~~September~~June 30, ~~2017,~~2023, and changes during the ~~three~~six months then ended is as follows:

Weighted Average

Grant Date

Shares

Fair Value

Nonvested shares at January 1, 2017

186,081

$
15.58

Granted in 2017

87,076

18.25

Vested in 2017

(67,634)

15.18

Forfeited in 2017

(3,636)

16.49

Nonvested shares at September 30, 2017

201,887

$
15.85


		Weighted
		Average Grant
		Date
	Shares	Fair Value
Nonvested shares at January 1, 2023	121,059	$	24.83
Granted in 2023	115,789		45.81
Vested in 2023	(71,478)		37.98
Forfeited in 2023	—		—
Nonvested shares at June 30, 2023	165,370	$	33.83

As of ~~September~~June 30, ~~2017,~~2023, there is approximately ~~$3.2~~$5.1 million of total unrecognized compensation costs related to nonvested share-based compensation arrangements. The unrecognized compensation cost is expected to be recognized over a weighted-average period of ~~3.0~~1.9 years.

~~For~~During the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2023, and ~~2016,~~2022, the Company recognized share-based compensation ~~cost~~expense of ~~$1.0~~$2.2 million and ~~$1.2~~$0.3 million, ~~respectively, which is included in~~respectively. During the ~~Company’s general~~six months ended June 30, 2023, and ~~administrative expense.~~2022, the Company recognized share-based compensation expense of $2.7 million and $0.7 million, respectively.

~~13.~~16. Segment Information:

The Company distributes software developed by others through resellers indirectly to customers worldwide. We also resell computer software and hardware developed by others and provide technical services directly to customers worldwide.

FASB ASC Topic 280, “Segment Reporting,” requires that public companies report profits and losses and certain other information on their “reportable operating segments” in their annual and interim financial statements. The internal organization used by the public company’s Chief Operating Decision Maker (CODM) to assess performance and allocate resources determines the basis for reportable operating segments. The Company’s CODM is the Chief Executive Officer.

The Company is organized into two reportable operating segments. The ~~“Lifeboat Distribution”~~“Distribution” segment distributes technical software to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide. The ~~“TechXtend”~~“Solutions” segment is a cloud solutions provider and value-added reseller of software, hardware and services ~~for corporations, government organizations and academic institutions in the United States and Canada.~~to customers worldwide.

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As permitted by FASB ASC Topic 280, the Company has utilized the aggregation criteria in combining its operations in Canada, Europe and the United Kingdom with the domestic segments as the ~~Canadian~~international operations provide the same products and services to similar clients and are considered together when the Company’s CODM decides how to allocate resources.

Segment income is based on segment revenue less the respective segment’s cost of revenues as well as segment direct costs (including such items as payroll costs and payroll related costs, such as profit sharing, incentive awards and insurance) and excluding general and administrative expenses not attributed to an individual segment business unit. The Company only identifies accounts receivable, vendor prepayments and inventory by segment as shown below as “Selected Assets” by segment; it does not allocate its other assets, including capital expenditures by segment.

The following segment reporting information of the Company is provided:

Nine months ended

Three months ended

September 30,

September 30,


2017

2016

2017

2016

Revenue:

Lifeboat Distribution

$
300,344

$
267,113

$
100,188

$
91,114

TechXtend

22,079

31,054

6,458

8,472

322,423

298,167

106,646

99,586

Gross Profit:

Lifeboat Distribution

$
16,873

$
16,139

$
5,417

$
5,440

TechXtend

2,702

3,186

826

932

19,575

19,325

6,243

6,372

Direct Costs:

Lifeboat Distribution

$
6,142

$
5,442

$
1,866

$
1,846

TechXtend

1,362

1,553

473

490

7,504

6,995

2,339

2,336

Segment Income Before Taxes:

Lifeboat Distribution

$
10,731

$
10,697

$
3,551

$
3,594

TechXtend

1,340

1,633

353

442

Segment Income Before Taxes

12,071

12,330

3,904

4,036

General and administrative

$
6,757

$
6,575

$
2,112

$
2,015

Interest, net

466

183

145

58

Foreign currency translation

22

(1)

73

3

Income before taxes

$
5,802

$
5,937

$
2,010

$
2,082


	Six months ended				Three months ended
	June 30,				June 30,
	2023		2022		2023		2022
Net Sales:
Distribution	$	154,678	$	128,775	$	76,128	$	62,992
Solutions		12,093		10,407		5,604		4,871
		166,771		139,182		81,732		67,863
Gross Profit:
Distribution	$	23,801	$	19,852	$	11,074	$	10,259
Solutions		5,100		4,614		2,619		2,227
		28,901		24,466		13,693		12,486
Direct Costs:
Distribution	$	9,976	$	7,251	$	5,010	$	3,587
Solutions		2,618		2,148		1,317		1,010
		12,594		9,399		6,327		4,597
Segment Income Before Taxes: (1)
Distribution	$	13,825	$	12,601	$	6,064	$	6,672
Solutions		2,482		2,466		1,302		1,217
Segment Income Before Taxes		16,307		15,067		7,366		7,889

General and administrative	$	9,243	$	6,784	$	5,249	$	3,337
Amortization and depreciation expense		1,317		802		604		445
Interest, net		441		(17)		330		(7)
Foreign currency transaction gain (loss)		40		(298)		(4)		(442)
Income before taxes	$	6,228	$	7,166	$	1,839	$	3,658

(1)	Excludes general corporate expenses including interest and foreign currency transaction gain (loss)



	As of		As of
	June 30,		December 31,
Selected Assets by Segment:	2023		2022

Distribution	$	152,199	$	180,602
Solutions		21,374		21,420
Segment Select Assets		173,573		202,022
Corporate Assets		60,125		29,834
Total Assets	$	233,698	$	231,856

1418

As of

As of


September 30,

December 31,

Selected Assets By Segment:

2017

2016

Lifeboat Distribution

$
61,620

$
64,558

TechXtend

22,180

32,202

Segment Select Assets

83,800

96,760

Corporate Assets

7,216

16,938

Total Assets

$
91,016

$
113,698

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Geographic areas and net sales mix related to operations for the three and six months ended June 30, 2023 and 2022 were as follows. Revenue is allocated to a geographic area based on the location of the sale, which is generally the customer’s country of domicile.


	Six months ended						Three months ended
	June 30, 2023						June 30, 2023
	Distribution		Solutions		Total		Distribution		Solutions		Total
Geography
USA	$	119,387	$	6,303	$	125,690	$	62,644	$	2,637	$	65,281
Europe and United Kingdom		22,550		5,089		27,639		7,134		2,589		9,723
Canada		12,741		701		13,442		6,350		378		6,728
Total net sales	$	154,678	$	12,093	$	166,771	$	76,128	$	5,604	$	81,732

Timing of Revenue Recognition
Transferred at a point in time where the Company is principal (1)	$	136,439	$	8,869	$	145,308	$	67,872	$	4,036	$	71,908
Transferred at a point in time where the Company is agent (2)		18,239		3,224		21,463		8,256		1,568		9,824
Total net sales	$	154,678	$	12,093	$	166,771	$	76,128	$	5,604	$	81,732

	Six months ended						Three months ended
	June 30, 2022						June 30, 2022
	Distribution		Solutions		Total		Distribution		Solutions		Total
Geography
USA	$	104,523	$	4,803	$	109,326	$	51,407	$	2,291	$	53,698
Europe and United Kingdom		13,319		4,739		18,058		5,883		2,182		8,065
Canada		10,933		865		11,798		5,702		398		6,100
Total net sales	$	128,775	$	10,407	$	139,182	$	62,992	$	4,871	$	67,863

Timing of Revenue Recognition
Transferred at a point in time where the Company is principal (1)	$	114,937	$	7,093	$	122,030	$	55,797	$	3,083	$	58,880
Transferred at a point in time where the Company is agent (2)		13,838		3,314		17,152		7,195		1,788		8,983
Total net sales	$	128,775	$	10,407	$	139,182	$	62,992	$	4,871	$	67,863

(1)	Includes net sales from third-party hardware and software products.

(2)	Includes net sales from third-party maintenance, software support and services.

Geographic identifiable assets related to operations as of June 30, 2023 and December 31, 2022 were as follows.


	June 30,		December 31,
Identifiable Assets by Geographic Areas	2023		2022
USA	$	137,315	$	137,877
Canada		25,789		27,597
Europe and United Kingdom		70,594		66,382
Total	$	233,698	$	231,856

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17. Related Party Transactions:

The Company made sales to a customer where a family member of one of our executives has a minority ownership position. During the three months ended June 30, 2023 and 2022, net sales to this customer totaled approximately $0.5 million and $0.7 million, respectively. During the six months ended June 30, 2023 and 2022, net sales to this customer totaled approximately $1.0 million, respectively. Amounts due from this customer as of June 30, 2023 and December 31, 2022 were approximately $0.5 million and $0.1 million, respectively, which were or are expected to be settled in cash subsequent to each period end.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~The~~This following information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, ~~contains,~~contained in the 10-K filed with the SEC on for the fiscal year ended December 31, 2022.In addition to historical information, the following discussion contains certain forward-looking ~~statements that involve risks~~information. See “Cautionary Note Regarding Forward Looking Statements” above for certain information concerning forward-looking statements.

Overview

Our Company is a value added IT distribution and ~~uncertainties. Our actual results could differ materially from those anticipated~~solutions company, primarily selling software and other third-party IT products and services through two reportable operating segments. Through our “Distribution” segment we sell products and services to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide, who in turn sell these ~~forward-looking statements~~products to end users. Through our “Solutions” segment we act as a ~~result of risk~~cloud solutions provider and uncertainties, including those set forth under the heading “Forward Looking Statements” and elsewhere in this report and those set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission. The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes included in this report and the consolidated financial statements and related notes included in our 2016 Annual Report on Form 10-K.

~~Overview~~

~~We distribute software and hardware developed by others through resellers indirectly to customers worldwide. We also resell~~value-added reseller, selling computer software and hardware developed by others and provide technical services directly to end user customers ~~in the USA and Canada. In addition, we operate a sales branch in Europe to serve our customers in this region of the world.~~worldwide. We offer an extensive line of products from leading ~~publishers of~~ software vendors and tools for virtualization/cloud computing, security, networking, storage and infrastructure management, application lifecycle management and other technically sophisticated domains as well as computer hardware. We market these products through creative marketing communications, including our web sites, local and on-line seminars, webinars, social media, and direct ~~e-mail, and printed materials.~~e-mail.

The Company is organized into two reportable operating segments. The “Lifeboat Distribution” segment distributes technical software to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide. The “TechXtend” segment is a value-added reseller of software, hardware and services for corporations, government organizations and academic institutionsWe have subsidiaries in the ~~USA~~United States, Canada, the Netherlands, the United Kingdom and ~~Canada.~~Ireland, through which sales are made.

Factors Influencing Our Financial Results

We derive the majority of our net sales though the sale of ~~third party~~third-party software licenses, maintenance and service agreements. In our ~~Lifeboat distribution~~Distribution segment, sales are impacted by the number of product lines we distribute, and sales penetration of those products into the reseller ~~channel.~~channel, product lifecycle competition, and demand characteristics of the products which we are authorized to distribute. In our ~~TechXtend~~Solutions segment sales are generally driven by sales force effectiveness and success in providing superior customer service and cloud solutions support, competitive pricing, and flexible payment solutions to our customers. Our sales are also impacted by external factors such as levels of IT spending and customer demand for products we distribute.

We sell in a competitive environment where gross product margins have historically declined due to competition and changes in product mix towards products where no delivery of a physical product is required. In addition, we grant discounts, allowances, and rebates to certain customers, which may vary from period to period, based on volume, payment terms and other criteria. To date, we have been able to implement cost efficiencies such as the use of drop shipments, electronic ordering (“EDI”) and other capabilities to be able to operate our business profitably as gross margins have declined. We evaluate the profitability of our business based on return on equity and effective margin.

Gross profit is calculated as net sales less cost of sales. We record customer rebates and discounts as a component of net sales and record vendor rebates and discounts as a component of cost of sales.

Selling, general and administrative expenses are comprised mainly of employee salaries, commissions and other employee related expenses, facility costs, costs to maintain our IT infrastructure, public company compliance costs and professional fees. We monitor our level of accounts payable, inventory turnover and accounts receivable turnover which are measures of how efficiently we utilize capital in our business.

The Company’s sales, gross profit and results of operations have fluctuated and are expected to continue to fluctuate on a quarterly basis as a result of a number of factors, including but not limited to: the condition of the software industry in general, shifts in demand for software products, pricing, ~~level of extended payment terms sales transactions,~~ industry shipments of new software products or upgrades, fluctuations in merchandise returns, adverse weather conditions that affect response, distribution or shipping, shifts in the timing of holidays and changes in the Company’s product offerings. The Company’s operating expenditures are based on sales forecasts. If sales do not meet expectations in any given quarter, operating results may be materially adversely affected.

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Dividend Policy and Share Repurchase Program. Historically we have sought to return value to investors through the payment of quarterly dividends and share repurchases. Total dividends paid and shares repurchased were

~~$0.8 and $0.5 million for the quarter ended September 30, 2017, respectively, and~~ $0.8 million and ~~$1.7~~$1.0 million, ~~for~~during the ~~quarter~~three months ended ~~September~~June 30, ~~2016, respectively. The decrease in~~2023. Total dividends paid and shares ~~outstanding as a result of past repurchases has been a primary cause of increases in our earnings per share.~~repurchased were $0.7 million and $0.2 million, respectively, during the three months ended June 30, 2022. The payment of future dividends and share repurchases is at the discretion of our Board of Directors and dependent on results of operations, projected capital requirements, applicable legal, tax and regulatory restrictions, and other factors the Board of Directors may find relevant.

Stock Volatility. The technology, ~~sector~~distribution and services sectors of the United States stock markets is subject to substantial volatility. Numerous conditions which impact ~~the technology sector~~these sectors or the stock market in general or the Company in particular, whether or not such events relate to or reflect upon the Company’s operating performance, could adversely affect the market price of the Company’s Common Stock. Furthermore, fluctuations in the Company’s operating results, announcements regarding litigation, the loss of a significant vendor or customer, increased competition, reduced vendor incentives and trade credit, higher operating expenses, and other developments, could have a significant impact on the market price of our Common Stock.

~~Forward Looking Statements~~

~~This report includes “forward-looking statements”~~Inflation. We have historically not been adversely affected by inflation, as abrupt changes in technology, rapid changes in customer preferences, short product life cycles and evolving industry standards within the ~~meaning of Section 21E~~IT industry have generally caused the prices of the ~~Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements in this report regarding future events or conditions, including but not limited~~products we sell to statements regarding industry prospects and the Company’s expected financial position, results of operations, business and financing plans, are forward-looking statements. These statements can be identified by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” and “continue” or similar words.

~~Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove~~decline. This requires us to have been correct. Substantial risks and uncertainties unknown at this time could cause actual results to differ materially from those indicated by such forward-looking statements, including, but not limited to, the continued acceptance of the Company’s distribution channel by vendors and customers, the timely availability and acceptance ofsell new products ~~product mix, market conditions, competitive pricing pressures, contribution~~and have growth in unit sales of ~~key vendor relationships and support programs, including vendor rebates and discounts,~~existing products in order to increase our net sales. We believe that most price increases could be passed on to our customers, as well as factors that affect the software industry in general and other factors generally. We strongly urge current and prospective investors to carefully consider the cautionary statements and risk factors contained in this report and our annual report on Form 10-K for the year ended December 31, 2016.

The Company operates in a rapidly changing business, and new risk factors emerge from time to time. Management cannot predict every risk factor, nor can it assess the impact, if any, of all such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements.

~~Accordingly, forward-looking statements should~~prices charged by us are not be relied upon as a prediction of actual results and readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whetherset by long-term contracts; however, as a result of ~~new information, future events~~competitive pressure, there can be no assurance that the full effect of any such price increases could be passed on to our customers or ~~otherwise.~~cause a reduction in our customers spending.

The statements concerning future sales, future gross profit margin and future selling and administrative expenses are forward looking statements involving certain risks and uncertainties such as availability of products, product mix, pricing pressures, market conditions and other factors, which could result in a fluctuation of sales below recent experience.

Financial Overview

Net sales increased 7%20%, or ~~$7.1~~$13.8 million, to ~~$106.7~~$81.7 million for the ~~quarter~~three months ended ~~September~~June 30, ~~2017,~~2023 compared to ~~$99.6~~$67.9 million for the same period in ~~2016 as growth in our Lifeboat Distribution segment was offset by a decline in TechXtend due to quarterly variability in enterprise account sales.~~the prior year. Gross profit ~~decreased 2%~~increased 10%, or ~~$0.1~~$1.2 million, to ~~$6.2~~$13.7 million for the ~~quarter~~three months ended ~~September~~June 30, ~~2017,~~2023 compared to ~~$6.4~~$12.5 million for the same period in the prior year. Selling, general and administrative (“SG&A”) expenses increased 2%46%, or ~~$0.1~~$3.7 million, to ~~$4.5~~$11.6 million for the ~~quarter~~three months ended ~~September~~June 30, ~~2017,~~2023 compared to ~~$4.4~~$7.9 million in the same period last year. Net income decreased 3% to $1.3 million for the quarter ended September 30, 2017, compared to $1.4 million in the same period last year. Weighted average diluted shares

outstanding decreased by 5% from the prior year, primarily due to the Company’s shares repurchased. Income per share-diluted increased 2% to $0.30 for the quarter September 30, 2017, compared to $0.29 for the same period in ~~2016, partially due~~the prior year. Amortization and depreciation expense increased $0.2 million, to ~~lower net~~$0.6 million for the three months ended June 30, 2023 compared to $0.4 million for the same period in the prior year. Net income ~~offset by~~decreased 52%, or $1.5 million, to $1.4 million for the ~~decrease~~three months ended June 30, 2023 compared to $2.8 million for the same period in ~~weighted average diluted shares outstanding.~~the prior year. Diluted income per share decreased 52%, or $0.32, to $0.31 for the three months ended June 30, 2023 compared to $0.63 for the same period in the prior year.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements that have been prepared in accordance with US GAAP. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Revenues from the sales of hardware products, software products, licenses, maintenance and subscription agreements are generally recognized on a gross basis upon delivery or fulfillment, with the selling price to the customer recorded as sales and the acquisition cost of the product recorded as cost of sales.

On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, stock-based compensation, contingencies and litigation.

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The Company believes the following critical accounting policies used in the preparation of its consolidated financial statements affect its more significant judgments and estimates.

~~Allowance~~Revenue

The Company utilizes judgment regarding performance obligations inherent in the products for services it sells including, whether ongoing maintenance obligations performed by third party vendors are distinct from the related software licenses, and allocation of sales prices among distinct performance obligations. These estimates require significant judgment

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to determine whether the software’s functionality is dependent on ongoing maintenance or if substantially all functionality is available in the original software download. We also use judgment in the allocation of sales proceeds among performance obligations, utilizing observable data such as stand-alone selling prices, or market pricing for similar products and services.

Allowances for Accounts Receivable

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management determines the estimate of the allowance for ~~uncollectible~~doubtful accounts receivable by considering a number of factors, ~~including:~~including historical experience, aging of the accounts receivable, and specific information obtained by the Company on the financial condition and the current creditworthiness of its customers. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. At the time of sale, we record an estimate for sales returns based on historical ~~experience.~~experience, which is included in accounts payable and accrued expenses. If actual sales returns are greater than estimated by management, additional expense may be ~~incurred.~~required as an offset to net sales.

Accounts Receivable – Long Term

The Company’s accounts receivable long-term are discounted to their present value at prevailing market rates at the time of ~~sale based on prevailing rates.~~sale. In doing so, the Company considers competitive market rates and other relevant factors.

Inventory Allowances

The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-offs may be required.

~~Income Taxes~~

Business Combinations

The Company ~~has~~accounts for business combinations using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company may utilize third-party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.

Goodwill

We test goodwill for impairment on an annual basis, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

In a qualitative assessment, we assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill. If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary.

If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform the quantitative goodwill impairment test. We may also elect the unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test.

In the quantitative impairment test, we compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. Conversely, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

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Intangible Assets

Intangible assets with determinable lives are amortized on a straight-line basis over their respective estimated useful lives, which is determined based on their expected period of benefit. Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset's carrying amount over its fair value. In addition, each quarter, the Company evaluates whether events and circumstances warrant a revision to the remaining estimated useful life of each of these intangible assets. If the Company were to determine that a change to the remaining estimated useful life of an intangible asset was necessary, then the remaining carrying amount of the intangible asset would be amortized prospectively over that revised remaining useful life.

Income Taxes

The Company considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for ~~the~~a valuation allowance related to deferred tax assets. In the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.

Share-Based Payments

Under the fair value recognition provision, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period. We record the impact of forfeitures when they occur. We review our valuation assumptions periodically and, as a result, we may change our valuation assumptions used to value ~~stock based~~stock-based awards granted in future periods. Such changes may lead to a significant change in the expense we recognize in connection with share-based payments.

Foreign Exchange

The Company’s foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase the product. In cases where the Company is not able to create a natural hedge by maintaining offsetting asset and liability amounts in the same currency, it may enter into foreign exchange contracts, typically in the form of forward purchase agreements, to facilitate the hedging of foreign currency exposures to mitigate the impact of changes in foreign currency exchange rates. These contracts generally have terms of no more than two months. The Company does not apply hedge accounting to these contracts and therefore the changes in fair value are recorded in earnings. The Company does not enter into foreign exchange contracts for trading purposes and the risk of loss on a foreign exchange contract is the risk of nonperformance by the counterparties, which the Company minimizes by limiting its counterparties to major financial institutions. There were no contracts outstanding as of June 30, 2023.

Interest, Net

Interest, net consists primarily of income from the amortization of the discount on accounts receivable long term, net of interest expense on the Company’s credit facility.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements, along with most existing industry-specific guidance. In March, April, May and December 2016, the FASB issued additional updates to the new accounting standard which provide supplemental adoption guidance and clarifications. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue in order to depict 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 new standard will also result in enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers. Entities are permitted to transition to the new standard by either recasting prior periods or recognizing the cumulative effect as of the beginning of the period of adoption. The standard and related amendments will be effective for the Company for its annual reporting period beginning January 1, 2018, including interim periods within that reporting period. The Company has engaged with outside advisors to assist in its assessment and is in the process of finalizing its conclusions on several aspects of the standard including principal versus agent considerations, identification of performance obligations, the determination of when control of goods and services transfers to the Company’s customer, which transition approach will be applied and the estimated impact it will have on our consolidated financial statements. While its assessment is still underway, the Company has determined that it may have material adjustments related to accounting for certain third-party maintenance, subscription and support agreements based on the assessment of whether the Company is acting as a principal or an agent in the transaction. Those adjustments, if any, are expected to impact whether the related sales are recognized on a gross or on a net basis, however such adjustments are not expected to have a material impact on net earnings. Our disclosures related to revenue recognition may be significantly different under the new accounting guidance. The Company has not yet determined which method of adoption it will adopt, pending the outcome of its final assessment.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Effective January 1, 2017, the Company adopted the provisions of ASU 2016-09 related to the recognition of excess tax benefits in the income statement and classification in the statement of cash flows were adopted on a prospective and the prior periods were not retrospectively adjusted. The Company has elected to account for forfeitures of share-based awards when they occur in determining compensation cost to be recognized each period. The adoption of ASU 2016-09 did not have a material impact on our consolidated financial statements.

the statement of earnings. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the potential impact of adopting ASU 2016-02 on its consolidated financial statements.

In ~~August 2017, the~~November 2019, FASB issued ASU ~~No. 2017-12,~~ 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) –~~Targeted Improvements~~, and Leases (Topic 842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to ~~Accounting for Hedging Activities~~, which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this update also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. ASU No. 2017-12 is effective for fiscal years beginning after December 15, ~~2018,~~2022, including interim periods within those fiscal ~~years;~~years. Effective January 1, 2023, the ~~ASU allows for early adoption in any interim period after issuance~~Company adopted the new credit loss standard and it did not have an impact on the Company’s financial statements.

Table of ~~the update. The company is currently assessing the impact this ASU will have on its consolidated financial statements.~~Contents

Results of Operations

The following table sets forth for the periods indicated certain financial information derived from the Company’s unaudited condensed consolidated statements of earnings expressed as a percentage of net sales. This comparison of financial results is not necessarily indicative of future results:

Nine months ended

Three months ended

September 30,

September 30,


2017

2016


2017

2016


Net sales

100.0
%
100.0
%

100.0
%
100
%

Cost of sales

93.9

93.5

94.1

93.6

Gross profit

6.1

6.5

5.9

6.4

Selling, general and administrative expenses

4.4

4.6

4.2

4.4

Income from operations

1.7

1.9

1.7

2.0

Other income

0.1

0.1

0.2

0.1

Income before income taxes

1.8

2.0

1.9

2.1

Income tax provision

0.6

0.7

0.6

0.7


	Six months ended
	June 30,
	2023		2022
Net sales	100.0	%	100.0	%
Cost of sales	83.2		81.6
Gross profit	16.8		18.4
Selling, general and administrative expenses	14.2		11.7
Amortization and depreciation expense	0.7		0.7
Income from operations	1.9		6.1
Other income (expense)	0.4		(0.7)
Income before income taxes	2.3		5.4
Income tax provision	0.6		1.3
Net income	1.7	%	4.1	%

~~Net income~~

~~1.2~~

~~1.3~~

~~1.4~~

Key Operating Metrics / Non-GAAP Financial Measures

~~Three Months Ended September~~

Our management monitors several financial and non-financial measures and ratios on a regular basis in order to track the progress of our business. We believe that the most important of these measures and ratios include net sales, adjusted gross billings, gross profit, adjusted EBITDA, gross profit as a percentage of adjusted gross billings and adjusted EBITDA as a percentage of gross profit. We use a variety of operating and other information to evaluate the operating performance of our business, develop financial forecasts, make strategic decisions, and prepare and approve annual budgets. These key indicators include financial information that is prepared in accordance with US GAAP and presented in our Consolidated Financial Statements as well as non-US GAAP performance measurement tools.


	Six months ended				Three months ended
	June 30,		June 30,		June 30,		June 30,
	2023		2022		2023		2022

Net sales	$	166,771	$	139,182	$	81,732	$	67,863
Adjusted gross billings (Non-GAAP)	$	581,424	$	480,510	$	274,712	$	241,813

Gross profit	$	28,901	$	24,466	$	13,693	$	12,486
Gross profit - Distribution	$	23,801	$	19,852	$	11,074	$	10,259
Gross profit - Solutions	$	5,100	$	4,614	$	2,619	$	2,227

Adjusted EBITDA (Non-GAAP)	$	10,329	$	8,722	$	4,670	$	4,471

Gross margin % - Adjusted gross billings (Non-GAAP)		5.0%		5.1%		5.0%		5.2%
Effective margin % - Adjusted EBITDA (Non-GAAP)		35.7%		35.6%		34.1%		35.8%

We consider gross profit growth and effective margin to be key metrics in evaluating our business. During the three months ended June 30, ~~2017 Compared to Three Months Ended September 30, 2016~~

~~Net Sales~~

~~Net sales for the quarter ended September 30, 2017~~2023, gross profit increased 7%10%, or ~~$7.1~~$1.2 million, to ~~$106.6~~$13.7 million compared to ~~$99.6~~$12.5 million for the same period in ~~2016, as increased net sales in our Lifeboat Distribution segment were offset in part by~~the prior year while effective margin decreased ~~TechXtend sales resulting from variability in enterprise sales.~~

~~Lifeboat Distribution segment net sales for the quarter ended September 30, 2017 increased $9.1 million, or 10%~~ to ~~$100.2 million,~~34.1% compared to ~~$91.1 million~~35.8% for the same period ~~a year earlier. The increase was due primarily to growth~~ in sales penetration for several of our more significant product lines, as well as the addition of several new product lines. The increases were partially offset by turnover in some vendor and customer accounts due to competitive bid situations. We operate in a competitive market in which some sales agreements are subject to periodic competitive bidding processes, resulting in fluctuations from year to year based on the outcome.

~~TechXtend segment net sales decreased $2.0 million or 24% to $6.5 million for the quarter ended September 30, 2017, compared to $8.5 million for~~ the prior year. The decrease was primarily due to a decrease in large enterprise sales compared to the third quarter of 2016 which affects the comparability of results. Sales in our TechXtend segment may vary significantly from quarter to quarter based on the timing of IT spending decisions by our larger customers.

During the quarter ended September 30, 2017, we relied on two key customers for a total of 42.9% of our revenue. One major customer accounted for 24.4% and the other for 18.5%, of our total net sales during the threesix months ended ~~September~~June 30, ~~2017. These same customers accounted for 14.8% and 25.5%~~2023, gross profit increased 18%, ~~of total net accounts receivable as of September 30, 2017.~~

~~Gross Profit~~

~~Gross profit for the quarter ended September 30, 2017 decreased 2%~~ or ~~$0.1~~$4.4 million, to ~~$6.2~~$28.9 million compared to ~~$6.4~~$24.5 million for the same period in ~~2016. Lifeboat Distribution segment gross profit was approximately $5.5 million~~the prior year while effective margin increased to 35.7% compared to 35.6% for the ~~quarter ended September 30, 2017 and 2016. TechXtend segment~~same period in the prior year.

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Reconciliations of Non-GAAP Financial Measures


	Six months ended				Six months ended
	June 30,		June 30,		June 30,		June 30,
Reconciliation of net sales to adjusted gross billings (Non-GAAP):	2023		2022		2023		2022

Net sales	$	166,771	$	139,182	$	81,732	$	67,863
Costs of sales related to sales where the Company is an agent		414,653		341,328		192,980		173,950
Adjusted gross billings	$	581,424	$	480,510	$	274,712	$	241,813

We define adjusted gross ~~profit decreased 11% to $0.8 million~~billings as net sales in accordance with US GAAP, adjusted for the ~~quarter ended September 30, 2017~~cost of sales related to sales where the Company is an agent. We provided a reconciliation of adjusted gross billings to net sales, which is the most directly comparable US GAAP measure. We use adjusted gross billings of product and services as a supplemental measure of our performance to gain insight into the volume of business generated by our business, and to analyze the changes to our accounts receivable and accounts payable. Our use of adjusted gross billings of product and services as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate adjusted gross billings of product and services or similarly titled measures differently, which may reduce their usefulness as comparative measures.


	Six months ended				Three months ended
	June 30,		June 30,		June 30,		June 30,
Net income reconciled to adjusted EBITDA:	2023		2022		2023		2022

Net income	$	4,705	$	5,503	$	1,381	$	2,791
Provision for income taxes		1,523		1,663		458		867
Amortization and depreciation		1,317		802		604		445
Interest expense		49		40		21		24
EBITDA		7,594		8,008		2,464		4,127
Share-based compensation		2,735		714		2,206		344
Adjusted EBITDA	$	10,329	$	8,722	$	4,670	$	4,471

We define adjusted EBITDA, as net income, plus provision for income taxes, depreciation, amortization, share-based compensation and interest. We define effective margin as adjusted EBITDA as a percentage of gross profit. We provided a reconciliation of adjusted EBITDA to net income, which is the most directly comparable US GAAP measure. We use adjusted EBITDA as a supplemental measure of our performance to gain insight into our businesses profitability when compared to ~~$0.9~~the prior year and our competitors. Adjusted EBITDA is also a component to our financial covenants in our credit facility. Our use of adjusted EBITDA has limitations, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate adjusted EBITDA, or similarly titled measures differently, which may reduce their usefulness as comparative measures.

Acquisitions

On August 18, 2022, we completed the acquisition of Spinnakar Limited (“Spinnakar”) for an aggregate purchase price of approximately £9.8 million (equivalent to $11.8 million USD), subject to certain working capital and other adjustments, paid at closing plus a potential post-closing earn-out. The operating results of Spinnakar are included in our operating results from the date of acquisition.

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Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Net Sales and Adjusted Gross Billings

Net sales for the three months ended June 30, 2023 increased 20%, or $13.8 million, to $81.7 million compared to $67.9 million for the same period in the prior year. ~~Gross profit decreased primarily due to lower sales in our TechXtend segment and competitive pressures on~~Adjusted gross ~~profit margins as discussed below mitigated by the impact of increased sales in our Lifeboat segment.~~

~~Gross profit margin (gross profit as a percentage of net sales)~~billings for the ~~quarter~~three months ended ~~September~~June 30, ~~2017 was 5.9%~~2023 increased 14%, or $32.9 million, to $274.7 million compared to ~~6.4%~~$241.8 million for the same period in ~~2016. Lifeboat~~ the prior year. Net sales increased at a greater rate than adjusted gross billings due to differences in the product mix between the two periods. During the three months ended June 30, 2023, adjusted gross billings included a greater percentage of hardware and software products, which are recorded on a gross basis, while during the three months ended June 30, 2022, adjusted gross billings included a greater percentage of security, maintenance and cloud products, which are recorded net of related cost of sales.

Distribution segment ~~gross profit margin was 5.5%~~net sales for the ~~quarter~~three months ended ~~September~~June 30, ~~2017,~~2023 increased 21%, or $13.1 million, to $76.1 million compared to ~~6.0%~~$63.0 million for the same period in ~~2016. The decrease in~~the prior year. Adjusted gross ~~profit margin~~billings for the ~~Lifeboat~~ Distribution segment ~~was primarily caused by competitive pricing pressure and product mix. We operate in a competitive environment where the trend has been for gross profit margins to decline~~ for the ~~past several years, and may continue~~three months ended June 30, 2023 increased 13%, or $29.7 million, to decline. We attribute some of the decline to an increasing portion of our revenues being derived from the sale of licenses, maintenance and service agreements that are not associated with a physical product. While our gross profit margin has declined on these products, we have instituted operational efficiencies such as electronic ordering and distribution through the use of EDI and other automation that have increased our productivity and enabled us to maintain profitability. TechXtend segment gross profit margin for the quarter ended September 30, 2017 was 12.8%$255.8 million compared to ~~11.0%~~$226.1 million for the same period in ~~2016.~~the prior year. Net sales increased at a greater rate than adjusted gross billings due to the aforementioned differences in the product mix between the two periods.

Solutions segment net sales for the three months ended June 30, 2023, increased 15%, or $0.7 million, to $5.6 million compared to $4.9 million for the same period in the prior year. Adjusted gross billings for the Solutions segment for the three months ended June 30, 2023 increased 20%, or $3.2 million, to $18.9 million compared to $15.7 million for the same period in the prior year. Adjusted gross billings increased at a rate greater than net sales due to a greater percentage of security, maintenance and cloud products sales recognized during the current period in our Solutions segment, which are recorded net of related cost of sales.

During the three months ended June 30, 2023, the Company had two major customers that accounted for 22% and 14%, respectively, of our total net sales. During the three months ended June 30, 2022, the Company had two major customers that accounted for 21% and 20%, respectively, of our total net sales. The Company had one major vendor that accounted for 12% of total purchases during the three months ended June 30, 2023, and 16% of total purchases during the three months ended June 30, 2022.

Gross Profit

Gross profit for the three months ended June 30, 2023 increased 10%, or $1.2 million, to $13.7 million compared to $12.5 million for the same period in the prior year.

Distribution segment gross profit for the three months ended June 30, 2023 increased 8%, or $0.8 million, to $11.1 million compared to $10.3 million for the same period in the prior year. The increase in Distribution segment gross profit ~~margin~~ was due to ~~a decrease in sales of large enterprise licenses~~organic growth from our existing vendor partnerships, partially offset by higher early pay discounts and ~~related equipment which typically carry a lower gross profit margin,~~other rebates and ~~lower incremental selling and administrative costs~~discounts offered to our customers as a percentage of ~~revenue, on large enterprise sales as~~adjusted gross billings.

Solutions segment gross profit for the three months ended June 30, 2023 increased 18%, or $0.4 million, to $2.6 million compared to ~~smaller account sales.~~ $2.2 million for the same period in the prior year. This increase was driven by the aforementioned increase in adjusted gross billings compared to the same period in the prior year.

Customer rebates and discounts for the three months ended June 30, 2023 were $2.5 million compared to $1.8 million for the same period in the prior year. Customer rebates and discounts vary based on terms of rebate and early pay discount programs offered to customers and timing of payments ultimately received from our customers.

Vendor rebates and discounts for the ~~quarter~~three months ended ~~September~~June 30, ~~2017~~2023 were ~~$0.4~~$2.1 million compared to ~~$0.5~~$1.6 million for the same period in the ~~same quarter last~~prior year. Vendor rebates are dependent on programs offered by our vendors and in some cases reaching certain volume targets set by our vendors or meeting certain early payment programs offered by our vendors. The Company monitors vendor rebate levels, competitive pricing, and gross profit margins carefully. ~~We anticipate that price competition in our market will continue in both of our business segments.~~

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Selling, General and Administrative Expenses

SG&A expenses for the ~~quarter~~three months ended ~~September~~June 30, ~~2017~~2023 increased ~~$0.1~~47%, or $3.7 million, ~~or 2%,~~ to ~~approximately $4.5~~$11.6 million compared to ~~$4.4~~$7.9 million infor the same period in ~~2016. The increase is primarily due to increased employee related expenses (salaries, and commissions) to support our growth.~~the prior year. SG&A expenses were 4.2% of ~~net sales~~adjusted gross billings for the ~~quarter~~three months ended ~~September~~June 30, ~~2017,~~2023, compared to ~~4.4%~~3.2% for the same period in ~~2016.~~the prior year.

Included in SG&A expense during the three months ended June 30, 2023 was stock compensation expense recognized of $1.8 million relating to the one-time stock grant of 35,000 shares of immediately vested Common Stock to our Chief Executive Officer. This grant was made in recognition of prior performance and as changes to his compensation arrangement from his participation in the Company’s Executive Severance and Change in Control Plan and the termination of his existing employment agreement.

The remaining increase in SG&A expenses were primarily due to increased salaries, commission and personnel costs in support of our continued investment in our infrastructure to drive future growth, including new personnel, employee training and development. The Company expects that its SG&A expenses, as a percentage of ~~net sales,~~adjusted gross billings, may vary depending on changes in sales volume, as well as the levels of continuing investments ~~in key growth initiatives. We plan~~ to ~~continue to expand our investment in information technology and marketing, while monitoring~~drive future growth. In addition, SG&A ~~expenses closely.~~was impacted by increased professional service fees and other costs that are non-recurring.

Amortization and Depreciation Expense

Amortization and depreciation expense for the three months ended June 30, 2023, increased 50%, or $0.2 million, to $0.6 million compared to $0.4 million for the same period in the prior year, primarily due to the amortization of intangible assets acquired in the Spinnakar acquisition.

Income Taxes

For the three months ended ~~September~~June 30, ~~2017,~~2023 and 2022, the Company recorded a provision for income taxes of ~~$0.7~~$0.5 million ~~or 33.3% of income, compared to $0.8~~and $0.9 million, ~~or 33.8% of income~~respectively. The effective tax rate for the ~~same period in 2016.~~three months ended June 30, 2023 and 2022 was 24.9% and 23.7%, respectively. The ~~decrease~~change in the effective tax rate ~~is primarily due~~for the three months ended June 30, 2023 compared to the ~~change~~same period in ~~tax effects related to share-based payments at settlement (or expiration) through~~ the ~~income statement due to~~prior year is a result of limitations on the ~~adoption~~deductibility of ~~ASU 2016-09.~~certain executive compensation amounts during the current period.

~~Nine~~

Six Months Ended ~~September~~June 30, ~~2017~~2023 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2022

Net Sales and Adjusted Gross Billings

Net sales for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 increased 8%20%, or ~~$24.3~~$27.6 million, to ~~$322.4~~$166.8 million compared to ~~$298.2 million for the same period in 2016. Net sales increased in our Lifeboat Distribution segment and decreased in our TechXtend segment.~~

Lifeboat Distribution segment net sales for the nine months ended September 30, 2017 increased $33.2 million, or 12% to $300.3 million, compared to $267.1 million for the same period a year earlier. The increase was primarily due to growth in sales penetration for several of our more significant product lines, as well as the addition of several new product lines. The increases were partially offset by turnover in some vendor and customer accounts due to competitive bid situations. We operate in a competitive market in which some sales agreements are subject to periodic competitive bidding processes, resulting in fluctuations from year to year based on the outcome.

TechXtend segment net sales decreased $9.0 million or 29% to $22.1 million for the nine months ended September 30, 2017, compared to $31.1 million for the prior year. The decrease was due primarily to a large enterprise sale of approximately $6.6 million recorded in the second quarter of 2016 that affects comparability. Large enterprise sales tend to fluctuate from quarter to quarter based on the timing of customer purchasing decisions for IT projects.

During the nine months ended September 30, 2017, we relied on two key customers for a total of 41.8% of our revenue. One major customer accounted for 22.5% and the other for 19.3%, of our total net sales during the three months ended September 30, 2017. These same customers accounted for 14.8% and 25.5%, of total net accounts receivable as of September 30, 2017.

~~Gross Profit~~

Gross profit for the nine months ended September 30, 2017 increased 1% or $0.3 million, to $19.6 million, compared to $19.3 million for the same period in 2016. Lifeboat Distribution segment gross profit increased 5% to $16.9 million for the nine months ended September 30, 2017 compared to $16.1$139.2 million for the same period in the prior year. ~~TechXtend segment~~Adjusted gross ~~profit decreased 15% to $2.7 million~~billings for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 increased 21%, or $100.9 million, to $581.4 million compared to ~~$3.2~~$480.5 million for the same period in the prior year. ~~Gross profit decreased primarily~~Adjusted gross billings increased at a greater rate than net sales due to ~~lower sales~~differences in ~~our TechXtend segment~~the product mix between the two periods and ~~competitive pressures on gross profit margins as discussed below, mitigated by the~~an unfavorable impact of ~~increased sales in our Lifeboat segment.~~

~~Gross profit margin (gross profit as~~foreign exchange rates. During the six months ended June 30, 2023, adjusted gross billings included a greater percentage of security, maintenance and cloud products, which are recorded net ~~sales)~~of related cost of sales, while during the six months ended June 30, 2022, adjusted gross billings included a greater percentage of hardware and software products, which are recorded on a gross basis.

Distribution segment net sales for the ~~nine~~six months ended ~~September~~June 30, ~~2017 was 6.1%~~2023 increased 20%, or $25.9 million, to $154.7 million compared to ~~6.5%~~$128.8 million for the same period in ~~2016. Lifeboat~~the prior year. Adjusted gross billings for the Distribution segment ~~gross profit margin was 5.6%~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023 increased 21%, or $95.7 million, to $543.6 million compared to ~~6.0%~~$447.9 million for the same period in ~~2016. The decrease~~the prior year. Adjusted gross billings increased at a greater rate than net sales due to the aforementioned differences in ~~gross profit margin~~the product mix between the two periods and the unfavorable impact of foreign exchange rates in our Distribution segment.

Solutions segment net sales for the ~~Lifeboat Distribution segment was caused primarily by competitive pricing pressure and product~~

mix. We operate in a competitive environment where the trend has been for gross profit margins to decline for the past several years and may continue to decline in the future. We attribute some of the decline to an increasing portion of our revenues being derived from the sale of licenses, maintenance and service agreements that are not associated with a physical product. While our gross profit margin has declined on these products, we have instituted operational efficiencies such as electronic ordering and distribution through the use of EDI and other automation that have increased our productivity and enabled us to maintain profitability. TechXtend segment gross profit margin for the ninesix months ended ~~September~~June 30, ~~2017 was 12.2%~~2023, increased 16%, or $1.7 million, to $12.1 million compared to ~~10.3%~~$10.4 million for the same period in ~~2016.~~the prior year. Adjusted gross billings for the Solutions segment for the six months ended June 30, 2023 increased 16%, or $5.3 million, to $37.9 million compared to $32.6 million for the same period

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in the prior year. Net sales and adjusted gross billings increased at consistent rates due to similar product mixes period over period.

During the six months ended June 30, 2023, the Company had two major customers that accounted for 21% and 14%, respectively, of our total net sales. During the six months ended June 30, 2022, the Company had two major customers that accounted for 23% and 18%, respectively, of our total net sales. The Company had two major vendors that accounted for 19% and 12%, respectively, of total purchases during the six months ended June 30, 2023, and 19%, respectively, of total purchases during the six months ended June 30, 2022.

Gross Profit

Gross profit for the six months ended June 30, 2023 increased 18%, or $4.4 million, to $28.9 million compared to $24.5 million for the same period in the prior year.

Distribution segment gross profit for the six months ended June 30, 2023 increased 20%, or $3.9 million, to $23.8 million compared to $19.9 million for the same period in the prior year. The increase in Distribution segment gross profit ~~margin~~ was due to ~~a decrease in larger enterprise~~organic growth from our existing vendor partnerships, partially offset by higher early pay discounts and ~~public sector sales. Sales of large enterprise licenses~~other rebates and ~~related equipment typically carry a lower gross profit margin, and lower incremental selling and administrative costs~~discounts offered to our customers as a percentage of ~~revenue, than smaller account sales.~~ adjusted gross billings.

Solutions segment gross profit for the six months ended June 30, 2023 increased 11%, or $0.5 million, to $5.1 million compared to $4.6 million for the same period in the prior year. This increase was driven by the aforementioned increase in adjusted gross billings compared to the same period in the prior year.

Customer rebates and discounts for the six months ended June 30, 2023 were $6.4 million compared to $3.7 million for the same period in the prior year. Customer rebates and discounts vary based on terms of rebate and early pay discount programs offered to customers and timing of payments ultimately received from our customers.

Vendor rebates and discounts for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 were ~~$1.6~~$3.8 million compared to ~~$1.5~~$3.7 million infor the same period ~~last~~in the prior year. Vendor rebates are dependent on programs offered by our vendors and in some cases reaching certain volume targets set by our vendors or meeting certain early payment programs offered by our vendors. The Company monitors vendor rebate levels, competitive pricing, and gross profit margins carefully. ~~We anticipate that price competition in our market will continue in both of our business segments.~~

Selling, General and Administrative Expenses

SG&A expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 increased ~~$0.7~~35%, or $5.7 million, ~~or 5%~~ to ~~$14.3~~$21.8 million compared to ~~$13.6~~$16.1 million for the same period in ~~2016.~~ the prior year. SG&A expenses remained consistent at 3.7% of adjusted gross billings for the six months ended June 30, 2023 and 2022, respectively.

Included in SG&A expense during the six months ended June 30, 2023 was stock compensation expense recognized of $1.8 million relating to the one-time stock grant of 35,000 shares of immediately vested Common Stock to our Chief Executive Officer. This grant was made in recognition of prior performance and as changes to his compensation arrangement from his participation in the Company’s Executive Severance and Change in Control Plan and the termination of his existing employment agreement.

The remaining increase ~~is due primarily to increased employee related expenses (salaries, and commissions) to support our growth.~~in SG&A expenses were ~~4.4%~~primarily due to increased salaries, commission and personnel costs in support of ~~net sales for the nine months ended September 30, 2017, compared~~our continued investment in our infrastructure to ~~4.6% for the same period in 2016.~~

drive future growth, including new personnel, employee training and development. The Company expects that its SG&A expenses, as a percentage of ~~net sales,~~adjusted gross billings, may vary depending on changes in sales volume, as well as the levels of continuing investments ~~in key growth initiatives. We plan~~ to ~~continue to expand our investment in information technology and marketing, while monitoring~~drive future growth. In addition, SG&A ~~expenses closely.~~was impacted by increased professional service fees and other costs that are non-recurring.

Amortization and Depreciation Expense

Amortization and depreciation expense for the six months ended June 30, 2023, increased 63%, or $0.5 million, to $1.3 million compared to $0.8 million for the same period in the prior year, primarily due to the amortization of intangible assets acquired in the Spinnakar acquisition.

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Income Taxes

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023 and 2022, the Company recorded a provision for income taxes of ~~$1.9~~$1.5 million ~~or 32.2% of income, compared to $2.0~~and $1.7 million, ~~or 34.1% of income~~respectively. The effective tax rate for the ~~same period in 2016.~~ six months ended June 30, 2023 and 2022 was 24.5% and 23.2%, respectively. The ~~decrease~~change in the effective tax rate ~~is due primarily~~for the six months ended June 30, 2023 compared to the ~~change~~same period in ~~tax effects related to share-based payments at settlement (or expiration) through~~ the ~~income statement due to~~prior year is a result of limitations on the ~~adoption~~deductibility of ~~ASU 2016-09.~~certain executive compensation amounts during the current period.

Liquidity and Capital Resources

Our cash and cash equivalents ~~decreased by $9.5~~as of June 30, 2023 increased 117%, or $23.7 million, to ~~$4.1~~$43.9 million ~~at September 30, 2017 from $13.5~~compared to $20.2 million atas of December 31, 2016, and borrowings under our credit facility increased from $0 to $2.0 million during the same period. The use of cash was primarily due to working capital investments to support the growth of our business, and utilization of cash used for stock repurchases and dividends. The increase in working capital related to increased payment terms for certain accounts and vendor prepayments for inventory purchases.2022.

Net cash ~~used~~and cash equivalents provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 was ~~$6.4~~$29.6 million, comprised primarily of changes in operating assets and liabilities of $20.8 million and net income adjusted for non-cash items of ~~$5.4 million, offset by~~$8.9 million.

Net cash ~~used in changes in operating assets~~ and ~~liabilities of $11.8 million.~~

~~The increase in~~ cash used in changes in operating assets and liabilities in 2017 was primarily due to an increase in net working capital (accounts receivable, inventory, and vendor prepayments less accounts payable) required to support our business. The increased working capital requirement is primarily driven by increased sales levels and extended payment terms sales during the fourth quarter of 2016, and a vendor prepayment of approximately $8.0 million as part of a distribution agreement. Our accounts receivable – long term increased by approximately $6.2 million during the fourth quarter of 2016 due to a higher level of extended payment term sales. The products related to these sales were paid for in the first quarter of 2017, while sales proceeds will be collected over future periods.

~~In the nine months ended September 30, 2017, net cash~~equivalents used in investing activities ~~was $0.3~~during the six months ended June 30, 2023 consisted of $3.0 million ~~compared to $0.8 million in the prior year.~~purchases of fixed assets.

Net cash and cash equivalents used in financing activities ~~for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2017 of $3.1~~2023 was $3.5 million, ~~was~~ comprised ~~of $2.3 million~~ of dividend payments on our Common Stock ~~and $2.8~~of $1.5 million, ~~for the~~purchases of treasury stock ~~repurchases less $2.0~~ of ~~net~~$1.2 million, repayments of borrowings under ~~our credit facility.~~term loan of $0.3 million and payments of deferred financing costs of $0.6 million.

On ~~January 4, 2013.~~May 18, 2023, the Company entered into a ~~$10,000,000~~revolving credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPM”), providing for a revolving credit facility of up to $50.0 million, including the issuance of letters of credit and swingline loans not to exceed $2.5 million and $5.0 million, respectively, at any time outstanding. In addition, subject to certain conditions enumerated in the Credit Agreement, the Company has the right to increase the revolving credit facility by a total amount not to exceed $20.0 million. The proceeds of the revolving loans, letters of credit and swingline loans under the Credit Agreement may be used for working capital needs, general corporate purposes and for acquisitions permitted by the terms of the Credit Agreement. All outstanding loans issued pursuant to the Credit Agreement become due and payable, on May 18, 2028. There were no amounts outstanding under the Credit Agreement as of June 30, 2023.

On April 8, 2022, the Company entered into a $2.1 term loan (the ~~“Credit Facility”~~“Term Loan”) with ~~Citibank, N.A.~~First American Commercial Bancorp, Inc. (“~~Citibank”~~First American”) pursuant to a ~~Business~~Master Loan ~~Agreement, Promissory Note (the “Note”), Commercial~~and Security ~~Agreements and Commercial Pledge Agreement (the “Pledge Agreement”).~~Agreement. The ~~Credit Facility, which is intended to~~proceeds from the Term Loan will be used ~~for business~~to fund certain capital expenditures. The borrowing under the Term Loan bears interest at a rate of 3.73% per annum and ~~working capital purposes, including financing~~is being repaid over forty-eight monthly installments of ~~larger extended payment terms sales transactions which may become a more significant portion~~principal and interest through April 2026. As of ~~the Company’s net sales. On December 18, 2015,~~June 30, 2023, the Company signed an extension to this agreement, which extended the maturity date to January 31, 2019 with all other terms remaining the same (See Note 8 in the Notes to our Condensed Consolidated Financial Statements). As of September 30, 2017, outstanding borrowings of $2.0had $1.6 million ~~were~~ outstanding under the ~~Credit Facility.~~Term Loan.

We anticipate that our working capital needs will increase as we invest in the growth of our business. We believe that the funds held in cash and cash equivalents and our unused borrowings under our ~~credit facility~~Credit Agreement will be sufficient to fund our working capital and cash requirements for ~~at least~~ the next 12 months.

~~Contractual Obligations as of September 30, 2017 are summarized as follows: (000’s)~~

Payment due by Period

Total

Less than 1 year

1-3 years


4-5 years


After 5 years

Operating Leases obligations (1)

$
4,371

$
531

$
1,316

$
834

$
1,690

Total Contractual Obligations

$
4,371

$
531

$
1,316

$
834

$
1,690

~~(1)~~

Operating leases relate primarily to the leases of the space used for our operations in Eatontown, New Jersey, Mesa Arizona, Mississauga, Canada and Amsterdam, Netherlands. The commitments for operating leases include the minimum rent payments.

As of September 30, 2017, the Company had $2.0 million outstanding under our lines of credit and no commitments relating to standby letters of credit, and has no standby repurchase obligations or other commercial commitments (see Note 8 in the Notes to our Consolidated Financial Statements).

Foreign Exchange

The Company’s foreign subsidiaries are subject to changes in demand or pricing resulting from fluctuations in currency exchange rates or other factors. We are subject to fluctuations primarily in the Canadian Dollar, ~~and the~~ Euro Dollar ~~to-U.S.~~and British Pound-to-U.S. Dollar exchange rate.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2017,~~2023, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of ~~SEC~~ Regulation ~~S-K.~~S-K promulgated under the Securities Act of 1934, as amended.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~In addition~~Smaller reporting companies are not required to ~~its activities in~~provide the ~~United States, 10.8% of the Company sales during the nine months ended September 30, 2017 were generated~~information required by its subsidiaries in Canada and Europe. We are subject to general risks attendant to the conduct of business in Canada and Europe, including economic uncertainties and foreign government regulations. In addition, the Company’s international business is subject to changes in demand or pricing resulting from fluctuations in currency exchange rates or other factors. See ~~“Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Foreign Exchange.”~~this item.

The Company’s cash balance is invested in short-term savings accounts with our primary banks, Citibank, and JPMorgan Chase Bank. As such, we believe that the risk of significant changes in the value of our cash invested is minimal.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that material information relating to us is made known to the officers who certify as to our financial reports and to other members of senior management and the Board of Directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act, are recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

As required by Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation of the effectiveness of the design and operation of the Company’s ~~“disclosure~~disclosure controls and ~~procedures”, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,~~procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of various members of our management, including our Company’s ~~President, Chairman of the Board and~~ Chief Executive Officer (principal executive officer), Vice President and Chief Financial Officer (principal financial officer), and Vice President and Chief Accounting Officer (principal accounting officer). Based upon that evaluation, ~~we have identified a material weakness in our~~the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that the Company’s disclosure controls ~~over financial reporting that are designed~~and procedures were effective, as of the end of the period covered by this report, to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer, , Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on the material weakness described below the Company’s Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer concluded that the Company’s disclosure controls and procedures were not effective, as of the end of the period covered by this report. A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The weakness we identified relates to the adoption and application of technical accounting guidance. While performing a review of our accounting policies in preparation of our quarterly report, we determined that we did not properly apply certain accounting principles regarding the treatment of unvested restricted stock as participating securities in our earnings per share calculation in prior periods. Although management determined that the error had an immaterial impact, quantitatively and qualitatively, on the Company’s previously issued financial statements, we concluded that it is appropriate to re-state previously reported amounts when presented on a comparative basis with the current period. We’ve also concluded that the error, had it gone undetected, could have resulted in a material misstatement in our financial statements. We currently are assessing our controls over the interpretation and adoption of authoritative and new accounting guidance to remediate the weakness.

Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act, that occurred during the ~~quarter~~three months ended ~~September~~June 30, ~~2017,~~2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth the repurchase of Common Stock by the Company and its affiliated purchasers during the ~~third~~second quarter of ~~2017.~~2023.

ISSUER PURCHASE OF EQUITY SECURITIES


							Maximum
							Number of
				Total Number			Shares That
				of Shares			May Yet Be
	Total			Purchased as			Purchased
	Number	Average		Part of Publicly			Under the
	of Shares	Price Paid		Announced	Average		Plans or
	Purchased	Per Share		Plans or	Price Paid		Programs
Period	(1)	(2)		Programs	Per Share		(3)

April 1, 2023 - April 30, 2023	13,377	$	51.32	—	$	—	547,288
May 1, 2023 - May 31, 2023	6,326	$	46.29	—	$	—	547,288
June 1, 2023 - June 30, 2023	—	$	—	—	$	—	545,786
Total	19,703	$	49.71	—	$	—	545,786

Maximum

Number of

Total Number

Shares That

of Shares

May Yet Be

Purchased as

Purhased

Total

Average

Part of Publicly

Average

Under the

Number

Price Paid

Announced

Price Paid

Plans or

of Shares

Per Share

Plans or

Per Share

Programs

Period

Purchased

(2)

Programs

(3)

(4)(6)

July 1, 2017-  July 31, 2017

6,717

$
17.94

6,717

$
17.94

561,716

August 1, 2017- August 31, 2017

16,674
(1)
$
17.15

9,478

$
17.26

552,238

September 1, 2017- September 30, 2017

4,250

$
13.76

4,250

$
13.76

547,988

Total

27,641

$
16.82

20,445

$
17.54

547,988

(1)

~~(1)~~

~~Includes 7,196~~Consists of 19,703 shares surrendered to the Company by employees to satisfy individual tax withholding obligations upon vesting of previously issued shares of Restricted Stock. These shares are not included in the Common Stock repurchase program referred to in footnote ~~(4)~~(3) below.

(2)

~~(2)~~

Average price paid per share reflects the closing price the Company’s Common Stock on the business date the shares were surrendered by the employee stockholder to satisfy individual tax withholding obligations upon vesting of Restricted Stock or the price of the Common Stock paid on the open market purchase, as applicable.

(3)

~~(3)~~

~~Average price paid per share reflects the price of the Company’s Common Stock purchased on the open market.~~

~~(4)~~

On December 3, 2014, the Board of Directors of the Company approved an increase of 500,000 shares of Common Stock to the number of shares of Common Stock available for repurchase under its repurchase plans. On February 2, 2017, the Board of Directors of the Company approved an increase of 500,000 shares of Common Stock to the number of shares of Common Stock available for repurchase under its repurchase ~~plans~~.plans. The Company expects to purchase shares of its Common Stock from time to time in the market or otherwise subject to market conditions.

~~The Common Stock repurchase program does not have an expiration date.~~

~~(5)~~

~~On July 27, 2016, the Board~~ The timing, number and value of Directors of the Company approved, and on September 1, 2016, the Company entered into, a written purchase plan intended to comply with the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “September Plan”). Purchases involving shares of the Company’s Common Stock under the September Plan may take place commencing September 1, 2016, and was in effect until February 28, 2017. Pursuant to the Plan, the Company’s broker shall effect purchases of up to an aggregate of 325,000 shares of Common ~~Stock.~~

~~(6)~~

~~On February 2, 2017, the Board of Directors of the Company approved, and on March 1, 2017, the Company entered into, a written purchase plan intended~~Stock repurchased are subject to ~~comply with the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Plan”). Purchases involving shares of~~ the Company’s discretion. The Common Stock ~~under the Plan may take place commencing March 1, 2017, and was in effect until September 30, 2017. Pursuant to the Plan, the Company’s broker shall effect purchases of up to~~repurchase program does not have an ~~aggregate of 600,000 shares of Common Stock.~~

expiration date.

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Item 6. Exhibits


(a)	Exhibits

~~31.1~~3.1	Form of Amended and Restated Certificate of Incorporation of the Company. (1)

3.1(a)	Certificate of Amendment of Restated Certificate of Incorporation of the Company. (2)

3.2	Amended and Restated Bylaws of the Company. (3)

10.1	Climb Global Solutions, Inc. Executive Severance and Change in Control Plan, dated as of April 20, 2023. (4)

10.2	Form of Performance-Based Restricted Award Unit Agreement. (5)

10.3	Form of Restricted Stock Unit Award Agreement. (6)

10.4	Form of Cash-Based Award Agreement. (7)

10.5*	Credit Agreement dated May 18, 2023, by and among Climb Global Solutions, Inc., the Company, the other borrowers, loan parties and lenders named therein and JPMorgan Chase Bank, N.A., as Administrative Agent. (8)

10.6*	Pledge and Security Agreement dated May 18, 2023, by and among the Company and the other borrowers named therein with JPMorgan Chase Bank, N.A., as Administrative Agent. (9)

31.1	Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of ~~Simon F. Nynens,~~Dale Foster, the ~~Chairman of the Board, President and~~ Chief Executive Officer (principal executive officer) of the ~~Company.~~Company (filed herewith).

31.2	Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of ~~Kevin T. Scull,~~Andrew Clark, the Vice President and Chief ~~Accounting~~Financial Officer (principal ~~accounting~~financial officer) of the ~~Company.~~Company (filed herewith).

31.3	Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of ~~Michael Vesey,~~Matthew Sullivan, the Vice President and Chief ~~Financial~~Accounting Officer (principal ~~financial~~accounting officer) of the ~~Company.~~Company (filed herewith).

32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of ~~Simon F. Nynens,~~Dale Foster, the ~~Chairman of the Board, President and~~ Chief Executive Officer (principal executive officer) of the ~~Company.~~Company (filed herewith).

32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of ~~Kevin T. Scull,~~Andrew Clark, the Vice President and Chief ~~Accounting~~Financial Officer (principal ~~accounting~~financial officer) of the ~~Company.~~Company (filed herewith).

32.3	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of ~~Michael Vesey,~~Matthew Sullivan, the Vice President and Chief ~~Financial~~Accounting Officer (principal ~~financial~~accounting officer) of the ~~Company.~~Company (filed herewith).

101	The following financial information from ~~Wayside Technology Group,~~Climb Global Solutions, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2023, filed with the SEC on ~~November 9, 2017,~~August 3, 2023, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of ~~Earnings,~~Income, (3) Condensed Consolidated Statements of Stockholders’ Equity, (4) Condensed Consolidated Statements of Comprehensive Income, (5) Condensed Consolidated Statements of Cash Flows, and (6) the Notes to the Unaudited Condensed Consolidated Financial Statements.

104	Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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(1) Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 or amendments thereto (File No. 333-92810) filed on May 30, 1995, July 7, 1995 and July 18, 1995

(2) Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on October 27, 2022.

(3) Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on October 27, 2022.

(4) Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Climb Global Solutions, Inc., filed on April 20, 2023.

(5) Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Climb Global Solutions, Inc., filed on April 20, 2023.

(6) Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Climb Global Solutions, Inc., filed on April 20, 2023.

(7) Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K of Climb Global Solutions, Inc., filed on April 20, 2023.

(8) Incorporated by reference to Exhibits 10.1 to the Current Report on Form 8-K of Climb Global Solutions, Inc., filed on May 23, 2023.

(9) Incorporated by reference to Exhibits 10.2 to the Current Report on Form 8-K of Climb Global Solutions, Inc., filed on May 23, 2023.

* Exhibits and schedules have been omitted in accordance with Item 601(a)(5) of Regulation S-K. The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.

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SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		~~WAYSIDE TECHNOLOGY GROUP,~~CLIMB GLOBAL SOLUTIONS, INC

~~11/9/2017~~August 3, 2023	By:	/s/ ~~Simon F. Nynens~~Dale Foster
Date		~~Simon F. Nynens, Chairman of the Board, President and~~Dale Foster, Chief Executive Officer (Principal Executive Officer)

~~11/9/2017~~
August 3, 2023	By:	/s/ ~~Michael Vesey~~Andrew Clark
Date		~~Michael Vesey,~~Andrew Clark, Vice President and Chief Financial Officer (Principal Financial Officer)


~~11/9//2017~~August 3, 2023	By:	/s/ ~~Kevin T. Scull~~Matthew Sullivan
Date		~~Kevin T. Scull,~~Matthew Sullivan, Vice President and Chief Accounting Officer ~~( Principal~~(Principal Accounting Officer)

2835

Delaware		13-3136104
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common stock, $.01 par value per share	CLMB	The Nasdaq Global Market

Large Accelerated Filer ☐		Accelerated Filer ☒
		Smaller Reporting Company ☐☒
Non-Accelerated Filer ☐		Emerging Growth Company ☐


		Page

	PART I FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	4

	Condensed Consolidated Statements of Earnings for the three and six months ended June 30, 2023 and 2022 (unaudited)	5

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022 (unaudited)	6

	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 (unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31

Item 4.	Controls and Procedures	31

	PART II OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 6.	Exhibits, Financial Statement Schedules	33

SIGNATURES		35


												Accumulated
				Additional								Other
	Common Stock			Paid-In		��	Treasury			Retained		Comprehensive
	Shares	Amount		Capital			Shares	Amount		Earnings		(loss) income		Total
Balance at January 1, 2017	5,284,500	$	53	$	30,683		729,066	$	(12,029)	$	20,515	$	(1,611)	$	37,611
Net income	—		—		—		—		—		3,935		—		3,935
Translation adjustment	—		—		—		—		—		—		661		661
Dividends paid	—		—		—		—		—		(2,298)		—		(2,298)
Share-based compensation expense	—		—		1,026		—		—		—		—		1,026
Restricted stock grants (net of forfeitures)	—		—		(1,015)		(83,440)		1,015		—		—		—
Treasury shares repurchased	—		—		—		156,910		(2,841)		—		—		(2,841)
Balance at September 30, 2017	5,284,500	$	53	$	30,694		802,536	$	(13,855)	$	22,152	$	(950)	$	38,094


		Weighted Average
		Grant Date
	Shares	Fair Value
Nonvested shares at January 1, 2017	186,081	$	15.58
Granted in 2017	87,076		18.25
Vested in 2017	(67,634)		15.18
Forfeited in 2017	(3,636)		16.49
Nonvested shares at September 30, 2017	201,887	$	15.85


	As of		As of
	September 30,		December 31,
Selected Assets By Segment:	2017		2016

Lifeboat Distribution	$	61,620	$	64,558
TechXtend		22,180		32,202
Segment Select Assets		83,800		96,760
Corporate Assets		7,216		16,938
Total Assets	$	91,016	$	113,698


Payment due by Period	Total		Less than 1 year		1-3 years			4-5 years		After 5 years
Operating Leases obligations (1)	$	4,371	$	531	$	1,316	$	834	$	1,690
Total Contractual Obligations	$	4,371	$	531	$	1,316	$	834	$	1,690


								Maximum
								Number of
					Total Number			Shares That
					of Shares			May Yet Be
					Purchased as			Purhased
	Total		Average		Part of Publicly	Average		Under the
	Number		Price Paid		Announced	Price Paid		Plans or
	of Shares		Per Share		Plans or	Per Share		Programs
Period	Purchased		(2)		Programs	(3)		(4)(6)

July 1, 2017- July 31, 2017	6,717		$	17.94	6,717	$	17.94	561,716
August 1, 2017- August 31, 2017	16,674	(1)	$	17.15	9,478	$	17.26	552,238
September 1, 2017- September 30, 2017	4,250		$	13.76	4,250	$	13.76	547,988
Total	27,641		$	16.82	20,445	$	17.54	547,988