UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

⌧☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2020~~2021

◻☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-26408

Wayside Technology Group, Inc.

(Exact name of registrant as specified in its charter)

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

4 Industrial Way West, Suite 300, Eatontown, New Jersey07724

(Address of principal executive offices)

~~(732)~~ (732) 389-8950

Registrant’s Telephone Number

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common stock, $.01 par value	WSTG	The NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧☒ No ◻☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧☒ No ◻☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻☐ No ⌧☒

There were ~~4,365,613~~4,402,767 outstanding shares of common stock, par value $.01 per share (“Common Stock”) as of August ~~7, 2020.~~2, 2021.

Table of Contents

Wayside Technology Group, Inc. and Subsidiaries

Table of Contents


		Page

	PART I FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of June 30, ~~2020~~2021 (unaudited) and December 31, ~~2019~~2020	3

	Condensed Consolidated Statements of Earnings for the three and six months ended June 30, 2021 and 2020 ~~and 2019~~ (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020 ~~and 2019~~ (unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020 ~~and 2019~~ (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 ~~and 2019~~ (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2321

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3532

Item 4.	Controls and Procedures	3532

	PART II OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3733

Item 6.	Exhibits, Financial Statement Schedules	3734

SIGNATURES		3935

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Wayside Technology Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

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

June 30,

December 31,


2020

2019


(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$
45,031

$
14,984

Accounts receivable, net of allowances of $840 and $765, respectively

74,760

100,987

Inventory, net

2,088

2,760

Vendor prepayments

317

100

Prepaid expenses and other current assets

2,564

2,718

Total current assets

124,760

121,549

Equipment and leasehold improvements, net

1,113

1,215

Goodwill

3,901

—

Other intangibles, net

3,826

—

Right-of-use assets, net

1,746

1,792

Accounts receivable-long-term, net

442

1,358

Other assets

126

111

Deferred income tax assets

—

256

Total assets

$
135,914

$
126,281

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

$
90,670

$
78,364

Lease liability, current portion

448

383

Total current liabilities

91,118

78,747

Lease liability, net of current portion

2,032

2,189

Non-current liabilities

863

89

Deferred income tax liabilities

143

—

Total liabilities

94,156

81,025

Commitments and contingencies

Stockholders’ equity:

Common stock, $.01 par value; 10,000,000 shares authorized; 5,284,500 shares issued: 4,351,473 and 4,505,693 shares outstanding, respectively

53

53

Additional paid-in capital

31,382

32,874

Treasury stock, at cost, 933,027 and 778,807 shares, respectively

(14,885)

(13,256)

Retained earnings

26,617

26,715

Accumulated other comprehensive loss

(1,409)

(1,130)

Total stockholders’ equity

41,758

45,256

Total liabilities and stockholders' equity

$
135,914

$
126,281


	June 30,		December 31,
	2021		2020
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	23,781	$	29,348
Accounts receivable, net of allowances of $922 and $892, respectively		101,878		93,821
Inventory, net		4,108		4,936
Vendor prepayments and advances		3,440		1,235
Prepaid expenses and other current assets		3,934		3,837
Total current assets		137,141		133,177

Equipment and leasehold improvements, net		2,163		2,308
Goodwill		17,566		16,816
Other intangibles, net		10,600		10,625
Right-of-use assets, net		1,738		1,933
Accounts receivable-long-term, net		116		304
Other assets		490		257
Deferred income tax assets		77		113
Total assets	$	169,891	$	165,533
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	117,430	$	116,692
Lease liability, current portion		476		490
Total current liabilities		117,906		117,182

Lease liability, net of current portion		1,937		2,167
Deferred income tax liabilities		1,462		1,467
Total liabilities		121,305		120,816

Commitments and contingencies

Stockholders’ equity:
Common stock, $.01 par value; 10,000,000 shares authorized; 5,284,500 shares issued: 4,385,785 and 4,361,997 shares outstanding, respectively		53		53
Additional paid-in capital		32,037		31,962
Treasury stock, at cost, 898,715 and 922,503 shares, respectively		(14,393)		(14,747)
Retained earnings		30,356		28,191
Accumulated other comprehensive income (loss)		533		(742)
Total stockholders’ equity		48,586		44,717
Total liabilities and stockholders' equity	$	169,891	$	165,533

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

Table of Contents

Wayside Technology Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(Unaudited)

(Amounts in thousands, except per share data)

Six months ended

Three months ended

June 30,

June 30,


2020

2019

2020

2019


Net sales

$
119,206

$
95,534

$
56,586

$
50,676

Cost of sales

103,927

80,481

49,472

42,857

Gross profit

15,279

15,053

7,114

7,819

Selling, general, and administrative expenses

11,112

11,088

5,612

5,572

Legal and financial advisory expenses - unsolicited bid and related matters

1,833

—

509

—

Acquisition related costs

638

—

235

—

Income from operations

1,696

3,965

758

2,247

Other income:

Interest, net

86

298

24

129

Foreign currency transaction gain

276

91

161

29

Income before provision for income taxes

2,058

4,354

943

2,405

Provision for income taxes

641

1,035

362

548

Net income

$
1,417

$
3,319

$
581

$
1,857

Income per common share-Basic

$
0.31

$
0.74

$
0.13

$
0.41

Income per common share-Diluted

$
0.31

$
0.74

$
0.13

$
0.41

Weighted average common shares outstanding — Basic

4,351

4,408

4,255

4,412

Weighted average common shares outstanding — Diluted

4,351

4,408

4,255

4,412

Dividends paid per common share

$
0.34

$
0.34

$
0.17

$
0.17


	Six months ended				Three months ended
	June 30,				June 30,
	2021		2020		2021		2020

Net sales	$	138,163	$	119,206	$	75,350	$	56,586

Cost of sales		116,341		103,927		64,371		49,472

Gross profit		21,822		15,279		10,979		7,114

Selling, general, and administrative expenses		16,551		10,873		8,138		5,469

Legal and financial advisory expenses, net - unsolicited bid and related matters		—		1,833		—		509

Acquisition related costs		—		638		—		235

Amortization and depreciation expense		796		239		398		143

Income from operations		4,475		1,696		2,443		758

Other income:

Interest, net		301		86		291		24

Foreign currency transaction (loss) gain		(66)		276		25		161

Income before provision for income taxes		4,710		2,058		2,759		943

Provision for income taxes		1,046		641		615		362

Net income	$	3,664	$	1,417	$	2,144	$	581

Income per common share-Basic	$	0.84	$	0.31	$	0.49	$	0.13

Income per common share-Diluted	$	0.84	$	0.31	$	0.49	$	0.13

Weighted average common shares outstanding — Basic		4,254		4,351		4,260		4,255

Weighted average common shares outstanding — Diluted		4,254		4,351		4,260		4,255

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, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands)

Six months ended

Three months ended

June 30,

June 30,


2020

2019

2020

2019


Net income

$
1,417

$
3,319

$
581

$
1,857

Other comprehensive (loss) income:

Foreign currency translation adjustments

(279)

167

222

40

Other comprehensive (loss) income

(279)

167

222

40

Comprehensive income

$
1,138

$
3,486

$
803

$
1,897


	Six months ended				Three months ended
	June 30,				June 30,
	2021		2020		2021		2020

Net income	$	3,664	$	1,417	$	2,144	$	581

Other comprehensive income:
Foreign currency translation adjustments		1,275		(279)		236		222
Other comprehensive income (loss)		1,275		(279)		236		222

Comprehensive income	$	4,939	$	1,138	$	2,380	$	803

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

Table of Contents

Wayside Technology Group, Inc. and Subsidiaries

Condensed Consolidated 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

Total
Balance at January 1, 2020

5,284,500

$
53

$
32,874

778,807

$
(13,256)

$
26,715

$
(1,130)

$
45,256
Net income

—

—

—

—

—

836

—

836
Translation adjustment

—

—

—

—

—

—

(501)

(501)
Dividends paid

—

—

—

—

—

(775)

—

(775)
Share-based compensation expense

—

—

167

—

—

—

—

167
Restricted stock grants (net of forfeitures)

—

—

(1,080)

(63,810)

1,079

—

—

(1)
Treasury shares repurchased

—

—

—

2,059

(32)

—

—

(32)
Balance at April 1, 2020

5,284,500

$
53

$
31,961

717,056

$
(12,209)

$
26,776

$
(1,631)

$
44,950
Net income

—

—

—

—

—

581

—

581
Translation adjustment

—

—

—

—

—

—

222

222
Dividends paid

—

—

—

—

—

(740)

—

(740)
Share-based compensation expense

—

—

234

—

—

—

—

234
Restricted stock grants (net of forfeitures)

—

—

(813)

(48,068)

813

—

—

—
Treasury shares repurchased

—

—

—

264,039

(3,489)

—

—

(3,489)
Balance at June 30, 2020

5,284,500

53

31,382

933,027

(14,885)

26,617

(1,409)

41,758

Accumulated

Additional

Other

Common Stock

Paid-In

Treasury

Retained

Comprehensive


Shares

Amount

Capital

Shares

Amount

Earnings

Loss

Total
Balance at January 1, 2019

5,284,500

53

32,392

788,006

(13,447)

22,994

(1,419)

$
40,573
Net income

—

—

—

—

—

1,463

—

1,463
Translation adjustment

—

—

—

—

—

—

127

127
Dividends paid

—

—

—

—

—

(767)

—

(767)
Share-based compensation expense

—

—

165

—

—

—

—

165
Restricted stock grants (net of forfeitures)

—

—

(318)

(18,780)

318

—

—

—
Treasury shares repurchased

—

—

—

1,905

(20)

—

—

(20)
Balance at April 1, 2019

5,284,500

$
53

$
32,239

771,131

$
(13,149)

$
23,690

$
(1,292)

$
41,541
Net income

—

—

—

—

—

1,857

—

1,857
Translation adjustment

—

—

—

—

—

—

40

40
Dividends paid

—

—

—

—

—

(767)

—

(767)
Share-based compensation expense

—

—

169

—

—

—

—

169
Restricted stock grants (net of forfeitures)

—

—

59

3,500

(59)

—

—

—
Treasury shares repurchased

—

—

—

1,887

(24)

—

—

(24)
Balance at June 30, 2019

5,284,500

53

32,467

776,518

(13,232)

24,780

(1,252)

42,816


												Accumulated
					Additional							Other
	Common Stock				Paid-In		Treasury			Retained		Comprehensive
	Shares	Amount			Capital		Shares	Amount		Earnings		Income (Loss)		Total
Balance at January 1, 2021	5,284,500	$	53		$	31,962	922,503	$	(14,747)	$	28,191	$	(742)	$	44,717
Net income	—		—			—	—		—		1,520		—		1,520
Translation adjustment	—		—			—	—		—		—		1,039		1,039
Dividends paid	—		—			—	—		—		(750)		—		(750)
Share-based compensation expense	—		—			279	—		—		—		—		279
Restricted stock grants (net of forfeitures)	—		—			(883)	(52,190)		883		—		—		—
Treasury shares repurchased	—		—			—	2,990		(57)		—		—		(57)
Balance at March 31, 2021	5,284,500	$	53		$	31,358	873,303	$	(13,921)	$	28,961	$	297	$	46,748
Net income	—		—			—	—		—		2,144		—		2,144
Translation adjustment	—		—			—	—		—		—		236		236
Dividends paid	—		—			—	—		—		(749)		—		(749)
Share-based compensation expense	—		—			337	—		—		—		—		337
Restricted stock grants (net of forfeitures)	—		—	��		342	20,184		(342)		—		—		—
Treasury shares repurchased	—		—			—	5,228		(130)		—		—		(130)
Balance at June 30, 2021	5,284,500		53			32,037	898,715		(14,393)		30,356		533		48,586

												Accumulated
					Additional							Other
	Common Stock				Paid-In		Treasury			Retained		Comprehensive
	Shares	Amount			Capital		Shares	Amount		Earnings		Income (Loss)		Total
Balance at January 1, 2020	5,284,500		53			32,874	778,807		(13,256)		26,715		(1,130)	$	45,256
Net income	—		—			—	—		—		836		—		836
Translation adjustment	—		—			—	—		—		—		(501)		(501)
Dividends paid	—		—			—	—		—		(775)		—	��	(775)
Share-based compensation expense	—		—			167	—		—		—		—		167
Restricted stock grants (net of forfeitures)	—		—			(1,080)	(63,810)		1,079		—		—		(1)
Treasury shares repurchased	—		—			—	2,059		(32)		—		—		(32)
Balance at March 31, 2020	5,284,500	$	53		$	31,961	717,056	$	(12,209)	$	26,776	$	(1,631)	$	44,950
Net income	—		—			—	—		—		581		—		581
Translation adjustment	—		—			—	—		—		—		222		222
Dividends paid	—		—			—	—		—		(740)		—		(740)
Share-based compensation expense	—		—			234	—		—		—		—		234
Restricted stock grants (net of forfeitures)	—		—			(813)	(48,068)		813		—		—		—
Treasury shares repurchased	—		—			—	264,039		(3,489)		—		—		(3,489)
Balance at June 30, 2020	5,284,500		53			31,382	933,027		(14,885)		26,617		(1,409)		41,758

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

Table of Contents

Wayside Technology Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

Six months ended

June 30,


2020

2019

Cash flows from operating activities

Net income

$
1,417

$
3,319

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

Depreciation and amortization expense

239

261

Provision for doubtful accounts

130

—

Deferred income tax expense

9

135

Share-based compensation expense

400

334

Amortization of discount on accounts receivable

(108)

(287)

Amortization of right-of-use assets

197

188

Changes in operating assets and liabilities:

Accounts receivable

36,479

(3,776)

Inventory

813

28

Prepaid expenses and other current assets

268

(542)

Vendor prepayments

152

3,172

Accounts payable and accrued expenses

(3,338)

(6,610)

Lease liability, net

(243)

(146)

Other assets and liabilities

(20)

53

Net cash and cash equivalents provided by (used in) operating activities

36,395

(3,871)

Cash flows from investing activities

Purchase of equipment and leasehold improvements

(19)

(86)

Payment for acquisition, net of cash acquired

(1,141)

—

Net cash and cash equivalents used in investing activities

(1,160)

(86)

Cash flows from financing activities

Purchase of treasury stock

(3,521)

(44)

Borrowings under revolving credit facility

6,800

—

Repayments of borrowings under revolving credit facility

(6,800)

—

Dividends paid

(1,515)

(1,534)

Net cash and cash equivalents used in financing activities

(5,036)

(1,578)

Effect of foreign exchange rate on cash and cash equivalents

(152)

26

Net increase (decrease) in cash and cash equivalents

30,047

(5,509)

Cash and cash equivalents at beginning of period

14,984

14,883

Cash and cash equivalents at end of period

$
45,031

$
9,374

Supplementary disclosure of cash flow information:

Income taxes paid

$
269

$
1,483


	Six months ended
	June 30,
	2021		2020
Cash flows from operating activities
Net income	$	3,664	$	1,417
Adjustments to reconcile net income to net cash and cash equivalents (used in) provided by operating activities:
Depreciation and amortization expense		796		239
Provision for doubtful accounts		—		130
Deferred income tax expense		(20)		9
Share-based compensation expense		616		400
Amortization of discount on accounts receivable		(42)		(108)
Amortization of right-of-use assets		240		197
Change in fair value of contingent earn-out consideration		18		—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(7,395)		36,479
Inventory		830		813
Prepaid expenses and other current assets		(48)		268
Vendor prepayments		790		152
Accounts payable and accrued expenses		175		(3,338)
Lease liability, net		(288)		(243)
Other assets and liabilities		(242)		(20)
Net cash and cash equivalents (used in) provided by operating activities		(906)		36,395

Cash flows from investing activities
Purchase of equipment and leasehold improvements		(169)		(19)
Vendor advances		(2,994)		—
Payment for acquisitions, net of cash acquired		—		(1,141)
Net cash and cash equivalents used in investing activities		(3,163)		(1,160)

Cash flows from financing activities
Purchase of treasury stock		(187)		(3,521)
Borrowings under revolving credit facility		—		6,800
Repayments of borrowings under revolving credit facility		—		(6,800)
Dividends paid		(1,499)		(1,515)
Net cash and cash equivalents used in financing activities		(1,686)		(5,036)

Effect of foreign exchange rate on cash and cash equivalents		188		(152)

Net (decrease) increase in cash and cash equivalents		(5,567)		30,047
Cash and cash equivalents at beginning of year		29,348		14,984
Cash and cash equivalents at end of year	$	23,781	$	45,031

Supplementary disclosure of cash flow information:
Income taxes paid	$	1,026	$	269
Interest paid	$	21	$	23

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

Table of Contents

Wayside Technology Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, ~~2020~~2021

(Unaudited)

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

1. Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements of Wayside Technology Group, 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, ~~2019.~~2020.

The consolidated financial statements include the accounts of Wayside Technology Group, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.

2. Recently Issued Accounting Standards:

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” ("ASU 2016-13"). ASU 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), 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 fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. 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 of allowances for accounts receivable.

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”~~ as part of its initiative to reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact that this guidance will have upon its financial position and results of operations, if any.

3. Foreign Currency Translation:

Assets and liabilities of the Company’s foreign subsidiaries have been translated using the end of the reporting period exchange rates, and related revenues and expenses have been translated at average rates of exchange in effect during the period. 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 three months ended June 30, 2021 and 2020 were $15.2 million and ~~2019 were~~ $6.9 million, ~~and $4.2 million,~~

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respectively. The net sales from our foreign operations for the six months ended June 30, 2021 and 2020 were $32.0 million and ~~2019 were~~ $11.6 million, ~~and $9.4 million,~~ respectively.

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4. Comprehensive Income:

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

5. Revenue Recognition:

The Company’s revenues primarily result from the sale of various technology products and services, including third-party products, third-party software and third-party maintenance, software support and services. The Company recognizes revenue as control of the 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 ~~core principle of~~Company has contracts with certain customers where the ~~revenue recognition criteria~~Company’s performance obligation is to ~~recognize revenue to depict~~arrange for the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This principle is achieved through applying the following five-step approach:

~~Identification of the contract, or contracts, with a customer —~~ ~~A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods~~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 products. Shipping revenue is included in net sales when control of the product is transferred to the customer, and ~~identifies~~ the related shipping and handling costs are included in 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 segment Note 16.

Hardware and software products sold by the Company are generally 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 ~~related~~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 ~~these goods~~have passed to the customer when they acquire the right to use or ~~services, (ii)~~copy the ~~contract has commercial substance and, (iii) we determine that collection of~~software under license as substantially all ~~consideration for goods or services that are transferred~~product functionality is ~~probable~~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 ~~customer’s intent~~basis upon which the Company estimates the amount of net sales in-transit at the end of the period and ~~ability~~adjusts revenue and the related costs to ~~pay~~reflect only what has been delivered to the ~~promised consideration. We apply judgment~~customer. Changes in ~~determining~~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 ~~customer’s ability~~estimated number of days between order fulfillment and ~~intention~~beginning of the renewal term for term licenses recorded on a gross basis, and a deferral estimate is recorded for term license renewals fulfilled prior to ~~pay,~~commencement date.

Generally, software products are sold with accompanying third-party delivered software assurance, which is ~~based~~a product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is in effect. The Company evaluates whether the 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 if the 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 the accompanying third-party delivered software assurance are recognized as a single performance obligation. The value of the product is primarily the accompanying support delivered by a third party and therefore the Company is acting as an agent in these transactions and recognizes them on a ~~variety of factors including~~net basis at the ~~customer’s historical payment experience or, in~~point the ~~case of a new customer, published credit and financial information pertaining~~associated software license is delivered to the customer. The Company ~~considers customer purchase orders, which~~sells cloud computing solutions that utilize third-party vendors to enable customers to access data center functionality in ~~some cases are governed by master agreements or general terms~~a cloud-based solution, including storage, computing and ~~conditions of sale,~~networking and access to ~~be contracts with customers. All revenue is generated from contracts with customers.~~

~~Identification of the performance obligations~~software in the ~~contract —~~ ~~Performance obligations promised~~cloud that enhances office productivity, provides security or assists in ~~a contract are identified based on the goods or services that will be transferred~~collaboration. The Company recognizes revenue for cloud computing solutions for arrangements with one-time invoicing to the customer ~~that are capable~~at the time of ~~being distinct, whereby~~invoice on a net basis as the Company 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 ~~can benefit from~~for its monthly usage on a net basis. For software licenses where the ~~goods~~accompanying third-party delivered software assurance is not critical or ~~service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in~~essential to the ~~context of~~core functionality, the ~~contract, whereby the transfer of the goods or services~~software assurance is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, we apply judgment to determine whether promised goods or services are capable of being distinct in the context of the contract. If these criteria are not met the promised goods or services are accounted forrecognized as a ~~single~~separate performance ~~obligation.~~

~~Determination of~~obligation, with the ~~transaction price~~ ~~—The transaction price~~associated revenue recognized on a net basis at the point the related software license is ~~determined based on the consideration to which we will be entitled in exchange for transferring goods or services~~delivered to the ~~customer, net~~customer.

The Company also sells some of ~~sales taxes collected from customers,~~its products and services as part of bundled contract arrangements containing multiple deliverables, which ~~are subsequently remitted to governmental entities.Net sales are recorded net~~may include a combination of ~~estimated discounts, rebates,~~products and ~~returns. Vendor rebates are recorded when earned as~~services. For each deliverable that represents a ~~reduction to cost of sales or inventory, as applicable.~~

~~Allocation of the transaction price to the performance obligations in the contract~~ ~~— If the contract contains a single~~distinct performance obligation, ~~the entire transaction price~~total arrangement consideration is allocated tobased upon the ~~single~~standalone selling prices (“SSP”) of each performance obligation. ~~Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price, or~~ SSP ~~basis. We determine 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. Contracts with a significant financing component are discounted to their present value at contract inception and accreted up to the expected payment amounts. These contracts generally offer customers extended payment terms of up to three years.

~~Recognition of revenue when, or as, we satisfy a performance obligation~~ — The Company ~~recognizes revenue when~~records freight billed to its performance obligations are complete, and control of the specified goods or services pass to the customer. The Company considers the following indicators in determining when control passes to the customer: (i) the Company has a right to payment for the product or service (ii) the customer has legal title to the product, (iii) the Company has transferred physical possession of the product (iv) the Customer has the significant risk and rewards of ownership of the product and (v) the customer has accepted the product. Substantially all our performance obligations are satisfied at a point in time, as our obligation is to deliver a product or fulfill an order for a third party to deliver ongoing services, maintenance or support.

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~~Disaggregation of Revenue~~

We generate revenue from the re-sale of third-party software licenses, subscriptions, hardware, and related service contracts. Finance fees related to sales are classified as interest income. The following table depicts the disaggregation of revenue according to revenue type and is consistent with how we evaluate our financial performance:

(Unaudited)

(Unaudited)

Six months ended

Three months ended

Net sales:

June 30,

June 30,

June 30,

June 30,

2020

2019

2020

2019

Hardware, software and other products

$
109,581

$
85,974

$
51,997

$
45,784

Software - security & highly interdependent with support

3,780

3,620

1,827

1,727

Maintenance, support & other services

5,845

5,940

2,762

3,165

Net sales

$
119,206

$
95,534

$
56,586

$
50,676

~~Hardware, software and other products -~~ Hardware product consists of sales of hardware manufactured by third parties. Hardware product is delivered from our warehouse or drop shipped directly from the vendor. Revenue from our hardware products is recognized on a gross basis, with the selling price to the customercustomers as net sales and the ~~cost of the~~ related ~~product~~freight costs as cost of sales ~~upon transfer of control~~when the underlying product revenue is recognized. For freight not billed to ~~the customer, as~~its customers, the Company ~~is acting as a principal in~~records the ~~transaction. Control is generally deemed to have passed to the customer upon transfer of title and risk of ownership.~~

Software products consist of sales of perpetual and term software licenses for products developed by third party vendors, which are distinct from related maintenance and support. Software licenses are delivered via electronic license keys provided by the vendor to the end user. Revenue from the sale of software products is recognized on a gross basis, with the selling price to the customer as net sales, and the cost of the related productfreight costs as cost of ~~sales, upon transfer of control to our customers as the Company is a principal~~sales. The Company’s typical shipping terms result in ~~the transaction. Control is deemed to have passed to~~shipping being performed before the customer ~~when they acquire~~obtains control of the ~~right~~product. The Company considers shipping to ~~use or copy the software under license as substantially all product functionality is available to the customer at the time of sale. Other products include marketing revenues that are recorded on~~be a ~~gross basis as the Company is a principal in the arrangement.~~

~~Software maintenance~~fulfillment activity and support, commonly known as software assurance or post contract support, consists of software updates and technical support provided by the software vendor to the licensor over a period. In cases where the software maintenance is distinct from the related software license, software maintenance is accounted for asnot a separate performance obligation. In cases where the software maintenance is not distinct from the related software license, it is accounted for as a single performance obligation with the related license. We utilize judgement in determining whether the maintenance is distinct from the software itself. This involves considering if the software provides its original intended functionality without updates, or is dependent on frequent, or continuous updates to maintain its functionality. See ~~Allocation of the transaction price to the performance obligations in the contract~~ ~~above for a discussion of the allocation of maintenance and support costs when they are distinct from the related software licenses and~~ ~~Software - security and highly interdependent with support~~ ~~below for a discussion of maintenance and support costs when they are not distinct from the related software license.~~

~~Software - security and highly interdependent with support -~~ Software - security and highly interdependent with support consists of sales of security subscriptions and other licensed software products whose functionality is highly interdependent with, and therefore not distinct from, related software maintenance. Delivery of the software license and related support over time is considered a single performance obligation of the third-party vendor for these products. The Company is an agent in these transactions, with revenue being recorded on a net basis when its performance obligation of processing a valid order between the supplier and customer contracting for the services is complete.

~~Maintenance, support and other services revenue -~~ Maintenance, support and other services revenue consists of third-party post-contract support that is not critical or essential to the core functionality of the related licensed software, and, to a lesser extent, from third-party professional services, software as a service, and cloud subscriptions. Revenue from maintenance, support and other service revenues is recognized on a net basis, upon fulfillment of an order to the customer, as the Company is an agent in the transaction, and its performance obligations are complete at the time a valid order between the parties is processed.

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~~Costs to obtain and fulfill a contract -~~ ~~We pay~~pays commissions and related payroll taxes to sales personnel when customers are invoiced. These costs are recorded as selling general and administrative expenses in the period earned as all our performance obligations are complete within a short window of processing the order.

6. Acquisition:

~~Contract balances -~~ ~~Accounts receivable is recorded at the invoiced amount, net~~Acquisition of ~~an allowance for doubtful~~ accounts. A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional. Payment terms on invoiced amounts are typically 30-75 days. The balance of accounts receivable, net of allowance for doubtful accounts as of June 30, 2020 and December 31, 2019 is presented in the accompanying Consolidated Balance Sheets. Accounts receivable-long-term result from product sales with extended payment terms that are discounted to their present values at the Company’s estimates of prevailing market rates at the time of the sale. The Company has determined that these amounts do not represent variable consideration as the amount earned is fixed. In subsequent periods, the accounts receivable 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 and are shown net of reserves. As our revenues are generally recognized at a point in time in the same period as they are billed, we have no deferred revenue balances. Provisions for doubtful accounts including long-term accounts receivable and returns are estimated based on historical write offs, sales returns and credit memo analysis which are adjusted to actual on a periodic basis.

~~Refund liability –~~ Interwork Technologies~~The Company records a refund liability for expected product returns with a corresponding asset for an amount representing any expected recovery from vendors regarding the return.~~

~~Principal versus agent considerations –~~ The Company determines whether it is acting as a principal or agent in a transaction by assessing whether it controls a good or service prior to it being transferred to a customer, with control being defined as having the ability to direct the use of and obtain the benefits from the asset. The Company considers the following indicators, among others, in making the determination: 1) the Company is primarily responsible for fulfilling the promise to provide the promised good or service, 2) the Company has inventory risk, before or after the specified good or service has been transferred to the customer, and 3) the Company has discretion in establishing price for the specified good or service. Generally, we conclude that we are a principal in transactions where software or hardware products containing their core functionality are delivered to the customer at the time of sale and are agents in transactions where we are arranging for the provision of future performance obligations by a third party. As we enter into distribution agreements with third-party service providers, we evaluate whether we are acting as a principal or agent for each product sold under the agreement based on the nature of the product or service, and our performance obligations. Products for which there are significant ongoing third-party performance obligations include software maintenance, which includes periodic software updates and support, security software that is highly interdependent with maintenance, software as a service, cloud and third-party professional services. Sales of hardware, software and other products where we are a principal are recorded on a gross basis with the selling price to the customer recorded as sales and the cost of the product or software recorded as cost of sales. Sales where we are acting as an agent are recognized on a net basis at the date our performance obligations are complete. Under net revenue recognition, the cost paid to the vendor or third-party service provider is recorded as a reduction to sales, resulting in revenue being equal to the gross profit on the transaction.

6. ~~Acquisition:~~

On April 30, 2020, ~~pursuant to a Stock Purchase Agreement dated April 20, 2020, CLIMB Channel Solutions (Canada) Inc. (“Buyer”), a newly-formed indirect subsidiary of~~ the Company completed the purchase of Interwork Technologies Inc., a Delaware corporation ~~(“Interwork US”)~~ and Interwork Technologies Inc., a corporation incorporated under the laws of the Province of Ontario, Canada ~~(“Interwork Canada”~~(collectively, “Interwork”)~~. Buyer acquired Interwork US and Interwork Canada~~ for an aggregate purchase price of $5 million Canadian dollar (equivalent to $3.6 million USD), subject to certain working capital adjustments, paid at closing plus a potential post-closing $1.1 million Canadian ~~dollar~~ dollars (equivalent to $0.8 million USD) earn-out. The purchase price allocation is final.

The purchase consideration included approximately $0.8 million of potential earn-out consideration if certain targets are achieved, payable in cash. As of June 30, 2021, the Company reassessed the earn-out liability and increased the fair value of the earn-out liability to approximately $0.9 million, with less than $0.1 million adjustment recognized within selling, general and administrative expenses during the six months ended June 30, 2021. The earn-out liability is included in accounts payable and accrued expenses as of June 30, 2021 as payment would be due in the third quarter of 2021.

There were 0 acquisition related costs incurred during the three and six months ended June 30, 2021. The Company incurred acquisition related costs of approximately $0.2 million and $0.6 million during the three and six months ended June, 2020, respectively, in conjunction with the acquisition of Interwork, which are reflected in the accompanying consolidated statements of earnings.

Acquisition of CDF Group Limited

On November 6, 2020, the Company entered into a Share Purchase Agreement and purchased the entire share capital of CDF Group Limited (“CDF”) for an aggregate purchase price of approximately £13.3 million (equivalent to approximately $17.4 million USD), subject to certain working capital and other adjustments. The allocation of the purchase price was based

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upon the estimated fair value of ~~Interwork US and Interwork Canada’s~~CDF’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 ~~Company incurred acquisition related costs~~financial position and operating results of ~~approximately $0.2 million and $0.6 million during~~CDF are included in the Company’s consolidated financial statements for the three and six months ended June 30, 2020, respectively. These expenses relate to costs incurred in conjunction with the acquisition of Interwork US and Interwork Canada and are reflected in the accompanying three and six months ended June 30, 2020 Condensed Consolidated Statements of Earnings.

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~~The financial position and operating results of Interwork US and Interwork Canada are included in the Company’s condensed consolidated financial statements from the date of acquisition.~~2021. The Company recorded net revenue for ~~Interwork US and Interwork Canada~~CDF of approximately ~~$3.7~~$6.9 million and net income of approximately $0.3 million during the three months ended June 30, ~~2020.~~2021. The Company recorded net revenue for CDF of approximately $15.3 million and net income of approximately $0.7 million during the six months ended June 30, 2021.

The impact of the CDF acquisition’s preliminary purchase price allocations on the Company’s consolidated balance sheet and the acquisition date fair value of the total consideration transferred ~~were as follows.~~is depicted in the table below. The Company ~~is in the process of obtaining third-party valuations~~has not yet completed its evaluation and determination of certain ~~intangible assets; thus~~assets acquired and liabilities assumed, primarily (i) the ~~provisional measurements~~final valuation of goodwill and intangible assets, ~~goodwill~~(ii) capitalized software, and ~~deferred~~(iii) the final evaluation and assessment of income ~~taxes are subject to change:~~tax accounts; therefore the final fair value of the assets acquired and liabilities assumed may vary from the Company’s preliminary estimates:

(in thousands)

Cash

$
1,009
Trade accounts receivable

9,534
Other current assets

628
Intangible assets

Vendor relationships (14-year weighted average useful life)

3,797
Non-compete (1-year useful life)

8
Goodwill

3,857
Other assets

117
Accounts payable and other current liabilities

(15,051)
Deferred income tax liabilities

(389)
Taxes payable

(600)
Net assets

$
2,910

(in thousands)

Supplementary information:

Cash paid to sellers

$
2,150
Contingent earn-out

760
Total purchase consideration

$
2,910

Cash paid to sellers

2,150
Cash acquired in acquisition

(1,009)
Net cash paid for acquisition

$
1,141


(in thousands)
Cash	$	8,463
Trade accounts receivable		8,093
Other current assets		260
Equipment and leasehold improvements, net		1,367
Intangible assets
Customer relationships (13-year useful life)		6,357
Trademarks (15-year useful life)		504
Non-compete (1-year useful life)		42
Goodwill		12,774
Other assets		375
Accounts payable and other current liabilities		(12,364)
Deferred income tax liabilities		(1,461)
Other liabilities		(306)
Net assets	$	24,104

~~Intangible~~


(in thousands)
Supplementary information:
Cash paid to sellers	$	24,104
Cash acquired in acquisition		(8,463)
Net cash paid for acquisition	$	15,641

Estimated intangible assets are comprised of approximately ~~$3.8~~$6.4 million of ~~vendor~~customer relationships with ~~a weighted average~~an amortization period of ~~13.7~~13 years and $0.5 million of tradenames with an amortization period of 15 years, representing the expected ~~period~~periods of ~~benefits, of which $2.3 million is deductible for Canadian income tax purposes.~~benefits. Goodwill ~~which was allocated to the Climb Channel Solutions segment,~~ is the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled workforce. Goodwill recognized as a result of the acquisition is not deductible for income tax purposes.

The purchase consideration includes approximately $0.8 million of potential earn-out consideration if certain targets are achieved, payable in cash. As of June 30, 2020, the Company reassessed the earn-out liability and determined the amount is unchanged from the acquisition date. The earn-out liability is included in non-current liabilities as of June 30, 2020.

~~The~~ preliminary allocation of the purchase price for the acquisition of CDF was allocated based on information that is currently available. The ~~Company's~~Company’s estimates and assumptions underlying the initial allocations is subject to the collection of information necessary to complete its allocations within the measurement period, which is up to one year from the acquisition date.

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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, ~~2020:~~2021:

Balance at January 1, 2020

$
—
Acquisition of Interwork US and Interwork Canada

3,857
Translation adjustments

44
Balance June 30, 2020

$
3,901


Balance at January 1, 2021	$	16,816
Translation adjustments		750
Balance June 30, 2021	$	17,566

Goodwill represents the premium paid over the fair value of the net tangible and intangible assets that are individually identified and separately recognized in business combinations. The change in our goodwill balance during the six months ended June 30, 2020 relates toacquired through our acquisition of ~~Interwork US and Interwork Canada, which has been allocated~~CDF is provisional for a period of up to one year from the ~~Climb Channel Solutions segment.~~acquisition date.

Information related to the Company’s other intangibles, net is as follows:


	June 30, 2020						As of June 30, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Vendor relationships	$	3,868	$	49	$	3,819
Customer and vendor relationships							$	10,768	$	691	$	10,077
Trade name								531		23		508
Non-compete		8		1		7		53		38		15
Total	$	3,876	$	50	$	3,826	$	11,352	$	752	$	10,600

							As of December 31, 2020
							Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer and vendor relationships							$	10,361	$	272	$	10,089
Trade name								504		5		499
Non-compete								50		13		37
Total							$	10,915	$	290	$	10,625

~~Other intangibles, net was zero as of December 31, 2019.~~

Customer relationships are amortized over thirteen years. Vendor relationships are amortized between eleven to and fifteen years. Trade name is amortized over fifteen years. Non-compete is amortized over one year. Intangible assets acquired through our acquisition of CDF are provisional for a period of up to one year from the acquisition date.

During the three ~~and six~~ months ended June 30, 2021 and 2020, the Company recognized total amortization expense for other intangibles, net of $0.2 million and $0.1 ~~million. There was no~~million, respectively. During the six months ended June 30, 2021 and 2020, the Company recognized total amortization expense for other intangibles, net ~~during the three~~of $0.5 million and ~~six months ended June 30, 2019. Amortization expense is included in selling, general and administrative expense.~~$0.1 million, respectively.

Estimated future amortization expense of the Company’s other intangibles, net as of June 30, ~~2020~~2021 is as follows:


2020 (excluding the six months ended June 30, 2020)	$	149
2021		292
2021 (excluding the six months ended June 30, 2021)			$	436
2022		290		842
2023		290		842
2024		290		842
2025				842
Thereafter		2,515		6,796
Total	$	3,826	$	10,600

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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.

~~ROU~~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

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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.

Information related to the Company’s right-of-use assets and related lease liabilities were as follows:


	(Unaudited)
	Six months ended				Six months ended
	June 30,				June 30,
		2020		2019		2021		2020
Cash paid for operating lease liabilities	$	248	$	248	$	319	$	248
Right-of-use assets obtained in exchange for new operating lease obligations (1)	$	128	$	2,163
Right-of-use assets obtained in exchange for new operating lease obligations					$	38	$	128
Weighted-average remaining lease term		6.5 years		7.6 years		5.6 years		6.5 years
Weighted-average discount rate		3.3%		3.4%		3.5%		3.3%

~~(1)~~

~~During the six months ended June 30, 2019, represents operating leases existing on January 1, 2019 and recognized as part of the Company’s adoption of ASU 2016-02.~~

Maturities of lease liabilities as of June 30, ~~2020~~2021 were as follows:


2020 (excluding the six months ended June 30, 2020)	$	240
2021		472
2021 (excluding the six months ended June 30, 2021)			$	281
2022		426		500
2023		463		536
2024		473		546
2025				556
Thereafter		1,100		677
		3,174		3,096
Less: imputed interest		(694)		(683)
Total lease liabilities	$	2,480	$	2,413

Lease liabilities, current portion		448		476
Lease liabilities, net of current portion		2,032		1,937
Total lease liabilities	$	2,480	$	2,413

9. Fair Value:

The carrying amounts of financial instruments, including cash and cash equivalents, short-term accounts receivable and accounts payable approximated fair value at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 because of the relative short maturity of these instruments. The Company’s accounts receivable long-term are discounted to their present value at prevailing market rates at the time of sale.

1413

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10. Balance Sheet Detail:

Equipment and leasehold improvements consist of the following:

(Unaudited)

June 30,

December 31,

2020

2019
Equipment

$
2,645

$
2,230
Leasehold improvements

1,307

1,289

3,952

3,519
Less accumulated depreciation and amortization

(2,839)

(2,304)

$
1,113

$
1,215



	June 30,		December 31,
	2021		2020
Equipment	$	2,588	$	2,482
Capitalized software		808		777
Leasehold improvements		1,766		1,760
		5,162		5,019
Less accumulated depreciation and amortization		(2,999)		(2,711)
	$	2,163	$	2,308

During the three months ended June 30, ~~2020~~2021 and ~~2019, the Company recorded depreciation and amortization expense of $0.1 million. During the six months ended June 30,~~ 2020, ~~and 2019,~~ the Company recorded depreciation and amortization expense of $0.2 million and ~~$0.3~~$0.1 million, respectively. ~~Depreciation~~During the six months ended June 30, 2021 and 2020, the Company recorded depreciation and amortization expense ~~is included in selling, general~~of $0.3 million and ~~administrative expense.~~$0.2 million, respectively.

In limited circumstances, the Company offers extended payment terms to customers for periods of 12 to 4836 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 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 under these long-term accounts receivable due within one year are reclassified to the current portion of accounts receivable. At times the Company sells receivables to a financial institution on a non-recourse basis for cash, less a discount. The net proceeds from such sales are included in the operating section of the statement of cash flows as changes in accounts receivable. Accounts receivable long term, net consists of the following:


	(Unaudited)
	June 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020
Total amount due from customer	$	3,676	$	5,656	$	1,112	$	1,853
Less: unamortized discount		(86)		(194)		(21)		(49)
Less: current portion included in accounts receivable		(3,148)		(4,104)		(975)		(1,500)
	$	442	$	1,358	$	116	$	304

The undiscounted cash flows to be received by the Company relating to these accounts receivable long-term expects to be ~~$3.2~~$1.0 million, $0.1 million and ~~$0.5~~less than $0.1 million during the 12-month periods ending June 30, ~~2021~~2022, 2023 and ~~2022,~~2024, respectively.

Accounts payable and accrued expenses consist of the following:


	(Unaudited)
	June 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020
Trade accounts payable	$	84,705	$	73,310	$	108,996	$	107,045
Accrued expenses		5,965		5,054		8,434		9,647
	$	90,670	$	78,364	$	117,430	$	116,692

11. Credit Facility:

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The Amended Credit Facility, which will continue to be used for working capital and general corporate purposes, matures on ~~August 31, 2020,~~June 30, 2023, at which time the Company must pay all outstanding principal of all outstanding loans plus all accrued and unpaid interest, and any, fees, costs and expenses. In addition, the Company will pay regular monthly payments of all accrued and unpaid interest. The interest rate for any

~~Table of Contents~~

borrowings under the Amended Credit Facility is subject to change from time to time based on the changes in the LIBOR Rate, as defined in the Amended Loan Agreement (the “Index”). The Index was ~~1.58%~~2.50% at June 30, ~~2020.~~2021. Interest on the unpaid principal balance of the Amended Note will be calculated using a rate of ~~1.50~~1.75 percentage points over the Index. If the Index becomes unavailable during the term of the Amended Credit Facility, interest will be based upon the ~~Prime Rate~~Benchmark Replacement (as defined in the Amended Loan Agreement) selected by Citibank after notifying the Company. The Amended Credit Facility is secured by the assets of the Company.

Among other affirmative covenants set forth in the Loan Agreement, which were not amended as part of the Amended Credit Facility, the Company must maintain (i) a minimum Debt Service Coverage Ratio (as defined in the Loan Agreement) of not less than 2.0 to 1.0, (ii) a maximum Leverage Ratio (as defined in the Loan Agreement) of at least 2.5 to 1.0, and (iii) a minimum Collateral Coverage Ratio (as defined in the Loan Agreement) of not less than 1.5 to 1.0. Additionally, the Loan Agreement contains negative covenants, which were not amended as part of the Amended Credit Facility, prohibiting, among other things, the creation of certain liens, the alteration of the nature or character of the Company’s business, and transactions with the Company’s shareholders, directors, officers, subsidiaries and/or affiliates other than with respect to (i) the repurchase of the issued and outstanding capital stock of the Company from the stockholders of the Company or (ii) the declaration and payment of dividends to the stockholders of the Company. The Company was in compliance with all such covenants at June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had no0 borrowings outstanding under the Credit Facility.

On April 13, 2021, Wayside Technology UK Holdings Limited (“Wayside UK”), a wholly-owned subsidiary of the Company, entered into an uncommitted short term credit facility of £8,000,000 (“Uncommitted Credit Facility”) with Citibank N.A., London Branch (“Citibank London”) pursuant to certain terms and conditions. Obligations under the Uncommitted Credit Facility are guaranteed by the Company and will be used for working capital and general corporate purposes and have a maturity date of April 13, 2022, at which time Wayside UK must pay all outstanding principal of all outstanding loans plus all accrued and unpaid interest, and any interest, fees, costs and expenses, if any.

Interest on the unpaid principal balance of the Uncommitted Credit Facility will be calculated using a rate of 1.85 percentage points over the Daily Rate, as defined in the Uncommitted Credit Facility. Amounts borrowed under the Uncommitted Credit Facility will be guaranteed by the Company. The Uncommitted Credit Facility may be cancelled at any time by Citibank London. Citibank London has the sole discretion to accept or reject any requested utilization of the Uncommitted Credit Facilitation.

At June 30, 2021, Wayside UK had 0 borrowings outstanding under the Uncommitted Credit Facility.

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 stock 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:


		(Unaudited)			(Unaudited)					(Unaudited)			(Unaudited)
	Six months ended				Three months ended				Six months ended				Three months ended
	June 30,				June 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Numerator:
Net income	$	1,417	$	3,319	$	581	$	1,857	$	3,664	$	1,417	$	2,144	$	581

Less distributed and undistributed income allocated to participating securities		42		74		21		40		119		42		68		21

Net income attributable to common shareholders		1,375		3,245		560		1,817		3,545		1,375		2,076		560

Denominator:
Weighted average common shares (Basic)		4,351		4,408		4,255		4,412		4,254		4,351		4,260		4,255

Weighted average common shares including assumed conversions (Diluted)		4,351		4,408		4,255		4,412		4,254		4,351		4,260		4,255

Basic net income per share	$	0.31	$	0.74	$	0.13	$	0.41	$	0.84	$	0.31	$	0.49	$	0.13
Diluted net income per share	$	0.31	$	0.74	$	0.13	$	0.41	$	0.84	$	0.31	$	0.49	$	0.13

13. Major Customers and Vendors:

The Company had ~~two~~2 major vendors that accounted for 18% and 12%, respectively, of total purchases during the three months ended June 30, 2021 and 16% and 10%, respectively, of total purchases during the three months ended June 30, ~~2020 and 21% and 15%, respectively, of total purchases during the three months ended June 30, 2019.~~2020. The Company had ~~two~~2 major vendors that accounted for ~~19%~~21% and ~~10%, respectively, of total purchases during~~

~~Table of Contents~~

~~the six months ended June 30, 2020 and 27% and 15%~~9%, respectively, of total purchases during the six months ended June 30, ~~2019.~~2021 and 19% and 10%, respectively, of total purchases during the six months ended June 30, 2020.

The Company had ~~two~~2 major customers that accounted for 17% and 17%, respectively, of its net sales during the three months ended June 30, 2021 and 29% and 18%, respectively, of its net sales during the three months ended June 30, ~~2020~~2020. The Company had 2 major customers that accounted for 18% and ~~27% and 18%~~15%, respectively, of its net sales during the ~~three~~six months ended June 30, ~~2019. The Company had two major customers that accounted for~~2021 and 29% and 18%, respectively, of its net sales during the six months ended June 30, ~~2020 and 26% and 18%, respectively, of its net sales during the six months ended June 30, 2019.~~2020. These same customers accounted for ~~22%~~20% and 14%, respectively, of total net accounts receivable as of June 30, ~~2020~~2021 and ~~43%~~19% and ~~12%~~9%, respectively, of total net accounts receivable as of December 31, ~~2019.~~2020.

14. Income Taxes:

The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these 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 three months ended June 30, 2020 and June 30, 2019 was 38.4% and 22.9%, respectively. The effective tax rate for the six months ended June 30, 2020 and June 30, 2019 was 31.2% and 23.8%, respectively. The Company’s effective tax rate for the three and six months ended June 30, 2020 was impacted by limitations on the deductibility of certain facilitative acquisition related costs.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The primary impact to the Company’s financial statements as a result of the CARES Act was the deferral of US corporate income tax payments from the second quarter of 2020 to the third quarter of 2020.

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, 2021, the number of shares of Common Stock available for future award grants to employees, officers and directors under the 2021 Plan is 500,000.

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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, par value $0.01 per share (“~~Common ~~Stock")~~Stock initially available for award under the 2012 Plan was 600,000, which was increased to 1,000,000 shares by ~~shareholder~~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 June 30, ~~2020,~~2021, the number of shares of Common Stock available ~~for future award grants to employees, officers and directors~~ under the 2012 Plan is ~~401,769.~~0.

During the six months ended June 30, 2021, the Company granted a total of 52,190 shares of Restricted Stock to officers. These shares of Restricted Stock vest over time in 16 equal quarterly installments. During the six months ended June 30, 2021, a total of 20,184 shares of Restricted Stock were forfeited.

During the six months ended June 30, 2020, the Company granted a total of 116,560 shares of Restricted Stock to officers and employees. These shares of Restricted Stock vest over time in ~~sixteen~~16 equal quarterly installments. During the six months ended June 30, 2020, a total of 4,682 shares of Restricted Stock were forfeited.

During the six months ended June 30, 2019, the Company granted a total of 20,405 shares of Restricted Stock to officers and employees. These shares of Restricted Stock vest over time in sixteen equal quarterly installments. During the six months ended June 30, 2019, a total of 5,125 shares of Restricted Stock were forfeited.

A summary of nonvested shares of Restricted Stock awards outstanding under the 2012 Plan as of June 30, ~~2020,~~2021, and changes during the six months then ended is as follows:


		Weighted				Weighted
		Average Grant		��		Average Grant
		Date				Date
	Shares	Fair Value			Shares	Fair Value
Nonvested shares at January 1, 2020	63,922	$	14.94
Granted in 2020	116,560		12.98
Vested in 2020	(25,240)		14.18
Forfeited in 2020	(4,682)		16.85
Nonvested shares at June 30, 2020	150,560	$	13.49
Nonvested shares at January 1, 2021					122,792	$	13.37
Granted in 2021					52,190		20.26
Vested in 2021					(39,445)		15.20
Forfeited in 2021					(20,184)		16.04
Nonvested shares at June 30, 2021					115,353	$	15.39

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As of June 30, ~~2020,~~2021, there is approximately ~~$1.9~~$1.6 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~~2.7 years.

During the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recognized share-based compensation expense of $0.3 million and $0.2 ~~million.~~million, respectively. During the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recognized share-based compensation expense of ~~$0.4~~$0.6 million and ~~$0.3~~$0.4 million, respectively.

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~~2 reportable operating segments. The ~~“Climb Channel Solutions”~~“Distribution” segment ~~(formerly Lifeboat Distribution)~~ distributes technical software ~~and hardware~~ 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.

~~Table of Contents~~

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:


	(Unaudited)				(Unaudited)				Six months ended				Three months ended
	Six months ended June 30,				Three months ended June 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Revenue:
Climb Channel Solutions	$	111,479	$	87,376	$	54,213	$	47,320
TechXtend		7,727		8,158		2,373		3,356
Distribution									$	124,692	$	111,479	$	69,872	$	54,213
Solutions										13,471		7,727		5,478		2,373
		119,206		95,534		56,586		50,676		138,163		119,206		75,350		56,586
Gross Profit:
Climb Channel Solutions	$	13,806	$	13,322	$	6,643	$	7,124
TechXtend		1,473		1,731		471		695
Distribution									$	16,688	$	13,806	$	8,814	$	6,643
Solutions										5,134		1,473		2,165		471
		15,279		15,053		7,114		7,819		21,822		15,279		10,979		7,114
Direct Costs:
Climb Channel Solutions	$	5,371	$	5,039	$	2,734	$	2,555
TechXtend		717		808		255		370
Distribution									$	7,590	$	5,371	$	3,677	$	2,734
Solutions										2,528		717		1,120		255
		6,088		5,847		2,989		2,925		10,118		6,088		4,797		2,989
Segment Income Before Taxes: (1)
Climb Channel Solutions	$	8,435	$	8,283	$	3,909	$	4,569
TechXtend		756		923		216		325
Distribution									$	9,098	$	8,435	$	5,137	$	3,909
Solutions										2,606		756		1,045		216
Segment Income Before Taxes		9,191		9,206		4,125		4,894		11,704		9,191		6,182		4,125

General and administrative	$	5,024	$	5,241	$	2,623	$	2,647	$	6,433	$	4,785	$	3,341	$	2,480
Legal and financial advisory expenses - unsolicited bid and related matters		1,833		—		509		—
Legal and financial advisory expenses, net - unsolicited bid and related matters										—		1,833		—		509
Acquisition related costs		638		—		235		—		—		638		—		235
Amortization and depreciation expense										796		239		398		143
Interest, net		86		298		24		129		301		86		291		24
Foreign currency transaction gain		276		91		161		29
Foreign currency transaction (loss) gain										(66)		276		25		161
Income before taxes	$	2,058	$	4,354	$	943	$	2,405	$	4,710	$	2,058	$	2,759	$	943

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


	(Unaudited)
	As of		As of		As of		As of
	June 30,		December 31,		June 30,		December 31,
Selected Assets by Segment:	2020		2019		2021		2020

Climb Channel Solutions	$	74,302	$	99,602
TechXtend		3,306		5,603
Distribution					$	110,962	$	100,841
Solutions						6,414		7,304
Segment Select Assets		77,608		105,205		117,376		108,145
Goodwill and Intangible Assets						20,333		19,592
Corporate Assets		58,306		21,076		32,182		37,796
Total Assets	$	135,914	$	126,281	$	169,891	$	165,533

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Geographic areas and net sales mix related to operations for the three and six months ended June 30, 2021 and 2020 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, 2021						June 30, 2021
	Distribution		Solutions		Total		Distribution		Solutions		Total
Geography
USA	$	99,049	$	7,164	$	106,213	$	57,964	$	2,185	$	60,149
Europe and United Kingdom		12,969		5,571		18,540		5,724		2,827		8,551
Canada		12,674		736		13,410		6,184		466		6,650
Total net sales	$	124,692	$	13,471	$	138,163	$	69,872	$	5,478	$	75,350

Timing of Revenue Recognition
Transferred at a point in time where the Company is principal (1)	$	113,240	$	9,897	$	123,137	$	63,882	$	3,746	$	67,628
Transferred at a point in time where the Company is agent (2)		11,452		3,574		15,026		5,990		1,732		7,722
Total net sales	$	124,692	$	13,471	$	138,163	$	69,872	$	5,478	$	75,350

	Six months ended						Three months ended
	June 30, 2020						June 30, 2020
	Distribution		Solutions		Total		Distribution		Solutions		Total
Geography
USA	$	100,873	$	6,698	$	107,571	$	47,767	$	1,900	$	49,667
Europe and United Kingdom		4,534		—		4,534		2,758		—		2,758
Canada		6,072		1,029		7,101		3,688		473		4,161
Total net sales	$	111,479	$	7,727	$	119,206	$	54,213	$	2,373	$	56,586

Timing of Revenue Recognition
Transferred at a point in time where the Company is principal (1)	$	102,333	$	7,249	$	109,582	$	49,838	$	2,159	$	51,997
Transferred at a point in time where the Company is agent (2)		9,146		478		9,624		4,375		214		4,589
Total net sales	$	111,479	$	7,727	$	119,206	$	54,213	$	2,373	$	56,586

(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, 2021 and December 31, 2020 were as follows.


	June 30,		December 31,
Identifiable Assets by Geographic Areas	2021		2020
USA	$	108,515	$	114,126
Canada		20,506		18,514
Europe and United Kingdom		20,537		13,301
Unallocated		20,333		19,592
Total	$	169,891	$	165,533

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Six months ended

Three months ended

(Unaudited)

(Unaudited)

Disaggregation of Revenue:

June 30,

June 30,

June 30,

June 30,

2020

2019

2020

2019

Climb Channel Solutions

Hardware, software and other products

$
102,332

$
78,660

$
49,838

$
42,807

Software - security & highly interdependent with support

3,733

3,494

1,807

1,656

Maintenance, support & other services

5,414

5,222

2,568

2,857

Net Sales

$
111,479

$
87,376

$
54,213

$
47,320

TechXtend

Hardware, software and other products

$
7,248

$
7,314

$
2,159

$
2,977

Software - security & highly interdependent with support

47

126

19

71

Maintenance, support & other services

432

718

195

308

Net Sales

$
7,727

$
8,158

$
2,373

$
3,356

17. Related Party Transactions:

The Company made sales to a customer where a member of our Board of Directors is an executive. During the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, net sales to this customer totaled approximately $0.1 ~~million.~~million, respectively. During the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, net sales to this customer totaled approximately $0.2 million and $0.1 ~~million.~~million, respectively. Amounts due from this customer as of June 30, ~~2020~~2021 and December 31, ~~2019 was zero and less than~~2020 were approximately $0.1 million, respectively, which were settled in cash subsequent to each period end.

18. Unsolicited Bid and Shareholder Demand:

On July 15, 2019, the Company received a letter from Shepherd Kaplan Krochuk, LLC (“SKK”) and North & Webster SSG, LLC (“N&W”) announcing an unsolicited bid to acquire the Company for $14.37 per share (the “July 15 Proposal”), which reflected an approximate 32.8% premium over the Company’s adjusted closing stock price on July 12, 2019, one trading day earlier. The July 15 Proposal was subject to a number of contingencies, including the need for SKK and N&W to secure financing to complete a transaction. On August 23, 2019, the Company received another unsolicited offer from SKK and N&W, proposing to acquire the Company for $16.38 per share (the “August 23 Proposal”), which reflected an approximate 18.1% premium over the Company’s closing stock price one day earlier, and requesting members of the Board and management to enter into voting and support agreements in connection with the execution of a definitive merger agreement. The August 23 Proposal, similar to the July 15 Proposal, was subject to a number of contingencies, including the need for SKK and N&W to secure financing to complete a transaction.

On November 27, 2019, SKK, N&W, and Messrs. Shepherd, Kaplan, Krochuk and Kidston (collectively, the “SKK 13D Group”) entered into a Joint Filing Agreement and filed a Schedule 13D with the SEC, disclosing an aggregate 5.8% ownership stake in the Company. Also on November 27, 2019, Mr. Nynens entered into an agreement with SKK and N&W (the “November 27 Agreement”), granting SKK an irrevocable proxy to vote his shares of Common Stock (i) in favor of any acquisition proposal by SKK, (ii) against any third-party acquisition, and (iii) as directed by SKK with respect to the election of directors nominated by persons other than the Company. The November 27 Agreement also provides that, upon the consummation of the acquisition by an SKK-controlled entity of up to 100% of the outstanding capital stock of the Company, Nynens be appointed as Executive Chairman of the Company at an annual base salary of $250,000 in addition to stock option grants or comparable equity awards representing three percent (3%) of the outstanding equity of the Company, and for a minimum term of three (3) years.

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On December 20, 2019, Mr. Nynens delivered a nomination notice to the Company regarding his intent to nominate Kim J. McCauley, Delynn Copley, Dennis M. Crowley, III and Nilesh Shah at the Meeting (the “Nomination Notice”).

On December 23, 2019, the SKK 13D Group filed Amendment No. 2 to its Schedule 13D disclosing the Nomination Letter and stating that it sought to engage in discussions with the Company’s management and Board about its composition, the Company’s financial position and other means of enhancing stockholder value, including the potential sale of the Company. Mr. Nynens filed Amendment No. 3 to his Schedule 13D, disclosing and stating the same.

On January 22, 2020, the Company received a letter from one of its stockholders demanding that the Board investigate and bring an action against Mr. Nynens for breaches of certain restrictive covenants contained in his Separation and Release Agreement, dated May 11, 2018 (the “Nynens Separation Agreement”), including his covenant not to seek future employment with the Company (the “Shareholder Derivative Demand”).

On February 11, 2020, after considering the proposals with its financial advisers, the Board responded to SKK and N&W that the expired proposal received on December 10, 2019 would not have been in the best interests of the Company’s stockholders because it undervalues the Company, and did not serve as a basis for further diligence or discussion.

On February 14, 2020, after conducting an investigation, and in response to the Shareholder Derivative Demand, the Company filed a lawsuit (the “Lawsuit”) against Mr. Nynens, SKK, and N&W in the Superior Court of New Jersey Monmouth County, asserting claims against Mr. Nynens for alleged breaches of the Nynens Separation Agreement, including for violating his covenant not to seek future employment with the Company, and claims for tortious interference against SKK and N&W for inducing Mr. Nynens to commit these breaches. In connection with its claims, the Company sought monetary damages, injunctive relief and a declaratory judgment.

On April 16, 2020 (the “Effective Date”), the Company entered into a Settlement Agreement (the “Settlement Agreement”) with ~~Mr.~~Simon Nynens, ~~SKK, N&W,~~Shepherd Kaplan Krochuk, LLC, North & Webster SSG, LLC, and each of Dennis Crowley, David Shepherd, David Kaplan, Timothy Krochuk and Samuel Kidston ~~(collectively with SKK~~relating to an unsolicited bid and ~~N&W, the “SKK Parties”).~~shareholder demand. Pursuant to the Settlement Agreement, the Company ~~agreed to voluntarily dismiss the Lawsuit with prejudice, and it did so on April 21, 2020. The Company also~~ agreed to purchase all of Mr. Nynens’ 261,631 shares of the Common Stock owned, of record or beneficially, as of the Effective Date, at ~~a price set by calculating~~fair market value, as defined in the volume-weighted average price of such shares trading on the NASDAQ Global Market for the ten trading days ending on the close of the trading day immediately preceding the Effective Date, and with each party paying for its own fees and expenses. As of the Effective Date, Mr. Nynens and the SKK Parties agreed to terminate November 27 Agreement and did so on April 16, 2020. Further, the SKK Parties agreed to terminate the Joint Filing Agreement, dated November 27, 2019, by and between Mr. Nynens and the SKK Parties, and did so on April 16, 2020. Additionally, as of the Effective Date, Mr. Nynens agreed to withdraw the notice of intent to nominate director candidates for election at the 2020 annual meeting of stockholders of the Company, submitted by Mr. Nynens on December 20, 2019, and to cease all solicitation of proxies and other activities in connection with such annual meeting, and Mr. Nynens did so on April 16, 2020. agreement.

On April 23, 2020, the Company purchased all of Nynens’ 261,631 shares of Common Stock at $13.19 per share pursuant to the Settlement Agreement, representing approximately 5.8% of the issued and outstanding Common Stock of the Company, for an aggregate purchase price of $3.5 million.

~~19.~~ ~~Contingencies:~~

As part of the evaluation of an unsolicited offer to purchase the Company, nomination of directors by a shareholder, and shareholder demand to investigate a potential breach in a separation agreement, theThe Company incurred ~~approximately~~0 and $0.5 million in legal and advisory expenses, net during the three months ended June 30, 2021 and 2020, respectively, related to the above matter. The Company incurred 0 and $1.8 million in legal and advisory expenses, net during the ~~three and~~ six months ended June 30, 2021 and 2020, ~~respectively. In connection with this~~respectively, related to the Company made certain claims for reimbursement under its insurance policies. As of June 30, 2020, reimbursement for insurance proceeds under these policies have not been recorded as they have not been realized.above matter.

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~~20.~~

19. Risks and Uncertainties Related to the COVID-19 Pandemic:

In March 2020, the World Health Organization declared the novel coronavirus, COVID-19, a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. While the Company offers a full suite of solutions and services that address customer priorities across the technology landscape, it is not possible for the Company to predict the duration or magnitude of adverse results of the outbreak and its effects on the Company’s business, liquidity or results of operations at this time. As a result, many of the estimates and assumptions used in preparation of these interim financial statements required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to the pandemic, the Company’s estimates may materially change in future periods.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of risk and uncertainties, including those set forth under the heading “Forward Looking Statements” and ~~“Item 1A. Risk Factors” 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, ~~2019,~~2020, filed with the Securities and Exchange Commission on March ~~4, 2020.~~16, 2021. 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 ~~2019~~2020 Annual Report on Form 10-K.

Overview

Wayside Technology Group, Inc. (the “Company,” “we,” “our,” or “us”) ~~distributes~~is a value added IT distribution and solutions company, primarily selling software and ~~hardware developed by others~~other third-party IT products and services through two reportable operating segments. Through our “Distribution” segment we sell products and services to corporate resellers, ~~indirectly~~value added resellers (VARs), consultants and systems integrators worldwide, who in turn sell these products to ~~customers worldwide. We also resell~~end users. Through our “Solutions” segment we act as a cloud solutions provider and value-added reseller, selling computer software and hardware developed by others and provide technical services directly to end user customers ~~in the United States 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, direct e-mail, and printed materials.

The Company is organized into two reportable operating segments. The “Climb Channel Solutions” segment (formerly Lifeboat Distribution) distributes technical software and hardware 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.

COVID-19

We are closely monitoring the impact of the 2019 novel coronavirus, or COVID-19, pandemic on all aspects of our business. COVID-19 has resulted and will continue to result in significant economic disruption, which could also impact our business.

In the first quarter of 2020, we took a number of precautionary measures designed to help minimize the risk of the spread of the virus to our employees, including temporarily closing our offices and requiring all employees to work remotely.

While we did not incur significant disruptions to our operations during the three ~~months~~ and six months ended June 30, ~~2020~~2021 as a result of the COVID-19 pandemic, we are unable to predict the impact that the COVID-19 pandemic will have on our business, liquidity or results of operations at this time.

This situation is changing rapidly, and additional impacts may arise that we are not aware of currently. ~~For~~We will continue to actively monitor the situation and may take further ~~information regarding~~actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the ~~impact~~best interests of ~~COVID-19, see Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q.~~our employees, customers and shareholders.

Factors Influencing Our Financial Results

We derive the majority of our net sales though the sale of third-party software licenses, maintenance and service agreements. In our ~~Climb Channel Solutions~~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 ~~on adjusted gross billings~~ 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,

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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.

~~Table~~Gross profit is calculated as net sales less cost of ~~Contents~~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.

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 $0.7 million and $0.1 million during the three months ended June 30, 2021. Total dividends paid and shares repurchased were $0.7 million and $3.5 million, which ~~includes~~included 261,631 shares of our outstanding common stock repurchased for $3.5 million in accordance with the Settlement Agreement, during the three months ended June 30, 2020. ~~Total dividends paid and shares repurchased were $0.8 million and less than $0.1 million during the three months ended June 30, 2019, respectively.~~ 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 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, par value $0.01 per share (“Common Stock”). Furthermore, the potential adverse effect of the current pandemic of COVID-19, 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” within the meaning of Section 21E 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 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,” “plan,” “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 to have been correct. ~~Substantial~~Because these forward-looking statements are subject to risks and uncertainties, ~~unknown at this time could cause~~ actual results tocould differ materially from those indicated by such forward-looking ~~statements, including,~~statements. These risks and uncertainties include, but are not limited to, the continued acceptance of the Company’s distribution channel by vendors and customers, the timely availability and acceptance of new products, product mix, market conditions, competitive pricing pressures, contribution of key vendor relationships and support programs, including vendor rebates and discounts, as well as factors that affect the software industry in general and other factors generally. Currently, one of the most significant factors is the potential adverse effect of the current COVID-19 pandemic ~~of COVID-19~~ on the Company, the global economy and financial markets. The extent to which COVID-19 impacts the Company will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, including the impact on our reseller partners and the end customer markets they serve, among others. We strongly urge current and prospective investors to carefully consider the cautionary statements and

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risk factors contained in this report and our annual report on Form 10-K for the year ended December 31, ~~2019~~2020 filed with the Securities and Exchange Commission on March ~~4, 2020.~~16, 2021.

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

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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 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, whether as a result of new information, future events or otherwise.

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 ~~12%~~33%, or ~~$5.9~~$18.8 million, to ~~$56.6~~$75.4 million for the three months ended June 30, ~~2020~~2021 compared to ~~$50.7~~$56.6 million for the same period in the prior year. Gross profit ~~decreased 9%~~increased 54%, or ~~$0.7~~$3.9 million, to ~~$7.1~~$11.0 million for the three months ended June 30, ~~2020~~2021 compared to ~~$7.8~~$7.1 million for the same period in the prior year. Selling, general and administrative (“SG&A”) expenses ~~for the three months ended June 30, 2020~~ increased 2%49%, or ~~$0.1~~$2.7 million, to ~~$5.6~~$8.1 million for the three months ended June 30, ~~2020~~2021 compared to $5.5 million for the same period in the prior year. ~~Legal~~Amortization and ~~financial advisory expenses – unsolicited bid and related matters~~depreciation expense increased 178%, or $0.3 million, to $0.4 million for the three months ended June 30, ~~2020 were $0.5 million~~2021 compared to ~~no expense for the same period in the prior year. Acquisition related costs for the three months ended June 30, 2020 were $0.2~~$0.1 million ~~compared to no expense~~ for the same period in the prior year. Net income for the three months ended June 30, ~~2020~~2021 was ~~$0.6~~$2.1 million compared to ~~$1.9~~$0.6 million for the same period in the prior year. Diluted income per share for the three months ended June 30, ~~2020~~2021 was ~~$0.13~~$0.49 compared to ~~$0.41~~$0.13 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.

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.

Revenue

The Company ~~makes estimates~~utilizes judgment regarding performance obligations inherent in the products ~~and~~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 ~~judgement~~judgment 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 ~~judgement~~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.

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Allowance 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 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

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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. If actual sales returns are greater than estimated by management, additional expense may be incurred.

Accounts Receivable – Long Term

~~In limited circumstances, the Company offers extended payment terms to customers for periods of 12 to 48 months.~~ The ~~related customer receivables are classified as~~Company’s accounts receivable long-term ~~and~~are discounted to their present value at prevailing market rates at the time of sale. In subsequent periods, the accounts receivable 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 under these long-term accounts receivable due within one year are reclassified to the current portion of accounts receivable. At timesdoing so, the Company sells receivables to a financial institution on a non-recourse basis for cash, less a discount. The net proceeds from such sales are included in the operating section of the statement of cash flows as changes in accounts receivable.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.

~~Acquisition Accounting~~Business Combinations

~~We allocate the purchase price of an acquired~~The Company accounts for business combinations using the acquisition method of accounting, which allocates the fair value of the purchase consideration to ~~its~~the tangible and ~~identifiable~~ intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase ~~price~~consideration over the fair ~~value~~values of ~~net~~these identifiable assets ~~acquired~~and liabilities is recorded as goodwill. ~~Certain assumptions~~When determining the fair values of assets acquired and ~~judgements~~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 ~~used~~subject to ~~estimate~~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 ~~acquired assets and liabilities. We engage outside appraisal firms~~a reporting unit below its carrying amount.

In a qualitative assessment, we assess qualitative factors to ~~assist in~~determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value ~~determination~~ of ~~identifiable~~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. ~~We may adjust~~If the ~~preliminary purchase price allocation, after~~Company were to determine that a change to the ~~acquisition closing date and through~~remaining estimated useful life of an intangible asset was necessary, then the ~~end~~remaining carrying amount of the measurement period of one year or less, as we finalize the valuation of acquired assets and liabilities. Changes in estimates used in the preliminary purchase price allocation could have a material effect on the final valuation and result in changes to goodwill and intangible ~~assets. Additionally, if forecasts supporting the valuation of intangible assets or goodwill are not achieved, then an impairment charge could~~asset would be ~~recorded.~~amortized prospectively over that revised remaining useful life.

~~See further information on acquisition accounting in Notes 7 to the Consolidated Financial Statements in Item 1 of this report.~~

Income Taxes

The Company considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for 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 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. The fair value of forward purchase contracts at June 30, 2021 was not material to the consolidated financial statements.

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.

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Recently Issued Accounting Pronouncements

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currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its Consolidated Financial Statements, particularly its recognition of allowances for accounts receivable.

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:


	Six months ended				Three months ended				Six months ended				Three months ended
	June 30,				June 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	87.2		84.2		87.4		84.6		84.2		87.2		85.4		87.4
Gross profit	12.8		15.8		12.6		15.4		15.8		12.8		14.6		12.6
Selling, general and administrative expenses	9.3		11.6		9.9		11.0		12.0		9.1		10.8		9.7
Legal and financial advisory expenses - unsolicited bid and related matters	1.5		—		0.9		—
Legal and financial advisory expenses, net - unsolicited bid and related matters									—		1.5		—		0.9
Acquisition related costs	0.5		—		0.4		—		—		0.5		—		0.4
Amortization and depreciation expense									0.6		0.2		0.5		0.3
Income from operations	1.4		4.2		1.3		4.4		3.2		1.4		3.2		1.3
Other income	0.3		0.4		0.3		0.3
Other (expense) income									0.2		0.3		0.4		0.3
Income before income taxes	1.7		4.6		1.7		4.7		3.4		1.7		3.7		1.7
Income tax provision	0.5		1.1		0.6		1.1		0.8		0.5		0.8		0.6
Net income	1.2	%	3.5	%	1.0	%	3.7	%	2.7	%	1.2	%	2.8	%	1.0	%

Key Operating Metrics

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

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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				Six months ended				Three months ended
	June 30,		June 30,		June 30,		June 30,		June 30,		June 30,		June 30,		June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

Net sales	$	119,206	$	95,534	$	56,586	$	50,676	$	138,163	$	119,206	$	75,350	$	56,586
Adjusted gross billings (Non-GAAP)	$	331,838	$	284,461	$	158,738	$	142,594	$	445,981	$	331,838	$	235,120	$	158,738

Gross profit	$	15,279	$	15,053	$	7,114	$	7,819	$	21,822	$	15,279	$	10,979	$	7,114
Gross profit - Climb Channel Solutions	$	13,806	$	13,322	$	6,643	$	7,124
Gross profit - TechXtend	$	1,473	$	1,731	$	471	$	695
Gross profit - Distribution									$	16,688	$	13,806	$	8,814	$	6,643
Gross profit - Solutions									$	5,134	$	1,473	$	2,165	$	471

Adjusted EBITDA (Non-GAAP)	$	5,209	$	4,989	$	2,087	$	2,732	$	6,158	$	5,209	$	3,512	$	2,087

Gross margin % - Adjusted gross billings (Non-GAAP)		4.6%		5.3%		4.5%		5.5%		4.9%		4.6%		4.7%		4.5%
Effective margin % - Adjusted EBITDA (Non-GAAP)		34.1%		33.1%		29.3%		34.9%		28.2%		34.1%		32.0%		29.3%

We consider gross profit growth and effective margin to be key metrics in evaluating our business. During the ~~six~~three months ended June 30, ~~2020,~~2021, gross profit increased 1%54%, or ~~$0.2~~$3.9 million, to ~~$15.3~~$11.0 million compared to ~~$15.1~~$7.1 million for the same period in the prior year while effective margin increased ~~100 basis points~~ to ~~34.1%~~32.0% compared to ~~33.1%~~29.3% for the same period in ~~2019, reflecting~~ the ~~scalability~~prior year. During the six months ended June 30, 2021, gross profit increased 43%, or $6.5 million, to $21.8 million

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compared to $15.3 million for the same period in ~~our business model.~~the prior year while effective margin decreased to 28.2% compared to 34.1% for the same period in the prior year.

Reconciliations of Non-GAAP Financial Measures


	Six months ended				Three months ended				Six months ended				Three months ended
	June 30,		June 30,		June 30,		June 30,		June 30,		June 30,		June 30,		June 30,
Reconciliation of net sales to adjusted gross billings (Non-GAAP):	2020		2019		2020		2019		2021		2020		2021		2020

Net sales	$	119,206	$	95,534	$	56,586	$	50,676	$	138,163	$	119,206	$	75,350	$	56,586
Costs of sales related to Software – security and highly interdependent with support and maintenance, support or other services		212,632		188,927		102,152		91,918
Costs of sales related to sales where the Company is an agent										307,818		212,632		159,770		102,152
Adjusted gross billings	$	331,838	$	284,461	$	158,738	$	142,594	$	445,981	$	331,838	$	235,120	$	158,738

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We define adjusted gross billings as net sales in accordance with US GAAP, adjusted for the cost of sales related to ~~Software – security and highly interdependent with support and maintenance, support and other services.~~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				Six months ended				Three months ended
	June 30,		June 30,		June 30,		June 30,		June 30,		June 30,		June 30,		June 30,
Net income reconciled to adjusted EBITDA:	2020		2019		2020		2019		2021		2020		2021		2020

Net income	$	1,417	$	3,319	$	581	$	1,857	$	3,664	$	1,417	$	2,144	$	581
Provision for income taxes		641		1,035		362		548		1,046		641		615		362
Depreciation and amortization		239		261		143		126
Amortization and depreciation										796		239		398		143
Interest expense		41		40		24		32		36		41		18		24
EBITDA		2,338		4,655		1,110		2,563		5,542		2,338		3,175		1,110
Share-based compensation		400		334		233		169		616		400		337		233
Legal and financial advisory expenses - unsolicited bid and related matters		1,833		-		509		-
Legal and financial advisory expenses, net - unsolicited bid and related matters										-		1,833		-		509
Acquisition related costs		638		-		235		-		-		638		-		235
Adjusted EBITDA	$	5,209	$	4,989	$	2,087	$	2,732	$	6,158	$	5,209	$	3,512	$	2,087

We define adjusted EBITDA, as net income, plus provision for income taxes, depreciation, amortization, share-based compensation, interest, legal and financial advisory expenses, net – unsolicited bid and related matters and acquisition related costs. 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 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.

~~Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019~~

~~Acquisition~~Acquisitions

On April 30, 2020 we completed the acquisition of Interwork Technologies Inc. (“Interwork”) for a purchase price of $3.6 million, subject to certain working capital adjustments, and a potential earnout of $0.8 million payable approximately one year after the acquisition date. The operating results of Interwork are included in our operating results effective May 1, 2020. ~~See further information on~~

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On November 6, 2020 we completed the acquisition ~~accounting~~of CDF Group Limited (“CDF”) for a purchase price of $17.4 million, subject to certain working capital adjustments. The operating results of CDF are included in ~~Note 6~~our operating results effective November 7, 2020.

Operating results of Interwork are included in our Distribution segment. Operating results of CDF are included in either our Distribution segment or Solutions segment.

Three Months Ended June 30, 2021 Compared to ~~the Consolidated Financial Statements in Item 1 of this report.~~Three Months Ended June 30, 2020

Net Sales and Adjusted Gross Billings

Net sales for the three months ended June 30, ~~2020~~2021 increased ~~12%~~33%, or ~~$5.9~~$18.8 million, to ~~$56.6~~$75.4 million compared to ~~$50.7~~$56.6 million for the same period in the prior year. Adjusted gross billings for the three months ended June 30, ~~2020~~2021 increased ~~11%~~48%, or ~~$16.1~~$76.4 million, to ~~$158.7~~$235.1 million compared to ~~$142.6~~$158.7 million for the same period in the prior year. Adjusted gross billings increased at a faster rate than net sales due to shift in product mix from hardware sales, which are recorded on a gross basis, to security, maintenance and cloud products which are recorded net of related cost of sales.

~~Climb Channel Solutions~~Distribution segment net sales for the three months ended June 30, ~~2020~~2021 increased ~~15%~~29%, or ~~$6.9~~$15.7 million, to $69.9 million compared to $54.2 million for the same period in the prior year. Adjusted gross billings for the Distribution segment for the three months ended June 30, 2021 increased 42%, or $64.6 million, to $219.4 million compared to ~~$47.3~~$154.8 million for the same period in the prior year. The increase in net sales and adjusted gross billings in our Distribution segment was primarily due to ~~sales from~~the impact of the Interwork ~~for the two months ended June 30, 2020~~ and ~~incremental sales from new vendor~~

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relationships added in 2018 and 2019. These increases in sales were partially offset by a decline in sales from several of our larger established vendor partner lines. Adjusted gross billings for the Climb Channel Solutions segmentCDF acquisitions for the three months ended June 30, ~~2020 increased 13%, or $18.0 million, to $154.8 million compared to $136.8 million for the same period in the prior year.~~2021.

~~TechXtend~~Solutions segment net sales for the three months ended June 30, ~~2020 decreased 29%~~2021 increased 131%, or ~~$1.0~~$3.1 million, to ~~$2.4~~$5.5 million compared to ~~$3.4~~$2.4 million for the same period in the prior year. ~~Sales in our TechXtend segment may vary significantly from quarter to quarter based on the timing of IT spending decisions by our larger customers.~~ Adjusted gross billings for the ~~TechXtend~~Solutions segment for the three months ended June 30, ~~2020 decreased 32%~~2021 increased 298%, or ~~$1.9~~$11.8 million, to ~~$3.9~~$15.7 million compared to ~~$5.8~~$3.9 million for the same period in the prior year. The increase in net sales and adjusted gross billings in our Solutions segment was primarily due to the impact of the CDF acquisition for the three months ended June 30, 2021.

During the three months ended June 30, ~~2020,~~2021, we relied on two key customers for a total of ~~47%~~34% of our net sales, with ~~one of these customers accounting for 29% and the other~~each customer accounting for ~~18%~~17% of our total net sales. The Company had two major customers that accounted for ~~27%~~29% and 18%, respectively, of its total net sales during the three months ended June 30, ~~2019.~~2020. The Company had two major vendors that accounted for 18% and 12%, respectively, of total purchases during the three months ended June 30, 2021 and 16% and 10%, respectively, of total purchases during the three months ended June 30, ~~2020 and 22% and 15%, respectively, of total purchases during the three months ended June 30, 2019.~~2020.

Gross Profit

Gross profit for the three months ended June 30, ~~2020 decreased 9%~~2021 increased 54%, or ~~$0.7~~$3.9 million, to $7.1 million compared to $7.8 million for the same period in the prior year. Climb Channel Solutions segment gross profit for the three months ended June 30, 2020 decreased 7%, or $0.5 million, to $6.6$11.0 million compared to $7.1 million for the same period in the prior year. The decrease in Climb Channel Solutions segment gross profit was impacted by three factors; 1) a decrease of approximately $0.4 million in income from non-routine items such as marketing events, rebates and early pay discounts, 2) early pay discounts of $0.3 million offered to a large customer in exchange for a change in payment terms (see Liquidity and Capital Resources section below), and 3) a decrease in sales from several of our larger established vendor lines discussed above. TechXtend

Distribution segment gross profit for the three months ended June 30, ~~2020 decreased 32%~~2021 increased 33%, or ~~$0.2~~$2.2 million, to ~~$0.5~~$8.8 million compared to ~~$0.7~~$6.6 million for the same period in the prior year. The increase in Distribution segment gross profit resulted primarily from the impact of the acquisitions of Interwork and CDF, partially offset by higher early pay discounts and other rebates and discounts offered to our customers.

Solutions segment gross profit for the three months ended June 30, 2021 increased 360%, or $1.7 million, to $2.2 million compared to $0.5 million for the same period in the prior year. The increase in Solutions segment gross profit resulted primarily from increased sales from the acquisition of CDF.

Customer rebates and discounts for the three months ended June 30, ~~2020~~2021 were ~~$1.3~~$2.5 million compared to ~~$0.8~~$1.3 million for the same period in the prior year. This increase is ~~primarily~~ attributable to a change in payment terms with one of our larger customers during the ~~three months ended June 30, 2020.~~second quarter of 2020, which resulted in a cash inflow of approximately $30 million from the date the program was implemented, as well as increased rebates and discounts to national resellers. Customer rebates and discounts ~~are dependent~~vary based on ~~reaching certain targets we set~~terms of rebate and early pay discount programs offered to customers and timing of payments byultimately received from our customers.

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Vendor rebates and discounts for the three months ended June 30, ~~2020~~2021 were ~~$0.9~~$1.1 million compared to ~~$1.0~~$0.9 million for the same period 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. 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 three months ended June 30, ~~2020~~2021 increased 2%49%, or ~~$0.1~~$2.7 million, to ~~$5.6~~$8.1 million ~~for the three months ended June 30, 2020~~ compared to $5.5 million for the same period in the prior ~~year.~~year, primarily due to the impact of the acquisition of CDF and Interwork, as well as $0.2 million of employee separation expenses. SG&A expenses were ~~9.8%~~10.8% of net sales for the three months ended June 30, ~~2020,~~2021, compared to ~~10.8%~~9.7% for the same period in the prior year. SG&A expenses include expenses from Interwork for the two months ended June 30, 2020. Our intent is to integrate the administrative functions of the two organizations during the third and fourth quarter of 2020.

The Company expects that its SG&A expenses, as a percentage of net sales, 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 business development, sales and marketing to maximize our market penetration.

Amortization and Depreciation Expense

Amortization and depreciation expense for the three months ended June 30, 2021 increased 178%, or $0.3 million, to $0.4 million compared to $0.1 million for the same period in the prior year, primarily due to the amortization of intangible assets acquired in the Interwork and CDF acquisitions.

Legal and Financial Advisory Expenses, Net – Unsolicited Bid and Related Matters

~~Legal~~There were no legal and financial advisory expenses, net – unsolicited bid and related matters ~~for~~incurred during the three months ended June 30, ~~2020 were~~2021 compared to $0.5 million for the same period in the prior year.

Acquisition Related Costs

There were no acquisition related costs incurred during the three months ended June 30, 2021 compared to ~~no expense~~$0.2 million for the same period in the prior year. ~~These expenses relate to the~~Acquisition related costs incurred in ~~conjunction with the unsolicited bid and shareholder demand discussed below.~~

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~~Acquisition Related Costs~~

~~Acquisition related costs for the three months ended June 30, 2020 were $0.2 million compared to no expense for the same period in~~ the prior ~~year. These expenses relate to costs incurred~~year were in conjunction with the acquisition of ~~Interwork discussed below.~~Interwork.

Income Taxes

For the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recorded a provision for income taxes of ~~$0.4~~$0.6 million and ~~$0.5~~$0.4 million, respectively. The effective tax rate for the three months ended June 30, 2021 and 2020 was 22.3% and ~~2019 was~~ 38.4% ~~and 22.8%~~, respectively. The ~~Company’s~~change in the effective tax rate for the three months ended June 30, ~~2020~~2021 compared to the same period in the prior year is a result of changes in the mix of jurisdictions in which taxable income was ~~impacted by~~earned and limitations on the deductibility of certain facilitative acquisition related ~~costs.~~costs in the prior year.

Six Months Ended June 30, ~~2020~~2021 Compared to Six Months Ended June 30, ~~2019~~2020

Net Sales and Adjusted Gross Billings

Net sales for the six months ended June 30, ~~2020~~2021 increased ~~25%~~16%, or ~~$23.7~~$19.0 million, to ~~$119.2~~$138.2 million compared to ~~$95.5~~$119.2 million for the same period in the prior year. Adjusted gross billings for the six months ended June 30, ~~2020~~2021 increased ~~17%~~34%, or ~~$47.4~~$114.2 million, to ~~$331.8~~$446.0 million compared to ~~$284.5~~$331.8 million for the same period in the prior year. ~~Net sales~~Adjusted gross billings increased at a ~~higher~~faster rate than ~~adjusted gross billings~~net sales due to ~~a higher percentage of~~shift in product mix from hardware sales, ~~being derived from software licenses and hardware,~~ which isare recorded on a gross basis, to security, maintenance and cloud products which are recorded net of related cost of sales.

Distribution segment net sales for the six months ended June 30, ~~2020, when~~2021 increased 12%, or $13.2 million, to $124.7 million compared to $111.5 million for the same period in the prior year. Adjusted gross billings for the Distribution segment for the six months ended June 30, 2021 increased 29%, or $92.1 million, to $412.8 million compared to $320.7 million for the same period in the prior year primarily due to the impact of the acquisitions of Interwork and CDF.

~~Climb Channel~~ 29

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Solutions segment net sales for the six months ended June 30, ~~2020~~2021 increased ~~28%~~74%, or ~~$24.1~~$5.8 million, to ~~$111.5~~$13.5 million compared to ~~$87.4~~$7.7 million for the same period in the prior year. The increase in net sales in our Solutions segment was primarily due to sales from ~~new vendor partners added in 2018 and 2019 and~~ the ~~results of Interwork~~CDF acquisition for the ~~two~~six months ended June 30, ~~2020.~~2021. Adjusted gross billings for the ~~Climb Channel~~ Solutions segment for the six months ended June 30, ~~2020~~2021 increased ~~18%~~197%, or ~~$49.5~~$22.1 million, to ~~$320.6~~$33.2 million compared to ~~$271.1~~$11.2 million for the same period in the prior year.

TechXtend segment net sales for the six months ended June 30, 2020 decreased 5%, or $0.4 million, to $7.7 million compared to $8.1 million for the same period in the prior year. Sales in our TechXtend segment may vary significantly from quarter to quarter based on the timing of IT spending decisions by our larger customers. Adjusted gross billings for the TechXtend segment for the six months ended June 30, 2020 decreased 16%, or $2.1 million, to $11.2 million compared to $13.3 million for the same period in the prior year.

During the six months ended June 30, ~~2020,~~2021, we relied on two key customers for a total of ~~47%~~34% of our net sales, with ~~one of these customers accounting for 29% and the other~~each customer accounting for ~~18%~~17% of our total net sales. The Company had two major customers that accounted for ~~26%~~29% and 18%, respectively, of its total net sales during the six months ended June 30, ~~2019.~~2020. The Company had two major vendors that accounted for 21% and 9%, respectively, of total purchases during the six months ended June 30, 2021 and 19% and 10%, respectively, of total purchases during the six months ended June 30, ~~2020 and 25% and 15%, respectively, of total purchases during the six months ended June 30, 2019.~~2020.

Gross Profit

Gross profit for the six months ended June 30, ~~2020~~2021 increased 1%43%, or ~~$0.2~~$6.5 million, to ~~$15.3~~$21.8 million compared to ~~$15.1~~$15.3 million for the same period in the prior year. ~~Climb Channel Solutions~~

Distribution segment gross profit for the six months ended June 30, ~~2020~~2021 increased 4%21%, or ~~$0.5~~$2.9 million, to ~~$13.8~~$16.7 million compared to ~~$13.3~~$13.8 million for the same period in the prior year. The increase in ~~Climb Channel Solutions~~Distribution segment gross profit resulted primarily from ~~sales growth attributable to new vendor partners and~~ the ~~acquisition~~impact of the acquisitions of Interwork ~~discussed above,~~and CDF, partially offset by higher early pay discounts and ~~lower sales from some established vendor partner lines. TechXtend~~other rebates and discounts offered to our customers. The increase in early pay discounts was impacted by a change in payment terms with one of our larger customers during the second quarter of 2020.

Solutions segment gross profit for the six months ended June 30, ~~2020 decreased 15%~~2021 increased 248%, or ~~$0.3~~$3.6 million, to ~~$1.5~~$5.1 million compared to ~~$1.8~~$1.5 million for the same period in the prior year. The increase in Solutions segment gross profit resulted primarily from increased sales from the acquisition of CDF.

Customer rebates and discounts for the six months ended June 30, ~~2020~~2021 were ~~$2.4~~$4.5 million compared to ~~$1.6~~$2.4 million for the same period in the prior year. This increase is attributable to a change in payment terms with one of our larger

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customers during the ~~three months ended June 30,~~second quarter of 2020, which resulted in a cash inflow of approximately $30 million from the date the program was implemented, as well as increased rebates and discounts to national resellers. 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 ~~other larger customers. Customer rebates and discounts are dependent on reaching certain targets we set and timing of payments by~~ our customers.

Vendor rebates and discounts for the six months ended June 30, 2021 and 2020 were $1.9 million, ~~compared to $1.7 million for the same period in the prior year.~~respectively. Vendor rebates are dependent on programs offered by our vendors and in some cases reaching certain volume targets set 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 six months ended June 30, ~~2020~~2021 increased 1%52%, or ~~$0.1~~$5.7 million, to ~~$11.1~~$16.6 million compared to ~~$11.0~~$10.9 million for the same period in the prior ~~year.~~year, primarily due to the impact of the acquisition of CDF and Interwork, as well as $0.5 million of employee separation expenses. SG&A expenses were ~~9.3%~~12.0% of net sales for the six months ended June 30, ~~2020,~~2021, compared to ~~11.5%~~9.1% for the same period in the prior year. SG&A expenses include expenses from Interwork for the two months ended June 30, 2020. Our intent is to integrate the administrative functions of the two organizations during the third and fourth quarter of 2020.

Amortization and Depreciation Expense

Amortization and depreciation expense for the six months ended June 30, 2021 increased 233%, or $0.6 million, to $0.8 million compared to $0.2 million for the same period in the prior year, primarily due to the amortization of intangible assets acquired in the Interwork and CDF acquisitions.

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Legal and Financial Advisory Expenses, Net – Unsolicited Bid and Related Matters

~~Legal~~There were no legal and financial advisory expenses, net – unsolicited bid and related matters ~~for~~incurred during the six months ended June 30, ~~2020 were~~2021 compared to $1.8 million for the same period in the prior year.

Acquisition Related Costs

There were no acquisition related costs incurred during the six months ended June 30, 2021 compared to ~~no expense~~$0.6 million for the same period in the prior year. ~~These expenses relate to the~~Acquisition related costs incurred in ~~conjunction with the unsolicited bid and shareholder demand discussed below.~~

~~Acquisition Related Costs~~

~~Acquisition related costs for the six months ended June 30, 2020 were $0.6 million compared to no expense for the same period in~~ the prior ~~year. These expenses relate to costs incurred~~year were in conjunction with the acquisition of ~~Interwork discussed below.~~Interwork.

Income Taxes

For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recorded a provision for income taxes of ~~$0.6~~$1.0 million and ~~$1.0~~$0.6 million, respectively. The effective tax rate for the six months ended June 30, 2021 and 2020 was 22.2% and ~~2019 was 31.2% and 23.8%~~31.1%, respectively. The ~~Company’s~~change in the effective tax rate for the six months ended June 30, ~~2020~~2021 compared to the same period in the prior year is a result of changes in the mix of jurisdictions in which taxable income was ~~impacted by~~earned and limitations on the deductibility of certain facilitative acquisition related ~~costs.~~

~~Unsolicited Bid and Shareholder Demand~~

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of directors nominated by persons other than the Company. The November 27 Agreement also provides that, upon the consummation of the acquisition by an SKK-controlled entity of up to 100% of the outstanding capital stock of the Company, Nynens be appointed as Executive Chairman of the Company at an annual base salary of $250,000 in addition to stock option grants or comparable equity awards representing three percent (3%) of the outstanding equity of the Company, and for a minimum term of three (3) years.prior year.

On April 16, 2020 (the “Effective Date”), the Company entered into a Settlement Agreement (the “Settlement Agreement”) with Mr. Nynens, SKK, N&W, and each of Dennis Crowley, David Shepherd, David Kaplan, Timothy Krochuk and Samuel Kidston (collectively with SKK and N&W, the “SKK Parties”). Pursuant to the Settlement Agreement, the Company agreed to voluntarily dismiss the Lawsuit with prejudice, and it did so on April 21, 2020. The Company also agreed to purchase all of Mr. Nynens’ 261,631 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) owned, of record or beneficially, as of the Effective Date, at a price set by calculating the volume-weighted average price of such shares trading on the NASDAQ Global Market for the ten trading days ending on the close of the trading day immediately preceding the Effective Date, and with each party paying for its own fees and expenses. As of the Effective Date, Mr. Nynens and the SKK Parties agreed to terminate November 27 Agreement and did so on April 16, 2020. Further, the SKK Parties agreed to terminate the Joint Filing Agreement, dated November 27, 2019, by and between Mr. Nynens and the SKK Parties, and did so on April 16, 2020. Additionally, as of the Effective Date, Mr. Nynens agreed to withdraw the notice of intent to nominate director candidates for election at the 2020 annual meeting of stockholders of the Company, submitted by Mr. Nynens on December 20, 2019, and to cease all solicitation of proxies and other activities in connection with such annual meeting, and Mr. Nynens did so on April 16, 2020.

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~~Acquisition of Interwork Technologies~~

On April 30, 2020, pursuant to a Stock Purchase Agreement dated April 20, 2020, CLIMB Channel Solutions (Canada) Inc. (“Buyer”), a newly-formed indirect subsidiary of the Company completed the purchase of Interwork Technologies Inc., a Delaware corporation (“Interwork US”) and Interwork Technologies Inc., a corporation incorporated under the laws of the Province of Ontario, Canada (“Interwork Canada”). Buyer acquired Interwork US and Interwork Canada for an aggregate purchase price of $5 million Canadian dollar (equivalent to $3.6 million USD), subject to certain working capital adjustments, paid at closing plus a potential post-closing $1.1 million Canadian ~~dollar (equivalent to $0.8 million USD) earn-out.~~

Liquidity and Capital Resources

Our cash and cash equivalents ~~increased~~decreased to ~~$45.0~~$23.8 million as of June 30, ~~2020~~2021 compared to ~~$15.0~~$29.3 million as of December 31, ~~2019.~~2020. The ~~increase~~decrease in cash and cash equivalents was primarily the result of ~~$36.4~~$0.9 million of cash and cash equivalents ~~provided by~~used in operating activities, ~~resulting from a change in payment terms with one of our customers, offset by $3.5~~$3.2 million of cash used ~~to purchase treasury stock, $1.5~~in investing activities and $1.7 million of cash used for ~~dividends and $1.1 million of cash used for an acquisition.~~dividends.

Net cash and cash equivalents used in operating activities for the six months ended June 30, ~~2020~~2021 was ~~$36.4~~$0.9 million, comprised primarily of net income adjusted for non-cash items of ~~$2.3~~$5.3 million, ~~and~~partially offset by changes in operating assets and liabilities of ~~$34.1~~$6.2 million. Net cash and cash equivalents used in changes in working capital were the result the timing of customer payments. During the second quarter of 2020, we implemented a change in the payment terms with one of our large customers. The impact of this change in payment terms resulted in a reduction of our accounts receivable and corresponding increase in cash during the second quarter of 2020. This change in terms also had the impact of reducing our net sales and gross profit by approximately $0.3 million for the three and six months ended June 30, 2020, however, we believe the additional liquidity will improve our return on invested capital and provide us greater flexibility in pursuing our strategic objectives.

Net cash and cash equivalents used in investing activities during the six months ended June 30, ~~2020 primarily~~2021 consisted of ~~payments for an acquisition. On April 30, 2020, the Company completed the purchase~~$3.0 million of ~~Interwork US~~vendor advances and ~~Interwork Canada for an aggregate purchase price~~$0.2 million of ~~$5 million Canadian dollar (equivalent to $3.6 million USD), subject to certain working capital adjustments, paid at closing plus a potential post-closing $1.1 million Canadian~~ ~~dollar (equivalent to $0.8 million USD) earn-out.~~ ~~The Company financed the acquisition from existing capital resources.~~purchases of fixed assets.

Net cash and cash equivalents used in financing activities during the six months ended June 30, ~~2020~~2021 was ~~$5.0~~$1.7 million, ~~primarily~~ comprised of ~~the purchase of treasury stock of $3.5 million and~~ dividend payments on our Common Stock of $1.5 ~~million. On April 23, 2020, the Company purchased 261,631 shares~~million and purchases of ~~its outstanding common~~treasury stock ~~at $13.19 per share, representing approximately 5.8%~~ of ~~its issued and outstanding shares for $3.5 million in accordance with the Settlement Agreement.~~$0.2 million.

On November 15, 2017, the Company entered into a $20,000,000 revolving credit facility (the “Credit Facility”) with Citibank, N.A. (“Citibank”) pursuant to a Second Amended and Restated Revolving Credit Loan Agreement (the “Loan Agreement”), Second Amended and Restated Revolving Credit Loan Note (the “Note”), Second Amended and Restated Security Agreement and Second Amended and Restated Pledge and Security Agreement. On August 31, 2020, the Company entered into an amendment to the Credit Facility (the “Amended Credit Facility”) pursuant to a First Amendment to Second Amended and Restated Revolving Credit Loan Agreement and Other Loan Documents (the “Amended Loan Agreement”) and First Allonge to Second Amended and Restated Revolving Credit Loan Note (the “Amended Note”). The Amended Credit Facility, which will continue to be used for working capital and general corporate purposes, matures on ~~August 31, 2020,~~June 30, 2023, at which time the Company must pay all outstanding principal of all outstanding loans plus all accrued and unpaid interest, and any, fees, costs and expenses. As of June 30, 2021, no borrowings were outstanding under the Credit Facility.

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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 Uncommitted Credit Facility will be sufficient to fund our working capital and cash requirements for ~~at least~~ the next 12 months.

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.

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Off-Balance Sheet Arrangements

As of June 30, ~~2020,~~2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Smaller reporting companies are not required to provide the information required by this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. 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 controls and procedures”, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, 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 Chief Executive Officer (principal executive officer) and Vice President and Chief Financial Officer (principal financial and accounting officer). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls 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 and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As described above, on ~~April 30,~~November 6, 2020 we completed the acquisition of ~~Interwork.~~CDF. SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from management’s assessment of internal control over financial reporting for a period not to exceed one year from date of acquisition. We are in the process of integrating ~~Interwork’s~~CDF’s operations within our internal control structure. In executing this integration, we are analyzing, evaluating, and where necessary, making changes in controls and procedures related to the ~~Interwork~~CDF business. Accordingly, management has excluded controls relating to ~~Interwork~~CDF in this quarter’s evaluation of disclosure controls and procedures.

Changes in Internal Control Over Financial Reporting. Except for the acquisition of ~~Interwork~~CDF described above, 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 three months ended June 30, ~~2020,~~2021, 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 1. – Legal Proceedings~~

By letter dated January 22, 2020, a shareholder of the Company demanded that the Board of Directors investigate and bring an action against the Company’s former Chairman, President and Chief Executive Officer, Simon Nynens, for his breaches of certain restrictive covenants contained in the separation agreement he entered into with the Company on or about May 11, 2018. Following receipt of the shareholder demand, the Company filed a lawsuit against Mr. Nynens, Shepherd Kaplan Krochuk, LLC (“SKK”), and North & Webster SSG, LLC (“N&W,” and together with SKK, the “N&W Group”) on February 14, 2020, in the Superior Court of New Jersey Monmouth County. The Company’s complaint asserts claims against Mr. Nynens for his breaches of his separation agreement with the Company and claims for tortious interference against the N&W Group for inducing Mr. Nynens to commit those breaches. In connection with its claims, the Company was seeking monetary damages, injunctive relief, and a declaratory judgment against Mr. Nynens and the N&W Group.

Previously, the Company had received unsolicited acquisition proposals from the N&W Group to acquire all of the outstanding shares of common stock of the Company. The Company received the most recent unsolicited acquisition proposal from the N&W Group on December 10, 2019, and that proposal expired on its own terms on December 16, 2019. Prior to that, Mr. Nynens entered into an agreement with the N&W Group on November 27, 2019, granting SKK an irrevocable proxy to vote his shares of our common stock in favor of any acquisition proposal by SKK, against any third-party acquisition,

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and as directed by SKK with respect to the election of directors nominated by persons other than the Company. On December 20, 2019, Mr. Nynens nominated four individuals for election to our Board of Directors at the 2020 annual meeting of stockholders.

On April 16, 2020 (the “Effective Date”), the Company entered into a Settlement Agreement (the “Settlement Agreement”) with Mr. Nynens and the N&W Group. Pursuant to the Settlement Agreement, the Company has agreed to voluntarily dismiss its complaint with prejudice against Nynens, SKK, and N&W filed in the Superior Court of New Jersey Monmouth County on or about February 14, 2020. The Company has also agreed to purchase all of Nynens’ 261,631 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) owned, of record or beneficially, as of the Effective Date, at a price set by calculating the volume-weighted average price of such shares trading on the NASDAQ Global Market for the ten trading days ending on the close of the trading day immediately preceding the Effective Date, and with each party paying for its own fees and expenses. As of the Effective Date, Nynens and the SKK Parties have agreed to terminate that certain agreement among Nynens, SKK and N&W, dated November 27, 2019, pursuant to which the parties thereto agreed to form an investment vehicle in order to acquire up to 100% of the outstanding capital stock of the Company. Further, the SKK Parties have agreed to terminate the Joint Filing Agreement, dated November 27, 2019, by and between Nynens and the SKK Parties. Additionally, as of the Effective Date, Nynens agreed to withdraw the notice of intent to nominate director candidates for election at the 2020 annual meeting of stockholders of the Company, submitted by Nynens on December 20, 2019, and to cease all solicitation of proxies and other activities in connection with such annual meeting.

On April 23, 2020, the Company completed the purchase of 261,631 shares of common stock at $13.19 per share pursuant to the Settlement Agreement, representing approximately 5.8% of the issued and outstanding common stock of the Company, for a purchase price of $3.5 million.

~~Item 1A. – Risk Factors~~

Except as set forth below, during the quarter ended June 30, 2020, there were no material changes to the Risk Factors disclosed in Item 1A - “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

~~The current COVID-19 pandemic and other public health threats or outbreaks of communicable diseases could have a material adverse effect on the Company’s operations and financial results.~~

The Company may face risks related to public health threats or outbreaks of communicable diseases. A widespread healthcare crisis, such as an outbreak of a communicable disease could adversely affect the global economy and the Company’s and its business partners’ ability to conduct business for an indefinite period of time. For example, the ongoing global ~~novel coronavirus, COVID-19,~~ pandemic, has negatively impacted global economy, disrupted financial markets and international trade, resulted in increased unemployment levels and significantly impacted global supply chains. In addition, federal, state, and local governments have implemented various mitigation measures, including travel restrictions, border closings, restrictions on public gatherings, shelter-in-place restrictions and limitations on business. Some of these actions have adversely impacted the ability of the Company’s customers, vendors and other business partners to conduct business activities, and could ultimately do so for an indefinite period of time. This could have a material adverse effect on the Company’s results of operations, financial condition, and liquidity. In particular, the continued spread of COVID-19 and efforts to contain the virus could:

●

~~impact customer demand of the Company’s portfolio of technology offerings;~~

●

~~cause the Company to experience an increase in delayed payments from customers and uncollectable accounts;~~

●

~~cause delays and disruptions in the supply chain resulting in disruptions in the fulfillment of orders;~~

●

impact availability of qualified personnel, including workforce disruptions due to illness, quarantines, governmental actions, other restrictions, and/or the social distancing measures taken to mitigate the impact of COVID-19; and

●

~~cause other unpredictable events.~~

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The situation surrounding COVID-19 remains fluid and the potential for a material impact on the Company’s results of operations, financial condition, and liquidity increases the longer the virus impacts activity levels in the United States and globally. For this reason, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity. The extent to which the COVID-19 pandemic may impact the Company’s business, operating results, financial condition, or liquidity will depend on future developments, including the duration of the outbreak, travel restrictions, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the disease.

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 second quarter of ~~2020.~~2021.

ISSUER PURCHASE OF EQUITY SECURITIES


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

April 1, 2021 - April 30, 2021	—		$	—	—	$	—	547,288
May 1, 2021 - May 31, 2021	5,228	(1)	$	24.96	—	$	—	547,288
June 1, 2021 - June 30, 2021	—		$	—	—	$	—	547,288
Total	5,228		$	24.96	—	$	—	547,288

Maximum

Number of

Total Number

Shares That

of Shares

May Yet Be

Purchased as

Purchased

Total

Average

Part of Publicly

Under the

Number

Price Paid

Announced

Average

Plans or

of Shares

Per Share

Plans or

Price Paid

Programs

Period

Purchased

(2)

Programs

Per Share

(3)

April 1, 2020 - April 30, 2020

261,631
(1)
$
13.19

—

$
—

547,488

May 1, 2020 - May 31, 2020

2,408
(2)
$
15.76

—

$
—

547,488

June 1, 2020 - June 30, 2020

—

$
—

—

$
—

547,488

Total

264,039

$
13.21

—

$
—

547,488

(1)

Includes 261,631 shares repurchased pursuant to a Settlement Agreement the Company entered into with Simon F. Nijnens, Shepherd Kaplan Krochuk, LLC, a Delaware limited liability company, North & Webster SSG, LLC, a Delaware limited liability company and each of Dennis Crowley, David Shepherd, David Kaplan, Timothy Krochuk and Samuel Kidston.

~~(2)~~

~~Includes 2,408~~5,228 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 (3) below.

~~(3)~~(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.

~~(4)~~(3)

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. 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.

(4)

On December 14, 2020, the Board of Directors of the Company approved, and 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 “Plan”). Purchases involving shares of the Company’s Common Stock under the Plan may take place commencing December 14, 2020, and the Plan shall terminate upon the first to occur of (i) 100,000 shares of Common Stock under this Plan have been purchased, or (ii) the close of the Nasdaq Stock Market on July 30, 2021.

Item 3. – Defaults Upon Senior Securities

None.

Item 4. – Mine Safety Disclosures

None.

Item 5. – Other Information

None.

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Item 6. Exhibits


(a)	Exhibits

3.1 3.1(a) 3.2 31.1	Form of Amended and Restated Certificate of Incorporation of the Company. (1) Certificate of Amendment of Restated Certificate of Incorporation of the Company. (2) Amended and Restated Bylaws of Wayside Technology Group, Inc. (3) Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of Dale Foster, the Chief Executive Officer (principal executive officer) of the Company.

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

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 Dale Foster, the Chief Executive Officer (principal executive officer) of the Company.

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 ~~Michael Vesey,~~Andrew Clark, the Vice President and Chief Financial Officer (principal financial and accounting officer) of the Company.

101	The following financial information from Wayside Technology Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2020,~~2021, filed with the SEC on August ~~14, 2020,~~5, 2021, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of 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.

(1) Incorporated by reference to the exhibit of the same number to the Registrant’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 the exhibit of the same number to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November 3, 2006.

(3) Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on August 6, 2020.

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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, INC

August ~~14, 2020~~5, 2021	By:	/s/ Dale Foster
Date		Dale Foster, Chief Executive Officer (Principal Executive Officer)


August ~~14, 2020~~5, 2021	By:	/s/ ~~Michael Vesey~~Andrew Clark
Date		~~Michael Vesey,~~Andrew Clark, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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(in thousands)
Cash	$	1,009
Trade accounts receivable		9,534
Other current assets		628
Intangible assets
Vendor relationships (14-year weighted average useful life)		3,797
Non-compete (1-year useful life)		8
Goodwill		3,857
Other assets		117
Accounts payable and other current liabilities		(15,051)
Deferred income tax liabilities		(389)
Taxes payable		(600)
Net assets	$	2,910


Balance at January 1, 2020	$	—
Acquisition of Interwork US and Interwork Canada		3,857
Translation adjustments		44
Balance June 30, 2020	$	3,901