What changed in this filing

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Item 1. Financial Statements

2020-08-14 compared with 2020-05-08 · 164 added, 86 removed, 366 unchanged (41% of the section changed)

12 unchanged sentences

Equipment and leasehold improvements, net

Other intangibles, net

Right-of-use assets, net

Accounts receivable-long-term, net

Deferred income taxes

Deferred income tax assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

5 unchanged sentences

Non-current liabilities

Deferred income tax liabilities

Total liabilities

16 unchanged sentences

(Amounts in thousands, except per share data)

Six months ended

Three months ended

19 unchanged sentences

(Amounts in thousands)

Six months ended

Three months ended

Other comprehensive income (loss):

Other comprehensive (loss) income:

Foreign currency translation adjustments

Other comprehensive income (loss)

Other comprehensive (loss) income

Comprehensive income

11 unchanged sentences

Treasury shares repurchased

Balance at March 31, 2020

Balance at April 1, 2020

Translation adjustment

Dividends paid

Share-based compensation expense

Restricted stock grants (net of forfeitures)

Treasury shares repurchased

Balance at June 30, 2020

Comprehensive

5 unchanged sentences

Treasury shares repurchased

Balance at March 31, 2019

Balance at April 1, 2019

Translation adjustment

Dividends paid

Share-based compensation expense

Restricted stock grants (net of forfeitures)

Treasury shares repurchased

Balance at June 30, 2019

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

3 unchanged sentences

(Amounts in thousands)

Three months ended

March 31, 2020

Six months ended

Cash flows from operating activities

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

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

Depreciation and amortization expense

Deferred income tax benefit

Provision for doubtful accounts

Deferred income tax expense

Share-based compensation expense

8 unchanged sentences

Other assets and liabilities

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

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

Cash flows from investing activities

Purchase of equipment and leasehold improvements

Payment for acquisition, net of cash acquired

Net cash and cash equivalents used in investing activities

6 unchanged sentences

Effect of foreign exchange rate on cash and cash equivalents

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

6 unchanged sentences

Notes to Condensed Consolidated Financial Statements

March 31, 2020

June 30, 2020

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

31 unchanged sentences

Foreign currency transaction gains and losses are recorded as income or expenses as amounts are settled.

sales from our foreign operations for the three months ended March 31, 2020 and 2019 were $4.7 million and $5.2 million, respectively.

The net sales from our foreign operations for the three months ended June 30, 2020 and 2019 were $6.9 million and $4.2 million,

respectively.

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

Comprehensive Income:

1 unchanged sentence

Revenue Recognition:

The core principle of the revenue recognition criteria is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services.

This principle is achieved through applying the following five-step approach:

23 unchanged sentences

The following table depicts the disaggregation of revenue according to revenue type and is consistent with how we evaluate our financial performance:

Six months ended

Three months ended

6 unchanged sentences

Control is generally deemed to have passed to the customer upon transfer of title and risk of ownership.

Software product consists of sales of perpetual and term software licenses for products developed by third party vendors, which are distinct from related maintenance and support.

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.

6 unchanged sentences

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 the 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 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 software and software 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.

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.

7 unchanged sentences

Payment terms on invoiced amounts are typically 30-75 days.

The balance of accounts receivable, net of allowance for doubtful accounts as of March 31, 2020 and December 31, 2019 is presented in the accompanying Consolidated Balance Sheets.

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.

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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.

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.

The allocation of the purchase price was based upon the estimated fair value of Interwork US and Interwork Canada’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 of approximately $0.2 million and $0.6 million during 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.

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.

The Company recorded net revenue for Interwork US and Interwork Canada of approximately $3.7 million during the three months ended June 30, 2020.

The impact of the 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.

The Company is in the process of obtaining third-party valuations of certain intangible assets;

thus the provisional measurements of intangible assets, goodwill and deferred income taxes are subject to change:

(in thousands)

Trade accounts receivable

Other current assets

Intangible assets

Vendor relationships (14-year weighted average useful life)

Non-compete (1-year useful life)

Accounts payable and other current liabilities

Deferred income tax liabilities

Taxes payable

(in thousands)

Supplementary information:

Cash paid to sellers

Contingent earn-out

Total purchase consideration

Cash paid to sellers

Cash acquired in acquisition

Net cash paid for acquisition

Intangible assets are comprised of approximately $3.8 million of vendor relationships with a weighted average amortization period of 13.7 years, representing the expected period of benefits, of which $2.3 million is deductible for Canadian income tax purposes.

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 was allocated based on information that is currently available.

The 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.

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:

Balance at January 1, 2020

Acquisition of Interwork US and Interwork Canada

Translation adjustments

Balance June 30, 2020

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 to our acquisition of Interwork US and Interwork Canada, which has been allocated to the Climb Channel Solutions segment.

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

June 30, 2020

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Vendor relationships

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

Vendor relationships are amortized between eleven to fifteen years.

Non-compete is amortized over one year.

During the three and six months ended June 30, 2020, the Company recognized total amortization expense for other intangibles, net of $0.1 million.

There was no amortization expense for other intangibles, net during the three and six months ended June 30, 2019.

Amortization expense is included in selling, general and administrative expense.

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

2020 (excluding the six months ended June 30, 2020)

Right-of-use Asset and Lease Liability:

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ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of the lease payments over the lease term.

Operating lease ROU assets and liabilities are recognized at

commencement date of the lease based on the present value of the lease payments over the lease term.

As our leases do not provide a readily determinable implicit rate, we use an incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments.

2 unchanged sentences

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

Three months ended

Six months ended

Cash paid for operating lease liabilities

2 unchanged sentences

Weighted-average discount rate

(1) Represents operating leases existing on January 1, 2019 and recognized as part of the Company’s adoption of ASU 2016-02.

No new operating leases commenced during the three months ended March 31, 2020 and 2019.

Maturities of lease liabilities as of March 31, 2020 were as follows:

2020 (excluding the three months ended March 31, 2020)

(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 were as follows:

2020 (excluding the six months ended June 30, 2020)

imputed interest

3 unchanged sentences

Total lease liabilities

The carrying amounts of financial instruments, including cash and cash equivalents, short-term accounts receivable and accounts payable approximated fair value at March 31, 2020 and December 31, 2019 because of the relative short maturity of these instruments.

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 and December 31, 2019 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.

3 unchanged sentences

Less accumulated depreciation and amortization

During the three months ended March 31, 2020 and 2019, the Company recorded depreciation and amortization expense of $0.1 million, respectively.

Depreciation and amortization expense are included in selling, general and administrative expense.

During the three months ended June 30, 2020 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 million, respectively.

Depreciation and amortization expense is included in selling, general and administrative expense.

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 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.

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.

5 unchanged sentences

current portion included in accounts receivable

The undiscounted cash flows to be received by the Company relating to these accounts receivable long-term expects to be $4.3 million and $1.0 million during the 12-month periods ending March 31, 2021 and 2022, respectively.

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

Accounts payable and accrued expenses consist of the following:

3 unchanged sentences

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 (the “Security Agreement”) and Second Amended and Restated Pledge and Security Agreement (the “Pledge Agreement”).

(“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.

The Credit Facility, which will be used for working capital and general corporate purposes, matures on August 31, 2020, 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 borrowings under the Credit Facility is subject to change from time to time based on the changes in the LIBOR Rate, as defined in the Loan Agreement (the “Index”).

The Index was 1.62% at March 31, 2020.

The interest rate for any

borrowings under the Credit Facility is subject to change from time to time based on the changes in the LIBOR Rate, as defined in the Loan Agreement (the “Index”).

The Index was 1.58% at June 30, 2020.

Interest on the unpaid principal balance of the Note will be calculated using a rate of 1.50 percentage points over the Index.

3 unchanged sentences

Additionally, the Loan Agreement contains negative covenants 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 March 31, 2020 and December 31, 2019.

At March 31, 2020 and December 31, 2019, the Company had no borrowings outstanding under the Credit Facility.

The Company was in compliance with all such covenants at June 30, 2020 and December 31, 2019.

At June 30, 2020 and December 31, 2019, the Company had no borrowings outstanding under the Credit Facility.

Earnings Per Share:

5 unchanged sentences

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

Six months ended

Three months ended

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Major Customers and Vendors:

The Company had two major vendors that accounted for 22% and 14%, respectively, of total purchases during the three months ended March 31, 2020 and 28% and 16%, respectively, of total purchases during the three months ended March 31, 2019.

The Company had two major customers that accounted for 27% and 14%, respectively, of its net sales during the three months ended March 31, 2020 and 26% and 18%, respectively, of its net sales during the three months ended March 31, 2019.

These same customers accounted for 43% and 9%, respectively, of total net accounts receivable as of March 31, 2020 and 43% and 12%, respectively, of total net accounts receivable as of December 31, 2019.

The Company had two major vendors that accounted for 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.

The Company had two major vendors that accounted for 19% and 10%, respectively, of total purchases during

the six months ended June 30, 2020 and 27% and 15%, respectively, of total purchases during the six months ended June 30, 2019.

The Company had two major customers that accounted for 29% and 18%, respectively, of its net sales during the three months ended June 30, 2020 and 27% and 18%, respectively, of its net sales during the three months ended June 30, 2019.

The Company had two major customers that accounted for 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.

These same customers accounted for 22% and 14%, respectively, of total net accounts receivable as of June 30, 2020 and 43% and 12%, respectively, of total net accounts receivable as of December 31, 2019.

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.

In prior years, the Company recorded an accrual of $0.5 million, net of federal tax benefit, for potential liabilities for state income taxes in states which have enacted economic nexus statutes and in which the Company has not filed income tax returns.

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 March 31, 2020 and March 31, 2019 was 25.0%.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.

We continue to examine the impact that the CARES Act may have on our business.

Currently, we are unable to determine the impact that the CARES Act will have on our financial condition, results of operations, or liquidity.

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.

Stockholders’ Equity and Stock Based Compensation:

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 Common Stock initially available for award under the 2012 Plan was 600,000, which was increased to 1,000,000 shares by shareholder approval at the Company’s 2018 Annual Meeting in June 2018.

As of March 31, 2020, the number of shares of Common Stock available for future award grants to employees, officers and directors under the 2012 Plan is 449,837.

During the three months ended March 31, 2020, the Company granted a total of 66,560 shares of Restricted Stock to officers.

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 2012 Plan was 600,000, which was increased to 1,000,000 shares by shareholder approval at the Company’s 2018 Annual Meeting in June 2018.

As of June 30, 2020, the number of shares of Common Stock available for future award grants to employees, officers and directors under the 2012 Plan is 401,769.

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 in sixteen equal quarterly installments.

During the three months ended March 31, 2020, a total of 2,750 shares of Restricted Stock were forfeited.

During the three months ended March 31, 2019, the Company granted a total of 20,405 shares of Restricted Stock to officers and employees.

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 three months ended March 31, 2019, a total of 1,625 shares of Restricted Stock were forfeited.

A summary of nonvested shares of Restricted Stock awards outstanding under the 2012 Plan as of March 31, 2020, and changes during the three months then ended is as follows:

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, and changes during the six months then ended is as follows:

Average Grant

3 unchanged sentences

Forfeited in 2020

Nonvested shares at March 31, 2020

As of March 31, 2020, there is approximately $1.5 million of total unrecognized compensation costs related to nonvested share-based compensation arrangements.

Nonvested shares at June 30, 2020

As of June 30, 2020, there is approximately $1.9 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 years.

During the three months ended March 31, 2020 and March 31, 2019, the Company recognized share-based compensation expense of $0.2 million.

During the three months ended June 30, 2020 and 2019, the Company recognized share-based compensation expense of $0.2 million.

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

Segment Information:

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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 President of our “Lifeboat Distribution” segment.

The Company’s CODM is the Chief Executive Officer.

The Company is organized into two reportable operating segments.

The “Lifeboat Distribution” segment distributes technical software and hardware to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide.

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 institutions in the United States and Canada.

4 unchanged sentences

The following segment reporting information of the Company is provided:

Three months ended March 31,

Lifeboat Distribution

Six months ended June 30,

Three months ended June 30,

Climb Channel Solutions

Gross Profit:

Lifeboat Distribution

Climb Channel Solutions

Direct Costs:

Lifeboat Distribution

Climb Channel Solutions

Segment Income Before Taxes:

Lifeboat Distribution

Climb Channel Solutions

Segment Income Before Taxes

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Selected Assets by Segment:

Lifeboat Distribution

Climb Channel Solutions

Segment Select Assets

Corporate Assets

Six months ended

Three months ended

Disaggregation of Revenue:

Lifeboat Distribution

Climb Channel Solutions

Hardware, software and other products

6 unchanged sentences

The Company made sales to a customer where a member of our Board of Directors is an executive.

During the three months ended March 31, 2020 and 2019, net sales to this customer totaled less than $0.1 million, respectively, and amounts due from this customer as of March 31, 2020 and December 31, 2019 totaled less than $0.1 million, respectively, which were settled in cash subsequent to each period end.

During the three months ended June 30, 2020 and 2019, net sales to this customer totaled approximately $0.1 million.

During the six months ended June 30, 2020 and 2019, net sales to this customer totaled approximately $0.1 million.

Amounts due from this customer as of June 30, 2020 and December 31, 2019 was zero and less than $0.1 million, respectively, which were settled in cash subsequent to each period end.

Unsolicited Bid and Shareholder Demand:

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In connection with its claims, the Company sought monetary damages, injunctive relief and a declaratory judgment.

Contingencies:

In January 2020, the Company entered into an agreement with a financial advisory firm (“Advisor”) to provide services related to an unsolicited offer to buy the Company.

As part of the agreement, among other things, the Company granted a right of first refusal to the Advisor to act as the Company’s financial advisor in a potential sale or merger of the Company, and agreed to pay a contingent fee of $0.5 million if there is no such change in control of the Company as of the expiration of the agreement, on December 31, 2020.

Achievement of the criteria in the agreement and payment of the contingent fees are dependent on a number of factors that are outside of the Company’s control, including actions requiring potential approval by the Company’s shareholders.

Therefore, no accrual for the contingent fee has been recorded as of March 31, 2020.

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, the Company incurred approximately $1.3 million in legal and advisory expenses during the three months ended March 31, 2020.

In connection with this the Company made certain claims for reimbursement under its insurance policies.

As of March 31, 2020, reimbursement for insurance proceeds under these policies have not been recorded as they have not been realized.

Subsequent Events:

Unsolicited Bid and Shareholder Demand

On April 16, 2020 (the “Effective Date”), the Company entered into a Settlement Agreement (the “Agreement”) with Mr.

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 Agreement, the Company agreed to voluntarily dismiss the Lawsuit with prejudice, and it did so on April 21, 2020.

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.

Nynens’ 261,631 shares of the 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.

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Nynens did so on April 16, 2020.

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.

Acquisition of Interwork Technologies

On April 20, 2020, CLIMB Channel Solutions (Canada) Inc.

(“Buyer”), a newly-formed indirect subsidiary of the Company, entered into a Stock Purchase Agreement (the “SPA”) with Interwork Group, Inc.

(“Seller”), Interwork Technologies Inc., a Delaware corporation (“Interwork US”), Interwork Technologies Inc., a corporation incorporated under the laws of the Province of Ontario, Canada (“Interwork Canada”), and Firepower Equity Inc.

On April 30, 2020, Buyer completed the acquisition of Interwork US and Interwork Canada.

Pursuant to the SPA, Buyer acquired Interwork US and Interwork Canada for an aggregate purchase price of $5 million Canadian dollar paid at closing plus a potential post-closing $1.1 million Canadian dollar earn-out.

The SPA contains customary representations, warranties and covenants.

The SPA also contains indemnification obligations of both Buyer and Seller, subject to certain limitations, and covenants regarding the conduct of each party prior to closing.

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.

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, the Company incurred approximately $0.5 million and $1.8 million in legal and advisory expenses during the three and six months ended June 30, 2020, respectively.

In connection with this 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.

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.

1 unchanged sentence

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.

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

What changed 10-Q

Item 1. Financial Statements