What changed in this filing

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Item 1. Financial Statements

2020-11-12 compared with 2020-08-14 · 145 added, 113 removed, 417 unchanged (38% of the section changed)

4 unchanged sentences

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

September 30,

Current assets:

36 unchanged sentences

(Amounts in thousands, except per share data)

Six months ended

Nine months ended

Three months ended

September 30,

Cost of sales

Selling, general, and administrative expenses

Legal and financial advisory expenses - unsolicited bid and related matters

Legal and financial advisory expenses, net - unsolicited bid and related matters

Acquisition related costs

2 unchanged sentences

Interest, net

Foreign currency transaction gain

Foreign currency transaction gain (loss)

Income before provision for income taxes

10 unchanged sentences

(Amounts in thousands)

Six months ended

Nine months ended

Three months ended

September 30,

Other comprehensive (loss) income:

20 unchanged sentences

Treasury shares repurchased

Balance at June 30, 2020

Balance at July 1, 2020

Translation adjustment

Dividends paid

Share-based compensation expense

Restricted stock grants (net of forfeitures)

Treasury shares repurchased

Balance at September 30, 2020

Comprehensive

11 unchanged sentences

Treasury shares repurchased

Balance at June 30, 2019

Balance at July 1, 2019

Translation adjustment

Dividends paid

Share-based compensation expense

Restricted stock grants (net of forfeitures)

Treasury shares repurchased

Balance at September 30, 2019

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

3 unchanged sentences

(Amounts in thousands)

Six months ended

Nine months ended

September 30,

Cash flows from operating activities

6 unchanged sentences

Amortization of right-of-use assets

Change in fair value of contingent earn-out consideration

Changes in operating assets and liabilities:

15 unchanged sentences

Dividends paid

Payments of deferred financing costs

Net cash and cash equivalents used in financing activities

9 unchanged sentences

Notes to Condensed Consolidated Financial Statements

June 30, 2020

September 30, 2020

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

3 unchanged sentences

GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.

Accordingly, the financial statements do not include all of the information and footnotes required by U.S.

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.

2 unchanged sentences

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, have been included in the accompanying condensed consolidated financial statements.

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.

1 unchanged sentence

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.

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.

Recently Issued Accounting Standards:

17 unchanged sentences

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, 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.

The net sales from our foreign operations for the three months ended September 30, 2020 and 2019 were $5.0 million and $4.2 million, respectively.

The net sales from our foreign operations for the nine months ended September 30, 2020 and 2019 were $16.6 million and $13.6 million, respectively.

Comprehensive Income:

21 unchanged sentences

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.

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.

3 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

Nine months ended

Three months ended

September 30,

Hardware, software and other products

20 unchanged sentences

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.

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.

Costs to obtain and fulfill a contract - We pay commissions and related payroll taxes to sales personnel when customers are invoiced.

3 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 June 30, 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 September 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.

14 unchanged sentences

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.

Sales In-Transit – The Company performs an analysis of the number of days of sales in-transit to customers at the end of each reporting period based on an analysis of commercial delivery terms that include drop-shipment arrangements.

This analysis is the basis upon which the Company estimates the amount of net sales in-transit at the end of the period and adjusts revenue and the related costs to reflect only what has been delivered to the customer.

The Company performs a weighted average analysis of the estimated number of days between order fulfillment and beginning of the renewal term for term licenses recorded on a gross basis to determine the amount of potential deferred net sales.

Prior to the quarter ended September 30, 2020 it had been determined that this amount was not material.

Due to increased sales of term licenses we have recorded an estimate of the impact of term license renewals fulfilled prior to commencement date during the three months ended September 30, 2020.

In conjunction with this amount recorded in the current period, the Company also corrected within the current period a similar sales in-transit estimate amount that existed in the prior year.

As part of the Company’s analysis, it determined that there was an inconsequential impact to previously reported interim and annual financial statements and as such, no adjustments were required to be made to any prior period financial statements.

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”), a newly-formed indirectly wholly-owned 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.

1 unchanged sentence

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 Company incurred acquisition related costs of approximately $0.3 million and $1.0 million during the three and nine months ended September 30, 2020, respectively.

These expenses relate to costs incurred in conjunction with the acquisition of Interwork US, Interwork Canada and CDF Group Limited (see Note 19) and are reflected in the accompanying three and nine months ended September 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 Company recorded net revenue for Interwork US and Interwork Canada of approximately $2.6 million and $6.3 million during the three and nine months ended September 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.

22 unchanged sentences

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.

As of September 30, 2020, the Company reassessed the earn-out liability and increased the fair value of the earn-out liability by less than $0.1 million, with the adjustment recognized within selling, general and administrative expenses during the three and nine months ended September 30, 2020.

The earn-out liability is included in accounts payable and accrued expenses as of September 30, 2020 as payment would be due in the third quarter of 2021.

The preliminary allocation of the purchase price for the acquisition was allocated based on information that is currently available.

1 unchanged sentence

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:

The following table summarizes the changes in the carrying amount of goodwill for the nine months ended September 30, 2020:

Balance at January 1, 2020

1 unchanged sentence

Translation adjustments

Balance June 30, 2020

Balance September 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.

The change in our goodwill balance during the nine months ended September 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

September 30, 2020

Gross Carrying Amount

5 unchanged sentences

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.

During the three and nine months ended September 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 nine months ended September 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)

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

2020 (excluding the nine months ended September 30, 2020)

Right-of-use Asset and Lease Liability:

2 unchanged sentences

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 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.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.

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

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

2 unchanged sentences

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

Six months ended

Nine months ended

September 30,

Cash paid for operating lease liabilities

2 unchanged sentences

Weighted-average discount rate

(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)

(1) During the nine months ended September 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 September 30, 2020 were as follows:

2020 (excluding the nine months ended September 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 June 30, 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 September 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.

1 unchanged sentence

Equipment and leasehold improvements consist of the following:

September 30,

Leasehold improvements

Less accumulated depreciation and amortization

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.

During the three months ended September 30, 2020 and 2019, the Company recorded depreciation and amortization expense of $0.1 million.

During the nine months ended September 30, 2020 and 2019, the Company recorded depreciation and amortization expense of $0.3 million and $0.4 million, respectively.

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

6 unchanged sentences

Accounts receivable long term, net consists of the following:

September 30,

Total amount due from customer

1 unchanged sentence

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 $3.2 million and $0.5 million during the 12-month periods ending June 30, 2021 and 2022, respectively.

The undiscounted cash flows to be received by the Company relating to these accounts receivable long-term expects to be $2.6 million and $0.4 million during the 12-month periods ending September 30, 2021 and 2022, respectively.

Accounts payable and accrued expenses consist of the following:

September 30,

Trade accounts payable

3 unchanged sentences

(“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.

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 (collectively, 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 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

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.

If the Index becomes unavailable during the term of the Credit Facility, interest will be based upon the Prime Rate (as defined in the Loan Agreement) after notifying the Company.

The Credit Facility is secured by the assets of the Company.

Among other affirmative covenants set forth in the Loan Agreement, 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 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 and December 31, 2019.

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

The interest rate for any 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 2.50% at September 30, 2020.

Interest on the unpaid principal balance of the Amended Note will be calculated using a rate of 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 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 September 30, 2020 and December 31, 2019.

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

Earnings Per Share:

Our basic and diluted earnings per share are computed using the two-class method.

Our basic and diluted earnings per share are computed using the two-class 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.

3 unchanged sentences

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

Six months ended

Nine months ended

Three months ended

September 30,

Less distributed and undistributed income allocated to participating securities

5 unchanged sentences

Major Customers and Vendors:

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.

The Company had two major vendors that accounted for 21% and 12%, respectively, of total purchases during the three months ended September 30, 2020 and 22% and 18%, respectively, of total purchases during the three months ended September 30, 2019.

The Company had two major vendors that accounted for 20% and 9%, respectively, of total purchases during the nine months ended September 30, 2020 and 24% and 16%, respectively, of total purchases during the nine months ended September 30, 2019.

The Company had two major customers that accounted for 22% and 12%, respectively, of its net sales during the three months ended September 30, 2020 and 19% and 17%, respectively, of its net sales during the three months ended September 30, 2019.

The Company had two major customers that accounted for 26% and 14%, respectively, of its net sales during the nine months ended September 30, 2020 and 24% and 20%, respectively, of its net sales during the nine months ended September 30, 2019.

These same customers accounted for 19% and 11%, respectively, of total net accounts receivable as of September 30, 2020 and 43% and 12%, respectively, of total net accounts receivable as of December 31, 2019.

Income Taxes:

2 unchanged sentences

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.

The effective tax rate for the three months ended September 30, 2020 and 2019 was 31.1% and 29.0%, respectively.

The effective tax rate for the nine months ended September 30, 2020 and 2019 was 31.1% and 25.4%, respectively.

The Company’s effective tax rate for the three and nine months ended September 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”).

3 unchanged sentences

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

As of September 30, 2020, the number of shares of Common Stock available for future award grants to employees, officers and directors under the 2012 Plan is 384,164.

During the nine months ended September 30, 2020, the Company granted a total of 134,165 shares of Restricted Stock to directors, officers and employees.

These shares of Restricted Stock vest immediately or over time in sixteen equal quarterly installments.

During the nine months ended September 30, 2020, a total of 4,682 shares of Restricted Stock were forfeited.

During the nine months ended September 30, 2019, the Company granted a total of 32,905 shares of Restricted Stock to directors, officers and employees.

These shares of Restricted Stock vest immediately or over time in sixteen equal quarterly installments.

During the nine months ended September 30, 2019, a total of 16,530 shares of Restricted Stock were forfeited.

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

Average Grant

3 unchanged sentences

Forfeited in 2020

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.

Nonvested shares at September 30, 2020

As of September 30, 2020, there is approximately $1.7 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 2.8 years.

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.

During the three months ended September 30, 2020 and 2019, the Company recognized share-based compensation expense of $0.6 million and $0.3 million, respectively.

During the nine months ended September 30, 2020 and 2019, the Company recognized share-based compensation expense of $1.0 million and $0.6 million, respectively.

Segment Information:

10 unchanged sentences

The following segment reporting information of the Company is provided:

Six months ended June 30,

Three months ended June 30,

Nine months ended September 30,

Three months ended September 30,

Climb Channel Solutions

7 unchanged sentences

General and administrative

Legal and financial advisory expenses - unsolicited bid and related matters

Legal and financial advisory expenses, net - unsolicited bid and related matters

Acquisition related costs

3 unchanged sentences

(1) Excludes general corporate expenses including interest and foreign currency translation expenses.

September 30,

Selected Assets by Segment:

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Corporate Assets

Six months ended

Nine months ended

Three months ended

Disaggregation of Revenue:

September 30,

Climb Channel Solutions

7 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 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.

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

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

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

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 July 15, 2019 and August 23, 2019, the Company received letters from Shepherd Kaplan Krochuk, LLC (“SKK”) and North & Webster SSG, LLC (“N&W”) announcing an unsolicited bid to acquire the Company.

The 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.

2 unchanged sentences

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.

On December 20, 2019, Mr.

1 unchanged sentence

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.

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”).

Crowley, III and Nilesh Shah at the Meeting.

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 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, including his covenant not to seek future employment with the Company.

As a result, the Company filed a lawsuit (the “Lawsuit”) against Mr.

Nynens, SKK, and N&W in the Superior Court of New Jersey Monmouth County, on February 14, 2020.

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 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.

Pursuant to the Settlement Agreement, the Company agreed to voluntarily dismiss the Lawsuit with prejudice, and to purchase all of Mr.

Nynens’ 261,631 shares of the Common Stock owned, of record or beneficially, as of the Effective Date, at fair market value, as defined in the agreement.

Nynens and the SKK Parties terminated the November 27 Agreement and the Joint Filing Agreement.

Additionally, 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.

Nynens on December 20, 2019, and to cease all solicitation of proxies and other activities in connection with such annual meeting.

For further information, see the Current Report on Form 8-K filed by the Company on April 17, 2020.

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.

The Company incurred approximately $1.8 million in legal and advisory expenses, net during the nine months ended September 30, 2020 related to the above matter.

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.

During the three months ended September 30, 2020, reimbursement for insurance proceeds realized totaling $0.1 million has been recorded, while any potential additional insurance proceeds reimbursed under these policies as of September 30, 2020 have not been recorded as they have not been realized.

Subsequent Events:

On November 6, 2020, Wayside Technology UK Holdings Limited (“Buyer”), a private limited company under the laws of England and Wales and a newly-incorporated, wholly-owned subsidiary of the Company, entered into a Share Purchase Agreement (“SPA”) and purchased the entire share capital of CDF Group Limited, a private limited company under the laws of England and Wales, 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 SPA contains customary English warranties and covenants, a guaranty by the Company of the performance by Buyer of its obligations under the SPA and customary indemnification obligations of Seller, subject to certain customary limitations and insurance caps.

Risks and Uncertainties Related to the COVID-19 Pandemic:

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What changed 10-Q

Item 1. Financial Statements