Item 9A. Controls and Procedures
Item 9A. 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
27
Table of Contents
of the period covered by this Annual 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), Vice President and Chief Financial Officer (principal financial officer) and Vice President and Chief Accounting Officer (principal accounting officer). Based upon that evaluation, the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that the Company’s disclosure controls and procedures were effective, as of the end of the period covered by this Annual 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 SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, and effected by the Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP. Internal control over financial reporting includes maintaining records in reasonable detail that accurately and fairly reflect our transactions and disposition of assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with US GAAP; providing reasonable assurance that receipts and expenditures of the Company, are made in accordance with authorizations of management and directors of the Company; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that, owing to changes in conditions, controls may become inadequate, or that the degree of compliance with policies or procedures may deteriorate.
Management, with the participation of our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this evaluation, the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that the Company’s internal control over financial reporting was effective as of December 31, 2022.
The Company's independent registered public accounting firm, BDO USA, LLP, has audited the effectiveness of the Company's internal control over financial reporting as of December 31, 2022, as stated in their report, which is included herein.
Changes in Internal Control over Financial Reporting . As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, has evaluated our internal control over financial reporting to determine whether any changes to our internal control over financial reporting occurred during the fourth quarter of the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, no such changes to our internal control over financial reporting occurred during the fourth quarter of the year ended December 31, 2022. As part of that evaluation, management identified changes in user access privileges that were implemented during the first quarter in 2022 at a component. These changes in user access privileges were made in response to identified control deficiencies to ensure that appropriate segregation of duties was maintained as it relates to the preparation and review of journal entries at that component.
Item 9B. Other Information
None.
28
Table of Contents
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required hereunder, with the exception of the information relating to the Company’s Code of Ethical Conduct that is presented in Part I under the heading “Available Information,” is incorporated by reference herein from our Definitive Proxy Statement for the 2022 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A within 120 days of the end of the fiscal year to which this Annual Report relates (the “Definitive Proxy Statement”) under the sections captioned “Election of Directors” and “Corporate Governance.”
Item 11. Executive Compensation
The information required hereunder is incorporated by reference herein from the Definitive Proxy Statement under the sections captioned “Executives and Executive Compensation” and “Corporate Governance.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required hereunder is incorporated by reference herein from the Definitive Proxy Statement under the sections captioned “Equity Compensation Plan Information — Securities Authorized for Issuance under Equity Compensation Plans” and “Security Ownership of Certain Beneficial Owners and Management.”
Item 13. Certain Relationships and Related Party Transactions, and Director Independence
The information required hereunder is incorporated by reference herein from the Definitive Proxy Statement under the sections captioned “Executives and Executive Compensation,” “Corporate Governance” and “Transactions with Related Persons.”
Item 14. Principal Accounting Fees and Services
The information required hereunder is incorporated by reference herein from the Definitive Proxy Statement under the section captioned “Ratification of Appointment of Independent Registered Public Accounting Firm.”
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report:
1. Consolidated Financial Statements (See Index to Consolidated Financial Statements on page F-1 of this Annual Report);
2. Financial Statement Schedule :
Schedule II Valuation and Qualifying Accounts
29
Table of Contents
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or notes thereto.
3. Exhibits Required by Regulation S-K, Item 601:
Exhibit No.
Description of Exhibit
2.1
Share Purchase Agreement, dated August 18, 2022, by and among the seller listed therein, and Wayside Technology UK Holding Limited. (14)
3.1
Form of Amended and Restated Certificate of Incorporation of the Company. (1)
3.1(a)
Certificate of Amendment of Restated Certificate of Incorporation of the Company. (2)
3.1(b)
Certificate of Amendment of Restated Certificate of Incorporation of the Company. (15)
3.2
Amended and Restated Bylaws of the Company. (13)
4.1
Specimen of Common Stock Certificate. (1)
4.3
Description of Securities. (filed herewith) .
10.1
Second Amended and Restated Revolving Credit Loan Agreement, dated November 15, 2017, by and among Wayside Technology Group, Inc., Lifeboat Distribution, Inc., Techxtend, Inc., Programmer’s Paradise, Inc., and ISP International Software Partners, Inc., as Co-Borrowers, and Citibank, N.A., as Lender. (6)
10.2
Second Amended and Restated Credit Loan Note, dated November 15, 2017, by and among Wayside Technology Group, Inc., Lifeboat Distribution, Inc., Techxtend, Inc., Programmer’s Paradise, Inc., and ISP International Software Partners, Inc., as Co-Borrowers, and Citibank, N.A., as Lender. (6 )
10.3
Second Amended and Restated Security Agreement, dated November 15, 2017, by and among Wayside Technology Group, Inc., Lifeboat Distribution, Inc., Techxtend, Inc., Programmer’s Paradise, Inc., and ISP International Software Partners, Inc., as Debtors, and Citibank, N.A., as Lender. (6)
10.4
Second Amended and Restated Pledge and Security Agreement, dated November 15, 2017, by and between Wayside Technology Group, Inc., as Grantor, and Citibank, N.A., as Secured Party. (6)
10.5
First Amendment to Second Amended and Restated Revolving Credit Loan Agreement and Other Loan Documents, dated August 31, 2020, by and among Wayside Technology Group, Inc., Climb Channel Solutions, Inc., f/k/a Lifeboat Distribution, Inc., TechXtend, Inc., Programmer’s Paradise, Inc., ISP International Software Partners, Inc., and Interwork Technologies, Inc., as Co-Borrowers, and Citibank, N.A., as Lender. (11)
10.6
First Allonge to Second Amended and Restated Revolving Credit Loan Note, dated August 31, 2020, by and among Wayside Technology Group, Inc., Climb Channel Solutions, Inc., f/k/a Lifeboat Distribution, Inc., TechXtend, Inc., Programmer’s Paradise, Inc., ISP International Software Partners, Inc., and Interwork Technologies Inc., as Co-Borrowers, and Citibank, N.A., as Lender. (11)
10.7
Code of Ethics and Business Conduct. (7)
10.8*
Employment agreement dated January 15, 2020 between the Company and Dale Foster. (8)
30
Table of Contents
Exhibit No.
Description of Exhibit
10.9*
Employment agreement dated January 2, 2018 between the Company and Charles Bass. (9)
10.10*
Employment agreement dated June 8, 2021 between the Company and Andrew Clark. (16)
10.11*
Offer Letter, dated January 6, 2003, from the Company to Vito Legrottaglie. (4)
10.12*
Form of Officer and Director Indemnification Agreement. (10)
10.13*
2012 Stock-Based Compensation Plan. (5)
10.14*
2021 Stock-Based Compensation Plan. (12)
10.28*
Form of Non-Qualified Stock Option Agreement. (3)
21.1
Subsidiaries of the Registrant. (filed herewith)
23.1
Consent of BDO USA, LLP, an Independent Registered Public Accounting Firm. (filed herewith)
31.1
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 of the Company (filed herewith).
31.2
Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of Andrew Clark, the Vice President and Chief Financial Officer of the Company (filed herewith).
31.3
Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of Matthew Sullivan, the Vice President and Chief Accounting Officer of the Company (filed herewith).
32.1
Certification pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 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 of the Company (furnished herewith).
32.2
Certification pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Andrew Clark, the Vice President and Chief Financial Officer of the Company (furnished herewith).
32.3
Certification pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Matthew Sullivan, the Vice President and Chief Accounting Officer of the Company (furnished herewith).
101
The following financial information from Climb Global Solutions, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 16, 2023, formatted in XBRL (Extensible Business Reporting Language) includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Earnings, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Stockholders’ Equity, (5) Consolidated Statements of Cash Flows, and (6) the Notes to the 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 exhibits 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.
31
Table of Contents
(2) Incorporated by reference to the exhibits 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 10.59 filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008.
(4) Incorporated by reference to Exhibit 10.45 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 filed on May 15, 2007.
(5) Incorporated by reference to Exhibit A of the Registrant’s Definitive Annual Meeting Proxy Statement filed on April 24, 2012.
(6) Incorporated by reference to the Registrant’s Form 8-K filed on November 20, 2017.
(7) Incorporated by reference to the Registrant’s Form 8-K filed on December 8, 2017.
(8) Incorporated by reference to the Registrant’s Form 8-K filed on January 21, 2020.
(9) Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the Period Ended March 31, 2020 filed May 8, 2020.
(10) Incorporated by reference Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the Period Ended March 31, 2017 filed May 5, 2017.
(11) Incorporated by reference to the Registrant’s Form 8-K filed on September 2, 2020.
(12) Incorporated by reference to Appendix A of the Registrant’s Definitive Annual Meeting Proxy Statement filed on April 16, 2021.
(13) Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on December 8, 2022.
(14) Incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K filed on August 18, 2022.
(15) Incorporated by reference to Exhibit 3.1(a) to the Registrant’s Form 8-K filed on October 27, 2022.
(16) Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on June 8, 2021.
*
Compensatory plan or arrangement of management required to be filed as an exhibit to this Annual Report on Form 10-K .
Item 16. Form 10-K Summary
None.
32
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Eatontown, New Jersey, on March 16, 2023.
CLIMB GLOBAL SOLUTIONS, INC.
By:
/s/ Dale Foster
Dale Foster, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Dale Foster
Chief Executive Officer and Director
March 16, 2023
Dale Foster
(Principal Executive Officer)
/s/ Andrew Clark
Vice President and Chief Financial Officer
March 16, 2023
Andrew Clark
(Principal Financial Officer)
/s/ Matthew Sullivan
Vice President and Chief Accounting Officer
March 16, 2023
Matthew Sullivan
(Principal Accounting Officer)
/s/ Jeffrey Geygan
Chairman of the Board of Directors
March 16, 2023
Jeffrey Geygan
/s/ John McCarthy
Director
March 16, 2023
John McCarthy
/s/ Andrew Bryant
Director
March 16, 2023
Andrew Bryant
/s/ Gerri Gold
Director
March 16, 2023
Gerri Gold
/s/ Greg Scorziello
Director
March 16, 2023
Greg Scorziello
/s/ Kimberly Boren
Director
March 16, 2023
Kimberly Boren
33
Table of Contents
Items 8 and 15(a)
Climb Global Solutions, Inc. and Subsidiaries
Index to Consolidated Financial Statements and Schedule
Page
Reports of Independent Registered Public Accounting Firm ( BDO USA, LLP ; Woodbridge, New Jersey ; PCAOB ID# 243 )
F-2
Consolidated Balance Sheets as of December 31, 2022 and 2021
F-6
Consolidated Statements of Earnings for the years ended December 31, 2022 and 2021
F-7
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022 and 2021
F-8
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022 and 2021
F-9
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021
F-10
Notes to Consolidated Financial Statements
F-11
Schedule II — Valuation and Qualifying Accounts
F-31
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Climb Global Solutions, Inc.
Eatontown, New Jersey
Opinion on Internal Control over Financial Reporting
We have audited Climb Global Solutions, Inc.’s (formerly known as Wayside Technology Group, Inc.) (the “Company”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and schedule and our report dated March 16, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Controls and Procedures. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
F-2
Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
Woodbridge, New Jersey
March 16, 2023
F-3
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Climb Global Solutions, Inc.
Eatontown, New Jersey
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Climb Global Solutions, Inc. (formerly known as Wayside Technology Group, Inc.) (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 16, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Acquisition
As described in Note 3 of the consolidated financial statements, the Company completed the acquisition of Spinnakar Limited during the year ended December 31, 2022. The total purchase consideration for Spinnakar Limited was
F-4
Table of Contents
approximately $13.6 million, inclusive of a $1.8 million post-closing contingent earn-out. As a result of the acquisition, management determined the estimated fair value of the identifiable assets acquired and liabilities assumed at the acquisition date and recorded intangible assets of approximately $11.7 million in aggregate. The primary intangible assets acquired were vendor relationships.
We identified the revenue projections, projected operating margin and the discount rate used in the determination of the fair value of certain acquired vendor relationships as a critical audit matter. The principal considerations for our determination included the subjectivity and judgment required to determine projected revenue, projected operating margin and the discount rate used to determine the fair value of certain vendor relationships acquired. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
● Assessing the reasonableness of the revenue projections and projected operating margins for certain vendor relationships acquired by (i) evaluating historical performance of the acquired entity, (ii) obtaining publicly available information to evaluate management plans, (iii) performing a sensitivity analysis of the assumptions used in the discounted cash flow and evaluating the potential effect of changes in these assumptions, and iv) evaluating the consistency of forecasted amounts against information obtained through inquiries made of certain individuals.
● Utilizing professionals with specialized skills and knowledge to assist in (i) evaluating the appropriateness of the valuation model used by management, (ii) testing the mathematical accuracy of the Company’s calculations, and (iii) evaluating the reasonableness of the discount rate used in the cash flow model for the determination of the fair value of certain acquired vendor relationships.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2018.
Woodbridge, New Jersey
March 16, 2023
F-5
Table of Contents
Climb Global Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except share and per share amounts)
December 31,
December 31,
2022
2021
ASSETS
Current assets:
Cash and cash equivalents
$
20,245
$
29,272
Accounts receivable, net of allowance for doubtful accounts of $ 842 and $ 881 , respectively
154,596
122,502
Inventory, net
4,766
2,022
Vendor prepayments and advances
890
661
Prepaid expenses and other current assets
4,141
4,871
Total current assets
184,638
159,328
Equipment and leasehold improvements, net
3,515
1,932
Goodwill
18,963
17,188
Other intangibles, net
19,693
9,950
Right-of-use assets, net
1,235
1,628
Accounts receivable-long-term, net
3,114
78
Other assets
350
459
Deferred income tax assets
348
189
Total assets
$
231,856
$
190,752
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses
$
160,650
$
134,271
Lease liability, current portion
521
475
Term loan, current portion
520
—
Total current liabilities
161,691
134,746
Lease liability, net of current portion
1,296
1,810
Deferred income tax liabilities
4,137
1,780
Term loan, net of current portion
1,292
—
Non-current liabilities
2,866
—
Total liabilities
171,282
138,336
Commitments and contingencies
Stockholders’ equity:
Common stock, $ .01 par value per share; 10,000,000 shares authorized; 5,284,500 shares issued: 4,478,432 and 4,424,672 shares outstanding, respectively
53
53
Additional paid-in capital
32,715
32,087
Treasury stock, at cost, 806,068 and 859,828 shares, respectively
( 13,230 )
( 13,870 )
Retained earnings
43,904
34,396
Accumulated other comprehensive loss
( 2,868 )
( 250 )
Total stockholders’ equity
60,574
52,416
Total liabilities and stockholders' equity
$
231,856
$
190,752
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Table of Contents
Climb Global Solutions, Inc. and Subsidiaries
Consolidated Statements of Earnings
(Amounts in thousands, except per share amounts)
Year ended
December 31,
2022
2021
Net sales
$
304,348
$
282,582
Cost of sales
250,254
236,866
Gross profit
54,094
45,716
Selling, general, and administrative expenses
34,144
32,136
Acquisition related costs
582
—
Amortization and depreciation expense
2,054
1,529
Income from operations
17,314
12,051
Other income:
Interest, net
159
359
Foreign currency transaction loss
( 941 )
( 46 )
Income before provision for income taxes
16,532
12,364
Provision for income taxes
4,035
3,166
Net income
$
12,497
$
9,198
Income per common share-Basic
$
2.81
$
2.09
Income per common share-Diluted
$
2.81
$
2.09
Weighted average common shares outstanding — Basic
4,331
4,272
Weighted average common shares outstanding — Diluted
4,331
4,272
Dividends paid per common share
$
0.68
$
0.68
The accompanying notes are an integral part of the consolidated financial statements.
F-7
Table of Contents
Climb Global Solutions, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Amounts in thousands)
Year ended
December 31,
2022
2021
Net income
$
12,497
$
9,198
Other comprehensive (loss) income:
Foreign currency translation adjustments
( 2,618 )
492
Other comprehensive (loss) income
( 2,618 )
492
Comprehensive income
$
9,879
$
9,690
The accompanying notes are an integral part of the consolidated financial statements.
F-8
Table of Contents
Climb Global Solutions, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(Amounts in thousands, except share amounts)
Accumulated
Additional
Other
Common Stock
Paid-In
Treasury
Retained
Comprehensive
Shares
Amount
Capital
Shares
Amount
Earnings
(Loss) Income
Total
Balance at January 1, 2021
5,284,500
53
31,962
922,503
( 14,747 )
28,191
( 742 )
44,717
Net income
—
—
—
—
—
9,198
—
9,198
Translation adjustment
—
—
—
—
—
—
492
492
Dividends paid
—
—
—
—
—
( 2,993 )
—
( 2,993 )
Share-based compensation expense
—
—
1,546
—
—
—
—
1,546
Restricted stock grants (net of forfeitures)
—
—
( 1,421 )
( 83,963 )
1,421
—
—
—
Treasury shares repurchased
—
—
—
21,288
( 544 )
—
—
( 544 )
Balance at December 31, 2021
5,284,500
53
32,087
859,828
( 13,870 )
34,396
( 250 )
52,416
Net income
—
—
—
—
—
12,497
—
12,497
Translation adjustment
—
—
—
—
—
—
( 2,618 )
( 2,618 )
Dividends paid
—
—
—
—
—
( 2,989 )
—
( 2,989 )
Share-based compensation
—
—
1,923
—
—
—
—
1,923
Restricted stock grants (net of forfeitures)
—
—
( 1,295 )
( 74,449 )
1,295
—
—
—
Treasury shares repurchased
—
—
—
20,689
( 655 )
—
—
( 655 )
Balance at December 31, 2022
5,284,500
$
53
$
32,715
806,068
$
( 13,230 )
$
43,904
$
( 2,868 )
$
60,574
The accompanying notes are an integral part of the consolidated financial statements
F-9
Table of Contents
Climb Global Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
Year ended
December 31,
2022
2021
Cash flows from operating activities
Net income
$
12,497
$
9,198
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation and amortization expense
2,066
1,534
Provision for doubtful accounts
19
26
Deferred income tax (benefit) expense
( 535 )
228
Share-based compensation expense
1,897
1,546
Amortization of discount on accounts receivable
( 109 )
( 55 )
Amortization of right-of-use assets
426
468
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
( 35,826 )
( 28,577 )
Inventory
( 2,751 )
2,914
Prepaid expenses and other current assets
1,025
( 1,004 )
Vendor prepayments
( 230 )
574
Accounts payable and accrued expenses
25,411
18,616
Lease liability, net
( 503 )
( 534 )
Other assets and liabilities
1,174
( 222 )
Net cash and cash equivalents provided by operating activities
4,561
4,712
Cash flows from investing activities
Purchase of equipment and leasehold improvements
( 2,502 )
( 258 )
Payment for acquisitions, net of cash acquired
( 8,511 )
—
Net cash and cash equivalents used in investing activities
( 11,013 )
( 258 )
Cash flows from financing activities
Purchase of treasury stock
( 655 )
( 544 )
Borrowings under term loan
2,148
—
Repayments of borrowings under term loan
( 336 )
—
Dividends paid
( 2,989 )
( 2,993 )
Contingent consideration
—
( 862 )
Net cash and cash equivalents used in financing activities
( 1,832 )
( 4,399 )
Effect of foreign exchange rate on cash and cash equivalents
( 743 )
( 131 )
Net decrease in cash and cash equivalents
( 9,027 )
( 76 )
Cash and cash equivalents at beginning of period
29,272
29,348
Cash and cash equivalents at end of period
$
20,245
$
29,272
Supplementary disclosure of cash flow information:
Income taxes paid
$
4,278
$
2,700
Interest paid
50
43
The accompanying notes are an integral part of the consolidated financial statements.
F-10
Table of Contents
Climb Global Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in tables in thousands, except share and per share amounts)
Note 1. Description of Business
Climb Global Solutions, Inc. (formerly known as Wayside Technology Group, Inc.) and Subsidiaries (the “Company”), was incorporated in Delaware in 1982. The Company distributes technology products developed by others to resellers who in turn sell to end customers worldwide. The Company also is a cloud solutions provider and value-added reseller of software, hardware and services to customers worldwide. The Company also operates in Canada, the United Kingdom and Europe. The Company offers an extensive line of products from leading 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.
The Company is organized into two reportable operating segments. The “Distribution” segment distributes technical software to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide under the name “Climb Channel Solutions”. The “Solutions” segment is a cloud solutions provider and value-added reseller of software, hardware and services to customers worldwide under the names “Grey Matter”.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation and Operations
The consolidated financial statements include the accounts of Climb Global Solutions, Inc. and its wholly owned subsidiaries . All intercompany transactions and balances have been eliminated.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company may utilize third-party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make extensive use of certain estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The significant areas of estimation include but are not limited to accounting for allowance for doubtful accounts, sales returns, allocation of revenue in multiple deliverable arrangements, principal vs. agent considerations, discount rates applicable to long term receivables, inventory obsolescence, income taxes, depreciation, amortization of intangible assets, contingencies and stock-based compensation. Actual results could differ from those estimates.
Net Income Per Common Share
Our basic and diluted earnings per share are computed using the two-class method. The two-class method is an earnings allocation method 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
F-11
Table of Contents
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.
A reconciliation of the numerators and denominators of the basic and diluted per share computations follows:
Year ended December 31,
2022
2021
Numerator:
Net income
$
12,497
$
9,198
Less distributed and undistributed income allocated to participating securities
317
269
Net income attributable to common shareholders
12,180
8,929
Denominator:
Weighted average common shares (Basic)
4,331
4,272
Weighted average common shares including assumed conversions (Diluted)
4,331
4,272
Basic net income per share
$
2.81
$
2.09
Diluted net income per share
$
2.81
$
2.09
Cash Equivalents
The Company considers all liquid short-term investments with maturities of 90 days or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable principally represents amounts collectible from our customers. The Company performs ongoing credit evaluations of its customers but generally does not require collateral to support any outstanding obligation. From time to time, we sell accounts receivable to a financial institution on a non-recourse basis for cash, less a discount. The Company has no significant retained interests or servicing liabilities related to the accounts receivable sold. Proceeds from the sale of receivables approximated their discounted book value and were included in operating cash flows on the Consolidated Statements of Cash Flows.
Allowances for Accounts Receivable
We provide an allowance for doubtful accounts related to accounts receivable for estimated losses resulting from the inability of our customers to make required payments. We take into consideration the overall quality and aging of the receivable portfolio along with specifically identified customer risks. If actual customer payment performance were to deteriorate to an extent not expected, additional allowances may be required. At the time of sale, we also record an estimate for sales returns based on historical experience, which is included in accounts payable and accrued expenses on the Consolidated Balance Sheets. If actual sales returns are greater than estimated by management, an additional return allowance may be required as an offset to net sales.
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. Cumulative translation adjustments have been classified within accumulated other comprehensive loss, which
F-12
Table of Contents
is a separate component of stockholders’ equity in accordance FASB ASC Topic No. 220, “Comprehensive Income”. Foreign currency transaction gains and losses are recorded as income or expenses as amounts are settled.
For foreign currency remeasurement from each local currency into the appropriate functional currency, monetary assets and liabilities are remeasured to functional currencies using current exchange rates in effect at the balance sheet date. Gains or losses from these remeasurements have been included in the Company's Consolidated Statements of Earnings. Non-monetary assets and liabilities are recorded at historical exchange rates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations in credit risk consist of cash and cash equivalents.
The Company’s cash and cash equivalents, at times, may exceed federally insured limits. The Company’s cash and cash equivalents are deposited primarily in banking institutions with global operations. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Financial Instruments
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of December 31, 2022 and 2021, because of the relative short maturity of these instruments. The Company’s accounts receivable-long-term is discounted to its present value at prevailing market rates at the time of sale which, approximates fair value as of December 31, 2022 and 2021.
Inventory
Inventory, consisting primarily of finished products held for resale, is valued based on the first-in-first-out method of accounting and is stated at the lower of cost or net realizable value.
Vendor Prepayments and Advances
Vendor prepayments represents advance payments made to vendors to be applied against future purchases. Any amounts not expected to be utilized to apply against purchases within one year are reclassified to other long-term assets.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost or fair value, if purchased as part of a business combination. Equipment depreciation is calculated using the straight-line method over three to five years . Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the related lease terms, whichever is shorter.
Software Development Costs
The Company capitalizes certain internal and external costs incurred to acquire or create internal-use software. Capitalized software costs are amortized on a straight-line basis over the estimated useful life of the software, which is generally four to seven years . At December 31, 2022 and 2021, the Company had unamortized software development costs of $ 2.4 million and $ 0.7 million, respectively, which are included in "Equipment and leasehold improvements" in the Company's Consolidated Balance Sheets. As of December 31, 2022, this includes $ 2.3 million for an internal-use software project that amortization expense has not yet been recognized for as the internal-use software is not ready for its intended use. As of December 31, 2021, there were no such costs capitalized for this project.
F-13
Table of Contents
Accounts Receivable-Long-Term
Accounts receivable-long-term result from product sales with extended payment terms that are discounted to their present values at the 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.
Goodwill
We test goodwill for impairment on an annual basis and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company performs an evaluation of goodwill, utilizing either a qualitative or quantitative impairment test. The annual test for impairment is conducted as of October 1. The Company’s reporting units included in the assessment of potential goodwill impairment are the same as its operating segments. Goodwill is not amortized but is subject to periodic testing for impairment at the reporting unit level.
In a qualitative assessment, we assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill. If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary.
If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform the quantitative goodwill impairment test. We may also elect the unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test.
In the quantitative impairment test, we compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. Conversely, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including net sales growth rates, gross profit margins, operating margins, discount rates and future market conditions, among others. Any changes in the judgments, estimates or assumptions used could produce significantly different results.
Intangible Assets
Intangible assets with determinable lives are amortized on a straight-line basis over their respective estimated useful lives, which is determined based on their expected period of benefit. Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset's carrying amount over its fair value. In addition, each quarter, the Company evaluates whether events and circumstances warrant a revision to the remaining estimated useful life of each of these intangible assets. If the Company were to determine that a change to the remaining estimated useful life of an intangible asset was necessary, then the remaining carrying amount of the intangible asset would be amortized prospectively over that revised remaining useful life.
F-14
Table of Contents
Comprehensive Income
Comprehensive income consists of net income for the year and the impact of unrealized foreign currency translation adjustments. The foreign currency translation adjustments are not currently adjusted for income taxes as they relate to permanent investments in international subsidiaries.
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 Company has contracts with certain customers where the Company’s performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as the Company assumes an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent. These arrangements primarily relate to third party maintenance, cloud services and certain security software whose intended functionality is dependent on third party maintenance.
The Company allows its customers to return product for exchange or credit subject to certain limitations. A liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded 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 the related shipping and handling costs are included in cost of sales. 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. For additional information, see Note 13 (Industry, Segment and Geographic Information).
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 with the customer, product returns, and has risk of loss if the customer does not make payment. As the principal with the customer, the Company recognizes revenue upon receiving notification from the vendor that the product was shipped. Control of software products is deemed to have passed to the customer when they acquire the right to use or copy the software under license as substantially all product functionality is available to the customer at the time of sale.
The Company performs an analysis of the number of days of sales in-transit to customers at the end of each reporting period based on an analysis of commercial delivery terms that include drop-shipment arrangements. This analysis is the basis upon which the Company estimates the amount of net sales in-transit at the end of the period and adjusts revenue and the related costs to reflect only what has been delivered to the customer. Changes in delivery patterns may result in a different number of business days estimated to make this adjustment. The Company also performs a weighted average analysis of the estimated number of days between order fulfillment and beginning of the renewal term for term licenses recorded on a gross basis, and a deferral estimate is recorded for term license renewals fulfilled prior to commencement date.
F-15
Table of Contents
Generally, software products are sold with accompanying third-party delivered software assurance, which is 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, 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 net basis at the point the associated software license is delivered to the customer. The Company sells cloud computing solutions that utilize third-party vendors to enable customers to access data center functionality in a cloud-based solution, including storage, computing and networking and access to software in the cloud that enhances office productivity, provides security or assists in collaboration. The Company recognizes revenue for cloud computing solutions for arrangements with one-time invoicing to the customer at the time of 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 for its monthly usage on a net basis. For software licenses where the accompanying third-party delivered software assurance is not critical or essential to the core functionality, the software assurance is recognized as a separate performance obligation, with the associated revenue recognized on a net basis at the point the related software license is delivered to the customer.
The Company also sells some of its products and services as part of bundled contract arrangements containing multiple deliverables, which may include a combination of products and services. For each deliverable that represents a distinct performance obligation, total arrangement consideration is allocated based upon the standalone selling prices (“SSP”) of each performance obligation. SSP is determined based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through established standard prices, we use judgement and estimate the standalone selling price considering available information such as market pricing and pricing related to similar products.
Freight
The Company records freight billed to its customers as net sales and the related freight costs as cost of sales when the underlying product revenue is recognized. For freight not billed to its customers, the Company records the freight costs as cost of sales. The Company’s typical shipping terms result in shipping being performed before the customer obtains control of the product. The Company considers shipping to be a fulfillment activity and not a separate performance obligation.
Commissions
The Company 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.
Stock-Based Compensation
The Company has stockholder-approved stock incentive plans for employees and directors. Stock-based compensation is recognized based on the grant date fair value and is recognized as expense on a straight-line basis over the requisite service period.
Operating Segments
Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in
F-16
Table of Contents
assessing performance. The Company's operations are classified into two reportable business segments: Distribution and Solutions. For additional information, see Note 13 (Industry, Segment and Geographic Information).
Treasury Stock
Treasury stock is accounted for at cost. Shares repurchased by the Company are held in treasury for general corporate purposes, including issuances under equity incentive plans. The reissuance of shares from treasury stock is based on the weighted average purchase price of the shares.
Interest, net
Interest, net consists primarily of income from the amortization of the discount on accounts receivable long term, net of interest expense that is inclusive of fees associated with the Company’s credit facility.
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. This method also requires a valuation allowance against the net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all the deferred tax assets will not be realized. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense when assessed. The Company accounts for uncertainties in accordance with FASB ASC 740 “Income Taxes”. This standard clarified the accounting for uncertainties in income taxes. The standard prescribes criteria for recognition and measurement of tax positions. It also provides guidance on derecognition, classification, interest and penalties, and disclosures related to income taxes associated with uncertain tax positions. The Company classifies all deferred tax asset or liabilities as non-current on the balance sheet.
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.
Recently Issued Accounting Pronouncements
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. Effective January 1, 2023, the company will adopt the update using a modified retrospective approach with a cumulative-effect adjustment to retained earnings. The new credit loss standard is not expected to have a material effect on our financial position, results of operations or cash flows.
F-17
Table of Contents
3. Acquisition
Acquisition of Spinnakar Limited
On August 18, 2022, the Company entered into a Share Purchase Agreement and purchased the entire share capital of Spinnakar Limited (“Spinnakar”) for an aggregate purchase price of approximately £ 9.8 million (equivalent to $ 11.8 million USD), subject to certain working capital and other adjustments, paid at closing plus a potential post-closing earn-out. The allocation of the purchase price was based upon the estimated fair value of Spinnakar’s net tangible and identifiable intangible assets as of the date of the acquisition. The transaction was accounted for under the purchase method of accounting.
The financial position and operating results of Spinnakar is included in the Company’s consolidated financial statements from the date of acquisition. The Company recorded net revenue for Spinnakar of approximately $ 6.0 million and net income of approximately $ 0.4 million during the year ended December 31, 2022.
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 is depicted in the table below. Due to the timing of the closing of the transaction in the third quarter of 2022, the Company has not yet completed its evaluation and determination of certain assets acquired and liabilities assumed, primarily the final valuation of goodwill and intangible assets and the final evaluation and assessment of income tax accounts; therefore, the final fair value of the assets acquired and liabilities assumed, which will be completed within the measurement period of up to one year from the acquisition date, may vary from the Company’s preliminary estimates:
(in thousands)
Cash
$
3,325
Trade accounts receivable
1,852
Other current assets
367
Vendor relationships ( 10.4 -year weighted average useful life)
11,687
Goodwill
3,244
Accounts payable and other current liabilities
( 3,977 )
Deferred income tax liabilities
( 2,892 )
Net assets
$
13,606
(in thousands)
Supplementary information:
Cash paid to sellers
$
11,836
Contingent earn-out
1,771
Total purchase consideration
$
13,607
Cash paid to sellers
11,836
Cash acquired in acquisition
( 3,325 )
Net cash paid for acquisition
$
8,511
Intangible assets are comprised of approximately $ 11.7 million of vendor relationships with a weighted average amortization period of 10.4 years, representing the expected period of benefits. Goodwill, which was allocated to the Distribution 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.
F-18
Table of Contents
The purchase consideration includes approximately $ 1.8 million fair value for potential earn-out consideration if certain targets are achieved, payable in cash. The earn-out liability is included in non-current liabilities as of December 31, 2022, as any payments upon achievement of the certain targets wouldn’t be due within the next 12 months.
The Company incurred acquisition related costs of approximately $ 0.6 million during the year ended December 31, 2022 in conjunction with the Spinnakar acquisition, which is reflected in the accompanying consolidated statements of earnings. There were no acquisition related costs incurred during the year ended December 31, 2021.
F-19
Table of Contents
4. Goodwill and Other Intangible Assets
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 following table summarizes the changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021.
Balance at January 1, 2021
$
16,816
Translation adjustments
372
Balance December 31, 2021
$
17,188
Goodwill acquired
3,244
Translation adjustments
( 1,469 )
Balance at December 31, 2022
$
18,963
Information related to the Company’s other intangibles, net is as follows:
As of December 31, 2022
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Customer and vendor relationships
$
21,457
2,165
19,292
Trade name
468
67
401
Total
$
21,925
$
2,232
$
19,693
As of December 31, 2021
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Customer and vendor relationships
$
10,550
$
1,079
$
9,471
Trade name
519
40
479
Total
$
11,069
$
1,119
$
9,950
Customer relationships are amortized over thirteen years . Vendor relationships are amortized between eight and fifteen years . Trade name is amortized over fifteen years .
The Company recognized total amortization expense for other intangibles, net of $ 1.2 million and $ 0.9 million during the years ended December 31, 2022 and 2021, respectively.
Estimated future amortization expense of the Company’s other intangibles, net as of December 31, 2022 is as follows:
2023
1,875
2024
1,875
2025
1,875
2026
1,875
2027
1,875
Thereafter
10,318
Total
$
19,693
F-20
Table of Contents
5. 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 3 years to 11 years . The Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets and lease expense for these leases is recognized on a straight-line basis over the lease term.
Right-of-use 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 right-of-use assets and liabilities are recognized at commencement date of the lease based on the present value of the lease payments over the lease term. As our leases do not provide a readily determinable implicit rate, we use an incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term and included in selling, general and administrative expenses.
Information related to the Company’s right-of-use assets and related lease liabilities were as follows:
Year ended
December 31,
2022
2021
Cash paid for operating lease liabilities
$
647
$
598
Right-of-use assets obtained in exchange for new operating lease obligations
$
63
$
163
Weighted-average remaining lease term
3.9 years
5.1 years
Weighted-average discount rate
3.5 %
3.5 %
Maturities of lease liabilities as of December 31, 2022 were as follows:
2023
624
2024
540
2025
548
2026
546
2027
125
2,383
Less: imputed interest
( 566 )
Total lease liabilities
$
1,817
Lease liabilities, current portion
521
Lease liabilities, net of current portion
1,296
Total lease liabilities
$
1,817
F-21
Table of Contents
6. Balance Sheet Detail
Equipment and leasehold improvements, net consist of the following:
December 31,
December 31,
2022
2021
Equipment
$
2,720
$
2,627
Capitalized software
2,997
816
Leasehold improvements
1,848
1,762
7,565
5,205
Less accumulated depreciation and amortization
( 4,050 )
( 3,273 )
$
3,515
$
1,932
Depreciation expense relating to equipment and leasehold improvements, net was $ 0.4 million and $ 0.5 million during the years ended December 31, 2022 and 2021, respectively. Amortization expense relating to capitalized software was $ 0.4 million and $ 0.1 million during the years ended December 31, 2022 and 2021.
Accounts receivable – long term, net consist of the following:
December 31,
December 31,
2022
2021
Total amount due from customers
$
5,213
$
484
Less: unamortized discount
( 188 )
( 8 )
Less: current portion included in accounts receivable
( 1,911 )
( 398 )
$
3,114
$
78
Accounts payable and accrued expenses consist of the following:
December 31,
December 31,
2022
2021
Trade accounts payable
$
151,180
$
125,908
Accrued expenses
9,470
8,363
$
160,650
$
134,271
Accumulated other comprehensive loss consists of the following:
December 31,
December 31,
2022
2021
Foreign currency translation adjustments
$
( 2,618 )
$
492
$
( 2,618 )
$
492
F-22
Table of Contents
7. Income Taxes
Deferred tax attributes resulting from differences between the tax basis of assets and liabilities and the reported amounts in the Consolidated Balance Sheets are as follows:
December 31,
December 31,
2022
2021
Deferred tax assets:
Accruals and reserves
$
631
$
501
Deferred rent credit
146
163
Depreciation and amortization
38
24
Total deferred tax assets
815
688
Deferred tax liabilities:
Accruals and reserves
—
( 67 )
Depreciation and amortization
( 4,604 )
( 2,212 )
Total deferred tax liabilities
( 4,604 )
( 2,279 )
Net deferred tax liabilities
$
( 3,789 )
$
( 1,591 )
The provision for income taxes is as follows:
Year ended December 31,
2022
2021
Current:
Federal
$
2,694
$
1,692
State
622
572
Foreign
1,254
674
4,570
2,938
Deferred:
Federal
( 124 )
( 45 )
State
( 30 )
( 12 )
Foreign
( 381 )
285
( 535 )
228
$
4,035
$
3,166
Effective Tax Rate
24.4
%
25.6
%
The reasons for the difference between total tax expense and the amount computed by applying the U.S. statutory federal income tax rate to income before income taxes are as follows:
Year ended December 31,
2022
2021
Statutory rate applied to pretax income
$
3,472
$
2,596
State income taxes, net of federal income tax benefit
468
442
Other permanent items
156
19
Foreign income taxes over U.S. statutory rate
137
( 18 )
Other items
11
( 36 )
Adjustment for foreign rate change
—
353
Dividends
( 9 )
( 17 )
GILTI, net of foreign tax credits
( 50 )
( 38 )
Stock compensation
( 150 )
( 135 )
Income tax expense
$
4,035
$
3,166
F-23
Table of Contents
The Company has analyzed filing positions in all the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company has identified its federal consolidated tax return, its state tax returns, its Canadian tax return and its tax return in the United Kingdom as major tax jurisdictions. As of December 31, 2022, the Company’s 2019 through 2021 Federal tax returns remain open for examination. The Company’s various states and Canadian tax returns are open for examination for the years 2018 through 2021. The Company’s tax return in the United Kingdom is open for examination for the years 2020 and 2021. 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 experience and interpretations of tax law applied to the facts of each matter.
For financial reporting purposes, income before income taxes includes the following components:
Year ended December 31,
2022
2021
United States
$
12,968
$
9,355
Foreign
3,564
3,009
$
16,532
$
12,364
The Company has approximately $ 8 .0 million of undistributed earnings in Canada and $ 1.5 million of undistributed earnings in the United Kingdom, which it continues to reinvest indefinitely, and therefore no withholding taxes related to its repatriation has been recorded.
There was no activity related to the Company’s unrecognized tax benefits during the year ended December 31, 2022. The following table summarizes the activity related to the Company’s unrecognized tax benefits as of December 31, 2021:
2021
Balance as of January 1
$
49
Additions related to prior period tax positions
-
Reductions related to settlements with tax authorities
( 49 )
Balance as of December 31
$
-
During the years ended December 31, 2022 and 2021, the Company incurred interest and penalties of zero , respectively, related to these uncertain tax benefits.
8. Credit Facility
On November 15, 2017, the Company entered into a $ 20 million 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 (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 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,
F-24
Table of Contents
with the LIBOR Rate not to be less than 0.75 percentage points. Interest on the unpaid principal balance of the Amended Note will be calculated using a rate of 1.75 percentage points over the LIBOR Rate. If the LIBOR Rate 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.
At December 31, 2022 and 2021, the Company had no borrowings outstanding under the Credit Facility. The Company incurred $ 0.1 million of interest expense, related to the Credit Facility during the years ended December 31, 2022 and 2021, respectively .
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 million (“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, 2023, 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 December 31, 2022 and 2021, Wayside UK had no borrowings outstanding under the Uncommitted Credit Facility.
On April 8, 2022, the Company entered into a $ 2.1 million term loan (the “Term Loan”) with First American Commercial Bancorp, Inc. pursuant to a Master Loan and Security Agreement. The proceeds from the Term Loan will be used to fund certain capital expenditures. The borrowing under the Term Loan bears interest at a rate of 3.73 % per annum and is being repaid over forty-eight monthly installments of principal and interest through April 2026.
As of December 31, 2022, the Company had $ 1.8 million outstanding under the Term Loan. There were no amounts outstanding under the Term Loan as of December 31, 2021.
As of December 31, 2022, future principal payments under the Term Loan are as follows:
Year ended December 31,
2023
520
2024
540
2025
560
2026
192
Total
$
1,812
9. 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 December 31, 2022, the number of shares of Common Stock available for future award grants to employees, officers and directors under the 2021 Plan is 373,594 .
F-25
Table of Contents
The 2012 Stock-Based Compensation Plan (the “2012 Plan”) authorizes the grant of Stock Options, Stock Units, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Bonuses and other equity-based awards. The total number of shares of the Company’s Common Stock initially available for award under the 2012 Plan was 600,000 , which was increased to 1,000,000 shares by stockholder approval at the Company’s 2018 Annual Meeting in June 2018. Immediately prior to the replacement of the 2012 Plan by the 2021 Plan, there were 352,158 shares of Common Stock available under the 2012 Plan. The 2012 Plan has been replaced by the 2021 Plan and none of the remaining shares of Common Stock authorized under the 2012 Plan will be transferred to or used under the 2021 Plan nor will any awards under the 2012 Plan that are forfeited increase the shares available for awards under the 2021 Plan. As of December 31, 2022, the number of shares of Common Stock available under the 2012 Plan is zero .
During the year ended December 31, 2022, the Company granted a total of 78,505 shares of Restricted Stock to officers, directors and employees. These shares of Restricted Stock vest immediately or over time in up to sixteen equal quarterly installments. During the year ended December 31, 2022, 4,056 shares of Restricted Stock were forfeited as a result of employees terminating employment with the Company.
During the year ended December 31, 2021, the Company granted a total of 106,122 shares of Restricted Stock to officers, directors and employees. These shares of Restricted Stock vest immediately or over time in up to sixteen equal quarterly installments. During the year ended December 31, 2021, 22,159 shares of Restricted Stock were forfeited as a result of officers and employees terminating employment with the Company.
There was no options activity during the year ended December 31, 2022 and 2021 and there were no options outstanding or exercisable at December 31, 2022 and 2021, respectively, under both the Company’s 2012 Plan and 2021 Plan.
Under the various plans, options that are cancelled can be reissued. At December 31, 2022, no cancelled options were reserved for future reissuance.
A summary of nonvested shares of Restricted Stock awards outstanding under the Company’s 2012 Plan as of December 31, 2022, and 2021 and changes during the years ended December 31, 2022 and 2021 is as follows:
Weighted
Average Grant
Date
Shares
Fair Value
Nonvested shares at January 1, 2021
122,792
$
13.37
Granted in 2021
106,122
22.96
Vested in 2021
( 84,653 )
17.47
Forfeited in 2021
( 22,159 )
16.14
Nonvested shares at December 31, 2021
122,102
$
18.35
Granted in 2022
78,505
31.83
Vested in 2022
( 75,492 )
21.93
Forfeited in 2022
( 4,056 )
19.20
Nonvested shares at December 31, 2022
121,059
$
24.83
As of December 31, 2022, there was approximately $ 2.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.3 years.
For the years ended December 31, 2022 and 2021, the Company recognized share-based compensation cost of approximately $ 1.9 million and $ 1.5 million, respectively, which is included in selling, general and administrative expenses.
F-26
Table of Contents
10. Defined Contribution Plan
The Company maintains a defined contribution plan covering substantially all employees. Participating employees may make contributions to the plan, through payroll deductions. Matching contributions are made by the Company equal to 50 % of the employee’s contribution to the extent such employee contribution did not exceed 6 % of their compensation. During the years ended December 31, 2022 and 2021, the Company expensed approximately $ 0.3 million, respectively, related to this plan.
11. Commitments and Contingencies
Employment Agreements
The Company has entered into employment agreements with four of its executive officers. If the Company terminates their respective employment for any reason other than for cause, these executive officers are entitled to severance payments ranging from six to twelve months at each executive officer’s then applicable base salary. Certain of these executive officers are entitled to additional severance payments if the Company terminates their respective employment for any reason other than for cause during the term of their employment and on or within twelve months following a change in control.
Other
As of December 31, 2022, the Company has no standby letters of credit, has no standby repurchase obligations or other commercial commitments. The Company has a line of credit see Note 8 (Credit Facility). Other than employment agreements, other management compensation arrangements and related party transactions as disclosed in Note 12, the Company is not engaged in any other transactions with related parties.
12. Related Party Transactions
The Company made sales to a customer where a member of our Board of Directors was formerly an executive. This member of our Board of Directors employment with the customer ended during the second quarter of fiscal 2022 and prior to this member of Board of Directors employment ending, net sales to this customer totaled approximately $ 0.2 million, which was subsequently collected in full. During the year ended December 31, 2021, net sales to this customer totaled $ 0.3 million and amounts due from this customer as of December 31, 2021 totaled zero .
The Company made sales to a customer where a family member of one of our executive’s has a minority ownership position. During the year ended December 31, 2022 and 2021, net sales to this customer totaled $ 1.8 million and $ 0.4 million, respectively, and amounts due from this customer as of December 31, 2022 and 2021 totaled $ 0.1 million and $ 0.2 million, respectively. The Company also accrued referral fees totaling zero and $ 0.2 million to this customer during the year ended December 31, 2022 and 2021, respectively, and amounts owed to this customer for these referral fees as of December 31, 2022 and 2021 totaled zero and $ 0.1 million, respectively.
13. Industry, Segment and Geographic Financial Information
The Company distributes software developed by others through resellers indirectly to customers worldwide. We also resell computer software and hardware developed by others and provide technical services directly to customers worldwide.
FASB ASC Topic 280, “Segment Reporting,” requires that public companies report profits and losses and certain other information on their “reportable operating segments” in their annual and interim financial statements. The internal organization used by the public company’s Chief Operating Decision Maker (CODM) to assess performance and allocate resources determines the basis for reportable operating segments. The Company’s CODM is the Chief Executive Officer.
The Company is organized into two reportable operating segments. The “Distribution” segment distributes technical software to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide.
F-27
Table of Contents
The “Solutions” segment is a cloud solutions provider and value-added reseller of software, hardware and services to customers worldwide.
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 international operations provide the same products and services to similar clients and are considered together when the Company’s CODM decides how to allocate resources.
Segment income is based on segment net sales less the respective segment’s cost of sales 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:
Year ended
December 31,
2022
2021
Net Sales:
Distribution
$
282,509
$
259,360
Solutions
21,839
23,222
304,348
282,582
Gross Profit:
Distribution
$
44,970
$
36,526
Solutions
9,124
9,190
54,094
45,716
Direct Costs:
Distribution
$
15,804
$
14,610
Solutions
4,296
4,741
20,100
19,351
Segment Income Before Taxes: (1)
Distribution
$
29,166
$
21,916
Solutions
4,828
4,449
Segment Income Before Taxes
33,994
26,365
General and administrative
$
14,044
$
12,785
Amortization and depreciation expense
2,054
1,529
Acquisition related costs
582
—
Interest, net
159
359
Foreign currency transaction loss
( 941 )
( 46 )
Income before taxes
$
16,532
$
12,364
(1) Excludes general corporate expenses including acquisition related costs, amortization and depreciation expense, interest, and foreign currency transaction (loss) gain.
As of
As of
December 31,
December 31,
Selected Assets by Segment:
2022
2021
Distribution
$
180,602
$
133,506
Solutions
21,420
18,895
Segment Select Assets
202,022
152,401
Corporate Assets
29,834
38,351
Total Assets
$
231,856
$
190,752
F-28
Table of Contents
Geographic areas and net sales mix related to operations for the year ended December 31, 2022 and 2021 were as follows. Net sales is allocated to a geographic area based on the location of the sale, which is generally the customer’s country of domicile.
Year ended
December 31, 2022
Distribution
Solutions
Total
Geography
USA
$
225,380
$
11,137
$
236,517
Europe and United Kingdom
34,423
9,171
43,594
Canada
22,706
1,531
24,237
Total net sales
$
282,509
$
21,839
$
304,348
Timing of Revenue Recognition
Transferred at a point in time where the Company is principal (1)
$
251,334
$
15,044
$
266,378
Transferred at a point in time where the Company is agent (2)
31,175
6,795
37,970
Total net sales
$
282,509
$
21,839
$
304,348
Year ended
December 31, 2021
Distribution
Solutions
Total
Geography
USA
$
210,247
$
11,057
$
221,304
Europe and United Kingdom
26,055
10,652
36,707
Canada
23,058
1,513
24,571
Total net sales
$
259,360
$
23,222
$
282,582
Timing of Revenue Recognition
Transferred at a point in time where the Company is principal (1)
$
234,322
$
16,360
$
250,682
Transferred at a point in time where the Company is agent (2)
25,038
6,862
31,900
Total net sales
$
259,360
$
23,222
$
282,582
(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 December 31, 2022 and 2021 were as follows.
December 31,
December 31,
Identifiable Assets by Geographic Areas
2022
2021
USA
$
137,877
$
122,445
Canada
27,597
24,923
Europe and United Kingdom
66,382
43,384
Total
$
231,856
$
190,752
F-29
Table of Contents
For the year ended December 31, 2022, the Company had two customers that accounted for 21 %, and 16 %, respectively, of consolidated net sales and as of December 31, 2022, 16 % and 18 %, respectively, of total net accounts receivable. For the year ended December 31, 2022, the Company had two vendors that accounted for 17 % and 9 %, respectively, of our consolidated purchases.
For the year ended December 31, 2021, the Company had two customers that accounted for 18 %, and 17 %, respectively, of consolidated net sales and as of December 31, 2021, 18 % and 22 %, respectively, of total net accounts receivable. For the year ended December 31, 2021, the Company had two vendors that accounted for 20 % and 10 %, respectively of our consolidated purchases.
Our top five customers accounted for 52 % and 51 % of consolidated net sales for the years ended December 31, 2022 and 2021, respectively.
F-30
Table of Contents
Climb Global Solutions, Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
(Amounts in thousands)
Charged to
Beginning
Cost and
Ending
Description
Balance
Expense
Deductions
Balance
Year ended December 31, 2021
Allowance for doubtful accounts
$
892
$
26
$
37
$
881
Year ended December 31, 2022
Allowance for doubtful accounts
$
881
$
19
$
58
$
842
F-31
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.