What changed in this filing

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Item 9A. Controls and Procedures

2024-03-05 compared with 2023-03-16 · 251 added, 194 removed, 633 unchanged (41% of the section changed)

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Evaluation of Disclosure Controls and Procedures.

As required by Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures”, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end

of the period covered by this 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).

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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.

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.

As previously disclosed in this Annual Report on Form 10-K, on October 6, 2023 we completed the acquisition of Data Solutions.

SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from management’s assessment of internal control over financial reporting for a period not to exceed one year from date of acquisition.

Management has excluded from its assessment of internal control over financial reporting the operations and related assets of Data Solutions, which the Company began consolidating in October 2023.

The operations and related assets of Data Solutions were included in the consolidated financial statements of the Company and constituted 17% and 2% of total assets and net assets, respectively as of December 31, 2023, and 4% and 6% of consolidated net sales and net income for the year ended December 31, 2023.

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, 2023.

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.

The Company's independent registered public accounting firm, BDO USA, P.C., has audited the effectiveness of the Company's internal control over financial reporting as of December 31, 2023, as stated in their report, which is included herein.

Changes in Internal Control over Financial Reporting .

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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, 2023.

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.

Other Information

During the three months ended December 31, 2023, n o n e of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

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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.”

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.”

Executive Compensation

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Exhibits Required by Regulation S-K, Item 601:

Incorporated by Reference

Description of Exhibit

Share Purchase Agreement, dated August 18, 2022, by and among the seller listed therein, and Wayside Technology UK Holding Limited.

August 18, 2022

Share Purchase Agreement, dated October 6, 2023, by and among the sellers listed therein, Climb Global Solutions Holdings UK Limited, and the Company, as guarantor.

October 10, 2023

Form of Amended and Restated Certificate of Incorporation of the Company.

July 18, 1995

Certificate of Amendment of Restated Certificate of Incorporation of the Company.

November 3, 2006

Certificate of Amendment of Restated Certificate of Incorporation of the Company.

October 27, 2022

Amended and Restated Bylaws of the Company.

December 8, 2022

Specimen of Common Stock Certificate.

July 18, 1995

Description of Securities .

(filed herewith) .

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.

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.

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.

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.

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.

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.

Code of Ethics and Business Conduct.

Employment agreement dated January 15, 2020 between the Company and Dale Foster.

Credit Agreement, dated May 18, 2023, by and among the Company, Programmer’s Paradise, Inc., Climb Channel Solutions, Inc., Techxtend, Inc., ISP International Software Partners, Inc., Interwork Technologies Inc., Climb Global Solutions Holdings UK LTD, Climb Global Solutions LTD, the other Loan Parties party thereto, the Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.

Pledge and Security Agreement, dated May 18, 2023, by and among Climb Global Solutions, Inc., Programmer’s Paradise, Inc., Climb Channel Solutions, Inc., Techxtend, Inc., ISP International Software Partners, Inc., Interwork Technologies Inc.

and JPMorgan Chase Bank, N.A., as Administrative Agent.

Incorporated by Reference

Description of Exhibit

Employment agreement dated January 2, 2018 between the Company and Charles Bass.

Employment agreement dated June 8, 2021 between the Company and Andrew Clark.

Offer Letter, dated January 6, 2003, from the Company to Vito Legrottaglie.

Form of Officer and Director Indemnification Agreement.

2012 Stock-Based Compensation Plan .

2021 Stock-Based Compensation Plan.

Form of Non-Qualified Stock Option Agreement.

April 24, 2012

2021 Omnibus Incentive Plan.

April 16, 2021

Climb Global Solutions, Inc., Executive Severance and Change in Control Plan.

April 20, 2023

Form of Performance-Based Restricted Award Unit Agreement .

April 20, 2023

Form of Restricted Stock Unit Agreement.

April 20, 2023

Form of Cash-Based Award Agreement.

April 20, 2023

Subsidiaries of the Registrant.

(filed herewith)

Consent of BDO USA, LLP, an Independent Registered Public Accounting Firm.

(filed herewith)

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).

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).

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).

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).

Consent of BDO USA, P.C., an Independent Registered Public Accounting Firm.

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 .

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.

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).

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.

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).

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.

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.

(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 .

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.

Clawback Policy For Incentive-Based Compensation.

Incorporated by Reference

Description of Exhibit

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Labels Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed herewith.

Furnished herewith.

Indicates management or compensatory plan or arrangement

Certain exhibits or schedules to this Exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K.

The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.

Form 10-K Summary

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Index to Consolidated Financial Statements and Schedule

Reports of Independent Registered Public Accounting Firm ( BDO USA, LLP ;

Reports of Independent Registered Public Accounting Firm ( BDO USA, P.C.

Woodbridge, New Jersey ;

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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”).

We have audited Climb Global Solutions, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2023, 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, 2023, 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.

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, 2023 and 2022, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the years then ended, and the related notes and schedule and our report dated March 5, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

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We believe that our audit provides a reasonable basis for our opinion.

As indicated in the accompanying Item 9A, Controls and Procedures, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Data Solutions Holdings Limited, which was acquired on October 6, 2023 and was included in the consolidated balance sheet of the Company as of December 31, 2023, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for the year then ended.

Data Solutions Holdings Limited constituted 17% and 2% of consolidated total assets and net assets, respectively, as of December 31, 2023, and 4% and 6% of consolidated net sales and net income, respectively, for the year then ended.

Management did not assess the effectiveness of internal control over financial reporting of Data Solutions Holdings Limited because of the timing of the acquisition.

Our audit of internal control over financial reporting of the Company did not include an evaluation of the internal control over financial reporting of Data Solutions Holdings Limited.

Definition and Limitations of Internal Control over Financial Reporting

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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

/s/ BDO USA, P.C.

Woodbridge, New Jersey

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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.

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the years then ended, 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, 2023 and 2022, and the results of its operations and its cash flows for the years then ended , 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, 2023, 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 5, 2024 expressed an unqualified opinion thereon.

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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.

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

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.

Acquisition – Valuation of Acquired Intangible Assets

As described in Note 3 to the Company’s consolidated financial statements, on October 6, 2023, the Company entered into a Share Purchase Agreement and purchased the entire share capital of Data Solutions Holdings Limited (“Data Solutions”) for an aggregate purchase price of approximately €15.0 million (equivalent to $15.9 million USD), subject to certain working capital and other adjustments, paid at closing plus a potential post-closing 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 an $8.3 million intangible asset related to vendor relationships.

We identified the discount rate used in the determination of the fair value of acquired vendor relationships as a critical audit matter.

The principal considerations for our determination included the subjectivity and judgment required to determine the discount rate.

Auditing this element involved especially challenging auditor judgment due to the nature and extent of audit effort required to address this matter, including the extent of specialized skills and 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

● Utilizing personnel with specialized skills and knowledge to assist in developing an independent discount rate and comparing it to the rate used by the Company to evaluate the reasonableness of the discount rate used in the determination of the fair value of the acquired vendor relationships.

/s/ BDO USA, P.C.

We have served as the Company's auditor since 2018.

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Right-of-use assets, net

Accounts receivable-long-term, net

Accounts receivable, net of current portion

Deferred income tax assets

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Stockholders’ equity:

Common stock, $ .01 par value per share;

Common stock, $ .01 par value;

10,000,000 shares authorized;

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(Amounts in thousands, except per share amounts)

Year ended December 31,

Cost of sales

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Acquisition related costs

Amortization and depreciation expense

Depreciation and amortization expense

Income from operations

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Weighted average common shares outstanding — Diluted

Dividends paid per common share

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

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(Amounts in thousands)

Other comprehensive (loss) income:

Other comprehensive income (loss):

Foreign currency translation adjustments

Other comprehensive (loss) income

Other comprehensive income (loss)

Comprehensive income

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Translation adjustment

Dividends paid

Dividends paid (per common share $ 0.68 )

Share-based compensation expense

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Translation adjustment

Dividends paid

Share-based compensation

Dividends paid (per common share $ 0.68 )

Share-based compensation expense

Restricted stock grants (net of forfeitures)

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Provision for doubtful accounts

Deferred income tax (benefit) expense

Deferred income tax benefit

Share-based compensation expense

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Amortization of right-of-use assets

Changes in operating assets and liabilities, net of acquisitions:

Changes in operating assets and liabilities:

Accounts receivable

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Purchase of treasury stock

Borrowings under credit facilities

Repayments of borrowings under credit facilities

Borrowings under term loan

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Dividends paid

Contingent consideration

Payments of deferred financing costs

Net cash and cash equivalents used in financing activities

Effect of foreign exchange rate on cash and cash equivalents

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

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Interest paid

Supplementary disclosure of non-cash investing and financing activities:

Contingent earn-out

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

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Climb Global Solutions, Inc.

(formerly known as Wayside Technology Group, Inc.) and Subsidiaries (the “Company”), was incorporated in Delaware in 1982.

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.

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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.

We apply the provisions of ASC 805, Business Combinations (“ASC 805”), in accounting for our acquisitions.

ASC 805 requires that we evaluate whether a transaction pertains to an acquisition of assets, or to an acquisition of a business.

A business is defined as an integrated set of assets and activities that is capable of being conducted and managed for the purpose of providing a return to investors.

Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets and liabilities assumed on a relative fair value basis;

whereas the acquisition of a business requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

Our valuation of acquired assets and assumed liabilities requires estimates, especially with respect to intangible assets that was derived using valuation techniques and models such as the income approach.

Such models require use of estimates including discount rates, and future expected revenue.

The approach to estimating an initial contingent consideration associated with the purchase price also uses similar unobservable factors such as projected cash flows over the term of the contingent earn-out period, discounted for the period over which the initial contingent consideration is measured and expected volatility.

Based upon these assumptions, the initial contingent consideration is then valued using a Monte Carlo simulation.

We have used third-party qualified specialists to assist management in determining the fair value of assets acquired and liabilities assumed.

This includes assistance with the determination of economic useful lives and valuation of identifiable intangibles.

We estimate the fair value based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from our estimates.

Estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities

As a result, during the measurement period, which may be up to one year from the business acquisition date, we record certain adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

All acquisition-related costs are accounted for as expenses in the period in which they are incurred.

Contingent consideration is remeasured each reporting period using Level 3 inputs, and the change in fair value, including accretion for the passage of time, is recognized in acquisition related costs in the consolidated statement of earnings.

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.

The significant areas of estimation include but are not limited to accounting for allowance for expected credit losses, sales returns, allocation of revenue in multiple deliverable arrangements, principal vs.

agent considerations, income taxes, depreciation, amortization of intangible assets, contingencies and stock-based compensation.

Actual results could differ from those estimates.

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Non-vested restricted stock awards that include non-forfeitable rights to dividends are considered participating securities.

Per share amounts are

computed by dividing net income available to common shareholders by the weighted average shares outstanding during each period.

Per share amounts are computed by dividing net income available to common shareholders by the weighted average shares outstanding during each period.

Diluted and basic earnings per share are the same because the restricted shares are the only potentially dilutive security.

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

Year ended December 31,

Less distributed and undistributed income allocated to participating securities

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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.

Allowances for Expected Credit Losses

The Company maintains allowances for expected credit losses for estimated losses resulting from the inability of its customers to make required payments.

Management determines the estimate of the allowance for expected credit losses by considering a number of factors, including historical experience, aging of the accounts receivable, as well as current market conditions and future forecasts of our customers’ ability to make payments for goods and services.

At the time of sale, we 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 returns allowance may be required as an offset to net sales.

Deferred Financing Costs

Deferred financing costs, such as financial advisory and other professional fees are capitalized and recognized in interest, net over the life of the related debt instrument using the straight-line method.

Deferred financing costs associated with the Company’s revolving credit facility are presented as an asset, within other assets on the Consolidated Balance Sheets.

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

is a separate component of stockholders’ equity in accordance FASB ASC Topic No.

Cumulative translation adjustments have been classified within accumulated other comprehensive loss, which is a separate component of stockholders’ equity in accordance FASB ASC Topic No.

220, “Comprehensive Income”.

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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 carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of December 31, 2023 and 2022, 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, 2023 and 2022.

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

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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.

Capitalized software costs are amortized on a straight-line basis over the estimated useful life of the software.

At December 31, 2023 and 2022, the Company had unamortized software development costs of $ 6.9 million and $ 2.4 million, respectively, which are included in "Equipment and leasehold improvements" in the Company's Consolidated Balance Sheets.

As of December 31, 2023, this includes $ 6.9 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.

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.

As of December 31, 2022, there were $ 2.3 million in capitalized costs for this project.

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.

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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.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of 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 different results.

Intangible Assets

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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.

As the principal with the customer, the Company recognizes revenue upon receiving notification from the vendor that the product

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.

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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

assessing performance.

The Company's operations are classified into two reportable business segments:

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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.

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

The Company utilizes the asset and liability method of accounting for income taxes.

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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.

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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.

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.

Effective January 1, 2023, the Company adopted the new credit loss standard and it did not have an impact on the Company’s financial statements.

In July 2023, the FASB issued Accounting Standards Update 2023-03, “ Presentation of Financial Statements (Topic 205), Income Statement — Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), Compensation — Stock Compensation (Topic 718) .” This ASU amends various paragraphs in the accounting codification pursuant to the issuance of Commission Staff Accounting Bulletin (“SAB”) number 120.

The ASU provides clarifying guidance related to employee and non-employee share-based payment accounting, including guidance related to spring-loaded awards.

ASU 2023-03 was effective upon issuance.

The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

In November 2023, the FASB issued Accounting Standards Update 2023-07 “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures”.

The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

The Company will adopt the update in the first quarter of 2024 but does not expect there to be a material effect on our consolidated financial statements.

Acquisition of Data Solutions Holdings Limited

On October 6, 2023, the Company entered into a Share Purchase Agreement and purchased the entire share capital of Data Solutions Holdings Limited (“Data Solutions”) for an aggregate purchase price of approximately € 15.0 million (equivalent to $ 15.9 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 on the estimated fair value of Data Solutions’ 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 financial position and operating results of Data Solutions is included in the Company’s consolidated financial statements from the date of the acquisition.

The Company recorded net revenue for Data Solutions of approximately $ 14.3 million and net income of approximately $ 0.8 million during the year ended December 31, 2023.

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;

Due to the timing of the closing of the transaction in the fourth quarter of 2023, 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)

Trade accounts receivable

Accounts receivable

Other current assets

Equipment and leasehold improvements

Vendor relationships ( 10 -year weighted average useful life)

Accounts payable and other current liabilities

Deferred income tax liabilities

Deferred tax liability

(in thousands)

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Goodwill recognized as a result of the acquisition is not deductible for income tax purposes.

The Company used the income approach to value the intangible assets, representing acquired vendor relationships.

The fair value measurements were primarily based on significant inputs that are not observable, which are categorized as a Level 3 measurement in the fair value hierarchy (See Note 14 – Fair Value Measurements).

Inputs used to value these intangible assets include the discount rate, projection of all future cash flows, long-term growth rates, vendor attrition rates and applicable income tax rates.

The excess purchase price recorded to goodwill primarily represents the future economic benefits the Company expects to achieve as a result of combining operations and expanding vendor relationships.

The purchase consideration includes approximately $ 2.2 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.

The earn-out liability is included in current liabilities as of December 31, 2023.

There were no material changes in fair value since the acquisition date.

The fair value earn-out measurement was primarily based on inputs that are not observable, which are categorized as a Level 3 measurement in the fair value hierarchy (See Note 14 – Fair Value Measurements), reflecting its assessment of the assumptions market participants

would use to value these liabilities.

The undiscounted payment of the earn-out can range from zero up to approximately $ 3.9 million and achievement is based on the post-acquisition results of Data Solutions.

In connection with the acquisition of Data Solutions on October 6, 2023, the Company acquired an invoice discounting facility (“IDF”) that is with recourse to the Company (See Note 8 – Credit Facilities).

The balance outstanding under the IDF at December 31, 2023 was $ 4.3 million, which is included in accounts payable and accrued expenses on the Consolidated Balance Sheets.

Acquisition related costs remained consistent at approximately $ 0.6 million for the years ended December 31, 2023 and 2022, respectively, which is reflected in the accompanying consolidated statements of earnings.

The costs incurred during the year ended December 31, 2023 related to the aforementioned Data Solutions acquisition, while the costs incurred during the prior period ended December 31, 2022 related to the Spinnakar Limited acquisition.

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

The following table summarizes the changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2023 and 2022.

Balance January 1, 2022

Goodwill acquired

Translation adjustments

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Translation adjustments

Balance at December 31, 2022

Balance December 31, 2023

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

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Less accumulated depreciation and amortization

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.

Depreciation expense relating to equipment, leasehold improvements and buildings, net was $ 0.6 million and $ 0.4 million during the years ended December 31, 2023 and 2022, respectively.

Amortization expense relating to capitalized software was $ 0.1 million and $ 0.4 million during the years ended December 31, 2023 and 2022.

Accounts receivable – long term, net consist of the following:

Total amount due from customers

Total amount due from customer

unamortized discount

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Accrued expenses

Other accounts payable and accrued expenses

Accumulated other comprehensive loss consists of the following:

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Deferred tax liabilities:

Accruals and reserves

Depreciation and amortization

Total deferred tax liabilities

Net deferred tax liabilities

Net deferred tax (liabilities) asset

The provision for income taxes is as follows:

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Statutory rate applied to pretax income

State income taxes, net of federal income tax benefit

Other permanent items

Foreign income taxes over U.S.

statutory rate

Adjustment for foreign rate change

State income taxes, net of federal income tax benefit

Acquisition related costs

GILTI, net of foreign tax credits

Foreign income taxes (under) over U.S.

statutory rate

Stock compensation

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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.

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, 2023, the Company’s 2020 through 2022 Federal tax returns remain open for examination.

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United States

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:

Balance as of January 1

Additions related to prior period tax positions

Reductions related to settlements with tax authorities

Balance as of December 31

The Company has approximately $ 9.2 million of undistributed earnings in Canada and $ 5.3 million of undistributed earnings in the United Kingdom and $ 0.9 million of undistributed earnings in Ireland, 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, 2023 and December 31, 2022.

During the years ended December 31, 2023 and 2022, the Company incurred interest and penalties of zero , respectively, related to these uncertain tax benefits.

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,

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.

Credit Facilities

On May 18, 2023, the Company entered into a revolving credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A.

(“JPM”), providing for a revolving credit facility of up to $ 50.0 million subject to a borrowing base, including the issuance of letters of credit and swingline loans not to exceed $ 2.5 million and $ 5.0 million, respectively, at any time outstanding.

In addition, subject to certain conditions enumerated in the Credit Agreement, the Company has the right to increase the revolving credit facility by a total amount not to exceed $ 20.0 million.

The proceeds of the revolving loans, letters of credit and swingline loans under the Credit Agreement may be used for working capital needs, general corporate purposes and for acquisitions permitted by the terms of the Credit Agreement.

All outstanding loans issued pursuant to the Credit Agreement become due and payable on May 18, 2028.

There were no amounts outstanding under the Credit Agreement as of December 31, 2023.

Outstanding Loans comprising (i) ABR Borrowings bear interest at the ABR plus the Applicable Rate, (ii) Term Benchmark Borrowings bear interest at the Adjusted Term SOFR Rate or the Adjusted EURIBOR Rate, as applicable, plus the Applicable Rate and (iii) RFR Loans bear interest at a rate per annum equal to the applicable Adjusted Daily Simple RFR plus the Applicable Rate.

The Applicable Rate for borrowings varies (i) in the case of ABR Borrowings, from 0.50 % to 0.75 % and (ii) in the case of Term Benchmark Borrowings and RFR Loans, from 1.50 % to 1.75 %.

The Credit Agreement contains customary affirmative covenants, such as financial statement and collateral reporting requirements.

The Credit Agreement also contains customary negative covenants that limit the ability of the Company to, among other things, incur indebtedness, create liens or permit encumbrances, or undergo certain fundamental changes.

Additionally, under certain circumstances, the Company is required to maintain a minimum fixed charge coverage ratio.

In connection with entering into the Credit Agreement, the Company voluntarily terminated its existing revolving credit agreement, dated November 15, 2017 with Citibank N.A.

(“Previous Credit Facility”).

As of December 31, 2023, the Company had no borrowings outstanding under the Previous Credit Facility.

On April 8, 2022, the Company entered into a $ 2.1 million term loan (the “Term Loan”) with First American Commercial Bancorp, Inc.

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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, 2023 and 2022, the Company had $ 1.3 million and $ 1.8 million outstanding under the Term Loan, respectively.

As of December 31, 2023, future principal payments under the Term Loan are as follows:

Year ended December 31,

In connection with the acquisition of Data Solutions (See Note 3 – Acquisition), the Company acquired an IDF that is with recourse to the Company.

Data Solutions had previously entered into the IDF with AIB Commercial Finance Limited (“AIB”) pursuant to a Debt Purchase Agreement.

The proceeds from the IDF will be used for working capital needs of Data Solutions.

Borrowings under the IDF are based on accounts receivable up to 80 % of the outstanding accounts receivable balance.

The discount rate under the IDF is equal to 2.5 % above AIB’s applicable lending rates that vary based on the currency of the accounts receivable.

The outstanding balance under the IDF at December 31, 2023 was $ 4.3 million, which is included in accounts payable and accrued expenses on the Consolidated Balance Sheets.

Stockholders’ Equity and Stock-Based Compensation

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During the year ended December 31, 2023, the Company granted a total of 132,526 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.

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

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.

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 officers and employees terminating employment with the Company.

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Matching contributions are made by the Company equal to 50 % of the employee’s contribution to the extent such employee contribution did not exceed 8 % of their compensation.

During the years ended December 31, 2022 and 2021, the Company expensed approximately $ 0.3 million, respectively, related to this plan.

During the years ended December 31, 2023 and 2022, the Company expensed approximately $ 0.5 million and $ 0.3 million, respectively, related to this plan.

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.

Severance Plan

The Board of Directors of the Company previously approved the Climb Global Solutions, Inc.

Executive Severance and Change in Control Plan (the “Severance Plan”), which supersedes and replaces all other severance arrangements between the Company and its executive officers, which previously had been governed by separate legacy employment agreements and offer letters.

The Severance Plan provides severance benefits upon a qualifying termination of employment (“Covered Termination”) of an executive officer.

The Severance Plan provides for three tiers of severance benefits in the event of a Covered Termination based on the executive’s seniority and position, including payment of 6 - 18 months of base salary, a pro rata payment of such executive’s bonus for the year in which the Covered Termination occurred, and a COBRA subsidy during the severance period.

In the event the Covered Termination in connection with a change of control, the Severance Plan provides for increased severance benefits, including payment of 18 - 24 months of base salary, payment of such executive’s target bonus for the year in which the Covered Termination occurred, double trigger vesting acceleration of equity awards, and a COBRA subsidy during the severance period.

As of December 31, 2023, the Company has no standby letters of credit, has no standby repurchase obligations or other commercial commitments.

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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.

During the year ended December 31, 2023 and 2022, net sales to this customer totaled $ 1.4 million and $ 1.8 million, respectively, and amounts due from this customer as of December 31, 2023 and 2022 totaled less than $ 0.1 million and $ 0.1 million, respectively.

Industry, Segment and Geographic Financial Information

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General and administrative

Amortization and depreciation expense

Acquisition related costs

Depreciation and amortization expense

Interest, net

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For the year ended December 31, 2023, the Company had two customers that accounted for 20 %, and 15 %, respectively, of consolidated net sales and as of December 31, 2023, 15 % and 6 %, 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, 2023, the Company had one vendor that accounted for 14 % of our consolidated purchases.

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, 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.

For the year ended December 31, 2022, the Company had one vendor that accounted for 17 % of our consolidated purchases.

Our top five customers accounted for 51 % of consolidated net sales for the years ended December 31, 2023 and 2022, respectively.

Fair Value Measurements

Fair value is defined under US GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

A fair value hierarchy has been established for valuation inputs to prioritize the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.

Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety.

These levels are:

Level 1 – observable inputs such as quoted prices for identical instruments traded in active markets.

Level 2 – inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.

The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of December 31, 2023 and 2022, respectively, are as follows:

As of December 31, 2023

Treasury bills

Contingent earn-out

Total liabilities

As of December 31, 2022

Treasury bills

Contingent earn-out

Total liabilities

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.

Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions based on the best information available.

The approach to estimating the contingent earn-out associated with the Company’s business combinations uses unobservable factors such as projected cash flows over the term of the contingent earn-out periods.

The Company’s investment in treasury bills are measured at fair value on a recurring basis based on quoted market prices in active markets and are classified as level 1 within the fair value hierarchy.

The Company’s contingent earn-out liability is measured at fair value on a recurring basis and is classified as level 3 within the fair value hierarchy.

During the fourth quarter of each year, the Company evaluates goodwill for impairment at the reporting unit level.

The Company uses qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a goodwill impairment test.

This measurement is classified based on level 3 input.

The following table presents the changes in the Company’s level 3 financial instruments measured at fair value on a recurring basis:

Balance January 1, 2022

Spinnakar acquisition - contingent earn-out

Translation adjustments

Balance December 31, 2022

Data Solutions acquisition - contingent earn-out

Translation adjustments

Balance December 31, 2023

There were no material changes in fair value since the respective acquisition dates associated with the contingent earn-outs.

Climb Global Solutions, Inc.

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Year ended December 31, 2023

Allowance for doubtful accounts

Allowance for expected credit losses (1)

(1) Previously referred to as Allowance for doubtful accounts.

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

What changed 10-K

Item 9A. Controls and Procedures